Reassessment Against Non‑Existent Company Post‑Conversion into LLP Is Void: Commentary on Erangal Comtrade & Consultancy LLP v. ACIT

1. Introduction

This commentary examines the decision of the Bombay High Court in Erangal Comtrade and Consultancy LLP (as successor in interest of Erangal Comtrade and Consultancy Private Limited) v. Assistant Commissioner of Income Tax, Circle 2(1)(1), Mumbai & Ors., decided on 3 November 2025 by a Division Bench comprising B. P. Colabawalla and Amit S. Jamsandekar, JJ.

The case lies at the intersection of income-tax reassessment law and corporate restructuring via conversion of a private company into an LLP. The core legal question was:

Whether a notice under section 148 of the Income Tax Act, 1961 (“IT Act”) and a consequent reassessment order can validly be issued and framed in the name of a company which has ceased to exist upon its conversion into a Limited Liability Partnership (LLP).

The petitioner, Erangal Comtrade and Consultancy LLP (“Petitioner LLP”), was the successor to Erangal Comtrade and Consultancy Private Limited (“erstwhile company”). Despite the company’s conversion into an LLP with effect from 17 March 2016, the Revenue issued a reopening notice under section 148 and passed a reassessment order for Assessment Year (AY) 2017‑18 in the name of the erstwhile company.

The case thus required the Court to apply and extend the existing jurisprudence—particularly the Supreme Court’s ruling in Principal Commissioner of Income Tax v. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC)—to a conversion scenario under the Limited Liability Partnership Act, 2008, rather than a classic amalgamation.

2. Summary of the Judgment

The Bombay High Court:

Quashed the notice dated 30 March 2021 issued under section 148 of the IT Act in the name of the erstwhile company for AY 2017‑18, holding it to be invalid and without jurisdiction as it was issued to a non‑existent entity.
Set aside the consequential draft assessment order dated 29 March 2022 and the final reassessment order dated 30 March 2022, along with the consequent demand notice, as they emanated from an invalid reopening notice.
Based its decision squarely on the binding precedent of the Supreme Court in Maruti Suzuki and its own earlier decision in Diversey India Hygiene Private Limited v. ACIT, thereby treating the defect of issuing notice to a non‑existent entity as a jurisdictional defect that cannot be cured by participation or any other procedural provision.
Expressly declined to examine other grounds urged by the petitioner, such as (a) failure to dispose of objections prior to framing the assessment, and (b) absence of any income escapement since the relevant interest income had already been taxed in the hands of the LLP.
Recorded an undertaking by the Petitioner LLP that it would withdraw its statutory appeal pending before the Commissioner (Appeals) against the reassessment order within two weeks, while protecting its right to have that appeal revived if the present High Court decision were to be overturned by the Supreme Court.

In essence, the Court reaffirmed and applied the principle that reassessment proceedings initiated in the name of a non‑existent entity are void ab initio and cannot survive in law.

3. Factual Background and Procedural History

3.1. Conversion from Company to LLP

The original entity was Erangal Comtrade and Consultancy Private Limited, a private limited company engaged in trading of commodities, investment holding, earning dividend, interest, capital gains and rental income.
On 3 March 2016, the company filed LLP Form No. 2 and LLP Form No. 18 with the Registrar of Companies (RoC) under the Limited Liability Partnership Act, 2008 (“LLP Act”) and the Limited Liability Partnership Rules, 2009, seeking conversion into an LLP.
The RoC issued a Certificate of Registration in Form No. 19 under Rule 32(1) read with section 58(1) of the LLP Act, certifying conversion of the company into Erangal Comtrade and Consultancy LLP with effect from 17 March 2016.
By operation of law on this conversion:
- The erstwhile company ceased to exist from 17 March 2016; and
- All assets (including Fixed Deposits), liabilities and obligations stood vested in the LLP.

3.2. Returns of Income for AY 2016‑17 and AY 2017‑18

For AY 2016‑17:
- The erstwhile company filed a return of income for the period 1 April 2015 to 16 March 2016.
- The Petitioner LLP filed a return of income for the period 17 March 2016 to 31 March 2016.
- This bifurcation and treatment were accepted by the Revenue.
For AY 2017‑18:
- On 25 October 2017, the LLP filed its return of income, offering to tax, inter alia:
  - Interest on Fixed Deposits (FDs) that had vested in it upon conversion from the company, including interest on renewed FDs.

