Reassessment Quashed: The Fatal Error of Targeting a Non-Existent Entity

The Legal Issue

The central dispute in this case was whether the Income Tax Department can validly initiate or continue reassessment proceedings under Section 148 against an entity that has ceased to exist due to a court-approved merger. Specifically, the court examined if such a notice is a substantive jurisdictional defect or merely a procedural error that can be “cured” if the successor participates in the proceedings.

Facts of the Case

The Original Entity: Starlight LLP filed its return for AY 2018-19, which was initially scrutinized and assessed under Section 143(3).
The Structural Change: During subsequent reassessment proceedings, Starlight LLP underwent two major transformations:
1. It was converted into a Private Limited Company.
2. It was then merged with the petitioner-company following an order by the National Company Law Tribunal (NCLT).
The Intimation: The petitioner took proactive steps to inform the Jurisdictional Assessing Officers about the proposed amalgamation. Even after the NCLT approval, the petitioner updated the Income Tax Portal, and the request for succession was officially approved by the system.
The Department’s Action: Despite having full knowledge (and system-level approval) of the merger, the Department issued a new Show Cause Notice under Section 148A(b) and a subsequent order under Section 148A(d) in the name of the now-defunct Starlight LLP.

The Decision

The High Court ruled in favour of the assessee, quashing the reassessment order and the notice for the following reasons:

Jurisdictional Nullity: Relying on the landmark Supreme Court precedent in Maruti Suzuki (India) Ltd., the Court held that an assessment or reassessment initiated against a non-existent entity is void ab initio. A dead entity cannot be a “person” under the Income Tax Act.
Information was on Record: The Court noted that the petitioner had “duly fulfilled its responsibility” by informing the AO of the merger and updating the portal. The Department cannot ignore its own digital records and the formal intimations provided by the taxpayer.
Not a Curable Defect: The Revenue argued that since the petitioner participated in the proceedings, the mistake was procedural. The Court rejected this, stating that Section 292B (which protects technical errors) cannot save a notice that is fundamentally jurisdictionally flawed.
Outcome: The impugned order under Section 148A(d) and the notice under Section 148 were set aside and quashed.

Key Takeaways

Corporate Death is Absolute: Once the NCLT approves an amalgamation and the ROC records it, the transferor company “dies” legally. Any notice issued in its name thereafter is a “dead letter.”
The Burden of Intimation: This victory was possible because the petitioner had documented evidence of informing the Department. Taxpayers should always keep copies of letters sent to the AO and screenshots of updated Portal profiles.
Portal Status is Binding: If the Income Tax Portal shows a “Succession Approved” status, the Department cannot claim ignorance of the merger.
Check the Name on the Notice: If you receive a notice in the name of a company that has merged or dissolved, do not simply reply on merits. Challenge the jurisdiction immediately, as participating without protest can sometimes complicate the legal standing (though, as per this case, it doesn’t “fix” the illegality).

HIGH COURT OF BOMBAY

Sunteck Realty Ltd.

Deputy Commissioner of Income-tax^*

B. P. COLABAWALLA and FIRDOSH P. POONIWALLA, JJ.

WRIT PETITION (L) NO. 4707 OF 2025

FEBRUARY 6, 2026

Abhishek Khandelwal, Bhavik Chheda and Sham V. Walve, Advs. for the Petitioner. N.C. Ranganayakulu, Adv. for the Respondent.

ORDER

1. Rule. Respondents waive service. With the consent of parties, Rule made returnable forthwith and heard finally.

2. The above Writ Petition has been filed challenging the Order dated 31^st August 2024 passed under Section 148A(d) of the Income Tax Act, 1961 (for short ‘I.T. Act’), and the Notice dated 31^st August 2024 issued under Section 148 thereof on the ground that the Impugned Notice was issued to a non – existent entity and it is therefore invalid. The Assessment Year in question is Assessment Year 2018-19.

3. The present Petitioner is a successor to the erstwhile entity named Starlight Systems (I) LLP (hereinafter referred to as ‘Starlight LLP’). The brief facts of the case are that Starlight LLP filed its return of income for A.Y. 2018 – 19 which was processed under Section 143(1) of the I.T. Act. Thereafter, Starlight LLP’s case was selected for scrutiny relating to A.Y. 2018 – 19 and an Assessment Order dated 27^th September 2021 came to be passed under Section 143(3) read with section 144B of the I.T. Act making certain additions. Subsequently, there was a re-assessment initiated for A.Y. 2018 -19 under Section 148 of the I.T. Act in the name of Starlight LLP. However, while the re-assessment proceedings were ongoing, Starlight LLP was converted into a Private Limited Company (incorporated on 29^th April 2022) and a fresh Incorporation Certificate was issued to that effect in the name of ‘Starlight Systems (I) Pvt. Ltd.’ Subsequent thereto, a Company Petition was filed in the NCLT for amalgamation of Starlight Systems (I) Pvt. Ltd. into the Petitioner – Company. In pursuance thereof, the Petitioner claims that it informed the respective Jurisdictional Officers about the proposed scheme of amalgamation and called upon them to file their representations before the NCLT.

