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Before: Shri V. Durga Rao & Shri G. Manjunatha
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax-1, Coimbatore dated 27.03.2018 relevant to the assessment year 2012-13 passed under section 263 of the Income Tax Act, 1961 [“Act” in short].
Brief facts of the case are that the assessee M/s. IRIS Engineering Industries Pvt. Ltd., has not filed any return of income for 2 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ the assessment year 2012-13 within the period allowed under section 139(1) or under section 139(4) of the Act. Based on specific information, a survey under section 133A of the Act was conducted in the business premise of the assessee. During the course of survey proceedings and materials impounded, it transpired that the assessee had sold it immovable property M/s. Lakshmi Machine Works Ltd. for a total consideration of ₹.8.52 crores. Based on the findings of the survey and the materials unearthed during the proceedings, notice under section 148 of the Act was issued since there was reason to believe that the income chargeable to tax had escaped assessment within the meaning of provisions of section 147 of the Act. In response to the notice issued by the Assessing Officer under section 148 of the Act on 20.01.2015, the assessee filed its return of income on 29.10.2015 admitting total income of ₹.91,42,410/- M/s. IRIS Engineering Industries Pvt. Ltd. Subsequently, notice under section 143(2) of the Act was issued on 12.11.2015 and in response thereto, Shri S. Prabhu, FCA appeared and submitted the details called for. In response to that, the assessee filed a letter dated 14.03.2016 before the Assessing Officer wherein, it has been stated that M/s. IRIS Engineering Industries Pvt. Ltd. merged with M/s. Ravilla Aerospace Industries P.
3 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ Ltd. Power of attorney filed by Shri S. Prabhu, FCA on 23.03.2016 subsequent to the above letter representing M/s. IRIS Engineering 2.1 In the assessment order, the Assessing Officer has noted that during the course of survey proceedings, statement on oath was recorded from Shri Arun Selvaraj, Managing Director of the assessee company. In this regard, the Managing Director of the company deposed to Q. No. 4 as under:
“The company M/s. Iris Engineering Industries P. Ltd. has sold 2.84 acres of land along with built up area of 12,662 sq. feet of ACC roofed building to the extent of ₹.8,52,00,000/- (Rupees Eight Crores Fifty Two Lacs only) during the financial year 2011-12 to M/s. Lakshmi Machine Works Ltd. The share application money was contributed or the sale consideration receipts.”
After considering the above explanation, the Assessing Officer has noted that the assessee has received the sale consideration of ₹.8.52 crores from M/s. Lakshmi Machine Works Ltd. out of which an amount of ₹.2 crores was already accounted in the books of Ravilla Aerospace towards land advance. The long term capital gain arising out of sale of 2.84 acres of land was worked out by the assessee as under:
4 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/
: ₹. Sale consideration 8,52,00,000 : ₹. Less: Indexed cost of acquisition 1,07,506 : ₹. Long term capital gain 8,50,92,494 : ₹. Less: Exemption u/s 54G 7,52,00,000 [Investment in land] : ₹. Balance LTCG 98,92,494 2.2 Before the Assessing Officer, in support of the claim of exemption under section 54G of the Act, the assessee has submitted copy of the agreement of sale between the assessee company and Ravilla Aerospace and submitted as under:
“during the year 2012-13 we had purchased land from our parent company M/s Ravilla Aerospace Industries P Ltd. We had entered into a sale agreement with them and paid the consideration in full and had taken the legal and physical possession of the land. We have not registered the land due to the following reasons, a. Since we were a subsidiary company of M/s. Ravilla Aerospace Industries P Ltd, there is a notification in the Tamil Nadu Stamp Act notification dated June 17, 1964. Item 38, which gives exemption from stamp duty on the transfer of properties between holding and subsidiary companies with the transferor company holding 905 shares in the transferee company. In our case also Ravilla Aerospace is holding more 90% of shares in Iris Engineering but this claim was denied by the Registrar office since many litigations were pending in this matter already. Therefore we decided to wait till the final outcome of these cases to be known and then go ahead with the registration process. b. Further both the companies were facing severe cash loss situations and did not have enough funds for registration of the properties, c. Further the registration of the agreement was not compulsory at the point of time in Tamilnadu. d. Further both the companies were having the plans of getting merged into one single company and therefore did not want to spend unnecessarily on the stamp duty expenses. Both the companies have since then merged and have become one single company.”
