2019 (6) TMI 1184 - HC - Income Tax

Reopening of assessment against the amalgamating company - recovery of the taxes arising out of the order of assessment - HELD THAT - We cannot uphold the action of the Department. In plain terms the entire assessment concerns the amalgamating company. When the notice of reopening of assessment was issued the said company had already merged with the petitioner company. The petitioner company neither had been served with the notice of reopening of assessment nor had any occasion to participate in such re-assessment proceedings. Obviously therefore the order of assessment that came to be passed pursuant to such notice was not against the petitioner. That being the position the Department cannot seek recovery of the taxes arising out of the order of assessment. Learned counsel for the Department however submitted that as per the scheme of amalgamation the petitioner had undertaken to discharge the liability of the amalgamating company. Had the order of assessment been passed prior to amalgamation this clause under the scheme of amalgamation could have been activated. This is not the position in the present case. Under the circumstances impugned notice of recovery dated 12th March 2018 is set aside. Attachment of the petitioner s bank accounts is lifted

Summary

Issues:
Challenge to recovery notice issued by Income Tax Officer regarding tax dues of an amalgamating company post-merger with the petitioner company.

Analysis:
The petitioner challenged a recovery notice issued by the Income Tax Officer regarding tax dues of an amalgamating company that had merged with the petitioner company. The assessment for the relevant year was reopened, resulting in an order passed under the Income Tax Act. The petitioner company, not being a noticee of the reopening or the assessee against whom the order was passed, had no opportunity to challenge the assessment. The Department sought to recover tax dues of the amalgamating company post-merger, leading to the issuance of recovery notices and attachment of bank accounts of the petitioner.

The High Court examined the facts and found that the entire assessment pertained to the amalgamating company, which had already merged with the petitioner company before the reassessment proceedings. The petitioner was not served with the notice of reopening or given a chance to participate in the reassessment. Therefore, the order of assessment was not against the petitioner, and the Department could not recover taxes based on that order. The Department argued that under the amalgamation scheme, the petitioner had agreed to discharge the liabilities of the amalgamating company, but this clause could only be activated if the assessment had been done before the merger, which was not the case here.

Consequently, the High Court set aside the recovery notice dated 12th March, 2018, and lifted the attachment of the petitioner's bank accounts. The petition was disposed of accordingly, in favor of the petitioner challenging the recovery notice issued by the Income Tax Officer regarding tax dues of the amalgamating company post-merger with the petitioner company.