PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 2 VS M/S. MAHAGUN REALTORS (P) LTD

PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 2  VS  M/S. MAHAGUN REALTORS (P) LTD

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले


REPORTABLE
 IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2022
(ARISING OUT OF SPECIAL LEAVE PETITION (C) NO. 4063 OF 2020)

PRINCIPAL COMMISSIONER
OF INCOME TAX (CENTRAL) - 2 ...PETITIONER(S)
VERSUS
M/S. MAHAGUN REALTORS (P) LTD. ...RESPONDENT(S)
J U D G M E N T
S. RAVINDRA BHAT, J.
1. Special leave to appeal granted. With consent of counsels, this appeal was
heard finally. This appeal arises from an order1 of the Delhi High Court rejecting
the appeal, by the present appellant (hereafter “the revenue”) 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 Private Limited
(hereafter variously referred to as “MRPL”, “the amalgamating company” or the
“transferor company”), was engaged in development of real estate and had
1 Dated 21.08.2019 in Income Tax Appeal No. 73/2019.
2
executed one residential project under the name “Mahagun Maestro” located in
Noida, Uttar Pradesh. MRPL amalgamated with Mahagun India Private Limited
(herein after ‘MIPL’) by virtue of an order2 of the High Court (dated 10.09.2007).
In terms of the order and provisions of the Companies Act, 1956, the
amalgamation was with effect from 01.04.2006.
3. On 20.03.2007 survey proceedings were conducted in respect of MRPL
during the course of which, some discrepancies in its books of account were
noticed. On 27.08.2008, a search and seizure operation was carried out in the
Mahagun group of companies, including MRPL and MIPL. During those
operations, the statements of common directors of these companies were
recorded, in the course of which admissions about not reflecting the true income
of the said entities was made; these statements were duly recorded under
provisions of the Income Tax Act, 1961 (hereafter “the Act”). On 02.03.2009, the
revenue issued notice to MAPL to file Return of Income (ROI) for the assessment
year (hereafter “AY”) 2006-2007 under Section 153A of the Act, within 16 days.
On failure by the assessee to file the ROI, the Assessing Officer (hereafter “AO”)
issued show cause notice on 18.05.2009 under Section 276CC of the Act. On
23.05.2009, a reply was issued to the show cause notice stating that no
proceedings be initiated and that a return would be filed by 30.06.2009. A ROI
on 28.05.2010, describing the assessee as MRPL was filed. On 13.08.2010, the
revenue issued notice under Section 143(2) of the Act. To this, adjournment was
2
In Company Petition No. 133/2007 c/w Company Application (M) No. 41/2007.
3
sought by letter dated 27.08.2010. In the ROI, the PAN3 disclosed was
“AAECM1286B” (concededly of MRPL); the information given about the
assessee was that its date of incorporation was 29.09.2004 (the date of
incorporation of MRPL). Under Col. 27 of the form (of ROI) to the specific query
of “Business Reorganization (a)….(b) In case of amalgamated company, write
the name of amalgamating company” the reply was “NOT APPLICABLE”.
4. The Assessing Officer (AO), issued the assessment order on 11.08.2011,
assessing the income of ₹ 8,62,85,332/- after making several additions of ₹
6,47,00,972/- under various heads. The assessment order showed the assessee as
“Mahagun Relators Private Ltd, represented by Mahagun India Private Ltd”.
5. Being aggrieved, an appeal was preferred to the Commissioner of Income
Tax (hereafter “CIT”). The appellant’s name and particulars were as follows:
M/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. The CIT set aside
some amounts brought to tax by the AO. The revenue appealed against this order
before the ITAT; simultaneously, the assessee too filed a cross objection4
to the
ITAT. The revenue’s appeal was dismissed; the assessee’s cross objection was
allowed only on a single point, i.e., that MRPL was not in existence when the
3 Permanent Account Number
4 CO No. 300/Del/2012
4
assessment order was made, as it had amalgamated with MIPL. The ITAT held
inter alia, that:
“The above assessee company did not exist on the date of the
assessment order, we find that the assessment order passed by the ld
AO is not sustainable in law in view of the· decision of the Hon'ble
Delhi High Court in case of Spice Infotainment Ltd v CIT 247 ITR 500
as well as the decision of the Hon'ble Delhi High· Court in the case of
CIT v Dimension Apparel Pvt. Ltd 370 ITR 288. On the last decision
Hon'ble Delhi High Court has considered the whole issue from all the
angles and therefore, respectfully following the decision of Hon'ble
·Delhi High Court, we are of the view that the order of the Id AO is
unsustainable.”
6. The revenue appealed to the High Court. The High Court, relying upon a
judgment of this court, in Principal Commissioner of Income Tax v. Maruti
Suzuki India Limited5
(hereafter ‘Maruti Suzuki’), dismissed the appeal. The
revenue has, therefore, appealed against that judgment.
Submissions
7. The revenue, represented by the Additional Solicitor General, Mr. N.
Venkataraman, urged that the name of both the amalgamating and amalgamated
companies were mentioned in the assessment order. According to him such
mistakes, defects or omissions are curable under Section 292B when the
assessment is in substance and effect, in conformity with or according to the intent
and purpose of the Act.
8. It was contended that the amalgamating or transferor company was duly
represented by the amalgamated company and no prejudice was caused to any of
the parties by the assessment order. It is further urged by the revenue that in
5 2019 SCCOnline SC 928
5
Maruti Suzuki, this court rejected the revenue’s appeal on the ground that the final
assessment order referred only to the name of the amalgamating company and
there was no mention of the resulting company, whereas in this case, in both the
draft and the final assessment orders, the names of both the amalgamating and
amalgamated company were mentioned.
9. It was also urged that the facts of the Maruti Suzuki are distinguishable
from the present case, as in that case the revenue was duly informed about the
merger and change in name of the company, and yet the assessing officer passed
the order in name of the transferor or amalgamating company. However, in the
present case, the AO or even the revenue was not informed about the
amalgamation. Even when the search and seizure operations were carried out, the
directors of MIPL (and MRPL, which had ceased to exist) clearly held out that
both entities existed; what is more, surrender of specific amounts relatable to
MRPL’s activities, for a past period, were made. A notice was issued under
Section 153A on 02.03.2009 asking the assessee to file ROI. As ROI was not
filed, the revenue issued show cause notice as per Section 276CC. In response of
the same, the representative of the assessee filed a letter dated 23.05.2009 clearly
mentioning the name of the transferor/ amalgamating company, i.e., MRPL and
stated that no proceedings be initiated, and that the return would be filed by
30.06.2009. On 28.05.2010, the assessee filed ROI for AY 2006-07 in the name
of MRPL. The AO assumed scrutiny jurisdiction under section 143(2) of the Act
and issued notice on 13.08.2010. This notice was duly accepted by the authorized
6
representative on 16.09.2010. Further, on 27.08.2010 adjournment was sought on
behalf of the assessee, and the letter mentioned the name of MRPL. In addition
to this, the submissions dated 28.06.2011 filed by the assessee in response to the
notice of the AO clearly mentioned the share holding pattern in the assessee
company (MRPL) which indicated that even as of 28.06.2011, the assessee
continued the proceedings in the name of MRPL.
