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 sanctioned by the competent forum under the Companies Act, resulting in the amalgamating company ceasing to exist as a legal entity from the appointed date. The factum of amalgamation was duly intimated to the Income Tax Department.

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

Aggrieved by initiation and continuation of proceedings against a non-existent entity, the petitioner approached the Delhi High Court.

 

Issues Involved

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

Whether such defect is jurisdictional or merely procedural.

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

Whether Sections 159 or 170 of the Income-tax Act validate proceedings initiated against dissolved entities.

Applicability of the Supreme Court rulings in PCIT v. Maruti Suzuki (India) Ltd. and Spice Entertainment Ltd.

 

Petitioner’s Arguments

The petitioner submitted that:

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

Issuance of notices and framing of assessment orders against a non-existent entity is void ab initio.

The defect goes to the root of jurisdiction and cannot be cured under Section 292B.

Sections 159 and 170 do not save notices issued to entities which did not exist on the date of issuance.

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

 

Respondent’s Arguments

The Revenue contended that:

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

Such defect was curable under Section 292B of the Act.

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

Sections 159 and 170 were relied upon to justify continuation of proceedings against the successor entity.

 

Court Order / Findings

The Delhi High Court rejected the submissions of the Revenue and held that:

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

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

Such defect is substantive and jurisdictional, not procedural.

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

Sections 159 and 170 do not validate proceedings initiated against entities that had ceased to exist on the relevant date.

The Court reaffirmed and applied the binding principles laid down by the Supreme Court in:

PCIT v. Maruti Suzuki (India) Ltd.

Spice Entertainment Ltd.

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

 

Important Clarification

The Court clarified that:

Participation by the successor company does not amount to waiver or estoppel against challenging jurisdictional defects.

Certainty and consistency in tax litigation demand strict adherence to statutory requirements governing jurisdiction.

Tax proceedings must be initiated only against entities that are legally in existence 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
 Entire Proceedings Declared Void Ab Initio
 Impugned Actions Held Unsustainable in Law

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770191932_BSBKENGINEERSPRIVATELIMITEDRESULTINGCOMPANYOFPARISHUDHFINANCECOMPANYPVT.LTD.VsASSISTANTCOMMISSIONEROFINCOMETAXCENTRALCIR13DELHI.pdf 

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