2023 (11) TMI 546 - HC - Income Tax

Reassessment notices issued to a non-existing entity - HELD THAT - Any defence of Respondent will be of no assistance in-as-much as CIT(A) has passed orders on 28th March 2022, as stated in the affidavit in rejoinder dated 10th July 2022 setting aside re-assessment orders for AY 2012-13 and 2013-14 on the ground that the assessment order has been passed in the name of non-existing person, i.e., DIPL. In fact, we find it objectionable that this defence has been taken in the affidavit in reply because order of the CIT(A) was passed on 28th March 2022 whereas affidavit in reply is affirmed on 5th May 2022 and, therefore, the affiant should have been aware of the order passed. We would have expected affiant to be truthful and disclose this fact in his reply. The fact that PAN was not deactivated would not help the Revenue because there could be cases relating to various years when the company was in existence and it is possible those PAN numbers are picked up for scrutiny or for issuance of refund. That in our view, will not be a sanction for Department to issue notices to a non-existing entity, particularly, when they were aware that the entity was not in existence. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in the judgment are the validity of notices issued under Section 148 and Section 142(1) of the Income Tax Act, 1961 to a non-existing entity due to amalgamation, the legal implications of such notices, and the defense raised by the Respondent regarding past re-assessment proceedings.

Issue 1: Validity of notices issued to a non-existing entity:
The Petitioner challenged the notices issued under Section 148 and Section 142(1) of the Income Tax Act, 1961 to a non-existing entity, Diversey India Private Limited (DIPL), which had amalgamated with the Petitioner. The Petitioner argued that post-amalgamation, any notice issued in the name of the amalgamating company, which has lost its existence, is without jurisdiction and bad in law. Citing the case of PCIT v. Maruti Suzuki India Ltd., it was contended that such notices are illegal and cannot be cured under Section 292(B) of the Act. The Petitioner emphasized that once a scheme of amalgamation is approved, as per Saraswati Industrial Syndicate Ltd v. CIT, the amalgamating company ceases to exist in the eyes of the law. The Petitioner's position was supported by the approval of the amalgamation scheme by the Company Court with effect from 1st April 2015, resulting in the cessation of DIPL's existence.

Issue 2: Defense raised by the Respondent:
In response, the Respondent admitted to the amalgamation of DIPL with the Petitioner and the intimation of the same to the Department. However, the Respondent's defense was based on the Petitioner's lack of protest during re-assessment proceedings for AY 2012-13 and AY 2013-14, where the notices were served in the name of DIPL. The Respondent also mentioned that the PAN of DIPL was not deactivated, implying that past actions were not objected to by the Petitioner.

Judgment:
The Court found the Respondent's defense to be inadequate, especially considering that the Commissioner of Income Tax (Appeals) had already set aside re-assessment orders for AY 2012-13 and 2013-14 due to being passed in the name of a non-existing entity, DIPL. The Court criticized the Respondent for presenting this defense in the affidavit in reply, despite the CIT(A)'s order predating the affidavit. The Court emphasized that the existence of the PAN number does not justify issuing notices to a non-existing entity, particularly when the Department was aware of the entity's amalgamation and non-existence.

Conclusion:
Consequently, the Court disposed of the Petitions by quashing and setting aside the notices under Section 148 and Section 142(1) of the Income Tax Act dated 30th March 2021, 17th June 2021, 6th December 2021, 10th January 2022, and 4th February 2022, in accordance with the prayer clauses of the respective Writ Petitions.