Costs were imposed on the revenue department for the negligent assessment of a non-existent entity that had already undergone a merger.

By | September 26, 2025
0 Comment

Costs were imposed on the revenue department for the negligent assessment of a non-existent entity that had already undergone a merger.

Issue

What are the consequences when the tax department, due to an over-reliance on its internal software systems and a lack of independent verification, passes an assessment order in the name of a non-existent entity (a bank that has been amalgamated), despite having been formally intimated about the merger?

Facts

  • The petitioner, a national bank, filed a writ petition because the Income Tax Department had passed an assessment order in the name of Oriental Bank of Commerce (OBC).
  • OBC was a non-existent entity at the time the order was passed, as it had already merged with the petitioner bank. The department had been formally informed about this merger and the subsequent cancellation of OBC’s PAN.
  • The fundamental error occurred because the Assessing Officer blindly followed the information available in the department’s software system without any independent application of mind or basic verification of the facts.
  • The High Court, taking a very serious view of this negligence which led to unnecessary litigation, initially issued a notice proposing to impose a heavy cost of ₹1 crore on the revenue department.
  • In response, the revenue department filed an affidavit in which it tendered an unconditional apology, explained the corrective and proactive steps it was taking to update its systems to prevent such errors, and informed the court that administrative action had been initiated against the officer at fault.

Decision

The High Court ruled in favour of the assessee, though it reduced the proposed costs.

  • The court reiterated that this was a “classic example” of a case where a little verification by the Assessing Officer would have completely avoided the litigation.
  • However, taking into account the revenue’s unconditional apology, the promise of systemic improvements, and the fact that departmental action was already being taken against the erring officer, the court decided to show leniency.
  • The writ petition was disposed of, and the assessment order was implicitly held to be invalid. The court imposed a reduced, token cost of ₹10,000 on the revenue department, payable to the State Legal Service Authority, instead of the ₹1 crore that it had initially proposed.

