2024 (9) TMI 1631 - HC - Income Tax

Reassessment proceedings against non-existent entities following amalgamation are invalid under Section 292B

Delhi HC held that reassessment proceedings against non-existent entities following amalgamation are invalid. The court ruled that notices and orders ... Assessment or reassessment proceedings issued in the name of a dissolved/amalgamating company - Nullity of proceedings for want of notice to the successor entity - Curability of defect under Section 292B of the Income tax Act - Succession and liability on amalgamation versus winding up - Section 170 and succession to business otherwise than on death - Section 159 and liability of legal representatives - Factual distinction where successor has misrepresented or suppressed amalgamation (Mahagun Realtors principle)Assessment or reassessment proceedings issued in the name of a dissolved/amalgamating company - Nullity of proceedings for want of notice to the successor entity - Validity of notices/orders issued in the name of an amalgamating company which stood dissolved after sanction of a scheme - HELD THAT: - The Court held that where a transferor (amalgamating) company ceases to exist by operation of an approved scheme of arrangement and the Revenue has been apprised of the merger, issuance or continuation of assessment/reassessment proceedings in the name of the dissolved company is a nullity. Maruti Suzuki (following Spice Entertainment) establishes that an assessment framed against a non existing entity is not a mere procedural irregularity but goes to jurisdiction and cannot be sustained. Where the scheme and intimation were on record and the transferor had ceased to exist, the impugned notices and orders drawn in the name of the transferor were quashed as void ab initio. [Paras 33, 36, 37, 42, 48]Notices and assessment/reassessment orders issued or maintained in the name of a company that had ceased to exist pursuant to an approved amalgamation, where the Revenue had been informed of the merger, are void and are liable to be quashed.Curability of defect under Section 292B of the Income tax Act - Whether Section 292B can cure issuance of notices/orders in the name of a dissolved entity - HELD THAT: - The Court reaffirmed that Section 292B cannot be invoked to cure substantive or jurisdictional defects. A notice or assessment addressed to a non existent juristic person is a defect of substance and not a mere mistake, defect or omission of a technical nature contemplated by Section 292B. The reasoning in Spice Entertainment and subsequent exposition in Maruti Suzuki was applied to hold that such defects are incurable by Section 292B. [Paras 14, 16, 20]Section 292B does not validate notices or assessments that suffer from the jurisdictional defect of being made in the name of a company that has ceased to exist.Section 170 and succession to business otherwise than on death - Section 159 and liability of legal representatives - Whether Sections 159 or 170 can validate proceedings issued in the name of a dissolved amalgamating company - HELD THAT: - The Court held that Sections 159 and 170 address recovery and assessment in the context of succession or liability of legal representatives and successors but do not operate to validate a jurisdictionally defective notice or assessment issued in the name of a person or company that has ceased to exist. Section 159 pertains to liability of legal representatives of a deceased person; Section 170 governs taxation consequences of succession to business. Neither provision was intended to convert a nullity in procedural naming into a valid initiation of proceedings against an extinguished juristic person. [Paras 34, 35]Sections 159 and 170 do not salvage notices or orders issued in the name of a non existent amalgamating company.Factual distinction where successor has misrepresented or suppressed amalgamation (Mahagun Realtors principle) - Effect of Mahagun Realtors and when an assessment in the name of the transferor may be sustained - HELD THAT: - The Court explained that Mahagun Realtors is fact sensitive and does not displace Maruti Suzuki. Mahagun was decided on distinct facts - notably, deliberate non disclosure or conduct by the successor that held it out as the transferor and suppression of amalgamation in returns and proceedings. Where the successor's conduct amounts to misrepresentation or suppression, the Court in Mahagun sustained proceedings on those facts. Absent such conduct, Mahagun does not permit a departure from the principle in Maruti Suzuki that proceedings in the name of a dissolved entity are void. [Paras 22, 23, 29, 31]Mahagun Realtors does not overrule Maruti Suzuki; only on its special facts (suppression/misrepresentation by successor) can an assessment in the name of a dissolved entity be sustained.Nullity of proceedings where merger was intimated to the Assessing Officer - Relief in lead matters where merger had been intimated to the AO but assessment/reassessment proceeded in the name of the transferor - HELD THAT: - Applying the principles above to the batch, the Court found that in multiple matters the assessees had timely informed the AO of the sanctioned scheme; notwithstanding that, notices/orders were issued in the name of the dissolved transferor. On those facts the proceedings were held to be void. The Court allowed a series of writ petitions and quashed specified notices and orders listed in the operative directions. Conversely, where material facts were disputed or intimation had not been given, petitions were dismissed. [Paras 4, 5, 6, 33, 48]Writ petitions where the Revenue proceeded against a dissolved transferor despite being apprised of the amalgamation were allowed and the impugned notices/orders quashed; petitions where intimation was absent or facts were disputed were dismissed.Statutory reassessment regime post-Ashish Agarwal and procedural consequence - Disposition of specific interlocutory and contested matters including ITA 116/2023 and certain writ petitions raising PAN or procedural discrepancies - HELD THAT: - The Court allowed ITA 116/2023 (International Hospital Ltd. v. DCIT) holding that rectification under Section 154 and post hoc amendment could