PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) – 2 versus M/S. MAHAGUN REALTORS (P) LTD. on 5 April 2022

1. Special leave to appeal granted. With consent of counsels, thisappeal was heard finally. This appeal arises from an order[1] of the DelhiHigh Court rejecting the appeal, by the present appellant (hereafter “therevenue”) and affirming the order of the Income Tax Appellate Tribunal(ITAT) which quashed the assessment order against the assessee (i.e.,the respondent in this case).

2. The respondent-assessee company, Mahagun Realtors PrivateLimited (hereafter variously referred to as “MRPL”, “the amalgamatingcompany” or the “transferor company”), was engaged in developmentof real estate and had executed one residential project under the name“Mahagun Maestro” located in Noida, Uttar Pradesh. MRPLamalgamated with Mahagun India Private Limited (herein after ‘MIPL’)by virtue of an order[2] of the High Court (dated 10.09.2007). In terms ofthe order and provisions of the Companies Act, 1956, the amalgamationwas with effect from 01.04.2006.

3. On 20.03.2007 survey proceedings were conducted in respectof MRPL during the course of which, some discrepancies in its books ofaccount were noticed. On 27.08.2008, a search and seizure operationwas carried out in the Mahagun group of companies, including MRPLand MIPL. During those operations, the statements of common directorsof these companies were recorded, in the course of which admissionsabout not reflecting the true income of the said entities was made; thesestatements were duly recorded under provisions of the Income Tax Act,1961 (hereafter “the Act”). On 02.03.2009, the revenue issued notice toMAPL to file Return of Income (ROI) for the assessment year (hereafter“AY”) 2006-2007 under Section 153A of the Act, within 16 days. Onfailure by the assessee to file the ROI, the Assessing Officer (hereafter“AO”) issued show cause notice on 18.05.2009 under Section 276CCof the Act. On 23.05.2009, a reply was issued to the show cause noticestating that no proceedings be initiated and that a return would be filedby 30.06.2009. A ROI on 28.05.2010, describing the assessee asMRPLwas filed. On 13.08.2010, the revenue issued notice under Section143(2) of the Act. To this, adjournment was sought by letter dated 1 Dated 21.08.2019 in Income Tax Appeal No. 73/2019.

2 In Company Petition No. 133/2007 c/w Company Application (M) No. 41/2007.

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A27.08.2010. In the ROI, the PAN[3] disclosed was “[REDACTED]”(concededly of MRPL); the information given about the assessee wasthat its date of incorporation was 29.09.2004 (the date of incorporationof MRPL). Under Col. 27 of the form (of ROI) to the specific query of“Business Reorganization (a)….(b) In case of amalgamatedcompany, write the name of amalgamating company” the reply wasB“”NOT APPLICABLE.

4. The Assessing Officer (AO), issued the assessment order on11.08.2011, assessing the income of 8,62,85,332/- after making severaladditions of 6,47,00,972/- under various heads. The assessment ordershowed the assessee as “Mahagun Relators Private Ltd, representedCby Mahagun India Private Ltd”.

5. Being aggrieved, an appeal was preferred to the Commissionerof Income Tax (hereafter “CIT”). The appellant’s name and particularswere as follows:DM/s Mahagun Realtors (Represented by Mahagun India Pvt Ltd, after amalgamation)

B-66, Vivek Vihar, Delhi-110095.

The appeal was partly allowed by the CIT on 30.04.2012. TheECIT set aside some amounts brought to tax by the AO. The revenueappealed against this order before the ITAT; simultaneously, the assesseetoo filed a cross objection[4] to the ITAT. The revenue’s appeal wasdismissed; the assessee’s cross objection was allowed only on a singlepoint, i.e., that MRPL was not in existence when the assessment orderFwas made, as it had amalgamated with MIPL. The ITAT held interalia, that:

“The above assessee company did not exist on the date of theassessment order, we find that the assessment order passedby the ld AO is not sustainable in law in view of the· decisionGof the Hon’ble Delhi High Court in case of Spice InfotainmentLtd v CIT 247 ITR 500 as well as the decision of the Hon’bleDelhi High· Court in the case of CIT v Dimension ApparelPvt. Ltd 370 ITR 288. On the last decision Hon’ble Delhi High H

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Court has considered the whole issue from all the angles andtherefore, respectfully following the decision of Hon’ble ·DelhiHigh Court, we are of the view that the order of the Id AO isunsustainable.”

6. The revenue appealed to the High Court. The High Court, relyingupon a judgment of this court, in Principal Commissioner of IncomeTax v. Maruti Suzuki India Limited[5] (hereafter ‘Maruti Suzuki’),dismissed the appeal. The revenue has, therefore, appealed against thatjudgment.

Submissions

7. The revenue, represented by the Additional Solicitor General,Mr. N. Venkataraman, urged that the name of both the amalgamatingand amalgamated companies were mentioned in the assessment order.According to him such mistakes, defects or omissions are curable underSection 292B when the assessment is in substance and effect, inconformity with or according to the intent and purpose of the Act.

8. It was contended that the amalgamating or transferor companywas duly represented by the amalgamated company and no prejudicewas caused to any of the parties by the assessment order. It is furtherurged by the revenue that in Maruti Suzuki, this court rejected therevenue’s appeal on the ground that the final assessment order referredonly to the name of the amalgamating company and there was no mentionof the resulting company, whereas in this case, in both the draft and thefinal assessment orders, the names of both the amalgamating andamalgamated company were mentioned.

9. It was also urged that the facts of the Maruti Suzuki aredistinguishable from the present case, as in that case the revenue wasduly informed about the merger and change in name of the company,and yet the assessing officer passed the order in name of the transferoror amalgamating company. However, in the present case, the AO oreven the revenue was not informed about the amalgamation. Even whenthe search and seizure operations were carried out, the directors of MIPL(and MRPL, which had ceased to exist) clearly held out that both entitiesexisted; what is more, surrender of specific amounts relatable to MRPL’sactivities, for a past period, were made. A notice was issued under Section 5 2019 SCCOnline SC 928

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A153A on 02.03.2009 asking the assessee to file ROI. As ROI was notfiled, the revenue issued show cause notice as per Section 276CC. Inresponse of the same, the representative of the assessee filed a letterdated 23.05.2009 clearly mentioning the name of the transferor/amalgamating company, i.e., MRPL and stated that no proceedings beinitiated, and that the return would be filed by 30.06.2009. On 28.05.2010,Bthe assessee filed ROI for AY 2006-07 in the name of MRPL. The AOassumed scrutiny jurisdiction under section 143(2) of the Act and issuednotice on 13.08.2010. This notice was duly accepted by the authorizedrepresentative on 16.09.2010. Further, on 27.08.2010 adjournment wassought on behalf of the assessee, and the letter mentioned the name ofCMRPL. In addition to this, the submissions dated 28.06.2011 filed by theassessee in response to the notice of the AO clearly mentioned the shareholding pattern in the assessee company (MRPL) which indicated thateven as of 28.06.2011, the assessee continued the proceedings in thename of MRPL.D

