Case Law Summary - eMUDHRA Limited - Karnataka High Court - Notice issued on Non-Existent Entity

Notice issued on Non-Existent Entity Judgement by Karnataka High Court in case of eMudhra Limited

WP – 56004 / 2018 ( In case the link is not working, please mention in comments)

Name of the Assessee – M/s. Emudhra Limited (Successor in interest to Taxsmile.com India Private Limited)

Facts of the case

The regular assessment of the Non-existent entity was (Taxsmile.com) was completed in a timely and proper manner. Subsequently the Non-Existent entity was merged with the Assessee (eMUDHRA Limited). Post the merger Taxsmile was struck off from the records and ceased to be a company / Legal entity in eyes of law.

Post the Amalgamation, Reassessment proceedings were initiated by the Income Tax Department and the notices u/s. 148, 142(1) were issued in the name of non-existent entity  (Taxsmile.com)

The Petitioner / Assessee has challenged the following before the High court;

• Notice issued under section 148 (Re-Assessment Notice) issued in name of Non-Existent Entity. 
• Order which overruled the objections filed by the Assessee against the above said notice
• Notice issued under section 142(1) issued in name of Non-Existent Entity.

Here the Petitioner had not informed the tax officers regarding the merger of the non-existent entity with the Assessee; The same was also not mentioned in the objections filed before the Authorities against Reassessment notice. Further this issue is raised first time in form of a writ petition to the High Court.

Revenue emphasized that in case of Maruti Suzuki (Supreme Court) case law, the Assessee had informed the Tax authorities. The notice was issued in the non-existent entity’s name even after intimation by the Amalgamated entity. In the current scenario, the Assessee did not whatsoever inform the details of amalgamation to the Tax Authorities.

High Court's ruling 

The High court observed the following points;

1.       The Revenue had issued Transfer memo so as to transfer the jurisdiction of the non-existent entity to the jurisdiction of the Amalgamated entity.

2.       The Compliance response sheet furnished by the non-existent entity indicates that it has been merged with the Amalgamated entity and the revised return of the merged entity has been filed and acknowledged by the Department.

3.       The Revenue’s argument cannot be allowed as the Registrar of Companies (ROC) before filing affidavit before the High court (during the merger), had issued notice to the Income Tax Dept. Wherein appropriate reply was also received from the Income Tax department.

Keeping in view the above, the department cannot pretend ignorance of the amalgamation merely because no specific objection was raised by the Assessee / Petitioner. Accordingly, observing the Supreme court’s ruling in case of Maruti Suzuki, held that the notice issued by the AO u/s. 148 in name of non-existent entity is a substantive illegality. The same is not curable under section 292B. The notice u/s. 148, 142(1) and order overruling objections of the petitioner are hence quashed. 🙌

Concluding thoughts

It is very critical to note that the High court had not remanded the matter back to the AO, as remanding would have been a futile exercise and beyond timelines applicable for issuing the respective notices. Similar evaluation will have to be made for each case where this case law is being referred to.