INTERNATIONAL HOSPITAL LTD. (BEFORE AMALGAMATION M/S ESCORTS HOSPITAL AND RESEARCH CENTRE LTD),NEW DELHI vs. ITO, WARD-8(3), NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI S. RIFAUR RAHMAN
PER SATBEER SINGH GODARA, JM
These assessee’s twin appeals
ITA
No.
5957
&
3390/Del/2019 for assessment year 2013-14 are directed against the Commissioner of Income Tax (Appeals)-34 [in short, the “CIT(A)”], New Delhi’s order dated both 15.04.2019 passed in case no. 209/16-17 and 204/16-17; respectively, involving proceedings
Assessee by Sh. R.M. Mehta, Adv.
Department by Sh. Arvind Kuma Trivedi, Sr. DR
Date of hearing
27.01.2025
Date of pronouncement
27.01.2025
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2 | P a g e under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. Heard both the parties at length. Case file perused.
3. Learned counsel submits at the outset that the assessee does not wish to press it’s instant former appeal
ITA
No.
3390/Del/2019, as under:
“The main issue involved in the appeal was the challenge to the action of the AO in framing the assessment on the non-existent company
(transferor), pursuant to its amalgamation with the transferee company.
The other issue at the assessment stage was an addition of Rs.
1,28,53,858/- made u/s 36(1)(iii) of the Act, which on appeal before the learned CIT(A) was deleted.
The appeal by the Revenue to the Hon'ble ITAT was dismissed on ground of low tax effect vide order dated 12.07.2022 in ITA No.
4843/Del/2019 (copy appended).
As the legal issue in the appeal has become academic, in view of the addition itself being deleted, the appellant seeks to withdraw/not press the appeal.”
The Revenue is equally fair in not objecting to the assessee’s foregoing withdrawal prayer. We accordingly dismiss the instant former appeal ITA No. 3390/Del/2019 as withdrawn, subject to all just exceptions. 5. Next comes the assessee’s latter appeal ITA No. 5957/Del/2019, wherein, it raised the first and foremost legal ground challenging the validity of the impugned assessment itself
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Heart and Super Specialty Institute Ltd. Our attention is further invited to the learned CIT(A)’s detailed discussion rejecting the assessee’s corresponding additional ground, as follows:
“5. Additional Ground The appellant has challenged the framing of assessment on a non-existent assessee instead of transferee company i.e. M/s International Hospital Ltd.
1 The appellant company merged with M/s International Hospital Ltd. w.e.f. January 1, 2013 as per the scheme of amalgamation approved by the Hon'ble High Court of Punjab and Haryana in December, 2013. Since the appellant has raised additional ground, being legal issue which goes to the root of the matter, hence this additional ground is hereby admitted.
2 The report of the AO is called for vide letter dated 05.10.2017 as appellant has submitted that the assessment was required to be framed in the name of M/s International Hospitals Ltd. instead of M/s Escorts Heart and Super Specialty Institute Ltd. The appellant has claimed that the assessment order is legally invalid. The AO has send his comments on additional ground of appeal vide letter dated 24.10.2017. It was stated by the AO that during the entire assessment proceedings, the appellant has not raised any objection in this regard. The addition of Rs. 9,06,25,049/ on account of Interest has been made in the case of the appellant on the basis of the deep scrutiny, therefore chances of relief to the appellant on the addition are very thin. Raising an additional ground at this stage is nothing but after thought view to divert the attention of the appellate authority from the main issue. The decisions on which appellant has placed reliance in those cases, the assessee had categorically raised objection on the issue of juri iction of the concerned AO at the stage of assessment proceedings. But in the Instant case, the appellant did not any objection till finalization of the case. Further, in the bank statement of PNB and City Bank as on 31.03.2013, it is observed by the AO that appellant company was involved in transaction in its old name even after 01.02.2013. AO has further stated in the report that on going through the covering letter of the Manager, City Bank dated 08.03.2016, it is noticed that name of the company was changed as M/s International Hospital Ltd. w.e.f. 21.01.2014. This clearly indicates that period under consideration, the appellant was known as its old name i.e. M/s Escorts Heart and Super Specialty Institute
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Ltd. only and all transaction were occurred in its original name. Even during the assessment proceedings, the appellant filed its entire submission on the letter heads of the assessee l.e. M/s Escorts Heart and Super Specialty Institute Ltd. It shows that the assessee expected the Juri iction of the AO, filed submission in its original name before amalgamation in new company. Further, the AO has passed the order u/s 154 on 29.01.2019 stating that as per amalgamation approved by Punjab & Haryana High Court on December, 2013, appellant company merged with International Hospitals Ltd. However, the name of the appellant has been Inadvertently mentioned as M/s Escorts
Hospital & Research Centre Ltd. The mistake is apparent from the record and therefore is being rectified u/s 154 of the Act.