Key Takeways

  • An Assessment on a Dead Entity is Void: An assessment order passed in the name of a non-existent entity, such as a company that has been amalgamated into another, is a fundamental jurisdictional error and is null and void from the beginning.
  • Human Application of Mind is Not Optional: This case serves as a strong judicial caution against the blind and mechanical reliance on software systems by tax officers. Officers are duty-bound to apply their own minds to the facts of a case and conduct basic verification, especially when information about significant events like mergers has been provided.
  • Accountability for Causing Needless Litigation: The court’s initial proposal of a ₹1 crore cost, and the final imposition of a token cost, demonstrates that a lack of due diligence by tax officers can have serious consequences. The department can be held accountable for causing harassment and unnecessary litigation.
  • The Role of an Apology and Corrective Action: The court’s decision to drastically reduce the costs shows that judicial bodies may exercise discretion and show leniency when the erring party (in this case, the revenue department) acknowledges its mistake, tenders a genuine apology, and demonstrates that it is taking concrete steps to prevent a recurrence of such errors.
HIGH COURT OF GUJARAT
Punjab National Bank
v.
Income-tax Officer
BHARGAV D. KARIA and D.N. Ray, JJ.
R/SPECIAL CIVIL APPLICATION NO. 11087 of 2022
SEPTEMBER  12, 2025
Tej Shah for the Petitioner. Varun K. Patel for the Respondent.
ORDER
Bhargav D. Karia, J.- Heard learned advocate Mr. S. Krishnan for learned advocate Mr. Tej Shah for the petitioner and learned Senior Standing Counsel Mr. Varun K. Patel for the respondents.
2. This Court passed an order on 17th March, 2025 whereby the following conclusion is arrived at:
“12. In view of the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned Assessment order is hereby quashed and set aside. At this juncture, in the facts of the case it is apparent that the respondents, oblivious of the facts submitted by the petitioner-PNB, has proceeded to pass impugned assessment order resulting into high-pitch assessment of Rs. 393.97 Crore attracting the tax demand of Rs. 648.26 Crore and such high-pitch assessment order could not have been passed against a non-existing OBC under PAN “AAACO7436M” which was already requested to be cancelled since 2013 and hence, and for no fault on part of the petitioner, the impugned order is passed on account of total nonapplication of mind and negligence on part of the respondent No.1. We therefore deem it to be a fit case to impose exemplary cost of Rs. 1 Crore upon the respondent to be paid to the petitioner-Bank for passing such high pitched assessment order contrary to the facts available on record.
13. After the judgement was dictated in the open Court, whereby, we deemed it fit to impose exemplary cost of Rs. 1 Crore upon the respondents while signing the present judgement, we felt that an opportunity should be granted to the respondents to show cause as to why such cost should not be imposed.
14. We are conscious of the fact that quantum of the cost proposed to be imposed by us is a small fraction of the quantum of the high-pitched assessment and consequent demand raised upon the petitioner-PNB.
15. In view of the above, let this matter be listed for further hearing on 04.04.2025 granting an opportunity to the respondent to show cause as to why the cost of Rs. 1 Crore should not be imposed.”
3. Pursuant to the aforesaid order, an affidavit-in-reply is filed on behalf of the respondent nos.2 and 3 affirmed on 29.04.2025 pursuant to the oral directions of this Court issued on 22.04.2025 to place on record the response to various queries raised regarding the software system programme of the department on the basis of inputs to be provided by the Director General of India Tax (Systems), New Delhi with regard to the data syncing, availability of information to the Assessing Officers in the field and also the status of functionality/mechanism to identify duplicate Permanent Account Number (PAN) and alerting the Assessing Officers and also measures and initiatives being taken to identify duplicate PANs by the Systems to make such duplicate PANs inactive.
4. In the aforesaid affidavit-in-reply received from DGIT(Systems), it is stated as under:
“3. With regard to the issue of data syncing and availability of the information to the Assessing Officers in the field, it is submitted that the following queries were raised with the DGIT(Systems), New Delhi, for which the replies are received as follows:
(i)Whether any event like legal heir registration on the event of death of an assessee is auto displayed/displayed to the JAO on both ITBA and Insight portal once the request submitted through the e-filing portal is approved by the concerned Authority? Is any alert sent to the JAO through ITBA, email or SMS in this regard?
Reply:
a.In the event of death of an assessee, the registration of Representative Assessee (Legal Heir) of the deceased can be done on the e-filing portal by the Legal Heir. Once approved, an email is sent to the representative assessee who had made the application in the efiling portal. Further, after approval, the registration of the legal heir can be viewed by the Jurisdictional Assessing Officer (JAO) on the CPC 2.0/ B.O portal. No alert (SMS / email) is sent to the JAO intimating such registration.
b.In cases where refund is to be issued to the legal heir (individual) exceeding Rs. 1 lakh, a worklist is created to the concerned JAO automatically on ITBA for issue of refund.
c.Where the Representative Assessee (Legal Heir) files an application for registration as legal heir with the JAO directly, the ITBA allows for legal heir/event marking by the JAO.
d.The information related to legal heir (such as PAN, date of registration of the legal heir, etc.) is not populated on the Insight portal.
(ii)If any request made by the assessee in e-filing portal requires verification/approval by the JAO, whether any mechanism exists to alert the JAO for further necessary action? For example, for event marking in PAN module in ITBA by the JAO in cases of amalgamation, merger, demerger, dissolution, death of assessee, etc.?
Reply:
