TaxTMI 
TaxTMI 
2022 (4) TMI 347
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....respondent-assessee company, Mahagun Realtors Private Limited (hereafter variously referred to as "MRPL", "the amalgamating company" or the transferor company"), was engaged in development of real estate and had executed one residential project under the name "Mahagun Maestro" located in Noida, Uttar Pradesh. MRPL amalgamated with Mahagun India Private Limited (herein after 'MIPL') by virtue of an order In Company Petition No. 133/2007 c/w Company Application (M) No. 41/2007 of the High Court (dated 10.09.2007). In terms of the order and provisions of the Companies Act, 1956, the amalgamation was with effect from 01.04.2006. 3. On 20.03.2007 survey proceedings were conducted in respect of MRPL during the course of which, some discrepancies in its books of account were noticed. On 27.08.2008, a search and seizure operation was carried out in the Mahagun group of companies, including MRPL and MIPL. During those operations, the statements of common directors of these companies were recorded, in the course of which admissions about not reflecting the true income of the said entities was made; these statements were duly recorded under provisions of the Income Tax Act, 1961 (hereafter....
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....the* decision of the Hon'ble Delhi High Court in case of Spice Infotainment Ltd v CIT 247 ITR 500 as well as the decision of the Hon'ble Delhi High* Court in the case of CIT v Dimension Apparel Pvt. Ltd 370 ITR 288. On the last decision Hon'ble Delhi High Court has considered the whole issue from all the angles and therefore, respectfully following the decision of Hon'ble Delhi High Court, we are of the view that the order of the Id AO is unsustainable." 6. The revenue appealed to the High Court. The High Court, relying upon a judgment of this court, in Principal Commissioner of Income Tax v. Maruti Suzuki India Limited 2019 SCCOnline SC 928 (hereafter 'Maruti Suzuki'), dismissed the appeal. The revenue has, therefore, appealed against that judgment. Submissions 7. The revenue, represented by the Additional Solicitor General, Mr. N. Venkataraman, urged that the name of both the amalgamating and amalgamated companies were mentioned in the assessment order. According to him such mistakes, defects or omissions are curable under Section 292B when the assessment is in substance and effect, in conformity with or according to the intent and purpose of the Act. ....
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.... carried out on 20.03.2007, the director of the companies, made statements under oath. At this time, the application for merger was already filed in the High Court. The assessee MRPL surrendered amounts for which it was unable to account. Other entities which merged with MIPL too likewise surrendered amounts. Throughout the proceedings, the assessee never revised its offer of surrender of additional income nor brought it to the notice of the AO. Further, on 20.03.2007, the assessee issued postdated cheques in the name of MRPL. After merger, they were neither taken back nor fresh cheques were submitted from the amalgamated company MIPL. 11. It was submitted that in these circumstances, when assessment proceedings were effectively resisted, during which the AO was appraised of the amalgamation, which was duly given effect to in the assessee's description, the question of the assessment and further proceedings being a nullity cannot arise. It was pointed out that in the appeal to CIT, as well as the cross objections to ITAT, the assessee's description was as Mahagun Relators Private Ltd, represented by Mahagun India Private Ltd., In these circumstances, the assessment order, in rea....
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.... 170 reads as follows: "170. Succession to business otherwise than on death (1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,- (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession. (2) Notwithstanding anything contained in sub- section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly. (3) When any sum payable under this section in respect of the income of such business or profe....
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....nse of the term, the corporate venture continues - enfolded within the new or the existing transferee entity. In other words, the business and the adventure lives on but within a new corporate residence, i.e., the transferee company. It is, therefore, essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. There are analogies in civil law and procedure where upon amalgamation, the cause of action or the complaint does not per se cease - depending of course, upon the structure and objective of enactment. Broadly, the quest of legal systems and courts has been to locate if a successor or representative exists in relation to the particular cause or action, upon whom the assets might have devolved or upon whom the liability in the event it is adjudicated, would fall. 19. This court, in Commissioner of Income Tax, v. Hukamchand Mohanlal 1972 (1) SCR 786 noticed that Section 159 of the Act related to a legal representative's tax liability. It casts liability upon a legal representative in the event of death of her or his predecessor, to pay tax, in effect saying that where a person dies his legal rep....