3 The appellant has filed submission at the time of filing additional ground. It is submitted by the appellant that appellant amalgamated with M/s International Hospital Ltd. w.e.f. 01.01.2013 as per the scheme approved by the Hon'ble Punjab and Haryana High Court in December, 2013. This is the fact noted by the AO in para 2 of the assessment order. The appellant has placed reliance on the decision of the Delhi High Court in the case of CIT Vs Micra India (Pvt.) Ltd. and Karnataka High Court in the case of CIT Vs Intel Technology India (Pvt.) Ltd. It is submitted by the appellant that this is a pure legal issue which goes to the root of the matter. The appellant has filed its comments on additional ground in response to AO's reply as under:-
This is with reference to the comments of the AO dated 26.10.2017 on the additional ground filed by the appellant.
In Para-1, the learned AO has stated that the assesse did not raise any objection during the assessment proceedings and the filing of the additional ground was with a view to "divert the attention of the Hon'ble appellate authority" since the "chances for any relief to the assessee on the addition are very thin".
The further objection of the learned AO in Para-1 is that the decisions relied upon by the assessee in support of the additional ground are not applicable as in those cases the assesse had raised an objection at the assessment stage whereas the present assessee did not raise any objection.
In Paras-2 & 3 of the comments of the AO, a reference is made to certain bank accounts maintained in the name of the transferor company after the date of the amalgamation i.e. 01.01.2013 as also correspondence during assessment proceedings on the letter head of the transferor company.
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In conclusion, the AO has opined that since the assessee has accepted the juri iction of the AO the assessment was not required to be nullified in the light of the provisions of Section 2928 of the Act.
The submissions of the appellant in response to the comments of the AO are as under:
A) Factual:
The fact of amalgamation is mentioned in the return of income as also the audited accounts both these being a part of the record of the department.
In response to the notice of the AO, the assessee vide letter dated 24.07.2015 intimated the details of the amalgamation along with a copy of the order of the Hon'ble High Court of Punjab & Haryana on a specific query raised by the AO. Copy of the letter is appended at Pages of the Paper Book. to 3. During the course of assessment, the AO raised a query on the date of merger.
The information asked for as per (3) above was provided by the assessee vide letter filed on 17.02.2016 a copy of which is appended at Pages to of the Paper Book.
The AO has recorded the following facts in Para-2 of the assessment order.
"The operations of the company have been merged with International
Hospital Limited w.e.f January 1, 2013 as per the scheme of Amalgamation approved by the Hon'ble High Court of Punjab and Haryana on December 2013."
B) Legal position
It is apparent from the above facts that the AO was aware of the amalgamation at the inception of the assessment proceedings more so when the factum thereof was a part of the record of the department at the stage of filing the tax return along with the audited accounts as also the specific queries raised during the assessment and the replies given by the assessee. To now contend that the assessee did not object is a frivolous argument since it is not for the assessee to guide the AO as to how he should interpret the legal position on a given set of facts.
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The reference to the maintenance of bank accounts and using of letter heads once again does not detract from the legal position that all notices issued to the transferor company after its amalgamation and the assessment order passed pursuant thereto are nullities in the eyes of law and the provisions of Section 2928 which can cure a procedural defect do not help the department where the question is one of juri iction.