Request made by an assessee through the e-filing portal is processed based on certain documents which are required to be filed on the e-filing portal, without the need of any verification/approval from JAO. However, event marking on the PAN module of ITBA is a separate process which is carried out by the JAO. In cases such as amalgamation, merger, demerger, dissolution, or death of the assessee, where requests are received directly by the JAO, the corresponding event marking is done by the JAO in the PAN module of ITBA. The event marking can be viewed by all the officers in the hierarchy of the JAO (JCIT/Addl. CIT, CIT, PCIT, CCIT, PCCIT) in the Event History Screen.
(iii)Are the details/data available in e-filing portal/ITBA/ Insight in harmony with each other and synchronized and made available to the JAO on real time basis presently? For example, when a request for legal heir is approved by e-filing, is the data updated in the PAN history of ITBA, Insight in respect of the PAN of the deceased person and the legal heir?
Reply:
As stated in Reply to Question no 1 above, any legal heir registration once approved on the e-filing portal is available for the JAO to be viewed on the CPC 2.0/B.O portal. However, as on date, there is no mechanism for updating the PAN Module of ITBA when a registration request for legal heir is approved by efiling. To enable synchronization of data between e-filing, ITBA, Insight and PAN modules, development of new functionalities would be undertaken as part of the new ITBA 2.0, PAN 2.0 and Insight 2.0 projects.
(iv)If no, what are the measures being proposed to be taken to synchronize such details on all the portals used by the Assessing Officers, particularly JAOs, like ITBA, Insight, CPC 2.0, etc., to avoid data mismatch/data deficiency which is leading to incorrect actions like reopening of assessments in merged entities, deceased persons, completing assessments and raising demand in PANs of non-existent persons, etc.?
Reply:
As stated in reply to Question 3 above, development of new functionalities would be undertaken as part of the new ITBA 2.0, PAN 2.0 and Insight 2.0 projects to enable synchronization of data between these projects.
This would ensure that legal heir registration and other event markings are synchronized across the ITBA, PAN, e-filing and Insight projects, thereby enabling consistency and accuracy in processing of such cases.
(v)Is data sharing across portals used by the Assessing Officers from internal and external data sources like judicial fora (Supreme Court, High Courts, ITAT, DRP, CIT(A), JCIT(Appeals)) or other sources like NCLT, NCLAT, IBS, CPC 2.0, e-filing, etc., made available to the Assessing Officers through ITBA and whether such data is in sync with the data available in ITBA.
Reply:
The ITBA system enables Assessing Officers to access orders passed or uploaded only by departmental users such as CIT(A), JCIT(Appeals), and the Dispute Resolution Panel (DRP). Additionally, orders issued by CPC and forms submitted through the efiling portal are also accessible to the AO through ITBA.
However, orders issued by the Hon’ble Supreme Court, Hon’ble High Courts, Hon’ble ITAT, NCLT/NCLAT, etc., are available on separate IT platforms and currently, there is no integration between these platforms and the ITBA system. Consequently, orders issued by these institutions are not directly available to the Assessing Officer within ITBA. Integration with third-party databases is planned as part of the Insight 2.0 project which would make the orders of these institutions available to the Assessing Officers.
4. With regard to the query about the measures and initiatives being taken to identify duplicate PANs by the Systems to make such duplicate PANs inactive, the queries were sent by e-mail on 22.04.2025 to DGIT(System), New Delhi. The reply received from the office of the DGIT(Systems), New Delhi is as under:
(i)Whether any functionality/ mechanism exists presently to identify duplicate PANs by the Department/Systems Directorate and to alert the Assessing Officer through ITBA, e-mail or SMS regarding the same to enable the Assessing Officer to take further necessary action like deduplication, event marking, etc.?
Reply
A person can apply for allotment of a Permanent Account Number (PAN) under the relevant provisions of sec 139A of the Income-tax Act, 1961. As per the provisions of sec 139A (7) of Income-tax Act, 1961, no person, who has already been allotted a PAN, shall apply, obtain or possess another PAN. At present, there is a mechanism through which all requests for PAN are subjected to a check as to whether a PAN already exists in the PAN database against the given details. Further, to minimise the possibility of allotting more than one PAN to a person, the abovementioned de-duplication mechanism is being revamped and strengthened in the upcoming PAN 2.0 Project. However, there is no system-enabled functionality available at present to proactively identify duplicate PANs and to alert the Jurisdictional Assessing Officer (JAO) through ITBA, e-mail, or SMS for initiating necessary action such as de-duplication. This is because of the risk of generation of false positives in the system based identification of duplicate PANs due to the probability of matching of similar details of different persons. Notwithstanding the same, as per the existing procedure, if a taxpayer is in possession of more than one PAN, they are required to submit a request for surrender of the additional PAN(s) to the concerned JAO, either through a physical letter or via e-mail. Upon receipt of such a request, and after carrying out the necessary verification, the JAO can delete or deactivate the duplicate PAN(s), with the approval of the Range Head. Further, if the JAO receives information from any other reliable data source indicating that a person may be holding more than one PAN, the JAO is empowered to initiate the PAN deletion/deactivation process following the prescribed procedure after due verification.
(ii)If no, what are the measures / initiatives being taken to identify duplicate PANs by the Department / Systems Directorate and make such duplicate PANs inactive to avoid usage of both the PANs by such assessees having duplicate PANS ?
Reply
The feasibility of system-based proactive identification of duplicate PANs through enhanced measures is proposed to be explored under the upcoming PAN 2.0 Project. However, any such system-flagged cases will require verification and confirmation by the Jurisdictional Assessing Officer (JAO) before taking action to deactivate or delete the duplicate PAN.”
