Madras HC on reassessment and penalty against amalgamated company when merger not disclosed

Background of the dispute

In Oasys Green Tech Private Limited Vs ITO (Madras High Court), the Division Bench of the Madras High Court examined whether reassessment and penalty proceedings initiated in the name of an amalgamating company could be treated as invalid when the assessee had not informed the Income Tax Department about the amalgamation and had, in fact, continued to act as if the erstwhile company was still in existence.

Two writ appeals were filed by Oasys Green Tech Private Limited challenging a common order of the learned Single Judge, who had earlier dismissed the assessee’s writ petitions in:

  • W.P.No.1759 of 2018 – challenging the penalty order dated 28.06.2018 passed under Section 271(1)(c) of the Income Tax Act, 1961; and
  • W.P.No.21858 of 2018 – challenging the reassessment order dated 30.12.2017 passed under Section 144 read with Section 147 of the Income Tax Act 1961.

The central controversy was whether reassessment and penalty could lawfully be sustained when the notice under Section 148 was issued in the name of M/s. OAS Digital Infrastructures Private Limited (OAS), which had already amalgamated with Oasys Green Tech Private Limited, and was hence claimed to be non-existent at the relevant time.

Assessee’s stand: proceedings invalid due to non‑existent entity

The assessee argued that:

  • A notice under Section 148 was issued to M/s. OAS Digital Infrastructures Private Limited, which, by then, had already merged into Oasys Green Tech Private Limited pursuant to an approved scheme of amalgamation.
  • Since OAS had ceased to exist on the date of issue of notice and when the reassessment and penalty orders were passed, the entire proceedings were without jurisdiction and void.
  • Assessment and penalty initiated against a non-existent company, it was contended, were legally untenable as per settled law.

To support this plea, the assessee relied on a series of judicial precedents dealing with assessments framed on non-existent entities:

  • Principal Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Limited [(2019) 416 ITR 613 (SC)]
  • Spice Entertainment Ltd. vs. Commissioner of Service Tax [(2012) 280 ELT 43]
  • M/s. Rustagi Engineering Udyog Pvt. Ltd. vs. Assistant Commissioner of Income Tax [W.P.(C) No.2712 of 2016 dated 26.07.2017]
  • BDR Builders & Developers Pvt. Ltd. vs. Assistant Commissioner of Income Tax [W.P.(C) No.2712 of 2016 dated 26.07.2017]
  • Alamelu Veerappan vs. The Income Tax Officer, Non Corporate Ward 2(2) [304 CTR 512]

The essence of the assessee’s legal submission was that once a company is amalgamated and ceases to exist, any further proceedings in its name are a nullity, irrespective of the merits of the reassessment or penalty.

Revenue’s response: AO never informed of amalgamation

The Revenue opposed the writ petitions and subsequent appeals by highlighting the factual conduct of the assessee. The key points raised by the Department were:

  • The Assessing Officer (AO) was never informed that OAS had amalgamated with Oasys Green Tech Private Limited.
  • The return of income for Assessment Year 2014-15 was filed on 07.03.2016 in the name of OAS itself, and this return was filed by the present appellant.
  • An income-tax refund, issued by the Department in favour of OAS, was received and encashed by the appellant.

On this factual basis, the Revenue argued:

  • The assessee itself treated OAS as an existing entity even after amalgamation for income-tax purposes.
  • Having filed the return in the name of OAS and received refunds in that name, the assessee could not subsequently contend that OAS was non-existent and thereby invalidate the proceedings initiated in its name.
  • The decisions cited by the assessee—which turn on the AO having prior knowledge of amalgamation—were distinguishable since, in the present case, the AO had no such information and continued to treat OAS as a live assessee on the Department’s records.

Findings of the Single Judge

The learned Single Judge, in the writ petitions, undertook a detailed factual analysis and focused significantly on the conduct of the assessee. The Single Judge recorded, inter alia, that: