2025 (1) TMI 1504 - HC - Income Tax

Reassessment notices issued to a non-existent merged entity are void for substantive illegality and cannot be sustained

City Corporation Limited Versus Assistant Commissioner Of Income Tax Circle 1 (1), Pune, Principal Chief Commissioner Of Income Tax, Pune Union Of India.

HC held that reassessment notices issued to a non-existent entity after a merger are void for substantive illegality, not merely procedural defects. The ... Reassessment notice against non-existent entity post-merger - HELD THAT:- We cannot condone the fundamental error in issuing the impugned notices against a non-existing company despite full knowledge of the merger. The impugned notices, which are non-est cannot be treated as “good” as urged on behalf of the Respondents. In Maruti Suzuki [2019 (7) TMI 1449 - SUPREME COURT] has held that issuing notice in the name of a non-existing company is a substantive illegality and not a mere procedural violation of the nature adverted to in Section 292B of the IT Act. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issue considered was whether the issuance of notices under Section 148 of the Income Tax Act, 1961, to a non-existent entity post-merger constituted a substantive illegality. The court also examined whether such notices could be validated by procedural provisions like Section 292B of the IT Act, which allows for the correction of procedural errors.ISSUE-WISE DETAILED ANALYSIS1. Issuance of Notices to a Non-Existent Entity:The core legal framework involved Section 148 of the Income Tax Act, which pertains to the reassessment of income. The court's interpretation relied on precedents such as Maruti Suzuki India Ltd., where the Supreme Court held that issuing a notice to a non-existent company is a substantive illegality. The court found that the merger of City Corporation Limited (CCL) with Amanora Future Towers Private Limited (AFTPL) was effective from April 1, 2018, and was duly communicated to the Income Tax Department by August 27, 2020. Despite this, the impugned notices dated March 31, 2023, were issued in the name of AFTPL, a non-existent entity post-merger.The court emphasized that under Section 2(31) of the IT Act, a noticee must be a 'person,' which AFTPL was not, as it had ceased to exist. The court rejected the respondents' argument that the issuance of notices was a mere procedural error due to a technical glitch, noting that the error was substantive and could not be rectified under Section 292B.2. Treatment of Competing Arguments:The respondents argued that the notices were issued in the name of AFTPL due to technical glitches and that the Principal Commissioner of Income Tax had approved the notices. They relied on the Skylight Hospitality LLP case, where a notice issued to a merged entity was upheld due to peculiar facts. However, the court distinguished the present case from Skylight Hospitality LLP, noting that in Maruti Suzuki, the Supreme Court had clarified that issuing notices to a non-existent entity is a substantive illegality, irrespective of procedural errors or technical glitches.The court also referred to other judgments, such as Uber India Systems and Alok Knit Exports Ltd., which reinforced the principle that notices issued to non-existent entities post-merger are invalid.3. Conclusions:The court concluded that the impugned notices were invalid as they were issued to a non-existent entity. The court underscored that such a fundamental error could not be condoned as a mere technical glitch. The court quashed the notices, emphasizing that the respondents were aware of the merger and the non-existence of AFTPL.SIGNIFICANT HOLDINGSThe court held that issuing notices under Section 148 to a non-existent entity post-merger is a substantive illegality, not a procedural error. The court stated, 'In Maruti Suzuki, the Hon'ble Supreme Court has held that issuing notice in the name of a non-existent company is a substantive illegality and not a mere procedural violation of the nature adverted to in Section 292B of the IT Act.'The court also clarified that its decision does not preclude the respondents from issuing fresh notices to CCL for reassessment, provided the law permits and circumstances justify such action.In conclusion, the court made the rule absolute in these petitions, quashing the impugned notices without any order as to costs, and allowed for possible future actions in compliance with the law. The decision reaffirmed the principle that jurisdictional errors involving non-existent entities cannot be salvaged by procedural provisions.