GLOSTER LIMITED V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 4 (1) KOLKATA AND ORS

WPO/2212/2022

AI Insights

The case involves Gloster Limited, which challenged the jurisdiction and proceedings initiated by the Deputy Commissioner of Income Tax under sections 147, 148, and 148A of the Income Tax Act, 1961, for the assessment year 2018-19. The challenge was based on the grounds that the amalgamation of Gloster Limited with Kettlewell Bullen & Co. Ltd. was not properly considered, and the income and expenses of the amalgamating company were included in the consolidated accounts of the amalgamated company, which were duly filed and assessed. The court found that the Assessing Officer's actions were arbitrary and lacked a proper basis in law, leading to the quashing of the notice and order.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 746766 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 21-11-2024
• Assessment Year: misc
• Other Referred Cases: Somnath Dealtrade (P.) Ltd. v. Union of India, Girdhar Gopal Dalmia v. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: TILAK MITRA
• Assessee Lawyers: J P KHAITAN; SOMAK BASU; SWAGATO KABIRAJ
• Keywords: Amalgamation; Assessment year 2018-19; Income Tax Return; Jurisdiction; Notice under section 148; Notice under section 148A(b); Order under section 148A(d)
• Section: 147; 148; 143(3); 148A

Judgement Text

"IN THE HIGH COURT AT CALCUTTA CONSTITUTIONAL WRIT JURISDICTION ORIGINAL SIDE WPO/2212/2022 GLOSTER LIMITED VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4 (1) KOLKATA AND ORS. BEFORE: The Hon'ble JUSTICE RAVI KRISHAN KAPUR Date : 21st November, 2024. Appearance : Mr. J.P. Khaitan , Sr. Adv. Mr. Somak Basu, Adv. Mr. Swagato Kabiraj, Adv. .…for Petitioner. Mr. Tilak Mitra, Adv. …for respondents. The Court : 1. The subject matter of challenge in this writ petition is the assumption of jurisdiction under section 147 of the Income Tax Act, 1961 (\"the Act\") for the assessment year 2018-19 and initiation of proceedings under section 148A by issuance of the impugned notice dated March 23, 2022 under section 148A(b) culminating in the impugned order dated April 19, 2022 under section, 148A(d) and the consequential notice dated April 19, 2022 issued under section 148 of the Act. 2. Briefly the erstwhile company Gloster Limited (\"the amalgamating company\") merged with one Kettlewell Bullen & Co. Ltd. (\"the amalgamated company\") with effect from January 1, 2015 in terms of an order dated January 19, 2018 2 passed by the National Company Law Tribunal (NCLT). Subsequently, by a letter dated March 29, 2018, the Assessing Officer of the amalgamating company was duly informed about the said amalgamation and a copy of the said order passed by the NCLT was also duly submitted to the concerned authority. A similar letter was also duly addressed to the Assessing Officer of the amalgamated company on March 29, 2018. 3. Thereafter, the amalgamated company was renamed Gloster Limited The order dated January 19, 2018 passed by the NCLT provided that with effect from January 1, 2015 and up to and including the effective date i.e. March 30, 2015, the amalgamating company shall carry on and be deemed to have carried on business for and on behalf of and in trust for the amalgamated company. Additionally, it provided that upon coming into effect of the scheme of amalgamation, the amalgamating company would stand dissolved without winding up. In view of the above, the amalgamating company stood dissolved without winding up on March 30, 2018. 4. Pursuant to the above, for the financial year 2017-18, consolidated accounts were prepared of the amalgamated company which incorporated all income and expenses of the amalgamating company. The amalgamated company duly filed its Income Tax Return for the assessment year 2018-19 on the basis of such amalgamated accounts relevant to the said financial year on October 26, 2018 and was assessed thereon under section 143(3) of the Act on March 2, 2021. 3 5. By an e-mail dated January 23, 2019 the Income Tax Department requested the amalgamating company to file its Return of Income for the assessment year 2018-19. By another letter dated January 29, 2019, the Income Tax Department was informed about the amalgamation and that the amalgamated company had filed its return for the assessment year 2018-19 on the basis of the consolidated audited accounts wherein income and expenses of the amalgamating company had been duly included. 