Court Rules Assessment Notice Under Section 148 Void as Issued to Dissolved Firm
In a significant ruling, the Bombay High Court has quashed an income tax assessment notice issued to a non-existent entity, reinforcing the legal principle that such notices are void from the outset. The Division Bench consisting of Justices B. P. Colabawalla and Amit S. Jamsandekar presided over the case involving J M Mhatre Infra Pvt. Ltd., which had challenged the legality of a tax notice dated July 25, 2022, and a subsequent assessment order issued by the Revenue.
The petitioner, J M Mhatre Infra Pvt. Ltd., previously a partnership firm, had merged into a company effective January 29, 2010. The contested notice was issued under Section 148 of the Income Tax Act, 1961, aiming to reopen the assessment for the financial year 2015-16 for the erstwhile firm. However, the firm had ceased to exist as it was already merged into the petitioner company at the time the notice was issued.
Counsel for the petitioner argued that since the notice was issued to a non-existent entity, it was null and void. This argument found support in the Supreme Court's decision in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Limited, which established that assessment notices cannot be validly issued to entities that do not exist.
The Revenue's defense rested on Section 189 of the Income Tax Act, which allows the assessment of a firm's income despite its dissolution. However, the court found this provision inapplicable as the firm in question was non-existent during the relevant assessment period. The court emphasized that Section 189 is intended to address situations where a firm has been dissolved but does not apply when the entity was already non-existent at the time of the notice issuance.
In its judgment, the court concluded that the issuance of the notice to a non-existent firm was fundamentally flawed, leading to the quashing of both the notice and the subsequent assessment order dated May 18, 2023. The court's decision underscores the importance of adhering to procedural correctness in tax assessments and reinforces the protection of entities against void legal actions.
The writ petition was disposed of, and the rule was made absolute, with no costs awarded. This decision will be digitally signed and distributed to the concerned parties.
Bottom Line:
Assessment notice under Section 148 of the Income Tax Act, 1961 cannot be issued to a non-existent entity, and such notice is void ab initio.
Statutory provision(s): Income Tax Act, 1961 Sections 148, 189
J M Mhatre Infra Pvt. Ltd. v. Union of India, (Bombay)(DB) : Law Finder Doc Id # 2833635
