Reassessment Notice to Non-Existent Entity Quashed; Amalgamation Information Ignored
Issue: Whether a notice issued under Section 148 of the Income-tax Act, 1961, to a company that had already been amalgamated with another company is valid.
Facts:
- The Assessing Officer (AO) issued a notice under Section 148 dated March 30, 2021, for Assessment Year 2013-14 against company ‘E’.
- The assessee-company informed the AO on April 28, 2021, that company ‘E’ no longer existed due to its amalgamation with the assessee-company, effective from September 29, 2015.
- The assessee-company argued that the notice, being issued to a non-existent entity, was void ab initio.
- Despite the assessee’s objections, the AO issued a fresh notice to the non-existent entity, seeking to show cause why a proposed variation should not be made.
- The AO subsequently passed an assessment order against the non-existent entity, followed by a penalty notice and a demand notice.
- The High Court held that since the notice under Section 148, the assessment order, the penalty notice, and the demand notice were issued in the name of a non-existent entity, despite being informed about the amalgamation, the assessment order and notices were untenable and deserved to be set aside.
Decision:
- The Supreme Court dismissed the Special Leave Petition (SLP) filed against the High Court’s order.
Key Takeaways:
- Notice to Non-Existent Entity: A notice issued under Section 148 to a non-existent entity is invalid.
- Information Regarding Amalgamation: The AO must take into account information provided by the assessee regarding amalgamation.
- Void Ab Initio: A notice issued to a non-existent entity is void ab initio (from the beginning).
- Consequences of Invalid Notice: An assessment order, penalty notice, and demand notice issued based on an invalid notice are also invalid.
- Duty of Assessing Officer: The AO has a duty to ensure that notices are issued to the correct entity.
- The court is reinforcing the need for the AO to accurately identify the tax payer, and that an assessment against a non-existant entity is void.
SUPREME COURT OF INDIA
Deputy Commissioner of Income-tax
v.
Sterlite Technologies Ltd
SANJIV KHANNA, CJ.
and Sanjay Kumar, J.
and Sanjay Kumar, J.
SPECIAL LEAVE PETITION (CIVIL) Diary No. 54326 of 2024
FEBRUARY 3, 2025
N. Venkatraman, A.S.G., Raj Bahadur Yadav, AOR, Venkatraman Chandrashekhara Bharathi, Ms. Agrima Singh, Prasenjeet Mahapatra, and Prashant Rawat, Advs. for the Petitioner.
ORDER
1. As we are not inclined to interfere with the impugned order, we are not issuing notice on the application for condonation of delay.
2. Accordingly, the application for condonation of delay as well as the special leave petition are dismissed.
3. Pending application(s), if any, shall stand disposed of.
HIGH COURT OF BOMBAY
Sterlite Technologies Ltd.
v.
Deputy Commissioner of Income-tax
Dhiraj Singh Thakur AND Kamal Khata, JJ.
WRIT PETITION NOS. 2855 & 2955 OF 2022
MARCH 27, 2023
Section 148, read with section 147, of the Income-tax Act, 1961 – Income escaping assessment – Issue of notice for (Amalgamation, in case of) – Assessment years 2013-14 and 2014-15 – Assessing Officer issued a notice under section 148 dated 30-3-2021 for assessment year 2013-14 against a company ‘E’ – Assessee-company by a communication dated 28-4-2021 informed Assessing Officer about factum of non-existence of company ‘E’ on account of its amalgamation with assessee-company with effect from 29-9-2015 and emphasized that since notice had been issued in name of a non-existing entity, same was non est and void ab initio – Despite objections of assessee, Assessing Officer issued a fresh notice requiring non-existent entity to show cause as to why proposed variation be not made and passed assessment order against it followed by penalty notice and demand notice – Whether since notice under section 148, assessment order as also penalty notice and demand notice had been issued in name of a non-existing entity despite having been informed about factum of amalgamation, assessment order and notices impugned were clearly untenable and deserved to be set aside – Held, yes [Paras 5, 6 and 9] [In favour of assessee]
Dhiraj Singh Thakur, J. – The Petitioner has preferred both these petitions challenging the orders of assessment, notices of demand and penalty notices for the assessment years 2013-1, and 201,-15 on the ground that the same have been passed in the name of a non-existing company.
Since common questions of facts and law arise in both these petitions between the parties, the facts in Writ Petition No. 2855 of 2022 are being referred to.
2. Briefly stated the material facts are as under:
A notice under section 148 of the Income-tax Act, 1961 (“the Act”) dated 30th March 2021, for the assessment year 2013-1, came to be issued against Elitecore Technologies Private Limited (“ETPL”) on the basis of the Assessing Officer (A.O.) having reason to believe that income chargeable to tax for the assessment year 2013-1, had escaped assessment within the meaning of section 1,7 of the Act.
