2024 (5) TMI 223 - HC - Income Tax

Reopening of assessment against entity ceased to exist/amalgamating entity - petitioner has not declared its return of income for AY 2016-17 - as contended that the notices were addressed to SIPL and SRPL, which are the predecessor companies that ceased to exist as on the date of issuance of notice - HELD THAT - AO neither before passing of the show cause notice u/s 148A(b) of the Act nor before the impugned order u/s 148A(d) has considered the ITR filed by the petitioner which duly captures the income earned by the amalgamated entity. As noted that the statutory authority which is entrusted with the wide powers is also casted with the responsibility that those powers should not be used unwarrantedly and that the due procedure infused with concomitants of principles of fairness should be adhered to before passing of the impugned notice u/s 148A(b) of the Act As understanding of the legislative intent and the cardinal duty entrusted upon the authority to duly apply its mind before the issuance of the notice u/s 148A(d) of the Act, clearly elucidates that it is pertinent for the AO to consider the material before it to even form a prima facie opinion. In the present case, the petitioner vide its ITR filed on 08.09.2016 and reply to the show cause notices has already intimated the Revenue regarding the amalgamation of the entities. It is evident that the bone of contention in the instant case i.e., sale transaction undertaken by the amalgamating entity, which is solitary rationale for issuance of the show cause notice under section 148A(b) of the Act, has also been rightly reflected in the ITR filed by the petitioner. Therefore, it is crystal clear that the Revenue has not considered the ITR filed by the petitioner and issued the impugned notice without due application of mind and in a mechanical manner, without adhering to the statutory responsibilities envisaged under section 148 of the Act. Unable to accept Revenue, to remit the matter back to the concerned AO for the simple reason that on a bare examination of the facts, we find that the reason for the issuance of the notice under section 148A(b) of the Act is itself de hors the available record. WP allowed.

Summary

Issues Involved:
1. Validity of notices and orders issued under sections 148A(b) and 148A(d) of the Income Tax Act, 1961.
2. Consideration of amalgamation in tax assessments.
3. Compliance with principles of natural justice and application of mind by the Revenue.

Summary:

1. Validity of Notices and Orders Issued Under Sections 148A(b) and 148A(d) of the Income Tax Act, 1961:
The petitioner challenged the impugned notice dated 15.03.2023 and order dated 28.03.2023 issued under sections 148A(b) and 148A(d) of the Income Tax Act, 1961. The notices were initially addressed to non-existent entities due to amalgamation, rendering them invalid. The only valid notice dated 15.03.2023 was addressed to the petitioner, which alleged that the income chargeable to tax for AY 2016-17 had escaped assessment due to a sale transaction of INR 50,00,000/-.

2. Consideration of Amalgamation in Tax Assessments:
The petitioner argued that the notices were addressed to predecessor companies that ceased to exist due to amalgamation. The Revenue failed to consider the factum of amalgamation, which was duly informed to them. The petitioner had already filed its ITR on 08.09.2016, reflecting the transactions of the predecessor company, including the sale transaction in question. The court noted that amalgamation leads to the fundamental change in the structure of the corporate entity, and the amalgamated entity continues the business within a new corporate residence.

3. Compliance with Principles of Natural Justice and Application of Mind by the Revenue:
The Revenue's issuance of the impugned notice and order was found to be mechanical and without due application of mind. The petitioner had already submitted the ITR, which captured the income earned by the amalgamated entity, including the sale transaction of INR 50,00,000/-. The court emphasized that the statutory authority should adhere to principles of fairness and duly apply its mind before issuing notices under section 148A(b) of the Act. The court also highlighted the legislative intent behind section 148A, which aims to reduce frivolous litigation and ensure effective disposal of cases.

Conclusion:
The court set aside the show cause notice dated 15.03.2023 and order dated 28.03.2023, allowing the writ petition. The court left it open to the Revenue to take appropriate fresh steps, if permissible in law, on any other count. The petition was allowed and disposed of along with any pending applications.