2022 (10) TMI 1263 - AT - Income Tax

Assessment proceedings under section 153A against amalgamated non-existent entity declared void ab initio despite section 292B

The ITAT Mumbai held that assessment proceedings under section 153A against a non-existent entity that had already amalgamated with another company were ... Assessment framed in the name of a non existent amalgamating company - Effect of amalgamation on corporate identity and assessability - Succession to business and liability of successor - Doctrine of merger and applicability of Maruti Suzuki vis a vis Mahagun Realtors - Curability of procedural defects by statutory provision - Exclusion of limitation period due to COVID 19 Supreme Court orderAssessment framed in the name of a non existent amalgamating company - Effect of amalgamation on corporate identity and assessability - Doctrine of merger and applicability of Maruti Suzuki vis a vis Mahagun Realtors - Curability of procedural defects by statutory provision - Succession to business and liability of successor - Assessment proceedings and final assessment order passed under section 153A in the name of an amalgamating company which had ceased to exist at the time of notice are void ab initio. - HELD THAT: - The Tribunal found on the record that the scheme of amalgamation, effective w.e.f. 01.04.2015 by High Court order dated 12.08.2016, had extinguished the identity of M/s Bhadrawati Ispat & Energy Ltd before the search (30.06.2017) and before issuance of notices. The assessee repeatedly informed the assessing officer of the amalgamation and that the transferor company no longer existed, yet all statutory notices and the assessment order were issued in the name of the non existing entity. Applying the settled principle that on an approved scheme of amalgamation the amalgamating company ceases to exist, the Tribunal held the assessment framed in its name to be a jurisdictional nullity. The decision recognises the later Supreme Court decision in Mahagun Realtors but distinguishes it on facts: Mahagun turned on peculiar factual matrix (non disclosure, participation as MRPL, and manner of proceedings) and did not displace the principle in Maruti Suzuki and earlier authorities that an assessment in the name of a non existent amalgamating entity is invalid where the department was put on notice and continued proceedings without rectification. The Tribunal also noted the statutory framework on succession to business and the Companies Act consequences of amalgamation, and held that the error was not a curable procedural defect under the provisions relied upon by Revenue. Consequently the assessment orders for the stated years were quashed as invalid. [Paras 12, 31, 32]Assessment orders passed under section 153A in the name of the non existing amalgamating company are invalid and void ab initio; the CIT(A)'s order quashing those assessments is confirmed.Exclusion of limitation period due to COVID 19 Supreme Court order - Condonation of delay in filing the assessee's appeal was allowed. - HELD THAT: - The Tribunal noted that the assessee's appeal was filed 111 days late and that the delay period fell within the period excluded by the Supreme Court's order in Miscellaneous Application(C) No. 21 of 2022, which directed exclusion of the period from 15.03.2020 to 28.02.2022 and granted a 90 day limitation from 01.03.2022 where limitation would have expired during the excluded period. Applying that ruling, the Tribunal held the delay to be covered by the exclusion and condoned it. [Paras 4, 5]Delay in filing the assessee's appeal is condoned.Final Conclusion: The Tribunal confirmed the CIT(A)'s quashing of the assessment orders for AY 2013 14 and AY 2014 15 as void for having been framed in the name of a non existent amalgamating company; consequentially all appeals (revenue and assessee) are dismissed, and the assessee's delay in filing appeal is condoned. The core legal questions considered by the Tribunal are as follows:1. Whether the assessment order passed under section 153A read with section 143(3) of the Income Tax Act, 1961, in the name of a non-existent entity (the amalgamating company) is valid or void ab initio, particularly in light of the Supreme Court judgment in the case of the principal Commissioner of Income Tax (PCIT) vs. Maruti Suzuki India Ltd.2. Whether the assessment proceedings initiated and concluded post-amalgamation against the amalgamating company, which ceased to exist pursuant to a High Court-approved scheme of amalgamation, are sustainable in law.3. Whether the principles laid down in the recent Supreme Court judgment in PCIT vs. Mahagun Realtors Pvt. Ltd., which distinguished Maruti Suzuki and upheld assessment orders in the name of a non-existent entity under