Draft Income Tax Assessment u/s 144C Issued Post-Amalgamation Invalid: Delhi HC Permits Fresh Action Against SMS India [Read Order]

The Delhi High Court invalidated a draft assessment order issued under Section 144Cof the Income Tax Act, 1961 for A.Y. 2022-23, after finding that the assessment was initiated in the name of an entity that had ceased to exist following amalgamation. The Court held that such an assessment is void and cannot be sustained in law.

SMS India Private Limited approached the Delhi High Court challenging the draft assessment order dated March 05, 2025 issued under Section 144C(1) of the Income Tax Act, 1961 in the name of Paul Wurth India Private Limited for A.Y. 2022-23. The petitioner argued that Paul Wurth India Private Limited had already amalgamated with SMS India Private Limited with effect from April 01, 2021.

Despite this merger, the assessment unit issued the impugned order using the predecessor company’s name and Permanent Account Number. The challenge before the Court was to quash the assessment proceedings initiated against the non-existent amalgamating entity.

The petitioner argued that once amalgamation takes effect, the predecessor company ceases to exist and assessment proceedings cannot be continued in its name. The counsel referred to the judgment of the Supreme Court in Principal Commissioner of Income Tax v. Maruti Suzuki India Limited (2019), asserting that initiation of jurisdiction or issuance of assessment orders against non-existent entities amounts to substantive illegality.

The Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar held that the draft assessment order issued under Section 144C(1) for A.Y. 2022-23 could not survive, as it was issued in the name of a company that had ceased to exist due to amalgamation. Relying on the principle laid down by the Supreme Court in the Maruti Suzuki (supra) ruling, the Court observed that an assessment order issued against a non-existent entity is a substantive illegality, not a procedural defect.

The Court held that issuance of notices and orders post-merger must be addressed to the successor company. Accordingly, the draft order dated March 05, 2025 was set aside. The Court granted liberty to the Revenue to initiate proceedings against SMS India Private Limited, provided such action is permissible under law.

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