2025 (8) TMI 581 - AT - Income Tax

Assessment order under Section 143(3) invalid without notice to transferee bank post-amalgamation, quashing assessment for AY 2019-20

The ITAT Mumbai held that the assessment order under section 143(3) issued in the name of the transferee bank post-amalgamation is invalid where no notice ... Validity of the Assessment Order passed u/s 143(3) against bank amalgamated - merger/amalgamation of Andhra Bank with Union Bank of India - Scope of section 292BB - continuation of pending causes of action/proceedings of the ‘Transferor Banks’ in the hands of the ‘Transferee Bank’. HELD THAT:- On examining the provisions of Section 292BB of the Act (when read in light of the Memorandum to Finance Bill 2008) one can take a view that an assessee participating in the assessment proceedings would be precluded from raising objections regarding issuance as well as service of notice in case such assessee failed to do so in the assessment/reassessment proceedings. However, we find that Laxman Das Khandelwal [2019 (8) TMI 660 - SUPREME COURT] held that Section 292BB of the Act does not save complete absence of notice. For Section 292BB of the Act to apply, the notice must have emanated from the department. In view of the above judgment of the Hon’ble Supreme Court, Section 292BB of the Act is of no aid to the Revenue since not notice was issued to Union Bank of India in the facts of the present case, and to this extend the order passed by the CIT(A) is contrary to the above judgment of the Hon’ble Supreme Court and therefore, no sustainable in law. On perusal of the Scheme it becomes clear that the Scheme provides for continuation of pending causes of action/proceedings of the ‘Transferor Banks’ in the hands of the ‘Transferee Bank’. The Scheme is silent about the causes of action/proceedings which arose and/or were initiated after the Scheme came into force. Section 170(1)(a), 170(1)(b) and 170(2) of the Act would have application for the purpose of framing assessment for the Assessment Year 2019-2020 relevant to Financial/Previous Year 2018-2019. Further, the notice under Section 143(2) of the Act was issued on 31/03/2021, whereas the Scheme came into effect on 01/04/2020. Thus, the assessment proceedings for the Assessment Year 2019-2020 was not pending when the Scheme came into effect. Therefore provisions contained in Section 170(2)(A) shall also not be attracted in case of assessment proceedings for the Assessment Year 2019-2020. In the present case the assessment proceedings were initiated after the Scheme came into effect by issuing notice under Section 143(2) of the Act in the name of Andhra Bank and the assessment was framed in the name of Union bank of India without issuing notice under Section 143(2) of the Act to Union Bank of India. Therefore, in view of the above, the Assessment Order, dated 29/09/2021, passed in the name of Union Bank of India cannot be sustained and is quashed as having been passed by Assessing Officer without assuming jurisdiction. Accordingly, the Cross Objections filed by the Assessee is allowed. 1. ISSUES PRESENTED and CONSIDERED 1. Whether the Assessment Order dated 29/09/2021, passed under Section 143(3) of the Income Tax Act, 1961 (the Act) in the name of the successor bank (Transferee Bank) following the amalgamation scheme, is valid when the notice under Section 143(2) was issued in the name of the predecessor bank (Transferor Bank) after the amalgamation scheme came into effect. 2. Whether the deeming provision under Section 292BB of the Act can validate the service of notice issued in the name of the predecessor bank when the successor bank participated in the proceedings but no notice was issued in its name. 3. Applicability and effect of the amalgamation scheme notified under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, on pending and subsequent assessment proceedings and notices. 4. Whether the Assessing Officer had jurisdiction to frame assessment against the successor bank without issuing a fresh notice under Section 143(2) of the Act in its name. 5. Whether the provisions of Section 170 of the Act relating to succession in case of amalgamation apply to the facts of the case and the relevant assessment year. 6. Whether the grounds raised by the Revenue relating to disallowance of deductions under Sections 36(1)(viia), 14A read with Rule 8D, 36(1)(vii), and applicability of Section 115JB of the Act require adjudication in view of the quashing of the Assessment Order. 7. Whether issuance of notice in the name of a non-existent entity is a curable defect under the Act and whether failure to raise objection during assessment proceedings precludes raising such objection at the appellate stage. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 3 & 4: Validity of Assessment Order and Jurisdiction of Assessing Officer post-Amalgamation Scheme Relevant legal framework and provisions: - Section 143(2) of the Act requires that notice initiating assessment proceedings be served on the assessee. - The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 empowers the Central Government to notify schemes of amalgamation. The notified Scheme (GSR 154(E), dated 04/03/2020, effective from 01/04/2020) provides for vesting of all assets, liabilities, contracts, and pending proceedings of the Transferor Banks into the Transferee Bank. - Section 170 of the Act governs succession in case of amalgamation or demerger, specifying the treatment of assessment proceedings and notices in such cases. Court's interpretation and reasoning: - The Scheme provides that all contracts, deeds, agreements, and pending proceedings subsisting immediately before the commencement of the Scheme shall continue and be enforceable by or against the Transferee Bank. However, the Scheme is silent on causes of action or proceedings arising after the Scheme's commencement. - The return for AY 2019-2020 was filed by the Transferor Bank before the Scheme came into effect. However, the notice under Section 143(2) was issued on 31/03/2021, after the Scheme's effective date, but in the name of the