Direct Taxes

A. Corporate Taxes

Karnataka High Court in Coffee Day Resorts (MSM) Pvt Ltd1: Re-assessment proceedings initiated by issuing notice under section 148A(d) read with section 148, in the name of a non-existent Company which had merged with another Company, is a substantive illegality and without jurisdiction.

Facts

  1. Shankar Resources Private Ltd, was Non-Banking Financial Company (NBFC) which had merged into the Coffee Day Resorts (MSM) Pvt Ltd by an order of amalgamation dated 18.06.2019 of National Company Law Tribunal (NCLT).
  2. The Assessing Officer issued a notice under Section 148A (b) of the Act on 28.01.2023 calling upon Shankar Resources Private Limited to show-cause as to why a notice under Section 148 of the Act should not be issued for AY 2019-20.
  3. Coffee Day Resorts (MSM) Pvt Ltd (the surviving entity after merger) made out reply on 04.02.2023 specifically stating that the company (Shankar Resources Private Ltd) to which notice under Section 148A (b) came to be issued has amalgamated with Coffee Day Resorts (MSM) Pvt Ltd, with effect from 01.04.2018. Accordingly, it was contended that Shankar Resources Private Ltd, ceased to exist from 01.04.2018 and there was no assessable entity by name Shankar Resources Private Ltd, for the AY 2019-20.
  4. The Assessing Office, however, disregarded the response of the surviving company) and passed an order under section 148A (d) of the Act and issued a notice under section 148 of the Act in name of Shankar Resources Private Limited for AY 2019-20.
  5. Coffee Day Resorts (MSM) Pvt Ltd challenged in a writ petition before the Hon. Karnataka High Court the show cause notice under Section 148A(b) issued in the name of the non-existent entity, order under Section 148A(d) passed pursuant to such show cause notice and the notice under Section 148.

Judgement of Hon. Karnataka High Court

  • It is a matter of record that as on the date (28.03.2023) of issue of notice under Section 148A (b), the entity (Shankar Resources Private Ltd) to which notice was issued was not in existence having merged with Coffee Day Resorts (MSM) Pvt Ltd.
  • Even otherwise, it must be noted that consequent to merger, the transactions relating to erstwhile company Shankar Resources Private Ltd, find mention in the books of Coffee Day Resorts (MSM) Pvt Ltd.
  • In light of the judgment of the Apex Court in the case of PCIT v. Maruti Suzuki India Ltd2, it is clear that notice and assessment order passed in the name of non-existing company is a substantive illegality and is an order passed without jurisdiction.
  • So, notice under Section 148A (b) as also order under Section 148A (d) and notice under Section 148 are set aside.
  • Needless to state that the authorities are at liberty to initiate appropriate proceedings as is open in law and permissible insofar as contents of the notice at Section 148A (b) as against Coffee Day Resorts (MSM) Pvt Ltd (the surviving entity after merger) in accordance with law.

High Court of Jharkhand in Nirmal Kumar Pradeep Kumar (HUF)³:While deciding stay applications it is mandatory to examine the trinity of: (i) existence of prima facie case, (ii) balance of convenience and (iii) financial stringency

The Assessee-HUF was engaged in mining business and claimed expenditure of Rs.202 Cr under Section 37(1) towards compensation paid for damaging environment pursuant to Supreme Cour t's directions. Such expenditure was disallowed by the Assessing Officer.

The Assessee filed appeal before CIT(A) and during the pendency of appeal, filed application before AO seeking stay of demand under Section 220(6) of the Act, which was rejected. Thereafter, Assessee preferred a review of stay application before PCIT who granted partial relief by directing the Assessee to deposit Rs.5.10 Cr till the disposal of appeal.

The order of PCIT was challenged by the Assessee in a writ petition before the Hon. High Court of Jharkhand.

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