January 14, 2026 : The Mumbai Bench of the Income Tax Appellate Tribunal has ruled that income and disallowances relating to a predecessor company for periods prior to amalgamation cannot be assessed in the hands of the successor through a single reassessment order. The Tribunal held that while a successor may be responsible for discharging the tax liabilities of the predecessor, the Income-tax Act does not permit the predecessor’s income to be treated as the successor’s own income for years before the merger.
The decision came in Kalpataru Projects International Ltd. v. DCIT, where the dispute arose after a search and seizure action on the Kalpataru Group in August 2023. Based on material gathered during the search, the Assessing Officer reopened completed assessments under section 147 and issued notices under section 148 in the name of the successor company, Kalpataru Projects International Ltd., following the amalgamation of JMC Projects (India) Ltd. with effect from 1 April 2022.
A composite reassessment order was passed, making additions for alleged non-genuine purchases and other disallowances relating to JMC for assessment years when it existed as an independent entity. The assessee challenged the reassessment on jurisdictional grounds, arguing that JMC was a separate taxable entity during the relevant years and that the Act does not allow clubbing of predecessor income with that of the successor. It was contended that, at most, the successor could be assessed only in a representative capacity, requiring a distinct assessment.
The Revenue relied on section 170 of the Act and the Supreme Court’s ruling in PCIT v. Maruti Suzuki India Ltd., contending that once amalgamation takes place, notices issued to the successor are valid and the successor can be assessed in respect of the predecessor’s income.
Rejecting this argument, the Tribunal clarified that the Maruti Suzuki judgment deals with the invalidity of notices issued to non-existent entities and mandates that proceedings relating to a predecessor must be initiated in the name of the successor representing the predecessor. It does not authorize a composite assessment by merging the incomes of both entities. The Bench, comprising Judicial Member Anikesh Banerjee and Accountant Member Prabhash Shankar, emphasized that the Act draws a clear distinction between assessment of income and recovery of tax liability.
The Tribunal noted that JMC had filed its own returns and maintained separate books of account during the years in dispute, and that the amalgamation took effect much later. In such circumstances, passing a single reassessment order assessing both the successor’s income and the predecessor’s income was held to be legally unsustainable.
Accordingly, the ITAT allowed the assessee’s appeals on jurisdictional grounds and dismissed the Revenue’s appeals. Since the reassessment itself was held invalid, the additions sustained by the appellate authority on merits did not survive.