Transferor Bank, which ceased to exist from 01/04/2020. - The Assessing Officer passed the Assessment Order in the name of the Transferee Bank without issuing a fresh notice under Section 143(2) in its name. - The time limit for issuance of notice under Section 143(2) expired on 30/09/2020, before the notice was issued on 31/03/2021. The event of merger was marked in the PAN module only on 17/09/2021, after the expiry of the limitation period. - Since the notice was issued in the name of a non-existent entity (Transferor Bank) after the Scheme's effective date and no notice was issued in the name of the Transferee Bank, the Assessing Officer lacked jurisdiction to frame assessment against the Transferee Bank. - Section 170 provisions are not applicable for the Assessment Year 2019-2020 because the succession date (01/04/2020) falls in the subsequent previous year (2020-21 relevant to AY 2021-22), and the assessment proceedings for AY 2019-2020 were not pending at the time of succession. Key evidence and findings: - The notice under Section 143(2) was issued on 31/03/2021 in the name of Andhra Bank (Transferor Bank), which ceased to exist from 01/04/2020. - No notice was issued in the name of Union Bank of India (Transferee Bank). - The Assessing Officer received intimation of the merger on 02/11/2020 but did not issue a fresh notice in the name of the Transferee Bank. Application of law to facts: - The Assessing Officer's action of issuing notice in the name of a non-existent entity and framing assessment in the name of the successor without fresh notice violates the requirement under Section 143(2) and principles of jurisdiction. - The Scheme's provisions for continuation of pending proceedings do not extend to proceedings initiated post-merger without proper notice. Treatment of competing arguments: - The Revenue contended that Section 292BB creates a deeming fiction validating the notice service as the Transferee Bank participated in the proceedings. - The Court distinguished the facts from the Revenue's reliance, noting that Section 292BB applies only where notice emanated from the Department and does not validate complete absence of notice. - The Supreme Court's ruling clarified that Section 292BB does not save a case where no notice was issued at all. Conclusions: - The Assessment Order passed in the name of the Transferee Bank without issuance of a valid notice under Section 143(2) in its name is without jurisdiction and is quashed. - The Assessing Officer was required to issue a fresh notice in the name of the Transferee Bank post-merger to assume jurisdiction. - Section 170 provisions do not apply to the facts and assessment year in question. Issue 2 & 7: Applicability of Section 292BB and Validity of Notice Issued in the Name of Non-Existent Entity Relevant legal framework and precedents: - Section 292BB of the Act provides that if an assessee has appeared or cooperated in proceedings, the notice shall be deemed to have been duly served, precluding objections to non-service, late service, or improper service, except where such objection was raised during assessment or reassessment proceedings. - The Supreme Court held that Section 292BB does not validate complete absence of notice; the notice must emanate from the Department. Court's interpretation and reasoning: - The notice under Section 143(2) was issued in the name of the Transferor Bank, which ceased to exist on 01/04/2020, and no notice was issued in the name of the Transferee Bank. - The Transferee Bank participated in the proceedings but did not raise objection regarding the notice's validity during assessment proceedings. - However, since no notice was issued to the Transferee Bank at all, Section 292BB cannot be invoked to cure this defect. Key evidence and findings: - No notice under Section 143(2) was ever issued in the name of the Transferee Bank. - The Transferee Bank participated in proceedings but did not object to the notice's validity at the assessment stage. Application of law to facts: - The deeming fiction under Section 292BB applies only to cure defects in service of notice, not to validate complete absence of notice. - Since the Transferee Bank never received a notice, the assessment framed against it is invalid. Treatment of competing arguments: - The Revenue argued that participation in proceedings by the Transferee Bank validates the notice under Section 292BB. - The Court rejected this, relying on Supreme Court precedent emphasizing that Section 292BB does not save complete absence of notice. Conclusions: - The notice issued in the name of a non-existent entity is not a curable defect under Section 292BB when no notice is issued in the name of the successor entity. - Failure to raise objection during assessment proceedings does not preclude challenge to the validity of the assessment order on grounds of lack of jurisdiction due to absence of valid notice. Issue 5: Applicability of Section 170 of the Act on Succession and Assessment Proceedings Relevant legal framework: - Section 170 of the Act deals with succession in case of amalgamation or demerger, specifying the treatment of assessment proceedings and notices in such cases. Court's interpretation and reasoning: - The date of succession is the effective date of the Scheme (01/04/2020). - The relevant previous year for succession is 2020-21 (AY 2021-22), while the assessment year in question is 2019-20 (previous year 2018-19). - Since assessment proceedings for AY 2019-20 were not pending on the date of succession, Section 170 provisions do not apply. Conclusions: - Section 170 is not applicable for framing assessment for AY 2019-20 against the Transferee Bank. Issue 6: Grounds Raised by Revenue on Disallowances and Applicability of Section 115JB Court's reasoning and conclusions: - Since the Assessment Order dated 29/09/2021 has been quashed for lack of jurisdiction, all grounds raised by the Revenue regarding disallowances under Sections 36(1)(viia), 14A read with Rule 8D, 36(1)(vii), and applicability of Section 115JB are rendered infructuous and do not require adjudication.