TMI Blog2022 (4) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 D cor 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 would be issued in favour of a non-existing company (MRPL). Having regard to all these reasons, this court is of the opinion that in the facts of this case, the conduct of the assessee, commencing from the date the search took plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Act ). On 02.03.2009, the revenue issued notice to MAPL to file Return of Income (ROI) for the assessment year (hereafter AY ) 2006-2007 under Section 153A of the Act, within 16 days. On failure by the assessee to file the ROI, the Assessing Officer (hereafter AO ) issued show cause notice on 18.05.2009 under Section 276CC of the Act. On 23.05.2009, a reply was issued to the show cause notice stating that no proceedings be initiated and that a return would be filed by 30.06.2009. A ROI on 28.05.2010, describing the assessee as MRPL was filed. On 13.08.2010, the revenue issued notice under Section 143(2) of the Act. To this, adjournment was sought by letter dated 27.08.2010. In the ROI, the PAN Permanent Account Number disclosed was AAECM1286B (concededly of MRPL); the information given about the assessee was that its date of incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 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. 8. It was contended that the amalgamating or transferor company was duly represented by the amalgamated company and no prejudice was caused to any of the parties by the assessment order. It is further urged by the revenue that in Maruti Suzuki, this court rejected the revenue s appeal on the ground that the final assessment order referred only to the name of the amalgamating company and there was no mention of the resulting company, whereas in this case, in both the draft and the final assessment orders, the names of both the amalgamating and amalgamated company were mentioned. 9. It was also urged that the facts of the Maruti Suzuki are distinguishable from the present case, as in that case the revenue was duly informed about the merger and change in name of the company, and yet the assessing officer passed the order in name of the transferor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ription, 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 reality and substance, was in relation to the new or transferee company, i.e., MIPL. 12. On behalf of the respondent, it was contended by Ms. Kavita Jha, learned counsel, that upon sanction of amalgamation scheme, the amalgamated company stood dissolved without winding up, in terms of section 394 of the Companies Act, 1956. Reliance was placed on the decision of this court in Saraswati Industrial Syndicate v. Commissioner of Income Tax Haryana, Himachal Pradesh. (1990) Supp (1) SCR 332 It was argued that the amalgamating company (MRPL) cannot be regarded as a person in terms of Section 2(31) of the Act. 13. Learned counsel urged that the notice under Section 153A by the AO (despite the intimation by Respondent about the amalgamation on 30.05.2008 and the statement of the director at the time of search) issued in the name of MRPL, a non-exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the 1 Assessing] Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid. It inter alia, provides that where a person carries on any business or profession and is succeeded (to such business) by some other person (i.e., the successor), the predecessor shall be assessed to the extent of income accruing in the previous year in which the succession took place, and the successor shall be assessed in respect of income of the previous year in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicated, 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 representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died. The corresponding provision in the old Income Tax Act (of 1922) was Section 24B. The court in Commissioner of Income Tax v. Amarchand Shroff 1963 Supp (1) SCR 699 held that the provision did not authorise levy of tax on receipts by the legal representative of a deceased person in the year of assessment succeeding the year of account, being the previous year in which such person died. The assessee ordinarily had to be a living person and could not be a dead person. By Section 24B the legal personality of the deceased assessee was extended for the duration of the entire previous year in the course of which he died. The income received by him before his death and that received by his legal representative after his dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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-let the premises or any portion thereof to anyone without the consent of the landlord. M/s. General Radio and Appliances Co. Ltd. was amalgamated with M/s. National Ekco Radio and Engineering Co. Ltd. under a scheme of amalgamation and order of the High Court under Sections 391 and 394 of Companies Act, 1956. Under the amalgamation scheme, the transferee company, namely, M/s. National Ekco Radio and Engineering Company had acquired all the interest, rights including leasehold and tenancy rights of the transferor company and the same vested in the transferee company. Pursuant to the amalgamation scheme the transferee company continued to occupy the premises which had been let out to the transferor company. The landlord initiated proceedings for the eviction on the ground of