5. Referring to the above reply received from DGIT(Systems), it was submitted on behalf of the respondents that the system is being continuously updated to improve the tax payer services and in view of the development of new functionalities being undertaken as part of the new ITBA 2.0, PAN 2.0 and Insight 2.0 projects to enable synchronization of data between such projects along with integration with third party databases, the same would make the order passed by the institutions available to the Assessing Officer.
6. Respondent nos. 2 and 3 have also tendered unconditional apology and prayed to grant relief with respect to cost proposed to be levied.
7. On the other hand, learned advocate for the petitioner submitted that National Faceless Assessment Center has failed to inform the Jurisdictional Assessing Officer about the communication dated 02.02.2022 regarding merger of Oriental Bank of Commerce with the petitioner bank and there is no functionality or resource in ITBA for updating data in respect of entities which have ceased to exist inspite of specific provisions available under sections 176, 177, 178 and 179 of the Income Tax Act, 1961 (For short “the Act”) to give effect to the striking off of the companies, merger and amalgamation of the companies listed under the provisions of the Companies Act.
8. It was submitted that there is no process of integrating the software of the department to map the event either by providing functionality on ITBA or integrating it with tax department’s network of Nodal Officers, resulting into non receipt of information related to a dead/non-existent person by the Jurisdictional Assessing Officer.
9. It was further submitted that issue of multiple PAN is also not addressed by the respondent in the affidavit-in-reply filed on behalf of respondent nos. 2 and 3 and software of the department has no resource whatsoever for proactive identification of cases of inactive/multiple PAN and rationalising the same. It was submitted that in the initial years when General Index Number (GIN) was required to be converted into PAN, two agencies rendered this service for the Income Tax department i.e. UTI and NSDL. Applications from taxpayers would remain pending with one entity for long, prompting a second application with the other and neither agencies issued Tax Deduction and Collection Account Number (TAN) without issuing a new PAN. It was therefore, submitted that in such cases, PAN was allotted but no PAN Card was received and therefore, another application was required to be made resulting into issuance of multiple PAN.
10. It was submitted that even with advent of software facility available with the department, the department has no proactive and regular functionality to reconcile such issue. It was therefore suggested that ITBA portal is required to be directed to give complete data of all cases of multiple/inactive PANs so as to initiate the proceedings with relevant PAN holders.
11. It was also pointed out that there is an urgent need of data management in the present time to provide correct data before the Jurisdictional Assessing Officer to take corrective steps. It was pointed out that in view of the software development, Jurisdictional Assessing Officer is relying upon the software system, rather than applying their mind exercising discretion and recording reasons and only on the basis of the information flagged in Insight Portal, Jurisdictional Assessing Officer is taking action for issuing notice for reopening without conducting any inquiry with regard to the veracity of the information provided by the Insight Portal.
12. It was therefore, submitted that the respondent officers should be subjected to cost as may be deemed fit to be imposed by this Court.
13. Having considered the submissions made by learned advocates for both the sides and on perusal of the response of DGIT(Systems), it appears that the respondent income tax department is taking corrective proactive steps for resolution of the issues which are raised in this petition pertaining to initiation or proceedings on dead person/amalgamated companies or business and inactive or multiple PANs in the software system of the department.
14. On perusal fo the affidavit in reply filed on behalf of respondent nos.2 and 3, it transpires that instead of action being taken on the basis of information available and exercise of discretion, the respondent department is taking action as per the information made available by the software system. Thus we are of the opinion that instead of department taking help of the software system, is being directed by the software system as if the software system is the master of the respondent department and the respondent department is blindly following the information made available by the software system and taking action without verifying the veracity of the same. It may therefore, happen that if someone enters false or wrong information in the software system, Jurisdictional Assessing Officer would take action on the basis of such information without verifying the correctness of the same resulting into multiple and protracted litigation.
15. Time and again, we have come across major litigations on account of action being taken by the respondent department due to either mis-information, non-information or false information made available by the Insight Portal without having any nexus to the documents or material available on record. The Jurisdictional Assessing Officers are acting as a tool of the software system to initiate the proceedings rather than taking information as only the basis, without conducting any inquiry or application of mind. Thus the software system has become the master, rather than a helpful tool for the department for implementing the provisions of the Income Tax Act.
16. The present petition is a classic example where little verification or application of mind by the Jurisdictional Assessing Officer would not have resulted into this litigation and it could have been avoided by not taking any action more particularly, when there was a merger of one National Bank with the petitioner bank.
17. We are also apprised by the learned advocate Mr. Patel that action is taken by the department against the Jurisdictional Assessing Officer on administrative side. Therefore, we do not want to further prejudice such departmental action by observing in any manner.
18. The petition is therefore, disposed off with a cost of Rs. 10,000/- (Rupees Ten Thousand only) to be paid by the respondent nos.1 and 2 with the Gujarat State Legal Service Authority as a token cost instead of Rs. 1 crore for such negligence which was deemed fit at the time of passing the judgment on 17.03.2025.