10. It was urged that in the survey proceedings carried out on20.03.2007, the director of the companies, made statements under oath.At this time, the application for merger was already filed in the HighCourt. The assessee MRPL surrendered amounts for which it was unableto account. Other entities which merged with MIPL too likewiseEsurrendered amounts. Throughout the proceedings, the assessee neverrevised its offer of surrender of additional income nor brought it to thenotice of the AO. Further, on 20.03.2007, the assessee issued postdatedcheques in the name of MRPL. After merger, they were neither takenback nor fresh cheques were submitted from the amalgamated companyMIPL.F

11. It was submitted that in these circumstances, when assessmentproceedings were effectively resisted, during which the AO was appraisedof the amalgamation, which was duly given effect to in the assessee’sdescription, the question of the assessment and further proceedingsGbeing a nullity cannot arise. It was pointed out that in the appeal toCIT, as well as the cross objections to ITAT, the assessee’s descriptionwas as Mahagun Relators Private Ltd, represented by Mahagun IndiaPrivate Ltd., In these circumstances, the assessment order, in realityand substance, was in relation to the new or transferee company, i.e.,MIPL.H

12. On behalf of the respondent, it was contended by Ms. KavitaJha, learned counsel, that upon sanction of amalgamation scheme, theamalgamated company stood dissolved without winding up, in terms ofsection 394 of the Companies Act, 1956. Reliance was placed on thedecision of this court in Saraswati Industrial Syndicate v. Commissionerof Income Tax Haryana, Himachal Pradesh.[6 ]It was argued that theamalgamating company (MRPL) cannot be regarded as a ‘person’ interms of Section 2(31) of the Act.

13. Learned counsel urged that the notice under Section 153Aby the AO (despite the intimation by Respondent about theamalgamation on 30.05.2008 and the statement of the director at thetime of search) issued in the name of MRPL, a non-existing entity,was invalid and initiation of proceedings against non-existent entitywas void-ab-initio.

14. Counsel urged that the assessment framed in the name ofamalgamating company is invalid in terms of Section 170(2) of the Act.Once the amalgamation is effective, the notice had to be issued in thename of amalgamated company. The Delhi High Court in SpiceInfotainment Limited v. Commissioner of Income Tax,[7 ](hereafter‘Spice’) held that assessment framed in the name of the amalgamatingcompany which was ceased to exist in law, was invalid and untenableand such defect would not be cured in terms of section 292B of the Act.Further, the fact that amalgamated company participated in theassessment proceedings would not operate as estoppel.

15. It was contended that the respondent’s case is covered byMaruti Suzuki The facts of both cases are similar. In Maruti Suzuki,the fact of amalgamation was known to the AO and in the assessmentorder he tried to cure the defect by amending the cause title by includingthe name of both the existing and non-existing entity; the assessmentorder being in the name of a non-existing company, was highlighted tourge that as a result, this court should follow the ratio in that decision,and reject the revenue’s appeal.

6 (1990) Supp (1) SCR 332

7 [2012] 247 CTR 500 (Del). This judgement has also been referred to as SpiceEntertainment v. Commissioner of Income Tax in 2012 (280) ELT 43 (Del.).

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AAnalysis and Conclusions

16. The relevant provision of the Act is Section 170[8]. It inter alia,provides that where a person carries on any business or profession andis succeeded (to such business) by some other person (i.e., the successor),the predecessor shall be assessed to the extent of income accruing inBthe previous year in which the succession took place, and the successorshall be assessed in respect of income of the previous year in respect ofthe income of the previous year after the date of succession.

17. The amalgamation of two or more entities with an existingcompany or with a company created anew was provided for, statutorily,Cunder the old Companies Act, 1956[9], under Section 394 (1) (a). Section394 empowered the court to approve schemes proposing amalgamation,and oversee the various steps and procedures that had to be undertakenfor that purpose, including the apportionment of and devolution of assetsand liabilities, etc. Section 394 (2) provided as follows:

D“(2) Where an order under this section provides for thetransfer of any property or liabilities, then, by virtue of the 8 The relevant part of Section 170 reads as follows:

“170. Succession to business otherwise than on death

(1) Where a person carrying on any business or profession (such person hereinafter inthis section being referred to as the predecessor) has been succeeded therein by anyEother person (hereinafter in this section referred to as the successor) who continues tocarry on that business or profession,- (a) the predecessor shall be assessed in respect of the income of the previous year inwhich the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after thedate of succession.

(2) Notwithstanding anything contained in sub- section (1), when the predecessor cannotFbe found, the assessment of the income of the previous year in which the succession tookplace up to the date of succession and of the previous year preceding that year shall bemade on the successor in like manner and to the same extent as it would have been madeon the predecessor, and all the provisions of this Act shall, so far as may be, applyaccordingly.

(3) When any sum payable under this section in respect of the income of such businessGor profession for the previous year in which the succession took place up to the date ofsuccession or for the previous year preceding that year, assessed on the predecessor,cannot be recovered from him, the[ 1] Assessing] Officer shall record a finding to thateffect and the sum payable by the predecessor shall thereafter be payable by andrecoverable from the successor, and the successor shall be entitled to recover from thepredecessor any sum so paid.”

9 Under the present Companies Act, 2013, the corresponding provisions are SectionsH230-234.

order, that property shall be transferred to and vest in, andthose liabilities shall be transferred to and become theliabilities of, the transferee company; and in the case of anyproperty, if the order so directs, freed from any charge whichis, by virtue of the compromise or arrangement, to cease tohave effect.”

Section 394 (4) (a) defined “property” for the purpose of devolutionof assets and liabilities:

“394….(4) In this section-

(a) “ property” includes property, rights and powers of everydescription and” liabilities” includes duties of everydescription; and..”

18. Amalgamation, thus, is unlike the winding up of a corporateentity. In the case of amalgamation, the outer shell of the corporateentity is undoubtedly destroyed; it ceases to exist. Yet, in every othersense of the term, the corporate venture continues – enfolded within thenew or the existing transferee entity. In other words, the business andthe adventure lives on but within a new corporate residence, i.e., thetransferee company. It is, therefore, essential to look beyond the mereconcept of destruction of corporate entity which brings to an end orterminates any assessment proceedings. There are analogies in civil lawand procedure where upon amalgamation, the cause of action or thecomplaint does not per se cease – depending of course, upon the structureand objective of enactment. Broadly, the quest of legal systems andcourts has been to locate if a successor or representative exists in relationto the particular cause or action, upon whom the assets might havedevolved or upon whom the liability in the event it is adjudicated, wouldfall.

