A notice to a non-existent entity is a substantive illegality, not a procedural lapse: Delhi High Court Quashes Income Tax Notices

Delhi High Court in Religare Enterprises Limited vs. Assistant Commissioner of Income Tax quashed reassessment notices and orders issued in the name of a dissolved amalgamating company. The court held that any assessment or notice issued to a non-existent entity after amalgamation is void ab initio, following the principles laid down by the Supreme Court in Maruti Suzuki India Ltd..

Religare Securities Limited (RSL) merged with Religare Enterprises Limited (REL) through a scheme of amalgamation sanctioned by the National Company Law Tribunal (NCLT) with an effective date of April 1, 2016. RSL had duly informed the tax authorities of this amalgamation in December 2017. Despite this, in April 2021, the Income Tax Department issued a reassessment notice to RSL, a company that no longer existed. After a previous quashing of the reassessment notice, the department continued the proceedings and issued subsequent orders in the name of the amalgamated entity, REL.

REL challenged the proceedings, contending that notices and orders issued in the name of a non-existent entity are invalid under the law.

The court primarily focused on whether the reassessment notices issued to a dissolved company (RSL) are valid under the Income Tax Act. The petitioners argued that any notice issued to a non-existent company following its dissolution under a merger or amalgamation scheme is void. They relied on the Supreme Court’s decision in Maruti Suzuki India Ltd., which held that tax proceedings initiated in the name of a dissolved company cannot be cured under Section 292B of the Income Tax Act, 1961.

The Income Tax Department contended that the defect of issuing a notice to the dissolved company was procedural and curable under Section 292B. They also argued that the amalgamated entity (REL) participated in the proceedings, and thus, the defect should not invalidate the reassessment.

The court ruled that issuing notices to a company that has ceased to exist after an amalgamation constitutes a jurisdictional error, not merely a procedural one. The bench noted:

"The issuance of notices in the name of a non-existent entity is a substantive illegality and cannot be rectified under Section 292B."

The court further explained that participation by the amalgamated entity (REL) in the tax proceedings does not cure the jurisdictional defect. The judges emphasized that tax authorities must ensure that notices are properly addressed to the correct legal entity, especially after being informed of a merger.

Relying heavily on the Supreme Court's decision in Maruti Suzuki India Ltd., the court reaffirmed that any assessment or notice addressed to a dissolved entity is legally unsustainable.

The Delhi High Court quashed the reassessment notices and orders issued in the name of RSL, holding them to be void and without jurisdiction. The ruling reinforces the principle that tax authorities cannot issue notices or conduct assessments against dissolved companies, as it is a violation of procedural and substantive legal standards.

Date of Decision: September 26, 2024

Religare Enterprises Limited vs. Assistant Commissioner of Income Tax​.