2023 (4) TMI 198 - HC - Income Tax

Validity of reopening of assessment - Notice issued to a non-existent assessee - merger of companies concluded - HELD THAT - As following the decision of the Supreme Court in Maruti Suzuki 2019 (7) TMI 1449 - SUPREME COURT we have no hesitation in holding that the impugned notice issued by the AO u/s 148 of the Act to a non-existent assessee would be legally untenable. Consequently the same is set aside and quashed. Decided in favour of assessee.

Summary

Issues:
The issues involved in the judgment are:
1. Challenge to the legality and validity of a notice issued under Section 148 of the Income Tax Act, 1961 post the introduction of Section 148A.
2. Issuance of notice to a non-existent assessee due to a merger with another entity.

Issue 1: Challenge to Notice under Section 148 post-introduction of Section 148A:
The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1961, post the introduction of Section 148A, which lays down a new procedure for reassessment. The Supreme Court's decision in Union of India vs. Ashish Agarwal clarified that such notices should be construed as under the amended provision as a one-time measure. The Court granted stay on this ground.

Issue 2: Notice to Non-Existent Assessee due to Merger:
The second ground of challenge was the issuance of the notice to Polaris Consulting and Services Limited, which had merged with the petitioner, M/s. Virtusa Consulting Services Private Limited. The petitioner argued that the notice to a non-existent entity was null and void. The Principal Commissioner of Income Tax confirmed the merger, and the Supreme Court precedent in Principal Commissioner of Income Tax vs. Maruti Suzuki India Limited established that issuing a notice to a merged company that ceased to exist is without jurisdiction.

In the judgment, the High Court found that the impugned notice issued under Section 148 to a non-existent assessee post-merger was legally untenable. The Court set aside and quashed the notice, allowing the writ petition. The decision was in line with the Supreme Court's ruling in Maruti Suzuki, emphasizing that the legal principle of an amalgamating entity ceasing to exist upon merger must be upheld.