Income Tax Act | Reassessment Notice To Merged Entity U/S 148A(d) Not Invalid Merely Because SCN Was Issued In Name Of Ceased Entity: Delhi HC

A division bench of Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma held,

“The nature of proceedings under Section 148A of the Act is to enable the AO to form an opinion whether it is a fit case for issuance of notice under Section 148 of the Act. Given the nature of the proceedings under Section 148A of the Act, we are unable to accept that issuance of a notice under Section 148A(b) of the Act in the name of an entity, which had since amalgamated with the petitioner, would be fatal to the AO assuming jurisdiction by issuance of notice under Section 148 of the Act in the name of the petitioner.”

Section 148A(b) contemplates issuance of a notice asking assessee to show cause why reassessment proceedings should not be initiated against it.

Notice under Section 148A(d) is issued after considering the assessee's response to the show cause notice (SCN), intimating whether or not it is a fit case to issue reassessment notice under Section 148.

In the case at hand, the SCN under Section 148A(b) was issued in the name of M/s Tulsi, which by then merged into Sonali Realtech- the Petitioner, and had ceased to exist. As the Petitioner responded to the SCN, informing the Assessing Officer of the merger, the AO issued subsequent notice under Section 148A(d) and Section 148 in the name of Petitioner.

While the Petitioner contested this notice on the ground that initial notice was issued in the name of a non-existent company, the High Court disagreed and held,

“The contention that the impugned notice issued under Section 148 of the Act is invalid as the initial notice under Section 148A(b) of the Act was issued in the name of Tulsi, is unpersuasive. The petitioner is correct that a notice under Section 148A(b) of the Act was issued in the name of Tulsi which has since merged with the petitioner and therefore, was not existing at the material time. However, the AO had noted the said objection and passed an order under Section 148A(d) of the Act in the name of the petitioner.”

Explaining the purport of procedure prescribed under Section 148A which precedes initiation of reassessment proceedings under Section 148, the bench said,

“It is material to note that the proceedings under Section 148A of the Act are to enable an assessee to respond to the information as available with the AO in order to dissuade the AO from initiating reassessment proceedings under Section 147 of the Act. The procedure under Section 148A of the Act has been devised to eliminate any arbitrary reopening of assessments.

In the present case, the petitioner had responded to the notice under Section 148A(b) of the Act and had explained that Tulsi had since merged with the petitioner and therefore, is not in existence. The AO had accepted the said response and had accordingly passed an order under Section 148A(d) in the name of the petitioner. It is material to note that the reassessment proceedings were initiated by issuance of a notice under Section 148 of the Act in the name of the petitioner.”

The High Court then distinguished from the Supreme Court's decision in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki (India) Ltd. where the AO, despite being informed of the amalgamation, had proceeded to frame reassessment in the name of amalgamating company, which had ceased to exist.

The High Court said, “...the decision of the Supreme Court rested on the fact that jurisdictional notice to commence proceedings for assuming the assessment was in the name of an entity that did not exist. In the present case, the notice to commence reassessment proceedings – notice under Section 148 of the Act – was issued in the name of the petitioner and not in the name of Tulsi which was merged with the petitioner.”

It further observed that the nature and object of the procedure under Section 148A is to enable an assessee to address objections to the information available with the AO, on the basis of which it is suspected that the assessee's income had escaped assessment.

“The decision whether to issue a notice under Section 148 of the Act and assume jurisdiction to assess / re-assess the income under Section 147 of the Act is required to be taken on the basis of the record available with the AO including the response filed by the assessee.

In the present case, the response of the petitioner clearly indicated that Tulsi had merged with the petitioner and therefore, the petitioner as a successor-in-interest would be liable for any dues of Tulsi. Admittedly, the reassessment proceedings of Tulsi's income for AY 2017-18 were now required to be initiated and continued in the name of the petitioner as a successor-in-interest and in terms of the scheme of amalgamation.

Thus, the AO had rightly, based on the material on record, taken a decision to issue notice under Section 148 of the Act in the name of the petitioner. It is also material to note that the petitioner had responded to the information available with the AO on merits. Thus, this is not a case where the petitioner did not have the opportunity to address the information available with the AO,” the High Court held.

However, Petitioner's objection to reassessment proceedings was allowed in view of the factual finding that the AO did not have material to support the allegations.

Appearance: Mr. C.S. Aggarwal, Senior Advocate with Mr. Ravi Pratap Mall and Mr. Uma Shankar, Advocates for Petitioner; Mr. Sunil Agarwal, Mr. Shivansh B. Pandya, Mr. Viplav Acharya & Mr. Utkarsh Tiwari, Advocates for Respondents

Case title: Sonansh Creations Pvt Ltd. v. Assistant Commissioner Of Income Tax And Anr.

Citation: 2025 LiveLaw (Del) 27

Case no.: W.P.(C) 12316/2022