Attachment of resulting company’s bank accounts without Notice of reopening of assessment of amalgamating company to resulting company

Hinal Estates Private Limited Vs Union of India and anr. (Bombay High Court)

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 12^th March, 2018 is set aside. Consequently, attachment of the petitioner’s  bank accounts is lifted. Petition is disposed of accordingly.

FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT

1. Petitioner has challenged a recovery notice dated 12^th March, 2018 as at annexure-A to the petition issued by the Income Tax Officer, Mumbai-Respondent No.2 herein.

2. Briefly stated, the facts are that:-

For the assessment year 2010-11, one M/s Mahadev Floorings (India) Private Limited had filed the return of income. This company amalgamated with the petitioner-Hinal Estates Private Limited under an order dated 14^th September, 2012 passed by this Court, the effective date of amalgamation being 1^st April, 2011.

3. The case of the petitioner is that the assessment for the said assessment year was reopened by the Assessing Officer under notice dated 17^th March, 2015, which resulted into an order dated 25^th January, 2016 passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (“the Act” for short).

4. It appears that on behalf of the Predecessor company an appeal has been filed against the order of assessment before the Commissioner of Appeal which is pending. The present petitioner, however, not being a noticee of reopening of assessment or being an assessee against whom the order of assessment was passed did not have any occasion to challenge the said order. The Department, however, subsequently coming to know of the factum of the amalgamation, sought to recover the tax dues of the amalgamating company arising out of the order of assessment dated 25^th January, 2016. Recovery notices came to be issued. The bank accounts were attached since the petitioner did not pay the tax dues. It is in this background that the petitioner has challenged the recovery notice dated 12^th March, 2018 and consequential order dated 20^th March, 2018 attaching the petitioner’s bank accounts.

5. Having heard learned counsel for the parties and having perused the documents on record, 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 12^th March, 2018 is set aside. Consequently, attachment of the petitioner’s  bank accounts is lifted. Petition is disposed of accordingly.