5 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ 2.3 After considering the above explanation of the assessee and by observing that since the assessee company and the Ravilla Aerospace Industries P. Ltd. have merged subsequently and also the fact that the assessee has admitted sale consideration on the land sold to M/s.
Lakshmi Machine Works Ltd., after examining the details filed, the Assessing Officer has accepted the income returned and completed the assessment under section 147 r.w.s. 143(3) of the Act dated 24.03.2016.
Subsequently, the ld. PCIT issued notice under section 263 of the Act dated 30.01.2018 that the assessment order passed by the Assessing Officer dated 24.03.2016 is erroneous and prejudicial to the interest of Revenue and has to be recalled. In response to the notice issued by the ld. PCIT dated 30.01.2018, the assessee M/s. IRIS Engineering Industries Pvt. Ltd. filed a reply dated 26.02.2018 by submitting that the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. After considering the explanation of the assessee and also by considering the assessment order, the ld. PCIT passed revision order under section 263 of the Act dated 27.03.2018 directing the Assessing Officer to examine the claim of section 54G of the Act afresh after giving due
6 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ opportunity and also examine in whose hands the order needs to be passed now after thoroughly verifying the compliance to the scheme of amalgamation in all aspects as per the scheme and pass orders as per law keeping in view of the provisions section 115JB of the Act also.
On being aggrieved, the assessee is in appeal before the Tribunal and raised the following grounds of appeal:
“(1) The learned Principal Commissioner of Income Tax-1 (i/c), Coimbatore, did not have jurisdiction u/s 263 of the I.T. Act, 1961, to proceed against a non-existing entity, as a result of the order of the Hon'ble High Court of Judicature at Madras, approving its merger with another Company, as acknowledged by him in paragraph 4.3 of the impugned order, and therefore, the same is void ab initio, in the facts and the circumstances of the case and in law.
(2) The learned PCIT, has grossly erred in law and on facts, in rejecting the objections of the appellant, in response to his show cause notice u/ s 263 of the I.T. Act, 1961, from time to time, submitted, with his closed mind, contrary to law.
(3) The impugned order of the PCIT', u/s 263 of the I.T. Act, 1961, is ab initio void and deserves to be quashed, in its entirety, both in law and on facts and the circumstances of the case.
(4) For these and other additional grounds of appeal, as may be adduced at the time of the hearing of the appeal, the impugned order u/s 263 of the I.T. Act, 1961, dated 27.03.2018, setting aside the assessment, giving directions, as recorded, at paragraph 6.3 by the Principal Commissioner of Income Tax- 1(i/c), Coimbatore, is unsustainable in law and in the facts and the circumstances of the case.”
The ld. Counsel for the assessee has submitted that the assessment order passed by the Assessing Officer dated 24.03.2016 for a non existing entity in view of the assessee company
7 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ amalgamated with M/s. Ravilla Aerospace Industries P. Ltd. w.e.f.
01.04.2015 and thus the assessment order passed by the Assessing Officer is void ab initio and consequent to the assessment order, the revision order passed under section 263 of the Act is also ab initio void and not valid.
On the other hand, the ld. DR has submitted that the assessee has not filed any return of income and there was a survey under section 133A of the Act and also it was found that there is escapement of income based on the seized materials. Therefore, notice under section 148 of the Act have been issued in the name of M/s. IRIS Engineering Industries Pvt. Ltd. dated 20.01.2015. In response to the notice, the assessee company filed its return of income on 29.10.2015 admitting total income of ₹.91,42,410/- in the name of M/s.
IRIS Engineering Industries Pvt. Ltd. only. Subsequently, based on the reply given by the assessee, the Assessing Officer issued notice under section 143(2) of the Act dated 12.11.2015 in the name of M/s.
IRIS Engineering Industries Pvt. Ltd. and in response thereto, Shri S. Prabhu, FCA filed his vakalath representing M/s. IRIS Engineering Industries Pvt. Ltd. only. The assessee filed a letter before the 8 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ Assessing Officer in respect of the claim of exemption under section 54G of the Act by letter dated 09.08.2017 by referring the name of the assessee M/s. IRIS Engineering Industries Pvt. Ltd. only. Therefore, there was never submitted before the Assessing Officer that the assessee company is merged with another company namely Ravilla Aerospace Industries Pvt. Ltd. Therefore, the Assessing Officer passed the assessment order in the name of M/s. IRIS Engineering Industries Pvt. Ltd., which was subsequently correctly subjected to the revision order under section 263 of the Act.