6. On March 23, 2022, a notice under section 148A(b) was issued by the Assessing Officer to the amalgamated company for the assessment year 2018- 19. In the annexure to the said notice, the factum of amalgamation of the erstwhile Gloster Ltd. with Kettlewell Bullen & Co. Ltd. was expressly noted. However, the date when the amalgamation was sanctioned viz. January 19, 2018 or the date from which the amalgamation took effect i.e. January 1, 2015 or the effective date March 30, 2018 were omitted. It was alleged that the amalgamating company had carried on business during the financial year 2017-18 but had not filed its return for the assessment year 2018-19. The value of such business transactions was alleged to be Rs.3,71,42,312/- under the broad heads interest and rent (Rs. 2,31,44,245/-), profit from business (Rs.35,25,762/-), salary to employee and payment to contractor (Rs.57,55,445/-) and unverified salary (Rs. 47,16,860/-) without any detailed head-wise break-up. It was alleged that the said sum of Rs. 3,71,42,312/ had escaped assessment because the erstwhile Gloster Ltd. had not filed its return 4 of income for the assessment year 2018-19 and had thereby not made a true and full disclosure of its income. 7. By a letter dated March 30, 2022 the petitioner apprised the Assessing Officer about the amalgamation and contended that all income and expenses of the amalgamating company including those mentioned in the impugned notice under section 148A(b) had been duly included in the consolidated accounts of the amalgamated company for the financial year 2017-18 on the basis of which the amalgamated company had filed its return for the assessment year 2018-19 and had been assessed thereon under section 143(3). In the said reply, the petitioner also mentioned about the lack of break up but did not request for the same. The petitioner also requested for an opportunity of hearing. 8. On March 30, 2022, March 31, 2022, April 1, 2022, April 4, 2022 and April 5, 2022 the 2022 respectively, the petitioner’s representative attended the office of the respondent No.1 to personally explain the matter but the concerned respondent did not have any time for the petitioner's representative. On April 5, 2022, the respondent No.1 indicated that a hearing would take place on April 7, 2022. 9. On April 7, 2022, instead of affording an opportunity of hearing, the Assessing Officer addressed a letter to the petitioner on the basis as if by its letter dated March 30, 2022, the petitioner had requested for details of the items mentioned in the notice under section 148A(b) and purported to provide such details in 45 sheets, the aggregate total of which amounted to Rs. 5 579,97,07,53,714/-, out of which Rs.339,06,74,106/- pertained to the heads mentioned in the notice under section 148A(b). Such details also included amounts pertaining to the financial year 2014-15 relevant to the assessment year 2015-16, totally unconnected and unassociated with the assessment year 2018-19 for which the proceedings had been initiated. Moreover, the petitioner was directed to comply within the above request within 12 days, i.e., by 11-45 AM on April 19, 2022 through electronic mode. 10. However, on April 19, 2022 itself, at about 5-46 PM, the Assessing Officer passed a purported order under section 148A(d) on the basis as if the petitioner had been unable to submit any response and issued the impugned notice under section 148 to the transferee company. 11. It is alleged on behalf of the petitioners that the impugned notice and all steps culmination thereto are ex facie perverse, irrational without application of mind and in excess of jurisdiction. It is apparent that the alleged reasons recorded by the Assessing Officer did not authorize him nor permit him to initiate any proceedings under sections 147/148/148A for the assessment year 2018-19.It is further contended that the petitioner as a result of amalgamation in respect of the FY 2017-2018 relevant to the AY 2018-19 prepared its consolidated accounts after incorporating all income and expenses of the amalgamating company. The petitioner started the process of co-relating the amounts mentioned in the details furnished on April 7, 2022 with the books of accounts. However, due to the sheer volume of transactions comprised in the details provided, the petitioner's response co-relating the 6 amounts also became voluminous. The petitioner started the process of uploading its response in the morning on April 19, 2022 but was unable to complete the same by 11-45 a.m. due to the volume as also a technical glitch which slowed things down on the Income Tax Portal. Consequently, the petitioner was only able to complete the uploading by 6-15 pm on April 19, 2022. 