RELIANCE CAPITAL LTD,MUMBAI vs. PR CIT 6, MUMBAI

The first issue in this appeal of the assessee is against the order of the Principal CIT revising the assessment u/s 263 of the Act of a non-existent company and hence, the revision order passed u/s 263 of the Act, is illegal, bad in law, and void ab initio. For this, the assessee has raised the following four grounds:- “1. On the facts and circumstances of the case and in law, the learned Principal Commissioner of Income Tax – 6, Mumbai („the PCIT‟) erred in invoking the provisions of section 263 of the Income-tax Act, 1961 („the Act) and directing setting aside of the assessment order passed under section 143(3) of the Act by the Income Tax Officer – 5(3)(1), Mumbai („the Assessing Officer‟) dated 29.10.2013 in the name of Emerging Money Mall Ltd.” on the alleged ground that the said assessment order was erroneous and prejudicial to the interest of the revenue.

Brief facts relating to this appeal are that the assessee is carrying on business by and through e-commerce, e-shopping, internet and other web application networks. Assessment in the present case for assessment order 2011- 12 was framed by ITO-ward 5(3)(1) Mumbai, u/s 143 (3) of the Act vide his order dated 29.10.2013. Subsequently Principle CIT-6 Mumbai issued show cause notice u/s 263 of the Act dated 07-04-2015, in which it was proposed to set aside the assessment order passed by the AO in the case of and in the name of erstwhile Emerging Money Mall Ltd. (in short EMML). The learned Counsel for the assessee Shri Arvind Sonde drew our attention to pages 118 to 130 of the assessee’s paper book wherein the show-cause notice is enclosed and he read out the show cause notice No.Pr.CIT-6/263/Reliance Cap./2014-15/936 dated 07-04- 2015 wherein following is recorded. “ Sub :-Notice u/s. 263 of the I.T. Act, 1961 in the case of M/s. Reliance Capital Ltd. (in which M/s. Emerging Money Mall Ltd. Has merged pursuant to amalgamation/merger sanction by the Hon‟ble High Court) for AY 2011-12 – reg.

It is observed from the records that pursuant to the Scheme of Arrangements, M/s Emerging Money Mall Ltd. (NMML) merged with M/s Reliance Capital Ltd. (RCL) w. e .f. 31-03-2013 pursuant to sanction of the scheme by the Hon‟ble High Court of Bombay. Perusal of the records also revealed that while passing the assessment order u/s. 143(3) on 29-10-2013 in the case of M/s. Emerging Money Mall Ltd. for AY 2011-12 (which merged with M/s. RCL w .e .f. 31-03-2013 Hon‟ble High Court), the assessing Officer has failed to carry out relevant and meaningful enquiries as warranted by the facts and circumstances of the case and that the assessment has been completed without examining all the aspects which were required to be looked into for arriving at the correct taxable income earned by the assessee. As discussed in detail below it would be apparent that the Assessing Officer failed to carry out relevant and meaningful inquiries which were warranted by the facts of the case and even when details available on record clearly indicated that something was amiss.

The learned Counsel for the assessee further drew our attention to the reply filed by assessee in response to the above show-cause notice dated 08-05- 2015, copy of which is enclosed in assessee’s paper book at pages 131 to 134, stating that pursuant to merger of EMML with Reliance Capital Ltd (RCL), the assessee company EMML ceased to exist from 17/04/13, the date on which amalgamation became effective and yet assessment order has been passed in the name of EMML on 29/10/2013. The learned Counsel further stated that the AO despite keeping on record, the order of Hon’ble Bombay High Court approving this scheme of amalgamation failed to pass the assessment order in the name of RCL on behalf of the EMML merged with RCL with effect from 31-03-2013 pursuant to scheme of merger as approved by Hon’ble Bombay High Court. The Learned Counsel stated that AO passed assessment order in the name of the Company which had ceased to exist with effect from 17-04-2013 and there has been total non-application of mind in respect of correct status of the assessee and entity in whose name assessment order was required to be passed after the merger of the assessee with RCL with effect from 31-03-2013. The Learned Counsel for the assessee drew our attention to the observation of the Principal CIT in the show-cause notice wherein he has clearly observed that the assessment order issued in the name of EMML was not the correct status in whose name the assessment was required to be made after the merger of the assessee company i.e. EMML with the RCL with effect from 31-03-2013, when the company, EMML ceased to exist from 17-04-2013, by the time assessment order was passed in the case of EMML as on 29-10-2013. The Learned Counsel stated that the Principal CIT himself noted that the assessment order passed in the name of EMML dated 29-10-2013 was bad in law.

