2024 (12) TMI 1112 - HC - Income Tax

Reopening of assessment u/s 147 against non-existent entity - impact of an amalgamation - HELD THAT - Reassessment action we find that the impugned proceedings are additionally liable to be invalidated on the ground of the same having been framed in respect of a non-existent entity. We had while dealing with the issue of the impact of an amalgamation and the continuation of proceedings against the amalgamating entity, in International Hospital Limited 2024 (9) TMI 1631 - DELHI HIGH COURT wherein position in law appears to be well-settled that a notice or proceedings drawn against a dissolved company or one which no longer exists in law would invalidate proceedings beyond repair. Decided in favour of assessee.

Issues Involved:

1. Validity of reassessment proceedings under Section 148A and 148 of the Income Tax Act, 1961.
2. Treatment of investment in shares as "income" for reassessment.
3. Legal implications of issuing reassessment notices to a non-existent entity due to amalgamation.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 148A and 148 of the Income Tax Act, 1961:

The petitioner challenged the reassessment proceedings initiated by the respondent under Sections 148A and 148 of the Income Tax Act, 1961. The petitioner argued that the proceedings were invalid as they were based on an erroneous assumption that the investment in shares constituted "income" that had escaped assessment. The court noted that the reassessment action was initiated following an order under Section 148A(d) and the issuance of a notice under Section 148, both dated 30 August 2023. The court found that the reassessment was flawed as it was based on a fundamental error of treating capital transactions as income, which is not permissible under the Act.

2. Treatment of Investment in Shares as "Income" for Reassessment:

The court examined whether the investment in shares by the petitioner could be treated as "income" for the purpose of reassessment. It referred to previous judgments, including Angelantoni Test Technologies Srl vs. Assistant Commissioner of Income-tax, which held that investment in shares is a capital account transaction and does not give rise to income. The court reiterated that such investments cannot be subjected to reopening under Section 148 of the Act, as they do not constitute income. The court also highlighted the CBDT Instruction No. 2 of 2015, which accepted the Bombay High Court's decision in Vodafone India Services Pvt. Ltd. v. Union of India, confirming that no income arises from investment in shares since it is a capital account transaction.

3. Legal Implications of Issuing Reassessment Notices to a Non-Existent Entity Due to Amalgamation:

The court addressed the issue of the reassessment proceedings being initiated against a non-existent entity, Ebix Fincorp, which had merged with the petitioner, Ebix Singapore. The court emphasized that proceedings against a dissolved or non-existent entity are invalid. It referred to the Supreme Court's decision in Maruti Suzuki, which held that an assessment made in the name of a dissolved company is a nullity and cannot be rectified under Section 292B of the Act. The court noted that the respondents were informed of the amalgamation, yet the proceedings continued against the non-existent entity, rendering them invalid.

Conclusion:

The court concluded that the reassessment proceedings were invalid on two grounds: the erroneous treatment of capital transactions as income and the initiation of proceedings against a non-existent entity. Consequently, the court quashed the impugned order under Section 148A(d) and the notice under Section 148, both dated 30 August 2023. The court allowed the writ petition and set aside the reassessment proceedings, noting that the respondents could initiate fresh proceedings if permissible under the law.

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