Income Tax Act | Reassessment Against Entity Converted Into LLP Is Void: Bombay High Court Sets Aside S.148 Notice Issued To Defunct Company

The Bombay High Court has set aside a reassessment notice issued under Section 148 of the Income Tax Act, 1961 against a company that had ceased to exist due to conversion into a Limited Liability Partnership (LLP), holding that reopening of assessment against a non-existent entity is “illegal and bad-in-law”. A Division Bench of Justice B.P. Colabawalla and Justice Amit S. Jamsandekar was hearing a writ petition filed by Erangal Comtrade and Consultancy LLP (successor of Erangal Comtrade and Consultancy Pvt. Ltd.), challenging the reassessment proceedings. The Bench observed: “in the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation.” The Assessee, Erangal Comtrade and Consultancy Pvt. Ltd, was engaged in commodities trading and investment-based income. The company was converted into Erangal Comtrade and Consultancy LLP, and the erstwhile company ceased to exist thereafter. The Assessing Officer issued a notice under Section 148 in the name of the non-existent erstwhile company, alleging escape of income. An appeal was filed by the assessee against the order of the reassessment before the Commissioner(Appeals) and also preferred a writ petition before the High Court seeking quashing of the reassessment order passed by the assessing officer. The assessee argued before the High Court that the Section 148 notice was issued against a non-existent legal entity, making the entire reassessment void. The alleged escaped interest income had already been offered to tax in the LLP's return, and assessed under Section 143(3). Also argued that the assessment order was passed without disposing of objections raised by the assessee. The Bench observed that once a company has ceased to exist on account of conversion, no reopening action can be sustained against it stating that notice issued to a non-existent entity is a nullity. The Bench relied on the principle laid in PCIT v. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC) passed by the Apex Court holding that where reassessment notices are issued to companies that have ceased to exist due to amalgamation / merger / conversion is void and without jurisdiction. In view of the above, the writ petition was allowed in favour of the assessee. Case Title: Erangal Comtrade and Consultancy LLP Vs. Assistant Commissioner of Income Tax and Ors. Case No: Writ Petition No. 2033 of 2022 Appearance for Petitioner: Mr. P. J. Pardiwalla, Senior Advocate a/w Mr. Nitesh Joshi i/b. Mr. Atul K. Jasani Appearance for Respondents: Mr. Abhishek R. Mishra advocates for Revenue Click Here To Read/Download Order

Income Tax Act | Reassessment Against Entity Converted Into LLP Is Void: Bombay High Court Sets Aside S.148 Notice Issued To Defunct Company

Rajnandini Dutta

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