2024 (11) TMI 1162 - HC - Income Tax

Validity of assessment proceedings against company merged/amalgamating company/non existent company - Limitation period for issuing notice u/s 148 - denial of principles of natural justice due to lack of opportunity for hearing - HELD THAT - AO could not have assumed jurisdiction under sections 147/148/148A of the Act on the ground that the amalgamating company was required to file a return of income for the assessment year 2018-19 and that income had escaped assessment because of the failure on the part of the amalgamating company to file such return. The amalgamating company stood dissolved on March 30, 2018 and was not required to and could not have filed any return for the assessment year 2018- 19. Accordingly, only the amalgamated company was required to file any return for the said assessment year which it duly filed upon amalgamation. In fact, the consolidated accounts of both the amalgamated company and the amalgamating company had been duly filed and was also assessed under section 143(3) of the Act. In such circumstances, the Assessing Officer had erroneously assumed jurisdiction under sections 147/148/148A on the allegation that income chargeable to tax had escaped assessment for the assessment year 2018-19 because the amalgamating company had not filed its return for the said assessment year. As a pre-condition to invoke jurisdiction u/s 147/148/148A of the Act, the Assessing Officer had to initiate a case that the items of income and expenses mentioned in the annexure to the notice u/s 148A(b) had not been incorporated in the consolidated accounts of the amalgamated company nor had the same been taken into consideration in preparing the income tax return of the amalgamated company for the assessment year 2018-19 resulting in income chargeable to tax in the hands of the amalgamated company escaping assessment. As such, the pre-conditions for invoking jurisdiction to initiate the impugned proceedings are significantly absent in the facts of this case and vitiate the entire proceedings and all the actions taken by the respondent authorities. Period of limitation - grant of opportunity of being heard by service of a notice to show cause - In any event, no opportunity of hearing was granted to the petitioners despite requests. It was incumbent upon the Assessing Officer to grant an effective hearing to the assessee before passing the order under section 148A(d) of the Act. Consequently, there has been a violation of the principles of natural justice in the manner in which the impugned proceedings have been conducted. Section 148A(b) provides for grant of opportunity of being heard by service of a notice to show cause provided a cause is cited within the time specified in the notice, which may vary from a minimum of seven days to a maximum thirty days from the date of issuance of the notice. Such time fixed by the notice can be extended on the basis of an application by the assessee. Although the impugned proceedings were initiated on March 23, 2022 by issuance of the notice under section 148A(b) whereby the petitioner was granted seven days to respond, i.e., by March 30, 2022. Nevertheless, the petitioner showed cause and requested for a personal hearing without filing a separate extension application. In view of the above, the contention of the Assessing Officer that he was not required by law to grant any personal hearing or any extension of time beyond the time fixed by the notice under section 148A(b) is without basis and untenable. 23. The Assessing Officer had seven days from 31 March 2022 i.e., upto 6 April 2022 to issue the notice under section 148. By the letter dated April 7, 2022, the Assessing Officer sought to make out as if the petitioner had asked for details even though the petitioner had not. The Assessing Officer suo moto sought to provide details and extend the time to respond by twelve days to April 19, 2022 even though there was no extension application by the petitioner. As such, it was not open to the Assessing Officer to extend the statutory period of limitation in such a circuitous manner. Accordingly, the extension was without the authority of law. In view of the above, the notice under section 148 issued on 19 April 2022, where the last date was 6 April 2022, is also ex facie barred by limitation. The impugned proceedings have been conducted in a grossly arbitrary and unreasonable manner and in excess of jurisdiction. AO passed the impugned order under section 148A(b) in undue haste and issued the impugned notice under section 148 on the same day without waiting for or going through the assessee's response. This is also in violation of the principles of natural justice. Decided in favour of assessee.

Summary

Issues Involved:

1. Assumption of jurisdiction under sections 147, 148, and 148A of the Income Tax Act, 1961.
2. Validity of the notice issued under section 148A(b) and subsequent proceedings.
3. Alleged failure to file a return by the amalgamating company for the assessment year 2018-19.
4. Violation of principles of natural justice due to lack of opportunity for hearing.
5. Limitation period for issuing notice under section 148.
6. Application of mind by the Assessing Officer in issuing the notice and subsequent actions.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Sections 147, 148, and 148A:
The court examined whether the Assessing Officer had valid grounds to assume jurisdiction under sections 147, 148, and 148A of the Income Tax Act. It was noted that the amalgamating company, Gloster Limited, merged with the amalgamated company, Kettlewell Bullen & Co. Ltd., effective from January 1, 2015, and was dissolved without winding up on March 30, 2018. The consolidated accounts of the amalgamated company, including all income and expenses of the amalgamating company, were duly filed and assessed for the assessment year 2018-19. The court found that the Assessing Officer erroneously assumed jurisdiction, as the amalgamating company was not required to file a separate return for the said assessment year.

2. Validity of Notice Issued under Section 148A(b):
The notice under section 148A(b) alleged that the amalgamating company had not filed its return for the assessment year 2018-19, leading to income escaping assessment. However, the court noted that the amalgamating company was dissolved and its income was included in the consolidated accounts of the amalgamated company, which were duly assessed. The omission of key dates related to the amalgamation in the notice further highlighted the lack of proper inquiry by the Assessing Officer. The court held that the proceedings were initiated without proper jurisdictional basis.

3. Alleged Failure to File Return by Amalgamating Company:
The court addressed the allegation that the amalgamating company failed to file a return for the assessment year 2018-19. It was established that the amalgamating company was dissolved before the relevant assessment year, and its income was incorporated into the amalgamated company's return. Therefore, the amalgamating company was not required to file a separate return, and the allegation was unfounded.

4. Violation of Principles of Natural Justice:
The court found a violation of the principles of natural justice, as the petitioner was not granted an effective opportunity for a hearing before the order under section 148A(d) was passed. Despite requests for a personal hearing, the Assessing Officer proceeded to issue the notice under section 148 without considering the petitioner's response. The court emphasized that the opportunity provided under the Act should be meaningful and effective, not merely a formality.

5. Limitation Period for Issuing Notice under Section 148:
The notice under section 148 was issued on April 19, 2022, beyond the permissible period of three years from the end of the assessment year 2018-19, which expired on March 31, 2022. The court noted that the extension of time by the Assessing Officer was without authority and the notice was barred by limitation. The statutory period could not be extended in a circuitous manner, rendering the notice invalid.

6. Application of Mind by the Assessing Officer:
The court criticized the lack of application of mind by the Assessing Officer, as evidenced by the discrepancies in the figures mentioned in the notice and the subsequent details provided. The figures included amounts unrelated to the assessment year 2018-19, indicating a non-application of mind. The court highlighted that the Assessing Officer failed to furnish a proper break-up of figures and proceeded in an arbitrary manner.

Conclusion:

The court concluded that the impugned proceedings were conducted in an arbitrary and unreasonable manner, in excess of jurisdiction, and in violation of principles of natural justice. The notice and order dated April 19, 2022, were set aside as unsustainable. The court confirmed the ad-interim order of injunction and allowed the writ petition, granting relief as prayed.