unauthorised sub-letting of the premises by the transferor com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined 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 or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company of companies immediately before the amalgamation, become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than nine-tenths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice 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 the opinion that the notices issued by the Income Tax Officer (impugned in the writ petition) were not warranted in law. The business carried on by the Transferor Company (Subsidiary Company) should be deemed to have been carried on for and on behalf of the Transferee Company. This is the necessary and the logical consequence of the court sanctioning the scheme of amalgamation as presented to it. The order of the Court sanctioning the scheme, the filing of the certified copies of the orders of the court before the Registrar of Companies, the allotment of shares etc. may have all taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal v. The Bank of Upper India Ltd. A.I.R. 1919 P.C. 9, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said dead person . When notice under Section 143(2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the AO. He, however, did not substitute the name of the appellant on record. Instead, the Assessing Officer made the assessment in the name of M/s Spice which was non existing entity on that day. In such proceedings and assessment order passed in the name of M/s Spice would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppel against law. 12. Once it is found that assessment is framed in the name of non- existing entity, it does not remain a procedural irregularity of the nature which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 identity after amalgamation. The relative rights, however, were determined in terms of the scheme of amalgamation. The benefit of interest accrued after the company ceased to exist was availed of by the assessee (the successor) company. The assessee was allowed to set off the amalgamated losses of the company amalgamated with it, i.e., HPL. This benefit accrued to the assessee under Section 72A of the Act. The court held that when the assessee was allowed the benefit of the accumulated loss, while computing those losses, the income which accrued to it had to be adjusted and only thereafter net loss could have been allowed to be set off by the assessee company. The AO had made those calculations. The assessee was given the benefit of the accumulated loss of the amalgamated company. Its effect was that though those losses were suffered by the amalgamated company they were deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transferor company loses its identity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation, but the corporate identity of transferor company ceases to exist with effect from the date the amalgamation is made effective. 30. The combined effect, therefore, of Section 394 (2) of the Companies Act, 1956, Section 2 (1A) and various other provisions of the Income Tax Act, is that despite amalgamation, the business, enterprise and undertaking of the transferee or amalgamated company- which ceases to exist, after amalgamation, is treated as a continuing one, and any benefits, by way of carry forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee. Therefore, unlike a winding up, there is no end to the enterprise, with the entity. The enterprise in the case of amalgamati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed 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 account. Further, the tax treatment in the various provisions of the Act were not brought to the notice of this court, in the previous decisions. 33. There is no doubt that MRPL amalgamated with MIPL and ceased to exist thereafter; this is an established fact and not in contention. The respondent has relied upon Spice and Maruti Suzuki (supra) to contend that the notice issued in the name of the amalgamating company is void and illegal. The facts of present case, however, can be distinguished from the facts in Spice and Maruti Suzuki on the following bases. 34. Firstly, in both the relied upon cases, the assessee had duly informed the authorities about the merger of companies and yet the assessment order was passed in the name of amalgamating/non-existent company. However, in the present case, for AY 2006-07, there was no intimation by the assessee regarding amalgamation of the company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter 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 Doth approve the said scheme of amalgamation with effect from the appointed date i.e., 1.04.2006. AND THIS COURT DOTH FURTHER ORDER: 1. That all the property, rights and powers of the Transferor Companies specified in the First, Second and Third parts of the Schedule-II hereto and all other property, right and powers of the Transferor Companies be transferred without further act or deed to all the Transferee Company and accordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and vest in the Transferee Company for all the estate and interest of the Transferor Companies therein but subject nevertheless to all charges now affecting the same; and 2. That all the liabilities and duties of the Transferor Companies be transferred without further act or deed to the Transferee Company and accordingly the same shall pursuant to Section 394 (2) of the Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flected 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/c are not reflected in our sales of MRPT, MDL, MIPL as on 20.03.2007. Q.19 What is the total quantum of sale proceeds in the three companies, namely, MRPL, MDL, and MIPL which has not been declared in the F.Y. 06-07 in your books of A/c as admitted by you in your replay to the above relevant question. A. As per the said diary, the following sale proceeds not declared in our books of a/c of F.Y. 06-07 in respect of MRPL, MDL and MIPL are as under: a) Mahagun Realtors Pvt. Ltd. (MRPL) ₹ 507.2 lacs b) Mahagun Developers Ltd. (MDL) ₹ 495.2 lacs c) Mahagun India Pvt. Ltd. (MIPL) ₹ 693.48 lacs ₹ 1695.88 lacs Q21. With reference to Q. No. 19, please re-confirm as to whether the total amount of ₹ 16,95,88,000/- is part of net profit corresponding to advance taxes paid by MDL, MIPL and MRPL for the period from 01.04.2006 to 20.03.2007. A. I hereby re-confirm that the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries 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 the returns of income filed by the respective companies. In so far as accounting of the income of 16.95 crores admitted during the course of survey proceedings is concerned it is found to have been accounted for in the respective years for which it was offered. Here, it is important to note that Shri Amit Jain whose statement was recorded qua the surrender of additional income of 30 crores has nowhere stated as to which particular year the income surrendered is attributable to. Careful scrutiny of the returns revealed that in so far as admitted additional income of 30 crores as voluntarily surrendered during the course of search in the statement recorded u/s. 132(4) is concerned the assessee company Mahagun India (P) Ltd. instead of offering the full amount of 30 crores for taxation, has offered only 17.97 crores for AY 2009-10. This amount of additional income has been offered on the bases of peak of the annexures (A-20, A-21, A-22, A-23 A-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion to the percentage of completion of the projects as achieved in the relevant years. In my view unless this is done the correct taxable income of the assessee cannot be worked out. Here, it is relevant to mention that even in its reply dated 27-07-2011, assessee has agreed that unaccounted receipts are required to be spread over to various years on the basis of percentage completion method. 8.2 On attributing the aforesaid surrender qua the stag of construction of various projects (on the same bases as adopted by the Special Auditor for working out the figure of 42 crores) likely additional income attributable to unaccounted receipts as referred to in this para amounting to ₹ 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. Audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for the assessment year 2005-06 amounting to ₹ 6,05,71,018/- as supra is treated as undisclosed income of the assessee and added to the total income of the assessee. I am satisfied that the assessee has not disclosed the above receipts/income and as such penalty proceedings u/s 271(1)(c) are attracted on this score. (Addition of ₹ 6,05,71,018/-) 40. The facts of the present case are distinctive, as evident from the following sequence: 1. The original return of MRPL was filed under Section 139(1) on 30.06.2006. 2. The order of amalgamation is dated 11.05.2007 but made effective from 01.04.2006. It contains a condition Clause 2 2. That all the liabilities and duties of the Transferor Companies be transferred without further act or deed to the Transferee Company and accordingly the same shall pursuant to Section 394 (2) of the Companies Act, 1956 be transferred to and become the liabilities and duties of the Transferee Company - whereby MRPL s liabilities devolved on MIPL. 3. The original return of income was not revised even though the assessment proceedings were pending. The last date for filing the revised returns was 31.03.2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, but represented by the transferee company MIPL). 11. Appeals were filed to the CIT (and a cross-objection, to ITAT) by MRPL represented by MIPL . 12. At no point in time the earliest being at the time of search, and subsequently, on receipt of notice, was it plainly stated that MRPL was not in existence, and its business assets and liabilities, taken over by MIPL. 13. The counter affidavit filed before this court (dated 07.11.2020) has been affirmed by Shri Amit Jain S/o Shri P.K. Jain, who- is described in the affidavit as Director of M/S Mahagun Realtors(P) Ltd., R/o . 41. In the light of the facts, what is overwhelmingly evident- is that the amalgamation was known to the assessee, even at the stage when the search and seizure operations took place, as well as statements were recorded by the revenue of the directors and managing director of the group. A return was filed, pursuant to notice, which suppressed the fact of amalgamation; on the contrary, the return was of MRPL. Though that entity ceased to be in existence, in law, yet, appeals were filed on its behalf before the CIT, and a cross appeal was filed before ITAT. Even the affidavit before ..... X X X X Extracts X X X X X X X X Extracts X X X X
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