Income-tax recovery against a non-assessed entity fails absent notice of demand and statutory liability under reorganisation law.

Income-tax recovery cannot be commenced against a separate legal entity that was not assessed for the relevant period and was never served with a notice of demand under section 156 of the Income-tax Act, 1961; in that situation, attachment and prohibitory orders are without jurisdiction. Liability arising from the erstwhile corporation's dues must also be traced to the statutory apportionment under the Andhra Pradesh Reorganisation Act, 2014, and not fastened on the petitioner merely because of prior payment history or a recovery certificate. The Court therefore quashed the recovery steps against the petitioner and left the revenue at liberty to proceed in accordance with law against the competent successor State for any apportioned liability.

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Issues: (i) Whether tax recovery proceedings, including attachment and prohibitory orders, could be initiated against the petitioner without service of notice of demand and when no assessment order had been passed against it. (ii) Whether the petitioner could be treated as the successor in business of the erstwhile corporation so as to fasten liability for the disputed income-tax dues, or whether such dues were recoverable only from the successor State under the reorganisation scheme.

Issue (i): Whether tax recovery proceedings, including attachment and prohibitory orders, could be initiated against the petitioner without service of notice of demand and when no assessment order had been passed against it.

Analysis: The petitioner was a separate legal entity incorporated after the relevant assessment year. The disputed dues related to a period when the petitioner did not exist. No assessment order was passed against the petitioner and no notice of demand was served under Section 156 of the Income-tax Act, 1961. In such circumstances, the petitioner could not be treated as an assessee in default, and recovery proceedings could not validly be commenced against it. The impugned attachment and prohibitory orders were therefore without jurisdiction.

Conclusion: The issue is answered in favour of the petitioner.

Issue (ii): Whether the petitioner could be treated as the successor in business of the erstwhile corporation so as to fasten liability for the disputed income-tax dues, or whether such dues were recoverable only from the successor State under the reorganisation scheme.

Analysis: Under Sections 53 and 68(2) of the Andhra Pradesh Reorganization Act, 2014, the assets and liabilities of the listed corporations stood apportioned between the successor States. The Court held that the petitioner had not acquired the assets or liabilities of the erstwhile corporation and could not be equated with that corporation merely because of a mistaken earlier payment or because of the revenue's recovery certificate. The liability, if any, had to be worked out against the successor State in accordance with the statutory apportionment, and not against the petitioner. The claim of constitutional immunity was also rejected.

Conclusion: The issue is answered in favour of the petitioner.

Final Conclusion: The recovery notices and attachment orders against the petitioner were quashed, and the revenue was left at liberty to proceed in accordance with law against the State of Telangana for any apportioned liability.

Ratio Decidendi: Income-tax recovery cannot be initiated against a non-assessed entity that was not served with a notice of demand and is not the statutory debtor; where liability is apportioned by reorganisation law, recovery lies only against the entity on whom the statute fastens that liability.

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