The Hon'ble Delhi High Court in the case of CIT vs Micra India (P) Ltd.
(2015) 57 taxmann.com163 (Delhi), a decision which according to the AO is not applicable has observed as under in Para 10:
"In the present case, no doubt there was participation during the course of assessment, however the AO, despite being told that the original company was no longer in existence, did not take remedial measures and did not transpose the transferee as the company which had to be assessed."
In Para 9 of the order the Hon'ble High Court has ruled out the applicability of Section 292B of the Act and rejected the argument of the revenue to the effect that it was a procedural defect.
Following the judgement of the Hon'ble Delhi High Court in the case of Spice Enfotainment Ltd. vs CIT reported in 247 CTR 500 (Delhi) the Hon'ble Karnataka High Court in the case of CIT vs Intel Technology
India (P) Ltd. reported in 380 ITR 272 took the view that an assessment could not be framed against a non-existing company and that the provisions of section 2928 would not validate the assessment.
The Hon'ble ITAT, Mumbai Bench in the decision of M/s. Westlife
Development Ltd. (Successor to Wespoint Leisure Parks Ltd.) in ITA
No.688/Mum/2016 dated June 2016 after considering a host of judgements Including those of the Hon'ble Delhi High Court took an identical view viz to declare the assessment made on a non-existing company as null and void and outside the ambit of section 2928 of the Act.
taxmann.com 330 (Delhi) the Juri ictional High Court has taken the view that where during the pendency of assessment proceedings, the assessee company was amalgamated with another company and thereby lost its existence, assessment order passed subsequently in name of said non-existing entity would be without juri iction and deserved to the quashed.
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In view of the submissions made aforesaid the additional ground raised by the appellant may kindly be admitted and adjudicated on merits as per law.
Without prejudice to the submissions made on the additional ground separate arguments on the merits are being tendered in writing by means of a communication of even date along with a compilation of relevant documents adverted to in the written submissions.
The appellant has filed further written submission on this issue on 26.11.2018 as under:-
Note regarding assessment on a non-existent assessee where one company amalgamates with another company
This issue is no longer res-integra in view of the judgement of the Hon'ble Supreme Court dated 02.11.2017 in the case of CIT, New
Delhi vs M/s Spice Enfotainment in Civil Appeal No. 285 of 2014
affirming thereby the judgement of the Hon'ble Delhi High Court in the same case, the latter taking the view that the proceedings against the transferor company instead of the transferee company were a nullity, without juri iction and hence void.
A similar view has been taken by the Juri ictional High Court in numerous other cases as also by other Hon'ble High Courts. In other words, all these judgements stand impliedly affirmed by the Hon'ble
Supreme Court.
A reference may at this stage be made to the judgement of the Hon'ble where on a writ petition filed by the assessee against the issue of a notice u/s 148 the Court took the view that re-assessment notice issued in the name of the erstwhile private limited company despite company ceasing to exist would not invalidate the re-assessment proceedings as same was not a juri ictional error but an irregularity and a procedural error which could be cured u/s 2928 of the Act. The SLP before the Hon'ble Supreme Court came to be rejected in (2018)
92 taxmann.com 93 (SC) with the following observations:-
"In the peculiar facts of this case, we are convinced that wrong name given in the notice was merely a clerical error which could be corrected u/s 2928 of the Income-tax Act"
Reverting back to the judgement of the Juri ictional High Court in Sky Light Hospitality (supra), it is noticed that the case law discussed in paras 13 to 15 pertains entirely to the provisions of section 2928
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8 | P a g e vis-à-vis defective notices, returns improperly signed etc. categorizing thereafter in para 17 these to be errors and technical lapses with the following observations:-
"17. In the context of the present writ petition, the aforesaid ratio is a complete answer to the contention raised on validity of the notice under Section 147/148 of the Act as it was addressed to the erstwhile company and not to the limited liability partnership. There was no doubt and debate that the notice was meant for the petitioner and no one else. Legal error and mistake was made in addressing the notice.