certain factual circumstances, apply to the present case.4. Whether additions made on merits, including those on account of unsecured loans under section 68, are valid given the assessment was initiated under section 153A and whether such additions are within the scope of the search assessment.Issue-wise Detailed AnalysisIssue 1 & 2: Validity of Assessment Order Passed in the Name of a Non-Existent Entity Post-AmalgamationRelevant Legal Framework and Precedents: The Income Tax Act, 1961, sections 2(31) (definition of person), 153A (assessment in search cases), 143(3) (assessment order), and 170 (succession to business) are central. The Companies Act, 2013 (sections 230-232, 302) governs amalgamation and dissolution of companies. Key precedents include the Supreme Court's decisions in PCIT vs. Maruti Suzuki India Ltd. (2019), Saraswati Industrial Syndicate Ltd. vs. CIT (1990), Spice Entertainment Ltd. vs. CIT (2012), and the recent PCIT vs. Mahagun Realtors Pvt. Ltd. (2020).Court's Interpretation and Reasoning: The Tribunal noted that the amalgamating company ceased to exist from the appointed date of amalgamation (01.04.2015) pursuant to the High Court order dated 12.08.2016. The search was conducted on 30.06.2017, well after the amalgamation date. Despite repeated communications from the assessee informing the Assessing Officer (AO) that the company did not exist and was merged, statutory notices and the assessment order were issued in the name of the non-existent entity.The Tribunal relied heavily on the Supreme Court's Maruti Suzuki judgment, which unequivocally held that an assessment order passed in the name of a non-existent entity is void ab initio. The Court emphasized that the amalgamating company ceases to be a 'person' under section 2(31) post-amalgamation and thus cannot be subjected to assessment proceedings. The Tribunal rejected the Revenue's contention that the error was curable under section 292B, as the Supreme Court had held such errors to be substantive and not merely clerical.The Tribunal also examined the Mahagun Realtors judgment, which distinguished Maruti Suzuki on peculiar facts. In Mahagun, the amalgamating company had not informed the tax authorities of the amalgamation for the relevant assessment year, filed returns suppressing the amalgamation, participated fully in assessment proceedings as the amalgamating entity, and the assessment order named both amalgamating and amalgamated companies. The Supreme Court held that in such circumstances, the assessment order is valid despite the corporate death of the amalgamating company.However, the Tribunal found that the present case facts did not align with Mahagun Realtors. Here, the AO was promptly informed of the amalgamation, yet the proceedings continued in the name of the non-existent entity. There was no concealment or suppression by the assessee, nor any participation by the amalgamated company in the assessment proceedings under the amalgamating company's name. Hence, the Mahagun exception did not apply.Key Evidence and Findings: The Tribunal reviewed correspondence dated 10.05.2019 and 24.06.2019 wherein the assessee informed the AO that the company had ceased to exist post-amalgamation and no return could be filed in its name. Despite this, notices under sections 153A, 143(2), and 142(1) were issued in the name of the non-existent company, and the assessment order was passed likewise. The Tribunal also considered the High Court order approving the amalgamation scheme and the effective date of amalgamation.Application of Law to Facts: Applying the Maruti Suzuki principle, the Tribunal held that the assessment order passed in the name of the amalgamating company, which had ceased to exist at the time of issuance of notices and assessment, is void ab initio. The Tribunal rejected the Revenue's argument that the assessment related to years when the amalgamating company was in existence, noting that the assessment proceedings under section 153A commenced post-search (post-amalgamation) and notices were issued after the amalgamation date.Treatment of Competing Arguments: The Tribunal carefully distinguished Mahagun Realtors, emphasizing that the facts of full participation and suppression of amalgamation in Mahagun were absent here. It also rejected the Revenue's contention that the error was curable under section 292B or that the assessment order was valid because it mentioned both amalgamating and amalgamated companies. The Tribunal underscored the binding nature of the Supreme Court's Maruti Suzuki judgment under Article 141 of the Constitution.Conclusion: The assessment order passed under section 153A read with section 143(3) in the name of the non-existent amalgamating company is invalid and void ab initio. The