Reassessment proceedings quashed against amalgamated company for AY 2018-19 due to jurisdictional errors and limitation issues

The HC quashed reassessment proceedings against an amalgamated company for AY 2018-19. The court held that the AO erroneously assumed jurisdiction under sections 147/148/148A as the amalgamating company had dissolved on March 30, 2018, and could not file returns for AY 2018-19. Only the amalgamated company was required to file returns, which it did. The consolidated accounts were properly filed and assessed under section 143(3). The court found violations of natural justice principles as no effective hearing was granted despite requests. Additionally, the notice under section 148 issued on April 19, 2022, was barred by limitation as the statutory period expired on April 6, 2022. The proceedings were conducted arbitrarily and in excess of jurisdiction.

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Issues Involved:

1. Assumption of jurisdiction under sections 147, 148, and 148A of the Income Tax Act, 1961.
2. Validity of the notice issued under section 148A(b) and subsequent proceedings.
3. Alleged failure to file a return by the amalgamating company for the assessment year 2018-19.
4. Violation of principles of natural justice due to lack of opportunity for hearing.
5. Limitation period for issuing notice under section 148.
6. Application of mind by the Assessing Officer in issuing the notice and subsequent actions.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Sections 147, 148, and 148A:
The court examined whether the Assessing Officer had valid grounds to assume jurisdiction under sections 147, 148, and 148A of the Income Tax Act. It was noted that the amalgamating company, Gloster Limited, merged with the amalgamated company, Kettlewell Bullen & Co. Ltd., effective from January 1, 2015, and was dissolved without winding up on March 30, 2018. The consolidated accounts of the amalgamated company, including all income and expenses of the amalgamating company, were duly filed and assessed for the assessment year 2018-19. The court found that the Assessing Officer erroneously assumed jurisdiction, as the amalgamating company was not required to file a separate return for the said assessment year.

2. Validity of Notice Issued under Section 148A(b):
The notice under section 148A(b) alleged that the amalgamating company had not filed its return for the assessment year 2018-19, leading to income escaping assessment. However, the court noted that the amalgamating company was dissolved and its income was included in the consolidated accounts of the amalgamated company, which were duly assessed. The omission of key dates related to the amalgamation in the notice further highlighted the lack of proper inquiry by the Assessing Officer. The court held that the proceedings were initiated without proper jurisdictional basis.

3. Alleged Failure to File Return by Amalgamating Company:
The court addressed the allegation that the amalgamating company failed to file a return for the assessment year 2018-19. It was established that the amalgamating company was dissolved before the relevant assessment year, and its income was incorporated into the amalgamated company's return. Therefore, the amalgamating company was not required to file a separate return, and the allegation was unfounded.

4. Violation of Principles of Natural Justice:
The court found a violation of the principles of natural justice, as the petitioner was not granted an effective opportunity for a hearing before the order under section 148A(d) was passed. Despite requests for a personal hearing, the Assessing Officer proceeded to issue the notice under section 148 without considering the petitioner's response. The court emphasized that the opportunity provided under the Act should be meaningful and effective, not merely a formality.

5. Limitation Period for Issuing Notice under Section 148:
The notice under section 148 was issued on April 19, 2022, beyond the permissible period of three years from the end of the assessment year 2018-19, which expired on March 31, 2022. The court noted that the extension of time by the Assessing Officer was without authority and the notice was barred by limitation. The statutory period could not be extended in a circuitous manner, rendering the notice invalid.

6. Application of Mind by the Assessing Officer:
The court criticized the lack of application of mind by the Assessing Officer, as evidenced by the discrepancies in the figures mentioned in the notice and the subsequent details provided. The figures included amounts unrelated to the assessment year 2018-19, indicating a non-application of mind. The court highlighted that the Assessing Officer failed to furnish a proper break-up of figures and proceeded in an arbitrary manner.

Conclusion:

The court concluded that the impugned proceedings were conducted in an arbitrary and unreasonable manner, in excess of jurisdiction, and in violation of principles of natural justice. The notice and order dated April 19, 2022, were set aside as unsustainable. The court confirmed the ad-interim order of injunction and allowed the writ petition, granting relief as prayed.

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