3.3. Scrutiny Assessment of the LLP for AY 2017‑18

The return of the LLP for AY 2017‑18 was selected for scrutiny.
During the scrutiny assessment:
- The LLP fully disclosed the fact of conversion of the company into the LLP.
- Details of the FDs and their renewals were provided.
- The LLP furnished the HDFC Bank statement for 1 April 2016 to 31 March 2017.
On this basis, an assessment under section 143(3) dated 4 December 2019 was passed, wherein:
- Interest income of ₹ 50,34,979 from the FDs was assessed to tax in the hands of the LLP.
- However, TDS credit of ₹ 5,04,371 was denied because the banks had deducted tax using the PAN of the erstwhile company, and hence the credit did not appear in the LLP’s Form 26AS.
The LLP:
- Filed a rectification application before the Assessing Officer seeking grant of the TDS credit, explaining the conversion and succession. This rectification application remained pending.
- Also filed an appeal against the 143(3) order before the Commissioner of Income Tax (Appeals), which was also pending.

3.4. Reopening of Assessment in the Name of the Non‑Existent Company

On 30 March 2021, the Assessing Officer (Respondent No. 1) issued a notice under section 148:
- Not to the LLP, but to the erstwhile company, which had ceased to exist as of 17 March 2016.
- The reopening was for AY 2017‑18—a year in which the company was indisputably non‑existent.
The LLP responded, informing the Assessing Officer that:
- The company had been converted into the LLP with effect from 17 March 2016.
- The erstwhile company was no longer in existence and the LLP was its successor.
Despite this, on 3 November 2021, the Assessing Officer served on the erstwhile company the recorded reasons for reopening. The reasons:
- Referred to FDs of ₹ 22,11,00,000 and interest thereon of ₹ 50,34,979.
- Noted that tax had been deducted at source under section 194A on the interest.
- Alleged that since the erstwhile company had not filed a return for AY 2017‑18, income had escaped assessment.

3.5. Objections by the LLP and Final Reassessment Order

The LLP filed detailed objections on 20 January 2022 and 29 January 2022, contending that:
- The section 148 notice was issued to a non‑existent entity and was therefore void.
- The relevant interest amount of ₹ 50,34,979 had already been:
  - Disclosed in the LLP’s return for AY 2017‑18; and
  - Assessed to tax in the 143(3) order dated 4 December 2019.
- There was therefore no escapement of income.
Ignoring these objections and without first disposing of them, the Assessing Officer:
- Issued notices under section 142(1); and
- Passed a final reassessment order dated 30 March 2022 in the name of the erstwhile company, treating:
  - ₹ 22,11,00,000 as unexplained investment under section 69; and
  - ₹ 50,34,979 as undisclosed interest income.
- Raised a demand of ₹ 16,57,21,500 against the erstwhile company.

3.6. Writ Petition Before the Bombay High Court

The Petitioner LLP approached the High Court by way of the present writ petition, challenging:

The section 148 notice dated 30 March 2021; and
The final reassessment order dated 30 March 2022, along with consequential demand.

The primary grounds advanced were:

The reassessment proceedings were initiated against a non‑existent entity and therefore were illegal and bad in law.
The final reassessment order was passed without disposing of objections to reopening, in violation of established procedure.
There was in fact no escapement of income, as the very income in question (interest on FDs) had already been offered to tax and assessed in the hands of the LLP.

4. Detailed Analysis

4.1. Precedents Cited and Their Influence

4.1.1. Principal Commissioner of Income Tax v. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC)

This Supreme Court decision is central to the High Court’s reasoning. In Maruti Suzuki, the assessee company had amalgamated with another company pursuant to a scheme of amalgamation sanctioned by the High Court. Despite being informed of the amalgamation, the Assessing Officer:

Issued a reassessment notice in the name of the amalgamating (non‑existent) company; and
Framed a reassessment order on that basis.

The Supreme Court held:

An amalgamating company ceases to exist upon approval of the scheme of amalgamation.
A notice issued in the name of a non‑existent entity is a jurisdictional defect, not a mere procedural irregularity.
Participation by the amalgamated company in reassessment proceedings does not cure the defect:
“Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law.”
The Court stressed the importance of consistency and certainty in tax litigation:
“There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty.”