entire assessment proceeding is illegal and must be quashed.Issue 3: Applicability of Mahagun Realtors JudgmentRelevant Legal Framework and Precedents: The Mahagun Realtors judgment clarified that the corporate death of an entity upon amalgamation does not per se invalidate assessment orders if the facts show that the amalgamating company participated in proceedings, suppressed amalgamation, and the assessment order names both amalgamating and amalgamated companies.Court's Interpretation and Reasoning: The Tribunal acknowledged the Mahagun judgment but held it to be fact-specific and not overruling Maruti Suzuki or Spice Entertainment Ltd. The Tribunal observed that Mahagun Realtors emphasized the conduct of the assessee and the factual matrix, including suppression of amalgamation and participation in proceedings as the amalgamating entity. Since the present case facts differ materially, Mahagun Realtors does not apply.Key Evidence and Findings: The Tribunal found no evidence of suppression or concealment of amalgamation by the assessee. The AO was informed of the merger at the earliest opportunity. The assessment notices and order were issued despite this knowledge, unlike in Mahagun where the amalgamation was not disclosed for the relevant year.Application of Law to Facts: The Tribunal applied the Mahagun principles and found no basis to uphold the assessment order in the name of the non-existent entity. The absence of suppression and the presence of timely communication to the AO distinguish this case from Mahagun.Conclusion: Mahagun Realtors judgment is not applicable to the facts of this case, and the assessment order remains void.Issue 4: Merits of Additions Made on Account of Unsecured Loans and Scope of Section 153ARelevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits, including unsecured loans. Section 153A applies to assessments following search or seizure operations and restricts the scope of assessment to incriminating material found during search.Court's Interpretation and Reasoning: The Tribunal noted that since the assessment order itself was held void for being passed in the name of a non-existent entity, the merits of additions became academic and infructuous. The issues raised by the assessee regarding additions under section 68 and the scope of section 153A were not adjudicated further.Conclusion: The grounds raised by the assessee on merits do not survive as the assessment order is quashed.Significant Holdings'The order is held to be invalid in eyes of law, having been framed in the name of a non-existent entity.''Passing of the assessment order in the name of the non-existent company has been unanimously held to be an illegality which cannot be condoned u/s. 292B of the Act.''Initiation of assessment proceedings against an entity which had ceased to exist was void ab initio.''The facts of the present case are identical with the facts in the case of Maruti Suzuki (supra). None of the ameliorating circumstances mentioned and taken note of by the various High Courts are present in this case.''Mahagun Realtors judgment is rendered in peculiar facts and does not disagree with the principles laid down in Maruti Suzuki India Ltd. and Spice Entertainment Ltd.''The entire assessment order is bad in law and therefore has rightly been quashed.''The assessment proceedings including notices issued in the name of a non-existing entity are void ab initio and illegal.'Core Principles Established:1. An assessment order passed in the name of a non-existent amalgamating company post-amalgamation is void ab initio and cannot be cured by section 292B.2. The amalgamating company ceases to exist as a 'person' under the Income Tax Act from the appointed date of amalgamation approved by the Court and thus cannot be subjected to assessment proceedings.3. The Supreme Court's Maruti Suzuki judgment is binding and applicable unless distinguished on peculiar facts as in Mahagun Realtors.4. The burden lies on the assessee to inform the tax authorities of amalgamation; failure to do so may lead to validation of assessment orders in the name of the amalgamating company.5. Participation of the amalgamated company in assessment proceedings does not estop it from challenging the validity of assessment orders passed in the name of a non-existent entity.Final Determinations:The Tribunal dismissed the Revenue's appeals challenging the quashing of the assessment order and confirmed the CIT(A)'s order holding the assessment order invalid as it was passed in the name of a non-existent entity. The assessee's cross appeals on merits were rendered infructuous and dismissed accordingly. The entire assessment proceedings under section 153A for AY 2013-14 and 2014-15 were held to be void ab initio and illegal.