Active PAN not a Ground for Proceedings against Amalgamated Company: The true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there cannot be any doubt that, when two companies amalgamate and merge into one, the transferor company (amalgamating company) ceases to exist upon the approval of the scheme of amalgamation, as it ceases to have its business. Framing an assessment proceedings on a dissolved company is not only a procedural irregularity but a Substantive illegality and jurisdictional defect also.
Even if PAN of the Transferor company is active post appointed date of amalgamation, it does not create an exception in favour of the revenue to dilute in any manner the principles enunciated by the Apex Court in Saraswati Industrial Syndicate Ltd. v/s CIT and in the case of PCIT New Delhi vs. Maruti Suzuki India Ltd.
Background of the Case (Assessment Proceedings upon Transferor Company)
It is the case of the petitioner that Delta Power Solutions India Pvt Ltd. (DPS) and petitioner Company, i.e., Delta Electronics India Pvt Ltd. (DIN) proposed a scheme for amalgamation with appointed date of 01.04.2018 (DPS being Transferee company or amalgamating company and DIN being Transferor company or amalgamated company).
The amalgamation processes were approved by National Company Law Tribunal (“NCLT”) on 31.01.2019. The proposed scheme of amalgamation was also informed to the revenue by a communication dated 08.08.2018. The revenue participated in the amalgamation proceedings before the NCLT. Post approval by the NCLT, according to the petitioner, the revenue was further informed by a communication dated 15.02.2020.
But it is the case of the petitioner (DIN) that the revenue issued notice dated 03.02.2020, under Section 148A of the Income Tax Act against the Transferor company specifying, therein, that the PAN of the Transferor company was active.
The revenue further gave notices on 27.02.2023 and 28.02.2023 to the Transferor company under Section 148 A of the Income Tax Act. They were replied by the petitioner on 02.03.2023 reiterating the same stand with further elaborating the facts. Thereafter, the order under Section 148 A (d) of the Income Tax Act has been passed for reopening of the assessment of the Transferor Company for the assessment year 2019-20.
Submission of the Counsel of Petitioner
In view of Section 170 of the Income Tax Act, the Transferor company cannot be assessed for the period post appointed date, as per approved scheme of amalgamation. A notice against a non-existent entity is bad in the eyes of law and this is well settled in a catena of decisions.
Ref: Provisions under Section 170 of Income Tax Act 1961 (Assessment upon Succession to business otherwise than on death):
“Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,- (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession.”
Submission of the Counsel of Revenue
The revenue admitted in its affidavit that, the Transferor company has become non-existent post amalgamation, but the PAN of assessee lying a-float and was active due to the non-action/failure on the part of the assessee in the surrendering the PAN. He further submits that after appointed date, various transactions were made by the PAN of the Transferor company. They were not accounted for it.
Therefore, notices were issued for reopening of the assessment for the assessment year 2019-20. He submits that the reasons have been given in the impugned order as to why the order has been passed. It has been the objection of the revenue that the petition deserves to be dismissed.
Judgement of the High Court
In view of the settled law, from the appointed date, under the scheme of amalgamation, the existence of the Transferor company had merged into the Transferee company. That is what the scheme of amalgamation that has been proved in the instant case by NCLT also provides.
It also provides for business and property-in-trust in Clause 8 of the scheme of amalgamation. Mere activation of PAN number may not give a right to the revenue to issue notice to a non-existent entity. Admittedly, in the instant case, the notice was given to the Transferor company, which is a non-existent entity, after the appointed date, i.e., 01.04.2018.
Admittedly, the order under Section 148 A (d) of the Income Tax Act has been passed by the revenue against a non-existent entity. Therefore, the order is bad in the eyes of law. Accordingly, the petitioner deserves to be allowed. The impugned notice dated 20.03.2023 as well as order dated 20.03.2023, passed under Section 148(A)(d) of the Income Tax Act is quashed.
Follow the Link of I-T department to access the complete provisions u/s. 170 of the Act pertaining to Assessment upon succession of Business otherwise than on Death: https://incometaxindia.gov.in/Acts/Income-tax%20Act,%201961/2014/102120000000036645.htm
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