6.1 The ld. DR further submitted that the assessee filed a letter dated 14.03.2016 in respect of exemption under section 54G of the Act in para d, it was stated that the assessee company and M/s. Ravilla Aerospace Industries Pvt. Ltd. were having the plans of getting merged into one single company and therefore did not want to spend unnecessarily on the stamp duty expenses. Both the companies have since then merged and have become one single company. This is the submissions of the assessee before the Assessing Officer and no order of the merger was placed before the Assessing Officer to take note that the assessee company has been merged with another company. He further submitted that the assessee itself has submitted
9 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ that there is a plan to merge into one company. Based on the above submissions in “para (d)” that both the companies have since then merged and have become one single company and also the fact that the assessee has admitted sale consideration on the land sold to M/s.
Lakshmi Machine Works Ltd. and after examining the details filed, the income returned was accepted and assessment was completed. It was further submission that the above findings of the Assessing Officer was only based on the submissions made by the assessee during the course of assessment proceedings. Therefore, there is no concrete evidence placed before the Assessing Officer before passing the assessment order dated 24.03.2016 that the assessee company had merged with M/s. Ravilla Aerospace Industries Pvt. Ltd. 6.2 The ld. DR further submitted that the effective date of merger shall be the date on which the certified copies of the order of the Hon’ble High Court sanctioning this Scheme are filed with the Registrar of Companies, Tamil Nadu, Coimbatore by the Transferor Company and Transferee Company. When this certified copies of the Hon’ble High Court sanctioning the scheme are filed before the Registrar of Companies are not filed before the Assessing Officer nor submitted in this regard and therefore, the Assessing Officer was unaware the fact
10 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ that from which dates onwards, the assessee company is amalgamated with M/s. Ravilla Aerospace Industries Pvt. Ltd. Therefore, the Assessing Officer has rightly passed the assessment order in the name of the assessee company M/s. IRIS Engineering
In reply, the ld. Counsel for the assessee has submitted that in para 4 of the assessment order, the Assessing Officer has categorically noted that the assessee and M/s. Ravilla Aerospace Industries Pvt. Ltd. have merged subsequently. Therefore, the Assessing Officer is aware that the assessee company has merged with M/s. Ravilla Aerospace Industries Pvt. Ltd. Therefore, passing the assessment order in the name of non-existing company is void ab initio.
We have heard both the sides, perused the materials available on record and gone through the assessment order as well as revision order passed under section 263 of the Act. In this case, the assessee has not filed any return of income for the assessment year 2012-13 under section 139(1) or under section 139(4) of the Act. A survey under section 133A of the Act was conducted in the business premise
11 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ of the assessee company and during the course of survey proceedings, the survey team has seized and impounded certain materials and it transpired that the assessee company had sold its immoveable property to M/s. Lakshmi Machine Works Ltd. for a total consideration of ₹.8.52 crores. Based on the findings of the survey and the materials unearthed during the proceedings, the Assessing Officer has came to a conclusion that there is escapement of income chargeable to tax and therefore, notice under section 148 of the Act was issued to the assessee on 20.01.2015. It is in the name of M/s.