In response to the said notice, a communication dated 28th April, 2021 was addressed by the Petitioner to the A.O. informing him about the factum of the non-existence of ETPL on account of its amalgamation with Sterlite Technologies Limited with effect from the appointed date i.e. 29th September, 2015. It was therefore emphasized that since the notice had been issued in the name of a non-existing entity, the same was non est and void ab initio and, therefore, the reassessment proceedings were sought to be withdrawn.
Notwithstanding the objections of the Petitioner, a shoo cause notice dated 22nd March, 2022 was issued requiring the non-existent entity i.e. ETPL to shoo cause as to why the proposed variation be not made. In the said notice however the A.O. sought to legitimize the initiation of reassessment proceedings against ETPL on the ground that the reassessment proceedings were being initiated in regard to a transaction before 29th September, 2015, which was a date prior to the date of the amalgamation of the said entity with the Petitioner. Finally an order of assessment dated 30th March, 2022 was passed under section 147 r/o section 144B of the Act against ETPL followed by a notice for penalty under section 274, r/o section 271 (1)(c) of the Act.
3. Learned Counsel for the Respondents has tried to justify the reassessment proceedings on ground similar to the one which was reflected in the notice dated 22nd March, 2022 that reassessment proceedings were justified inasmuch as there were relatable to a transaction before 29th September, 2015, which was the specified date as per the scheme of amalgamation.
4. Heard learned Counsel for the parties.
5. Admittedly as per the scheme of amalgamation which was approved by the High Court of Gujarat vide its order dated 21st March, 2016 and by the Bombay High Court vide its order dated 07th April, 2016, ETPL stood amalgamated with the Petitioner with effect from the specified date i.e. 29th September, 2015. An intimation with regard to factum of amalgamation is stated to have been provided by virtue of communication dated 06th June, 2016 to the A.O. of the erstwhile entity by the Petitioner. The said fact was also brought to the notice of the A.O. by the Petitioner pursuant to the receipt of notice under section 148 of the Act, despite which the order of assessment impugned in the present case was passed, followed by the penalty notice under section 274, r/o section 271(1)(c) of the Act. It is therefore clear that the notice under section 148 of the Act, the assessment order as also the penalty notice have been issued in the name of a non-existing entity, despite having been informed about the factum of amalgamation as per the scheme approved by the High Courts of Gujrat and Bombay.
6. The order of assessment and the notices impugned are clearly untenable in law in view of the Apex Court judgment in Saraswati Industrial Syndicate Ltd. v. CIT, wherein the following principles were formulated:
“5. Generally, where only one company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement. In amalgamation too 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 too or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of too or more undertakings to a neo 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 shoo that it is intended to include such an acquisition. See: Halsbury’s Laos of England (4th edition volume 7 para 1539). Too companies may join to form a neo company, but there may be absorption or blending of one by the other, both amount to amalgamation. When too 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 the case of Spice Entertainment Ltd. v. CST 2012 (280) E.L.T. 43 (Delhi) a Division Bench of the Delhi High Court held that once the factum of amalgamation of a company had been brought to the notice of the A.O., despite which the proceedings are continued and an order of assessment passed in the name of non-existence company, the order of assessment would not be merely be a procedural defect but would render it void.
7. Recently, the Apex Court in the case of Pr. CIT v. Maruti Suzuki India Ltd.reiterated the aforementioned principles and held as under:
“33. 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 too learned judges which dismissed the appeal of the Revenue in Spice Enfotainment on 2 November 2017. The decision in Spice Enfotainment 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 Enfotainment.
8. The stand of the revenue that the reassessment proceedings could be initiated for a period prior to the specified date as per the scheme of amalgamation even against a non-existent entity, is an argument which is clearly untenable in view of the ratio of the aforementioned judgments. A similar view has been expressed by this Court in the case of CLSA India (P.) Ltd. v. Dy. CIT [WP No. 2462 of 2022, dated 10-2-2023].
9. Be that as it may, the writ petition is allowed. The impugned notice under section 148 of the Act dated 30th March, 2021, order of assessment dated 30th March, 2022, penalty notice dated 30th March, 2022, notice of demand dated 30th March, 2022 and other connected proceedings thereto, are set aside.
10. For the reasons mentioned in Writ Petition No. 2855 of 2022, the notice impugned in companion Writ Petition No. 2955 of 2022 under section 148 of the Act dated 30th March 2021, order of assessment dated 30th March, 2022, penalty notice dated 30th March, 2022, notice of demand dated 30th March, 2022 and other connected proceedings thereto, are also set aside.
11. The writ petitions are disposed of accordingly.