Query
When notice u/s. 143(2) of the Income Tax Act was issued in the name of erstwhile existing company (amalgamating company) then whether the assessment order passed by the Assessing Officer in the name of amalgamated company is legal and valid?
Answer
When notice u/s 143(2) was issued to the company, there was no amalgamation scheme. However after serving the notice, amalgamation took place between two companies and even the scheme was sanctioned by the Court after serving the notice u/s 143(2) of the Act. The fact of amalgamation was brought into the notice of Assessing Officer, despite the same, Assessing Officer passed the assessment order in the hands of amalgamated company. Hence, issue arose as to whether assessment order passed by the Assessing Officer was legal and valid in the eyes of law.
This issue came-up before the Delhi High Court in the case of CIT v. Sony Mobile Communications India Pvt. Ltd. The Counsel for the Revenue distinguished the judgement of Supreme Court in the case of Pr. CIT v. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC) and relied upon the judgement of Supreme Court in the case of Pr. CIT v. Mahagun Realtors (P) Ltd. (2022) 443 ITR 194 (SC). It was contended by the Revenue that in the case of Maruti Suzuki jurisdictional notice had been issued by the Assessing Officer to the company which was not in existence i.e. the amalgamating company whereas in the case of Sony Mobile, jurisdictional notice u/s 143(2) was issued to the erstwhile company, when it was in existence. Hence, Revenue submitted that assessment framed in the name of amalgamating company after amalgamation is an irregularity which can be cured by taking recourse to section 292B of the Act. Revenue also submitted that in any case upon amalgamation, the amalgamating company dissolves and therefore, liability to tax devolves upon the amalgamated company. The Counsel for the assessee brought into the notice of the Court that during the assessment proceeding, the Assessing Officer was duly informed about the amalgamation, that had taken place. Despite the same, Assessing Officer proceeded on the wrong course framing the assessment in the hands of amalgamating company which was not in existence.
Delhi High Court has discussed the issue at great length, considering various judgements rendered by Supreme Court and various High Courts, particularly the judgements in the case of CIT v. Spice Enfotainment Ltd. (2020) 18 SCC 253 (SC) and Sky Light Hospitality LLP v. ACIT (2018) 405 ITR 296(Del).
In the case of Spice Entertainment, Delhi High Court have held that upon notice u/s 143(2) being addressed, the amalgamated company had brought the fact of amalgamation to the notice of Assessing Officer. Despite this, Assessing Officer did not substitute the name of amalgamated company and proceeded to make an assessment in the name of non-existent company which rendered it void. Hence, Delhi High Court held that it was not merely a procedural defect. Moreover, participation by the amalgamated company would have no effect since there could be no estoppel against law. Hon’ble Supreme Court dismissed the SLP filed by the Revenue against the judgement of Delhi High Court in batch of appeals.
In the case of Sky Light Hospitality LLP, Delhi High Court, in the peculiar fact of that case held that wrong name given in the notice was merely a clerical error which could be corrected u/s. 292B of the Act. Even Hon’ble Supreme Court dismissed the SLP filed by the assessee against this judgement.
Delhi High Court in the present case has discussed the issue in great detail and observed that in the case of Maruti Suzuki, Supreme Court has considered both the judgements and had held that there is no conflict between the two decisions. Ultimately, Delhi High Court, after considering the judgement of Supreme Court in the case of Maruti Suzuki as well as Mahagun Realtors have held that even after the Assessing Officer, in the present case, was informed on December 06, 2013 that the amalgamation had taken place, and was furnished a copy of the scheme, he continued to proceed on the wrong path. This error continued even after the Dispute Resolution Panel had made a course correction. This was not a mistake curable by recourse to the powers available u/s 292B of the Act. Accordingly, Hon’ble Delhi High Court held the order of assessment as invalid.
Note – This judgement is important in the cases where the jurisdictional notice is issued in the correct name but before passing the assessment order, change takes place which is brought into the notice of Assessing Officer, still Assessing Officer passes the order in incorrect name e.g. when jurisdictional notice is issued in the name of alive person but thereafter assessee expires and the said fact is brought into the notice of Assessing Officer still Assessing Officer does not bring the legal heirs on record and passes the assessment order in the name of deceased; such assessment order is invalid.