ITAT rules notice under section 148 to non-existent entity after merger cannot be cured under section 292B

ITAT Mumbai held that a notice u/s 148 issued to a non-existent entity following a merger cannot be cured under s 292B. Following the Bombay HC decision in Uber India Systems case, the tribunal ruled that Revenue lacked legal basis and jurisdiction to issue notices to non-existing entities. Despite Revenue's argument that the defect was curable since the assessment order used the correct name, the tribunal found the notices illegal, invalid and non-est, deciding in favor of the assessee.

---

---

Issues Involved:

1. Validity of notice issued under section 148 of the Income Tax Act on a non-existent entity.
2. Applicability of section 292B to cure defects in the notice issued under section 148.
3. Consideration of precedents from higher courts regarding notices issued to non-existent entities.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:

The primary issue in this case was whether the notice issued under section 148 of the Income Tax Act to a non-existent entity was valid. The entity in question, M/s Modern Trading Business Pvt. Ltd., had merged with M/s Carron Investments Pvt. Ltd. as per the order of the National Company Law Tribunal (NCLT) dated 21.07.2017. Despite the merger and the subsequent intimation to the Income Tax Department on 21.03.2018, the notice under section 148 was issued on 31.03.2021 to the non-existent entity, M/s Modern Trading Business Pvt. Ltd. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessment completed on a non-existent entity is void ab initio, referencing the Supreme Court's decision in PCIT vs. Maruti Suzuki India Ltd., which established that jurisdictional notices issued to non-existent entities are fundamentally flawed. The CIT(A) quashed the assessment order on this basis.

2. Applicability of Section 292B:

The Revenue argued that the error in issuing the notice to a non-existent entity was curable under section 292B of the Income Tax Act, which allows for rectification of procedural defects. However, the Tribunal, following the decision in Maruti Suzuki India Ltd., emphasized that a notice under section 148 is foundational to the reassessment proceedings and must be validly issued. The Tribunal noted that the Supreme Court in Maruti Suzuki had clarified that such defects are not merely procedural and cannot be cured under section 292B. Therefore, the notice issued to a non-existent entity was not a curable defect, leading to the quashing of the reassessment proceedings.

3. Consideration of Precedents:

The Tribunal considered various judicial precedents, including the decision of the Delhi High Court in Skylight Hospitality LLP vs. ACIT and the Supreme Court's decision in Mahagun Realtors (P.) Ltd. The Revenue relied on these cases to argue that the defect was curable. However, the Tribunal distinguished these cases based on their facts. In Skylight Hospitality, the Supreme Court had dismissed the Special Leave Petition on the grounds of peculiar facts, noting that the error was clerical. In Mahagun Realtors, the Supreme Court found against the taxpayer due to the lack of intimation about the merger. In contrast, in the present case, the taxpayer had duly informed the department about the merger, and there was no suppression of facts. The Tribunal also referenced the Bombay High Court's decision in Uber India Systems Pvt. Ltd., which reinforced that notices issued to non-existent entities are illegal and void.

In conclusion, the Tribunal upheld the CIT(A)'s decision to quash the reassessment proceedings, emphasizing that the notice under section 148 was void ab initio as it was issued to a non-existent entity. The appeal by the Revenue was dismissed, and the order of the CIT(A) was affirmed.

---