Bombay High Court: Assessment Orders Against Non-Existent Entities Void Ab Initio, Affirms Jurisdictional Limits of Assessing Officers in Amalgamation Cases

Court’s Decision:

The Bombay High Court held that assessment orders passed under Section 143(3) of the Income Tax Act, 1961, in the name of entities that ceased to exist due to amalgamation are void ab initio. The court observed that issuing such orders is a fundamental jurisdictional error and cannot be cured even by the conduct of the parties or through subsequent representations.

Facts of the Case:

1. The appeals and writ petitions concerned the validity of assessment orders for the assessment years 1993-94, 1994-95, and 1995-96.
2. Two companies, Reliance Polypropylene Ltd. (RPPL) and Reliance Polyethylene Ltd. (RPEL), were merged with Reliance Industries Ltd. (RIL) effective January 1, 1995, through a court-sanctioned scheme of amalgamation.
3. Despite the merger, the Assessing Officer (AO) passed assessment orders in the names of RPPL and RPEL for the relevant years.
4. The petitioner, RIL, challenged the validity of these orders, arguing that they were passed against entities that ceased to exist post-merger and were thus void ab initio.

Issues:

1. Primary Legal Question: Whether the assessment orders passed in the names of non-existent amalgamating entities are valid.
2. Jurisdictional Question: Whether the issue of the AO’s lack of jurisdiction can be raised at the appellate stage, years after the assessment orders were passed.

Petitioner’s Arguments (Reliance Industries Ltd.):

1. Void Orders: RIL argued that RPPL and RPEL ceased to exist as legal entities after the merger, and any assessment orders passed in their names lacked jurisdiction and were void in law.
2. Awareness of the Merger: The AO was fully aware of the merger, as evidenced by refund adjustments made in favor of RIL in December 1996, yet proceeded to issue assessment orders in the names of RPPL and RPEL in March 1997.
3. Legal Precedent: RIL relied heavily on the Supreme Court’s ruling in PCIT v. Maruti Suzuki India Ltd. (2019), which unequivocally held that assessment orders against non-existent entities are void as they constitute a jurisdictional defect.
4. Additional Evidence: RIL sought to bring additional documents on record under Order 41 Rule 27 of the CPC to establish that the AO was aware of the merger.

Respondent’s Arguments (Income Tax Department):

1. Delay in Raising Objection: The department argued that RIL raised the issue of jurisdiction almost three decades after the assessments were made, by which time it was impossible for the department to re-assess RIL.
2. Consent and Conduct: The department submitted that RIL, through its appeals before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, represented the merged entities and cannot now argue that the assessments were invalid.
3. Reliance on Precedent: The department cited PCIT v. Mahagun Realtors Pvt. Ltd. (2022), where the court allowed some leeway for procedural lapses in issuing notices, to argue that the defect was not fatal in this case.
4. No Prejudice to RIL: It was contended that the assessment orders caused no prejudice to RIL as it had taken over the liabilities of RPPL and RPEL as part of the merger.

Analysis of the Law:

1. Jurisdictional Nature of the Defect:
   • The court held that the jurisdiction of the AO is fundamental to the validity of any assessment order.
   • Jurisdiction cannot be conferred by the consent or conduct of the parties, nor can it be assumed in cases where it is inherently lacking.
2. Precedent in Maruti Suzuki:
   • The Supreme Court in PCIT v. Maruti Suzuki India Ltd. (2019) declared that assessment orders passed against non-existent entities are invalid and without jurisdiction.
   • This principle is rooted in the substantive illegality of issuing orders to entities that no longer exist, as such orders have no legal foundation.
3. Distinction from Mahagun Realtors:
   • The court distinguished the present case from PCIT v. Mahagun Realtors Pvt. Ltd., noting that the facts here involved a clear and substantive jurisdictional defect, whereas Mahagun Realtors dealt with procedural lapses.
4. Impact of Delay in Raising the Issue:
   • While the court acknowledged the long delay in raising the jurisdictional objection, it emphasized that a jurisdictional defect cannot be waived by delay or consent. The defect strikes at the root of the AO’s authority.
5. Admissibility of Additional Evidence:
   • The court allowed additional evidence under Order 41 Rule 27 of the CPC, observing that the documents were relevant to establish the AO’s knowledge of the merger and the resultant cessation of RPPL and RPEL.

Precedent Analysis:

1. PCIT v. Maruti Suzuki India Ltd.:
   • Established that orders against non-existent entities are null and void.
   • The court reiterated that issuing such orders is not a procedural lapse but a substantive illegality.
2. Ashish Estates & Properties Pvt. Ltd. v. CIT:
   • Held that questions of jurisdiction can be raised at any stage if they go to the root of the matter.
3. PCIT v. Mahagun Realtors Pvt. Ltd.:
   • Distinguished as it dealt with procedural issues, not substantive jurisdictional defects.

Court’s Reasoning:

1. Awareness of Merger:
   • The court found that the AO was fully aware of the merger when passing the assessment orders, as evidenced by adjustments made to refunds.
   • Despite this, the AO issued orders in the names of RPPL and RPEL, which had ceased to exist.
2. Fundamental Jurisdictional Error:
   • The issuance of orders against non-existent entities is not a curable defect but a jurisdictional error that invalidates the orders.
3. Inapplicability of Consent or Delay:
   • The court rejected the department’s argument that RIL’s conduct or the delay in raising the objection validated the assessments. Jurisdictional defects cannot be cured by consent or inaction.

Conclusion:

The court concluded that the assessment orders passed in the names of RPPL and RPEL after their merger with RIL were void ab initio and lacked legal validity. The appeals filed by RIL were allowed, and the assessment orders were set aside.

Implications:

1. Strict Adherence to Jurisdictional Requirements:
   • This judgment underscores the necessity for assessing officers to exercise due diligence and ensure that assessment orders are directed to the correct legal entity.
2. Reaffirmation of Legal Precedents:
   • The judgment strengthens the principle established in Maruti Suzuki, ensuring that jurisdictional defects are treated as substantive and not procedural.
3. Protection for Taxpayers in Amalgamation Cases:
   • Companies undergoing mergers or amalgamations can now rely on this judgment to challenge improper assessments directed at non-existent entities.

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