2025 (3) TMI 1154 - AT - Income Tax

Legality of reassessment order passed on non-existent entity - HELD THAT - Admittedly the notice u/s 148 was issued when the company was seized to exist i.e. when it is its name was struck off from the Register of Companies. It is also a matter of fact that the company had applied for winding up under the scheme declared by the Ministry of Corporate Affairs wherein after obtaining the approval from the jurisdictional Assessing Officer of Income Tax Department and other stake holders the name of the company was struck off. Once the notice was issued when company was not in existent such notice is bad in law. The Hon ble Supreme Court in the case of PCIT vs. Maruti Suzuki 2019 (7) TMI 1449 - SUPREME COURT has held that initiation of assessment proceedings against an entity which had ceased to exist was void ab initio and participation of the company cannot be operate as an estoppel against law. Also decided in Marut Nandan Co 2025 (2) TMI 829 - ITAT DELHI re-assessment noticed issued u/s 148 of the Act in the name of the non-existent entity is clearly vitiated and rendered nonest in law. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

1. Whether the reassessment notice issued under Section 148 of the Income Tax Act against a non-existent entity is valid.

2. Whether the reassessment order passed against a company that had been struck off from the Register of Companies is void ab initio.

3. Whether the initiation of assessment proceedings without valid jurisdiction is legally sustainable.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Reassessment Notice under Section 148 to a Non-Existent Entity

Relevant Legal Framework and Precedents: The legal framework revolves around Section 148 of the Income Tax Act, which deals with the issuance of reassessment notices. The Court referred to precedents such as the Supreme Court's decision in PCIT vs. Maruti Suzuki and the Delhi High Court's decision in CIT vs. Vived Marketing Servicing Pvt. Ltd. These cases established that assessment proceedings against a non-existent entity are void.

Court's Interpretation and Reasoning: The Tribunal emphasized that the issuance of a notice to a non-existent company is legally untenable. Once a company is struck off, it ceases to exist as a legal entity, and any proceedings initiated against it are void ab initio.

Key Evidence and Findings: The Tribunal noted that the company was struck off on 09.02.2016, and the notice under Section 148 was issued on 31.03.2019. The Tribunal found that the company had ceased to exist at the time of the notice issuance.

Application of Law to Facts: Applying the legal principles from the cited precedents, the Tribunal concluded that the reassessment notice issued to a non-existent entity was invalid.

Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the Department was in the process of filing a petition for the revival of the company. However, it held that the current proceedings were void due to the non-existence of the entity at the relevant time.

Conclusions: The Tribunal concluded that the reassessment notice and subsequent proceedings were void ab initio.

2. Void Ab Initio Reassessment Order

Relevant Legal Framework and Precedents: The Tribunal referred to Section 560 of the Companies Act, which governs the dissolution of companies, and the principle that an assessment order against a dissolved entity is a nullity. The Tribunal cited the Jammu and Kashmir and Ladakh High Court's decision in Rainawari Finance & Investment Company Pvt. Ltd. and the Supreme Court's decision in Maruti Suzuki.

Court's Interpretation and Reasoning: The Tribunal interpreted that once a company is dissolved, it cannot be assessed as it no longer exists as a legal entity. The Tribunal relied on the principle that legal proceedings against a non-existent entity are null.

Key Evidence and Findings: The Tribunal found that the company had been dissolved and struck off, and no restoration order was passed by any authority.

Application of Law to Facts: The Tribunal applied the legal principles from the cited precedents to conclude that the reassessment order was void due to the non-existence of the company.

Treatment of Competing Arguments: The Tribunal considered the Revenue's reliance on the case of Ravindra Kumar Aggarwal but distinguished it based on differing facts.

Conclusions: The Tribunal quashed the reassessment order as void ab initio.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal quoted the Supreme Court's decision in Maruti Suzuki: "Initiation of assessment proceedings against an entity which had ceased to exist was void ab initio and participation of the company cannot operate as an estoppel against law."

Core Principles Established: The Tribunal established that assessment proceedings initiated against a non-existent entity are void and that legal proceedings cannot be sustained against an entity that has been dissolved and struck off from the Register of Companies.

Final Determinations on Each Issue: The Tribunal determined that the reassessment notice and order were void ab initio due to the non-existence of the company at the time of issuance. Consequently, the appeal filed by the assessee was allowed, and the reassessment order was quashed.

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