10. It was urged that in the survey proceedings carried out on 20.03.2007, the
director of the companies, made statements under oath. At this time, the
application for merger was already filed in the High Court. The assessee MRPL
surrendered amounts for which it was unable to account. Other entities which
merged with MIPL too likewise surrendered amounts. Throughout the
proceedings, the assessee never revised its offer of surrender of additional income
nor brought it to the notice of the AO. Further, on 20.03.2007, the assessee issued
postdated cheques in the name of MRPL. After merger, they were neither taken
back nor fresh cheques were submitted from the amalgamated company MIPL.
11. It was submitted that in these circumstances, when assessment proceedings
were effectively resisted, during which the AO was appraised of the
amalgamation, which was duly given effect to in the assessee’s description, the
question of the assessment and further proceedings being a nullity cannot arise.
It was pointed out that in the appeal to CIT, as well as the cross objections to
ITAT, the assessee’s description was as Mahagun Relators Private Ltd,
represented by Mahagun India Private Ltd., In these circumstances, the
7
assessment order, in reality and substance, was in relation to the new or transferee
company, i.e., MIPL.
12. On behalf of the respondent, it was contended by Ms. Kavita Jha, learned
counsel, that upon sanction of amalgamation scheme, the amalgamated company
stood dissolved without winding up, in terms of section 394 of the Companies
Act, 1956. Reliance was placed on the decision of this court in Saraswati
Industrial Syndicate v. Commissioner of Income Tax Haryana, Himachal
Pradesh.6
It was argued that the amalgamating company (MRPL) cannot be
regarded as a ‘person’ in terms of Section 2(31) of the Act.
13. Learned counsel urged that the notice under Section 153A by the AO
(despite the intimation by Respondent about the amalgamation on 30.05.2008 and
the statement of the director at the time of search) issued in the name of MRPL,
a non-existing entity, was invalid and initiation of proceedings against nonexistent entity was void-ab-initio.
14. Counsel urged that the assessment framed in the name of amalgamating
company is invalid in terms of Section 170(2) of the Act. Once the amalgamation
is effective, the notice had to be issued in the name of amalgamated company.
The Delhi High Court in Spice Infotainment Limited v. Commissioner of Income
Tax,7
(hereafter ‘Spice’) held that assessment framed in the name of the
amalgamating company which was ceased to exist in law, was invalid and
6
(1990) Supp (1) SCR 332
7
[2012] 247 CTR 500 (Del). This judgement has also been referred to as Spice Entertainment v. Commissioner
of Income Tax in 2012 (280) ELT 43 (Del.).
8
untenable and such defect would not be cured in terms of section 292B of the Act.
Further, the fact that amalgamated company participated in the assessment
proceedings would not operate as estoppel.
15. It was contended that the respondent’s case is covered by Maruti Suzuki
The facts of both cases are similar. In Maruti Suzuki, the fact of amalgamation
was known to the AO and in the assessment order he tried to cure the defect by
amending the cause title by including the name of both the existing and nonexisting entity; the assessment order being in the name of a non-existing
company, was highlighted to urge that as a result, this court should follow the
ratio in that decision, and reject the revenue’s appeal.
Analysis and Conclusions
16. The relevant provision of the Act is Section 1708
. It inter alia, provides
that where a person carries on any business or profession and is succeeded (to
such business) by some other person (i.e., the successor), the predecessor shall be
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 in this section being referred
to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as
the successor) who continues to carry on that business or profession,-
(a) the predecessor shall be assessed in respect of the income of the previous year in which 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 the date of succession.
(2) Notwithstanding anything contained in sub- section (1), when the predecessor cannot be found, the assessment
of the income of the previous year in which the succession took place up to the date of succession and of the
previous year preceding that year shall be made on the successor in like manner and to the same extent as it
would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply
accordingly.
(3) When any sum payable under this section in respect of the income of such business or profession for the
previous year in which the succession took place up to the date of succession 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 that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from
the successor, and the successor shall be entitled to recover from the predecessor any sum so paid.”
9
assessed to the extent of income accruing in the previous year in which the
succession took place, and the successor shall be assessed in respect of income of
the previous year in respect of the income of the previous year after the date of
succession.
17. The amalgamation of two or more entities with an existing company or
with a company created anew was provided for, statutorily, under the old
Companies Act, 19569
, under Section 394 (1) (a). Section 394 empowered the
court to approve schemes proposing amalgamation, and oversee the various steps
and procedures that had to be undertaken for that purpose, including the
apportionment of and devolution of assets and liabilities, etc. Section 394 (2)
provided as follows:
“(2) Where an order under this section provides for the transfer of
any property or liabilities, then, by virtue of the order, that property
shall be transferred to and vest in, and those liabilities shall be
transferred to and become the liabilities of, the transferee company;
and in the case of any property, if the order so directs, freed from any
charge which is, by virtue of the compromise or arrangement, to cease
to have effect.”
Section 394 (4) (a) defined “property” for the purpose of devolution of
assets and liabilities:
“394….(4) In this section-
(a) " property" includes property, rights and powers of every
description and" liabilities" includes duties of every description;
and..”
9 Under the present Companies Act, 2013, the corresponding provisions are Sections 230-234.
10
18. Amalgamation, thus, is unlike the winding up of a corporate entity. In the
case of amalgamation, the outer shell of the corporate entity is undoubtedly
destroyed; it ceases to exist. Yet, in every other sense of the term, the corporate
venture continues – enfolded within the new or the existing transferee entity. In
other words, the business and the adventure lives on but within a new corporate
residence, i.e., the transferee company. It is, therefore, essential to look beyond
the mere concept of destruction of corporate entity which brings to an end or
terminates any assessment proceedings. There are analogies in civil law and
procedure where upon amalgamation, the cause of action or the complaint does
not per se cease – depending of course, upon the structure and objective of
enactment. Broadly, the quest of legal systems and courts has been to locate if a
successor or representative exists in relation to the particular cause or action, upon
whom the assets might have devolved or upon whom the liability in the event it
is adjudicated, would fall.
19. This court, in Commissioner of Income Tax, v. Hukamchand Mohanlal10
noticed that Section 159 of the Act related to a legal representative’s tax liability.
It casts liability upon a legal representative in the event of death of her or his
predecessor, to pay tax, in effect saying that where a person dies his legal
representative shall be liable to pay any sum which the deceased would have been
liable to pay if he had not died. The corresponding provision in the old Income
Tax Act (of 1922) was Section 24B. The court in Commissioner of Income Tax v.
