2025 (1) TMI 1238 - HC - Income Tax

Assessment order u/s 143(3) passed on a non-existent entity - entity assessed has been merged consequent to merger proceedings - HELD THAT - Where the assessee-company was amalgamated with another company and thereby lost its existence the assessment order passed in the name of the said non-existing entity would be without jurisdiction and was liable to be set aside. See Maruti Suzuki India Limited 2019 (7) TMI 1449 - SUPREME COURT Maintainability of appeal before High Court - Section 260A (4) provides that the appeal shall be heard only on the question so formulated and the respondents shall at the hearing of the appeal be allowed to argue that the case does not involve such question. However the proviso to this sub-section states that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear for reasons to be recorded the appeal on any other substantial question of law not formulated by it if it is satisfied that the case involves such question. Usually for a case to involve such a question the same should have been raised before the original authority or at least the appellate authorities. When a question was never raised before the original authority or the appellate authorities then typically it would not be easy to hold that such a question was involved and therefore should be framed by exercising the powers under the proviso to sub-section (4) of Section 260A. However to the above general proposition there are exceptions. Suppose a question of law goes to the root of the jurisdiction and there is no necessity to investigate new facts or if there is no serious dispute on facts. In that case such a question can be framed even though the same may not have been raised in the earlier proceedings before the original or appellate authority. Consent per se cannot confer jurisdiction upon an authority where such jurisdiction is inherently lacking. In Ashish Estates Properties (P.) Ltd. 2018 (8) TMI 1726 - BOMBAY HIGH COURT the Co-ordinate Bench of this Court held that a question which was not raised before Tribunal should not ordinarily be allowed to be raised in an appeal under Section 260A unless it was a question on the issue of jurisdiction or question which went to the root of the jurisdiction. We are satisfied that the question proposed by Mr. Mistri is involved in these appeals and therefore we frame the above question in all these appeals. If answered in favour of the assesses the question would go to the root of jurisdiction. After framing this question we defer the hearing to 27 January 2025 so that the counsel for the parties would have sufficient time to address inter alia the additional question that we have now framed in these appeals. List the matters on 27 January 2025

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the assessment order under Section 143(3) of the Income Tax Act, 1961, passed on a non-existent entity, is void ab initio and bad in law. This issue challenges the jurisdiction of the Assessing Officer when the entity assessed has been merged and no longer exists as a separate legal entity.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The legal framework involves Section 143(3) of the Income Tax Act, 1961, which deals with the assessment of income. The key precedent cited is the Supreme Court's decision in PCIT vs. Maruti Suzuki India Limited, where it was held that an assessment order issued in the name of a non-existent company due to amalgamation is a substantive illegality. Another relevant case is PCIT vs. Mahagun Realtors Pvt. Ltd., which purportedly moderated the implications of the Maruti Suzuki decision.

Court's interpretation and reasoning:

The court considered whether the jurisdictional notice and assessment order issued to a non-existent entity due to merger are valid. It noted that the question of law raised, which was not previously considered by lower authorities, could still be framed if it goes to the root of jurisdiction and does not require new factual investigations.

Key evidence and findings:

The court found material evidence indicating that the Assessing Officer was aware of the merger of the companies involved. For the assessment years 1994-1995 and 1995-1996, the records explicitly referenced the merger order, and adjustments were made to the refunds of the merged companies.

Application of law to facts:

The court applied the principles from the Maruti Suzuki case, which established that jurisdictional errors in issuing notices to non-existent entities render such actions void. The court considered the evidence showing the Assessing Officer's awareness of the merger, which supported the argument that the assessment orders were void due to jurisdictional defects.

Treatment of competing arguments:

The respondents argued that the Maruti Suzuki decision was diluted by the Mahagun Realtors case and that the issue of jurisdiction did not arise as the Assessing Officer was not informed of the merger. They also contended that there was no prejudice since the merged entity represented the companies. The court noted these arguments but found that the jurisdictional question was significant enough to warrant framing the additional question of law.

Conclusions:

The court concluded that the question of law proposed by the appellant was indeed involved in the appeals and went to the root of jurisdiction. Therefore, it framed the additional substantial question of law for consideration.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"Whether on the facts and circumstances of the case and in law, the assessment order under Section 143 (3) of the Act passed on a non-existent entity is bad in law, void ab-initio?"

Core principles established:

The judgment reaffirms the principle that an assessment order issued to a non-existent entity due to amalgamation is a substantive illegality. It also highlights the court's power to frame new questions of law if they pertain to jurisdiction and do not require new factual determinations.

Final determinations on each issue:

The court determined that the additional substantial question of law regarding the jurisdictional validity of the assessment orders should be framed and considered. The hearing was deferred to allow parties to address this newly framed question, recognizing its potential impact on the jurisdictional authority of the Assessing Officer.

The matters were scheduled for further hearing on 27 January 2025, allowing time for comprehensive arguments on the jurisdictional issue raised by the additional question. The court emphasized the need to address this question, as its resolution could fundamentally affect the outcome of the appeals.