Income Chargeable To Tax Escaping Assessment | Reassessment Proceedings Against Amalgamated Entity, MP High Court Quashes Order U/S 148A(d) Income Tax Act

Madhya Pradesh High Court has recently quashed reassessment proceedings initiated against a non-existent/amalgamated entity under Section 148 A of the Income Tax Act, holding that even the availability of alternative remedy has no bearing in such instances when the entity has ceased to exist pursuant to amalgamation.

The division bench of Justices Sushrut Arvind Dharmadikari and Pranay Verma noted that there is no independent existence for a transferor company which is the assessee, when it has already merged with the transferee company on 01.04.2017.

“…in the present case, it is clear that the reassessment proceedings have been initiated against Jhansi Baran Pathways Pvt. Ltd (JBPPL) for the assessment year 2018-19, which had indeed ceased to exist with effect from 01.04.2017 based upon the scheme of amalgamation having been approved on 17.04.2018”, the bench sitting at Indore noted.

The state had argued that even after the scheme of amalgamation came into effect, several transactions were carried out through the PAN of the assessee (JBPPL) instead of Prakash Asphaltings and Toll Highways (India) Ltd (PATH), i.e., the merged entity. The assessment was reopened since the assessing officer had reasons to believe that income chargeable to taxation for the financial year had escaped assessment as per Section 147 of the IT Act. The counsel for the respondent state also contended that even if the assessee has any grievance, it can make a challenge before the appellate authority under Section 246 of the IT Act.

About this argument raised by the state authorities, the court noted as below:

“…it is well settled that when the order is without jurisdiction and appears to be passed in blatant exercise of powers and the same is against the principles of natural justice, then the question of availability of alternative remedy does not come in the way for exercising jurisdiction under Article 226 of the Constitution of India”, the court noted while adding that the income tax authority cannot issue orders/notices against a non-existent entity and then take the shield of the availability of alternative remedy.

While clarifying the current position of law that is no longer res integra, the court referred to the apex court decision in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki (2020) 18 SCC 331. A two-judge bench of the apex court had held therein that a company that has ceased to exist post-amalgamation cannot be regarded as a person under Section 2(31) of the Income Tax Act and assessments proceedings cannot be initiated against those non-existent entities. The court observed that the conclusive judgement passed by the apex court would squarely apply to the facts of the case since Jhansi Baran Pathways Pvt. Ltd (JBPPL) ceased to exist from 01.04.2017 whereas reassessment was initiated for the Financial Year of 2017-2018.

“…if the company has ceased to exist as a result of the approved scheme of amalgamation, then in that case, the jurisdictional notice issued in its name would be fundamentally illegal and without jurisdiction. It is also held that upon amalgamating entity ceasing to exist, it cannot be regarded as a person under sub section (31) of Section 2 of the Act against whom assessment proceedings can be initiated. The participation by the amalgamated company in the proceedings would be of no effect as there is not estoppel against law.”

The court, therefore, held that all notices, orders, and subsequent proceedings initiated against the transferor company/assessee are null and void while allowing the petitions filed.

Case Title: Jhansi Baran Pathways Pvt. Ltd (Now Amalgamated With Prakash Asphaltings And Toll Highway India. Ltd.) v. Office of the Income Tax Officer ITO 2(1) (Indore) & Ors. & Connected Matters

Case No: Writ Petition No. 11190/ 2022 & Others

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