SNOWHILL AGENCIES PVT. LTD (MERGED WITH GALLOPS MOTORS P. LTD),AHMEDABAD vs. THE PR. CIT-2, AHMEDABAD

Grounds taken by the assessee read as under:

Ld. CIT erred in law and on facts passing an order on non - entity that has ceased to exist pursuant to order of amalgamation of Hon'ble High Court. The order passed on non — entity is a nullity & void ab initio.

2 - 2. Ld. CIT erred in law and on facts invoking provisions of section 263 seeking to revise scrutiny assessment order passed by AO u/s 143(3)r w s 263 of the Act holding it as erroneous and prejudicial to the interest of revenue. The order of CIT directing AO to adjudicate same issue de novo and pass fresh order is unjust & against principles of Natural Justice.

Brief facts of the case are that the assessee company has filed its return of income on 15.9.2012 declaring total income at Rs.8270/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued on 13.8.2013. Thereafter, the ld.AO had issued notice under section 142(1) on 6.1.2015. He passed assessment order under section 143(3) on 31.3.2015 and determined taxable income of the assessee at Rs.15,51,08,270/-.

The ld.Pr.Commissioner perused record and found that the AO failed to conduct proper inquiry while determining taxable income of the assessee at Rs.15,51,08,270/-. Therefore, this assessment order was set aside by exercising powers under section 263 on 11.6.2015. The AO in pursuance of 263-order passed fresh scrutiny assessment order under section 143(3) r.w. section 263 on 30.11.2016. He determined taxable income of the assessee at Rs.8,270/-. He accepted the declared income. The ld.Commissioner on perusal of the record sought to revise the assessment order by exercising power under section 263 of the Act. Accordingly, he issued show cause notice dated 16.1.2019. After providing two-three opportunities, he passed the impugned order vide which he has set aside the assessment order with a direction to frame assessment order de novo, after providing reasonable opportunity to the assessee-company.

The ld.counsel for the assessee while impugning order of the ld.Commissioner submitted that this action under section 263 has been taken by the ld.Commissioner against the company, which ceased to exist pursuant to order of the amalgamation of Hon’ble High Court, and thus, this order is null and void ab initio. In order to buttress this arguments, he placed on record list of events and details of page numbers qua such developments in the paper book. For facility of reference, we take note of these details, which read as under: Date Events P/B Page No. 15/09/2012 Return of Income filed by Snowhill Agencies Pvt Ltd (SAPL) 01 – 02 Annual Accounts 03 – 18 19/02/2015 S.C.N. issued by AO during proceedings u/s 143 (2) of the Act (as 71 stated in order) 12/03/2015 Reply filed by the assessee to above S.C.N. 19 – 20 20/03/2015 Letter to AO (List of Investors @Pg 70) 33 – 70 31/03/2015 Assessment order u/s 143(3) of the Act 71 – 73 17/04/2015 S.C.N by CIT u/s 263 of the Act 75 – 76 19/05/2015 Written submission before CIT 77 – 111 4 - 11/06/2015 First order passed u/s 263 of the Act 112 – 115 09/05/2015 HC sanctioned the scheme of amalgamation of SAPL with Jainco 444/1-5 on 11/06/2015 (w.e.f 01/04/2013) 30/12/2015 A.O issued notice to SAPL 116 – 117 Detailed reply to AO by all investor companies 118 – 394 20/01/2016 HC sanctioned the scheme of amalgamation of Jaincco with 444/6-17 Gallops 17/11/2016 SAPL informed to AO [ITO ward 10(2)] about the merger with a 439 request of transfer the case to ITO ward 12(2) 23/11/2016 A.O issued notice u/s 142(1) to SAPL [ITO ward 12(2)] 395 28/11/2016 Reply to AO[ITO ward 12(2)] by GMPL along with name of SAPL 396 30/11/2016 AO [ITO ward 12(2)]passed fresh order u/s 143(3) r.w.s 263 of the Act accepting the return income – note that SAPL is merged with GMPL 16/01/2019 CIT issued notice u/s 263 of the Act in the name of SAPL but 446 – 447 acknowledging merger with GMPL 16/01/2019 Letter to AO intimating merger with the orders for the next year 444/6-17 CIT issued 2nd notice in the name of SAPL only 04/02/2019 448 01/03/2019 Notice allegedly served upon someone 450 12/03/2019 CIT passed order u/s 263 of the Act again setting aside the assessment in the name of SAPL

