High Court Quashes Section 148A Proceedings Issued to a Non-Existent Entity After Demerger

High Court Quashes Section 148A Proceedings Issued to a Non-Existent Entity After Demerger

NSI Infinium Global Ltd. received a notice under Section 148A alleging income escapement of Rs. 44.87 crore for AY 2021-22, even though it had filed a NIL return. In its reply, the company explained that all relevant transactions belonged to its E-commerce undertaking, which had already been demerged with effect from 01.04.2020 and transferred to Suvidhaa Inforserve Ltd. The transferee’s GST data, books of account, and assessment for AY 2022-23 had been examined by the same AO, who had accepted the demerger.

Still, the AO passed a Section 148A(3) order and issued a Section 148 notice to the demerged, non-existent company. Aggrieved, the assessee company filed the present appeal.

Issue before HC: Whether reassessment notices under Sections 148 and 148A can be issued to an entity that no longer exists due to a demerger already acknowledged by the AO.

HC’s Ruling: The High Court held the proceedings to be unsustainable and quashed them. It held that the AO had explicit knowledge of the NCLT-approved demerger, having already recorded it in the assessment order passed under Section 143(3) for AY 2022-23.

The AO issued a Section 148A notice and passed a 148A(3) order against a non-existent company, which is legally impermissible. The AO took contradictory stands in consecutive years, ignoring the petitioner’s reply that clearly pointed out the demerger and transfer of business.

The Court issued a stern caution to the AO to remain vigilant and exercise due care in future assessments, especially on factual matters. The impugned order under Section 148A(3) and the Section 148 notice were quashed and set aside, with liberty to the Department to issue a fresh notice if legally permissible.

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