Bombay High Court: Notice u/S. 148 of the Income Tax Act cannot be issued against merging company which ceases to exist

Bombay High Court: Notice u/S. 148 of the Income Tax Act cannot be issued against merging company which ceases to exist

The Bombay High Court set aside, the notice issued u/S. 148 of the Income Tax Act, 1961 and its subsequent order because it was issued against a merging company, which had ceased to exist.

The matter titled as Alok Knit Exports Limited v. The Deputy Commissioner of Income Tax & Ors, was placed before a Division Bench of the High Court of Bombay comprising Justices K. R. Shriram and Abhay Ahuja.

The Petitioner – Company through this petition had challenged the notice issued u/S. 148 of the Income Tax Act, 1961 for the Assessment Year 2012-2013 and its subsequent order. The Respondent – Authorities through the notice had informed, Niraj Realtors and Shares Pvt. Ltd that they had reasons to believe that its income chargeable to tax for the Assessment Year 2012-2013 had escaped assessment within the meaning of Section 147 of the Act.

The Petitioner – Company through its objections, had informed the Respondent – Authorities that the Petitioner had merged with Niraj Realtors and Shares Pvt. Ltd and but it was held that the liability would be taken care of by the new company. Therefore, it was contended by the Petitioner – Company that the notice issued u/S. 148 of the Act was bad in law as the same was issued in the name of a non-existent person.

The issue at hand was that the Respondent – Authorities had invoked jurisdiction by issuing notice u/S. 148 of the Act to an entity that had ceased to exist.

The Respondent – Authorities submitted that it was a human error, which could be corrected u/S. 292B of the Act and these human errors and mistakes could not and should not nullify proceedings which were otherwise valid and where no prejudice was caused.

The bench noted that the Respondent – Authorities were aware that Niraj Realtors had ceased to exist since the notice was issued in the name of the Petitioner – Company for re-opening of the assessment of Niraj Realtors. Therefore, the defence of the fundamental error by the Respondent – Authorities was not accepted by the bench.

The Court observed that when a company was merging into another company then that merging company ceases to exist and this view should have been realised by the Respondent – Authorities.

Therefore, the Court set aside the notice issued u/S. 148 of the Income Tax Act, 1961 as well as its subsequent order.