19. This court, in Commissioner of Income Tax, v. HukamchandMohanlal[10] noticed that Section 159 of the Act related to a legalrepresentative’s tax liability. It casts liability upon a legal representativein the event of death of her or his predecessor, to pay tax, in effectsaying that where a person dies his legal representative shall be liable topay any sum which the deceased would have been liable to pay if he hadnot died. The corresponding provision in the old Income Tax Act (of A

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A1922) was Section 24B. The court in Commissioner of Income Tax v.Amarchand Shroff[11] held that the provision did not authorise levy oftax on receipts by the legal representative of a deceased person in theyear of assessment succeeding the year of account, being the previousyear in which such person died. The assessee ordinarily had to be aliving person and could not be a dead person. By Section 24B the legalBpersonality of the deceased assessee was extended for the duration ofthe entire previous year in the course of which he died. The incomereceived by him before his death and that received by his legalrepresentative after his death (but in that previous year) becameassessable to income tax in the relevant assessment year. Any incomeCreceived in the year subsequent to the previous year or the accountingyear could not be called income received by the deceased person. Thisreasoning was adopted later, in the judgment reported as Commissionerof Income Tax v. James Anderson[12]where, in the context of dividendincome accruing to the estate of a deceased, this court held that asParliament did not makeD

“any provision generally for assessment of income receivableby the estate of the deceased person, the expression “any taxwhich would have been payable by him under this Act if hehad not died” cannot be deemed to have supplied themachinery for taxation of income received by a legalErepresentative to the estate after the expiry of the year in thecourse of which such person died.”

20. In Saraswati Syndicate (supra), the facts were that afteramalgamation, the transferee company claimed exemption from tax, ofa sum which had been allowed as a trading liability- on accrual basis, inFthe hands of the transferee company which had ceased to exist. Therevenue disallowed that claim; that view was upheld. This court statedthat:“In amalgamation two or more companies are fused into oneby merger or by taking over by another. Reconstruction orG‘amalgamation’ has no precise legal meaning. Theamalgamation is a blending of two or more existingundertakings into one undertaking, the share holders of each 11 1963 Supp (1) SCR 699H12 1964 (6) SCR 590

blending company become substantially the share-holders inthe company which is to carry on the blended undertakings.There may be amalgamation either by the transfer of two ormore undertakings to a new company, or by the transfer ofone or more undertakings to an existing company. Strictly‘amalgamation’ does not cover the mere acquisition by acompany of the share capital of other company which remainsin existence and continues its undertaking but the context inwhich the term is used may show that it is intended to includesuch an acquisition. See: Halsbury’s Laws of England, 4thEdition Vol. 7 Para 1539. Two companies may join to form anew company, but there may be absorption or blend- ing ofone by the other, both amount to amalgamation. When twocompanies are merged and are so joined, as to form a thirdcompany or one is absorbed into one or blended with another,the amalgamating company loses its entity.

In M/s General Radio and Appliances Co Ltd v M.A.. Khader(dead) by Lrs., [1986] 2 S.C.C. 656, the effect ofamalgamation of two companies was considered. M/s. GeneralRadio and Appliances Co. Ltd. was tenant of a premises underan agreement providing that the tenant shall not sub-let thepremises or any portion thereof to anyone without the consentof the landlord. M/s. General Radio and Appliances Co. Ltd.was amalgamated with M/s. National Ekco Radio andEngineering Co. Ltd. under a scheme of amalgamation andorder of the High Court under Sections 391 and 394 ofCompanies Act, 1956. Under the amalgamation scheme, thetransferee company, namely, M/s. National Ekco Radio andEngineering Company had acquired all the interest, rightsincluding leasehold and tenancy rights of the transferorcompany and the same vested in the transferee company.Pursuant to the amalgamation scheme the transferee companycontinued to occupy the premises which had been let out tothe transferor company. The landlord initiated proceedingsfor the eviction on the ground of unauthorised sub-letting ofthe premises by the transferor company. The transfereecompany set up a defence that by amalgamation of the twocompanies under the order of the Bombay High Court allinterest, rights including lease- hold and tenancy rights held ABC

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Aby the transferor company blended with the transfereecompany, therefore the transferee company was legal tenantand there was no question of any sub-letting. The RentController and the High Court both decreed the landlord’ssuit. This Court in appeal held that under the order ofamalgamation made on the basis of the High Court’s order,Bthe transferor company ceased to be in existence in the eyeof law and it effaced itself for all practical purposes. Thisdecision lays down that after the amalgamation of the twocompanies the transferor company ceased to have any entityand the amalgamated company ac- quired a new status and itCwas not possible to treat the two companies as partners orjointly liable in respect of their liabilities and assets. In theinstant case the Tribunal rightly held that the appellantcompany was a separate entity and a different assessee,therefore, the allowance made to Indian Sugar Company,which was a different assessee, could not be held to be theDincome of the amalgamated company for purposes of Section41 (1) of the Act. The High Court was in error in holding thateven after amalgamation of two companies, the transferorcompany did not become non-existent instead it continued itsentity in a blended form with the appellant company. The HighECourt’s view that on amalgamation ‘there is no completedestruction of corpo- rate personality of the transferorcompany instead there is a blending of the corporatepersonality of one with another corporate body and itcontinues as such with the other is not sustainable in law.The true effect and character of the amalgamation largelyFdepends on the terms of the scheme of merger. But there cannotbe any doubt that when two companies amalgamate andmerge into one the transferor company loses its entity as itceases to have its business. However, their respective rightsof liabilities are determined under scheme of amalgamationGbut the corporate entity of the transferor company ceases toexist with effect from the date the amalgamation is madeeffective.”

21. Saraswati Syndicate (supra) noticeably was decided inrelation to assessment issues when amalgamation was not separatelyHdefined under the Income Tax Act. By an amendment of 1967, this term was for the first time defined in the form of Section 2(1A). That provisionreads as follows:

“(1A) “amalgamation”, in relation to companies, means themerger of one or more companies with another company orthe merger of two or more companies to form one company(the company or companies which so merge being referred toas the amalgamating company or companies and the companywith which they merge or which is formed as a result of themerger, as the amalgamated company) in such a manner that—

(i) all the property of the amalgamating company or companiesimmediately before the amalgamation becomes the propertyof the amalgamated company by virtue of the amalgamation;

(ii) all the liabilities of the amalgamating company ofcompanies immediately before the amalgamation, become theliabilities of the amalgamated company by virtue of theamalgamation;

(iii) shareholders holding not less than nine-tenths in valueof the shares in the amalgamating company or companies(other than shares already held therein immediately beforethe amalgamation by, or by a nominee for, the amalgamatedcompany or its subsidiary) become shareholders of theamalgamated company by virtue of the amalgamation,otherwise than as a result of the acquisition of the propertyof one company by another company pursuant to the purchaseof such property by the other company or as a result of thedistribution of such property to the other company after thewinding up of the first mentioned company;”

22. The effect of amalgamation in the context of income tax, wasagain considered in another earlier decision, i.e., Marshall Sons andCo. (India) Ltd. v. Income Tax Officer[13]. There, the court held that:

“14. Every scheme of amalgamation has to necessarilyprovide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein doesso provide viz., January 1, 1982. It is true that whilesanctioning the scheme, it is open to the Court to modify the AB