10 1972 (1) SCR 786
11
Amarchand Shroff11 held that the provision did not authorise levy of tax on
receipts by the legal representative of a deceased person in the year of assessment
succeeding the year of account, being the previous year in which such person
died. The assessee ordinarily had to be a living person and could not be a dead
person. By Section 24B the legal personality of the deceased assessee was
extended for the duration of the entire previous year in the course of which he
died. The income received by him before his death and that received by his legal
representative after his death (but in that previous year) became assessable to
income tax in the relevant assessment year. Any income received in the year
subsequent to the previous year or the accounting year could not be called income
received by the deceased person. This reasoning was adopted later, in the
judgment reported as Commissioner of Income Tax v. James Anderson12 where,
in the context of dividend income accruing to the estate of a deceased, this court
held that as Parliament did not make
“any provision generally for assessment of income receivable by the
estate of the deceased person, the expression "any tax which would
have been payable by him under this Act if he had not died" cannot be
deemed to have supplied the machinery for taxation of income
received by a legal representative to the estate after the expiry of the
year in the course of which such person died.”
20. In Saraswati Syndicate (supra), the facts were that after amalgamation, the
transferee company claimed exemption from tax, of a sum which had been
allowed as a trading liability- on accrual basis, in the hands of the transferee
11 1963 Supp (1) SCR 699
12 1964 (6) SCR 590
12
company which had ceased to exist. The revenue disallowed that claim; that view
was upheld. This court stated that:
“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 share holders of each blending company become substantially the
share-holders 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: Halsbury's Laws of
England, 4th Edition Vol. 7 Para 1539. Two companies may join to
form a new company, but there may be absorption or blend- ing 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.
In M/s General Radio and Appliances Co Ltd v M.A.. Khader (dead)
by Lrs., [1986] 2 S.C.C. 656, the effect of amalgamation of two
companies was considered. M/s. General Radio and Appliances Co.
Ltd. was tenant of a premises under an agreement providing that the
tenant shall not sub-let the premises or any portion thereof to anyone
without the consent of the landlord. M/s. General Radio and
Appliances Co. Ltd. was amalgamated with M/s. National Ekco Radio
and Engineering Co. Ltd. under a scheme of amalgamation and order
of the High Court under Sections 391 and 394 of Companies Act,
1956. Under the amalgamation scheme, the transferee company,
namely, M/s. National Ekco Radio and Engineering Company had
acquired all the interest, rights including leasehold and tenancy rights
of the transferor company and the same vested in the transferee
company. Pursuant to the amalgamation scheme the transferee
company continued to occupy the premises which had been let out to
the transferor company. The landlord initiated proceedings for the
eviction on the ground of unauthorised sub-letting of the premises by
the transferor company. The transferee company set up a defence that
by amalgamation of the two companies under the order of the Bombay
High Court all interest, rights including lease- hold and tenancy
rights held by the transferor company blended with the transferee
company, therefore the transferee company was legal tenant and
13
there was no question of any sub-letting. The Rent Controller and the
High Court both decreed the landlord's suit. This Court in appeal held
that under the order of amalgamation made on the basis of the High
Court's order, the transferor company ceased to be in existence in the
eye of law and it effaced itself for all practical purposes. This decision
lays down that after the amalgamation of the two companies the
transferor company ceased to have any entity and the amalgamated
company ac- quired a new status and it was not possible to treat the
two companies as partners or jointly liable in respect of their
liabilities and assets. In the instant case the Tribunal rightly held that
the appellant company 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 the income of the
amalgamated company for purposes of Section 41 (1) of the Act. The
High Court was in error in holding that even after amalgamation of
two companies, the transferor company did not become non-existent
instead it continued its entity in a blended form with the appellant
company. The High Court's view that on amalgamation 'there is no
complete destruction of corpo- rate personality of the transferor
company instead there is a blending of the corporate personality of
one with another corporate body and it continues as such with the
other is not sustainable in law. The true effect and character of the
amalgamation largely depends on the terms of the scheme of merger.
But there cannot be any doubt that when two companies amalgamate
and merge into one the transferor company loses its entity as it ceases
to have its business. However, their respective rights of liabilities are
determined under scheme of amalgamation but the corporate entity of
the transferor company ceases to exist with effect from the date the
amalgamation is made effective.”
21. Saraswati Syndicate (supra) noticeably was decided in relation to
assessment issues when amalgamation was not separately defined 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 provision reads as follows:
“(1A) “amalgamation”, in relation to companies, means the merger
of one or more companies with another company or the merger of two
or more companies to form one company (the company or companies
which so merge being referred to as the amalgamating company or
companies and the company with which they merge or which is
formed as a result of the merger, as the amalgamated company) in
such a manner that—
14
(i) all the property of the amalgamating company or companies
immediately before the amalgamation becomes the property of the
amalgamated company by virtue of the amalgamation;
(ii) all the liabilities of the amalgamating company of companies
immediately before the amalgamation, become the liabilities of the
amalgamated company by virtue of the amalgamation;
(iii) shareholders holding not less than nine-tenths in value of the
shares in the amalgamating company or companies (other than shares
already held therein immediately before the amalgamation by, or by
a nominee for, the amalgamated company or its subsidiary) become
shareholders of the amalgamated company by virtue of the
amalgamation, otherwise than as a result of the acquisition of the
property of one company by another company pursuant to the
purchase of such property by the other company or as a result of the
distribution of such property to the other company after the winding
up of the first mentioned company;”
22. The effect of amalgamation in the context of income tax, was again
considered in another earlier decision, i.e., Marshall Sons and Co. (India) Ltd. v.
Income Tax Officer13
. There, the court held that:
“14. Every scheme of amalgamation has to necessarily provide a date
with effect from which the amalgamation/transfer shall take place.
The scheme concerned herein does so provide viz., January 1, 1982.
