1991 (5) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessments u/s 147.
2. Inclusion of difference in stock valuation in total income.
3. Jurisdiction of CIT under s. 263.
4. Validity of notice issued under s. 148 to a non-existent entity.

Summary:

1. Validity of Reopening Assessments u/s 147:
The Assessing Officer initiated action under s. 147 against the amalgamating companies, believing that income chargeable to tax had escaped assessment due to the difference between the stock-in-trade's book value and its realisable value as per the valuation reports. The CIT(A) cancelled the reassessment orders, stating that the notice of reopening was not validly served on a non-existent entity. The Tribunal upheld this view, noting that all primary facts necessary for the assessment were disclosed, and the reopening under s. 147(a) was not justified.

2. Inclusion of Difference in Stock Valuation in Total Income:
The Tribunal held that the difference between the book value of the work-in-progress and its realisable value as per the valuation report was not liable to be included in the total income of the assessee. It was noted that the business was not discontinued as of the last day of the accounting year, and the amalgamation took place on the appointed date, which was after the last day of the previous year. The Tribunal also referred to the CBDT Circular No. 528, which indicated that such differences were not taxable in the hands of the amalgamating company.

3. Jurisdiction of CIT under s. 263:
The CIT had taken action under s. 263 against the amalgamated company to include the same amount in the total income, which was already the subject of addition in the amalgamating companies' case. The Tribunal previously held that the CIT's order was without jurisdiction and cancelled the same. This was consistent with the Tribunal's view that the stocks were taken over at their realisable value in the year of amalgamation, and there was no justification for taking the cost of the amalgamating companies as the cost of the amalgamated company.

4. Validity of Notice Issued under s. 148 to a Non-Existent Entity:
The Tribunal agreed with the CIT(A) that the notice under s. 148 issued to the amalgamating companies, which no longer existed, was invalid. The notice should have been issued to the amalgamated company as the successor of the amalgamating companies. The Tribunal also dismissed the departmental appeal, noting that the issue of notice to a non-existent entity was not a curable defect and went to the root of the assessment.

Conclusion:
The Tribunal allowed the assessee's appeals and dismissed the departmental appeal, upholding that the reopening of assessments and the inclusion of stock valuation differences were not justified, and the notice issued under s. 148 to a non-existent entity was invalid.