Assessment Order Passed in Name of Merged Entity Held Void Ab Initio: ITAT

The Tribunal held that an assessment order passed in the name of a merged company is void ab initio and therefore allowed the appeal of the company.

The present petition has been filed by HCL Infosystem Ltd against DCIT, challenging the order dated July 16, 2019, passed by the CIT(A).

Background of the case

The assessee filed its income tax return on March 15, 2007, declaring an income of Rs. 2,307,299,650. The case was selected for scrutiny, and the assessing officer completed the assessment in December 2008 after making certain additions. In subsequent proceedings, some issues were remanded back to the assessing officer by the tribunal in 2017 for reconsideration, particularly regarding creditor balances and licence fee disallowance.

However, during the remand proceedings, notices were issued, and the final order dated 7 December 2018 was passed in the name of HCL Infinet Ltd. By that time, HCL Infinet Ltd had already merged with HCL Infosystems Ltd with effect from April 1, 2006, pursuant to a scheme approved by the Delhi High Court on March 20, 2007. As a result, HCL Infinet Ltd. had ceased to exist as a separate legal entity.

Despite being informed about the merger during the assessment proceedings, the assessing officer passed the order in the name of the non-existent company. The CIT(A) later dismissed the company’s challenge against this action.

Tribunal’s Decision

The company then approached the Tribunal, and the assessee argued that passing an assessment order in the name of a non-existent entity is illegal and void from the beginning. Apart from this, the company cited several court decisions, including the Supreme Court’s ruling in the Maruti Suzuki case, which clearly held that orders passed against an amalgamated (merged) entity that no longer exists are invalid in law.

After considering all the facts, the Tribunal observed that the tax department was aware of the merger, as the company had formally informed the assessing officer during the proceedings. The Tribunal held that an assessment order passed in the name of a non-existent entity is void ab initio.

Accordingly, the Tribunal set aside the impugned assessment order and allowed the appeal of the assessee. As a result, the appeal filed by HCL Infosystems Ltd. was allowed.