not be used to cure the jurisdictional error of framing assessment in the name of a dissolved entity, where merger had been intimated and no suppression was found. Petitions challenging notices under Section 142(1) that merely contained the erstwhile PAN while being addressed to the successor were dismissed on facts as not establishing the kind of incurable illegality envisaged in Maruti Suzuki; similarly, petitions where there was factual dispute about intimation of the scheme were dismissed leaving merits open. [Paras 43, 44, 46, 47, 51]ITA 116/2023 allowed and Tribunal order set aside; petitions attacking notices founded only on PAN mismatches or where intimation facts were disputed were dismissed, with parties' rights on merits kept open where appropriate.Final Conclusion: The High Court held that proceedings (notices, assessments or reassessments) drawn in the name of a company that has ceased to exist pursuant to an approved scheme of amalgamation - where the Revenue had been informed of the merger - are null and void and cannot be cured by Section 292B; Sections 159 and 170 do not validate such proceedings; Mahagun Realtors is distinguishable on its facts (suppression/misrepresentation by the successor). Consequential relief was granted in the identified matters (including ITA 116/2023) and specified notices/orders were quashed; petitions where intimation was disputed or the defect amounted only to a PAN discrepancy were dismissed. Issues Involved:1. Validity of assessment and reassessment orders issued to non-existent entities due to amalgamation.2. Applicability of Section 292B of the Income Tax Act, 1961.3. Impact of Supreme Court decisions in Maruti Suzuki and Mahagun Realtors on the current cases.4. Obligations of the amalgamated entity to inform the tax authorities.5. Consequences of issuing notices to non-existent entities.Issue-wise Detailed Analysis:1. Validity of Assessment and Reassessment Orders:The writ petitions and connected Income Tax Appeal impugn orders of assessment and reassessment initiated by the respondents on the ground that notices were not served upon the amalgamated entity. The petitioners argue that despite informing the respondents about the amalgamation, notices and orders were issued in the name of the amalgamating entity, rendering them null and void. This argument is supported by the Supreme Court's decision in Principal Commissioner of Income Tax, New Delhi vs. Maruti Suzuki (India) Limited, where it was held that assessment orders issued to a non-existent entity due to amalgamation are invalid.2. Applicability of Section 292B of the Income Tax Act, 1961:The respondents contend that the failure to notify the amalgamated entity is curable under Section 292B of the Act, which deals with procedural defects. However, the Supreme Court in Maruti Suzuki held that issuing a notice to a non-existent entity is a substantive illegality and not a procedural defect that can be cured under Section 292B. This was further supported by earlier decisions in Spice Entertainment Ltd. and other cases, which held that assessments made in the name of a dissolved or non-existent entity are void and cannot be cured by Section 292B.3. Impact of Supreme Court Decisions in Maruti Suzuki and Mahagun Realtors:The respondents also rely on the Supreme Court's decision in Principal Commissioner of Income Tax (Central)-2 vs. Mahagun Realtors (P) Ltd., arguing that the mistake of issuing notices to a non-existent entity is curable. However, the court in Maruti Suzuki clarified that the decision in Mahagun Realtors was based on its peculiar facts, where the amalgamated entity had failed to inform the tax authorities about the amalgamation in a timely manner. In contrast, in the present cases, the petitioners had duly informed the authorities about the amalgamation, making Maruti Suzuki applicable.4. Obligations of the Amalgamated Entity to Inform the Tax Authorities:The court noted that the petitioners had provided timely information regarding the amalgamation to the tax authorities. For instance, in the case of Religare Securities Ltd., the factum of merger was intimated to the Assessing Officer on 29 December 2017, and merged financial statements were submitted along with a revised Return of Income on 29 March 2019. The court emphasized that once the amalgamation is approved by the National Company Law Tribunal or the High Court, the amalgamating entity ceases to exist, and any notices issued in its name are invalid.5. Consequences of Issuing Notices to Non-Existent Entities:The court held that proceedings initiated against a non-existent entity are a nullity and cannot be validated by Section 292B of the Act. The court quashed the notices and orders issued in the name of the amalgamating entities, emphasizing that the respondents must bear the consequences of ignoring the fundamental changes due to amalgamation. The court also dismissed the respondents' arguments based on Sections 159 and 170 of the Act, stating that these provisions do not apply to cases where an entity ceases to exist due to amalgamation.Separate Judgment:The court allowed the appeal in ITA 116/2023 (International Hospital Ltd. Vs. DCIT Circle 12(2)), setting aside the order of the Tribunal dated 23 September 2022 and granting consequential relief to the appellant. The court found that the Assessing Officer had acknowledged the merger but still framed the order in the name of the non-existent entity, which could not be rectified under Section 292B.Dismissal of Certain Writ Petitions:The court dismissed W.P.(C) 5021/2022, W.P.(C) 5022/2022, and W.P.(C) 5118/2022, where the only mistake was the mentioning of a wrong PAN, not considered a fundamental flaw. The court also dismissed W.P.(C) 5475/2022 and W.P.(C) 4558/2023 due to the petitioners' failure to inform the tax authorities about the approved Scheme of Arrangement.Operative Directions:The court quashed the notices and orders listed in the table provided in the judgment, allowing the relevant writ petitions and granting relief to the petitioners. The court emphasized that the respondents must adhere to the legal principles established in Maruti Suzuki and cannot issue notices to non-existent entities.