Reopening notice us 148 against amalgamated company was void ab initio as on that day the company was not in existence. Even if Department was not aware of that fact, will not make any difference to the legal position – High Court
ABCAUS Case Law Citation:
ABCAUS 2013 (2017) (08) HC
Important Case Laws Cited/relied upon:
In Spice Entertainment Ltd. v. CIT 247 CTR 500 (Del)
Rustagi Engineering Udyog (P) Ltd. v. Deputy Commissioner of Income Tax 382 ITR 443
Brief Facts:
The Petitioner company was engaged in the business of real estate. Another company (amalgamated company) engaged in the same business amalgamated with the petitioner company with effect from 1st April, 2012 in accordance with the scheme of amalgamation as approved by the High Court.
On 3rd April, 2012 the the Assessing Officer (‘AO’) issued a notice u/s 148 of the Income Tax Act, 1961 to amalgamated company for the AY 2008-09 stating that he had reason to believe that income chargeable to tax for the said AY had escaped assessment.
The Petitioner filed its objections to the re-opening on 26th December, 2013.
Subsequently, a search and seizure operation was undertaken under Section 132(1) of the Act in respect of the amalgamated company. The authorisation for the search was issued in the name of amalgamated company.
The objections of the Petitioner company to the reopening of the assessment were rejected by the AO on 6th January, 2014. In view of the search action Section 132 (1) of the Act, the AO on his own, on 6 th March, 2014 held the assessment proceedings under Section 147 of the Act to have abated.
The Petitioner Company objected to the notice issued u/s 153A which was again issued in the name of the amalgamated company. It was contended that inter alia the warrant issued and the panchnama drawn up was in the name of a company that was non est since the entity in whose name it was issued was non-existent.
On 16th November, 2015 another notice under Section 153A was issued to the Petitioner and it was indicated as “in successor in interest of erstwhile company”. The said notice acknowledged that the amalgamated company had merged with the Petitioner with effect from 1st April, 2012 and, therefore, the Petitioner was responsible to represent it for the period prior to its amalgamation. Therefore, the Petitioner was asked to furnish a return for the amalgamated for the AY in question.
The Petitioner pointed out that on the date of issuance of the authorisation for search, the amalgamated company had ceased to exist. It was stated that on 16th October 2013, the Petitioner had surrendered the PAN of amalgamated company requesting for its cancellation. Accordingly, the proceedings were asked to be dropped.
Subsequently, Joint Commissioner of Income Tax granted approval to the AO for dropping of the proceedings under Section 153A.
On 14th March, 2016, the AO issued the impugned notice under Section 148 of the Act on the ground that with the dropping of the proceedings under Section 153A of the Act, the proceedings under Section 148 of the Act, which had abated due to the initiation of the proceedings under Section 153A of the Act, had revived.
The Hon’ble High Court observed that by operation of law, the amalgamated company ceased to exist with effect from 1st April, 2012. According to the Court, the fact that the order of the High Court might have been passed only on 20th February, 2013, and that the Department became aware of that fact even later, would not make any difference to the legal position.
The Court opined that the clause of the amalgamation order providing that any notices to the amalgamated company that may be issued thereafter would be responded to by the Petitioner is not be understood to mean that proceedings initiated against any of the transferor companies, by the Department prior to that date would be continued against the Petitioner. The Court explained that what the clause meant was that notices issued thereafter to amalgamated company after it ceased to exist would be responded to by the Petitioner. And the said condition had been complied with since in fact the Petitioner answered the notices issued to the amalgamated company after 1st April 2012.
The Hon’ble Court opined that on 3rd April, 2012 when the notice under Section 148 of the Act was issued, it was issued to an entity which was non-existent in the eye of law.
It was noted that the Court had previously held that it is well settled that in a case of amalgamation, the amalgamated company would stand dissolved from the date on which the amalgamation/transfer would take effect.
It was observed that in the instant case not only was the initial notice under Section 148 of the Act issued to a non-existent entity even the search under Section 153A took place against a non-existent entity. Both the warrant of authorisation and the panchnama were drawn in the name of non existent company. Clearly, therefore, the entire proceedings under Section 153A of the Act were void ab initio. Therefore, the question of invoking Section 153 A (2) of the Act to revive the abated re-assessment proceedings under Section 147/148 of the Act did not arise.
The Hon’ble High Court stated that the proceedings under Section 148 of the Act which commenced with the notice dated 3rd April, 2012 issued to amalgamated company were itself void ab initio for the simple reason that on that day it was was not in existence as a result of the order dated 20th February, 2013 of the High Court approving its amalgamation with the Petitioner with effect from 1st April, 2012. The question of revival of such proceedings at a later point in time, with there being no change to the legal position regarding VBPPL having ceased to exist, does not arise. The mere fact that prior to 20th February, 2013 (being the date of the order approving the amalgamation) amalgamated company and/or the Petitioner might have responded to such notices, will to make a difference to the said legal position.
The Court also observed that after 20th February 2013, the Petitioner did everything in reminding the AO at every stage that the amalgamated company no longer existed in the eye of law. Despite being made aware of this legal position, the AO persisted in continuing the proceedings.
Consequently, the Hon;ble high Court quashed the notice issued by the AO under Section 148 of the Act seeking to reopen the assessment of the Petitioner.
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