The Delhi High Court has quashed reassessment action initiated by the income tax department on grounds of amalgamated entities having never been placed on notice.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja relied on the decision of Supreme Court in the case of Principal Commissioner of Income Tax, New Delhi vs Maruti Suzuki (India) Limited in which it was held that the initiation or continuance of proceedings after a company has merged pursuant to a Scheme of Arrangement and ultimately comes to be dissolved, would not sustain.
Background
The petitioners/assessees challenged orders of assessment as well as reassessment action initiated by the respondents on the ground of the amalgamated entity having never been placed on notice.
The assessee would contended that despite the department having been duly apprised of the factum of amalgamation, no notices were served upon the amalgamated entity and orders of assessment as well as notices of reassessment were maintained in the name of the amalgamating entity. This, according to the writ petitioners, would amount to a fatal defect rendering the final orders and notices as framed being null and void.
The respondent-department, on the other hand, would urge us to hold that a failure to place the amalgamated entity on notice is curable and one which would fall within the ambit of Section 292B of the Income Tax Act, 1961. Additionally, the department rested their case on a subsequent decision of the Supreme Court in Principal Commissioner of Income Tax vs. Mahagun Realtors (P) Ltd.
The writ petitioners essentially contend that in terms of a Scheme of Arrangement which may ultimately come to be approved by the jurisdictional High Court or the NCLT, the amalgamating entity comes to be dissolved by operation of law.
The assessees contended that the dissolution of the amalgamating corporate entity occurs by virtue of the NCLT or the High Court sanctioning the compromise or arrangement and this by virtue of the provisions made in Sections 230 to 232 of the Companies Act, 2013 and which contemplates a deemed dissolution of the transferor company without the process of winding up being resorted to.
Read More: AO Can’t Reopen Income Tax Assessment If PCIT Decides In Favour Of Assessee: Delhi High Court
Conclusion
The court held that the assessees clearly appear to have apprised their respective AOs of the factum of amalgamation and merger at the first available instance. If the department chose to ignore or acknowledge those fundamental changes, they would have to bear the consequences which would follow.
The court while quashing the reassessment proceedings held that once the Scheme came to be approved, the transferor companies came to be dissolved by operation of law. They, thus, ceased to exist in the eyes of law. Proceedings thus drawn in their name would be a nullity and cannot be validated by resort to Section 292B of the Income Tax Act.
Case Title: International Hospital Limited Versus DCIT
Case No.: ITA 116/2023
Date: 26/09/2024
Counsel For Petitioner: Simran Mehta
Counsel For Respondent: Gaurav Gupta
