2022 (5) TMI 178 - HC - Income Tax

Validity of reopening u/s 147 - notice issued to non existing entity - HELD THAT - In Principal Commissioner of Income Tax Vs. Maruti Suzuki India Ltd. 2019 (7) TMI 1449 - SUPREME COURT the Apex Court held that the basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation and notice issued to non existing company, is not curable defect under Section 292-B of the Act. Notice under which jurisdiction was assumed by the Assessing Officer was issued to the non existing company which amounts to substantive illegality and not a procedural violation of the nature adverted to in Section 292-B. The Court held that such a notice can not be stated to be valid. This view of the Apex Court was also followed by this Court in Alok Knit Exports Ltd. 2021 (8) TMI 777 - BOMBAY HIGH COURT where the Court held that notice issued to non existing entity is not valid. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961 issued to a non-existing entity.
2. Legal implications of a company's merger and dissolution on the validity of tax notices.
3. Jurisdictional issues arising from notice issuance to a non-existing entity.

Analysis:

Issue 1: The petitioner challenged the validity of a notice issued under Section 148 of the Income Tax Act, 1961 to a company that had ceased to exist. The petitioner contended that the notice issued to the non-existing entity was not valid as the company had merged with another entity and was dissolved without winding up. The petitioner argued that the notice was based on incorrect information and should be quashed.

Issue 2: The Court examined the legal implications of a company's merger and dissolution on the validity of tax notices. Referring to the case law, the Court emphasized that upon the approved scheme of amalgamation, the amalgamating entity ceases to exist. The Court held that issuing a notice to a non-existing company amounts to a substantive illegality and not a procedural violation. The Court reiterated that such a notice cannot be considered valid under the law.

Issue 3: The Court addressed the jurisdictional issues arising from the notice issuance to a non-existing entity. Despite the petitioner's objections and clarification regarding the merger, the Assessing Officer proceeded with the notice. The Court highlighted that the entire basis for reopening the assessment lies in the issuance of the notice under Section 148 of the Act. The Court emphasized that the notice issued to a non-existing entity is a fundamental flaw that cannot be cured under the law.

In conclusion, the Court allowed the petition and quashed the notice issued to the petitioner, emphasizing that the notice to a non-existing entity was invalid. The Court's decision was based on legal principles established by previous judgments, highlighting the importance of jurisdictional correctness in tax matters.