Active PAN In Name Of Amalgamating Company, Would Not Justify Reassessment Proceedings Against It: Bombay High Court

The bench of Justices Dhiraj Singh Thakur and Kamal Khata remarked that merely because the PAN in the name of the non-existent entity/ amalgamating entity had remained active, it would not justify the reassessment proceedings against such non-existent entity.

A notice under Section 148 of the Income Tax Act, 1961, seeking to reassess the income of the assessee, Laysin BPO Pvt. Ltd, for the assessment year 2017-18, was issued on the ground that its income for the relevant assessment year had escaped assessment within the meaning of Section 147 of the Act. The same was followed by an assessment order issued under Section 147 read with Sections 144 and 144B of the Income Tax Act.

Challenging the Section 148 notice and the reassessment order, the petitioner, CLSA India Pvt Ltd, filed a writ petition before the Bombay High Court on the ground that the notice under Section 148 was issued in the name of a non-existent company.

The petitioner, CLSA India, submitted before the High Court that, in its reply to the notice issued under Section 148, it had informed the income tax authorities regarding the non-existence of the assessee, Laysin BPO, on account of its amalgamation with the petitioner- CLSA India.

CLSA India averred that the revenue department stood informed that the merger had taken place with effect from 1^st April 2015 vide an order of the Bombay High Court dated 16^th April, 2016.

It added that for the assessment year 2016-17, a return was filed by the petitioner in which the factum of the amalgamation was reflected.

Thus, the petitioner argued that the factum of the amalgamation was already within the knowledge of the revenue department. The petitioner, therefore, sought an order quashing the proceedings initiated against the said non-existent entity.

The High Court observed that the notice under Section 148, which formed the basis for the reassessment proceedings, was issued in the name of a non-existent entity.

Referring to the facts of the case, the Court concluded that the revenue department was aware about the amalgamation and had knowledge regarding the non-existence of the assessee/ amalgamating entity, Laysin BPO. Despite this, the reassessment order was passed in the name of the petitioner, where Laysin BPO was mentioned as the assessee, the Court said.

The Court ruled that the same was clearly untenable in view of the Apex Court’s decision in Saraswati Industrial Syndicate Ltd. vs. CIT (1990), where the Supreme Court had ruled that when two companies are merged and joined so as to form a third company, or where one is absorbed into another or blended with another, the amalgamating company loses its entity.

The bench further observed that the Division Bench of the Delhi High Court in Spice Entertainment Ltd. vs. CST (2011) had held that once the factum of amalgamation of a company had been brought to the notice of the Assessing Officer (AO), despite which the proceedings are continued and an assessment order is passed in the name of the non-existent company, the assessment order would not be merely a procedural defect. The assessment, having in substance and effect, been framed on the amalgamating company, would be null and void, the Division bench had held.

The Court reckoned that the Apex Court in Principal Commissioner of Income Tax vs. Maruti Suzuki India Ltd. (2019) has reiterated the same principles.

Rejecting the contention of the revenue department that since the PAN in the name of the non-existent entity/ the amalgamating entity, Laysin BPO, had remained active, the reassessment was justified, the bench said, “The stand of the revenue that the reassessment was justified 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.”

The High Court thus allowed the writ petition and set aside the Section 148 notice, the reassessment order and the demand and penalty notice.

Case Title: CLSA India Private Limited versus Deputy Commissioner of Income Tax & Ors.

Citation: 2023 LiveLaw (Bom) 103

Dated: 10.02.2023

Counsel for the Petitioner: Mr. Paras Savla a/w Mr. Harsh R. Shah

Counsel for the Respondents: Mr. Suresh Kumar

Click Here To Read/Download Orde