2023 (3) TMI 723 - HC - Income Tax

Validity of Assessment u/s 144B - scheme of arrangement sanctioned by NCLT approved - notice in the name of company non existing - whether the assessment order in the name of a non-existing entity was a substantive illegality and answered in affirmation? - HELD THAT - The show cause notice-cum-draft assessment order when was issued in the name of the non-existing company giving a very short period for the company to reply, the very objection was raised by the amalgamated company pointing out that the assessment was in the name of the non-existing company. Repeated objections on the part of the petitioner had fallen on deaf ears and no heed was paid to various correspondences addressed to the respondent department. It is not being disputed that the order of NCLT and all the requisite documents were furnished to the authority by the amalgamated company and it had virtually implored to discontinue the proceedings against the nonexisting company. When the proceedings continued against the non-existing company, if fort was held for some time by the amalgamated company to ensure that no further damage is caused, this participation surely cannot be held against it. Moreover, amalgamated company, with all its obligations, would file return of income and also continue the process, but once assessment order is passed against non-existing company, there would be no cure, even for filing of the appeal. Once it is found that the assessment is framed, in the instant case, in the name of the non-existing company, as held hereinabove, that surely does not remain the procedural irregularity, which can be cured under the provision of section 292B of the Act. The assessment framed in the name of the existing company requires to be quashed. This Court has chosen to invoke the jurisdiction under Article 226 of the Constitution of India although the plea of alternative remedy of an appeal, is much emphasized upon by the respondent. There is a non-existing company and the amalgamated company is a separate legal entity, these arguments cannot be endorsed by the Court and, moreover, despite being aware of the settled position of the law, when all facts in the instant case can be equated with those existing in the case of Maruti Suzuki India Ltd 2019 (7) TMI 1449 - SUPREME COURT and when the respondent authorities have chosen to ignore them despite reiterative requests on the part of the petitioner, the same would warrant interference at the hands of the Court.

Issues Involved:
1. Validity of assessment proceedings against a non-existent entity post-amalgamation.
2. Applicability of Section 292B of the Income Tax Act to procedural defects.
3. Impact of prior intimation of amalgamation on assessment proceedings.
4. Jurisdictional errors in issuing notices and assessment orders.
5. Legal consequences of participation by the amalgamated entity in assessment proceedings.

Detailed Analysis:

1. Validity of Assessment Proceedings Against a Non-Existent Entity Post-Amalgamation:
The petitioner challenged the assessment order passed by the respondent under Section 143(3) read with Section 144B of the Income Tax Act, 1961, assessing the income in the name of Inox Renewables Limited for the Assessment Year 2018-2019. The petitioner contended that Inox Renewables Limited ceased to exist from 01.04.2020 due to a composite scheme of arrangement approved by the National Company Law Tribunal (NCLT), and all its businesses, certificates, licenses, and approvals got transferred to GFL Limited. Despite this, the respondent continued the assessment proceedings against the non-existent Inox Renewables Limited, which the petitioner argued was unlawful and invalid.

2. Applicability of Section 292B of the Income Tax Act to Procedural Defects:
The respondent argued that the assessment order, even if issued in the name of a non-existent entity, was a procedural defect curable under Section 292B of the Act. However, the court referred to the Supreme Court's decision in Maruti Suzuki India Ltd., which held that the assessment order passed in the name of a non-existent entity is a substantive illegality and not a mere procedural defect. The court emphasized that such defects cannot be cured under Section 292B.

3. Impact of Prior Intimation of Amalgamation on Assessment Proceedings:
The petitioner had informed the Jurisdictional Assessing Officer about the scheme of arrangement and the merger of Inox Renewables Limited into GFL Limited through multiple communications, including an email on 10.03.2021. Despite these intimations, the respondent continued to issue notices and framed the assessment in the name of the non-existent Inox Renewables Limited. The court noted that the respondent's failure to substitute the name of the amalgamated company and continued proceedings against the non-existent entity was a fundamental error.

4. Jurisdictional Errors in Issuing Notices and Assessment Orders:
The court extensively reviewed the legal precedents, including the cases of Khurana Engineering Ltd. and Maruti Suzuki India Ltd., which established that assessment orders issued in the name of non-existent entities are void ab initio. The court reiterated that the jurisdiction to assess and the validity of the assessment proceedings are fundamentally affected when notices are issued to non-existent entities, rendering the entire proceedings null and void.

5. Legal Consequences of Participation by the Amalgamated Entity in Assessment Proceedings:
The respondent argued that the participation of the amalgamated entity in the assessment proceedings should validate the assessment order. However, the court held that mere participation does not cure the jurisdictional defect of issuing notices and passing orders in the name of a non-existent entity. The court emphasized that there is no estoppel against law, and participation by the amalgamated entity cannot validate an otherwise void assessment order.

Conclusion:
The court quashed the impugned assessment order dated 29.09.2021, the demand notice, and the penalty notice, all issued in the name of the non-existent Inox Renewables Limited. The court held that the assessment framed in the name of a non-existent entity is invalid and cannot be cured under Section 292B of the Income Tax Act. The court also allowed the authorities to initiate actions against the amalgamated company, if permissible under the law.

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