Assessment proceedings against amalgamated entity quashed as invalid under Section 148A after PAN surrender

The MP HC quashed assessment proceedings initiated against a petitioner entity that had been amalgamated into MPIDC with liabilities transferred. The court held that the assessing officer was aware of the amalgamation, as evidenced by the entity's compliance with Section 148A(b) notices for AY 2019-20 and surrender of its PAN after amalgamation. Since the order under Section 148A(d) was passed against a non-existent entity, it was deemed invalid in law. The petition was allowed in favor of the assessee.

---

---

Issues Involved:

1. Jurisdiction of assessment proceedings against a non-existent entity due to amalgamation.
2. Compliance with principles of natural justice in the issuance of notices and conducting proceedings.
3. Validity of assessment orders against amalgamated entities.

Detailed Analysis:

1. Jurisdiction of Assessment Proceedings Against a Non-Existent Entity Due to Amalgamation:

The petitioner challenged the order under Section 148A(d) of the Income Tax Act, 1961, on the grounds that it was issued against an entity that had ceased to exist due to amalgamation. The petitioner, originally known as MPAKVN, was amalgamated into MPIDC effective from April 1, 2018. Consequently, the individual PAN numbers of the amalgamated entities were surrendered and deactivated. The court noted that assessment or reassessment proceedings cannot be initiated against amalgamated entities as they cease to exist by virtue of amalgamation. This principle was supported by previous judgments, including those of the Supreme Court in cases such as Saraswati Industrial Syndicate Ltd. vs. CIT and Principal Commissioner of Income Tax vs. Maruti Suzuki (India) Ltd.

2. Compliance with Principles of Natural Justice in the Issuance of Notices and Conducting Proceedings:

The petitioner argued that the respondent failed to consider the replies submitted to the show-cause notices and did not grant a reasonable opportunity to respond, thus violating the principles of natural justice. The petitioner highlighted that the notices were delivered electronically with insufficient time to respond, especially during a declared holiday period. The court found that the respondent did not adequately consider the petitioner's submissions regarding the amalgamation and the deactivation of the PAN number, which were crucial to the case. The court emphasized the importance of adhering to the principles of natural justice, which require providing a fair opportunity to present one's case.

3. Validity of Assessment Orders Against Amalgamated Entities:

The respondent argued that the petitioner did not file the Income Tax Return for the Assessment Year 2020-21, and transactions were flagged under the non-filer management system, necessitating the assessment proceedings. However, the court observed that the respondent had prior knowledge of the amalgamation and had accepted the compliance for the previous assessment year. The court distinguished the present case from the Supreme Court judgment in Mahagun Realtors (P) Ltd., where the amalgamation was not disclosed by the assessee. In the current case, the amalgamation was acknowledged, and the PAN number was deactivated post-amalgamation. Thus, the court held that the assessment order against a non-existent entity was void ab initio and unsustainable in law.

Conclusion:

The court concluded that the assessment proceedings initiated against the amalgamated entity were void and without jurisdiction. The impugned order dated March 21, 2022, and all consequential proceedings were set aside. The petition was allowed, and no costs were imposed. The judgment reinforces the legal principle that assessment orders cannot be issued against entities that have ceased to exist due to amalgamation, and it underscores the necessity for tax authorities to adhere to procedural fairness and natural justice.

---