12. It is contended on behalf of the respondents that the impugned order is administrative in nature inasmuch as the revenue authorities seek to reopen an assessment of the assessee and reassess the income of the assessee. Hence, review of the said order is restricted and the Writ Court ought not to go into the merits of the case. To this extent, the grievance of the petition is premature. Moreover, the petitioner has a statutory alternative remedy to challenge the final assessment order at an appropriate stage, if necessary. It is further contended that the assesse had failed to reflect the accounts of the amalgamating company despite repeated opportunities being provided or to provide an explanation for the same. In such circumstances, being left with no alternative, the Assessing officer reopened the case of the existing company. The assessee was also provided with several opportunities to explain its case. Thus, there can be no question of violation of the principles of natural justice. 13. For convenience, the relevant sections of the Act are as follows: 147. If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment 7 year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). Explanation.—For the purposes of assessment or reassessment or recomputation under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of section 148A have not been complied with. 148. Issue of notice where income has escaped assessment. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice: [Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section.] 148A. Conducting inquiry, providing opportunity before issue of notice under section 148. The Assessing Officer shall, before issuing any notice under section 148,— (a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment; (b) provide an opportunity of being heard to the assessee, [***] by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less 8 than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a); (c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b); (d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires: Provided that the provisions of this section shall not apply in a case where,— (a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or (b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or (c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, 2[relate to, the assessee; or (d) the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.] Explanation.—For the purposes of this section, specified authority means the specified authority referred to in section 151.] 9 14. By virtue of the order dated January 19, 2018 passed by the NCLT, the amalgamating company merged with the amalgamated company with effect from January 1, 2015. Accordingly, with effect from January 1, 2015, till the effective date, i.e., March 30, 2018, the amalgamating company carried on business for and on account of and in trust for the amalgamated company. The amalgamating company stood ultimately dissolved in accordance with law on March 30, 2018. For the assessment year 2018-19, the relevant previous year was the financial year 2017-18. The order sanctioning the amalgamation was passed on January 19 2018, i.e. during the previous year. 15. Consequent to the sanction of the amalgamation, for the financial year 2017- 18 relevant to the assessment year 2018-19, consolidated accounts were prepared of the amalgamated company which incorporated all income and expenses of the amalgamating company pertaining to the period from April 1, 2017 to the effective date, March 30, 2018. The return of the amalgamated company for the assessment year 2018-19 relevant to the financial year 2017- 18 was duly filed on the basis of such consolidated accounts. Consequently, the income and expenses referred to in the impugned notice under section 148A(b) stood duly incorporated in such consolidated accounts. A scrutiny assessment under section 143(3) of the Act was made on March 2, 2021 on the basis of such consolidated accounts. This significant jurisdictional fact is conspicuously absent in the impugned orders. 16. Even prior to the said assessment, the Assessing Officers of both the amalgamating and amalgamated companies had been informed by letters 10 dated March 29, 2018 of such amalgamation. In response to the e-mail dated January 23, 2019, the Assessing Officer had been duly informed by letter dated January 29, 2019 that in view of the amalgamation, the amalgamating company was not required to file any return for the assessment year 2018-19 and that the amalgamated company had already filed its return on the basis of audited accounts wherein income and expenses of the amalgamating company had been duly incorporated. This aspect of the matter has also been completed ignored by the respondent authorities and goes to the root of wrongful and arbitrary assumption of jurisdiction by the authorities. 