Merging predecessor income into successor reassessment disallowed in tax reassessment composite reassessment invalid and revenue appeal dismissed in tax reassessment

The text addresses whether income and disallowances of a predecessor for a period before amalgamation can be merged and assessed in the hands of the successor by a single reassessment order. It concludes that where the predecessor remained a separate taxable entity for the relevant year, its income and disallowances cannot be clubbed with the successors income in one composite reassessment; any assessment of predecessors pre-amalgamation income must be undertaken separately and, if applicable, strictly under the representative assessment provisions. Consequently, composite reassessment treating predecessor income as successor income is legally unsustainable.

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Issues: Whether income and disallowances of a predecessor company for a period prior to amalgamation can be assessed and clubbed as the income of the successor by a single reassessment order framed under section 147/148 of the Income-tax Act, 1961.

Analysis: The Court examined the scheme of the Income-tax Act, particularly provisions governing succession and representative assessment. Sections 170, 161 and 163 distinguish between assessment of a predecessor's income and recovery of tax from a successor or representative assessee; the successor may be liable for tax recovery but the statute does not permit the predecessor's income for periods prior to succession to be assessed as the successor's own income. The facts show the predecessor had filed its own return and the amalgamation took effect after the assessment year under consideration. The decision in Maruti Suzuki was considered and distinguished on the ground that it addresses validity of notices to non-existent entities and the requirement to proceed in the name of the successor, but does not authorize clubbing the predecessor's pre-succession income with the successor's income in a single assessment. Coordinate precedents endorsing separate and identifiable representative assessments for predecessor income were noted. Because the assessment sought to treat predecessor income as successor income in a composite reassessment, it was held to be unsustainable as a jurisdictional defect.

Conclusion: The reassessment proceedings and the single composite assessment order seeking to assess and make additions relating to the predecessor for the pre-amalgamation period in the hands of the successor are not sustainable in law; the legal ground raised by the assessee succeeds and the revenue's appeal is dismissed.

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