IRIS Engineering Industries Pvt. Ltd. In response to the above notice, the assessee company filed its return of income on 29.10.2015 admitting total income of ₹.91,42,410/- in the name of M/s. IRIS Engineering Industries Pvt. Ltd. Subsequently, the Assessing Officer has issued notice under section 143(2) of the Act on 12.11.2015 in the name of M/s. IRIS Engineering Industries Pvt. Ltd. and in response to the notice, Shri S. Prabhu, FCA appeared and filed Power of Attorney, which shows that he represent M/s. IRIS Engineering Industries Pvt. Ltd. Subsequently, the Assessing Officer has examined the case of the assessee and claim made by the assessee under section 54G of the Act was considered. The assessee further
12 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ explained the claim made under section 54G of the Act in the name of M/s. IRIS Engineering Industries Pvt. Ltd. vide letter dated 14.03.2016. In its letter it was submitted that the assessee company is planning to merge with M/s. Ravilla Aerospace Industries P. Ltd. However, the assessee has not given any date of merger and any further details. Based on its submission, the Assessing Officer in para 4 of the assessment order noted that the assessee company is merged with M/s. Ravilla Aerospace Industries P. Ltd. subsequently. The Assessing Officer has not mentioned any date of merger in his order for the reason that the Assessing Officer has considered the submissions of the assessee that the assessee company is planning to merge with another company. The same is considered and the claim of exemption under section 54G of the Act in the name of M/s. IRIS
The Hon’ble Madras High Court has passed the sanction of amalgamation between M/s. IRIS Engineering Industries Pvt. Ltd. and M/s. Ravilla Aerospace Industries P. Ltd. by order dated 10.03.2016. The Hon’ble High Court has already mentioned that appointed date is from 01.04.2015. It is crucial to note here that the Hon’ble High Court has clearly mentioned that effective date means,
13 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ the date on which the scheme shall become effective, which shall be date or the last of the dates on which certified copies of the Order of the Hon’ble High Court sanctioning this Scheme are filed with Registrar of Companies, Tamil Nadu, Coimbatore by the Transferor Company and Transferee Company. The assessee has not filed any details in respect of effective date i.e., when the transferor Company and Transferee Company have filed certified copies of order the Hon’ble High Court in respect of sanctioning the scheme before the Registrar of Companies, Tamil Nadu Coimbatore. No such details were placed before the Assessing Officer before completing the assessment order under section 143(3) r.w.s. 147 of the Act dated 24.03.2016.
In reply to the question raised during the course of assessment proceedings, the ld. AR of the assessee has filed a letter dated 23.03.2016 by referring the assessee’s name as M/s. IRIS Engineering Industries Pvt. Ltd. and submitted that our company sold land which is in urban area. Further, the assessee has filed one more letter on 09.08.2017 in respect of reply to audit query with reference to the assessment order dated 24.03.2016 for the assessment year 2012-13, wherein it is mentioned the assessee as M/s. IRIS Engineering Industries Pvt. Ltd.
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From the above, it is very clear that the assessee is represented before the Assessing Officer before completing the assessment order on 24.03.2016 only as M/s. IRIS Engineering Industries Pvt. Ltd., except in one occasion, it was submitted before the Assessing Officer that the assessee is having plan to merge with M/s. Ravilla Aerospace Industries P. Ltd. through its letter dated 14.03.2016, however, in that letter, no such details were filed, viz., what is the date of order of sanction of amalgamation by the Hon’ble High Court, what is the appointed date, what is the effective date and date on which the certified copies of the order of the Hon’ble High Court sanctioning the scheme of amalgamation and filing with Registrar of Companies from that date onwards this judgement of Hon’ble High Court is effective.
Therefore, in our opinion, the Assessing Officer has rightly passed the assessment order dated 24.03.2016 in the name of M/s. IRIS Engineering Industries Pvt. Ltd. though the Hon’ble Madras High Court has passed the amalgamation order on 10.03.2016.
So far as argument of the ld. Counsel for the assessee that the Assessing Officer was aware of the merger is not correct. Merger means and include that the date on which the Hon’ble High Court passed the order, appointed date as well as effective date, etc. are not 15 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ mentioned in its letter dated 14.03.2016. Simply filing a letter before the Assessing Officer that the company is merged without giving the above details, it cannot be said that the Assessing Officer is aware of the merger in true sense and spirit. Therefore, the argument of the ld. Counsel is rejected.
So far as case law relied upon is concerned, decision of the Hon’ble Supreme Court in the case of PCIT v. Maruti Suzuki India Ltd. [2019] 107 taxmann.com 375 (SC), the Hon’ble Supreme Court has held that 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 assessee in the circumstances cannot operate as estoppels against law. This position now holds the filed in view of the judgement of a coordinate Bench of two Ld. judges which dismissed the appeal of the Revenue in CIT v. Spice Enfotainment in Civil Appeal No. 285 of 2014, dated 02.11.2017. The decision in Spice Enfotainment Ltd. (supra) has been followed in the 16 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ case of the respondent while dismissing the Special Leave Petition for the assessment year 2011-12. In doing so, this Court has relied on the decision in Spice Enfotainment (supra).