The ld.counsel for the assessee has submitted that Snowhill Agencies P.Ltd. (“SAPL” for short) was merged with Jainco on 11.6.2015 w.e.f. 1.4.2013. Copy of High Court order sanctioning scheme of amalgamation has been placed on record at page no.444. Thereafter, Jainco got merged with Gallops w.e.f. 20.1.2016 when scheme of amalgamation was sanctioned by the Hon’ble High Court. This order is placed on page no.6 to 17 of the paper book. On 17.11.2016, SAPL informed, ITO-10(2) about the merger with a request to transfer of case to ITO, Ward-12(2). He took us through different correspondences with the department and demonstrated that AO while passing the order under section 143(3) r.w. section 263 on 30.4.2016 recognized the fact that SAPL was merged with GMPL. Thus, according to the ld.counsel for the assessee, there is no dispute with regard to the fact that SAPL ceased to exist w.e.f. 1-4-2013 and on 20.1.2016 even Jainco ceased to exist. It merged with Gallop. According to the ld.counsel for the 5 - assessee, the short issue which is required to be examined by the Tribunal as a preliminary issue is, whether proceedings under section 263 could be justified against a company which ceased to exist ? for buttressing this point, he drew our attention towards latest judgment of Hon’ble Supreme Court in the case of Pr.CIT Vs. Maruti Suzuki India Ltd., 107 taxmanncom 375 (SC)=416 ITR 613 (SC). He placed on record copy of judgment of the Hon’ble Supreme Court. Similarly, he relied upon order of ITAT, Kolkatta Bench in the case of emerald Company Ltd. Vs. ITO, 83 taxmann.com 29. He placed on record copy of this decision also. On the strength of these decisions, he submitted that impugned order is not sustainable in the eyes of law.

The ld.CIT-DR, on the other hand contended that judgment relied by the ld.counsel for the assessee are not applicable on the facts of the present case. He contended that issue in both these judgments relates to assessment orders. In other words, these judgments cover the area where an assessment order has been passed against the company which is ceased to exist, and the courts have examined about the validity and legality of such assessment orders. In the present case, when the assessment order was passed originally i.e. way back on 31.3.2015, the “SAPL” was not merged with Jainco or Gallops. Scheme of amalgamation was sanctioned by the High Court on 13.6.2015 though w.e.f. 1-4-2013. Thus, the assessment order has already been passed, and an order passed under section 263 is not an assessment order. He also submitted that once an assessment order has been passed, then subsequent appellate proceedings or revisional proceeding is continuation of original assessment proceedings. They can be continued against such entity. In other words, according to him, after passing of the assessment order, the time would freeze qua existence of an entity, as a person for the purpose of taxation under Income Tax act.

We have considered rival contentions and gone through the record carefully. Section 263 of the Income Tax Act has direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:

On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the 8 - Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.