Noticeably, the appellant having received the said notice, had filed without prejudice reply/letter dated 11.04.2017. They had objected to the notice being issued in the name of the Company, which had ceased to exist. However, the reading of the said letter indicates that they had understood and were aware, that the notice was for them.
It was replied and dealt with by them. The fact that notice was addressed to M/s Sky Light Hospitality Pvt. Ltd., a company which had been dissolved, was an error and technical lapse on the part of the respondent. No prejudice was caused."
Significantly for the purposes of the present appeal, para 18 of the judgement refers to the decision of the Delhi High Court in Spice
Infotainment Ltd. vs. CIT (2012) 247 CTR 500 with the following observations: -
"18. Petitioner relies on Spice Enfotainment Ltd. v. CIT [2012] 247 CTR
500 (Delhi). Spice Corp. Ltd., the company that had filed the return, had amalgamated with another company. After notice under Section 147/148 of the Act was issued and received in the name of Spice
Corp. Ltd., the Assessing Officer was informed about amalgamation but the Assessment Order was passed in the name of the amalgamated company and not in the name of amalgamating company. In the said situation, the amalgamating company had filed an appeal and issue of validity of Assessment Order was raised and examined. It was held that the assessment order was invalid. This was not a case wherein notice under Section 147/148 of the Act was declared to be void and invalid but a case in which assessment order was passed in the name of and against a juristic person which had ceased to exist and stood dissolved as per provisions of the Companies Act was issued and received in the name of Spice Corp.
Ltd., the Assessing Officer was informed about amalgamation but the Assessment Order was passed in the name of the amalgamated company and not in the name of amalgamating company. In the said situation, the amalgamating company had filed an appeal and issue of validity of Assessment Order was raised and examined. It was held that the assessment order was invalid. This was not a case wherein notice under Section 147/148 of the Act was declared to be void and ITA Nos.5957 & 3390/Del/2019
9 | P a g e invalid but a case in which assessment order was passed in the name of and against a juristic person which had ceased to exist and stood dissolved as per provisions of the Companies Act. Order was in the name of non-existing person and hence void and illegal."
In para 20, the Hon'ble High Court observed as follows:-
"20. CIT v. Dimension Apparels (P.) Ltd. [2015] 370 ITR 288/[2014] 52
taxmann.com 356 (Delhi) and CIT v. Intel Technology India Ltd. [2016]
380 ITR 272/232 Taxman 279/57 taxmann.com 159 (Kar.) follow the ratio and decision in the case of Spice Enfotainment Ltd. (supra), as assessment orders had been passed in the name of the non-existing assessee. These cases are therefore distinguishable."
It is absolutely clear from a perusal of the judgement in the case of Sky Light supra that Spice Enfotainment was considered but distinguished only on the ground that the reassessment order passed in the case of Spice was a nullity whereas in the case of Sky Light there was no order of re-assessment but only a notice u/s 148 which on the facts of the case was not invalid.
The judgement of the Delhi High Court in the case of Spice has been affirmed by the Supreme Court in Civil Appeal No.285 of 2014 dated
02.11.2018. The dismissal of an SLP cannot be construed as affirmation of the decision from which special leave was sought for whereas the dismissal of an appeal by the Supreme Court results in the merger of the order of the High Court with that of the Supreme Court.