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....ntially the share-holders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly 'amalgamation' does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury's Laws of England, 4th Edition Vol. 7 Para 1539. Two companies may join to form a new company, but there may be absorption or blend- ing of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity. In M/s General Radio and Appliances Co Ltd v M.A.. Khader (dead) by Lrs., [1986] 2 S.C.C. 656, the effect of amalgamation of two companies was considered. M/s. General Radio and Appliances Co. Ltd. was tenant of a premises under an agreement providing that the tenant shall not sub....
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....omplete destruction of corpo- rate personality of the transferor company instead there is a blending of the corporate personality of one with another corporate body and it continues as such with the other is not sustainable in law. The true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there cannot be any doubt that when two companies amalgamate and merge into one the transferor company loses its entity as it ceases to have its business. However, their respective rights of liabilities are determined under scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective." 21. Saraswati Syndicate (supra) noticeably was decided in relation to assessment issues when amalgamation was not separately defined under the Income Tax Act. By an amendment of 1967, this term was for the first time defined in the form of Section 2(1A). That provision reads as follows: "(1A) "amalgamation", in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company ....
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....such scheme has to contain a date of amalgamation/transfer. The proceedings before the court may take some time; indeed, they are bound to take some time because several steps provided by Sections 391 to 394 and the relevant Rules have to be followed and complied with. During the period the proceedings are pending before the Court, both the amalgamation units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the present scheme, Clause 6(b) does expressly provide that with effect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have carried on the business for and on behalf of the Transferee Company (Holding Company) with all attendant consequences. It is equally relevant to notice that the Courts have not only sanctioned the scheme in this case but have also not specified any other date as the date of transfer/amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of t....
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....nise the demands was sought to be disallowed in the subsequent year, in the case of the then transferee company. The decision of the Delhi High Court, in Spice (supra), after discussing the decision in Saraswati Syndicate, went on to explain why assessing an amalgamating company, without framing the order in the name of the transferee company is fatal: "10. Section 481 of the Companies Act provides for dissolution of the company. The Company Judge in the High Court can order dissolution of a company on the grounds stated therein. The effect of the dissolution is that the company no more survives. The dissolution puts an end to the existence of the company. It is held in M.H. Smith (Plant Hire) Ltd. v. D.L. Mainwaring (T/A Inshore), 1986 BCLC 342 (CA) that "once a company is dissolved it becomes a non-existent party and therefore no action can be brought in its name. Thus an insurance company which was subrogated to the rights of another insured company was held not to be entitled to maintain an action in the name of the company after the latter had been dissolved". 11. After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f. 1st July, ....
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....pany, assessment of the transferor (or amalgamated company) was impermissible. 26. In Dalmia Power Limited & Ors v. The Assistant Commissioner of Income Tax, Circle 1, Trichy (2020) 14 SCC 736 the amalgamated (transferee) company filed a revised return, beyond the time prescribed. The original return had been filed by the transferor company. This was not allowed by the revenue. The assessee moved the High Court. This court endorsed the view of the single judge, holding that the revenue had not objected to the amalgamation schemes duly and that Sections 139(5) and 119(2)(b) of the Act and Circular No. 9/2015 issued by the CBDT were inapplicable to a case where a revised ROI was filed pursuant to a Scheme of Arrangement and Amalgamation, approved and sanctioned by the National Company Law Tribunal. 27. In another recent decision, McDowell and Company Ltd. v. Commissioner of Income Tax, Karnataka Central (2017) 13 SCC 799 this court had occasion to consider the effect of amalgamation of two companies, and the rights and liabilities in relation to claim for depreciation, under the Act. The assessee had taken over a sick company-HPL - by amalgamation; HPL ceased to have any identi....
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....rm of set-off, deductions (in proportion to the period the transferee was in existence, vis-à-vis the transfer to the transferee company); carry forward of loss, depreciation, all bear out that under the Act, (a) the business-including the rights, assets and liabilities of the transferor company do not cease, but continue as that of the transferor company; (b) by deeming fiction-through several provisions of the Act, the treatment of various issues, is such that the transferee is deemed to carry on the enterprise as that of the transferor. 29. In Bhagwan Dass Chopra v. United Bank of India 1988 (1) SCR 1088 it was held that in every case of transfer, devolution, merger or scheme of amalgamation, in which rights and liabilities of one company are transferred or devolved upon another company, the successor-in-interest becomes entitled to the liabilities and assets of the transferor company subject to the terms and conditions of contract of transfer or merger, as it were. Later, in Singer India Ltd v. Chander Mohan Chadha [2004] Supp (3) SCR 535 this court held as follows: "8. ..there can be no doubt that when two companies amalgamate and merge into one, the transfe....
