2025 (3) TMI 621 - HC - Income Tax

Assessment order titled in the name of a non-existent entity due to its merger - HELD THAT - Question on which this appeal came to be admitted stands conclusively answered in favour of the assessee in light of our judgment of Vedanta Ltd 2025 (1) TMI 912 - DELHI HIGH COURT held notice u/s 143(2) under which jurisdiction was assumed by the assessing officer was issued to a non-existent company. The assessment order was issued against the amalgamating company. This is a substantive illegality and not a procedural violation of the nature adverted to in Section 292-B. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment was whether the Income Tax Appellate Tribunal (ITAT) was correct in annulling the assessment order titled in the name of a non-existent entity due to its merger, and whether such an error could be rectified or salvaged under Section 292-B of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The legal framework primarily involved Section 292-B of the Income Tax Act, which deals with procedural mistakes in notices and proceedings, and Section 170, which pertains to the succession of business. The precedents considered included the Supreme Court's decisions in Maruti Suzuki, Spice Entertainment, and Skylight Hospitality, which addressed the validity of assessments made in the name of non-existent entities.

Court's Interpretation and Reasoning:

The Court interpreted the legal provisions and precedents to establish that an assessment made in the name of a non-existent entity due to a merger is a substantive illegality, not a mere procedural error. This interpretation was supported by the Supreme Court's ruling in Maruti Suzuki, which held that such errors could not be rectified or salvaged under Section 292-B.

Key Evidence and Findings:

The Court found that the fact of the merger was duly disclosed to the Assessing Officer (AO), and the AO was aware of the merger before issuing the assessment order. Despite this knowledge, the AO proceeded to issue the order in the name of the dissolved entity, which was a fundamental error.

Application of Law to Facts:

The Court applied the legal principles from Maruti Suzuki and Spice Entertainment to the facts of the case, concluding that the assessment order was invalid because it was issued in the name of a non-existent entity. The Court distinguished the present case from Skylight Hospitality, where the mistake was considered a clerical error due to the peculiar facts of that case.

Treatment of Competing Arguments:

The appellant argued that the error was curable under Section 292-B, similar to the Skylight Hospitality case. However, the Court rejected this argument, emphasizing that the error was substantive and not merely procedural. The Court noted that the appellant failed to demonstrate any intent by the AO to assess the resultant entity, which was crucial for invoking Section 292-B.

Conclusions:

The Court concluded that the assessment order was invalid and could not be rectified under Section 292-B. The Court found no merit in the appellant's reliance on Skylight Hospitality, as the facts were not analogous.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning:

"In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. 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."

"We find no reason to take a different view. There is a value which the Court must abide by in promoting the interest of certainty in tax litigation."

Core Principles Established:

The Court reaffirmed the principle that an assessment order issued in the name of a non-existent entity due to a merger is a substantive illegality that cannot be rectified under Section 292-B. The judgment emphasized the importance of consistency and certainty in tax litigation.

Final Determinations on Each Issue:

The Court answered the question of law in the affirmative, ruling in favor of the assessee and against the appellant. The appeal was dismissed, upholding the ITAT's decision to annul the assessment order.

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