The Bombay High Court lifted and applied this reasoning almost verbatim, concluding that once the entity has legally ceased to exist, any notice or assessment in its name is void.

4.1.2. CIT v. Spice Enfotainment Ltd.

The Supreme Court in Maruti Suzuki also relied on its earlier decision in CIT v. Spice Enfotainment Ltd.. In Spice Enfotainment, the Court had similarly held that an assessment framed in the name of a non‑existent amalgamating company is a nullity, and that such a defect cannot be cured by section 292B of the IT Act or by the participation of the amalgamated entity.

The Maruti Suzuki judgment noted that the appeal of the Revenue in Spice Enfotainment had been dismissed by a coordinate Bench, thus confirming the principle that:

A notice or assessment on a non‑existent entity is fundamentally invalid; and
There can be no “estoppel against law” merely because the successor entity participated in the proceedings.

The Bombay High Court quoted Maruti Suzuki, which itself had adopted and reinforced the rule laid down in Spice Enfotainment. The chain of authority thereby gave the High Court little discretion: once it found that the company had ceased to exist, it was bound to strike down the reassessment.

4.1.3. Diversey India Hygiene Private Limited v. ACIT (Bom HC, 8 November 2023)

The High Court also referred to its own previous decision in:

Diversey India Hygiene Private Limited v. Assistant Commissioner of Income Tax, Circle 3(2) & Ors., Writ Petition No. 3034 of 2022 with Writ Petition No. 3505 of 2022, decided on 8 November 2023.

In that case, applying Maruti Suzuki, the Court had quashed notices issued under section 148 to a non‑existent entity. By citing Diversey India, the Bench in Erangal Comtrade confirmed that the High Court itself had already accepted and implemented the Maruti Suzuki principle in reassessment matters.

Thus, the decision in Erangal Comtrade is not an innovation but a logical application and extension of these settled precedents to a case of conversion into an LLP.

4.2. The Court’s Legal Reasoning

4.2.1. Foundational Fact: Non‑Existence of the Company

The Court identified a critical undisputed fact (para 13 of the judgment):

The erstwhile company ceased to exist with effect from 17 March 2016 due to its conversion into an LLP under the LLP Act, evidenced by the RoC’s certificate in Form 19.

This was accepted by the Revenue. The reassessment, however, related to AY 2017‑18, which corresponds to the previous year 1 April 2016 to 31 March 2017. During this entire period:

The company did not exist in law; the business was carried on by the LLP.

4.2.2. Impossibility of Compliance: “How Can a Non‑Existent Company File a Return?”

The only basis for reopening, as recorded by the Assessing Officer, was that the erstwhile company had not filed a return of income for AY 2017‑18. The Court responded:

“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.”

This observation underscores a point of legal impossibility: a tax authority cannot demand compliance (such as the filing of a return or responding to a notice) from an entity that has no legal existence during the period in question.

4.2.3. Application of the Maruti Suzuki Principle

Having established that the entity in whose name the reopening notice was issued had ceased to exist, the Court directly applied the Maruti Suzuki doctrine:

A notice under section 148 is a jurisdictional foundation for reassessment.
If such a notice is addressed to a non‑existent entity, the Revenue lacks jurisdiction to reopen the assessment.
Consequently, all subsequent proceedings, including draft and final assessment orders and demand notices, are vitiated.

In para 16, the Court explicitly held that the notice under section 148 issued to the erstwhile company:

“cannot be allowed to stand and is hereby quashed and set aside”;
And since the assessment order emanates from this invalid notice, it too is quashed and set aside.

4.2.4. Jurisdictional vs Procedural Defects

Though the Court does not explicitly use the terms, its approach is consistent with the jurisprudential distinction between:

Jurisdictional defects: Where the authority lacks power over the person or subject-matter (e.g., issuing notice to a non‑existent person). These render proceedings null and void.
Procedural irregularities: Errors in the manner of exercising power (e.g., minor defects in notice, curable under provisions like section 292B in some circumstances).

By categorically striking down the notice and consequential assessment without considering any curative measures or participation by the LLP, the Court treated the defect as jurisdictional, following Maruti Suzuki and Spice Enfotainment.

