ACIT, CENTRAL CIRCLE-13, NEW DELHI vs. PRIDE RESIDENCY (P)LTD.(IN THE CASE OF M/S SATKAR FINCAP LTD.), NEW DELHI

ORDER PER O.P. KANT, AM:

This appeal has been filed by the Revenue against order dated 27/02/2017, passed by the Learned CIT(Appeals)-25, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2008-09 raising following grounds:

• On the facts and circumstances of the case, the Ld. CIT(A) is erred in quashing the order which was correctly made in the name of M/s. Pride Residency Private Limited being the amalgamated company. • On the facts and circumstances of the case, the Ld. CIT(A) is erred in holding that A.O. should assess the income of amalgamating company whereas the income of the searched company (amalgamating company) was correctly assessed in the hands of amalgamated company M/s. Pride Residency Private Limited. • The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.

2. The facts in brief of the case are that a search and seizure action under section 132 of the Income-tax Act, 1961 (in short ‘the Act’) was carried out at the premises of M/s. Satkar Fincap Private Limited on 07/08/2010 and assessment was completed under section 153A read with section 143(3) of the Act on 26/03/2013 at an income of ₹ 1,25,03,230/- by the Assistant Commissioner of Income-tax, Central Circle-13, New Delhi. The assessee filed appeal against the said order before the first appellate authority, which was subsequently withdrawn vide letter dated 20/11/2013 and accordingly dismissed by the learned First Appellate Authority as withdrawn. The assessee preferred Revision Application on 21/03/2014, under section 264 of the Act, before the Principal CIT, Central-2, New Delhi (DCIT), stating that the company, M/s Satkar Fincap P. Ltd. got amalgamated with M/s. Pride Residency Private Limited (i.e. the assessee), vide order dated 17/08/2012 of Hon’ble High Court of Delhi with effect from appointed date i.e. 01/04/2011, passed under section 391(2) and 394 of the Companies Act, 1956. The Ld. PCIT accordingly, through his order dated 30/03/2015, under section 264 of the Act, quashed the assessment made by the Assessing Officer, under section 153A of the Act. The Ld. PCIT stated that the ACIT, CC-13, New Delhi, i.e., the Assessing Officer who passed the order, had committed the error of passing order in the name of non-existing entity and directed the Assessing Officer to re-assess the income in the hands of the existing correct legal entity after giving proper opportunity of being heard to the assessee.

8.3 Pursuant to the Search in the Sanskar Group, assessment in the case of the Assessee was completed u/s 153A r.w.s 143(3) of the I.T. Act on 26.03.2013 at an income of Rs. 1,25,03,230/-. The Assessee filed appeal against the said order which was subsequently withdrawn vide its letter dated 20.11.2013. The CIT(A)-2, New Delhi vide order dated 08.01.2014 disposed the appeal by dismissing it. The Assessee preferred revision application u/s 264 of the I.T. Act for the above A.Y. before the CIT Central-2, New Delhi on 21.03.2014. The Pr. CIT Central-2, New Delhi vide his order dated 30.03.2015 passed order u/s 264 of the I.T. Act quashed the assessment made by the Assessing Officer u/s 153A on technical grounds. The Learned Pr. CIT stated that the only error which the A.O. had committed was that the Order has been passed in the name of a non-exiting Company and directed the A.O. to reassess the income in the hands of the existing correct legal entity after giving proper opportunity of being heard to the Assessee and after the examination & scrutiny of all the relevant material and verification including the submissions made by the Assessee.

8.4 Thereafter, the Assessing Officer passed the present Order and assessed the Income of the Assessee Company at Rs. 1,25,03,230/- .The Assessee is in appeal against the Assessment.

8.5 It is seen that the Assessing Officer has framed the assessment u/s 264/143(3) r.w.s. 153 A of the I.T. Act, 1961 in the name of “M/s Pride Residency (P) Ltd. (in the case of M/s Satkar Fincap Ltd.)”. The assessment Order has been framed in pursuance of the Order u/s 264 of the Principal CIT (Central)-2, New Delhi, dated 30.03.15, wherein the Assessing Officer was directed to “reassess the Income in the hands of the existing correct legal entity”.