It is true that while sanctioning the scheme, it is open to the Court to
modify the said date and prescribe such date of
amalgamation/transfer as it thinks appropriate in the facts and
circumstances of the case. If the Court so specifies a date, there is
little doubt that such date would be date of amalgamation/date of
transfer. But where the Court does not prescribed any specific date
but merely sanctions the scheme presented to it - as has happened in
this case - it should follow that the rate of amalgamation/date of
transfer is the date specified in the scheme as "the transfer date". It
cannot be otherwise. It must be remembered that before applying to
the Court under Section 391(1), a scheme has to be framed and such
scheme has to contain a date of amalgamation/transfer. The
proceedings before the court may take some time; indeed, they are
bound to take some time because several steps provided by Sections
391 to 394 and the relevant Rules have to be followed and complied
with. During the period the proceedings are pending before the Court,
both the amalgamation units, i.e., the Transferor Company and the
Transferee Company may carry on business, as has happened in this
13 1996 Supp (9) SCR 216
15
case but normally provision is made for this aspect also in the scheme
of amalgamation. In the present scheme, Clause 6(b) does expressly
provide that with effect from the transfer date, the Transferor
Company (Subsidiary Company) shall be deemed to have carried on
the business for and on behalf of the Transferee Company (Holding
Company) with all attendant consequences. It is equally relevant to
notice that the Courts have not only sanctioned the scheme in this case
but have also not specified any other date as the date of
transfer/amalgamation. In such a situation, it would not be
reasonable to say that the scheme of amalgamation takes effect on and
from the date of the order sanctioning the scheme. We are, therefore,
of the opinion that the notices issued by the Income Tax Officer
(impugned in the writ petition) were not warranted in law. The
business carried on by the Transferor Company (Subsidiary
Company) should be deemed to have been carried on for and on
behalf of the Transferee Company. This is the necessary and the
logical consequence of the court sanctioning 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 the Registrar of Companies, the allotment of shares etc. may
have all taken place subsequent to the date of amalgamation/transfer,
yet the date of amalgamation in the circumstances of this case would
be January 1, 1982. This is also the ratio of 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 aforesaid view is
adopted then several complications will ensue in case the Court
refuses to sanction the scheme of amalgamation. We do not see any
basis for this apprehension. Firstly, an assessment can always be
made and is supposed to be made on the Transferee Company taking
into account the income of both the Transferor and Transferee
Company. Secondly, and probably the more advisable course from the
point of view of the Revenue would be to make one assessment on the
Transferee Company taking into account the income of both, of
Transferor or Transferee Companies and also to make separate
protective assessments on both the Transferor and Transferee
Companies separately. There may be a certain practical difficulty in
adopting this course inasmuch as separate balance-sheets may not be
available for the Transferor and Transferee Companies. But that may
not be an insuperable problem inasmuch as assessment can always be
made, on the available material, even without a balance-sheet. In
certain cases, best-judgment assessment may also be resorted to. Be
that as it may, we need not pursue this line of enquiry because it does
not arise for consideration in these cases directly.”
 (emphasis supplied)
16
23. Many High Courts in recent years, had mostly relied upon Saraswati
Syndicate which was a case where the transferor entity had claimed a certain relief
on the basis of the agreed method of accounting. The corresponding obligation to
recognise the demands was sought to be disallowed in the subsequent year, in the
case of the then transferee company. The decision of the Delhi High Court, in
Spice (supra), after discussing the decision in Saraswati Syndicate, went on to
explain why assessing an amalgamating company, without framing the order in
the name of the transferee company is fatal:
“10. Section 481 of the Companies Act provides for dissolution of the
company. The Company Judge in the High Court can order
dissolution of a company on the grounds stated therein. The effect of
the dissolution is that the company no more survives. The dissolution
puts an end to the existence of the company. It is held in M.H. Smith
(Plant Hire) Ltd. v. D.L. Mainwaring (T/A Inshore), 1986 BCLC 342
(CA) that “once a company is dissolved it becomes a non-existent
party and therefore no action can be brought in its name. Thus an
insurance company which was subrogated to the rights of another
insured company was held not to be entitled to maintain an action in
the name of the company after the latter had been dissolved”.
11. After the sanction of the scheme on 11th April, 2004, the Spice
ceases to exit w.e.f. 1st July, 2003. Even if Spice had filed the returns,
it became incumbent upon the Income tax authorities 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 brought this fact to the knowledge of the AO. He,
however, did not substitute the name of the appellant on record.
Instead, the Assessing Officer made the assessment in the name of M/s
Spice which was non existing entity on that day. In such proceedings
and assessment order passed in the name of M/s Spice would clearly
be void. Such a defect cannot be treated as procedural defect. Mere
participation by the appellant would be of no effect as there is no
estoppel against law.
12. Once it is found that assessment is framed in the name of nonexisting entity, it does not remain a procedural irregularity of the
nature which could be cured by invoking the provisions of Section
292B of the Act.”
17
24. A series of decisions had followed the Delhi High Court’s decision in
Spice. All these were the subject of special leave petitions, which were disposed
of by the following order in Commissioner of Income Tax v. Spice Enfotainment
Ltd14
.
“Delay condoned. Heard the learned Senior Counsel appearing for
the parties. We do not find any reason to interfere with the impugned
judgment(s) [Spice Entertainment Ltd. 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
Del 7678; CIT v. Chanakaya Exports (P) Ltd., [ITA No. 721 of 2014,
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
in the appeals and special leave petitions. Accordingly, the appeals
and special leave petitions are dismissed.”
25. This court, without elaborate discussion, approved the reasoning in various
judgments which held that upon the cessation of the transferor company,
assessment of the transferor (or amalgamated company) was impermissible.
26. In Dalmia Power Limited & Ors v. The Assistant Commissioner of Income
Tax, Circle 1, Trichy15 the amalgamated (transferee) company filed a revised
return, beyond the time prescribed. The original return had been filed by the
transferor company. This was not allowed by the revenue. The assessee moved
14 (2020) 18 SCC 353
15 (2020) 14 SCC 736
18
the High Court. This court endorsed the view of the single judge, holding that the
revenue had not 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 CBDT
were inapplicable to a case where a revised ROI was filed pursuant to a Scheme
of Arrangement and Amalgamation, approved and sanctioned by the National
Company Law Tribunal.
27. In another recent decision, McDowell and Company Ltd. v. Commissioner
of Income Tax, Karnataka Central16 this court had occasion to consider the effect
of amalgamation of two companies, and the 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 was availed of by the assessee (the successor) company. The
assessee was allowed to set off the amalgamated losses of the company
amalgamated with it, i.e., HPL. This benefit accrued to the assessee under Section
72A of the Act. The court held that when the assessee was allowed the benefit of
the accumulated loss, while computing those losses, the income which accrued to
it had to be adjusted and only thereafter net loss could have been allowed to be
set off by the assessee company. The AO had made those calculations. The
16 (2017) 13 SCC 799
19
assessee was given the benefit of the accumulated loss of the amalgamated
company. Its effect was that though those losses were suffered by the
amalgamated company they were deemed to be treated as losses of the assessee
by virtue of Section 72A. This court negatived the plea that even while taking
advantage of the accumulated loss, in calculating them at the hands of
amalgamated company, i.e., HPL, the income accrued under Section 41(1) of the
Act at the hands of HPL could not be accounted for. It was held that it had to be
adjusted to see what was the actual accumulated losses, the benefit of which had
to be extended to the assessee. This court considered Section 41(1) along with
Section 72A of the Act.
28. This court notices that there are not less than 100 instances17 under the
Income Tax Act, wherein the event of amalgamation, the method of treatment of
a particular subject matter is expressly indicated in the provisions of the Act. In
some instances, amalgamation results in withdrawal of a special benefit (such as
an area exemption under Section 80IA) - because it is entity or unit specific. In
the case of carry forward of losses and profits, a nuanced approach has been
indicated. All these provisions support the idea that the enterprise or the
undertaking, and the business of the amalgamated company continues. The
beneficial treatment, in the form of set-off, deductions (in proportion to the period
17 For instance, Section 35A, 35AB (3); 35ABB; 35D (5); 35DDA; 35E; 41 (1) (Any benefit accrued by the
amalgamated co.) from cessation of liability of amalgamating company shall be taxed in the hands of the
amalgamated company); 43 (1); 43 (6); 32 and 43 (6) (c); 43C; 47 (vi); (via) (viaa) (viab); 47 (vii); 72A; 72AB,
etc.
20
the transferee was in existence, vis-à-vis the transfer to the transferee company);
carry forward of loss, depreciation, all bear out that under the Act, (a) the
business-including the rights, assets and liabilities of the transferor company do
not cease, but continue as that of the transferor company; (b) by deeming fictionthrough several provisions of the Act, the treatment of various issues, is such that
the transferee is deemed to carry on the enterprise as that of the transferor.
29. In Bhagwan Dass Chopra v. United Bank of India18 it was held that in every
case of transfer, devolution, merger or scheme of amalgamation, in which rights
and liabilities of one company are transferred or devolved upon another company,
the successor-in-interest becomes entitled to the liabilities and assets of the
transferor company subject to the terms and conditions of contract of transfer or
merger, as it were. Later, in Singer India Ltd v. Chander Mohan Chadha19 this
court held as follows:
"8. ..there can be no doubt that when two companies amalgamate and
merge into one, the transferor company loses its identity as it ceases
to have its business. However, their respective rights and liabilities
are determined under the scheme of amalgamation, but the corporate
identity of transferor company ceases to exist with effect from the date
the amalgamation is made effective."
30. The combined effect, therefore, of Section 394 (2) of the Companies Act,
1956, Section 2 (1A) and various other provisions of the Income Tax Act, is that
despite amalgamation, the business, enterprise and undertaking of the transferee
or amalgamated company- which ceases to exist, after amalgamation, is treated
18 1988 (1) SCR 1088
19 [2004] Supp (3) SCR 535
21
as a continuing one, and any benefits, by way of carry forward of losses (of the
transferor company), depreciation, etc., are allowed to the transferee. Therefore,
unlike a winding up, there is no end to the enterprise, with the entity. The
enterprise in the case of amalgamation, continues.
31. In Maruti Suzuki (supra), the scheme of amalgamation was approved on
29.01.2013 w.e.f. 01.04.2012, the same was intimated to the 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 in facts and circumstances observed the
following:
“35. In this case, the notice under Section 143(2) under which
jurisdiction was assumed by the assessing officer was issued to a nonexistent company. The assessment order was issued against the
amalgamating company. This is a substantive illegality and not a
procedural violation of the nature adverted to in Section 292B.
------------- -----------------
39. In the present case, despite the fact that the assessing officer was
informed of the amalgamating company having ceased to exist as a
result of the approved scheme of amalgamation, the jurisdictional
notice was issued only in its name. The basis on which jurisdiction
was invoked was fundamentally at odds with the legal principle that
the amalgamating entity ceases to exist upon the approved scheme of
amalgamation. Participation in the proceedings by the appellant in
the circumstances cannot operate as an estoppel against law. This
position now holds the field in view of the judgment of a co-ordinate
Bench of two learned judges which dismissed the appeal of the
Revenue in Spice Entertainment on 2 November 2017. The decision in
Spice Entertainment has been followed in the case of the respondent
while dismissing the Special Leave Petition for AY 2011-2012. In
doing so, this Court has relied on the decision in Spice Entertainment.
40. We find no reason to take a different view. There is a value which
the court must abide by in promoting the interest of certainty in tax
litigation. The view which has been taken by this Court in relation to
the respondent for AY 2011-12 must, in our view be adopted in respect
of the present appeal which relates to AY 2012-13. Not doing so will
22
only result in uncertainty and displacement of settled expectations.
There is a significant value which must attach to observing the
requirement of consistency and certainty. Individual affairs are
conducted and business decisions are made in the expectation of
consistency, uniformity and certainty. To detract from those
principles is neither expedient nor desirable.”
32. The court, undoubtedly noticed Saraswati Syndicate. Further, the judgment
in Spice (supra) and other line of decisions, culminating in this court’s order,
approving those judgments, was also noticed. Yet, the legislative change, by way
of introduction of Section 2 (1A), defining “amalgamation” was not taken into
account. Further, the tax treatment in the various provisions of the Act were not
brought to the notice of this court, in the previous decisions.
33. There is no doubt that MRPL amalgamated with MIPL and ceased to exist
thereafter; this is an established fact and not in contention. The respondent has
relied upon Spice and Maruti Suzuki (supra) to contend that the notice issued in
the name of the amalgamating company is void and illegal. The facts of present
case, however, can be distinguished from the facts in Spice and Maruti Suzuki on
the following bases.
34. Firstly, in both the relied upon cases, the assessee had duly informed the
authorities about the merger of companies and yet the assessment order was
passed in the name of amalgamating/non-existent company. However, in the
present case, for AY 2006-07, there was no intimation by the assessee regarding
amalgamation of the company. The ROI for the AY 2006-07 first filed by the
respondent on 30.06.2006 was in the name of MRPL. MRPL amalgamated with
MIPL on 11.05.2007, w.e.f. 01.04.2006. In the present case, the proceedings
23
against MRPL started in 27.08.2008- when search and seizure was first conducted
on the Mahagun group of companies. Notices under Section 153A and Section
143(2) were issued in the name MRPL and the representative from 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 in the ‘Business Reorganization’
column of the form mentioned ‘not applicable’ in amalgamation section. Though
the respondent contends that they had intimated the authorities by letter dated
22.07.2010, it was for AY 2007-2008 and not for AY 2006-07. For the AY 2007-
08 to 2008-2009, separate proceedings under Section 153A were initiated against
MIPL and the proceedings against MRPL for these two assessment years were
quashed by the Additional CIT by order dated 30.11.2010 as the amalgamation
was disclosed. In addition, in the present case the assessment order dated
11.08.2011 mentions the name of both the amalgamating (MRPL) and
amalgamated (MIPL) companies.
35. Secondly, in the cases relied upon, the amalgamated companies had
participated in the proceedings before the department and the courts held that the
participation by the amalgamated company will not be regarded as estoppel.
However, in the present case, the participation in proceedings was by MRPLwhich held out itself as MRPL.
36. The judgments of this court- in Saraswati Syndicate and Marshall (supra)
have indicated that the rights and liabilities of the transferor and transferee
companies are determined by the terms of the merger. In Saraswati Syndicate,
24
the point further made is that the corporate existence of the transferor ceases,
upon amalgamation.
37. In the present case, the terms of the amalgamation have been set out in the
order sanctioning it, by the Delhi High Court, by its order dated 10.09.2007. The
court, by its order directed the amalgamation of Mahagun Developers Ltd.,
Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor
Pvt. Ltd. under Section 394 of the Companies Act, 1956 with Mahagun (India)
Pvt. Ltd. (MIPL) the transferee Company. The operative order of the Delhi High
Court under Section 394 of the Companies Act, 1956 inter alia stated as follows:
“THIS COURT DOTH HEREBY SANCTION THE SCHEME OF
AMALGAMATION setforth in Schedule -I annexed hereto and DOTH
HEREBY DECLARE the same to be binding on all the shareholders
and creditors of the Transferor and Transferee Companies and all
concerned and Doth approve the said scheme of amalgamation with
effect from the appointed date i.e., 1.04.2006.
AND THIS COURT DOTH FURTHER ORDER:
1. That all the property, rights and powers of the Transferor
Companies specified in the First, Second and Third parts of the
Schedule-II hereto and all other property, right and powers of the
Transferor Companies be transferred without further act or deed to
all the Transferee Company and accordingly the same shall pursuant
to Section 394(2) of the Companies Act, 1956 be transferred to and
vest in the Transferee Company for all the estate and interest of the
Transferor Companies therein but subject nevertheless to all charges
now affecting the same; and
2. That all the liabilities and duties of the Transferor Companies
be transferred without further act or deed to the Transferee Company
and accordingly the same shall pursuant to Section 394 (2) of the
Companies Act, 1956 be transferred to and become the liabilities and
duties of the Transferee Company; and
3. That all the proceedings now pending by or against the
Transferor Companies be continued or against the Transferee
Company; and
4. That the Transferee Company do without further application
allot to such members of the Transferor Companies as have not given
such notice of dissent as it required by Clause 7 given in the scheme
25
of amalgamation herein the shares in the Transferee Company to
which they are entitled under the said amalgamation; and
5. That the Transferor Companies do within five weeks after the
date of this order cause a certified copy of this order to be delivered
to the Registrar of Companies for registration and on such certified
copy being so delivered, the Transferor Companies shall be dissolved
without the process of winding up and the Registrar of Companies
shall place all documents relating to the Transferor Companies and
registered with him on the file kept by him in relation to the Transferee
Company and the files relating to the said Transferor and Transferee
Companies shall be consolidated accordingly.”
38. The Assessment Order passed by the A.O. recorded inter alia as follows:
“6.1 In the case of the assessee group a survey operation was
carried out on 20-03-2007 wherein incriminating documents were
found which reflected the receipt of ‘on money’/suppressed sale
proceeds on sale of flats/shops. During the survey one ‘Jaguar’ spiral
diary was found which contained unrecorded sale proceeds of various
projects undertaken by the group. On being confronted the Assessee
group as per the statement of Amit Jain, Managing Director of
Mahagun Realtors Pvt. Ltd., Mahagun Developers Ltd., Mahagun
(India) Pvt. Ltd. recorded on 20-03-2007 itself vide answer to
question no. 19 & 21 surrendered an amount of Rs. 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
For easy reference relevant portion of the statement is quoted as
under:
Q. 18 Please further elaborate on the sale proceed as mentioned on
pages 2 to 18 of the said diary, in the light of the fact that in reply
to Q No. 15 it has been stated that the said sale proceeds are not
reflected in the book of A/c.
The said sale figures denote the month-wise sale proceeds
pertaining to F.Y. 2006-07 in respect of the projects under the
construction at various sites as mentioned above, which are not
reflected in our books of A/c are not reflected in our sales of
MRPT, MDL, MIPL as on 20.03.2007.
Q.19 What is the total quantum of sale proceeds in the three companies,
namely, ‘MRPL, MDL, and MIPL’ which has not been declared in
the F.Y. 06-07 in your books of A/c as admitted by you in your
replay to the above relevant question.
A. As per the said diary, the following sale proceeds not declared in
our books of a/c of F.Y. 06-07 in respect of MRPL, MDL and MIPL
are as under:
a) Mahagun Realtors Pvt. Ltd. (MRPL) Rs. 507.2 lacs
26
b) Mahagun Developers Ltd. (MDL) Rs. 495.2 lacs
c) Mahagun India Pvt. Ltd. (MIPL) Rs. 693.48 lacs
____________________
 Rs. 1695.88 lacs
____________________
Q21. With reference to Q. No. 19, please re-confirm as to whether the
total amount of Rs. 16,95,88,000/- is part of net profit
corresponding to advance taxes paid by MDL, MIPL and MRPL
for the period from 01.04.2006 to 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, MIPL and MRPL for the
period from 01.04.2006 to 20.03.2007. I, therefore, make and
unequivocal surrender of an amount of Rs. 16.95,88,000/- as the
additional income of the following companies for the F.Y. 06-07
relevant to A.Y. 07-08:
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
____________________
 Rs. 1695.88 lacs
____________________
I further reconfirm that the total surrendered amount of Rs.
16.95.88.000 is over and above the net profit corresponding to
advance taxes paid by MDL, MIPL & MRPL for the period from
01.04.2006 to 20.03.2007. I would further like to state that the total
surrender of Rs. 16.95.88.000/- in respect of MIPL, MDL & MRPL
for A.Y. 2007-08 for which Income Tax Return is yet to be filed & I
hereby undertake that the returns of MIPL, MDL & MRPL for A.Y.
2007-08 shall be filed at minimum returned income of
Rs.16.95.88.000/- (corresponding to total surrender amount) plus the
net profit corresponding to advance tax paid by MDL, MIPL & MRPL
for the period from 01.04.2006 to 20.02.2007.
Thus, the surrender was over and above the net profit for AY 2007-08
in the case of respective company. The assessee was required to
correlate and justify the same that it has been shown over and above
the regular business income. The assessee has submitted that while
filing return of income for AY 2007-08 it has disclosed income of Rs.
16.95 crores as additional cash sales under the head of business
income.
6.2 Subsequent to survey operation a search and seizure operation
u/s. 132 of the Income-Tax Act, 1961 was carried out in the hands of
the assessee group. During the search incriminating documents/
diaries which contained entries of unaccounted income generated on
account of receipt of ‘on money’ etc. were found and on being
confronted, Shri Amit Jain, Managing Director of group and the main
27
person of the group in answer to question 15 of the statement recorded
u/s. 132 (4) on 27-08-2008 admitted as under:
“As stated number of times above, I am not able to explain the case
entries/receipts appearing in the ledgers marked as annexure A-20,
A-21, A-22, A-23 & A-24. Therefore, I offer Rs. 30 crores as
additional income on account of case receipts/entries in the above
annexures in the hands of M/s. Mahagun India (P) Ltd. The
additional income declared is over and above the regular income to
be declared.”
