COFFEE DAY RESORTS (MSM) PVT. LTD., vs. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 2(1)(1)

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WP/9594/2023HC KarnatakaKAHC01021680202301 June 2023Author: S SUNIL DUTT YADAV6 pages
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What did the High Court hold?

The High Court held that the order passed under Section 148A(d) and the consequential notices under Section 148A(b) and Section 148 were invalid. The Court noted that as on the date the notice under Section 148A(b) was issued (28.01.2023), the entity to which it was addressed, M/s. Shankar Resources (P) Ltd., was not in existence, having merged with the petitioner company. The Court relied on the Supreme Court's decision in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Ltd. (2019) 107 taxmann.com 375 (SC), which held that a notice and assessment order passed in the name of a non-existing company is a substantive illegality and an order passed without jurisdiction. Therefore, the notices dated 28.01.2023, 23.02.2023, and 13.03.2023 under Section 148A(b), the order dated 28.03.2023 under Section 148A(d), and the notice dated 28.03.2023 under Section 148 were set aside. The authorities were granted liberty to initiate appropriate proceedings against the petitioner company in accordance with law.

What were the facts?

The petitioner, Coffee Day Resorts (MSM) Pvt. Ltd., filed a writ petition seeking to quash an order dated 28.03.2023 passed by the Deputy Commissioner of Income-Tax under Section 148A(d) of the Income Tax Act, 1961. This order rejected the petitioner's objection against the initiation of reassessment proceedings for Assessment Year (AY) 2019-20. The petitioner also sought to set aside the consequential notice issued under Section 148. The reassessment proceedings were initially initiated against Shankar Resources Pvt. Ltd., a Non-Banking Financial Company (NBFC) which had merged with the petitioner company by an order of the National Company Law Tribunal (NCLT) dated 18.06.2019, with an appointed date of 01.04.2018. The petitioner contended that Shankar Resources Pvt. Ltd. ceased to exist from 01.04.2018 and therefore, no notice could be issued to a non-existent entity.

What were the issues?

1. Whether the order passed under Section 148A(d) of the Income Tax Act, 1961, rejecting the petitioner's objection to reassessment proceedings for AY 2019-20, is valid when the notice under Section 148A(b) was issued to a company that had already merged and ceased to exist. Assessee's Contention: The petitioner argued that M/s. Shankar Resources (P) Ltd. had amalgamated with M/s. Coffee Day Resorts (MSM) Pvt. Ltd. effective from 01.04.2018. Consequently, M/s. Shankar Resources (P) Ltd. ceased to exist from that date, rendering it an assessable entity for AY 2019-20. The notice under Section 148A(b) was issued to a non-existent entity, making the subsequent order under Section 148A(d) and the notice under Section 148 invalid. The petitioner relied on the Supreme Court judgment in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Ltd. (2019). Revenue's Contention: The judgment does not record any specific contentions made by the revenue on this issue.

Which sections of the Income-tax Act were involved?

Section 148A,Section 148

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 1ST DAY OF JUNE, 2023 BEFORE THE HON'BLE MR JUSTICE S SUNIL DUTT YADAV WRIT PETITION NO. 9594 OF 2023 (T-IT) BETWEEN: 1. COFFEE DAY RESORTS (MSM) PVT. LTD., (FOR THE MERGED ENTITY SHANKAR RESOURCES PVT. LTD.) A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT NO.23/2, COFFEE DAY SQUARE, VITTAL MALLYA ROAD, BENGALURU - 560 001 REPRESENTED BY ITS DIRECTOR MR. NANJUNDA SHETTY J S … PETITIONER (BY SRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SRI TANMAYEE RAJKUMAR., ADVOCATE) AND: 1. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 2(1)(1) BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095 2. THE PRINCIPAL COMMISSIONER OF INCOME TAX-1, 5TH FLOOR, BMTC BUILDING , Digitally signed by VIDYA G R Location: High Court of Karnataka

6TH BLOCK, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095 … RESPONDENTS (BY SRI. K.V. ARAVIND, ADVOCATE A/W SRI M. DILIP, ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA, PRAYING TO-QUASH THE ORDER DTD 28/03/2023 BEARING NO. ITBA.AST.F.148A/2022- 23/1051516338(1) (ANNEXURE-K) PASSED BY THE R-1 UNDER SEC 148A(D) OF THE ACT, REJECTING THE PETITIONERS OBJECTION AS TO THE INITIATION OF THE REASSESSMENT PROCEEDINGS FOR THE AY 2019-20 AND ETC.