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....ndent while dismissing the Special Leave Petition for AY 2011-2012. In doing so, this Court has relied on the decision in Spice Entertainment. 40. We find no reason to take a different view. There is a value which the court must abide by in promoting the interest of certainty in tax litigation. The view which has been taken by this Court in relation to the respondent for AY 2011-12 must, in our view be adopted in respect of the present appeal which relates to AY 2012-13. Not doing so will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable." 32. The court, undoubtedly noticed Saraswati Syndicate. Further, the judgment in Spice (supra) and other line of decisions, culminating in this court's order, approving those judgments, was also noticed. Yet, the legislative change, by way of introduction of Section 2 (1A), defining "amalgamation" was not taken into accou....
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.... was by MRPL- which held out itself as MRPL. 36. The judgments of this court- in Saraswati Syndicate and Marshall (supra) have indicated that the rights and liabilities of the transferor and transferee companies are determined by the terms of the merger. In Saraswati Syndicate, the point further made is that the corporate existence of the transferor ceases, upon amalgamation. 37. In the present case, the terms of the amalgamation have been set out in the order sanctioning it, by the Delhi High Court, by its order dated 10.09.2007. The court, by its order directed the amalgamation of Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd. under Section 394 of the Companies Act, 1956 with Mahagun (India) Pvt. Ltd. (MIPL) the transferee Company. The operative order of the Delhi High Court under Section 394 of the Companies Act, 1956 inter alia stated as follows: "THIS COURT DOTH HEREBY SANCTION THE SCHEME OF AMALGAMATION setforth in Schedule -I annexed hereto and DOTH HEREBY DECLARE the same to be binding on all the shareholders and creditors of the Transferor and Transferee Companies and all concerned and Do....
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....ats/shops. During the survey one 'Jaguar' spiral diary was found which contained unrecorded sale proceeds of various projects undertaken by the group. On being confronted the Assessee group as per the statement of Amit Jain, Managing Director of Mahagun Realtors Pvt. Ltd., Mahagun Developers Ltd., Mahagun (India) Pvt. Ltd. recorded on 20-03-2007 itself vide answer to question no. 19 & 21 surrendered an amount of Rs. 16.9589 crores as per the following details for A.Y. 2007-08: (i) Mahagun Realtors Pvt. Ltd. Rs. 5.072 crores (ii) Mahagun Developers Ltd. Rs. 4.952 crores (iii) Mahagun India Pvt. Ltd. Rs. 6.934 crores For easy reference relevant portion of the statement is quoted as under: Q. 18 Please further elaborate on the sale proceed as mentioned on pages 2 to 18 of the said diary, in the light of the fact that in reply to Q No. 15 it has been stated that the said sale proceeds are not reflected in the book of A/c. The said sale figures denote the month-wise sale proceeds pertaining to F.Y. 2006-07 in respect of the projects under the construction at various sites as mentioned above, which are not reflected in our books of A/....
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....he assessee has submitted that while filing return of income for AY 2007-08 it has disclosed income of Rs. 16.95 crores as additional cash sales under the head of business income. 6.2 Subsequent to survey operation a search and seizure operation u/s. 132 of the Income-Tax Act, 1961 was carried out in the hands of the assessee group. During the search incriminating documents/ diaries which contained entries of unaccounted income generated on account of receipt of 'on money' etc. were found and on being confronted, Shri Amit Jain, Managing Director of group and the main person of the group in answer to question 15 of the statement recorded u/s. 132 (4) on 27-08-2008 admitted as under: "As stated number of times above, I am not able to explain the case entries/receipts appearing in the ledgers marked as annexure A-20, A-21, A-22, A-23 & A-24. Therefore, I offer Rs. 30 crores as additional income on account of case receipts/entries in the above annexures in the hands of M/s. Mahagun India (P) Ltd. The additional income declared is over and above the regular income to be declared." 6.3 Admissions of additional income or receipts were examined in the light of t....