8.6 It was vehemently argued by Sh. B. K. Dhingra, CA, the Learned Counsel of the Appellant Company that the Assessing Officer had failed to comply with directions of the Principal Commissioner, particularly that the assessment be made “in the hands of the existing correct legal entity”, and that the Assessing Officer neither gave Notice to the correct legal entity, nor the assessment was made in the hands of an “existing correct legal entity”. The Learned Counsel stated that the initiation of proceedings u/s 264/143(3) r.w.s. 153 A including issue of Notice and also completion of assessment on the Company which had already become nonexistent on account of its merger with another Company was illegal and bad in law and as such the assessment being bad in law deserved to be quashed.

8.7 The Learned Counsel filed extensive submissions on the various factual and legal Counsel stated that a similar issue had arisen in the case of M/s Satkar Fincap Ltd. (through Pride Residency Pvt. Ltd.) for A.Y. 09-10, where vide Order u/s 250(6) of the Income Tax Act, 1961 dated 14.07.16 in Appeal No. 60/2013- 14, the Learned Commissioner of Income Tax (Appeals)-39, New Delhi had quashed the Assessment Order. A copy of the Order dated 14.07.16 in Appeal No. 60/2013-14 was filed by the Appellant.

8.8 Perusal of the abovementioned Order u/s 250(6) of the Income Tax Act, 1961 dated 14.07.16 in Appeal No. 60/2013-14, by the Learned Commissioner of Income Tax (Appeals)-39, New Delhi shows that the Learned CIT (Appeals) had held that the impugned Order had been rendered void and had quashed the Assessment Order. The operative part of the Order dated 14.07.16 by the Learned CIT (Appeals)-39, in the case of M/s Satkar Fincap Ltd. (through Pride Residency Pvt. Ltd.) for A.Y. 09-10 is as under:

"From records it can be safely gathered that the following issues arise from the impugned order- > Validity of the order as assessment is on amalgamating company > Disallowance of purchases u/s 69C (addition in sales u/s 68 subsumed) > Disallowance of expenditure

5.1 From records, it is observed that pursuant to the search u/s 132 on 07.08.2010, the Assessment Order was passed vide the impugned Order u/s 143(3)/153A. The assessment for AY 2009-10 has been made in the name of the Appellant - of its Income for the previous year (FY2008-09) relevant to AY 2009-10. Also, the proceedings u/s 153A of the Act has been initiated on the Appellant vide Notice dated 17/09/2012. In spite of the Appellant informing the fact of its amalgamating with M/s. Pride Residency by its reply dated 02/11/2012 (and received on 09/11/2012), all that was done, as apparent from the relevant Assessment Record, was that the information was processed without realizing completely the impact of the information - the notice u/s 142(1) issued on 22/11/2012 addressed the Appellant as "M/s Satkar Fincap Limited Now known as M/s. Pride Residency (P) Ltd". Even the same address is mentioned in the impugned order u/s 143(3)/153A.

5.2 It is also observed from records that the order of amalgamation of the Appellant with M/s Pride Residency (P) Ltd ( w e f 1/04/2011) has been approved by the Hon'ble Delhi High Court which approved the 'Scheme of Amalgamation' vide its Order dated 17/08/2012 on the basis of the 'affidavit' and report dated 13/08/2012 of the 'Official Liquidator' filed before the Court. Further, it is seen that the amalgamation has been given effect to by the Registrar of Companies (RoC).

5.3 The arguments adduced by the AR of the Appellant at the appellate stage and the court judgements relied in this regard, especially at paras 4.2 and 4.2a above are borne out from records. Further, amalgamation has also been treated at par with succession pursuant to death. It is the amalgamated company in the former and the legal successor in the latter that bears the tax burden of the amalgamating companies and the deceased, respectively. It has been held by the Apex Court, in Saraswati Industrial Syndicate Ltd. Vs CIT (1990) 186 ITR 278, 53 Taxman 92 (SC) inter alia –

".... There can be no doubt that when two companies amalgamate and merge into one, the transferor company loses its entity as it ceases to have its business. Their respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective..."

