2025 (12) TMI 1115 - HC - Income Tax

Draft tax assessment issued to amalgamated, non-existent company for AY 2022-23 u/s144C(1) set aside

Assessment proceedings were initiated and a draft assessment order under s.144C(1) for AY 2022-23 was issued in the name of an entity that had ceased to ... Assessment proceedings initiated against the company which has been amalgamated - Succession to business otherwise than on death - substantive illegality OR procedural violation of the nature adverted to in Section 292B. HELD THAT:- H'onable Supreme Court in the case of Maruti Suzuki India Ltd. [2019 (7) TMI 1449 - SUPREME COURT] has clearly held that the assessment proceedings could not have been initiated against the company which has been amalgamated. Draft assessment order issued u/s 144C(1) for the Assessment Year (AY) 2022-23 in the name of company amalgamated with effect from 01.04.2021 is set aside. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether a draft assessment order issued under Section 144C(1) of the Income-tax Act, 1961, in the name of an amalgamating company which had ceased to exist on account of amalgamation, is void ab initio. 1.2 Consequentially, whether the Revenue may initiate assessment proceedings against the amalgamated (successor) company, subject to law. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of draft assessment order issued in the name of a non-existent amalgamating company Legal framework (as discussed): 2.1 The Court referred to Section 144C(1) of the Income-tax Act, 1961 governing draft assessment orders, read with the principles laid down by the Supreme Court in the context of Section 143(2), Section 170 (succession to business otherwise than on death), and Section 292B. 2.2 The Court extracted and relied upon the decision of the Supreme Court in Principal Commissioner of Income Tax v. Maruti Suzuki India Ltd., wherein it was held that (i) a notice under Section 143(2) issued to a non-existent amalgamating company and an assessment order passed against such a company constitute a 'substantive illegality' not curable under Section 292B; (ii) upon amalgamation, the amalgamating entity ceases to exist; (iii) jurisdictional notices must be correctly issued in the name of the successor entity; and (iv) participation in the proceedings by the successor cannot operate as an estoppel against law. Interpretation and reasoning: 2.3 It was undisputed before the Court that the concerned company, in whose name the impugned draft assessment order was issued, had amalgamated with another company with effect from 01.04.2021 and had ceased to exist thereafter. 2.4 The draft assessment order dated 05.03.2025 for AY 2022-23 was issued under Section 144C(1) in the name of the amalgamating company and on its PAN, despite the amalgamation having taken effect much earlier. 2.5 The Court applied the ratio of Maruti Suzuki India Ltd., holding that assessment proceedings cannot be initiated or continued against a non-existent amalgamating company, and that such initiation/continuation is a substantive illegality and not a curable procedural defect. 2.6 The Court also noted that counsel for the Revenue was unable to show anything contrary to the position of law relied upon by the petitioner. Conclusions: 2.7 The draft assessment order dated 05.03.2025 issued under Section 144C(1) for AY 2022-23 in the name of the amalgamating company, which had stood amalgamated with effect from 01.04.2021, is invalid and is set aside as void ab initio. Issue 2: Liberty to initiate proceedings against the amalgamated (successor) company Interpretation and reasoning: 2.8 Having set aside the draft assessment order on the ground that it was issued in the name of a non-existent entity, the Court considered the appropriate consequential order regarding assessment of the successor company. Conclusions: 2.9 The Court granted liberty to the Revenue to initiate proceedings against the amalgamated company, M/s SMS India Pvt. Ltd., if permissible in law.