4 The appellant has submitted that the fact of amalgamation is mentioned in the return of income as also the audited accounts both these being a part of the record of the department. This fact of amalgamation was intimated to the AO in response to notice vide letter dated 24.07.2015 with a copy of order of the Hon'ble High Court of Punjab and Haryana on a specific query raised by the AO. It is submitted by the appellant that provision of section 2928 which can cure a procedural defect do not help the department where the question is one of juri iction. The appellant has placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs Micra India (Pvt.) Ltd., decision of Karnataka High Court in the case of Intel Technology Pvt. Ltd., decision of Hon'ble Delhi High Court in the case of Spice Enfotainment Ltd. Vs CIT and Maruti Suzuki India Ltd., in which Hon'ble High Court held that where during the pendency of assessment proceedings, the assessee company was amalgamated with another company and thereby lost its existence, assessment order passed subsequently in the name of said non-existing entity
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10 | P a g e would be without juri iction and deserved to be quashed. The appellant has also placed reliance on the decision of Hon'ble Supreme
Court dated 02.11.2017 in the case of CIT Vs Spice Enfotainment in Civil No. 285 of 2014 affirming thereby the judgement of Hon'ble Delhi
High Court in the same case taking the view that the proceedings against the transferor company instead of the transferee company were a nullity, without juri iction and hence void.
4.1 On the passing the order of rectification u/s 154 by the AO, appellant has submitted that order u/s 154 has been passed by the AO to the prejudice of the appellant without giving it an opportunity of being heard. The order u/s 154 has been passed not for the purpose for which the power u/s 154 was conferred on the AO, but aimed at thwarting the judicial process and divesting the appellant of a vested right.
5 I have considered the facts of the case, finding of the AO and submission of the appellant. The appellant has raised legal issue on the fact that AO has passed the assessment order in the case of non- existing company, the company has already amalgamated with M/s International Hospital Ltd. w.e.f. 01.01.2013. The AO has passed the rectification order u/s 154 on 29.01.2019 as mistake is apparent from the record. AO has mentioned the fact of the amalgamation in the assessment order but inadvertently it has not mentioned the name of amalgamating company i.e. International Hospitals Ltd. By way of rectification, AO has removed the defect as this mistake is rectifiable u/s 154. No opportunity to the appellant is required as there is no increase in income or reduction in refund, the name of the amalgamating company is substituted in place of the amalgamated company which is now not in existence. The AO has not passed the order in the case of Transferor Company but he has considered all the details and financials of the transferee company at the time of framing of assessment u/s 143(3). No legal ground remains after the rectification.
6 This ground of the appeal of the appellant is dismissed.”
It is in this factual backdrop that the assessee’s case before us is that the impugned assessment year deserves to be quashed in light of hon’ble apex court’s land mark decision in PCIT v. Maruti Suzuki India Ltd (2019) 416 ITR 613 (SC), and Principal
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Commissioner of Income-tax Vs. Mahagun Realtors (P.) Ltd.
reported in [2022] 137 taxmann.com 91 (SC) that such an assessment framed in the name of a non-existent entity is not sustainable in law.
7. The Revenue’s case, on the other hand, is that once the learned Assessing Officer had rectified the following clerical mistake by way of incorporating the correct assessee’s name i.e.
M/s. International Hospital Ltd. (being successor of the original assessee i.e. M/s. Escorts Heart and Super Specialty Institute
Ltd.), there is no illegality or infirmity in the said assessment framed on 28th March, 2016. 8. Faced with this situation, the assessee quotes hon’ble juri ictional high court’s decision i.e. International Hospital Ltd.
Vs. DCIT, (2024) 167 taxmann.com 317 (Del) holding the Assessing
Officer’s very section 154 rectification to this effect, as not sustainable in law, as follows:
“36. The aforenoted appeal which stood tagged with the batch poses the following question of law for our consideration: -
"Whether the Income Tax Appellate Tribunal has mi irected itself in law and on facts in sustaining the order of the Commissioner of Income Tax (Appeals) dated 30.05.2019 and the order dated
29.01.2019 passed by the Assessing Officer (AO) under Section 154 of the Income Tax Act, 1961?"
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Escorts Heart and Super Specialty Institute Ltd 23 is stated to have filed its Return of Income for AY 2013-14 on 30 September 2013. Pursuant to a Scheme of Arrangement which came to be sanctioned by the Punjab and Haryana High Court on 13 December 2013 it merged with International Hospital Limited 24 , the appellant herein. The appointed date under the Scheme was stipulated to be 01 January 2013. A notice under Section 143(2) came to be issued in the name of EHSSIL on 05 September 2014. During the course of the assessment which ensued, the Revenue is stated to have been duly apprised the respondents of the sanction of the Scheme and EHSSIL having merged with IHL. The appellants have also placed on our record a letter dated 16 February 2016 in terms of which details relating to the Scheme were duly provided to the AO.
