Facts of the Case

BSBK Engineers Private Limited is the resulting company pursuant to a court-approved Scheme of Amalgamation under which Parishudh Finance Company Pvt. Ltd., the amalgamating company, stood merged and dissolved by operation of law.

The scheme was duly sanctioned under the provisions of the Companies Act, resulting in the amalgamating company ceasing to exist as a legal entity from the appointed date. The Income Tax Department was informed of the amalgamation.

Despite such intimation, the Assessing Officer issued assessment and reassessment notices and continued proceedings in the name of the amalgamating company, i.e., Parishudh Finance Company Pvt. Ltd., which had already ceased to exist on the date of issuance of notices.

Aggrieved, the petitioner approached the Delhi High Court seeking quashing of the impugned proceedings.

 Issues Involved

Whether assessment and reassessment proceedings initiated in the name of a non-existent amalgamating company are valid in law.

Whether such proceedings suffer from a jurisdictional defect or merely a procedural irregularity.

Whether Section 292B of the Income-tax Act can cure such defects.

Whether Sections 159 or 170 of the Income-tax Act validate notices issued to dissolved entities.

Applicability of the principles laid down in PCIT v. Maruti Suzuki (India) Ltd. and Spice Entertainment Ltd.

 

Petitioner’s Arguments

The petitioner contended that:

Upon sanction of the scheme of amalgamation, the amalgamating company stood dissolved and ceased to exist in law.

Any notice or assessment issued in the name of such a non-existent entity is void ab initio.

The defect goes to the root of jurisdiction and is not curable under Section 292B.

Sections 159 and 170 do not authorise issuance of notices to entities that did not exist on the relevant date.

The issue is conclusively settled by the Supreme Court in Maruti Suzuki (India) Ltd., following Spice Entertainment Ltd.

 

Respondent’s Arguments

The Revenue argued that:

Issuance of notices in the name of the amalgamating company was a technical or clerical error.

Such error is curable under Section 292B of the Act.

Reliance was placed on Skylight Hospitality LLP to contend that proceedings should not fail on account of technical lapses.

It was further submitted that Sections 159 and 170 permit continuation of proceedings against successor entities.

 

Court Order / Findings

The Delhi High Court rejected the Revenue’s contentions and held that:

An amalgamating company ceases to exist by operation of law upon approval of the scheme of amalgamation.

Issuance of jurisdictional notices in the name of a non-existent entity renders the entire proceedings void.

Such defect is substantive and jurisdictional, not procedural.

Section 292B cannot cure defects that strike at the very assumption of jurisdiction.

Sections 159 and 170 do not validate notices issued to entities that had ceased to exist on the date of issuance.

The Court reaffirmed the binding ratio laid down by the Supreme Court in:

PCIT v. Maruti Suzuki (India) Ltd.

Spice Entertainment Ltd.

The Court further clarified that Skylight Hospitality LLP was decided on peculiar facts involving a clerical error and does not dilute the settled law on amalgamation-related jurisdictional defects.

 

Important Clarification

The Court clarified that:

Participation by the successor company does not cure a jurisdictional defect nor create estoppel against law.

Certainty and consistency in tax jurisprudence mandate strict compliance with statutory requirements governing jurisdiction.

Tax proceedings must be initiated only against legally existing entities on the date of issuance of notice.

 

Final Outcome

Writ Petition Allowed
 Assessment and Reassessment Notices Issued in the Name of the Amalgamating Company Quashed
 Proceedings Declared Void Ab Initio
 Impugned Actions Held Unsustainable in Law

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770191886_BSBKENGINEERSPRIVATELIMITEDRESULTINGCOMPANYOFMADHULIKAFINANCECOMPANYLTD.VsASSISTANTCOMMISSIONEROFINCOMETAXCENTRALCIR13DELHI.pdf  

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