Mumbai: In a significant ruling, the Bombay High Court held on Friday that an Assessing Officer (AO) cannot pass an assessment order in the name of a non-existent entity. A bench of Justices MS Sonak and Jitendra Jain emphasised that once a company is dissolved through amalgamation, tax assessments must be conducted in the name of the amalgamated entity, not the defunct one.
The court quashed tax assessments against Reliance Polyethylene Ltd. (RPEL) and Reliance Polypropylene Ltd. (RPPL) for the assessment years 1993-94 to 1995-96, ruling that the Income Tax Department wrongly issued assessment orders in the names of these companies despite their merger with Reliance Industries Ltd. (RIL).
The bench held that assessments made in the name of dissolved companies were void ab initio (from the beginning) and allowed RIL’s appeals on jurisdictional grounds. However, the court clarified that the tax authorities could initiate fresh proceedings against RIL as per the law.
The dispute arose from tax assessments issued for RPEL and RPPL, which were merged with RIL under a court-approved scheme effective January 1, 1995. Despite this, the IT department issued assessment orders for these entities on March 27, 1997 (for AY 1994-95), and February 27, 1998 (for AY 1995-96), treating them as separate entities.
Senior advocate JD Mistri, representing RIL, argued that the AO had full knowledge of the merger yet continued proceedings against the defunct companies. He cited the Supreme Court’s ruling which held that assessments made against non-existent entities were void.
On the other hand, counsels for IT, Suresh Kumar and Vipul Bajpayee, contended that RIL had participated in the proceedings on behalf of the merged entities and raised the jurisdictional issue after nearly three decades. They argued that if RIL had challenged the assessment earlier, the revenue department could have reassessed RIL in time.
The High Court noted that the tax authorities were aware of the merger, as evidenced by internal documents adjusting RIL’s tax refunds against RPEL and RPPL’s liabilities. Therefore, the assessment orders should have been issued in RIL’s name.
The court ruled that the assessment orders in the name of RPEL and RPPL were invalid. It added that the corresponding appeals before appellate authorities also stood quashed. The court has clarified that the revenue department could initiate fresh proceedings against RIL if permitted under tax laws.
With the assessments declared void, the revenue department’s appeals for AY 1994-95 were dismissed as infructuous. A related writ petition filed by RIL in 1999 was also disposed of on similar grounds.