The record further bears out that the AO had duly acknowledged the factum of merger and had specifically alluded to the order of the High Court. However, the ultimate assessment order dated 28 March 2016 came to be drawn in the name of EHSSIL. In the appeal which EHSSIL IHL was preferred by IHL before the Commissioner of Income Tax (Appeals)25, a specific ground with respect to invalidity of that order on the ground of the same having been made in the name of EHSSIL was taken. It was during the pendency of that appeal that the AO invoked Section 154 asserting that the assessment order had inadvertently come to be framed in the name of EHSSIL. It is the validity of this order which was questioned before the Tribunal. The Tribunal has upheld the action of the AO leading to the filing of the present appeal.
We find ourselves unable to be concur with the view as taken by the Tribunal for the following reasons. Undisputedly, the factum of merger was duly brought to the notice of the AO. In fact, the said authority has duly taken note of the order of the High Court and in terms of which the Scheme had come to be approved. However, inexplicably, it proceeded to frame an order in the name of EHSSIL. We note that the Return in this case was submitted by EHSSIL prior to the Scheme being sanctioned. It was perhaps in that backdrop that the notice under Section 143(2) came to be issued in its name, albeit after the Scheme had come into force. The assessment proceedings were thus ongoing at the time when the Scheme came to be sanctioned.
However, and admittedly, the factum of merger had been duly brought to the attention of the AO. The merger was taken into consideration at more than one place in the order of assessment that came to be framed. Despite the above, the AO proceeded to draw the order in the name of an entity which had ceased to exist. We also bear in consideration the indubitable fact that the rectification order came
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13 | P a g e to be passed three years after the framing of the original order of CIT(A) assessment, and that too, during the pendency of the appeal of the assessee and where a specific ground of challenge was raised in this regard. This was therefore not a case of discovery of an inadvertent error or mistake immediately after the passing of an order.
41. We also bear in consideration Maruti Suzuki having clearly held that such a mistake would not fall within the ken of Section 292B of the Act. An exercise of rectification as undertaken in the present case, if accorded a judicial imprimatur, would in effect amount to recognising a power to amend, modify or correct in an attempt to overcome a fundamental and juri ictional error contrary to the principles enunciated in Maruti Suzuki.
We also cannot lose sight of the fact that this was not a case where the assessee had attempted to mislead or suppress material facts and which may have warranted the case of the assessee being placed in the genre which was considered in Mahagun Realtors. The mere submission of replies on the letter head of EHSSIL also fails to convince us to hold in favour of the Revenue. In any event, none of the authorities below have held that the appellant was guilty of suppression. We would thus be inclined to allow the instant appeal and answer the question as posed in favour of the appellant and against the Revenue.”
We accordingly are of the considered view that once the issue stands settled by the hon’ble apex court and juri ictional high court, the Assessing Officer’s section 154 rectification itself couldn’t be held as having cured the interest defect in his impugned assessment framed in case of a non-existent entity herein. The learned CIT(A)’s action upholding the validity of the impugned assessment dated 28th March, 2016 framed in the name of non- existent entity (supra) is hereby quashed in very terms. The assessee succeeds in its instant first and foremost legal issue as well as the main appeal ITA No. 5957/Del/2019 therefore.
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All other pleadings on merits herein stand rendered academic. 11. To sum up, the assessee’s instant former appeal ITA No. 3390/Del/2019 is dismissed as withdrawn and latter appeal ITA No. 5957/Del/2019 is allowed in above terms. A copy of this common order be placed in the respective case files. Order pronounced in the open court on 27th January, 2025 (S. RIFAUR RAHMAN) JUDICIAL MEMBER
Dated: 27th January, 2025. RK/-