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said date and prescribe such date of amalgamation/transferas it thinks appropriate in the facts and circumstances of thecase. If the Court so specifies a date, there is little doubt thatsuch date would be date of amalgamation/date of transfer.But where the Court does not prescribed any specific datebut merely sanctions the scheme presented to it - as hashappened in this case - it should follow that the rate ofamalgamation/date of transfer is the date specified in thescheme as “the transfer date”. It cannot be otherwise. It mustbe remembered that before applying to the Court under Section391(1), a scheme has to be framed and such scheme has tocontain a date of amalgamation/transfer. The proceedingsbefore the court may take some time; indeed, they are boundto take some time because several steps provided by Sections391 to 394 and the relevant Rules have to be followed andcomplied with. During the period the proceedings are pendingbefore the Court, both the amalgamation units, i.e., theTransferor Company and the Transferee Company may carryon business, as has happened in this case but normallyprovision is made for this aspect also in the scheme ofamalgamation. In the present scheme, Clause 6(b) doesexpressly provide that with effect from the transfer date, theTransferor Company (Subsidiary Company) shall be deemedto have carried on the business for and on behalf of theTransferee Company (Holding Company) with all attendantconsequences. It is equally relevant to notice that the Courtshave not only sanctioned the scheme in this case but havealso not specified any other date as the date of transfer/amalgamation. In such a situation, it would not be reasonableto say that the scheme of amalgamation takes effect on andfrom the date of the order sanctioning the scheme. We are,therefore, of the opinion that the notices issued by the IncomeTax Officer (impugned in the writ petition) were not warrantedin law. The business carried on by the Transferor Company(Subsidiary Company) should be deemed to have been carriedon for and on behalf of the Transferee Company. This is thenecessary and the logical consequence of the courtsanctioning the scheme of amalgamation as presented to it.The order of the Court sanctioning the scheme, the filing of the certified copies of the orders of the court before theRegistrar of Companies, the allotment of shares etc. may haveall taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstancesof this case would be January 1, 1982. This is also the ratioof the decision of the Privy Council in Raghubar Dayal v.The Bank of Upper India Ltd. A.I.R. 1919 P.C. 9, relied on.

15. Counsel for the Revenue contended that if the aforesaidview is adopted then several complications will ensue in casethe Court refuses to sanction the scheme of amalgamation.We do not see any basis for this apprehension. Firstly, anassessment can always be made and is supposed to be madeon the Transferee Company taking into account the incomeof both the Transferor and Transferee Company. Secondly,and probably the more advisable course from the point ofview of the Revenue would be to make one assessment on theTransferee Company taking into account the income of both,of Transferor or Transferee Companies and also to makeseparate protective assessments on both the Transferor andTransferee Companies separately.There may be a certainpractical difficulty in adopting this course inasmuch asseparate balance-sheets may not be available for theTransferor and Transferee Companies. But that may not bean insuperable problem inasmuch as assessment can alwaysbe made, on the available material, even without a balance-sheet. In certain cases, best-judgment assessment may alsobe resorted to. Be that as it may, we need not pursue this lineof enquiry because it does not arise for consideration in thesecases directly.”

(emphasis supplied)

23. Many High Courts in recent years, had mostly relied uponSaraswati Syndicate which was a case where the transferor entity hadclaimed a certain relief on the basis of the agreed method of accounting.The corresponding obligation to recognise the demands was sought tobe disallowed in the subsequent year, in the case of the then transfereecompany. The decision of the Delhi High Court, in Spice (supra), afterdiscussing the decision in Saraswati Syndicate, went on to explain whyassessing an amalgamating company, without framing the order in thename of the transferee company is fatal:

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A“10. Section 481 of the Companies Act provides for dissolutionof the company. The Company Judge in the High Court canorder dissolution of a company on the grounds stated therein.The effect of the dissolution is that the company no moresurvives. The dissolution puts an end to the existence of thecompany. It is held in M.H. Smith (Plant Hire) Ltd. v. D.L.BMainwaring (T/A Inshore), 1986 BCLC 342 (CA) that “oncea company is dissolved it becomes a non-existent party andtherefore no action can be brought in its name. Thus aninsurance company which was subrogated to the rights ofanother insured company was held not to be entitled toCmaintain an action in the name of the company after the latterhad been dissolved”.

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11. After the sanction of the scheme on 11[th] April, 2004, theSpice ceases to exit w.e.f. 1[st] July, 2003. Even if Spice hadfiled the returns, it became incumbent upon the Income taxDauthorities to substitute the successor in place of the said‘dead person’. When notice under Section 143(2) was sent,the appellant/amalgamated company appeared and broughtthis fact to the knowledge of the AO. He, however, did notsubstitute the name of the appellant on record. Instead, theEAssessing Officer made the assessment in the name of M/sSpice which was non existing entity on that day. In suchproceedings and assessment order passed in the name of M/s Spice would clearly be void. Such a defect cannot be treatedas procedural defect. Mere participation by the appellantwould be of no effect as there is no estoppel against law.

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12. Once it is found that assessment is framed in the name ofnon-existing entity, it does not remain a procedural irregularityof the nature which could be cured by invoking the provisionsof Section 292B of the Act.”

G24. A series of decisions had followed the Delhi High Court’sdecision in Spice. All these were the subject of special leave petitions,which were disposed of by the following order in Commissioner ofIncome Tax v. Spice Enfotainment Ltd[14].

H14 (2020) 18 SCC 353

“Delay condoned. Heard the learned Senior Counselappearing for the parties. We do not find any reason tointerfere with the impugned judgment(s) [Spice EntertainmentLtd. v. Commr. of Service Tax, (2011 SCC OnLine Del);CIT v. Dimension Apparels (P) Ltd., (2015) 370 ITR 288;CIT v. Chanakaya Exports (P) Ltd., 2014 SCC OnLine Del7678; CIT v. Chanakaya Exports (P) Ltd., [ITA No. 721 of2014, order dated 24-11-2014 (Del)]; CIT v. Radha Appearals(P) Ltd., 2015 SCC OnLine Del 14568; CIT v. Intel Technology(India) (P) Ltd., 2015 SCC OnLine Kar 9493; CIT v.Chanakaya Exports (P) Ltd., 2015 SCC OnLine Del 14567;CIT v. Mayank Traders (P) Ltd., 2015 SCC OnLine Del 14633;CIT v. P.D. Associates (P) Ltd., 2015 SCC OnLine Del 14632;CIT v. Foryu Overseas (P) Ltd., 2015 SCC OnLine Del 14566;CIT v. Sapient Consulting Ltd., 2016 SCC OnLine Del 6615;passed by the High Court. In view of this, we find no merit inthe appeals and special leave petitions. Accordingly, theappeals and special leave petitions are dismissed.”

25. This court, without elaborate discussion, approved the reasoningin various judgments which held that upon the cessation of the transferorcompany, assessment of the transferor (or amalgamated company) wasimpermissible.

26. In Dalmia Power Limited & Ors v. The AssistantCommissioner of Income Tax, Circle 1, Trichy[15] the amalgamated(transferee) company filed a revised return, beyond the time prescribed.The original return had been filed by the transferor company. This wasnot allowed by the revenue. The assessee moved the High Court. Thiscourt endorsed the view of the single judge, holding that the revenue hadnot objected to the amalgamation schemes duly and that Sections 139(5)and 119(2)(b) of the Act and Circular No. 9/2015 issued by the CBDTwere inapplicable to a case where a revised ROI was filed pursuant toa Scheme of Arrangement and Amalgamation, approved and sanctionedby the National Company Law Tribunal.

