2025 (7) TMI 1302 - AT - Income Tax

Assuming jurisdiction and issuing of notice u/s. 153A - notice was issued in the name of non-existing entity and that too without giving any opportunity of hearing - HELD THAT - Revenue could not have assumed the jurisdiction to issue a notice in the name of a nonexistent entity. It emerged at the outset during the course of hearing that there arises the legal issue of validity of the impugned assessment by the AO on the ground that assessee company has since been merged with another company long back. Also the Revenue could hardly dispute the above clinching fact taken note by the lower authorities. Faced with this situation we quote the case of PCIT vs. Maruti Suzuki 2019 (7) TMI 1449 - SUPREME COURT to conclude that the impugned assessment is not sustainable in law in very terms since framed in the name of a non-existent entity. Assessment Order deserves to be quashed and set aside - Assessee appeal allowed.

Summary

ISSUES:

Whether an assessment framed under section 153A of the Income Tax Act against a non-existing entity, i.e., a company that has been merged and wound up prior to the issuance of the notice, is valid in law.Whether the issuance of notice under section 153A to a merged company without giving an opportunity of hearing renders the assessment void ab initio.Whether the Assessing Officer's assumption of jurisdiction under section 153A is proper when the company subject to assessment has ceased to exist due to merger.

RULINGS / HOLDINGS:

The assessment framed under section 153A read with section 143(3) against a company that had merged and ceased to exist prior to issuance of the notice is "bad in law" and "not sustainable in law in very terms" since it was framed in the name of a "non-existent entity".The issuance of notice under section 153A to the merged company without giving any opportunity of hearing and without acknowledging the merger is improper, rendering the assessment void ab initio.The Assessing Officer's assumption of jurisdiction under section 153A in such circumstances is incorrect and the resulting assessment order deserves to be quashed and set aside, following the precedent set in PCIT vs. Maruti Suzuki India Ltd.

RATIONALE:

The Court applied the provisions of sections 153A and 143(3) of the Income Tax Act, considering the merger sanctioned under sections 391 and 394 of the Companies Act, as approved by the Delhi High Court.The merger order clarified that all liabilities and pending proceedings of the transferor companies are transferred to the transferee company, and the transferor companies stand dissolved without winding up, effective from the appointed date.The Court relied on the principle that assessments cannot be framed against a dissolved or merged entity that no longer exists, as upheld in the Supreme Court decision in PCIT vs. Maruti Suzuki India Ltd. and corroborated by Delhi High Court decisions in similar matters.The Court noted that the assessee had duly informed the Assessing Officer of the merger and the non-existence of the company prior to the assessment, but the Assessing Officer proceeded without addressing this fact, which was a fatal legal error.There was no dispute from the Revenue on the legal proposition that assessments against non-existent entities are invalid, and the Court accordingly allowed the appeals and quashed the assessments.