The Bombay High Court has reaffirmed that an assessment order passed against such an amalgamating entity would be void and not only procedurally flawed once the tax department is aware of the merger and had knowledge regarding the non-existence of the amalgamating entity. In the case of CLSA India Private Limited versus Deputy Commissioner of Income Tax & Ors. Justice Dhiraj Singh Thakur and Justice Kamal Khata, pronounced the said judgement.
FACTS OF THE CASE :
The income of the assessee, Laysin BPO Pvt. Ltd., was sought to be reassessed under Section 148 of the Revenue Tax Act of 1961 on the grounds that its income for the pertinent assessment year had avoided assessment as defined by Section 147 of the Act. An assessment order issued under Section 147 read in conjunction with Sections 144 and 144B of the Income Tax Act was issued after the same.
The petitioner, CLSA India Pvt Ltd, filed a writ suit before the Bombay High Court challenging the Section 148 notice and the reassessment order on the grounds that the notice under Section 148 was issued in the name of an illegitimate entity.
The petitioner, CLSA India, claimed before the High Court that it had informed the income tax authorities of the non-existence of the assessee, Laysin BPO, as a result of its amalgamation with the petitioner-CLSA India, in its reply to the notice issued under Section 148.
The petitioner contended that the revenue agency already knew the truth of the amalgamation. In order to stop the proceedings against the aforementioned nonexistent entity, the petitioner requested an order. The notice under Section 148, which served as the impetus for the reassessment procedures, was issued in the name of an illegitimate business, the High Court said.
JUDGEMENT :
According to the case’s facts, the court came to the conclusion that the revenue department was aware of the amalgamation and knew that the assessee/amalgamating firm, Laysin BPO, didn’t exist. Despite this, the reassessment order was issued in the petitioner’s name with Laysin BPO listed as the assessee, according to the Court.
The Supreme Court had ruled in Saraswati Industrial Syndicate Ltd. vs. CIT (1990) that when two companies merge and join to form a third company, or where one is absorbed into another or blended with another, the amalgamating company loses its entity. According to the Court, this decision was clearly untenable.
The bench also noted that the Delhi High Court Division Bench had ruled in Spice Entertainment Ltd. vs. CST (2011) that once the Assessing Officer was informed of the fact that a company had amalgamated but the proceedings were still ongoing and an assessment order was issued in its name despite that, the assessment order was invalid.
An assessment order would not be merely procedurally flawed once the Assessing Officer had been informed of a company’s factum of amalgamation, even if the proceedings were continued and one was issued in its name. The Division bench had stated that the assessment would be void because it had been based on the merging company in substance and effect.
The reassessment proceedings against such a nonexistent entity would not be justified, according to the bench of Justices Dhiraj Singh Thakur and Kamal Khata, solely because the PAN in the name of the nonexistent entity/amalgamating entity had continued to be operational. Thus, the Section 148 notice, the reassessment order, and the demand and penalty notice were all invalidated by the High Court along with the writ suit.
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JUDGEMENT REVIEW BY SREYA MARY.
