In a recent ruling, the Delhi High Court held that an assessment order issued in the name of a non-existent entity, following an amalgamation, cannot be cured under Section 292B of the Income Tax Act, 1961. The case involved writ petitions where the petitioners challenged the validity of assessment and reassessment actions taken against entities that had ceased to exist following a merger. Despite notifying the tax authorities of the merger, the assessment orders and notices were still issued in the name of the amalgamating entity, rather than the amalgamated one.
The petitioners argued that this constituted a fatal error, rendering the orders and notices void. They cited the Supreme Court’s decision in Principal Commissioner of Income Tax, New Delhi vs Maruti Suzuki (India) Limited, which had established that proceedings against a dissolved entity are legally invalid. The respondents, however, contended that the error was merely procedural and could be rectified under Section 292B, which addresses minor technical errors in tax proceedings.
The Court noted that once a company is dissolved by law after a merger, it ceases to exist, and any proceedings in its name are null and void. The Court referred to the Supreme Court’s ruling in Maruti Suzuki to emphasize that the initiation or continuation of tax proceedings against a dissolved entity is fundamentally flawed and cannot be cured by Section 292B.
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Furthermore, the Court highlighted that the petitioners had duly informed the tax authorities about the amalgamation at the earliest opportunity. By failing to act on this information and issuing notices to a non-existent entity, the authorities bore the consequences of this legal misstep. The High Court reaffirmed that Section 292B cannot be invoked to validate an order or notice issued to an entity that no longer exists under the law.
The judgment underlined that the case law, including the decision in Mahagun Realtors cited by the respondents, does not alter the established principle that proceedings initiated against a non-existent entity are a nullity. Section 170 of the Income Tax Act, which deals with the assessment of successors to a business, also could not support the respondents’ position, as it does not cover situations involving dissolved entities. and once an assessment is made in the name of a non-existent entity, it cannot be rectified as a mere procedural irregularity under Section 292B.
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In conclusion, the division bench of Justice Yashwanth Varma and Justice Ravinder Dudeja quashed the impugned assessment and reassessment orders, affirming that the proceedings initiated against a non-existent entity could not be sustained under the provisions of the Income Tax Act.
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