Before adverting to the contentions of the ld.CIT-DR, we would like to take note of position of law laid down by the Hon’ble Supreme 10 - Court in the case of Maruti Suzuki (supra). The facts in this case are that Suzuki Motors Corporation, and MSIL constituted a joint venture with shareholding of 70% and 30%. Such joint venture was incorporated as Suzuki Motor India Ltd. Subsequently w.e.f. 8.6.2005 its name was changed to SPIL. On 28.11.2012 SPIL has filed its return of income. Upto this date no amalgamation had taken place. On January 29, 2013 a scheme for amalgamation of SPIL and MSIL was approved by the Hon’ble High Court w.e.f. 1.4.2012. The terms of approval scheme provided that all liability and duties of the transferor company shall stand transferred to transferee company without any act or deed. On scheme being coming into effect, the transferor company was to stand dissolved without winding up. The scheme stipulated that the order of amalgamation will not be construed as an order granted exemption from the payment of stamp duty or taxes, or any other charges, if any payable in accordance with law. The AO has initiated the assessment proceedings by issuance of notice under section 143(2) on 26.9.2013 followed by a notice under section 142(1) of the Act to the amalgamating company. MSIL participated in the assessment proceedings of erstwhile amalgamating entity i.e. SPIL through its authorised representative and officers. The assessment was framed. Thereafter during the appellate proceedings before the Tribunal the assessee took an objection that final assessment order was passed on 31.10.2016 in the name of SPIL which was amalgamated with MSIL. The assessee took an objection that the assessment order has been passed in the name of company which ceased to exist and the assessment order is void ab initio. This plea of the assessee was accepted by the Tribunal. This order of the Tribunal was upheld by the Hon’ble High Court. Ultimately issue travelled upto the Hon’ble Supreme Court. While taking cognizance of the submissions, and the proposition laid down in various High Courts’ decisions, the Hon’ble Supreme Court made the following observations: “19. While assessing the merits of the rival submissions, it is necessary at the outset to advert to certain significant facets of the present case: (i) Firstly, the income which is sought to be subjected to the charge of tax for AY 2012-13 is the income of the erstwhile entity (SPIL) prior to amalgamation. This is on account of a transfer pricing addition of Rs. 78.97 crores; (ii) Secondly, under the approved scheme of amalgamation, the transferee has assumed the liabilities of the transferor company, including tax liabilities; (iii) Thirdly, the consequence of the scheme of amalgamation approved under Section 394 of the Companies Act 1956 is that the amalgamating company ceased to exist. In Saraswati Industrial Syndicate Ltd., (supra) the principle has been formulated by this Court in the following observations: "5. Generally, where only one company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganisation of scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or 'amalgamation' has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders 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 volume 7 para 1539). Two companies may join to form a new company, but there may be absorption or blending 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." (iv) Fourthly, upon the amalgamating company ceasing to exist, it cannot be regarded as a person under Section 2(31) of the Act 1961 against whom assessment proceedings can be initiated or an order of assessment passed; (v) Fifthly, a notice under Section 143 (2) was issued on 26 September 2013 to the amalgamating company, SPIL, which was followed by a notice to it under Section 142(1); (vi) Sixthly, prior to the date on which the jurisdictional notice under Section 143 (2) was issued, the scheme of amalgamation had been approved on 29 January 2013 by the High Court of Delhi under the Companies Act 1956 with effect from 1 April 2012; (vii) Seventhly, the assessing officer assumed jurisdiction to make an assessment in pursuance of the notice under Section 143 (2). The notice was issued in the name of the amalgamating company in spite of the fact that on 2 April 2013, the amalgamated company MSIL had addressed a communication to the assessing officer intimating the fact of amalgamation. In the above conspectus of the facts, the initiation of assessment proceedings against an entity which had ceased to exist was void ab initio.

In Spice Entertainment, (supra) a Division Bench of the Delhi High Court dealt with the question as to whether an assessment in the name of a company which has been amalgamated and has been dissolved is null and void or, whether the framing of an assessment in the name of such company is merely a procedural defect which can be cured. The High Court held that upon a notice under Section 143 (2) being addressed, the amalgamated company had brought the fact of the amalgamation to the notice of the assessing officer. Despite this, the assessing officer did not substitute the name of the amalgamated company and proceeded to make an assessment in the name of a non-existent company which renders it void. This, in the view of the High Court, was not merely a procedural defect. Moreover, the participation by the amalgamated company would have no effect since there could be no estoppel against law : "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 an 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 could be cured by invoking the provisions of Section 292B of the Act."

In Dimension Apparels, (supra) a Division Bench of the Delhi High Court affirmed the quashing of an assessment order dated 31 December 2010. The Respondent had amalgamated with another company and thus, ceased to exist from 7 December 2009. The Court rejected the argument of the Revenue that the assessment was in substance and effect in conformity with the Act by reason of the fact that the assessing officer had used correct nomenclature in addressing the Assessee; stated the fact that the company had amalgamated and mentioned the correct address of the amalgamated company. It was the Revenue's contention that the omission on the part of the assessing officer to mention the name of the amalgamated company is a procedural defect. The Delhi High Court rejected this contention. In doing so, it relied on the holding in Spice Entertainment, (supra) where the High Court expressly clarified that "the framing of assessment against a non-existing entity/person" is a jurisdictional defect. The Division Bench also relied on the holding in Spice Entertainment (supra) that participation by the amalgamated company in proceedings does not cure the defect as "there can be no estoppel in law", to affirm the quashing of the assessment order.

In Micron Steels, (supra) a notice was issued to Micron Steels Pvt Ltd (original assessee) after it had amalgamated with Lakhanpal Infrastructure Pvt Ltd. A Division Bench of the Delhi High Court upheld the setting aside of assessment orders, noting that Spice Entertainment (supra) is an authority for the proposition that completion of assessment in respect of a non-existent company due to the amalgamation order, would render the assessment a nullity. 23. In Micra India, (supra) the original assessee Micra India Pvt. Ltd had amalgamated with Dynamic Buildmart (P) Ltd. Notice was issued to the original assessee by the Revenue after the fact of amalgamation had been communicated to it. The Court noted that though the assessee had participated in the assessment, the original assessee was no longer in existence and the assessment officer did not the take the remedial measure of transposing the transferee as the company which had to be assessed. Instead, the original assessee was described as one in existence and the order mentioned the transferee's name below that of the original assessee. The Division Bench adverted to the judgment in Dimension Apparels (supra) wherein the High 14 - Court had discussed the ruling in Spice Entertainment (supra). It was held that this was a case where the assessment was contrary to law, having been completed against a non-existent company.”