6.3 Admissions of additional income or receipts were examined in
the light of the returns of income filed by the respective companies.
In so far as accounting of the income of 16.95 crores admitted during
the course of survey proceedings is concerned it is found to have been
accounted for in the respective years for which it was offered. Here,
it is important to note that Shri Amit Jain whose statement was
recorded qua the surrender of additional income of 30 crores has
nowhere stated as to which particular year the income surrendered is
attributable to. Careful scrutiny of the returns revealed that in so far
as admitted additional income of 30 crores as voluntarily surrendered
during the course of search in the statement recorded u/s. 132(4) is
concerned the assessee company Mahagun India (P) Ltd. instead of
offering the full amount of 30 crores for taxation, has offered only
17.97 crores for AY 2009-10. This amount of additional income has
been offered on the bases of peak of the annexures (A-20, A-21, A-22,
A-23 & A-24) which too is found to have been capitalized by the
assessee company in its work-in-progress at 16.97 crores and Rs. 1
crore as cash in hand. This word-in-progress is found debited in the
books maintained for AY 2010-11 i.e., to this extend surrender made
in AY 09-10 has been set off against the income meant for AY 2010-
11.”
39. The A.O. had directed a Special Audit under Section 142 (2A) of the Act.
Having received the report of the Special Auditor and having considered the
objections of the assessee the A.O. recorded further as follows:
“7.3 The documents seized reveals that the assessee group had
received on ‘on money’ as a matter of routine/practice on sale of
almost each and every flat/shop. Accordingly, it was considered
expedient/necessary to work out the unaccounted receipts of ‘on
money’ in respect of the entire area sold of all the relevant projects
so as to work out the exact quantum of receipts suppressed. The
Special Auditors were specifically directed to work out the quantum
of addition to be made on this extrapolation bases which they worked
it out at Rs. 42, 98, 06,439 as per the following;
28
Page Name of the
project
2005-06 2006-07 2007-08 2008-09 2009-10 Project wise
total
218 Mahagun
Mansion-I
1,79,63,669 7,46,38,625 (-) 4,03,62,237 30,34,948 (-)65,14,449 4,87,60,456
217 Mahagun
Mestro
Project
- 5,22,91,432 2,23,83,104 4,91,80,754 (-)6,21,37,750 6,17,17,540
216 Mahagun
Mansion-II
2,02,54,253 5,54,20,982 (-)1,84,47,637 1,33,26,297 17,76,500 7,23,30,395
215 Mahagun
Mascot
2,50,32,522 2,50,32,522
214 Mahagun
Mall
5,18,87,855 5,70,76,640 10,89,64,495
213 Mahagun
Morepheous
E4, Noida
5,87,69,659 5,73,68,702 (-)6,16,78,845 (-)84,90,900 4,58,78,816
212 Mahagun
Mosaic
(-)5,21,92,597 11,93,15,012 6,71,22,415
Total
difference
3,82,17,922 2,41,030,598 2,09,41,932 35,58,412 12,60,57,575 42,98,06,439
7.6 The reply filed by the assessee has been considered. The
assessee as such does not dispute the extrapolation done but has just
asked for discounting the extrapolated rate suitably and spread it over
to the entire projects period. Before considering whether the reply as
filed by the assessee company is acceptable or not it is considered
necessary to re-iterate certain facts of the case at a glance. During
the currency of the block or 7 years as relevant to the search & seizure
operations as carried out in the hands of the assessee group following
projects are found to have been either started or completed as per the
following details;
Name of the Project Entity to which project
belongs
Date of
commencement
Date of completion
Plot No. 14 Shalimar
Garden
Mahagun India P. Ltd. F.Y. 2002-2003 F.Y. 2002-2003
Flot No. 26 Shalimar
Garden
Mahagun India P. Ltd. F. Y. 2002-2003 F.Y. 2002-2003
A-10 Shalimar Garden Mahagun India P. Ltd. F. Y. 2002-2003 F.Y. 2003-2004
Mahagun Villa Mahagun India P. Ltd. F.Y. 2003-2004 F.Y. 2004-2005
Mahagun Manner Mahagun India P. Ltd. F.Y. 2003-2004 F.Y. 2005-2006
Mahagun Mansion -I Mahagun Developers P. Ltd. F. Y. 2002-2003 F. Y. 2007-2008
Mahagun Mansion -II Mahagun India P. Ltd. F.Y. 2004-2005 F. Y. 2007-2008
Mahagun Morpheous Mahagun India P. Ltd. F.Y. 2005-2006 F. Y. 2007-2008
Mahagun Maestro Mahagun Realtors P. Ltd. F.Y. 2005-2006 F. Y. 2007-2008
29
8. Year & Entity of taxability of suppressed receipts
8.1 It is to mention here that during the F.Y. 2002-2003 and 2003-
04, the assessee was following Project Completion Method and in
subsequent years that assessee has changed to percentage completion
method. Since, the assessee is following the ‘Percentage Completion
Method’ it was incumbent upon the assessee to spread the
unaccounted receipts of Rs. 16.95 as admitted during survey and of
Rs. 32,82,27,143 as found in the diaries found in search in relation to
the projects undertaken in proportion to the percentage of completion
of the projects as achieved in the relevant years. In my view unless
this is done the correct taxable income of the assessee cannot be
worked out. Here, it is relevant to mention that even in its reply dated
27-07-2011, assessee has agreed that unaccounted receipts are
required to be spread over to various years on the basis of percentage
completion method.
8.2 On attributing the aforesaid surrender qua the stag of
construction of various projects (on the same bases as adopted by the
Special Auditor for working out the figure of 42 crores) likely
additional income attributable to unaccounted receipts as referred to
in this para amounting to Rs. 49,78,59,943 which the assessee ought
to have offered for taxation is worked out as per Annexure A-1 to this
order. The additions are accordingly made in the respective years of
assessment over and above the receipts duly accounted for by the
assessee group in its returns filed for these years. In brief, as per this
working, additions to be made will be as below:
Name of the Company Asstt Year Amount of
extrapolation
worked out by Spl.
Auditor
Addition worked out on the
basis of surrender of Rs.
49,78,59,943 in the same
proportion as worked out by the
Special Auditor
Mahagun Realtors P.
Ltd.
2006-07 5,22,91.433 6,05,71,018
Mahagun Developers P.
Ltd.
