Predecessor’s Income Can’t Be Clubbed With Successor’s in Reassessment After Merger: ITAT
Pranav B Prem
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that income and disallowances relating to a predecessor company for a period prior to amalgamation cannot be assessed in the hands of the successor company through a single reassessment order. The bench of Anikesh Banerjee (Judicial Member) and Prabhash Shankar (Accountant Member) has observed that the Income-tax Act draws a clear distinction between assessment of income and recovery of tax liability. While a successor may be liable to discharge the tax dues of the predecessor, the Act does not contemplate assessment of the predecessor’s income as the successor’s own income for periods prior to amalgamation.
The dispute arose following a search and seizure action conducted on the Kalpataru Group in August 2023. Based on the material gathered during the search, the Assessing Officer (AO) reopened completed assessments under section 147 of the Income-tax Act, 1961. The reassessment proceedings included additions relating to alleged non-genuine purchases and other disallowances pertaining to JMC Projects (India) Ltd., a company that had merged with the assessee with effect from 1 April 2022.
The AO issued notices under section 148 in the name of the successor company, relying on the fact that JMC had ceased to exist after amalgamation. A composite reassessment order was passed, making additions in respect of transactions undertaken by JMC during years when it existed as an independent entity.
The assessee challenged the reassessment on jurisdictional grounds, contending that JMC Projects (India) Ltd. was a separate and independent taxable entity during the relevant assessment years. The amalgamation took effect only from 1 April 2022, much after the years under consideration. The Income-tax Act, particularly sections 170, 160, 161 and 163, does not permit the income of a predecessor entity to be clubbed and assessed as the income of the successor for a period prior to succession. At best, the successor could be treated only as a representative assessee, requiring a separate and distinct assessment in that capacity.
The assessee also distinguished the Supreme Court’s ruling in PCIT v. Maruti Suzuki India Ltd., arguing that it dealt only with the invalidity of notices issued to non-existent entities and did not authorize the clubbing of predecessor income with that of the successor.
The Revenue supported the reassessment by contending that upon amalgamation, all assets and liabilities, including tax liabilities, of JMC stood transferred to the successor company. Notices issued in the name of the successor were valid and in line with the Supreme Court’s decision in Maruti Suzuki. Section 170 of the Act allows assessment of the successor in respect of the predecessor’s income.
The Revenue also objected to the partial relief granted by the Commissioner of Income Tax (Appeals), who had restricted the disallowance on alleged bogus purchases to 12.5% instead of 100%. The Tribunal observed that JMC had filed its own returns and maintained separate books of account for the relevant years. Since the amalgamation occurred much later, JMC continued to exist as a taxable entity during AY 2018–19 and subsequent years in dispute.
The ITAT clarified that the Maruti Suzuki judgment does not permit clubbing of incomes. It merely mandates that proceedings relating to a predecessor must be initiated in the name of the successor representing the predecessor, not that a composite assessment can be framed by merging the incomes of both entities. Relying on coordinate bench decisions and High Court rulings, the Tribunal concluded that a single reassessment order assessing both the successor’s income and the predecessor’s income is legally unsustainable.
The ITAT allowed the assessee’s appeals on jurisdictional grounds and dismissed the Revenue’s appeals. Since the reassessment itself was held to be invalid, the additions sustained by the appellate authority on merits did not survive.
Case Title: Kalpataru Projects International Ltd. Versus DCIT
Case No.: I.T.A No.5959/Mum/2025
Coram: Anikesh Banerjee (Judicial Member) and Prabhash Shankar (Accountant Member)