Hon’ble Supreme Court thereafter took note of the judgment in the case of Sky Light Hospitality Vs. ACIT, 259 taxman 390 (SC). This judgment was pressed in service by the Revenue to point out that if an order was framed in accordance with law in the name of amalgamating company, then it would amount to mistake, defect or omission which is curable under section 292BB of the Income Tax Act. Hon’ble Supreme Court has dealt with this judgment and explained its impact. Hon’ble Supreme Court ultimately upheld the judgment of Hon’ble Delhi High Court in the case of Maruti Suzuki (supra) and held that assessment order passed subsequently in the name of non-existing company would be without jurisdiction and a nullity. Concluding paragraph of the judgment are worth to note. They read as under: “33. In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. This position now holds the field in view of the judgment of a co-ordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Enfotainment (supra) on 2 November 2017. The decision in Spice Enfotainment has been followed in the case of the respondent while dismissing the Special Leave Petition for AY 2011-2012. In doing so, this Court has relied on the decision in Spice Enfotainment (supra).

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, 15 - uniformity and certainty. To detract from those principles is neither expedient nor desirable.”

In the case of Emerald Company Ltd., ITAT Kolkatta Bench has also dealt with similar situation as we are confronted with. ITAT, Kolkatta Bench has also made reference to the above judgment of the Hon’ble Delhi High Court in the case of CIT Vs. Dimension Apparels P.Ltd., 370 ITR 288 (Del) as well as decision of Hon’ble Delhi High Court in the case of Spice Entertainment Ltd.. The ITAT has also made reference to the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Intel Technology Ltd. P.Ltd., 380 ITR 272 (Kar.). The Tribunal has held that action under section 263 is a jurisdictional action against an assessee. In the case of a company, the ld.Commissioner was required to issue a show cause notice against a juridical person contemplated in section 2(31) of the Income Tax Act and if a juridical person ceases to exist then it would not be construed as a person within the meaning of section 2(31) against whom any action can be taken. The Commissioner would not assume proper jurisdiction and such type of defect would not be cured with help of section 292BB of the Act, because it is not a procedural irregularity which could be cured.

Now, let us take note of submissions made by the ld.CIT-DR. The first proposition canvassed by the ld.CIT-DR is that the judgment of Hon’ble Supreme Court is applicable on the case where assessment orders were passed against the dead persons or non-existent entity. This is not applicable on the proceedings under section 263 undertaken by the Commissioner. We have taken cognizance of the section 263. By exercising power under section 263, the ld.Commissioner sought to set aside the assessment order. In exercising such power, he can himself 16 - pass an order determining taxable income of the assessee. He can enhance income or he can cancel the assessment order with a direction to pass fresh assessment order. Thus, it is not mere continuation of original proceedings. It is a proceeding which is assumed for determining/ recomputation of income of an assessee. Hence unless a valid jurisdiction is being assumed by the Commissioner, he cannot redo an act done by subordinate authorities. His direction would give fresh dimension to the determination of income of an assessee. Therefore, the power exercised by the Commissioner is an original jurisdiction akin to assessing officer for the purpose of determining taxable income of the assessee. The correct procedure for the ld.Commissioner for taking cognizance under section 263 would be to initiate such proceedings against Gallops and not SAPL. Even otherwise, it is pertinent to note that the assessment order was passed against SAPL on 31.3.2015 and on that date this company was not in existence because under the first amalgamation scheme, it merged with Jainco w.e.f. 1-4-2013; though this fact is not very relevant for the purpose of dealing with the controversy in hand. Before us, the fact is that w.e.f. 20.1.2016, even Jainco merged with Gallop and the Gallop is the only surviving party. All proceedings which were to be initiated afresh could only be initiated against the Gallop. The fact of amalgamation has been brought to the notice of the AO, and he recognized this fact in the assessment order also.

The ld.counsel for the assessee while taking us through impugned submitted that one of the facts could be brought against the assessee was that in the show cause notice issued under section 263 in the subject, the ld.Commissioner has put the heading as under: