SC: Initiation of assessment proceedings u/s 143(2) and 142(1) on a non-existent entity is void-ab-initio

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Question: Is initiation of assessment by issue of notices under sections 143(2) and 142(1) in the name  of the erstwhile amalgamating company, after approval of the scheme of amalgamation by  the High Court and intimation of such amalgamation to the Assessing Officer, void ab initio?

Case: Pr. CIT v. Maruti Suzuki India Ltd.

Facts of the case: The assessee-company, S, filed its return of income on November 28, 2012 (when no amalgamation has taken place). On January 29, 2013, the High Court approved the Scheme for Amalgamation of S (amalgamating company) with M (amalgamated company) w.e.f. April 1, 2012. On April 2, 2013, the amalgamated company, M, intimated the  Assessing Officer of the amalgamation. Notice under section 143(2) was issued to S on  September 26, 2013, followed by a notice under section 142(1). The Transfer Pricing Officer (TPO) passed an order making an adjustment in respect of royalty. A draft assessment order was passed in the name of the amalgamating company, S. The amalgamated company, M, participated in the assessment proceedings and also filed an appeal before the Dispute Resolution Panel (DRP) as successor in interest of S. No objection was taken by M before the DRP that the draft assessment order was passed in the name of S. The DRP issued its final assessment order on October 31, 2016 in the name of S. In appeal before the Tribunal, the assessee, M, raised the objection that  the  assessment proceedings were continued in the name of the non-existent entity S and that the final assessment order which was also made in the name of a non-existent entity would be invalid. The Tribunal set aside the final assessment order on the ground that it was void ab initio, having been passed in the name of a non existent entity. The High Court affirmed the decision of the Tribunal.

Relevant provision of the Income-tax Act, 1961: Section 292B allows for curing of defects of a technical nature. The rationale behind this section is that the return of income, assessment, notice, summons or other proceedings should not be held to be invalid due to technical mistakes, which otherwise do not have much impact touching its legality, provided such return, assessment, notice, summons or other proceedings, etc., are otherwise in conformity with the purpose of the Income- tax Act, 1961.

Issue: Whether issue of notice by the Assessing Officer in the name of the  amalgamating  company (S, in this case), after such company has amalgamated with another company (M, in this case) and after he has been so informed of such amalgamation, is a defect curable under section 292B? Would participation of the amalgamated company, M, in the assessment  proceedings operate as an estoppel against law?

Supreme Court’s Observations: The consequence of approval of the scheme of amalgamation under section 394 of the Companies Act, 19561  is that the amalgamating company ceased to exist.  It could not, thereafter, be regarded as a person under section 2(31) against which assessment proceedings could be initiated or an order of assessment could be made. Notice under section 143(2) was issued on September 26, 2013 to S, the amalgamating company. Prior to the date on which the jurisdictional notice under section 143(2) was issued, the scheme of amalgamation had been approved by the High Court under the Companies Act, 1956 and the same had also been informed to the Assessing Officer.

Supreme Court’s Decision: In the present case, despite the fact that the Assessing Officer was informed of the amalgamating-company (S) having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued in the name of S, the amalgamating company. 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. The Supreme Court, accordingly, held that the initiation of assessment proceedings on a non-existent entity (S, in this case) was void-ab-initio and participation in the proceedings by the appellant-amalgamated company (M, in this case) in the circumstances cannot operate as an estoppel against law.

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