Notice issued to non-existent company after its amalgamation is not valid under Income Tax
The Hon’ble Bombay High Court in CLSA India Private Limited v. the Deputy Commissioner of Income-Tax [Writ Petition No. 2462 of 2022 dated February 10, 2023] has set aside the notice under Section 148 of the Income Tax Act, 1961 (“the IT Act”), the order of assessment and the consequential demand and penalty notice, on the ground that the same was issued in the name of a non-existent company, on account of its amalgamation.
This petition has been filed by the CLSA India Private Limited (“the Petitioner”) challenging the notice dated March 31, 2021 (“the Impugned Notice”) issued under Section 148 of the IT Act and also the order of assessment dated March 31, 2022 (“the Impugned Order”) passed under Section 147 read with Section 144 and Section 144B of the IT Act, for the assessment year 2017-18, on the ground that the same was issued in the name of a non-existent company i.e. Laysin BPO Pvt. Ltd.
In reply to the Impugned Notice, the Petitioner informed the Revenue Department (“the Respondent”) about the non-existence of the Laysin BPO Pvt. Ltd on account of its amalgamation with the Petitioner vide order dated April 16, 2016 and therefore, sought to drop the proceedings against the non-existent company. Despite that, the Impugned Order was issued in the name of the Petitioner while at the same time, mentioning the name of the assessee as Laysin BPO Pvt. Ltd.
Whether the Impugned Notice and the Impugned Order issued to a non-existent company is maintainable?
The Hon’ble Bombay High Court in Writ Petition No. 2462 of 2022 held as under:
Section 148 of the IT Act:
“Issue of notice where income has escaped assessment.
Before making the assessment, reassessment or re-computation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice.
Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section.
Explanation 1.-For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,-
(i) any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;
(ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or
(iii) any information received under an agreement referred to in section 90 or section 90A of the Act; or
(iv) any information made available to the Assessing Officer under the scheme notified under section 135A; or
(v) any information which requires action in consequence of the order of a Tribunal or a Court.
Explanation 2.-For the purposes of this section, where,-
(i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or
(ii) a survey is conducted under section 133A, other than under sub-section (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or
(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or under section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee,
the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.
Explanation 3.-For the purposes of this section, specified authority means the specified authority referred to in section 151.”
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
The Petitioner challenges the notice dated 31st March, 2021 issued under Section 14 of the Income Tax Act, 1961 (“the Act”) as also the order of assessment passed under Section 147 r8w Sections 144 and 144B of the Act dated 31st March, 2022, for the assessment year 2017-1, on the ground that the notice under Section 14 of Act was issued in the name of a non-existent company.
2. Briefly stated the material facts are as under:
A notice dated 31st March, 2021 under Section 14 of the Act for the assessment year 2017-1 was issued in the name of Laysin BPO Pvt. Ltd. proposing to reopen the assessment on the ground that income had escaped assessment within the meaning of Section 147 of the Act.
In response to the said notice, the Petitioner herein CLSA India Private Limited informed the Respondents about the non-existence of the assessee Laysin BPO Pvt. Ltd. on account of its amalgamation with the Petitioner CLSA India Private Limited. The Respondents stood informed that the merger had taken place with effect from 01st April, 2015 vide order of this Court dated 16th April, 2016 and, therefore, sought the dropping of the proceedings initiated against the said non-existent entity.
3. It is stated that the factum of the amalgamation was already within the knowledge of the revenue as is reflected from the order of assessment dated 16th December, 2017 for the assessment year 2015-16 which show M/s CLSA India Pvt. Ltd. as the successor of M/s Laysin BPO Pvt. Ltd.. It is further stated that even for the assessment year 2016-17, return was fled by the Petitioner in which the factum of the amalgamation of Laysin BPO Pvt. Ltd. was reflected. For the assessment year 2017-1 , the Petitioner states that it fled a response to e-verifcation, informing the Respondents yet again regarding the non-existence of the entity on account of its merger with the Petitioner herein.
4. Be that as it may, it is thus clear that the notice under Section 14 of the Act which forms the basis for reassessment proceedings was issued in the name of a non-existent entity and despite the fat that the Respondents had the knowledge regarding the nonexistence of the said entity and despite having been informed, the order of assessment was passed in the name of the Petitioner while at the same time, mentioning the name of the assessee as Laysin BPO Pvt. Ltd.
5. This is clearly untenable in view of the Apex Court judgment in Saraswati Industrial Syndicate Ltd. v8s. CIT1, wherein the following principles were formulated:
“5. Generally, where only one company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or ‘amalgamation’ has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly ‘amalgamation’ does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury’s Laws of England (4th edition volume 7 para 1539). Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity.”
In the case of Spice Entertainment Ltd. V/s. CST2 a Division Bench of the Delhi High Court held that once the factum of amalgamation of a company had been brought to the notice of the A.O., despite which the proceedings are continued and an order of assessment passed in the name of non-existence company, the order of assessment would not be merely be a procedural defect but would render it void.
Recently, the Apex Court in the case of Principal Commissioner of Income Tax, New Delhi V/s. Maruti Suzuki India Ltd.3 reiterated the aforementioned principles and held as under:
“33. In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. This position now holds the field in view of the judgment of a co-ordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Enfotainment on 2 November 2017. The decision in Spice Enfotainment has been followed in the case of the respondent while dismissing the Special Leave Petition for AY 2011-2012. In doing so, this Court has relied on the decision in Spice Enfotainment.
7. The stand of the revenue that the reassessment was justifed in view of the fact that the PAN in the name of the non-existent entity had remained active does not create an exception in favour of the revenue to dilute in any manner the principles enunciated hereinabove.
8. Be that as it may the writ petition is allowed. The impugned notice dated 31st March, 2021F the order of assessment dated 31st MarchF 2022 as also the consequential demand notice and penalty notice dated 31st March, 2022 are set aside.
1. 186 ITR 278 (SC).
2. 2012 (2 0) ELT 43 (Delhi)
3.  107 taxmann.com 375 (SC).
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