Facts of the Case

Micra India Pvt. Ltd. was assessed regularly for Assessment Years 2003-04 to 2008-09. Subsequently, proceedings under Section 391 of the Companies Act were initiated for amalgamation of Micra India Pvt. Ltd. with Dynamic Buildmart Pvt. Ltd. The Delhi High Court sanctioned the amalgamation on 22.12.2009 with effect from 01.04.2008.

After the amalgamation became effective, Micra India Pvt. Ltd. ceased to exist as a separate legal entity. The fact of amalgamation was duly communicated to the Income Tax Department on 06.05.2010.

Despite this, the Revenue issued notice under Section 153C of the Income-tax Act on 08.09.2010 in the name of Micra India Pvt. Ltd., which had already dissolved due to amalgamation. The assessee informed the Assessing Officer during assessment proceedings that the company no longer existed. However, the Assessing Officer completed the assessment in the name of the dissolved transferor company.

The Income Tax Appellate Tribunal (ITAT) held that the assessment proceedings were void since the notice and assessment were made against a non-existent entity. The Revenue challenged the ITAT order before the Delhi High Court.

Issues Involved

  1. Whether assessment proceedings under Sections 153C/143(3) can validly continue against a company that ceased to exist due to amalgamation.
  2. Whether participation by the amalgamated company in assessment proceedings cures the jurisdictional defect.
  3. Whether Section 292B can validate assessment proceedings initiated against a non-existent entity.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the assessee participated in assessment proceedings without raising objections at the initial stage.
  • It was argued that the Assessing Officer had taken note of the amalgamation in the assessment order.
  • The Revenue further submitted that Section 292B cures procedural defects and therefore the assessment should not be invalidated merely because the notice was issued in the old company’s name.
  • It was also argued that liabilities of the transferor company devolve upon the transferee company after amalgamation.

Respondent’s Arguments (Assessee)

  • The assessee argued that upon amalgamation, Micra India Pvt. Ltd. ceased to exist and therefore no valid proceedings could continue against it.
  • The fact of amalgamation had already been disclosed to the Department before issuance of notice under Section 153C.
  • Even after being informed, the Assessing Officer failed to substitute the successor company in place of the dissolved entity.
  • Assessment against a non-existent company is a jurisdictional defect and not a mere procedural irregularity.

Court Order / Findings

The Delhi High Court dismissed the Revenue’s appeals and upheld the ITAT order.

The Court held that:

  • Once amalgamation takes effect, the transferor company ceases to exist in law.
  • Any notice or assessment issued against such non-existent company is invalid.
  • Under Section 170(2) of the Income-tax Act, assessment must be made on the successor company.
  • Participation in assessment proceedings does not cure the fundamental jurisdictional defect.
  • Section 292B cannot validate an assessment framed against a non-existent entity because the defect is substantive and not procedural.

The Court observed that although the Assessing Officer mentioned the transferee company’s name in the assessment order, the assessment was still fundamentally framed against Micra India Pvt. Ltd., which was no longer in existence.

Accordingly, the assessment proceedings were declared void and unsustainable in law. (LawLens)

Important Clarification

The judgment clarified that:

  • Assessment against a dissolved or amalgamated company is a nullity in law.
  • Section 292B cannot cure defects relating to jurisdiction or existence of the assessee.
  • Revenue authorities are legally required to substitute the successor entity after amalgamation.
  • Mere participation by the successor company does not amount to waiver of jurisdictional objection.

Sections Involved

  • Section 153C – Assessment of income of any other person
  • Section 143(3) – Scrutiny Assessment
  • Section 170(2) – Succession to business otherwise than on death
  • Section 292B – Return of income, etc., not to be invalid on certain grounds
  • Sections 147 & 148 – Reassessment Proceedings
  • Section 391 of the Companies Act – Amalgamation Scheme

Link to Download the Order https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:741-DB/RKG22012015ITA4462013.pdf

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