Income Tax Notice to Amalgamated Company which ceased to exist is without Jurisdiction: Bombay High Court [Read Order]

The Bombay High Court held that the Income Tax Notice to the amalgamated company which ceased to exist is without jurisdiction.

The Petitioner, Alok Knit Exports Limited is impugning a notice issued by respondent under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2012-2013, and the subsequent order passed on 5th September 2019 rejecting the objections raised by petitioner.

By a notice issued under Section 148 of the Act, respondent informed Niraj Realtors and Shares Pvt. Ltd. (Niraj Realtors) that he has reasons to believe that Niraj Realtors’ income chargeable to tax for the Assessment Year 2012-2013 has escaped assessment within the meaning of Section 147 of the Act. Niraj Realtors was called upon to deliver a return in the prescribed form for the said Assessment Year. The reasons required to be given for reopening under Section 148 of the Act were provided by the respondent to Niraj Realtors almost six weeks later by a communication. The reasons open with the admission of the fact that Niraj Realtors had merged in and was known as Alok Knit Exports Pvt. Ltd. and had e-filed its return of income tax for the Assessment Year 2012-2013 on 30th September 2012.

On receipt of these reasons, the petitioner, by its objection dated 16th June 2019 brought to the notice of respondent no.1 that the notice issued under Section 148 of the Act was bad in law as the same was issued in the name of a non-existent person. In the objection, copy whereof is at Exhibit “H” to the petition, petitioner had also listed various judicial pronouncements on which they were relying upon to make their submission that the notice issued was bad in law. Apart from that, the petitioner had also raised various other objections with which we do not propose to go into at this stage because the Court felt, if the Court comes to a conclusion that the notice, that was issued under Section 148 of the Act, was bad in law, the same having been issued in the name of a non-existent person, the other objections would only be academic.

The respondent has stated that the assessee company, i.e., Niraj Realtors, had merged recently with the petitioner and when the merger takes place, all assets and liabilities are taken care of by the new company and any liability including income tax liability arising out of any previous year is undoubtedly the liability to be taken care of by the new company. Notwithstanding this conclusion and being aware that Niraj Realtors had merged into petitioner and for the Assessment Year 2011-2012 respondent no.1 has issued a notice under Section 148 of the Act to petitioner for the dues of Niraj Realtors, still respondent persisted with issuing the notice for the Assessment Year 2012-2013 under Section 148 of the Act to Niraj Realtors, a non-existent company.

The division bench of Justice Abhay Ahuja and Justice K.R. Sriram held that the basis on which jurisdiction is invoked is under Section 148 of the Act and when such jurisdiction was invoked on the basis of something which was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation, the notice is bad in law.

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