Also, the following court decisions on the issue have highlighted that assessment can be made only in the case of the successor or amalgamated company –

• General Radio and Appliances Co. Ltd. vs. M.A. Khades (1986) 60 Company Case 1013 (SC) • Birla Spinning and Weaving Mills Ltd. vs. CIT, [1980] 4 Taxman 225 (Delhi) • CIT-II Vs Satwant Exports Private Limited, to 728/2014, dated 26.11.2014 (Del) • Spice Entertainment Ltd. vs. CIT vs. ITA No. 475 of 2011 (03.08.2011)(Del) • Hewlett Packard India (P.) Ltd. Vs ACIT (ITA No. 4016 / 2005 A Y 2002-03) (ITAT. Del)

5.4 With due deference to the aforementioned decisions of the Courts including the Apex Court, the jurisdictional High Court and the jurisdictional Tribunal in this regard as well as the fact that the issue is identical to the one in the present case, and accordingly the impugned order is quashed for deviation from the laid down principles with regard to amalgamation - the income even though has been earned by the amalgamating company, but if the information regarding the amalgamation is available at the time of assessment, the assessment has to be done in the hands of the amalgamated company. In the present case, it is gathered from records that even though the return of Income has been filed by the appellant for AY 2009-10 before its amalgamation, as mentioned above, the assessment vide the impugned order is dated 26.03.2013 is much after the amalgamation but made in the name of the appellant which was an amalgamating company not existing in the legal sense on that date. Accordingly, the appeal on this point is hereby allowed; of course not going into the merits of the cases (the disallowances made in the impugned order) as the impugned order has been rendered void."

8.9 It is seen from the above that the Learned CIT (Appeals) held the Assessment Order to be rendered void and quashed the Order, as the Company in question had amalgamated, and the assessment had to be done in the hands of the amalgamated Company. In such a situation, the assessment made in the hands of the amalgamating Company, which was not existing in the legal sense on that date, was void.

8.10 In the instant case, it is seen that the Company in question, i.e. M/s Satkar Fincap Ltd. had already amalgamated with M/s Pride Residency Pvt. Ltd., vide Order dated 17.08.12 of Hon’ble High Court of Delhi, with effect from the Appointed Date, i.e. 01.04.11, passed u/s 391(2) and 394 of the Companies Act, 1956.

8.11 The fact that the Company had amalgamated and had ceased to exist after its amalgamation, was not only recognized by the Income Tax Department, but was also fully in the knowledge of the Assessing Officer. This is borne out by the directions issued by the Learned Principal CIT (Central)-2, New Delhi, who vide his Order u/s 264 dated 30.03.15 directed as under :

“The assessment made by the A.O. u/s 153A has been quashed on technical grounds because the AO issued and completed the assessment in the name of a non-existing company as the company had ceased to exist after its amalgamation. There is also no denying of the fact that consequent to the search and seizure action upon the company, there were significant material before the A.O. and the A.O. has completed the assessment of the company after considering the material before him and after making verification and scrutiny and affording the opportunity to the assessee. The only error which A.O. has committed is that the order has been passed in the name of a non-existing company. This being a technical error, the A.O. is now directed to reassess the income in the hands of the existing correct legal entity after giving proper opportunity of being heard to the assessee and after the examination, scrutiny of all the relevant material and verification including the submissions made by the assessee. To this extent these directions may be treated as directions u/s 150 of the I. T. Act, 1961.”

8.12 The above directions issued by the Learned Principal CIT (Central)-2, New Delhi clearly specify that the assessment made by the Assessing Officer u/s 153A was quashed on technical grounds because the A.O. issued Notice and completed the assessment in the name of a non-existing company. Such conclusion was drawn by the Learned Principal CIT (Central)-2 as the Company had amalgamated, and on this basis he concluded that the Company had ceased to exist. Since the A.O. had issued the Notice and passed the Assessment Order in the name of such non-existing Company, the Assessment Order was quashed.

8.13 The Learned Principal CIT (Central)-2, New Delhi vide the abovementioned Order u/s 264, directed the Assessing Officer to reassess the Income in the hands of the "existing correct legal entity” after giving proper opportunity of being heard to the Assessee and after the examination, scrutiny of all the relevant material and verification.

8.14 It is noteworthy that not only the Assessing Officer was aware of such specific directions but has also reproduced such directions on page 1 & 2 of Assessment Order. However, in spite of such clear and specific directions, the Assessing Officer again repeated the earlier action of service of Notice and completion of assessment upon amalgamating Company, which had ceased to exist.”