17. In view of the above, the Assessing Officer could not have assumed jurisdiction under sections 147/148/148A of the Act on the ground that the amalgamating company was required to file a return of income for the assessment year 2018-19 and that income had escaped assessment because of the failure on the part of the amalgamating company to file such return. The amalgamating company stood dissolved on March 30, 2018 and was not required to and could not have filed any return for the assessment year 2018- 19. Accordingly, only the amalgamated company was required to file any return for the said assessment year which it duly filed upon amalgamation. In fact, the consolidated accounts of both the amalgamated company and the amalgamating company had been duly filed and was also assessed under section 143(3) of the Act. In such circumstances, the Assessing Officer had erroneously assumed jurisdiction under sections 147/148/148A on the allegation that income chargeable to tax had escaped assessment for the 11 assessment year 2018-19 because the amalgamating company had not filed its return for the said assessment year. 18. As a pre-condition to invoke jurisdiction under sections 147/148/148A of the Act, the Assessing Officer had to initiate a case that the items of income and expenses mentioned in the annexure to the notice under section 148A(b) had not been incorporated in the consolidated accounts of the amalgamated company nor had the same been taken into consideration in preparing the income tax return of the amalgamated company for the assessment year 2018-19 resulting in income chargeable to tax in the hands of the amalgamated company escaping assessment. As such, the pre-conditions for invoking jurisdiction to initiate the impugned proceedings are significantly absent in the facts of this case and vitiate the entire proceedings and all the actions taken by the respondent authorities. 19. It is apparent that the Assessing Officer did not and could not have any information suggesting that any income chargeable to tax had escaped assessment. The reassessment proceedings initiated by the Assessing Officer are ex facie in excess of jurisdiction and are liable to be quashed. 20. Additionally, there is a serious question of limitation which also justifies quashing of the proceedings. The impugned notice under section 148 of the Act had been issued on April 19, 2022.In terms of section 149(1)(a) of the Act, notice under section 148 for the assessment year 2018-19 could not have been issued after the expiry of three years from the end of the said assessment year, i.e. after March 31,2022. By reason of the third proviso to 12 section 149(1) of the Act, the time or extended time allowed to the assessee, in terms of the show cause notice issued under section 148A(b), ought to be excluded. 21. In any event, no opportunity of hearing was granted to the petitioners despite requests. It was incumbent upon the Assessing Officer to grant an effective hearing to the assessee before passing the order under section 148A(d) of the Act. Consequently, there has been a violation of the principles of natural justice in the manner in which the impugned proceedings have been conducted. In this connection in Somnath Dealtrade (P.) Ltd. v. Union of India, (2022) 143 taxmann.com 71 (Calcutta), it has been held as follows: 16. In Girdhar Gopal Dalmia v. Union of India [2023] 450 ITR 143 (Cal), passed in M. A. T. No. 727 of 2022 dated June 21, 2022, the court considered the scheme of the Act after its amendment and introduction of section 148A and held as follows (page 146 of 450 ITR) : Firstly, clause (b) of section 148A of the Act provides for an opportunity of being heard to the assessee within such time as may be specified in the notice that has to be issued by the Assessing Officer and the period shall be not less than seven days and but not exceeding 30 days from the date on which such notice was issued together with a power to grant further time on an application made by the assessee. Therefore, the statute gives discretion to the Assessing Officer to fix the notice period and such time limit has to be fixed bearing in mind the principles of natural justice that the assessee should be afforded reasonable and adequate opportunity. .. The learned standing counsel would submit that the assessee has submitted his reply which has also been referred to by the Assessing Officer in his order under section 148A(b) of the Act. As rightly pointed by the learned senior advocate for the appellant that nowhere in the reply given by the assessee, there is any elaborate discussion about sections 148, 148A of the Act and probably there occurred a factual mistake at the hands of the Assessing Officer. The assessee had enclosed certain documents along with the reply and had made submissions on merit and on our reading, we find that no elaborate discussion about section 148 or 148A of the Act. Be that as it may, the opportunity of hearing to be provided should be reasonable and not illusory. .. Considering all these factors, we are of the view that the assessee should be granted an opportunity by the Assessing Officer in terms of clause (b) of section 148A of the Act, which provides for an opportunity of being heard to the assessee.. .