4. In the meantime, the re-assessment proceedings in relation to Starlight LLP culminated into an Assessment Order dated 31^st March 2024 passed under Section 147 read with section 144B of the I.T. Act making additions in the hands of Starlight LLP. This is not under challenge in the present Writ Petition. Thereafter, the NCLT vide an Order dated 29^th July 2024 approved the scheme of amalgamation between Starlight Systems (I) Pvt. Ltd. (amalgamating company) and the Petitioner (amalgamated company). Immediately thereafter, the Petitioner claims that it informed the Department about the approval of the amalgamation scheme by raising a request on the Income Tax Portal, which was accepted by the Department on 31st July 2024.

5. Despite this being the position, the Petitioner states that the Department issued yet another Show Cause Notice dated 17^th August 2024, under Section i48A(b) of the I.T. Act, for the A.Y. 2018 – 19, in the name of Starlight LLP seeking to re-open their case. The Petitioner, on behalf of Starlight LLP, filed a response on 26^th August 2024 challenging the reassessment on merits. Consequently, the Impugned Order dated 31^st August 2024 came to be passed under Section 148A(d), concluding that income chargeable to tax had escaped assessment in the case of Starlight LLP. The Impugned Notice dated 31^st August 2024 was also issued in the name of Starlight LLP.

6. At the outset, Mr. Walve, the learned Counsel appearing on behalf of the Petitioner, states that, by way of this Writ Petition, the Petitioner is only challenging the Order dated 31^st August 2024 passed under Section 148A(d) of the I.T. Act and the Notice dated 31^st August 2024 issued under Section 148, for A.Y. 2018 – 19. The primary ground of challenge is that the Impugned Notice issued under Section 148 is invalid as it has been issued to a non – existent entity. He submits that the issue raised in this Writ Petition is squarely covered by the decision of the Hon’ble Supreme Court in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Ltd. (SC)/[2019] 416 ITR 613 (SC). He also relies on a recent judgment of this Court in J M Mhatre Infra (P.) Ltd. v. Union of India (Bombay) which re-iterates the said legal position.

7. Per contra, Mr. Ranganayakulu, the learned counsel for the Revenue, states that an Affidavit-in-Reply has been filed on behalf of the Department in July 2025. He submits that in response to the Impugned Show Cause Notice under Section 148A(b), the Petitioner did not bring out the facts relating to any amalgamation of the erstwhile entity. In fact, the authorised representative who has signed on the said response has mentioned ‘Starlight Systems (I) LLP (now merged with Sunteck Realty Ltd.)’ Accordingly, he submits that if Starlight LLP was a non – existent entity, then its name should not have been mentioned in the response to the Show Cause Notice issued under Section 148A(b) of the I.T. Act. He further relies on a judgment of the Hon’ble Delhi High Court in Sky Light Hospitality LLP v. Assistant Commissioner of Income Tax, Circle 28(1), New Delhi (Delhi) to submit that in any case, such an irregularity in the Impugned Notice would be a curable defect under Section 292B of the I.T. Act as opposed to a jurisdictional defect. He further drew our attention to the fact that an SLP was filed against this judgment in Sky Light (supra) and the same came to be dismissed by the Hon’ble Supreme Court in Sky Light Hospitality LLP v. Assistant Commissioner of Income-tax (SC). Accordingly, he submitted that the Impugned Notice is sustainable in the eyes of law and thus, the Writ Petition need not be entertained.

8. To counter this, Mr. Walve submitted that in response to the Show Cause Notice issued under Section 148A(b), the mention of wordings ‘now merged with Sunteck Realty Ltd.’ would itself constitute sufficient intimation to the Assessing Officer, and merely countering the Show Cause Notice on merits would not take away the Petitioner’s right to challenge the Impugned Notice on jurisdictional grounds, once the issue on the legality of such notice is well settled. He pointed out that the Impugned Order itself records the name as ‘Starlight Systems (I) LLP (now merged with Sunteck Realty Ltd.)’. He also submitted that the Department was informed about the amalgamation scheme prior to initiation of the re-assessment. He further submitted that the facts in Sky Light (supra) were peculiar in nature and cannot be applied to the facts of this case. He drew our attention to another judgment of this Court in City Corporation Ltd. v. Assistant Commissioner of Income-tax (Bombay) wherein the decision of the Hon’ble Delhi High Court in Sky Light (supra) has been distinguished. Accordingly, he submitted that the Impugned Order and Notice deserve to be set aside on this ground itself.