However, in the present case, the Assessing Officer has issued a notice under section 143(2) of the Act i.e., jurisdictional notice on 20.01.2015 in the name of the assessee M/s. IRIS Engineering Industries Pvt. Ltd. The order of Hon’ble High Court sanctioning the scheme of amalgamation is dated 10.03.2016. In reply to the notice under section 143(2) of the Act, the ld. AR Shri S. Prabhu, CA appeared and filed Power of Attorney in respect of M/s. IRIS Engineering Industries Pvt. Ltd. In the order of the Hon’ble High Court by order dated 10.03.2016, it was mentioned the appointed date of 01.04.2015 and the effective date shall be the date on which the scheme shall become effective, which shall be date or the last of the dates on which certified copies of the order of the Hon’ble High Court sanctioning this Scheme are filed with the Registrar of Companies, Tamil Nadu, Coimbatore by the Transferor Company and Transferee Company and these details were not informed to the Assessing Officer during the course of assessment proceedings. Therefore, fact of this 17 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ case is entirely different from the facts in the case of PCIT v. Maruti Suzuki India Ltd. (supra.)
That apart, from the beginning, i.e., 148 notice dated 20.01.2015 issued in the name of M/s. IRIS Engineering Industries Pvt. Ltd., the return of income for the assessment year 2012-13 was filed on 29.10.2015 in the name of M/s. IRIS Engineering Industries Pvt. Ltd.; notice under section 143(2) of the Act was issued to the assessee in the name of M/s. IRIS Engineering Industries Pvt. Ltd., vakalath filed by the assessee in the name of M/s. IRIS Engineering Industries Pvt. Ltd. Moreover, returns of income for the assessment years 2011-12 dated 21.11.2015, 2013-14 & 2014-15 dated 31.03.2015, 2015-16 dated 28.09.2015 were all filed in the name of the assessee M/s. IRIS Engineering Industries Pvt. Ltd. All the above facts clearly show that the assessee has represented before the Income Tax Authorities by showing the assessee’s name as M/s. IRIS Engineering Industries Pvt. Ltd. The fact of amalgamation, appointed date, effective date, etc. were not submitted before the authorities below, particularly, before the Assessing Officer while doing scrutiny assessments. Under the above facts and circumstances of the case, we are of the opinion that the 18 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ Assessing Officer has correctly passed the assessment order in the name of the assessee M/s. IRIS Engineering Industries Pvt. Ltd.
So far as case law relied on by the assessee in the case of Aishwarya Rai Bachchan v. PCIT [2022] 135 taxmann.com 335, wherein, the Tribunal has held that when the assessment framed by the Assessing Officer is unsustainable in the eyes of law, the said invalid and illegal order cannot be subject matter of section 263 proceedings and deserves to be quashed. This case law has no application to the facts of the present case for the reason that in the present case, the assessment order is a valid assessment order. The Assessing Officer after issuing correct jurisdictional notice to the assessee and by considering the reply of the assessee, he has passed the assessment order. Therefore, the assessment order is a valid assessment order.
In the case of Tidewater Marine International Inc. V. DCIT (2005)
97 TTJ 137 (Del), the Delhi Benches of the Tribunal has held that the penalty under section 271(1)(c) of the Act could not be sustained where the assessment proceedings in the case of the assessee was without jurisdiction on account of the fact that notice under section 148
19 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ of the Act was issued on assessee treating it was agent of non-resident beyond the period prescribed in section 149(3) of the Act. Since the facts are entirely different, the case law relied on by the assessee has no application to the facts of the present case.
The assessee also relied on the decision of the Hyderabad Benches of the Tribunal in the case of N.S. Kalyana Chakravarthy, Hyderabad v. DCIT in I.T. (S.S.) A. No. 68/Hyd/2002 dated 18.05.2007, wherein, the ground raised by the assessee relates to levy of penalty under section 159BFA(2) of the Act, which has no application to the facts of the present case.
Recently, in the case of PCIT v. Mahagun Realtors (P) Ltd. in Civil Appeal No. 2716 of 2022 [arising out of Special Leave Petition (C)
No. 4063 of 2020], the Hon’ble Supreme Court has considered similar issue and held that whether corporate death of an entity upon amalgamation per se invalidates an assessment order ordinarily cannot be determined on a bare application of Section 481 of the Companies Act, 1956 (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case.
In the present case, the assessee has filed a letter dated 14.03.2016,
20 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ wherein, in “para (d)” states that the assessee and another company having the plan of merging into single company. Therefore, the assessee was not sure that they getting merger with another company.
