2024 (11) TMI 1115 - HC - Income Tax

Validity of assessment/re-assessment proceedings against entity as amalgamated/ non existent entity - HELD THAT - The petitioner entity was amalgamated into MPIDC and liabilities were transferred thereunder. The respondent, in reply, no where stated that the department was not aware with the facts of amalgamation or the petitioner had ever suppressed the amalgamation proceedings, rather, the respondent himself admitted that the after the amalgamation in the year 2018, during the course of 148A proceedings for Assesment Year 2019-20, the assessee has made complete compliance with respect to the notices issued u/s 148A(b) of the Act and accordingly, established that the information flagged for verification for Assesment Year 2019-20 were duly accounted in the audited financial statement of MPIDC. The respondent did not deny the fact that the PAN Number alloted to petitioner entity was surrendered, deactivated after its amalgamation and merged with the MPIDC. Hence, in the instant case as pointed out earlier the fact of amalgamation was well within the knowledge of the assessing officer. In the case at hand, admittedly, the order under Section 148A(d) of Act, has been passed by the respondent against a non existent entity. Therefore, the impugned order is bad in the eyes of law. Decided in favour of assessee.

Issues Involved:

1. Jurisdiction of assessment proceedings against a non-existent entity due to amalgamation.
2. Compliance with principles of natural justice in the issuance of notices and conducting proceedings.
3. Validity of assessment orders against amalgamated entities.

Detailed Analysis:

1. Jurisdiction of Assessment Proceedings Against a Non-Existent Entity Due to Amalgamation:

The petitioner challenged the order under Section 148A(d) of the Income Tax Act, 1961, on the grounds that it was issued against an entity that had ceased to exist due to amalgamation. The petitioner, originally known as MPAKVN, was amalgamated into MPIDC effective from April 1, 2018. Consequently, the individual PAN numbers of the amalgamated entities were surrendered and deactivated. The court noted that assessment or reassessment proceedings cannot be initiated against amalgamated entities as they cease to exist by virtue of amalgamation. This principle was supported by previous judgments, including those of the Supreme Court in cases such as Saraswati Industrial Syndicate Ltd. vs. CIT and Principal Commissioner of Income Tax vs. Maruti Suzuki (India) Ltd.

2. Compliance with Principles of Natural Justice in the Issuance of Notices and Conducting Proceedings:

The petitioner argued that the respondent failed to consider the replies submitted to the show-cause notices and did not grant a reasonable opportunity to respond, thus violating the principles of natural justice. The petitioner highlighted that the notices were delivered electronically with insufficient time to respond, especially during a declared holiday period. The court found that the respondent did not adequately consider the petitioner's submissions regarding the amalgamation and the deactivation of the PAN number, which were crucial to the case. The court emphasized the importance of adhering to the principles of natural justice, which require providing a fair opportunity to present one's case.

3. Validity of Assessment Orders Against Amalgamated Entities:

The respondent argued that the petitioner did not file the Income Tax Return for the Assessment Year 2020-21, and transactions were flagged under the non-filer management system, necessitating the assessment proceedings. However, the court observed that the respondent had prior knowledge of the amalgamation and had accepted the compliance for the previous assessment year. The court distinguished the present case from the Supreme Court judgment in Mahagun Realtors (P) Ltd., where the amalgamation was not disclosed by the assessee. In the current case, the amalgamation was acknowledged, and the PAN number was deactivated post-amalgamation. Thus, the court held that the assessment order against a non-existent entity was void ab initio and unsustainable in law.

Conclusion:

The court concluded that the assessment proceedings initiated against the amalgamated entity were void and without jurisdiction. The impugned order dated March 21, 2022, and all consequential proceedings were set aside. The petition was allowed, and no costs were imposed. The judgment reinforces the legal principle that assessment orders cannot be issued against entities that have ceased to exist due to amalgamation, and it underscores the necessity for tax authorities to adhere to procedural fairness and natural justice.

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