Active PAN of Non-existent/Amalgamating entity would not justify the reassessment proceedings against such non-existent entity: Bombay High Court

Active PAN of Non-existent/Amalgamating entity would not justify the reassessment proceedings against such non-existent entity: Bombay High Court

The Bombay High Court observed, that once the revenue department is aware about the amalgamation and had knowledge regarding the non-existence of the amalgamating entity, an assessment order passed against such amalgamating entity would be void and not merely a procedural defect.

The division bench of Justices Dhiraj Singh Thakur and Kamal Khata were hearing a petition in the matter of CLSA India Private Limited vs. The Deputy Commissioner of Income-tax and others.

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.

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.

The petitioner contended that the revenue department stood informed that the merger had taken place with effect from 1st April 2015 vide an order of the Bombay High Court dated 16th April, 2016. It further argued that for assessment year 2016-17, a return was filed by the petitioner in which the factum of the amalgamation was reflected.

Thus, the petitioner asserted that factum of the amalgamation was already within the knowledge of the revenue as is reflected from the order of assessment dated 16th December 2017 for the assessment year 2015-16 which show M/s CLSA India Pvt. Ltd. as the successor of M/s Laysin BPO Pvt. Ltd. The petitioner, therefore, sought an order quashing the proceedings initiated against the said non-existent entity.

The bench 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.

The Court discerned 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 to form a third company, or where one is absorbed into another or blended with another, the amalgamating company loses its entity.

Further, the bench relied on the observation made in the case of Spice Entertainment Ltd. vs. CST (2011) passed by division bench of Delhi High Court, 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.

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 bench refuted the submissions forwarded by the revenue department and observed, "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."

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