27. In another recent decision, McDowell and Company Ltd. v.Commissioner of Income Tax, Karnataka Central[16]this court hadoccasion to consider the effect of amalgamation of two companies, and 15 (2020) 14 SCC 736

16 (2017) 13 SCC 799

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Athe rights and liabilities in relation to claim for depreciation, under the Act.The assessee had taken over a sick company-HPL – by amalgamation;HPL ceased to have any identity after amalgamation. The relative rights,however, were determined in terms of the scheme of amalgamation.The benefit of interest accrued after the company ceased to exist wasavailed of by the assessee (the successor) company. The assessee wasBallowed to set off the amalgamated losses of the company amalgamatedwith it, i.e., HPL. This benefit accrued to the assessee under Section72A of the Act. The court held that when the assessee was allowed thebenefit of the accumulated loss, while computing those losses, the incomewhich accrued to it had to be adjusted and only thereafter net loss couldChave been allowed to be set off by the assessee company. The AO hadmade those calculations. The assessee was given the benefit of theaccumulated loss of the amalgamated company. Its effect was that thoughthose losses were suffered by the amalgamated company they weredeemed to be treated as losses of the assessee by virtue of Section 72A.This court negatived the plea that even while taking advantage of theDaccumulated loss, in calculating them at the hands of amalgamatedcompany, i.e., HPL, the income accrued under Section 41(1) of the Actat the hands of HPL could not be accounted for. It was held that it hadto be adjusted to see what was the actual accumulated losses, the benefitof which had to be extended to the assessee. This court consideredESection 41(1) along with Section 72A of the Act.

28. This court notices that there are not less than 100 instances[17]under the Income Tax Act, wherein the event of amalgamation, themethod of treatment of a particular subject matter is expressly indicatedin the provisions of the Act. In some instances, amalgamation results inFwithdrawal of a special benefit (such as an area exemption under Section80IA) - because it is entity or unit specific. In the case of carry forwardof losses and profits, a nuanced approach has been indicated. All theseprovisions support the idea that the enterprise or the undertaking, andthe business of the amalgamated company continues. The beneficialGtreatment, in the form of set-off, deductions (in proportion to the periodthe transferee was in existence, vis-à-vis the transfer to the transferee 17 For instance, Section 35A, 35AB (3); 35ABB; 35D (5); 35DDA; 35E; 41 (1) (Anybenefit accrued by the amalgamated co.) from cessation of liability of amalgamatingcompany shall be taxed in the hands of the amalgamated company); 43 (1); 43 (6); 32Hand 43 (6) (c); 43C; 47 (vi); (via) (viaa) (viab); 47 (vii); 72A; 72AB, etc.

company); carry forward of loss, depreciation, all bear out that underthe Act, (a) the business-including the rights, assets and liabilities of thetransferor company do not cease,but continue as that of the transferorcompany; (b) by deeming fiction- through several provisions of the Act,the treatment of various issues, is such that the transferee is deemed tocarry on the enterprise as that of the transferor.

29. In Bhagwan Dass Chopra v. United Bank of India[18]it washeld that in every case of transfer, devolution, merger or scheme ofamalgamation, in which rights and liabilities of one company aretransferred or devolved upon another company, the successor-in-interestbecomes entitled to the liabilities and assets of the transferor companysubject to the terms and conditions of contract of transfer or merger, asit were. Later, in Singer India Ltd v. Chander Mohan Chadha[19]thiscourt held as follows:

“8. ..there can be no doubt that when two companiesamalgamate and merge into one, the transferor company losesits identity as it ceases to have its business. However, theirrespective rights and liabilities are determined under thescheme of amalgamation, but the corporate identity oftransferor company ceases to exist with effect from the datethe amalgamation is made effective.”

30. The combined effect, therefore, of Section 394 (2) of theCompanies Act, 1956, Section 2 (1A) and various other provisions of theIncome Tax Act, is that despite amalgamation, the business, enterpriseand undertaking of the transferee or amalgamated company- which ceasesto exist, after amalgamation, is treated as a continuing one, and anybenefits, by way of carry forward of losses (of the transferor company),depreciation, etc., are allowed to the transferee. Therefore, unlike awinding up, there is no end to the enterprise, with the entity. The enterprisein the case of amalgamation, continues.

31. In Maruti Suzuki (supra), the scheme of amalgamation wasapproved on 29.01.2013 w.e.f. 01.04.2012, the same was intimated tothe AO on 02.04.2013, and the notice under Section 143(2) for AY 2012-13 was issued to amalgamating company on 26.09.2013. This court infacts and circumstances observed the following:

18 1988 (1) SCR 108819 [2004] Supp (3) SCR 535

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“35.In this case, the notice under Section 143(2) under whichjurisdiction was assumed by the assessing officer was issuedto a non-existent company. The assessment order was issuedagainst the amalgamating company. This is a substantiveillegality and not a procedural violation of the nature advertedto in Section 292B.

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39. In the present case, despite the fact that the assessingofficer was informed of the amalgamating company havingceased to exist as a result of the approved scheme ofamalgamation, the jurisdictional notice was issued only in itsname. The basis on which jurisdiction was invoked wasfundamentally at odds with the legal principle that theamalgamating entity ceases to exist upon the approved schemeof amalgamation. Participation in the proceedings by theappellant in the circumstances cannot operate as an estoppelagainst law. This position now holds the field in view of thejudgment of a co-ordinate Bench of two learned judges whichdismissed the appeal of the Revenue in Spice Entertainmenton 2 November 2017. The decision in Spice Entertainmenthas been followed in the case of the respondent whiledismissing the Special Leave Petition for AY 2011-2012. Indoing so, this Court has relied on the decision in SpiceEntertainment.

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40. We find no reason to take a different view. There is avalue which the court must abide by in promoting the interestof certainty in tax litigation. The view which has been takenby this Court in relation to the respondent for AY 2011-12must, in our view be adopted in respect of the present appealwhich relates to AY 2012-13. Not doing so will only result inuncertainty and displacement of settled expectations. Thereis a significant value which must attach to observing therequirement of consistency and certainty. Individual affairsare conducted and business decisions are made in theexpectation of consistency, uniformity and certainty. To detractfrom those principles is neither expedient nor desirable.”

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32. The court, undoubtedly noticed Saraswati Syndicate. Further,Hthe judgment in Spice (supra)and other line of decisions, culminating in

this court’s order, approving those judgments, was also noticed. Yet, thelegislative change, by way of introduction of Section 2 (1A), defining“amalgamation” was not taken into account. Further, the tax treatmentin the various provisions of the Act were not brought to the notice of thiscourt, in the previous decisions.