2004-05 - -
-do- 2005-06 2,02,54,253 2,34,61,235
-do- 2006-07 5,54,20,982 6,41,96,022
Mahagun India P. Ltd. 2004-05
-do- 2005-06 1,79,63,669 2,08,07,939
-do- 2006-07 13,33,88,185 15,44,27,160
-do- 2007-08 2,09,41,931 2,42,57,786
-do- 2008-09 35,58,411 41,21,842
-do- 2009-10 12,60,57,575 14,60,16,941
Total 42,98,06,439 49,78,59,943
30
8.3 Before parting with this issue it is considered necessary to pin
point that assessee group ought to have offered the income in the
hands of the entities which had earned the aforesaid incomes detected
during survey and search action. Under the Income-Tax act, 1961 as
explained by the Supreme Court in CIT vs. Ch. Atchaiah (218 ITR 241
SC) the income is required to be taxed in the correct year, under the
correct heads and in the correct hands/entities. In the context of the
assessee group, the suppressed receipts, irrespective of what
treatment the assessee group are required to be taxed in the hands of
the entities/companies which executed the aforesaid projects.
Accordingly, disregarding the treatment given by the assessee group,
the aforesaid unaccounted receipts totaling to 49.78 crores are
brought to tax in the hands of entitles to which these are allocated as
per para 8.2 above.
In view of the above, unaccounted receipts attributable to the assessee
for the assessment year 2005-06 amounting to Rs. 6,05,71,018/- as
supra is treated as undisclosed income of the assessee and added to
the total income of the assessee. I am satisfied that the assessee has
not disclosed the above receipts/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 evident from 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 made effective
from 01.04.2006. It contains a condition – Clause 220
- whereby MRPL’s
liabilities devolved on MIPL.
3. The original return of income was not revised even though the
assessment proceedings were pending. The last date for filing the revised
returns was 31.03.2008, after the amalgamation order.
4. A search and seizure proceeding was conducted in respect of the
Mahagun group, including the MRPL and other companies:
20 “2. That all the liabilities and duties of the Transferor Companies be transferred without further act or deed
to the Transferee Company and accordingly the same shall pursuant to Section 394 (2) of the Companies Act,
1956 be transferred to and become the liabilities and duties of the Transferee Company”
31
(i) When search and seizure of the Mahagun group took place, no
indication was given about the amalgamation.
(ii) A statement made on 20.03.2007 by Mr. Amit Jain, MRPL’s
managing director, during statutory survey proceedings under Section
133A, unearthed discrepancies in the books of account, in relation to
amounts of money in MRPL’s account. The specific amount admitted was
₹5.072 crores, in the course of the statement recorded.
(iii) The warrant was in the name of MRPL. The directors of MRPL and
MIPL made a combined statement under Section 132 of the Act, on
27.08.2008.
(iv) A total of ₹ 30 crores cash, which was seized- was surrendered in
relation to MRPL and other transferor companies, as well as MIPL, on
27.08.2008 in the course of the admission, when a statement was recorded
under Section 132 (4) of the Act, by Mr. Amit Jain.
5. Upon being issued with a notice to file returns, a return was filed in
the name of MRPL on 28.05.2010. Before that, on two dates, i.e.,
22/27.07.2010, letters were written on behalf of MRPL, intimating about
the amalgamation, but this was for AY 2007-08 (for which separate
proceedings had been initiated under Section 153A) and not for AY
2006-07.
6. The return specifically suppressed – and did not disclose the
amalgamation (with MIPL) – as the response to Query 27(b) was “N.A”.
7. The return – apart from specifically being furnished in the name of
MRPL, also contained its PAN number.
8. During the assessment proceedings, there was full participation – on
behalf of all transferor companies, and MIPL. A special audit was directed
(which is possible only after issuing notice under Section 142). Objections
to the special audit were filed in respect of portions relatable to MRPL.
32
9. After fully participating in the proceedings which were specifically
in respect of the business of the erstwhile MRPL for the year ending
31.03.2006, in the cross-objection before the ITAT, for the first time (in
the appeal preferred by the Revenue), an additional ground was urged that
the assessment order was a nullity because MRPL was not in existence.
10. Assessment order was issued – undoubtedly in relation to MRPL
(shown as the assessee, but represented by the transferee company MIPL).
11. Appeals were filed to the CIT (and a cross-objection, to ITAT) – by
MRPL “represented by MIPL”.
12. At no point in time – the earliest being at the time of search, and
subsequently, on receipt of notice, was it plainly stated that MRPL was not
in existence, and its business assets and liabilities, taken over by MIPL.
13. The counter affidavit filed before this court – (dated 07.11.2020) has
been affirmed by Shri Amit Jain S/o Shri P.K. Jain, who- is described in
the affidavit as “Director of M/S Mahagun Realtors(P) Ltd., R/o…”.
41. In the light of the facts, what is overwhelmingly evident- is that the
amalgamation was known to the assessee, even at the stage when the search and
seizure operations took place, as well as statements were recorded by the revenue
of the directors and managing director of the group. A return was filed, pursuant
to notice, which suppressed the fact of amalgamation; on the contrary, the return
was of MRPL. Though that entity ceased to be in existence, in law, yet, appeals
were filed on its behalf before the CIT, and a cross appeal was filed before ITAT.
Even the affidavit before this court is on behalf of the director of MRPL.
Furthermore, the assessment order painstakingly attributes specific amounts
surrendered by MRPL, and after considering the special auditor’s report, brings
33
specific amounts to tax, in the search assessment order. That order is no doubt
expressed to be of MRPL (as the assessee) - but represented by the transferee,
MIPL. All these clearly indicate that 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 the different transferor companies (Mahagun Developers Ltd.,
Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor
Pvt. Ltd.). The mere choice of the AO in issuing a separate order in respect of
MRPL, in these circumstances, cannot nullify it. Right from the time it was
issued, and at all stages of various proceedings, the parties concerned (i.e., MIPL)
treated it to be in respect of the transferee company (MIPL) by virtue of the
amalgamation order – and Section 394 (2). Furthermore, it would be anybody’s
guess, if any refund were due, 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-existing
company (MRPL). Having regard to all these reasons, this court is of the opinion
that in the facts of this case, the conduct of the assessee, commencing from the
date the search took place, and before all forums, reflects that it consistently held
itself out as the assessee. The approach and order of the AO is, in this court’s
opinion in consonance with the decision in Marshall & Sons (supra), which had
held that:
“an assessment can always be made and is supposed to be made on
the Transferee Company taking into account the income of both the
Transferor and Transferee Company.”
34
42. Before concluding, this Court notes and holds that whether corporate death
of an entity upon amalgamation per se invalidates an assessment order ordinarily
cannot be determined on a bare application of Section 481 of the Companies Act,
1956 (and its equivalent in the 2013 Act), but would depend on the terms of the
amalgamation and the facts of each case.
43. In view of the foregoing discussion and having regard to the facts of this
case, this court is of the considered view, that the impugned order 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 on merits, the matter is restored to the file of
ITAT, which shall proceed to hear 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. The appeal is allowed, in the above terms, without order on costs.
 ..........................................J.
 [UDAY UMESH LALIT]
.........................................J.
 [S. RAVINDRA BHAT]
New Delhi,
April 05, 2022.

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