Reassessment Notice To Non-Existent Firm Invalid: Bombay High Court Reiterates

The Bombay High Court has reiterated that proceedings initiated against a non-existent entity are invalid in law.

A Division Bench of Justices B.P. Colabawalla and Amit S. Jamsandekar set aside a reassessment notice and a consequential assessment order issued under the Income Tax Act against a partnership firm that had merged into a private limited company years earlier.

The case concerned a notice issued to J M Mhatre Infra Pvt. Ltd., described as an erstwhile partnership firm, seeking to reopen its assessment for the Assessment Year 2015-16. The court noted that the partnership firm had merged into the petitioner company with effect from January 29, 2010 and had ceased to exist thereafter. Despite this, the Assessing Officer issued a reassessment notice in July 2022 and passed an assessment order in May 2023 in the name of the dissolved firm.

The High Court rejected the respondents' reliance on Section 189 of the Income Tax Act, which permits assessment of a firm even after its dissolution. The Bench clarified that the provision applies only to the taxation of income earned by a firm before its dissolution and cannot be used to justify proceedings for assessment years after the firm had merged and ceased to exist.

"What Section 189 postulates is that, notwithstanding the fact that the firm may be dissolved or dis-continued, the Assessing Officer can bring to tax any income of that Firm even after its dissolution or discontinuance. Section 189 would have absolutely no application in a case like the present one.", it said.

Relying on the Supreme Court's ruling in PCIT v. Maruti Suzuki India Ltd. (416 ITR 613), the judges held that such notices are void ab initio. In view of the above, the High Court quashed both the reassessment notice and the consequential assessment order and allowed the writ petition.