2025 (1) TMI 762 - AT - Income Tax

Non granting the TDS credit and Advance Tax pertaining to the amalgamating company as per the order passed by the Faceless Assessment Centre u/s 143(3) r/w Section 143(3A) and 143(3B) - maintainability of appeal against the assessment order u/s 143(3) - HELD THAT - Since the income of the amalgamating company had been included in the income of the amalgamated company as per the provisions of Section 199(1) r.w.s.198 the credit for the TDS made in respect of the income of the amalgamating company which was shown in the hands of the amalgamated company ought to have been allowed to the amalgamated company. Since the amalgamating company is no longer in existence and all the assets and liabilities by virtue of the order of the NCLT were taken over by the amalgamated company, even the credit for TDS and advance tax had to be allowed to the amalgamated company. The assessee was claiming only a credit for the tax paid and neither in the intimation u/s 143(1) of the Act nor in the assessment order u/s 143(3) of the Act any addition was made and only the credit for TDS and advance tax was being made, therefore, the same ought to have been allowed in the hands of the person in whose case the income of the earlier entity was finally assessed. Hence, the grounds of appeal in respect of credit for TDS and Advance Tax are allowed pertaining to the amalgamating company while assessing/computing the income u/s 143(3) read with Section 143(3A) and 143(3B) of the Act in the case of the amalgamated company. Hence, Ground nos. 1, 7, 8 9 are allowed. Validity of order u/s 143(3) being infructuous as the cause of action had arisen in the intimation u/s 143(1) - As a finding has been given that the credit of taxes paid has to be allowed in the case of the amalgamated company, hence these grounds of appeal are also allowed and since no variation to the income computation was made in the order u/s 143(3) and the demand arisen on account of intimation u/s 143(1) had been subsumed in the demand raised vide order u/s 143(3), the Ld. CIT(A) ought to have decided the appeal relating to the claim of credit for taxes paid. Hence, all these grounds of appeal are also allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the assessee is entitled to the credit for Tax Deducted at Source (TDS) and Advance Tax pertaining to the amalgamating company after the amalgamation?
Whether the appeal against the assessment order under Section 143(3) of the Income Tax Act, 1961, is infructuous when the cause of action arose from the intimation under Section 143(1) of the Act?
Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in dismissing the appeal by not appreciating the eligibility of the amalgamated entity for the prepaid tax credit of the amalgamating company?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to TDS and Advance Tax Credit

Relevant Legal Framework and Precedents: The case revolves around the interpretation of Sections 143(1), 143(3), 198, and 199 of the Income Tax Act, 1961. Section 199(1) stipulates that any deduction made under the provisions related to TDS shall be treated as a payment of tax on behalf of the individual from whose income the deduction was made.
Court's Interpretation and Reasoning: The court noted that the income on which TDS was deducted and Advance Tax was paid was included in the income of the amalgamated company post-amalgamation. The court reasoned that since the amalgamating company no longer existed, the credit for TDS and Advance Tax should be allowed to the amalgamated company.
Key Evidence and Findings: The court found that the TDS and Advance Tax credits were duly reflected in Form 26AS of the amalgamating company and that the income corresponding to these credits was included in the accounts of the amalgamated company.
Application of Law to Facts: The court applied Section 199(1) and Section 198 to conclude that the amalgamated company was entitled to the tax credits as the income of the amalgamating company was assessed in the hands of the amalgamated company.
Treatment of Competing Arguments: The court dismissed the argument that the credit should not be allowed due to the non-appeal against the intimation under Section 143(1), emphasizing the inclusion of income in the amalgamated company's return.
Conclusions: The court concluded that the assessee is entitled to the TDS and Advance Tax credits and directed the Assessing Officer to allow the credits.

Issue 2: Infructuous Appeal Against Assessment Order

Relevant Legal Framework and Precedents: The appeal process under Sections 143(1) and 143(3) was examined, along with the Tribunal's previous decision in a similar case.
Court's Interpretation and Reasoning: The court observed that the cause of action for the tax credit denial arose from the intimation under Section 143(1). However, since the income was assessed under Section 143(3), the appeal should not be considered infructuous.
Key Evidence and Findings: The court noted that the CIT(A) dismissed the appeal on the grounds of it being infructuous, despite the income being assessed under Section 143(3).
Application of Law to Facts: The court applied the legal provisions to determine that the appeal should address the tax credit issue, regardless of the procedural origin of the cause of action.
Treatment of Competing Arguments: The court rejected the CIT(A)'s stance, emphasizing the substantive issue of tax credit entitlement over procedural technicalities.
Conclusions: The court held that the appeal was not infructuous and that the CIT(A) should have addressed the tax credit issue.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Since the income of the amalgamating company had been included in the income of the amalgamated company as per the provisions of Section 199(1) of the Act read with Section 198 of the Act, the credit for the TDS made in respect of the income of the amalgamating company which was shown in the hands of the amalgamated company ought to have been allowed to the amalgamated company."
Core Principles Established: The amalgamated entity is entitled to claim tax credits for TDS and Advance Tax related to the amalgamating company if the income is included in the amalgamated company's return. Procedural origins of the cause of action should not override substantive rights to tax credits.
Final Determinations on Each Issue: The appeal was allowed, directing the Assessing Officer to grant the TDS and Advance Tax credits to the amalgamated company. The court found the appeal against the assessment order was not infructuous and should have been adjudicated on the merits of the tax credit claim.

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