The order passed by the Hon’ble Madras High Court is dated 10.03.2016 and the letter filed by the assessee is dated 14.03.2016.
The assessee knows very well that the Hon’ble Madras High Court has already accepted the petition filed by the assessee for merger and inspite of that in its letter dated 14.03.2016 it is stated that “planning to merger”. Therefore, the assessee has not stated correct facts before the Assessing Officer.
Keeping in view of the facts and circumstances of the case, we are of the opinion that the Assessing Officer has correctly passed the assessment order and the assessment order is valid. Therefore, the ld. PCIT has exercised jurisdiction and passed the revision order under section 263 of the Act dated 27.03.2018 by setting aside the assessment order dated 24.03.2016 and directing to the Assessing Officer to examine the claim of section 54G of the Act afresh is a valid order and therefore, the order passed by the ld. PCIT cannot be said that it is an invalid on the ground that the ld. PCIT exercised power under section 263 of the Act to an invalid assessment order.
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The ld. Counsel for the assessee has raised an alternative ground that the notice issued by the ld. PCIT dated 30.01.2018 as invalid notice because he has not satisfied that for what purpose a notice is issued by the ld. PCIT and therefore, the order passed under section 263 of the Act has to be quashed.
On the other hand, the ld. DR has submitted that the notice issued by the ld. PCIT dated 30.01.2018 is a valid notice and the ld. PCIT has recorded satisfaction in the notice itself as the Assessing Officer has not examined the claim of deduction under section 54G of the Act and simply accepted and the Assessing Officer has incorrectly allowed the claim of exemption under section 54G of the Act.
We have heard both the sides and perused the records. In so far as the ld. Counsel’s primary objection that the notice issued by the ld. PCIT is invalid, we have gone through the notice and find that the ld. PCIT has satisfied that the Assessing Officer has not examined the claim of the assessee under section 54G of the Act and allowed the same incorrectly. The ld. PCIT has also recorded that the assessee has received a sale consideration of ₹.8.52 crores from M/s. Lakshmi Machine Works Ltd. and subsequently, entered into sale agreement
22 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ with M/s. Ravilla Precision Industrial Engineering Pvt. Ltd for the purchase of another land in the rural area at a cost of ₹.7.52 crores is erroneous and prejudicial to the interest of Revenue. We find that the ld. PCIT has fully satisfied that the assessment order passed by the Assessing Officer prima facie is erroneous and prejudicial to the interest of Revenue. We also find that at the time of issue of notice, the ld. PCIT has to examine the facts of the case and came to a conclusion that whether the Assessing Officer has made proper enquiry in respect of the claim made by the assessee or not and the same is erroneous or prejudicial to the interest of Revenue. In the present case, the ld. PCIT has examined the facts of the case and came to a conclusion that the Assessing Officer has not made proper enquiry and incorrectly accepted the claim made under section 54G of the Act.
In so far as merits of the case is concerned, the assessee, M/s.
IRIS Engineering Industries Pvt. Ltd. has sold its immovable property to M/s. Lakshmi Machine Works Ltd. for a consideration of ₹.8.52 crores and the same was not disclosed in the return of income.