33. There is no doubt that MRPL amalgamated with MIPL andceased to exist thereafter; this is an established fact and not in contention.The respondent has relied upon Spice and Maruti Suzuki (supra)tocontend that the notice issued in the name of the amalgamating companyis void and illegal. The facts of present case, however, can be distinguishedfrom the facts in Spice and Maruti Suzuki on the following bases.

34. Firstly, in both the relied upon cases, the assessee had dulyinformed the authorities about the merger of companies and yet theassessment order was passed in the name of amalgamating/non-existentcompany. However, in the present case, for AY 2006-07, there was nointimation by the assessee regarding amalgamation of the company. TheROI for the AY 2006-07 first filed by the respondent on 30.06.2006 wasin the name of MRPL. MRPL amalgamated with MIPL on 11.05.2007,w.e.f. 01.04.2006. In the present case, the proceedings against MRPLstarted in 27.08.2008- when search and seizure was first conducted onthe Mahagun group of companies. Notices under Section 153A andSection 143(2) were issued in the name MRPL and the representativefrom MRPL corresponded with the department in the name of MRPL.On 28.05.2010, the assessee filed its ROI in the name of MRPL, and inthe ‘Business Reorganization’ column of the form mentioned ‘not’applicablein amalgamation section. Though the respondent contendsthat they had intimated the authorities by letter dated 22.07.2010, it wasfor AY 2007-2008 and not for AY 2006-07. For the AY 2007-08 to 2008-2009, separate proceedings under Section 153A were initiated againstMIPL and the proceedings against MRPL for these two assessmentyears were quashed by the Additional CIT by order dated 30.11.2010 asthe amalgamation was disclosed. In addition, in the present case theassessment order dated 11.08.2011 mentions the name of both theamalgamating (MRPL) and amalgamated (MIPL) companies.

35. Secondly, in the cases relied upon, the amalgamated companieshad participated in the proceedings before the department and the courtsheld that the participation by the amalgamated company will not beregarded as estoppel. However, in the present case, the participation inproceedings was by MRPL- which held out itself as MRPL.

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36. The judgments of this court- in Saraswati Syndicate andMarshall (supra) have indicated that the rights and liabilities of thetransferor and transferee companies are determined by the terms of themerger. In Saraswati Syndicate, the point further made is that thecorporate existence of the transferor ceases, upon amalgamation.

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B37. In the present case, the terms of the amalgamation have beenset out in the order sanctioning it, by the Delhi High Court, by its orderdated 10.09.2007. The court, by its order directed the amalgamation ofMahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., UniversalAdvertising Pvt. Ltd., ADR Home Décor Pvt. Ltd. under Section 394 ofthe Companies Act, 1956 with Mahagun (India) Pvt. Ltd. (MIPL) theCtransferee Company. The operative order of the Delhi High Court underSection 394 of the Companies Act, 1956 inter alia stated as follows:

“THIS COURT DOTH HEREBY SANCTION THE SCHEMEOF AMALGAMATION setforth in Schedule -I annexed heretoand DOTH HEREBY DECLARE the same to be binding on allthe shareholders and creditors of the Transferor andTransferee Companies and all concerned and Doth approvethe said scheme of amalgamation with effect from the appointeddate i.e., 1.04.2006.

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AND THIS COURT DOTH FURTHER ORDER:

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1. That all the property, rights and powers of the TransferorCompanies specified in the First, Second and Third parts ofthe Schedule-II hereto and all other property, right and powersof the Transferor Companies be transferred without furtheract or deed to all the Transferee Company and accordinglyFthe same shall pursuant to Section 394(2) of the CompaniesAct, 1956 be transferred to and vest in the TransfereeCompany for all the estate and interest of the TransferorCompanies therein but subject nevertheless to all charges nowaffecting the same; and G

2. That all the liabilities and duties of the TransferorCompanies be transferred without further act or deed to theTransferee Company and accordingly the same shall pursuantto Section 394 (2) of the Companies Act, 1956 be transferredto and become the liabilities and duties of the TransfereeCompany; and H

3. That all the proceedings now pending by or against theTransferor Companies be continued or against the TransfereeCompany; and

4. That the Transferee Company do without furtherapplication allot to such members of the Transferor Companiesas have not given such notice of dissent as it required byClause 7 given in the scheme of amalgamation herein theshares in the Transferee Company to which they are entitledunder the said amalgamation; and

5. That the Transferor Companies do within five weeks afterthe date of this order cause a certified copy of this order tobe delivered to the Registrar of Companies for registrationand on such certified copy being so delivered, the TransferorCompanies shall be dissolved without the process of windingup and the Registrar of Companies shall place all documentsrelating to the Transferor Companies and registered with himon the file kept by him in relation to the Transferee Companyand the files relating to the said Transferor and TransfereeCompanies shall be consolidated accordingly.”

38. The Assessment Order passed by the A.O. recorded interalia as follows:

“6.1 In the case of the assessee group a survey operationwas carried out on 20-03-2007 wherein incriminatingdocuments were found which reflected the receipt of ‘onmoney’/suppressed sale proceeds on sale of flats/shops.During the survey one ‘Jaguar’ spiral diary was found whichcontained unrecorded sale proceeds of various projectsundertaken by the group. On being confronted the Assesseegroup as per the statement of Amit Jain, Managing Directorof Mahagun Realtors Pvt. Ltd., Mahagun Developers Ltd.,Mahagun (India) Pvt. Ltd. recorded on 20-03-2007 itself videanswer to question no. 19 & 21 surrendered an amount ofRs. 16.9589 crores as per the following details for A.Y. 2007-08:

(i) Mahagun Realtors Pvt. Ltd. Rs. 5.072 crores

(ii) Mahagun Developers Ltd. Rs. 4.952 crores

(iii) Mahagun India Pvt. Ltd. Rs. 6.934 crores AB

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AFor easy reference relevant portion of the statement isquoted as under:

Q.18 Please further elaborate on the sale proceed asmentioned on pages 2 to 18 of the said diary, in thelight of the fact that in reply to Q No. 15 it has beenBstated that the said sale proceeds are not reflected inthe book of A/c.

The said sale figures denote the month-wise sale proceedspertaining to F.Y. 2006-07 in respect of the projectsunder the construction at various sites as mentionedCabove, which are not reflected in our books of A/c arenot reflected in our sales of MRPT, MDL, MIPL as on20.03.2007.

Q.19 What is the total quantum of sale proceeds in the threecompanies, namely, ‘MRPL, MDL, and MIPL’ which hasnot been declared in the F.Y. 06-07 in your books of A/c as admitted by you in your replay to the above relevantquestion.

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A. As per the said diary, the following sale proceeds notdeclared in our books of a/c of F.Y. 06-07 in respect ofMRPL, MDL and MIPL are as under:

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a) Mahagun Realtors Pvt. Ltd. (MRPL)

Rs. 507.2 lacs

b) Mahagun Developers Ltd. (MDL)

Rs. 495.2 lacs

c) Mahagun India Pvt. Ltd. (MIPL)

Rs. 693.48 lacs

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Rs .1 6 95 . 88lacs

Q21. With reference to Q. No. 19, please re-confirm as towhether the total amount of Rs. 16,95,88,000/- is partof net profit corresponding to advance taxes paid byGMDL, MIPL and MRPL for the period from 01.04.2006to 20.03.2007.

