2020 (10) TMI 350 - AT - Income Tax

Validity of reopening of assessment u/s 147 - non issuance and service of a valid notice under section 148 and impugned assessment had been completed in the name of a non-existent entity - scheme of amalgamation undertaken - Jurisdiction of AO issuing notice - HELD THAT - It is a settled law that upon a scheme of amalgamation being sanctioned, the amalgamating Company ceased to exist in the eyes of law it cannot be regarded as a person in terms of Section 2(31) of the Act and consequently no assessment proceeding can be initiated or an assessment order can be passed. See MARUTI SUZUKI INDIA LIMITED 2019 (7) TMI 1449 - SUPREME COURT wherein held that the issuance of jurisdiction notice and assessment thereafter passed in the name of non-existing company i.e. amalgamating Company having ceased to exist as a result of approved scheme of amalgamation is a substantive illegality and not a procedural violation of nature adverted to in S. 292B and hence being without jurisdiction. As the notice u/s 148 was issued by the AO at Hyderabad. The reasons for reopening were also recorded by AO at Hyderabad. The reassessment order was framed by AO at Delhi. The AO at Delhi had followed the reasons recorded by the AO, Hyderabad meaning thereby that he proceeded in framing the assessment on the basis of borrowed satisfaction of the AO, Hyderabad. In such a situation, we are of the view that the AO at Delhi had not validity assumed the jurisdiction to initiate the reassessment proceedings as he had merely followed the reasons recorded by AO, Hyderabad who had no jurisdiction over the Assessee. Reassessment proceedings initiated against the Assessee needs to be quashed and we accordingly hold so. Thus the Grounds of Assessee are allowed.

Summary

Issues:
1. Validity of reassessment order under section 143(3) read with section 147 of the Income-tax Act, 1961.
2. Disallowance of weighted deduction under section 35(2AB) on research and development expenditure.
3. Jurisdictional aspects related to the reassessment proceedings.

Issue 1: Validity of reassessment order under section 143(3) read with section 147 of the Income-tax Act, 1961

The appellant challenged the validity of the reassessment order, arguing that it was beyond jurisdiction, bad in law, and void ab initio. The appellant contended that the assessment was completed without a valid notice under section 148 of the Act and in the name of a non-existent entity. The appellant also raised objections regarding the jurisdiction of the assessing officer and the legality of the assessment order. The tribunal found that the notice for reassessment was issued after the company had ceased to exist due to amalgamation, rendering the proceedings invalid. Citing legal precedents, the tribunal held that initiating assessment proceedings on a non-existing entity is a substantive illegality, leading to the quashing of the reassessment proceedings.

Issue 2: Disallowance of weighted deduction under section 35(2AB) on research and development expenditure

The appellant contested the disallowance of weighted deduction under section 35(2AB) on research and development expenditure. However, due to the decision on the first issue regarding the validity of reassessment proceedings, this issue did not require adjudication by the tribunal.

Issue 3: Jurisdictional aspects related to the reassessment proceedings

The tribunal examined the jurisdictional aspects of the reassessment proceedings. It was established that the notice for reassessment was issued by an assessing officer who did not have jurisdiction over the entity due to its amalgamation. The tribunal concluded that the assessing officer who passed the reassessment order merely followed the reasons recorded by the assessing officer lacking jurisdiction, leading to a case of borrowed satisfaction. Consequently, the tribunal held that the reassessment proceedings were invalid and quashed them for both the assessment years in question, as the facts and issues were similar. Therefore, the grounds of the appellant were allowed, and both appeals were granted in favor of the assessee.

This detailed analysis of the judgment provides insights into the legal reasoning and outcomes of the issues raised in the case before the Appellate Tribunal ITAT DELHI.