Reassessment proceedings against non-existent entities following amalgamation are invalid under Section 292B

Delhi HC held that reassessment proceedings against non-existent entities following amalgamation are invalid. The court ruled that notices and orders issued in the name of dissolved companies after merger are nullities that cannot be validated under Section 292B. Following Maruti Suzuki precedent, proceedings against entities that ceased to exist by operation of law after approved amalgamation schemes are fundamentally flawed. However, notices bearing incorrect PAN details but issued to existing resultant entities were deemed valid. The court emphasized that assessees must properly notify tax authorities of approved amalgamation schemes to avoid procedural complications.

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Issues Involved:

1. Validity of assessment and reassessment orders issued to non-existent entities due to amalgamation.
2. Applicability of Section 292B of the Income Tax Act, 1961.
3. Impact of Supreme Court decisions in Maruti Suzuki and Mahagun Realtors on the current cases.
4. Obligations of the amalgamated entity to inform the tax authorities.
5. Consequences of issuing notices to non-existent entities.

Issue-wise Detailed Analysis:

1. Validity of Assessment and Reassessment Orders:

The writ petitions and connected Income Tax Appeal impugn orders of assessment and reassessment initiated by the respondents on the ground that notices were not served upon the amalgamated entity. The petitioners argue that despite informing the respondents about the amalgamation, notices and orders were issued in the name of the amalgamating entity, rendering them null and void. This argument is supported by the Supreme Court's decision in Principal Commissioner of Income Tax, New Delhi vs. Maruti Suzuki (India) Limited, where it was held that assessment orders issued to a non-existent entity due to amalgamation are invalid.

2. Applicability of Section 292B of the Income Tax Act, 1961:

The respondents contend that the failure to notify the amalgamated entity is curable under Section 292B of the Act, which deals with procedural defects. However, the Supreme Court in Maruti Suzuki held that issuing a notice to a non-existent entity is a substantive illegality and not a procedural defect that can be cured under Section 292B. This was further supported by earlier decisions in Spice Entertainment Ltd. and other cases, which held that assessments made in the name of a dissolved or non-existent entity are void and cannot be cured by Section 292B.

3. Impact of Supreme Court Decisions in Maruti Suzuki and Mahagun Realtors:

The respondents also rely on the Supreme Court's decision in Principal Commissioner of Income Tax (Central)-2 vs. Mahagun Realtors (P) Ltd., arguing that the mistake of issuing notices to a non-existent entity is curable. However, the court in Maruti Suzuki clarified that the decision in Mahagun Realtors was based on its peculiar facts, where the amalgamated entity had failed to inform the tax authorities about the amalgamation in a timely manner. In contrast, in the present cases, the petitioners had duly informed the authorities about the amalgamation, making Maruti Suzuki applicable.

4. Obligations of the Amalgamated Entity to Inform the Tax Authorities:

The court noted that the petitioners had provided timely information regarding the amalgamation to the tax authorities. For instance, in the case of Religare Securities Ltd., the factum of merger was intimated to the Assessing Officer on 29 December 2017, and merged financial statements were submitted along with a revised Return of Income on 29 March 2019. The court emphasized that once the amalgamation is approved by the National Company Law Tribunal or the High Court, the amalgamating entity ceases to exist, and any notices issued in its name are invalid.

5. Consequences of Issuing Notices to Non-Existent Entities:

The court held that proceedings initiated against a non-existent entity are a nullity and cannot be validated by Section 292B of the Act. The court quashed the notices and orders issued in the name of the amalgamating entities, emphasizing that the respondents must bear the consequences of ignoring the fundamental changes due to amalgamation. The court also dismissed the respondents' arguments based on Sections 159 and 170 of the Act, stating that these provisions do not apply to cases where an entity ceases to exist due to amalgamation.

Separate Judgment:

The court allowed the appeal in ITA 116/2023 (International Hospital Ltd. Vs. DCIT Circle 12(2)), setting aside the order of the Tribunal dated 23 September 2022 and granting consequential relief to the appellant. The court found that the Assessing Officer had acknowledged the merger but still framed the order in the name of the non-existent entity, which could not be rectified under Section 292B.

Dismissal of Certain Writ Petitions:

The court dismissed W.P.(C) 5021/2022, W.P.(C) 5022/2022, and W.P.(C) 5118/2022, where the only mistake was the mentioning of a wrong PAN, not considered a fundamental flaw. The court also dismissed W.P.(C) 5475/2022 and W.P.(C) 4558/2023 due to the petitioners' failure to inform the tax authorities about the approved Scheme of Arrangement.

Operative Directions:

The court quashed the notices and orders listed in the table provided in the judgment, allowing the relevant writ petitions and granting relief to the petitioners. The court emphasized that the respondents must adhere to the legal principles established in Maruti Suzuki and cannot issue notices to non-existent entities.

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