A. I hereby re-confirm that the amount of Rs. 16,95,88,000/- has not been declared in the P& L A/c of MDL, MIPLand MRPL for the period from 01.04.2006 to 20.03.2007.HI, therefore, make and unequivocal surrender of an amount of Rs. 16.95,88,000/- as the additional incomeof the following companies for the F.Y. 06-07 relevant toA.Y. 07-08:

a) Mahagun Realtors Pvt. Ltd. (MRPL) Rs. 507.2 lacsb) Mahagun Developers Ltd. (MDL)Rs. 495.2 lacsc) Mahagun India Pvt. Ltd. (MIPL)Rs. 693.48 lacsRs. 1695.88 lacs I further reconfirm that the total surrendered amount of Rs.16.95.88.000 is over and above the net profit correspondingto advance taxes paid by MDL, MIPL & MRPL for the periodfrom 01.04.2006 to 20.03.2007. I would further like to statethat the total surrender of Rs. 16.95.88.000/- in respect ofMIPL, MDL & MRPL for A.Y. 2007-08 for which Income TaxReturn is yet to be filed & I hereby undertake that the returnsof MIPL, MDL & MRPL for A.Y. 2007-08 shall be filed atminimum returned income of Rs.16.95.88.000/- (correspondingto total surrender amount) plus the net profit corresponding toadvance tax paid by MDL, MIPL & MRPL for the period from01.04.2006 to 20.02.2007.

Thus, the surrender was over and above the net profit for AY2007-08 in the case of respective company. The assessee wasrequired to correlate and justify the same that it has beenshown over and above the regular business income. Theassessee has submitted that while filing return of income forAY 2007-08 it has disclosed income of Rs. 16.95 crores asadditional cash sales under the head of business income.

6.2 Subsequent to survey operation a search and seizureoperation u/s. 132 of the Income-Tax Act, 1961 was carriedout in the hands of the assessee group. During the searchincriminating documents/ diaries which contained entries ofunaccounted income generated on account of receipt of ‘onmoney’ etc. were found and on being confronted, Shri AmitJain, Managing Director of group and the main person ofthe group in answer to question 15 of the statement recordedu/s. 132 (4) on 27-08-2008 admitted as under:

“As stated number of times above, I am not able to explainthe case entries/receipts appearing in the ledgers marked asannexure A-20, A-21, A-22, A-23 & A-24. Therefore, I offer A

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Rs. 30 crores as additional income on account of case receipts/entries in the above annexures in the hands of M/s. MahagunIndia (P) Ltd. The additional income declared is over andabove the regular income to be declared.”

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6.3 Admissions of additional income or receipts were examinedBin the light of the returns of income filed by the respectivecompanies. In so far as accounting of the income of 16.95crores admitted during the course of survey proceedings isconcerned it is found to have been accounted for in therespective years for which it was offered. Here, it is importantto note that Shri Amit Jain whose statement was recorded quaCthe surrender of additional income of 30 crores has nowherestated as to which particular year the income surrendered isattributable to. Careful scrutiny of the returns revealed thatin so far as admitted additional income of 30 crores asvoluntarily surrendered during the course of search in thestatement recorded u/s. 132(4) is concerned the assesseeDcompany Mahagun India (P) Ltd. instead of offering the fullamount of 30 crores for taxation, has offered only 17.97 croresfor AY 2009-10. This amount of additional income has beenoffered on the bases of peak of the annexures (A-20, A-21,A-22, A-23 & A-24) which too is found to have beenEcapitalized by the assessee company in its work-in-progressat 16.97 crores and Rs. 1 crore as cash in hand. This word-in-progress is found debited in the books maintained for AY2010-11 i.e., to this extend surrender made in AY 09-10 hasbeen set off against the income meant for AY 2010-11.”

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F39. The A.O. had directed a Special Audit under Section 142(2A) of the Act. Having received the report of the Special Auditor andhaving considered the objections of the assessee the A.O. recordedfurther as follows:

“7.3 The documents seized reveals that the assessee grouphad received on ‘on money’ as a matter of routine/practiceGon sale of almost each and every flat/shop. Accordingly, itwas considered expedient/necessary to work out theunaccounted receipts of ‘on money’ in respect of the entirearea sold of all the relevant projects so as to work out theexact quantum of receipts suppressed. The Special AuditorsHwere specifically directed to work out the quantum of addition to be made on this extrapolation bases which they worked itAout at Rs. 42, 98, 06,439 as per the following; B

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7.6 The reply filed by the assessee has been considered. TheDassessee as such does not dispute the extrapolation done buthas just asked for discounting the extrapolated rate suitablyand spread it over to the entire projects period. Beforeconsidering whether the reply as filed by the assessee companyis acceptable or not it is considered necessary to re-iteratecertain facts of the case at a glance. During the currency ofEthe block or 7 years as relevant to the search & seizureoperations as carried out in the hands of the assessee groupfollowing projects are found to have been either started orcompleted as per the following details; F

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530SUPREME COURT REPORTS

A8. Year & Entity of taxability of suppressed receipts

8.1 It is to mention here that during the F.Y. 2002-2003 and2003-04, the assessee was following Project CompletionMethod and in subsequent years that assessee has changed topercentage completion method. Since, the assessee is followingthe ‘Percentage Completion Method’ it was incumbent uponBthe assessee to spread the unaccounted receipts of Rs. 16.95as admitted during survey and of Rs. 32,82,27,143 as found inthe diaries found in search in relation to the projects undertakenin proportion to the percentage of completion of the projectsas achieved in the relevant years. In my view unless this isCdone the correct taxable income of the assessee cannot beworked out. Here, it is relevant to mention that even in its replydated 27-07-2011, assessee has agreed that unaccountedreceipts are required to be spread over to various years on thebasis of percentage completion method.

8.2 On attributing the aforesaid surrender qua the stag ofDconstruction of various projects (on the same bases as adoptedby the Special Auditor for working out the figure of 42 crores)likely additional income attributable to unaccounted receiptsas referred to in this para amounting to Rs. 49,78,59,943 whichthe assessee ought to have offered for taxation is worked outas per Annexure A-1to this order. The additions are accordinglyEmade in the respective years of assessment over and above thereceipts duly accounted for by the assessee group in its returnsfiled for these years. In brief, as per this working, additions tobe made will be as below:

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8.3 Before parting with this issue it is considered necessaryto pin point that assessee group ought to have offered theincome in the hands of the entities which had earned theaforesaid incomes detected during survey and search action.Under the Income-Tax act, 1961 as explained by the SupremeCourt in CIT vs. Ch. Atchaiah (218 ITR 241 SC) the income isrequired to be taxed in the correct year, under the correctheads and in the correct hands/entities. In the context of theassessee group, the suppressed receipts, irrespective of whattreatment the assessee group are required to be taxed in thehands of the entities/companies which executed the aforesaidprojects. Accordingly, disregarding the treatment given by theassessee group, the aforesaid unaccounted receipts totalingto 49.78 crores are brought to tax in the hands of entitles towhich these are allocated as per para 8.2 above.