Based on the material impounded during the course of survey under section 133A of the Act, the case was reopened under section 147 of 23 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ the Act by issuing a notice under section 148 of the Act on the ground that there is an escapement of income chargeable to tax in respect of land sold by the assessee to M/s. Lakshmi Machine Works Ltd. During the course of assessment proceedings, when the Assessing Officer has asked in respect of land sold by the assessee to M/s. Lakshmi Machine Works Ltd., the assessee has submitted before the Assessing Officer that the assessee company has received a sale consideration of ₹.8.52 crores from M/s. Lakshmi Machine Works Ltd., out of which, an amount of ₹.2 crores was accounted in the books of Ravilla Aerospace Industries P. Ltd towards land advance. The Long term capital gain arising out sale of 2.84 acres of land was worked out as under: : ₹. Sale consideration 8,52,00,000 : ₹. Less: Indexed cost of acquisition 1,07,506 : ₹. Long term capital gain 8,50,92,494 : ₹. Less: Exemption u/s 54G 7,52,00,000 [Investment in land] : ₹. Balance LTCG 98,92,494 The assessee also filed a letter dated 14.03.2016 before the Assessing Officer explaining ion support of claim of deduction under section 54G of the Act, which is reproduced as under:
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Dated 14.03.2016 From Iris Engineering Industries Private Limited, (now merged with Ravilla Aerospace Industries Private Limited) No. 48, Aerodrome Road, Singanallur Post, Coimbatore 45. To, The DCIT, Corporate CIR -II, Income Tax Office, Coimbatore. Dear Sir, Sub: Reply to query raised by your office in course of Scrutiny Assessment for the A.Y. 2012-13 – reg. With reference to the above said subject, we would like to submit to you that during the year 2012-13 we had purchased land from our parent company M/s. Ravilla Aerospace Industries Private Limited. We had entered into a sale agreement with them and paid the consideration in full and had taken the legal and physical possession of the land. We have not registered the land due to the following reasons, a. Since we were a subsidiary company of M/s. Ravilla Aerospace Industries P. Ltd. there is a notification in the Tamil Nadu Stamp Act notification dated June 17, 1964. Item 38, which gives exemption from stamp duty on the transfer of properties between holding and subsidiary companies with the transferor company holding 90% shares in the transferee company. In our case also Ravilla Aerospace is holding more than 90% of shares in Iris Engineering but this claim was denied by the Registrar office since many litigations were pending in this matter already. Therefore, we decided to wait till the final outcome of these cases to be known and then go ahead with the registration process. b. Further both the companies were facing severe cash loss situations and did not have enough funds for registration of the properties. c. Further the registration of the agreement was not compulsory at that point of time in Tamil Nadu. d. Further both the companies were having the plans of getting merged into one single company and therefore did not want to spend unnecessarily on the stamp duty expenses. Both the companies have since then merged and have become one single company. Due to all these reasons only the agreement was not registered. Kindly take note of the above and do the needful.”
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From the above letter, the assessee has mentioned that M/s.
IRIS Engineering Industries Pvt. Ltd. is now merged with M/s. Ravilla Aerospace Industries P. Ltd. In the same letter at para “d”, it was mentioned “Further both the companies were having the plans of getting merged into one single company and therefore did not want to spend unnecessarily on the stamp duty expenses”. Again, in the same para, it was mentioned that “Both the companies have since then merged and have become one single company”.
In this case, when the assessee has made a claim of exemption under section 54G of the Act, the Assessing Officer is required to examine as to whether the assessee is eligible for exemption under section 54 of the Act or not. The Assessing Officer without examining simply allowed the claim of the assessee. Moreover, the Assessing Officer has not made any enquiry in respect of amalgamation between the assessee and M/s. Ravilla Aerospace Industries P. Ltd. and accepted the claim of exemption under section 54G of the Act. In this case, particularly, the Assessing Officer knowingly very well that the case is reopened for the purpose of escapement of income chargeable to tax in respect of sale of immoveable property, without making any enquiry the assessment order was passed by accepting whatever
26 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ stated by the assessee in its letter. He also accepted the claim of deduction under section 54G of the Act without making any enquiry.
The Assessing Officer is ought to have been made enquiry in respect of exemption claimed under section 54G of the Act as per conditions laid down in the Act. The Assessing Officer has not made any enquiry and therefore, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. The ld. PCIT has passed a detailed order under section 263 of the Act, wherein, the assessee has replied itself by letter dated 23.03.2016 that the assessee company itself closed its business long back and no business is carrying as on the date of claim under section 54G of the Act. It is only having land and old building and old machineries. This being the position, the Assessing Officer without making any enquiry, simply accepted the claim of exemption under section 54G of the Act by accepting copy of agreement for sale between the assessee and M/s. Ravilla Aerospace Industries P. Ltd. is erroneous and prejudicial to the interest of Revenue. The ld. PCIT has discussed in detail in his revision order under section 263 of the Act by considering all the facts and pointed out that the assessee is not eligible to claiming exemption under section 54G of the Act, where, without making any detailed enquiry, the 27 I.T.A. I.T.A. No. I.T.A. I.T.A. No. No. 1837 No. 1837 1837/Chny/ 1837 /Chny/ /Chny/18 /Chny/ Assessing Officer has allowed the same. We find that the order passed by the ld. PCIT under section 263 of the Act is in accordance with law and hence, no interference is warranted.
In the result, the appeal filed by the assessee is dismissed. Order pronounced on 13th May, 2022 at Chennai.