Uttarakhand High Court Set Aside Reassessment Proceedings Initiated against Amalgamated Company As It Became Non-Existent

The Uttarakhand High Court has held that PAN activation by a transferor company does not entitle revenue to issue a reassessment notice after the appointed date of amalgamation.

The bench of Justice Ravindra Maithani has observed that the reassessment notice was given to the transferor company, which is a non-existent entity, after the appointed date, i.e., April 1, 2018. The order under Section 148A(d) of the Income Tax Act has been passed by the department against a non-existent entity.

Delta Power Solutions India Pvt. Ltd. (DPS) and the petitioner’s company, i.e., Delta Electronics India Pvt. Ltd. (DIN), proposed a scheme for amalgamation with an appointment dated April 1, 2018. DPS is a transferor company or amalgamating company, and DIN is a transferee company or amalgamated company. The amalgamation process was approved by the National Company Law Tribunal (NCLT) on January 31, 2019.

The proposed scheme of amalgamation was also communicated to the department. The department participated in the amalgamation proceedings before the NCLT. After approval by the NCLT, according to the petitioner, the department was further informed by a communication dated February 15, 2020.

However, the department issued a notice dated February 3, 2020, under Section 148A of the Income Tax Act, against the transferor company, specifying that the PAN of the transferor company was active.

The notice was replied to by the petitioner, bringing to the notice of the department the factum of amalgamation. With effect from the appointed date, i.e., April 1, 2018, all the transactions entered and appearing on the PAN of the transferor company have been duly accounted for by the petitioner’s newly amalgamated company in accordance with the generally accepted accounting policy and other applicable laws.

The department gave notices to the transferor company under Section 148A of the Income Tax Act. They were replied to by the petitioner on March 2, 2023, reiterating the same stand and further elaborating the facts. The order under Section 148A(d) of the Income Tax Act has been passed for the reopening of the assessment of the transferor company for the assessment year 2019–20.

The petitioner contended that a notice against a non-existent entity is bad, and this law is well settled in a catena of decisions.

The department contended that after the appointed date, various transactions were made by the PAN of the transferor company. They were not accounted for. Therefore, notices were issued for the reopening of the assessment for the assessment year 2019–20.

The court, while allowing the writ petition, held that activation of the PAN of the transferor company will not create any exception in favor of revenue so as to entitle revenue to issue notice under Section 148 to the transferor company after the appointed date of amalgamation.

The court quashed the notice and order passed under Section 148(A)(d) of the Income Tax Act.

Counsel For Petitioner: Piyush Kaushik

Counsel For Respondent: H.M. Bhatia

Case Title: Delta Electronics India Pvt. Ltd. Versus PCIT

Case No.: Writ Petition (M/S) No.1557 of 2023

Click Here To Read The Order