2024 (11) TMI 695 - HC - Income Tax

Reopening notices under section 148 quashed against non-existing companies after amalgamation due to lack of jurisdiction

Olympic Decor LLP (Earlier Known As M/s. Olympic Laminates Pvt. Ltd.) Versus Deputy Commissioner of Income Tax, Circle Gandhinagar

Gujarat HC quashed reopening notices issued under section 148 against non-existing companies post-amalgamation. The court held that since assessment ... Reopening of assessment against non-existing companies/companies post-amalgamation - HELD THAT:- In view of the above dictum of law and considering the facts of the present case, more particularly, when the Assessment Order is already passed in the case of the petitioners for the year under consideration in the name of the asseseees, the Department was in knowledge of the amalgamation which had taken place in each case. Therefore, the impugned notices are not tenable as the same would be without jurisdiction as having been issued against the non-existing companies. The petitions succeed and are accordingly allowed. The impugned notices issued u/s 148 of the Act are hereby quashed and set aside - Decided in favour of assessee. Issues Involved:1. Validity of issuance of notices under Section 148 of the Income Tax Act, 1961 to non-existing companies post-amalgamation.2. Jurisdictional challenge to reassessment notices issued to entities that have ceased to exist due to amalgamation.3. Legal implications of participation in reassessment proceedings by the successor entity.4. Applicability of Section 292B of the Income Tax Act concerning procedural defects in notices.5. Consideration of legal precedents regarding notices issued to dissolved or amalgamated entities.Issue-wise Detailed Analysis:1. Validity of Issuance of Notices to Non-Existing Companies:The primary issue in the petitions was the challenge against the issuance of notices under Section 148 of the Income Tax Act, 1961, to entities that had ceased to exist due to amalgamation. The petitioners argued that such notices were issued without jurisdiction and should be quashed. The court found that the impugned show-cause notices were issued after the amalgamation had taken effect, as evidenced by the orders of the High Court and the National Company Law Tribunal (NCLT). The legal position, as established by the Supreme Court in cases like Maruti Suzuki India Limited, supports the view that notices issued to non-existing entities post-amalgamation are without jurisdiction and invalid.2. Jurisdictional Challenge to Reassessment Notices:The petitioners contended that reassessment notices issued to non-existing companies are void ab initio. The court referenced the Supreme Court's ruling in Maruti Suzuki India Limited, which emphasized that an amalgamating entity ceases to exist upon the approval of an amalgamation scheme, and any jurisdictional notice issued thereafter in its name is fundamentally flawed. The court held that the issuance of notices to the amalgamated entities was without jurisdiction, as the entities no longer existed.3. Legal Implications of Participation in Reassessment Proceedings:The respondent argued that since the petitioner in one of the cases had participated in the reassessment proceedings by filing a return of income, they could not later contest the validity of the notice. However, the court noted that participation in proceedings does not estop the petitioner from challenging the jurisdictional validity of the notice. The Supreme Court in Maruti Suzuki India Limited clarified that participation does not rectify the fundamental jurisdictional defect of issuing a notice to a non-existent entity.4. Applicability of Section 292B of the Income Tax Act:The respondent relied on Section 292B, which allows for the correction of procedural defects in notices. However, the court distinguished between procedural errors and substantive illegality. It was held that issuing a notice to a non-existent company is a substantive illegality, not a mere procedural defect, and thus cannot be cured under Section 292B. The Supreme Court's interpretation in Maruti Suzuki India Limited reinforced this distinction, emphasizing that the notice's validity is compromised when issued to an entity that has ceased to exist.5. Consideration of Legal Precedents:The court considered various legal precedents, including those from the Supreme Court and the High Court, which consistently held that notices issued to dissolved or amalgamated entities are invalid. The decisions in cases like Spice Enfotainment and Maruti Suzuki India Limited were pivotal in establishing that the jurisdictional basis for such notices is fundamentally flawed. The court concluded that the impugned notices were untenable as they were issued against non-existing companies.Conclusion:The court quashed the impugned notices issued under Section 148 of the Income Tax Act, holding them to be without jurisdiction due to their issuance against non-existing entities post-amalgamation. The petitions were allowed, and the rule was made absolute, with no orders as to costs.