Marut Nandan & Co. vs. ITO, ITA No.4751/Del/2024
Income Tax Appellate Tribunal (ITAT), Delhi Bench has quashed a reassessment order passed under Section 147 r.w.s. 143(3) of the Income Tax Act, 1961 against a dissolved partnership firm, Marut Nandan & Co. (ITA No. 4751/Del/2024).
The Tribunal held that issuing a notice under Section 148 on a non-existent entity is a substantive illegality and not merely a procedural irregularity, thus vitiating the entire reassessment proceedings.
Case Background:
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The assessee, Marut Nandan & Co., was a partnership firm dissolved on 31.03.2012.
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The Income Tax Department was formally notified of the dissolution on 28.09.2012, along with a request to surrender the PAN.
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Despite this, a reassessment notice under Section 148 was issued on 28.03.2019 in the name of the dissolved firm for AY 2012–13.
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The AO further proceeded with reassessment and made an addition of ₹6.39 crore under Section 68, alleging bogus loss from penny stock transactions in Banas Finance Ltd.
Key Legal Issues and Findings:
1. Notice on Non-Existent Firm Is Invalid:
The Tribunal reaffirmed the settled law that a notice under Section 148 on a non-existent entity is void ab initio, relying on:
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PCIT v. Maruti Suzuki India Ltd. (SC)
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City Corporation Ltd. v. ACIT (Bom HC, 2025)
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Alok Knit Exports Ltd. (Bom HC)
The firm having ceased to exist before the notice date, the jurisdiction assumed by the AO was without legal foundation.
2. Procedural Non-Compliance Under GKN Driveshafts:
Despite repeated requests, the AO:
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Did not furnish reasons recorded for reopening
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Did not share the sanction obtained under Section 151
This denied the assessee its legal right to object to reopening, violating the Supreme Court ruling in GKN Driveshafts (India) Ltd. v. ITO (259 ITR 19). As such, the entire reassessment was quashed.
3. Inapplicability of Section 68:
The Tribunal also addressed the merits of the ₹6.39 crore addition:
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The assessee had suffered business losses from penny stock transactions.
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There was no unexplained credit, only a debit/outflow.
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Thus, invoking Section 68 for such loss was factually and legally untenable.
Conclusion:
This judgment is a major victory for taxpayers, emphasizing that:
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Notices must be issued to the correct legal entity, and
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Procedural safeguards under the Act must be followed, failing which the entire reassessment gets vitiated.
The Tribunal’s well-reasoned verdict serves as a safeguard against arbitrary reassessments, especially in cases involving non-existent or dissolved entities.