8.15 The Assessing Officer has passed the Assessment Order stating the name of the Assessee as “M/s Pride Residency (P) Ltd. (in the case of M/s Satkar Fincap Ltd.)”. However, the basic action including service of Notice by the Assessing Officer was taken in the case of M/s Satkar Fincap Ltd., which had amalgamated and had ceased to exist. Even though the name of M/s Pride Residency (P) Ltd. was mentioned as the name of the Assessee in the Assessment Order by the Assessing Officer, the Assessment Order has been framed for M/s Satkar Fincap Ltd., which is also evident Tom the fact that the Notices were issued, the Assessment Order was passed and Notice of Demand u/s 156 of the Income Tax Act, 1961 (In Form IT.S.-7) was issued for the Company having the PAN : AAJCS6828A, which was the PAN for M/s Satkar Fincap Ltd. Further, the Assessing Officer involved, i.e. Assistant Commissioner of Income Tax, Central Circle-13, New Delhi, had no jurisdiction over the existing correct legal entity, i.e. M/s Pride Residency (P) Ltd., over which the jurisdiction was with Circle 20(1), New Delhi. Thus, neither the action was taken against the existing correct legal entity, i.e. M7s Pride Residency (P) Ltd., nor the Assessing Officer involved i.e. Assistant Commissioner of Income Tax, Central Circle-13, New Delhi could have taken any legal action against the existing correct legal entity, as the jurisdiction over it was with some other Assessing Officer. It was also submitted by the Learned Counsel of the Appellant that the Assessment Order for the A.Y. 2014-15 in the case of M/s Pride Residency (P) Ltd. was passed u/s 143(3) by the Assessing Officer, being ACIT, Circle- 20(1), New Delhi on 26.07.2016, and a copy of the Order was enclosed in the Paper Book for AY 2005-06.

8.16 It is clear from a perusal of the judicial decisions that amalgamation has been treated at par with succession pursuant to death and that it is the amalgamated Company in the former and the legal successor in the latter that bears the tax burden of the amalgamating Companies and the deceased, respectively. The decision of the Hon’ble Supreme Court in the case of Saraswati Industrial Syndicate Ltd. Vs CIT, 186 ITR 278 is particularly significant, as it has been held in that case that when two Companies amalgamate and merge into one, the transferor Company loses its entity as it ceases to have its business, and their respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor Company ceases to exist with effect from the date the amalgamation is made effective.

8.17 In the instant case, though the Assessing Officer had been directed u/s 264 to reassess the Income in the hands of the existing correct legal entity, and the Assessing Officer war aware of such directions and has even reproduced such directions in the Assessment Order, but still the Assessing Officer has repeated the same error, as earlier, i.e. of issuing Notice and completing the Assessment in the hands of a non-existing Company, which had ceased to exist after its amalgamation. That such amalgamation was prior to issue of Notice and completion of Assessment is clear from the Assessment Order itself as the process of Assessment had started pursuant to Order u/s 264, which itself made it clear that the Company had already amalgamated and had ceased to exist.

8.18 In view of the above situation, the Appeal on this point is hereby allowed, without going into the merits of the case (i.e. the additions made in the impugned Order) and the Assessment Order is held to be void. Accordingly, the impugned Order is quashed.”

1. 1. The search and seizure action under section 132 of the Income-tax Act, 1961 (in short ‘the Act’) was carried out at the premises of Mrs. Satkar Fincap Private Limited on 07/08/2010 .

2. The assessment was completed under section 153A read with section 143(3) of the Act on 26/03/2013 at an income of ₹ 1,25,03,230/- by the Assistant Commissioner of Income-tax, Central Circle-13, New Delhi.

3. The assessee filed appeal against the said order before the first appellate authority which was subsequently withdrawn vide letter dated 20/11/2013 and accordingly dismissed as withdrawn.

4. The assessee preferred revision application on 21/03/2014 under section 264 of the Act before the Ld. PCIT, Central-2, New Delhi, stating that the company M/s Satkar Fincap Pvt. Ltd. got amalgamated with M/s. Price Residency Private Limited, vide order dated 17/08/2012 of Hon’ble High Court of Delhi with effect from appointed date, i.e., 01/04/2011, passed under section 391(2) and 394 of the Companies Act, 1956 5. The Ld. PCIT accordingly, through his order dated 30/03/2015 under section 264 of the Act, quashed the assessment made by the Assessing Officer under section 153A of the Act. The Learned PCIT stated that the ACIT

CC-13, New Delhi, i.e., the Assessing Officer who passed the order, had committed the error of passing order in the name of non-existing entity and directed the assessing officer to reassess the income in the hands of the existing correct legal entity after giving proper opportunity of being heard to the assessee.

by the Revenue are accordingly dismissed.

9. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 19th February, 2020.