Facts of the Case

The petitioner, SMS India Private Limited, approached the Delhi High Court challenging a draft assessment order dated 05.03.2025 issued under Section 144C(1) of the Income-tax Act, 1961 for Assessment Year 2022–23. The impugned draft assessment order was issued in the name of M/s Paul Wurth India Private Limited, which had amalgamated with the petitioner company with effect from 01.04.2021 pursuant to an approved scheme of amalgamation.

It was contended that despite the amalgamation having taken effect much prior to initiation of proceedings on 01.06.2023, the Respondent issued the draft assessment order in the name of the amalgamating company and on its PAN. The petitioner submitted that the amalgamating entity had ceased to exist in law and therefore the assessment proceedings were void ab initio.

Issues Involved

Whether a draft assessment order issued under Section 144C in the name of a company that had ceased to exist due to amalgamation is legally sustainable, whether such a defect is curable under Section 292B, and whether the Revenue could proceed against the successor company under Section 170.

Petitioner’s Arguments

The petitioner argued that once an amalgamation takes effect, the amalgamating company ceases to exist in law and any assessment proceedings initiated or continued in its name are a nullity. Reliance was placed on the Supreme Court judgment in Principal Commissioner of Income Tax vs. Maruti Suzuki India Ltd., wherein it was held that issuance of jurisdictional notice and assessment order against a non-existent entity is a substantive illegality and not a mere procedural defect. It was submitted that participation in proceedings cannot cure a jurisdictional defect or operate as estoppel against law.

Respondent’s Arguments

The Revenue did not place any material on record to controvert the factual position regarding amalgamation or the legal submissions advanced by the petitioner. No argument was raised to distinguish the binding precedent relied upon by the petitioner.

Court Order / Findings

The Delhi High Court held that the legal position is well-settled that upon amalgamation, the amalgamating company ceases to exist and cannot be subjected to assessment proceedings. The Court relied upon the authoritative pronouncement of the Supreme Court in Maruti Suzuki India Ltd., which categorically held that assessment orders passed in the name of a non-existent entity are void ab initio and cannot be saved by Section 292B.

The Court observed that in the present case, despite being aware of the amalgamation, the Respondent issued the draft assessment order under Section 144C(1) in the name of M/s Paul Wurth India Pvt. Ltd., which had ceased to exist with effect from 01.04.2021. Such assumption of jurisdiction was fundamentally flawed and contrary to law. The Court found no reason to take a view different from settled precedent.

Important Clarification

The Court clarified that while proceedings against a non-existent amalgamating company are void ab initio, the Revenue is not remediless. Liberty remains with the Department to initiate proceedings against the successor company in accordance with Section 170 of the Income-tax Act, subject to limitation and other statutory requirements.

Final Outcome

The writ petition was allowed. The Delhi High Court set aside the draft assessment order dated 05.03.2025 issued under Section 144C(1) for Assessment Year 2022–23 in the name of M/s Paul Wurth India Private Limited, holding it to be void ab initio. Liberty was granted to the Revenue to initiate proceedings against SMS India Private Limited, if permissible in law. The petition and pending application were disposed of accordingly.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769503916_SMSINDIAPRIVATELIMITEDVsASSESSMENTUNITINCOMETAXDEPARTMENT.pdf

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