2025 (2) TMI 655 - HC - Income Tax

Assessment order against non-existent merged company cannot be rectified under Section 292B after three years

Delhi HC ruled in favor of the assessee regarding assessment reopening under Section 147 against a non-existent company. The court held that despite the ... Reopening of assessment u/s 147 against non existent company -assessment in name of a company that has ceased to exist due to a merger - HELD THAT:- As relying on Maruti Suzuki (India) Limited [2019 (7) TMI 1449 - SUPREME COURT] and Mahagun Realtors (P) Ltd. [2022 (4) TMI 347 - SUPREME COURT] factum of merger had been duly brought to the attention of the AO. The merger was taken into consideration at more than one place in the order of assessment that came to be framed. Despite the above, the AO proceeded to draw the order in the name of an entity which had ceased to exist. We also bear in consideration the indubitable fact that the rectification order came to be passed three years after the framing of the original order of assessment, and that too, during the pendency of the appeal of the assessee and where a specific ground of challenge was raised in this regard. This was therefore not a case of discovery of an inadvertent error or mistake immediately after the passing of an order. We also bear in consideration Maruti Suzuki having clearly held that such a mistake would not fall within the ken of Section 292B of the Act. An exercise of rectification as undertaken in the present case, if accorded a judicial imprimatur, would in effect amount to recognising a power to amend, modify or correct in an attempt to overcome a fundamental and jurisdictional error contrary to the principles enunciated in Maruti Suzuki. We also cannot lose sight of the fact that this was not a case where the assessee had attempted to mislead or suppress material facts and which may have warranted the case of the assessee being placed in the genre which was considered in Mahagun Realtors. The mere submission of replies on the letter head of EHSSIL also fails to convince us to hold in favour of the Revenue. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment is whether the issuance of a reassessment notice under Section 148 of the Income Tax Act, 1961, in the name of a company that has ceased to exist due to a merger, is valid. The Court examined the implications of issuing such notices in light of previous legal precedents and the applicability of Section 292B of the Income Tax Act, which addresses procedural errors.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and Precedents:The case revolves around the interpretation of Sections 148, 148A, and 292B of the Income Tax Act, 1961. The Court referred to several precedents, including International Hospitals Limited vs. DCIT, Maruti Suzuki (India) Limited, and Mahagun Realtors (P) Ltd., to determine the validity of notices issued to non-existent entities.Court's Interpretation and Reasoning:The Court emphasized that once a company is dissolved due to a merger, it ceases to exist in the eyes of the law. Consequently, any notice issued in its name is a nullity. The Court reiterated the principle established in Maruti Suzuki that the jurisdictional notice must be issued to the correct legal entity. The Court rejected the argument that such errors could be cured under Section 292B, which only addresses procedural defects and not substantive jurisdictional errors.Key Evidence and Findings:The petitioner highlighted that the merger of Indo Crediop Private Limited with Moonlight Equity Private Limited was sanctioned by the National Company Law Tribunal, and this fact was communicated to the tax authorities. Despite this disclosure, the authorities issued reassessment notices in the name of the dissolved entity, Indo Crediop.Application of Law to Facts:The Court applied the legal principles from the Maruti Suzuki case, which held that proceedings against a non-existent company are void. The Court found that the issuance of notices in the name of Indo Crediop, which had ceased to exist, rendered the proceedings invalid. The Court also distinguished this case from Mahagun Realtors, where the conduct of the assessee played a significant role in the Court's decision.Treatment of Competing Arguments:The respondents argued that the mistake in addressing the notice could be rectified under Section 292B. However, the Court rejected this argument, citing Maruti Suzuki, which clarified that issuing a notice to a non-existent entity is a substantive error that cannot be cured by Section 292B. The Court also noted that the petitioner had fully disclosed the merger, distinguishing this case from Mahagun Realtors, where the assessee had failed to disclose material facts.Conclusions:The Court concluded that the reassessment notice issued in the name of a dissolved entity was invalid and could not be sustained. The Court quashed the notice and the final order under Section 148A(d).SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:'The position in law appears to be well-settled that a notice or proceedings drawn against a dissolved company or one which no longer exists in law would invalidate proceedings beyond repair. Maruti Suzuki conclusively answers this aspect and leaves us in no doubt that the initiation or continuance of proceedings after a company has merged pursuant to a Scheme of Arrangement and ultimately comes to be dissolved, would not sustain.'Core Principles Established:The judgment reinforces the principle that tax notices and proceedings must be addressed to the correct legal entity. A notice issued to a non-existent entity due to a merger is void and cannot be rectified under Section 292B. The Court emphasized the importance of recognizing the legal status of entities post-merger.Final Determinations on Each Issue:The Court determined that the reassessment notice issued under Section 148 in the name of Indo Crediop was invalid due to the company's dissolution following a merger. The Court quashed the notice and the related proceedings, upholding the legal principle that notices must be addressed to the correct legal entity.