Facts of the Case

M/s Baba Lease & Investment Pvt. Ltd., along with several other petitioners forming part of a batch of writ petitions, challenged assessment and reassessment proceedings initiated by the Income Tax Department. The core factual matrix involved cases where, pursuant to court-approved schemes of amalgamation or arrangement, the transferor (amalgamating) companies had ceased to exist in law.

Despite the fact that the amalgamations were duly approved by the jurisdictional High Courts or the National Company Law Tribunal and the Department had been informed of such amalgamations, the Assessing Officers proceeded to issue notices and pass assessment or reassessment orders in the names of the erstwhile amalgamating entities.

 Issues Involved

Whether assessment or reassessment proceedings initiated and continued in the name of an amalgamating company, which had ceased to exist pursuant to a sanctioned scheme of amalgamation, are legally sustainable, and whether such defects can be cured under Section 292B of the Income Tax Act, 1961.

 Petitioner’s Arguments

The petitioners contended that once a scheme of amalgamation is sanctioned, the amalgamating company stands dissolved by operation of law and ceases to exist as a legal entity. Any notice or assessment framed in its name is therefore a nullity.

It was argued that issuance of a jurisdictional notice to a non-existent entity strikes at the root of the matter and constitutes a substantive illegality. Reliance was placed on authoritative precedents, including Principal Commissioner of Income Tax v. Maruti Suzuki India Ltd. and Spice Entertainment Ltd., to submit that such defects are not procedural and cannot be cured under Section 292B of the Act. Participation by the successor company, it was urged, cannot confer jurisdiction nor operate as estoppel against law.

 

Respondent’s Arguments

The Revenue contended that the defect, if any, was merely technical in nature and stood cured by Section 292B of the Income Tax Act. It was further argued that the successor or amalgamated entity was fully aware of the proceedings and had participated therein, thereby demonstrating that no prejudice was caused.

Reliance was placed on the decision in Skylight Hospitality LLP to argue that issuance of notice in the name of a non-existent entity could, in appropriate cases, be treated as a curable defect.

 

Court Order / Findings

The Delhi High Court rejected the submissions of the Revenue and held that assessment and reassessment proceedings initiated in the name of a non-existent amalgamating company are void ab initio.

The Court reaffirmed that upon approval of a scheme of amalgamation, the amalgamating entity ceases to exist in the eyes of law. Issuance of a jurisdictional notice in its name is a substantive illegality and not a procedural irregularity. Such a defect goes to the root of jurisdiction and cannot be cured by invoking Section 292B of the Act.

The Court distinguished Skylight Hospitality LLP on facts, holding that the said decision was rendered in peculiar circumstances involving a clerical error, whereas in the present cases, the Department had clear and prior knowledge of the amalgamation. The principles laid down in Maruti Suzuki India Ltd. and Spice Entertainment Ltd. were held to squarely apply.

Accordingly, the impugned assessment and reassessment proceedings were set aside.

 Important Clarification

The Court clarified that certainty and consistency in tax administration are foundational principles. Once an entity ceases to exist due to amalgamation, all statutory notices and proceedings must necessarily be initiated in the name of the surviving or resultant entity. Jurisdictional defects arising from proceedings against non-existent persons or entities cannot be validated by consent, participation, or curative provisions such as Section 292B of the Income Tax Act.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770194006_MSBABALEASEINVESTMENTPVTLTDVsINCOMETAXOFFICERWARDNO161DELHI.pdf

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