Madras High Court Invalidates Reassessment Under Section 148 for Company Wound Up by NCLT

Introduction

The Madras High Court, in the case of C. Sivanandam Vs ACIT, examined whether reassessment proceedings under Section 148A(d) and a consequent notice under Section 148 of the Income Tax Act 1961 could lawfully continue against a company that had already been ordered to be liquidated and dissolved by the NCLT.

The Court concluded that once a company has ceased to exist pursuant to an order of liquidation and dissolution, reassessment proceedings initiated on the premise that the company is still in existence are legally untenable. Accordingly, the impugned order and notice were quashed.

Key takeaway: Revenue authorities cannot proceed with reopening of assessment under Section 148 in respect of a company that has already been liquidated and dissolved by order of the NCLT, particularly where such fact has been formally intimated to the Assessing Officer.

Background of the Dispute

Parties and Assessment Year

  • Petitioner: C. Sivanandam, who was a Director of M/s. Indus Mobile Distribution Private Limited.
  • Respondent: ACIT (Assessing Officer).
  • Assessment Year involved: AY 2016–17.

The reassessment was not directed at the petitioner in his personal capacity but arose from income allegedly escaping assessment in relation to the company of which he had been a Director.

Trigger for Reassessment Proceedings

The Department proposed to reopen the assessment under Section 148 on the ground that income chargeable to tax had escaped assessment. The allegation was that an amount of Rs. 67,30,32,455 received as a write-off from M/s. Universal Telecommunication India Pvt. Ltd during Financial Year 2015–16 had not been properly subjected to tax.

Proceedings were initiated by issuing:

  1. Show-cause under Section 148A(b) and
  2. Order under Section 148A(d) dated 23.04.2023, followed by
  3. Notice under Section 148 dated 23.04.2023 for AY 2016–17.

The assessee (through the petitioner) objected, pointing out that the company had already been ordered to be liquidated and dissolved by the NCLT.

NCLT Liquidation and Intimation to Department

NCLT Order of Liquidation

The crucial fact in this matter is the order of the National Company Law Tribunal (NCLT):

  • Entity: M/s. Indus Mobile Distribution Private Limited
  • Proceedings: I.A. No (IBC) / 939 (CHE) / 2022 in CP / 763 / 2018
  • Order Date: 17.10.2022
  • Direction: The company was ordered to be liquidated.

The liquidation order had the effect of bringing the company within the regime of winding up and eventual dissolution, supervised by the liquidator appointed by the NCLT.

Communication by Liquidator to Assessing Officer

Following the NCLT order, the appointed liquidator formally notified the Income Tax Department.

By communication dated 09.01.2023, addressed to the respondent Assessing Officer, the liquidator stated:

“With reference to the above I as the liquidator inform you that the mentioned Company, with PAN:AABC16304D has been liquidated and dissolved as per the attached order.”

This intimation clearly informed the Department that the company had been liquidated and dissolved, and enclosed a copy of the relevant NCLT order.

Important: The communication from the liquidator preceded the issuance of the Section 148A(d) order and the Section 148 notice, meaning the Assessing Officer was already put on notice about the company’s legal non-existence.

Impugned Proceedings Under Section 148A(d) and Section 148

Contents of the Impugned Section 148A(d) Order