Issuance of a notice under Section 148A(b) in the name of a now-merged entity does not undermine the jurisdiction of the AO when a subsequent notice under Section 148A(d) is correctly addressed to the merged entity.
The Delhi High Court has clarified that issuing a notice under Section 148A(b) of the Income Tax Act, 1961, in the name of an amalgamating company that has ceased to exist does not invalidate the subsequent notice under Section 148A(d) if it is correctly issued in the name of the merged entity.
A division bench comprising Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma observed:
“The purpose of proceedings under Section 148A of the Act is to enable the Assessing Officer (AO) to determine whether it is a fit case for issuing a notice under Section 148 of the Act. Considering this, the issuance of a notice under Section 148A(b) in the name of a now-merged entity does not undermine the jurisdiction of the AO when a subsequent notice under Section 148A(d) is correctly addressed to the merged entity.”
Also Read: Corporate death of an entity on amalgamation cannot invalidate an assessment order
Understanding Section 148A(b) and Section 148A(d)
Section 148A(b) requires the issuance of a SCN to the assessee, asking why reassessment proceedings should not be initiated. Section 148A(d) involves issuing a notice after considering the assessee’s response, determining whether reassessment notice under Section 148 is warranted.
In this case, the SCN under Section 148A(b) was initially issued in the name of M/s Tulsi, which had merged into Sonali Realtech, the petitioner, and ceased to exist. The petitioner responded, informing the AO of the merger. Subsequently, the AO issued a notice under Sections 148A(d) and 148 in the petitioner’s name.
The petitioner contested the reassessment, arguing that the initial notice was issued to a non-existent company. However, the High Court rejected this contention, stating:
“While the notice under Section 148A(b) was addressed to Tulsi, which had since merged with the petitioner, the AO acknowledged this in the response under Section 148A(d) and correctly issued the final notice in the petitioner’s name. Therefore, the reassessment proceedings were validly initiated.”
Distinction from Maruti Suzuki Case
The court distinguished this case from Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki (India) Ltd.. In that case, despite being notified of the amalgamation, the AO proceeded to frame reassessment in the name of the non-existent amalgamating company. The Supreme Court had ruled such reassessment invalid.
In contrast, the Delhi High Court emphasized that in the present case, the jurisdictional notice to commence reassessment proceedings under Section 148 was correctly issued in the petitioner’s name. The purpose of Section 148A is to allow the assessee to challenge the information leading to suspected income escapement, ensuring a fair reassessment process.
The court further noted:
“The petitioner’s response clearly indicated the merger, making the petitioner liable as a successor-in-interest. Hence, the reassessment for Tulsi’s income for AY 2017-18 was appropriately initiated in the petitioner’s name. The petitioner had ample opportunity to address the information on merits.”
Conclusion
While validating the reassessment proceedings based on procedural correctness, the court allowed the petitioner’s objection due to a factual finding that the AO lacked substantive material to support the income escapement allegation.
Legal Representation
- For Petitioner: Mr. C.S. Aggarwal (Senior Advocate), Mr. Ravi Pratap Mall, Mr. Uma Shankar
- For Respondents: Mr. Sunil Agarwal, Mr. Shivansh B. Pandya, Mr. Viplav Acharya, Mr. Utkarsh Tiwari
Case Details: Sonansh Creations Pvt Ltd. v. Assistant Commissioner of Income Tax & Anr., W.P.(C) 12316/2022
This ruling underscores the importance of procedural adherence under Section 148A and the legal validity of notices issued in the name of merged entities in reassessment cases.
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