Amalgamation Cannot Be Used As Tool To Defeat Assessment And Reassessment Proceedings: Madras High Court

Madras High Court in its recent judgment in case of Doosan Infracore vs. Dy CIT & Ors, ruled that taxpayers cannot escape assessment/reassessment proceedings in the garb of amalgamation. 

The Single Bench Justice C Saravanan, said that mere intimation u/s 127 for transfer of file to jurisdictional ITO in case of merger, is not sufficient discharge of obligation on part of taxpayer to inform Tax Department about merger. 

Further, when the taxpayer himself actively participated in re assessment proceedings of amalgamated company by defending the proceedings, then it cannot be said that order has been passed in name of defunct company to scuttle reassessment proceedings. 

In the background, Doosan International India Private Limited entered a Business Transfer (Slump Sale) Agreement with Ingersoll - Rand (India) Limited as a going concern. The said company filed its returns and the scrutiny assessment was completed. During the interregnum, the said Doosan International got merged with the taxpayer. 

Earlier, returns were filed in the name of amalgamated transferor company and an assessment order came to be passed in the original name of the merged company, which had by then ceased to exist with the merger. After the assessment order came to be passed, intimation was given to the ITO about the merger. However, the AO issued notice u/s 148 for reopening the assessment in the name of defunct company.

Though the taxpayer stood merged, no information was given about the merger to the jurisdictional Income Tax Officer. In the assessment proceeding, the taxpayer replied to the notice issued in the name of Doosan International India Private Limited though on its letterhead and participated in the proceedings before the jurisdictional Asst. Commissioner of Income Tax, Bangalore and made submissions without any demur. 

Thus, the assessment order also came to be passed in the name of the Doosan International India Private Limited even the said company ceased to exist and stood merged with the taxpayer.

In the taxpayer would have felt that the assessment order was made in the wrong name of the merged transferred company which had ceased to exist, it should have filed a suitable application for rectification of mistake before the Asst Commissioner of Income Tax Bangalore for effecting the name change in the assessment order. 

In fact, it was incumbent on the taxpayer to have informed the Asst. Commissioner of Income Tax at Bangalore about the merger. In any event, it was for the taxpayer to have taken step to correct the name in the assessment order or in the alternative file a composite return with the PAN Number for both the transferor and the transferee and regularized the changes in accordance with the Act. 

HC said that mere intimation u/s 127 for transfer of the file to the jurisdictional ITO at Chennai was not sufficient. In the communication addressed to the Deputy Commissioner of Income Tax, Bangalore, the taxpayer merely asked for transfer of file to the ITO but did not take any steps for rectifying the mistake.

Therefore, Justice C Saravanan opined that it would be absurd to hold that the order has been passed in the name of a defunct company to scuttle the reassessment proceeding. Amalgamation cannot be used as a tool to defeat assessment and reassessment proceedings as the sanctioned scheme of amalgamation itself takes care of such eventualities. It cannot be used to subvert assessment proceedings. 

Facts also do not indicate that the taxpayer had questioned the jurisdiction of the ITO when the notice was issued in the name of Transferor Company. Therefore, the preliminary objection of the taxpayer regarding the jurisdiction of the ITO to reopen the assessment stands overruled. 

Case Title: Doosan Infracore vs. Dy CIT & Ors