Facts of the Case

The petitioner company challenged reassessment notices dated 27th and 28th March 2021 issued under Section 148 for AY 2014-15 and 2015-16, along with assessment orders dated 30th March 2022 passed under Sections 147/143(3) of the Income Tax Act.

The notices were issued in the name of Jindal Menthol & Investment Pvt. Ltd., which had already merged with the petitioner company effective 1st April 2013 pursuant to a court-approved amalgamation order.

The petitioner also contended that the alleged escaped income had already been assessed in the hands of the amalgamated entity in earlier assessment proceedings.

Additionally, the petitioner argued that the assessment order was passed without granting adequate opportunity to respond, as less than one day was given to reply to the show cause notice.

Issues Involved

  1. Whether reassessment notices issued to a non-existing entity are legally sustainable?
  2. Whether passing assessment orders without providing adequate opportunity violates principles of natural justice?
  3. Whether reassessment proceedings are valid when the income has already been assessed in the hands of the amalgamated entity?

Petitioner’s Arguments

  • The reassessment notices were void ab initio as they were issued in the name of a non-existing company post-amalgamation.
  • Reliance was placed on Pr. Commissioner of Income Tax v. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC), holding such notices as a substantive illegality.
  • The income alleged to have escaped assessment had already been assessed and accepted in prior proceedings.
  • The assessment order violated natural justice, as no reasonable time was granted to respond to the show cause notice.
  • Reliance was also placed on Nidhi Agrawal v. ITO where insufficient response time led to quashing of assessment.

Respondent’s Arguments

  • The Revenue contended that the assessment orders were passed in the name of the amalgamated entity (petitioner company).
  • It was argued that whether income escaped assessment is a question of fact, which can be adjudicated in appellate proceedings.

Court’s Findings / Order

The Delhi High Court held:

  • Even assuming the Revenue’s contention is correct, the assessment orders are liable to be set aside due to violation of natural justice.
  • The petitioner was not granted adequate opportunity to respond to the show cause notice.
  • Consequently, the Court:
    • Set aside the assessment orders
    • Set aside demand and penalty notices
    • Remanded the matter back to the Assessing Officer for fresh adjudication

The petitioner was directed to file a response within two weeks, and the Assessing Officer was directed to pass a reasoned order after granting proper hearing.

Important Clarifications

  • Issuance of notice to a non-existing entity is not a procedural defect but a substantive illegality.
  • Adequate opportunity of hearing is mandatory; even one-day response time is insufficient.
  • Violation of natural justice alone is sufficient to quash assessment orders, irrespective of merits.
  • Courts may remand matters for fresh adjudication instead of deciding factual disputes.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1698-DB/MMH02052022CW69002022_184159.pdf

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