2023 (2) TMI 357 - HC - Income Tax

Validity of reopening of assessment - Notice in the name of company amalgamated - corporate death of an entity upon amalgamation - HELD THAT - The controversy in the present petition is no longer res integra. The Apex Court in the case of Principal Commissioner of Income Tax vs. Maruti Suzuki India Limited ( 2019 (7) TMI 1449 - SUPREME COURT has categorically held that if the company has ceased to exist as a result of the approved scheme of amalgamation then in that case the jurisdictional notice issued in its name would be fundamentally illegal and without jurisdiction. It is also held that upon the amalgamating entity ceasing to exist it cannot be regarded as a person under subsection (31) of section 2 of the Act; against whom assessment proceedings can be initiated. The Apex Court has further held that participation by the amalgamated company in the proceedings would be of no effect as there is no estoppel against law. Similarly this court in the judgment in the case of Dharamnath Shares and Services (P) Ltd. 2018 (5) TMI 1369 - GUJARAT HIGH COURT while referring to its earlier decision in the case of Khurana Engineering Limited 2013 (2) TMI 128 - GUJARAT HIGH COURT held that once the assessee company gets amalgamated with the transferee company its independent existence does not survive and therefore it would no longer be amenable to the assessment proceedings. Thus it is well settled proposition of law that upon its amalgamation the transferor company ceases to exist and becomes extinct and it would no longer be amenable to the assessment proceedings considering the fact that the extinct entity would not be covered within the ambit of the provisions of the Act. The petitions here also are allowed. The actions of the respondent authority issuance of notice under Section-148 deserves to be interfered with. The show-cause notices issued by the respondents are quashed and set aside with consequential reliefs. This could not in any manner preclude the respondent to initiate the action against the present petitioners in accordance with law.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act to a non-existent company post-amalgamation.
2. Compliance with the intimation requirements regarding amalgamation to the Income Tax Department.
3. Applicability of legal precedents in cases of amalgamation and issuance of notices.

Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act to a non-existent company post-amalgamation:
The primary issue addressed in this judgment is the legality of the notice issued under Section 148 of the Income Tax Act to a company that has ceased to exist due to amalgamation. The petitioner argued that the notice dated 29.03.2021 was issued to Kaizen Stocktrade Pvt. Ltd., which had already amalgamated into the petitioner company and thus ceased to exist. The court referred to the Supreme Court's decision in Principal CIT Vs. Maruti Suzuki Ltd., which held that a notice issued to a non-existent company post-amalgamation is fundamentally illegal and without jurisdiction. The court reiterated that once a company ceases to exist due to amalgamation, it cannot be regarded as a person under subsection (31) of section 2 of the Act against whom assessment proceedings can be initiated.

2. Compliance with the intimation requirements regarding amalgamation to the Income Tax Department:
The petitioner had intimated the Income Tax Department about the amalgamation through a reply to a notice under Section 142(1) in March 2018. The court noted that there is no specific format prescribed for such intimation and considered the petitioner's communication as sufficient compliance. The court emphasized that the respondent authority was aware of the amalgamation, yet issued the notice in the name of the non-existent company, which warranted interference.

3. Applicability of legal precedents in cases of amalgamation and issuance of notices:
The court examined various precedents, including the cases of Gayatri Microns Ltd. Vs. Assistant Commissioner of Income-tax and Dharamnath Shares and Services (P) Ltd., which supported the view that notices issued to non-existent entities post-amalgamation are invalid. The court also discussed the case of Principal Commissioner of Income-tax Vs. Mahagun Realtors (P.) Ltd., where the facts were distinguished from the present case. The court concluded that the facts of the present case align with those in Maruti Suzuki, where the notice issued to a non-existent company was deemed illegal.

Conclusion:
The court allowed the petitions, quashing the notices issued under Section 148 and providing consequential reliefs to the petitioner. The judgment underscored that the respondent authority is not precluded from initiating action against the present petitioner in accordance with the law. The court also highlighted the need for better inter-departmental coordination and application of mind, given the advancements in technology and the availability of electronic records.