Isabella Mariam

The High Court of Bombay Division Bench of Justice B. P. Colabawalla and Justice Amit S. Jamsandekar set aside a reassessment notice and the resulting assessment order issued under Section 148 of the Income Tax Act against a company that had ceased to exist following its conversion into an LLP. The Court held that reopening an assessment in the name of a non-existent entity is impermissible, rendering the action invalid. The matter concerned the Revenue’s attempt to reassess interest income and investments that had already transferred to the LLP upon conversion. The petitioner argued that proceedings could not be initiated against an entity that no longer existed, and the Court accepted this position, quashing the impugned notice and order.

The matter concerned a writ petition filed by an LLP that had succeeded a private limited company upon conversion on 17 March 2016. The petition challenged a notice dated 30 March 2021 issued under section 148 of the Income Tax Act to the former company for Assessment Year 2017–18. The petitioner stated that the former entity had ceased to exist from the date of conversion. The notice was followed by draft and final assessment orders issued in March 2022 against the non-existent company.

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The petitioner contended that the reassessment was directed to an entity that no longer existed and that the income alleged to have escaped assessment had already been offered to tax by the LLP in its return for Assessment Year 2017–18. It also submitted that objections filed against the reopening were not disposed of. The petitioner relied on documents and records previously submitted during scrutiny proceedings, including bank statements and information on fixed deposits transferred upon conversion. The reassessment invoked sections 148, 142(1), and 69 of the Income Tax Act, treating the fixed-deposit amounts as unexplained investment and the interest earned as undisclosed income. The petitioner challenged the legality of these proceedings.

The Court recorded the undisputed fact that the former company “ceased to exist with effect from 17th March 2016.” It observed that “the notice under section 148 has been issued to the erstwhile company, and that too for A.Y. 2017-18, when the said company was not in existence.” The Bench stated that the only stated basis for the reopening was the allegation that the erstwhile company had failed to file its return of income, adding: “We fail to understand how a company, which was not in existence in A.Y. 2017-18, can file its return of income for the said assessment year.”

Referring to the decision of the Supreme Court, the Court quoted: “despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist… the jurisdictional notice was issued only in its name,” and further, “Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law.” The judgment also reproduced: “There is a value which the Court must abide by in promoting the interest of certainty in tax litigation.”

The Bench recorded that its view aligned with the earlier decision: “Following the decision of the Hon'ble Supreme Court in Maruti Suzuki India Ltd. (supra), this Court… also quashed the notices issued under section 148 to a non-existent entity.”

The Court recorded the petitioner’s statement: “the Petitioner has also filed an Appeal… challenging the impugned assessment order… [and] undertakes that the Appeal… shall be withdrawn within a period of two weeks.” This was accepted as “an undertaking given to the Court.”

The Court directed that: “Considering the law laid down as discussed above, we are clearly of the view that in the present case, the notice issued under section 148 to the erstwhile company, namely, Erangal Comtrade and Consultancy Private Limited, cannot be allowed to stand and is hereby quashed and set aside. Once we have quashed the notice issued under section 148, then naturally the impugned assessment order dated 30th March 2022 also cannot be allowed to stand and is hereby quashed and set aside since “the said assessment order emanates from the notice issued under section 148.”

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It recorded the petitioner’s undertaking that the pending appeal before the CIT (Appeals) “shall be withdrawn within a period of two weeks from today,” which was formally accepted. It added that if the present order were to be challenged and subsequently set aside by Supreme Court, then “the Appeal filed by the Petitioner… shall be restored to file and then decided on its own merits and in accordance with law.”

 “Rule is made absolute… and the Writ Petition is also disposed of in terms thereof.”

Advocates Representing the Parties

For the Petitioners: Mr. P. J. Pardiwalla, Senior Advocate, with Mr. Nitesh Joshi, instructed by Mr. Atul K. Jasani

For the Respondents: Mr. Abhishek R. Mishra, Advocate

Case Title: Erangal Comtrade and Consultancy LLP v. Assistant Commissioner of Income Tax & Others
Neutral Citation: 2025:BHC-OS:20406-DB
Case Number: WRIT PETITION NO.2033 OF 2022
Bench: Justice B. P. Colabawalla, Justice Amit S. Jamsandekar