9. We have heard the learned Counsel appearing on behalf of the parties, and have considered the rival submissions. The only challenge before us is to the Impugned Order passed under Section 148A(d) of the I.T. Act and the Impugned Notice issued under Section 148 thereof. The only issue before us is whether the same could have been passed/issued in the name of a non -existent entity. It is not in dispute that the erstwhile entity i.e. Starlight Systems (I) LLP was converted into a Private Limited Company [Starlight Systems(I) Pvt. Ltd.], which in turn, merged into the Petitioner Company vide NCLT’s Order dated 29^th July 2024 (Exhibit ‘L’). It is also not in dispute that the Petitioner had intimated the Income Tax Department about the amalgamation scheme prior to approval of the same. Even after approval of the scheme, the Petitioner had taken steps and made a request on the Income Tax Portal to that effect and the same was approved. Therefore, it is not a case where the Income Tax Department was not aware about the amalgamation of the entity. Thus, we find force in the submissions advanced on behalf of the Petitioner that the Impugned Notice dated 31^st August 2024, under Section 148 of the I.T. Act, issued in the name of the erstwhile entity viz. Starlight Systems (I) LLP (Exhibit ‘P-l) [for A.Y. 2018 – 19] cannot stand. This has now been consistently held not only by the Hon’ble Supreme Court in the case of Pr. CIT v. Maruti Suzuki India Ltd. [20l9] (SC), but several other decisions of this Court. The reliance placed by the Revenue on Sky Light (supra) is misconceived as the facts of that case were peculiar in nature. This has also been observed by the Hon’ble Supreme Court while dismissing the SLP in the said case. Moreover, this Court in City Corporation (supra) has already distinguished the said judgment in the following Paragraphs:

“25. Mr Suresh Kumar’s contention about the facts in the present case being akin to those in Skylight Hospitality LLP (supra) cannot be accepted. Except for submitting that the facts are similar or comparable, nothing was shown to us based upon which such a submission could be entertained, much less sustained. In any event, the Hon’ble Supreme Court, in the case of Maruti Suzuki (supra), considered the Delhi High Court’s decision in Skylight Hospitality LLP (supra) and held that the same was delivered “in the peculiar facts of the case”. In fact, even the Delhi High Court had clarified that the decision was in the case’s peculiar facts.

26. In that case, there was substantial and affirmative material and evidence on record to show that issuing the notice in the name of the dissolved company was only a mistake. The Court held that the Special Leave Petition filed by the Skylight Hospitality LLP (supra) against the judgment of the Delhi High Court rejecting its challenge was dismissed in the peculiar facts of the case, which weighed with the Court in concluding that there was merely a clerical mistake within meaning of Section 292B. The Hon’ble Supreme Court held that in Maruti Suzuki (supra) the notice under Section 143(2) under which jurisdiction was assumed by the assessing officer, was issued to a nonexistent company. The assessment order was issued against the amalgamating company. “This is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B”.

27. The argument now sought to be raised by Mr Suresh Kumar based on Skylight Hospitality LLP (supra) was considered and rejected by the Gujarat High Court in Anokhi Realty (P.) Ltd. v. Income-tax Officer (Gujarat). In Adani Wilmar Ltd. v. Assistant Commissioner of Income-tax (Gujarat), another Division Bench of the Gujarat High Court rejected the Revenue’s argument based on lack of interdepartmental coordination or non-application of mind when materials relating to amalgamation were already available with the department. The Court held that based upon such grounds, notices could not have been issued to a non-existent company.

28. The Delhi High Court, in the case of Principal Commissioner of Income Tax -7, Delhi v. Vedanta Limited ITA No. 88 of 2022 decided on 17 January 2025 (Delhi) rejected a contention very similar to that raised by Mr Suresh Kumar, relying on Skylight Hospitality LLP (supra). The Delhi High Court noted that the decision of the Supreme Court in Maruti Suzuki (supra), while enunciating the legal position concerning an order being framed in the name of a non-existent entity, had unequivocally held as being a fatal flaw which could neither be corrected nor rectified. It had held explicitly that such an order cannot be salvaged by taking recourse to Section 292B of the IT Act. The Court also noticed the peculiar facts obtained in Skylight Hospitality LLP (supra), which alone had led to the Supreme Court upholding the assessment made, albeit in the name of an entity that had ceased to exist.”

10. In view of the above discussion, we hereby quash and set aside the Impugned Order dated 31^st August 2024 passed under Section 148A(d) of the I.T. Act (Exhibit ‘P’) as well as the Impugned Notice dated 31^st August 2024 issued under Section 148 thereof (Exhibit P—’) for A.Y. 2018 – 19 and all consequential orders / notices emanating therefrom.

11. Rule is made absolute in the above terms and the Writ Petition is also disposed of in terms thereof. No orders as to costs.

12. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.