The learned Counsel for the assessee stated that no action was taken on the first show-cause notice dated 07-04-2015 issued under section 263 of the Act for revising the assessment order and subsequently another show-cause notice was issued vide No. Pr.CIT-6/263/Reliance Cap./2015-16/272 dated 17-02-2016, copy of which is filed in assessee’s paper book pages 142 to 154, wherein following was discussed:-

The learned Counsel also drew our attention to the reply filed by the assessee before the Principal CIT in response to the above show-cause notice vide letter filed dated 07/03/2016, copy of which is enclosed at assessee’s paper book pages 155-158. In view of the above facts, the learned Counsel for the assessee further drew our attention to the order of the Hon’ble Bombay High Court merging the EMML with RCL dated 22-03-2013 with effect from 31-03- 2013 and the Company EMML ceased to exist from 17-04-2013. The copy of approval of merger by the Hon’ble Bombay High Court along with scheme of amalgamation is filed in assessee’s paper book at pages 25 to 46. It was contended by the learned Counsel for the assessee that this order of the Hon’ble Bombay High Court approving scheme of merger was available on the record of the AO before passing of the assessment order dated 29-10-2013. Despite this fact, the AO passed assessment order in the name of a non-existent Company. On the other hand, the learned CIT DR supported the revision order passed by the Principal CIT-6, Mumbai u/s 263 of the Act setting aside the original assessment order passed u/s 143(3) of the Act on 29-10-2013.

The aforesaid line of reasoning adopted by the Tribunal is clearly blemished with legal loopholes and is contrary to law. No doubt, M/s Spice was an assessee and as an incorporated company and was in existence when it filed the returns in respect of two assessment years in question, however, before the case could be selected for scrutiny and assessment proceedings could be initiated, M/s Spice got amalgamated with M Corp (P) Ltd. It was the result of the scheme of the amalgamation filed before the Company Judge of this Court which was duly sanctioned vide orders dt. 11th Feb., 2004. With this amalgamation made effective from 1st July, 2003, M/s Spice ceased to exist. That is the plain and simple effect in law. The scheme of amalgamation itself provided for this consequence, inasmuch as simultaneous with the sanctioning of the scheme, M/s Spice was also stood dissolved by specific order of this Court. With the dissolution of this company, its name was struck off from the rolls of companies maintained by the Registrar of Companies.

A company incorporated under the Indian Companies Act is a juristic person. It takes its birth and gets life with the incorporation. It dies with the dissolution as per the provisions of the Companies Act. It is trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law. This position is even accepted by the Tribunal in para 14 of its order extracted above. Having regard to this consequence provided in law, in number of cases, the Supreme Court held that assessment upon a dissolved company is impermissible as there is no provision in income-tax can to make an assessment thereupon. In the case of Saraswati Industrial Syndicate Ltd. vs. CIT (1990) 88 CTR (SC) 61: (1990) 186 ITR 278 (SC) the legal position is explained in the following terms: "The question is whether on the amalgamation of the Indian Sugar Company with the appellant company, the Indian Sugar Company continued to have its entity and was alive for the purposes of s. 41(1) of the Act? The amalgamation of the two companies was effected under the order of the High Court in proceedings under s. 391 r/w s. 394 of the Companies Act. The Saraswati Industrial Syndicate, the transferee company was a subsidiary of the Indian Sugar Company, namely, the transferor company. Under the scheme of amalgamation the Indian Sugar Company stood dissolved on 29th Oct., 1962 and it ceased to be in existence thereafter. Though the scheme provided that the transferee company the Saraswati Industrial Syndicate Ltd. undertook to meet any liability of the Indian Sugar Company which that company incurred or it could incur, any liability, before the dissolution or not thereafter. 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 Halsburys Laws of England 4th Edition Vol. 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."

The Court referred to its earlier judgment in General Radio & Appliances Co. Ltd. vs. M.A. Khader (1986) 60 Comp Case 1013 (SC). In view of the aforesaid clinching position in law, it is difficult to digest the circuitous route adopted by the Tribunal holding that the assessment was in fact in the name of amalgamated company and there was only a procedural defect.