In view of the above, unaccounted receipts attributable tothe assessee for the assessment year 2005-06 amounting toRs. 6,05,71,018/- as supra is treated as undisclosed incomeof the assessee and added to the total income of the assessee.I am satisfied that the assessee has not disclosed the abovereceipts/income and as such penalty proceedings u/s 271(1)(c)are attracted on this score.

(Addition of Rs. 6,05,71,018/-)”

40. The facts of the present case are distinctive, as evidentfrom the following sequence:

1. The original return of MRPL was filed under Section 139(1)on 30.06.2006.

2. The order of amalgamation is dated 11.05.2007 – but madeeffective from 01.04.2006. It contains a condition – Clause2[20] - whereby MRPL’s liabilities devolved on MIPL.

3. The original return of income was not revised even thoughthe assessment proceedings were pending. The last date 20 “2.That all the liabilities and duties of the Transferor Companies be transferredwithout further act or deed to the Transferee Company and accordingly the same shallpursuant to Section 394 (2) of the Companies Act, 1956 be transferred to and becomethe liabilities and duties of the Transferee Company”

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532SUPREME COURT REPORTS

[2022] 4 S.C.R.

Afor filing the revised returns was 31.03.2008, after theamalgamation order.

4. A search and seizure proceeding was conducted in respectof the Mahagun group, including the MRPL and othercompanies:

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(i) When search and seizure of the Mahagun group tookplace, no indication was given about theamalgamation.

(ii) A statement made on 20.03.2007 by Mr. Amit Jain,MRPL’s managing director, during statutory surveyCproceedings under Section 133A, uneartheddiscrepancies in the books of account, in relation toamounts of money in MRPL’s account. The specificamount admitted was 5.072 crores, in the courseof the statement recorded.

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(iii) The warrant was in the name of MRPL. Thedirectors of MRPL and MIPL made a combinedstatement under Section 132 of the Act, on27.08.2008.

(iv) A total of 30 crores cash, which was seized- wassurrendered in relation to MRPL and other transferorcompanies, as well as MIPL, on 27.08.2008 in thecourse of the admission, when a statement wasrecorded under Section 132 (4) of the Act, by Mr.Amit Jain.

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5. Upon being issued with a notice to file returns, a returnwas filed in the name of MRPL on 28.05.2010. Before that,on two dates, i.e., 22/27.07.2010, letters were written onbehalf of MRPL, intimating about the amalgamation, butthis was for AY 2007-08 (for which separate proceedingsGhad been initiated under Section 153A) and not for AY 2006-07.

6. The return specifically suppressed – and did not disclosethe amalgamation (with MIPL) – as the response to Query27(b) was “N.A”.

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7. The return – apart from specifically being furnished in theAname of MRPL, also contained its PAN number.

8. During the assessment proceedings, there was fullparticipation – on behalf of all transferor companies, andMIPL. A special audit was directed (which is possible onlyafter issuing notice under Section 142). Objections to theBspecial audit were filed in respect of portions relatable toMRPL.

9. After fully participating in the proceedings which werespecifically in respect of the business of the erstwhile MRPLfor the year ending 31.03.2006, in the cross-objection beforeCthe ITAT, for the first time (in the appeal preferred by theRevenue), an additional ground was urged that theassessment order was a nullity because MRPL was not inexistence.

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10. Assessment order was issued – undoubtedly in relation toMRPL (shown as the assessee, but represented by thetransferee company MIPL).

11. Appeals were filed to the CIT (and a cross-objection, toITAT) – by MRPL “represented by MIPL”.

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12. At no point in time – the earliest being at the time of search,and subsequently, on receipt of notice, was it plainly statedthat MRPL was not in existence, and its business assetsand liabilities, taken over by MIPL.

13. The counter affidavit filed before this court – (dated07.11.2020)has been affirmed by Shri Amit Jain S/o ShriP.K. Jain, who- is described in the affidavit as “Directorof M/S Mahagun Realtors(P) Ltd., R/o…”.

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41. In the light of the facts, what is overwhelmingly evident- isthat the amalgamation was known to the assessee, even at the stagewhen the search and seizure operations took place, as well as statementswere recorded by the revenue of the directors and managing director ofthe group. A return was filed, pursuant to notice, which suppressed thefact of amalgamation; on the contrary, the return was of MRPL. Thoughthat entity ceased to be in existence, in law, yet, appeals were filed on its G

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Abehalf before the CIT, and a cross appeal was filed before ITAT. Eventhe affidavit before this court is on behalf of the director of MRPL.Furthermore, the assessment order painstakingly attributes specificamounts surrendered by MRPL, and after considering the specialauditor’s report, brings specific amounts to tax, in the search assessmentorder. That order is no doubt expressed to be of MRPL (as the assessee)B- but represented by the transferee, MIPL. All these clearly indicatethat the order adopted a particular method of expressing the tax liability.The AO, on the other hand, had the option of making a common order,with MIPL as the assessee, but containing separate parts, relating to thedifferent transferor companies (Mahagun Developers Ltd., MahagunCRealtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home DécorPvt. Ltd.). The mere choice of the AO in issuing a separate order inrespect of MRPL, in these circumstances, cannot nullify it. Right fromthe time it was issued, and at all stages of various proceedings, the partiesconcerned (i.e., MIPL) treated it to be in respect of the transfereecompany (MIPL) by virtue of the amalgamation order – and SectionD394 (2). Furthermore, it would be anybody’s guess, if any refund weredue, as to whether MIPL would then say that it is not entitled to it,because the refund order would be issued in favour of a non-existingcompany (MRPL). Having regard to all these reasons, this court is ofthe opinion that in the facts of this case, the conduct of the assessee,Ecommencing from the date the search took place, and before all forums,reflects that it consistently held itself out as the assessee. The approachand order of the AO is, in this court’s opinion in consonance with thedecision in Marshall & Sons (supra), which had held that:

“an assessment can always be made and is supposed to beFmade on the Transferee Company taking into account theincome of both the Transferor and Transferee Company.”

42. Before concluding, this Court notes and holds that whethercorporate death of an entity upon amalgamation per se invalidates anassessment order ordinarily cannot be determined on a bare applicationGof Section 481 of the Companies Act, 1956 (and its equivalent in the2013 Act), but would depend on the terms of the amalgamation and thefacts of each case.

43. In view of the foregoing discussion and having regard to thefacts of this case, this court is of the considered view, that the impugnedHorder of the High Court cannot be sustained; it is set aside. Since the appeal of the revenue against the order of the CIT was not heard onmerits, the matter is restored to the file of ITAT, which shall proceed tohear the parties on the merits of the appeal- as well as the cross objections,on issues, other than the nullity of the assessment order, on merits. Theappeal is allowed, in the above terms, without order on costs.

Bibhuti Bhushan Bose

Appeal allowed.

(Assisted by : Shubhanshu Das, LCRA)

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