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.... 2,23,83,104 4,91,80,754 (-)6,21,37,750 6,17,17,540 216 Mahagun Mansion-II 2,02,54,253 5,54,20,982 (-)1,84,47,637 1,33,26,297 17,76,500 7,23,30,395 215 Mahagun Mascot 2,50,32,522 2,50,32,522 214 Mahagun Mall 5,18,87,855 5,70,76,640 10,89,64,495 213 Mahagun Morepheous E4, Noida 5,87,69,659 5,73,68,702 (-)6,16,78,845 (-)84,90,900 4,58,78,816 212 Mahagun Mosaic (-)5,21,92,597 11,93,15,012 6,71,22,415 Total difference 3,82,17,922 2,41,030,598 2,09,41,932 35,58,412 12,60,57,575 42,98,06,439 7.6 The reply filed by the assessee has been considered. The assessee as such does not dispute the extrapolation done but has just asked for discounting the extrapolated rate suitably and spread it over to the entire projects period. Before considering whether the reply as filed by the assessee company is acceptable or not it is considered necessary to re-iterate certain facts of the case at a glance. During the currency of the block or 7 years as relevan....
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....dditional income attributable to unaccounted receipts as referred to in this para amounting to Rs. 49,78,59,943 which the assessee ought to have offered for taxation is worked out as per Annexure A-1 to this order. The additions are accordingly made in the respective years of assessment over and above the receipts duly accounted for by the assessee group in its returns filed for these years. In brief, as per this working, additions to be made will be as below: Name of the Company Asstt Year Amount of extrapolation worked out by Spl. Auditor Addition worked out on the basis of surrender of Rs. 49,78,59,943 in the same proportion as worked out by the Special Auditor Mahagun Realtors P. Ltd. 2006-07 5,22,91.433 6,05,71,018 Mahagun Developers P. Ltd. 2004-05 - - -do- 2005-06 2,02,54,253 2,34,61,235 -do- 2006-07 5,54,20,982 6,41,96,022 Mahagun India P. Ltd. 2004-05 -do- 2005-06 1,79,63,669 2,08,07,939 -do- 2006-07 13,33,88,185 15,44,27,160 -do- 2007-08 2,09,41,931 2,42,57,786 -do- 2008-09 35,58,411 41,21,842 -do- ....
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....including the MRPL and other companies: (i) When search and seizure of the Mahagun group took place, no indication was given about the amalgamation. (ii) A statement made on 20.03.2007 by Mr. Amit Jain, MRPL's managing director, during statutory survey proceedings under Section 133A, unearthed discrepancies in the books of account, in relation to amounts of money in MRPL's account. The specific amount admitted was Rs.5.072 crores, in the course of the statement recorded. (iii) The warrant was in the name of MRPL. The directors of MRPL and MIPL made a combined statement under Section 132 of the Act, on 27.08.2008. (iv) A total of Rs. 30 crores cash, which was seized- was surrendered in relation to MRPL and other transferor companies, as well as MIPL, on 27.08.2008 in the course of the admission, when a statement was recorded under Section 132 (4) of the Act, by Mr. Amit Jain. 5. Upon being issued with a notice to file returns, a return was filed in the name of MRPL on 28.05.2010. Before that, on two dates, i.e., 22/27.07.2010, letters were written on behalf of MRPL, intimating about the amalgamation, but this was for AY 2007-08 (for which....
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....nt order painstakingly attributes specific amounts surrendered by MRPL, and after considering the special auditor's report, brings specific amounts to tax, in the search assessment order. That order is no doubt expressed to be of MRPL (as the assessee) - but represented by the transferee, MIPL. All these clearly indicate that the order adopted a particular method of expressing the tax liability. The AO, on the other hand, had the option of making a common order, with MIPL as the assessee, but containing separate parts, relating to the different transferor companies (Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd.). The mere choice of the AO in issuing a separate order in respect of MRPL, in these circumstances, cannot nullify it. Right from the time it was issued, and at all stages of various proceedings, the parties concerned (i.e., MIPL) treated it to be in respect of the transferee company (MIPL) by virtue of the amalgamation order - and Section 394 (2). Furthermore, it would be anybody's guess, if any refund were due, as to whether MIPL would then say that it is not entitled to it, because the refund order wo....