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 s. 292B of the Act. Sec. 292B of the Act reads as under: "292B. No return of income assessment, notice, summons or other proceedings furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reasons of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceedings is in substance and effect in conformity with or according to the intent and purpose of this Act."

The Punjab & Haryana High Court stated the effect of this provision in CIT vs. Norton Motors (2006) 200 CTR (P&H) 604: (2005) 275 ITR 595 (P&H) in the following manner: "A reading of the above reproduced provision makes it clear that a mistake, defect or omission in the return of income, assessment, notice, summons or other proceeding is not sufficient to invalidate an action taken by the competent authority, provided that such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the provisions of the Act. To put it differently, s. 292B can be relied upon for resisting a challenge to the notice, etc., only if there is a technical defect or omission in it. However, there is nothing in the plain language of that section from which it can be inferred that the same can be relied upon for curing a jurisdictional defect in the assessment notice, summons or other proceeding. In other words, if the notice, summons or other proceeding taken by an authority suffers from an inherent lacuna affecting his/its jurisdiction, the same cannot be cured by having resort to s. 292B."

The issue again cropped up before the Court in CIT vs. Harjinder Kaur (2009) 222 CTR (P&H) 254: (2009) 19 DTR (P&H) 211. That was a case where return in question filed by the assessee was neither signed by the assessee nor verified in terms of the mandate of s. 140 of the Act. The Court was of the opinion that such a return cannot be treated as return even a return filed by the assessee and this inherent defect could not be cured in spite of the deeming effect of s. 292B of the Act. Therefore, the return was absolutely invalid and assessment could not be made on a invalid return. In the process, the Court observed as under:

Likewise, in the case of Sri Nath Suresh Chand Ram Naresh vs. CIT (2005) 196 CTR (All) 416: (2006) 280 ITR 396 (All), the Allahabad High Court held that the issue of notice under s. 148 of the IT Act is a condition precedent to the validity of any assessment order to be passed under s. 147 of the Act and when such a notice is not issued and assessment made, such a defect cannot be treated as cured under s. 292B of the Act. The Court observed that this provision condones the invalidity which arises merely by mistake, defect or omission in a notice, if in substance and effect it is in conformity with or according to the intent and purpose of this Act. Since no valid notice was served on the assessee to reassess the income, all the consequent proceedings were null and void and it was not a case of irregularity. Therefore, s. 292B of the Act had no application.

When we apply the ratio of aforesaid cases to the facts of this case, the irresistible conclusion would be provisions of s. 292B of the Act are not applicable in such a case. The framing of assessment against a nonexistent entity/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a 'dead person'.

The order of the Tribunal is, therefore, clearly unsustainable. We, thus, decide the questions of law in favour of the assessee and against the Revenue and allow these appeals”.

Before us, the learned Counsel for the assessee also referred to the following decisions/judgments:- i) CIT Vs Micron Steels Pvt. Ltd. – ITA 19 to 24/2014 dated 11-02-2015 – Delhi High Court CIT Vs Dimension Apparels Pvt. Ltd. – ITA 327 to 330/ 2014 dated 08- 07-2014 – Delhi High Court – 52 Taxmann.com 356. iii) I. K. Agencies (P) Ltd. – 347 ITR 664 – Calcutta High Court. iv) Marshall Sons & Co. Vs ITO – 195 ITR 417 (Mad) and 89 Taxman 619(SC). v) Saraswati Industrial Syndicate Vs CIT 1990 Supl (1) SCR 332 – 53 Taxman 92 vi) CIT Vs Vived Marketing Servicing Pvt. Ltd. – ITA 273 / 2009 – Delhi High Court vii) CIT Vs Norton Motors – 275 ITR 595- Punjab & Haryana High Court viii) CIT Vs Express Newspapers – 40 ITR 38 (Mad) and 53 ITR 250 (SC)

In view of the above legal position, we have considered the facts of the case discussed above and the fact that the assessment order dated 29-10-2013 passed by the AO in the name of EMML is no order at all in law, the question of revision u/s 263 of the Act of that order which is non-existent is not permitted. We find that Section 263 of the Act permits the CIT to pass an order enhancing or modifying the assessment or cancelling the assessment and directing fresh assessment. These required an order to be in existence albeit illegal order is an order not in existence and therefore is not an order at all and cannot be revised, because under Civil Procedure Code an order against a dead person is a nullity. Accordingly, we quash the revision order passed by the Principal CIT u/s 263 of the Act on jurisdictional issue itself.