2025 (4) TMI 291 - HC - Income Tax

Tax Notices Invalidated for Struck-Off Company: Legal Proceedings Halted Until Official Revival of Corporate Entity

Mr. R. Deepak (Former Director of M/s. Benzz Hospitality Services Private Limited) Versus Income Tax Officer, Corporate Ward 1 (1), Chennai

The HC ruled that tax notices issued to a struck-off company are invalid. The court quashed the assessment and demand notices, finding they were issued ... Reopening of assessment u/s 147 and Demand Notices against a company that was struck off from the Register of Companies - HELD THAT:- Respondent submitted that instantly, the Assessing Officer had also written a Letter to the Standing Counsel before the National Company Law Tribunal (NCLT) to revive the petitioner company, pursuant to which, a Company Petition has been filed before the National Company Law Tribunal (NCLT), Chennai for restoration of the petitioner company in the Register maintained by the Registrar of Companies, Chennai. As further submitted that the aforesaid Company Petition was heard on merits and has been reserved for orders. The above submission made by respondent has been fairly conceded by for the petitioner. The impugned Notices, Assessment Orders and Demand Notices passed by the respondent are quashed and the case is remanded back to the respondent to await the final order to be passed by the National Company Law Tribunal (NCLT), Chennai. ISSUES PRESENTED and CONSIDEREDThe primary legal issues considered in this judgment are: Whether the issuance of Notices under Section 148 of the Income Tax Act, 1961, and subsequent Assessment and Demand Notices against a company that was struck off from the Register of Companies is valid. Whether the Director of a struck-off company has the standing to challenge the tax proceedings initiated against the company. The applicability of legal precedents concerning the revival of a company for addressing pending tax matters.ISSUE-WISE DETAILED ANALYSIS1. Validity of Notices and Orders against a Struck-off CompanyRelevant Legal Framework and Precedents: The petitioner challenged the Notices and Orders based on the argument that the company was struck off the register, citing precedents from the Supreme Court, including Principal Commissioner of Income Tax, New Delhi Vs. Maruti Suzuki India Limited and Saraswathi Industrial Syndicate Ltd. Vs. Commissioner of Income Tax. These cases support the principle that actions against non-existent entities are void.Court's Interpretation and Reasoning: The Court considered whether the proceedings could continue against a company that was not operational at the time of issuance of the tax notices. The Court acknowledged the precedents cited by the petitioner, which suggest that tax proceedings cannot be sustained against a non-existent entity.Key Evidence and Findings: The petitioner provided evidence that the company was struck off as of 02.08.2019, before the issuance of the Notices on 25.03.2021. This fact was not contested by the respondent.Application of Law to Facts: The Court applied the legal principle that a struck-off company is non-existent and therefore cannot be subject to tax proceedings. The Court found that the Notices and Orders were issued against a non-existent entity, rendering them invalid.Treatment of Competing Arguments: The respondent argued that the Director should have taken steps to revive the company and cited Income Tax Officer Vs. Pandian Anbalagan, where it was held that the Director could revive the company to address pending tax issues. However, the Court found that the ongoing proceedings before the NCLT for revival were sufficient to address this concern.2. Standing of the Director to Challenge Tax ProceedingsRelevant Legal Framework and Precedents: The respondent argued that the Director should have revived the company and then challenged the tax proceedings, referencing Section 176(5) & (7) of the IT Act and the ruling in Pandian Anbalagan.Court's Interpretation and Reasoning: The Court noted that while the Director has certain responsibilities, the ongoing NCLT proceedings for revival were pertinent. The Court did not find it necessary for the Director to independently revive the company before challenging the tax notices.Key Evidence and Findings: The Court acknowledged the pending NCLT proceedings initiated by the respondent's efforts to revive the company, which was a critical factor in its decision.Application of Law to Facts: The Court applied the principle that while the Director has obligations, the revival process already underway was a valid step towards resolving the issue.Treatment of Competing Arguments: The Court weighed the respondent's insistence on the Director's duty to revive the company against the practical steps already taken towards revival, deciding in favor of awaiting the NCLT's decision.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Court held, 'Considering the above submissions, the impugned Notices dated 25.03.2021, Assessment Orders dated 29.03.2022 and Demand Notices dated 29.03.2022 passed by the respondent are quashed and the case is remanded back to the respondent to await the final order to be passed by the National Company Law Tribunal (NCLT), Chennai in C.P.No.162 of 2022.'Core Principles Established: The judgment reinforced the principle that tax proceedings cannot be maintained against a non-existent entity. It also underscored the importance of procedural steps, such as company revival, in addressing tax liabilities of struck-off companies.Final Determinations on Each Issue: The Court quashed the Notices and Orders issued against the petitioner company due to its non-existence at the time of issuance. The matter was remanded to await the outcome of the NCLT proceedings concerning the company's revival.