4.2.5. Non‑Consideration of Other Grounds

The Court expressly declined to adjudicate on the other two grounds raised by the petitioner:

Failure to decide objections before passing the reassessment order:
- The petitioner argued that the Assessing Officer could not proceed to frame the reassessment order without first disposing of objections to the reopening—reflecting the rule laid down in GKN Driveshafts jurisprudence.
- The Court, however, found it unnecessary to address this given its conclusion on the jurisdictional invalidity of the notice.
No escapement of income:
- The LLP had demonstrated that the very interest income (₹ 50,34,979) forming the basis of reopening had already been offered to tax and assessed in its hands under section 143(3).
- The Court declined to examine this contention, since the entire reassessment was already held void.

This restraint is significant: the Court confined itself to the clean jurisdictional point, thereby reinforcing its status as a strong precedent specifically on notices to non‑existent entities.

4.2.6. Disposition of the Parallel Statutory Appeal

A practical issue arose because the LLP had already filed a statutory appeal before the CIT (Appeals) against the reassessment order. To avoid parallel proceedings:

Counsel for the LLP undertook to withdraw the appeal before the CIT (Appeals) within two weeks.
The Court:
- Accepted this statement as an undertaking; and
- Provided that if the Revenue were to challenge the present judgment before the Supreme Court and succeed, the withdrawn appeal would stand restored before the CIT (Appeals) and be decided on its merits.

This mechanism prevents duplicative litigation while preserving the taxpayer’s rights in the event of a higher court reversal, reflecting a balanced and pragmatic judicial approach.

5. Impact and Implications

5.1. Reinforcement of the “Non‑Existent Entity” Doctrine

The decision significantly strengthens and localizes for the Bombay jurisdiction the principle that:

Any reassessment notice or order issued in the name of an entity that has ceased to exist—whether by amalgamation, merger, demerger, or conversion into an LLP—is void ab initio.

In particular, the case:

Extends the Maruti Suzuki doctrine (primarily about amalgamation) to conversion of a private company into an LLP under the LLP Act.
Makes clear that the same standard of invalidity applies: once the entity is legally defunct, tax proceedings cannot be initiated or continued in its name.

5.2. Compliance Expectations on the Revenue

The judgment implicitly raises the standard of due diligence expected from the tax administration:

Assessing Officers must:
- Verify the current legal status of an assessee entity before issuing notices—especially in cases where information suggests corporate restructuring.
- Consult RoC records, MCA portals, and prior assessment files to confirm whether:
  - Amalgamation has taken place;
  - Demerger has occurred;
  - The company has been converted into an LLP; or
  - The entity has been struck off or dissolved.
Failure to do so risks entire reassessment proceedings being invalidated irrespective of the underlying tax merits.

5.3. Guidance for Taxpayers Undergoing Restructuring / LLP Conversion

For taxpayers who convert their businesses (particularly from companies to LLPs), this decision offers important practical lessons:

Ensure timely and complete documentation of conversion:
- Maintain Form 19 certificates, LLP agreements, board resolutions, etc.
- Intimate all relevant authorities (including tax authorities and banks) about the conversion.
Monitor TDS credits carefully:
- As in this case, banks may continue to deduct TDS under the old company’s PAN.
- Taxpayers must actively seek rectification to link such TDS to the successor LLP and avoid mismatches that may trigger misguided reassessment.
If reopening notices or assessments are issued in the name of the old entity:
- They should be promptly challenged—ideally by way of a writ petition—as jurisdictionally invalid.
- Participation in such proceedings should be carefully evaluated, as it may complicate the litigation, though it cannot cure the jurisdictional defect.

5.4. Clarifying the Limits of “Estoppel” and Curative Provisions

Though not explicitly discussed, the decision is consistent with the line of authority holding that:

There can be no “estoppel against law”—that is, a party’s participation cannot validate an action that the law itself does not recognise as valid (e.g., proceedings against a non‑existent person).
Curative provisions like section 292B—which validate notices or assessments with “mistakes, defects or omissions” if they are “in substance and effect in conformity with or according to the intent and purpose of this Act”—cannot apply where:
- The very jurisdictional precondition of a valid notice on a living assessee is absent.

The decision thereby cements the conceptual boundary between:

Formal defects (which may sometimes be cured); and
Substantive jurisdictional errors (which are incurable and render proceedings null).

