THE High Court of Uttarakhand held that activation of PAN by a transferor company does not entitle the revenue to issue a notice of reassessment after the date fixed for the merger.
The bench of Justice Ravindra Maithani observed that the notice of reassessment was given to the transferor company, which is a non-existent entity, after the appointed date i.e. April 1, 2018. The order under section 148A(d) of the Act of income tax was adopted by the ministry against a non-existent entity.
Delta Power Solutions India Pvt. Ltd. (DPS) and the petitioner’s company, namely Delta Electronics India Pvt. Ltd. (DIN), proposed a proposed merger with an appointment dated April 1, 2018. DPS is a transferor company or a merging company, and DIN is a transferee company or a merging company. The merger process was approved by the National Company Law Tribunal (NCLT) on January 31, 2019.
The proposed merger plan has also been communicated to the ministry. The ministry participated in the merger proceedings before the NCLT. After approval from the NCLT, according to the petitioner, the department was informed through a communication dated February 15, 2020.
However, the department issued a notice dated February 3, 2020, under section 148A of the Income Tax Act, against the transferor company, clarifying that the PAN of the transferor company was active.
The petitioner responded to the notice, bringing the merger memorandum to the notice of the ministry. With effect from the appointed date i.e. April 1, 2018, all transactions recorded and appearing in the PAN of the transferor company have been duly accounted for by the newly merged company of the petitioner in accordance with the generally accepted accounting policy and other applicable laws. .
The department has issued notices to the transferor company under section 148A of the Income Tax Act. The petitioner responded to it on March 2, 2023, reiterating the same position and further elaborating the facts. The order under section 148A(d) of the Income Tax Act has been passed for reopening the assessment of the transferor company for the assessment year 2019-20.
The petitioner contended that a notice against a non-existent entity is bad and this law is well established in a chain of decisions.
The ministry maintains that after the appointed date, various transactions were carried out by the PAN of the transferor company. They were not counted. Therefore, notices have been issued for reopening of assessment for assessment year 2019-20.
The court, while allowing the writ petition, held that activation of the PAN of the transferor company would not create any exception in favor of the revenue so as to enable the revenue to issue notice under section 148 to the transferor company after the date set for the merger.
The court set aside the notice and order passed under section 148(A)(d) of the Income Tax Act.
Petitioner’s Counsel: Piyush Kaushik
Counsel for the respondent: HM Bhatia
Case Title: Delta Electronics India Pvt. Ltd. against PCIT
Case No: Writ Petition (M/S) No. 1557 of 2023