2026 (3) TMI 689 - AT - Income Tax

Succession to Business: notice issued to a dissolved predecessor is invalid; reassessment must target the successor.

A reassessment notice and order issued in the name of a predecessor company that had ceased to exist on its conversion into a limited liability ... Validity of notice u/s 148 issued to a non existent company - effect of conversion of a company into an LLP u/s 58(4)(c) of the LLP Act - assessment on successor u/s 170 where predecessor cannot be found - HELD THAT: - The Tribunal accepted the unchallenged finding of the Ld. CIT(A) that the erstwhile company ceased to exist on conversion into an LLP with effect from the date specified in the certificate of registration and, in law, is deemed dissolved or removed from the records of the Registrar. Applying that legal position and authorities including the decision of the Supreme Court in Pr. CIT v. Maruti Suzuki India Ltd. [2019 (7) TMI 1449 - SUPREME COURT] and the Tribunal precedents relied upon by the CIT(A), the Tribunal held that a notice under section 148 addressed to an entity which has ceased to exist is not a valid statutory notice and consequent reassessment proceedings are bad in law. The Tribunal further noted that, where the predecessor cannot be found, section 170 permits assessment in the hands of the successor, but as the revenue did not challenge the CIT(A)'s finding on issuance of notice to a non existent entity, the reassessment framed in the name of the dissolved company had to be quashed. [Paras 10, 11, 12, 13, 14] Final Conclusion: The Tribunal dismissed the revenue's appeal by quashing the reassessment proceedings initiated by a notice addressed to the company that had ceased to exist upon conversion into an LLP; consequential or alternate submissions were not decided as the reassessment was held to be void ab initio. Issues: Whether a reassessment initiated and a notice under Section 148 issued in the name of an erstwhile company that had ceased to exist on conversion into an LLP is valid, and whether the reassessment order passed in the name of the non-existent company is liable to be quashed.Analysis: Applicable law includes provisions on reopening and reassessment under Section 148 and Section 147 and succession to business under Section 170 of the Income-tax Act, 1961; Section 292B as to procedural irregularities; and statutory effect of conversion under Section 58(4)(c) of the Limited Liability Partnership Act. Authorities of coordinate benches and higher courts establish that where a predecessor entity ceases to exist before assessment is made, the assessment in the name of that non-existent entity is invalid unless the successor is assessed under section 170(2). Prior findings of the appellate authority that the notice was issued in the name of a non-existent entity were not challenged by the revenue before the Tribunal. The record shows the company had been converted into an LLP with effect from 16.10.2017 and therefore ceased to exist for purposes of assessment when the notice dated 30.03.2019 was issued; established precedent and statutory succession principles require assessment to be made on the successor where the predecessor cannot be found.Conclusion: The notice issued under Section 148 in the name of the non-existent erstwhile company is invalid and the consequent reassessment order is quashed; the revenue appeal is dismissed in favour of the assessee.