THIS WRIT PETITION COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER

The petitioner has filed the present writ petition seeking quashing of the order dated 28.03.2023 at Annexure-K passed by the first respondent under Section 148A (d) of the Income Tax Act, 1961 ("the Act" for short) rejecting petitioner's objection as against initiation of re-assessment of proceedings for the Assessment year 2019-20. [[ [ 2. The petitioner has also sought for setting aside of the notice dated 28.03.2023 at Annexure-L issued pursuant to the order at Annexure-K.

3.

The petitioner Coffee Day Resorts (MSM) Pvt. Ltd., has questioned the validity of the re-assessment proceedings as noticed above. It is to be noticed that Shankar Resources Pvt. Ltd., was Non-Banking Financial Company (NBFC) and merged subsequently into the petitioner company by an order of amalgamation of National Company Law Tribunal (NCLT) dated 18.06.2019 with the appointed dated being 01.04.2018.

4.

It is submitted that respondent authorities 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 in view of the details contained in enclosures mentioned in point no.1 above, a notice under Section 148 of the Income Tax Act, 1961 should not be issued.

5.

The petitioner made out reply on 04.02.2023 specifically stating that the company to which notice under Section 148A (b) came to be issued to M/s.Shankar Resources (P) Ltd., with PAN Number AAHCS6289D has

amalgamated with M/s.Coffee Day Resorts (MSM) Pvt. Ltd., with PAN Number AADCC6017D with effect from 01.04.2018. Accordingly, it was contended that the Company M/s.Shankar Resources (P) Ltd., ceased to exist from 01.04.2018 and there was no assessable entity by name M/s.Shankar Resources (P) Ltd., for the Assessment Year 2019-20.

6.

Various other contentions have been taken, on substantive grounds as regards the correctness of issuance of notice under Section 148A (b) which however need not be adverted to in light of the first contention relating to non-existence of M/s.Shankar Resources (P) Ltd., as noticed above. Only on the short ground that the reply not having been taken note of, order being passed under Section 148A (d) of the Act, copy of which is produced at Annexure-K, the order requires to be interfered in light of said legal position.

7.

It is noticed that in the order under Section 148A (d) the authority has taken note of merging of

M/s.Shankar Resources (P) Ltd., with Coffee Day Resorts (MSM) Pvt. Ltd., but has adverted on merits and concluded that case was made out for issuance of notice under Section 148 of the Act.

8.

It is a matter of record that as on the date notice under Section 148A (b) was issued on 28.03.2023, the entity to which notice was issued was not in existence having merged along with the petitioner company. Even otherwise, it must be noted that consequent to merger, the transactions relating to erstwhile company M/s.Shankar Resources (P) Ltd., find mention in the books of the petitioner.

9.

In light of the judgment of the Apex Court in the case of Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Ltd. reported in (2019) 107 taxmann.com 375 (SC), 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. Accordingly, only on the above ground

of M/s.Shankar Resources (P) Ltd., having merged with the petitioner company and was not an existing entity as on the date of issuance of notice, the notice under Section 148A (b) dated 28.01.2023 vide Annexure-D, similar identical notice dated 23.02.2023 at Annexure-F and notice dated 13.03.2023 at Annexure-H are set aside. So also, order under Section 148A (d) dated 28.03.2023 vide Annexure-K and notice under Section

dated 28.03.2023 vide Annexure-L are set aside.

9.

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 the petitioner company in accordance with law. Sd/- JUDGE NP

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