Targeting Non-Existent Entity is Void Ab Initio: ITAT Sets Aside Assessment Order Against HCL Infinet [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench (“F” Bench), allowed the appeal filed by M/s HCL Infosystems Ltd., setting aside the assessment order passed against its amalgamated subsidiary, M/s HCL Infinet Ltd., on the ground that the latter was a non-existent entity at the time of the proceedings.

M/s HCL Infinet Ltd had filed its return of income for AY 2006-07. Following a remand by the Tribunal in an earlier round of litigation, the Assessing Officer (AO) issued fresh notices and passed an assessment order dated 07.12.2018. However, prior to this order, M/s HCL Infinet Ltd. had amalgamated with M/s HCL Infosystems Ltd. effective from April 1, 2006, pursuant to a scheme of arrangement approved by the Delhi High Court on March 20, 2007.

The assessee informed the AO of this merger via a letter dated 05.11.2018, stating that HCL Infinet ceased to exist and that HCL Infosystems was the successor in interest. Despite this submission, the AO proceeded to pass the order in the name of the non-existent entity, M/s HCL Infinet Ltd.

The Appellant argued that the assessment order was void ab initio, illegal, and without jurisdiction because it was passed against a company that no longer existed. They contended that the jurisdictional defect was not curable under Sections 154 or 292BB of the Income Tax Act. The Revenue, however, argued that the initial assessment was against HCL Infinet and thus the post-remand order was validly passed in the same name.

The Coram of S. Rifaur Rahman (Accountant Member) and Vimal Kumar (Judicial Member) observed that the record clearly established the amalgamation effective from 01.04.2006. The Tribunal relied on the judgment of the Supreme Court in PCIT v. Maruti Suzuki India Ltd., noting that it is settled law that a notice or order passed in the name of a non-existent amalgamating entity is void ab initio, non-est, and bad in law.

The Tribunal observed:

“As per ratio of judgment in PCIT Vs. Maruti Suzuki India Ltd it is well settled that and notice/order passed in the name of a non-existent amalgamating entity is void ab initiation, non-est and bad in law.; further the Courts have held that the said jurisdictional defect is not curable under sections 154 and/or 292BB of the Act.”

The Tribunal found that the AO had ignored the assessee's submission regarding the High Court order approving the amalgamation. Consequently, the Tribunal held that the impugned order passed against the non-existent entity was null and void. The appeal was allowed, and the assessment order dated 07.12.2018 was set aside. The other grounds of appeal regarding the merits of the additions were left open as academic.

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