5.5. Avoiding Double Taxation and Administrative Overreach

Even though the Court did not decide the issue of income escapement, the facts are revealing:

The very interest income used as the basis for reopening (₹ 50,34,979) had already been:
- Reported in the LLP’s return; and
- Assessed to tax under section 143(3) in 2019.
The reopening effectively sought to tax the same income again—this time in the hands of the non‑existent erstwhile company, and with even harsher consequences (unexplained investments under section 69).

Although the Court avoided ruling on this second layer of illegality (double taxation / lack of “reason to believe”), the facts serve as a cautionary reminder that:

Reassessment powers must not be used mechanically or merely because TDS appears in an incorrect PAN.
Officers must correlate information (such as TDS, return data, and earlier assessments) to avoid:
- Unwarranted reopening; and
- Unjustified demands on assessees.

6. Complex Concepts Simplified

6.1. “Non‑Existent Entity” in Tax Law

An entity becomes “non‑existent” in law when:

It is amalgamated into another company;
It is converted into another legal form (such as a company into an LLP under the LLP Act);
It is struck off or liquidated under the Companies Act; or
It is otherwise dissolved under applicable law.

Once non‑existent:

It cannot file returns, respond to notices, or be assessed.
All such obligations or rights pass to the successor entity as provided by the particular statute (e.g., LLP Act, Companies Act, scheme of amalgamation).

6.2. Reassessment Under Sections 147–148

Broadly:

Section 147 empowers the Assessing Officer to reassess income if there is “reason to believe” that income has escaped assessment.
Section 148 mandates that such reassessment can only be initiated by issuing a notice to the assessee, requiring the assessee to file a return for the relevant assessment year.

Therefore:

A valid section 148 notice is the jurisdictional foundation for any reassessment.
If the notice is issued to:
- A wrong person; or
- A person who does not exist in law;
the entire reassessment proceeding is void.

6.3. Conversion of a Company into LLP (Section 58, LLP Act)

Section 58(1) of the LLP Act, 2008, read with Rule 32 of the LLP Rules, provides that upon issuance of a certificate of registration (Form 19) by the RoC:

The private company is deemed to be dissolved and is removed from the records of the RoC.
All assets, liabilities, rights, and obligations of the company vest in the LLP.

In tax terms:

The LLP becomes the successor entity responsible for income-tax compliance in relation to the business formerly carried on by the company.

6.4. “Estoppel Against Law”

The phrase “no estoppel against law” means that:

Even if a party participates in a proceeding or makes admissions, it cannot create validity for something that the law itself deems invalid.
For example, an amalgamated company cannot, by its conduct, validate an assessment framed on a non‑existent amalgamating company.

In Maruti Suzuki (quoted by the Bombay High Court), the Supreme Court held that participation by the successor entity in reassessment proceedings:

“cannot operate as an estoppel against law.”

7. Conclusion and Key Takeaways

The decision in Erangal Comtrade and Consultancy LLP v. ACIT firmly reiterates a critical jurisdictional principle in Indian tax law:

A reassessment notice issued in the name of a non‑existent entity—whether due to amalgamation, merger, or conversion into an LLP—is void, and any assessment order pursuant to such a notice is equally invalid.

Key takeaways include:

For the Revenue:
- Meticulous verification of the current legal status of entities before issuing notices is indispensable.
- Reopening mechanisms cannot be used casually where TDS or PAN mismatches are present; a holistic view of prior assessments and filings is required.
For Taxpayers:
- Proper documentation and timely intimation of corporate restructuring (including conversions into LLPs) are crucial.
- Notices and orders issued in the name of defunct predecessor entities can and should be challenged via writ petitions as jurisdictionally invalid.
For Legal Doctrine:
- The judgment strengthens the Maruti Suzuki and Spice Enfotainment line of cases in the context of LLP conversions, not merely amalgamations.
- It reinforces the conceptual divide between jurisdictional defects (which render proceedings void) and procedural irregularities (which may sometimes be cured).
- It emphasises the higher value attached to consistency and certainty in tax administration, as highlighted by the Supreme Court.

In the broader landscape of tax litigation involving corporate reorganisations, Erangal Comtrade serves as a clear and authoritative reminder: once an entity ceases to exist in law, the tax department must recognise and respect that change, both procedurally and substantively. Any attempt to proceed against the defunct entity, even in good faith, cannot be sustained in law.