\" 17. Thus, the legal principle that can be culled out from the aforementioned decisions is that the opportunity which is provided for under the scheme of the Act should be a meaningful and effective opportunity as such opportunity is not an empty formality. The assessee is entitled to be heard and such hearing should be 13 a purposeful and effective hearing and not for the sake of showing as if a hearing was conducted. 20. On receipt of such reply, the assessee shall be heard in person either by way of physical hearing or through virtual hearing and after considering the submissions, the replies and the documents filed by the assessee, a reasoned order be passed on merits and in accordance with law. Consequently, the notice issued under section 148 of the Act dated April 13, 2022 shall not be enforced. 22. Section 148A(b) provides for grant of opportunity of being heard by service of a notice to show cause provided a cause is cited within the time specified in the notice, which may vary from a minimum of seven days to a maximum thirty days from the date of issuance of the notice. Such time fixed by the notice can be extended on the basis of an application by the assessee. Although the impugned proceedings were initiated on March 23, 2022 by issuance of the notice under section 148A(b) whereby the petitioner was granted seven days to respond, i.e., by March 30, 2022. Nevertheless, the petitioner showed cause and requested for a personal hearing without filing a separate extension application. In view of the above, the contention of the Assessing Officer that he was not required by law to grant any personal hearing or any extension of time beyond the time fixed by the notice under section 148A(b) is without basis and untenable. 23. The Assessing Officer had seven days from 31 March 2022 i.e., upto 6 April 2022 to issue the notice under section 148. By the letter dated April 7, 2022, the Assessing Officer sought to make out as if the petitioner had asked for details even though the petitioner had not. The Assessing Officer suo moto sought to provide \"details\" and extend the time to respond by twelve days to April 19, 2022 even though there was no extension application by the petitioner. As such, it was not open to the Assessing Officer to extend the 14 statutory period of limitation in such a circuitous manner. Accordingly, the extension was without the authority of law. In view of the above, the notice under section 148 issued on 19 April 2022, where the last date was 6 April 2022, is also ex facie barred by limitation. 24. For the above reasons, the impugned proceedings have been conducted in a grossly arbitrary and unreasonable manner and in excess of jurisdiction. Moreover, though the notice dated March 23, 2022 mentioned aggregate figures under four heads, the total of which was Rs.3.71 crore, the detailed break up subsequently given was for Rs.57997.07crore/Rs.339.07 crore. Such detailed break up included amount pertaining to the financial year 2014-15 relevant to the assessment year 2015-16, totally unconnected with the assessment year 2018-19 for which the proceedings have been sought to be initiated reflect total non application of mind by the respondent authorities. The Assessing Officer ought to have furnished a break-up of the figures under the four heads mentioned in the show cause notice dated March 23, 2022 aggregating to Rs.3.71 crore and it was not open to him to proceed in the manner that he did by furnishing break up of much larger figure of Rs.57997.07 crore/Rs.339.07 crore which could not have been the subject matter of the show cause notice dated March 23, 2022 and included amounts for period other than the assessment year 2018-19 involved herein. Although not obliged to do so, the petitioner sought to prepare reconciliation in respect of the break up furnished for such larger sum. The reconciliation filed just a few hours beyond the time specified was wrongfully and unjustifiably ignored. 15 As such, the Assessing Officer passed the impugned order under section 148A(b) in undue haste and issued the impugned notice under section 148 on the same day without waiting for or going through the assessee's response. This is also in violation of the principles of natural justice. 25. In view of the above, the impugned order and the notice dated 19 April 2022 are unsustainable and are set aside. The ad-interim order of injunction dated 13 July 2022 stands confirmed. There shall be an order in terms of prayers (a) to (c), (e) and (h) of the writ petition. With the above directions, WPO 2212 of 2022 stands allowed. (Ravi Krishan Kapur, J.) J.Das/R.Pal "