Continuation Of Proceedings On Ceased Entity Is Not Curable U/s 292B: Delhi High Court
Pankaj Bajpai
27 Sept 2024 6:33 PM IST
While following the decision of Apex Court in Principal Commissioner of Income Tax, New Delhi vs Maruti Suzuki (India) Limited [(2020) 18 SCC 331], the Delhi High Court held that the initiation or continuation of assessment or reassessment proceedings after a company cease to exist due to merger pursuant to a Scheme of Arrangement, is not sustainable, and cannot be cured by applying...
While following the decision of Apex Court in Principal Commissioner of Income Tax, New Delhi vs Maruti Suzuki (India) Limited [(2020) 18 SCC 331], the Delhi High Court held that the initiation or continuation of assessment or reassessment proceedings after a company cease to exist due to merger pursuant to a Scheme of Arrangement, is not sustainable, and cannot be cured by applying Section 292B.
As per Section 292B of Income tax Act, the return of income, assessment notice, penalty 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/penalty notice, summons or other proceedings, etc., are otherwise in conformity with the purpose of the Act.
The Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that “the factum of merger had been duly brought to the attention of the AO. The merger was taken into consideration at more than one place in the order of assessment that came to be framed. Despite the above, the AO proceeded to draw the order in the name of an entity which had ceased to exist”. (Para 40)
The Bench elaborated that once the assessees have apprised their respective AOs of the factum of amalgamation and merger at the first available instance, and the AOs chose to ignore or acknowledge those fundamental changes, then the consequences that follows are totally attributable to the Revenue Department.
The Bench explained that once the Scheme of amalgamation came to be approved, the transferor companies came to be dissolved by operation of law, and ceased to exist in the eyes of law.
Proceedings thus drawn in the name of amalgamating entity would be a nullity and cannot be validated by resort to Section 292B of the Act, added the Bench.
Facts of the case:
Eleven entities of the Religare Group including Religare Securities (RSL) filed for approval of a composite Scheme of Arrangement pursuant to which the brokering business of RSL was demerged and vested in Religare Broking Ltd. while the remaining undertaking of RSL stood amalgamated with the Assessee, Religare Enterprises Ltd.
Pursuant to the amalgamation, a reopening notice was issued in the name of RSL even though the factum of merger and merged financial statements along with a revised return of income was duly intimated to the AO. However, relying on Apex Court decision in Principal Commissioner of Income Tax (Central)-2 vs. Mahagun Realtors (P) Ltd [2022 SCC OnLine SC 407], the AO contended that a failure to place the amalgamated entity on notice is curable and one which would fall within the ambit of Section 292B.
Observations of the High Court
The Bench noted that the Apex Court in case of Mahagun had observed that Assessee had failed to disclose the complete picture to the Revenue Department and that the conduct of the assessee was evidence of it having held itself out to be the entity which had ceased to exist in the eyes of law coupled with an abject failure on its part to have made a complete disclosure.
Thus, the Bench distinguished the decision of Mahagun Realtors to act as a decision which may have either diluted or struck a discordant chord with the principles which came to be enunciated in Maruti Suzuki case.
The Bench observed that if the Revenue chose to ignore or acknowledge the fundamental changes, they would have to bear the consequences and proceedings drawn in name of ceased entity.
The Bench rejected Revenue's submission on Sections 159 and 170 as misconceived, pointing out that Section 159 creates a right of recourse for the Revenue to pursue and recover outstanding demands whereas Section 170 deals with contingencies where a person succeeds to or takes over an existing business.
The expression “cannot be found” cannot be construed as having been intended to cover situations where an entity ceases to exist in law by virtue of an amalgamation or merger, added the Bench.
Thus, the High Court quashed the notices and orders passed by the AO and allowed Assessee's appeal.
Case Followed:
Principal Commissioner of Income Tax, New Delhi vs Maruti Suzuki (India) Limited [(2020) 18 SCC 331]
Case Distinguished:
M/s Nokia Solutions and Networks India Private Limited vs. Deputy Commissioner of Income Tax [W.P.(C) 5021/2022]
Principal Commissioner of Income Tax (Central)-2 vs. Mahagun Realtors (P) Ltd [2022 SCC OnLine SC 407]
Counsel for Appellant/ Assessee: Advocates Rohit Jain, Aniket D. Agrawal, Manisha Sharma, Somya Jain and Vishal Kalra
Counsel for Respondent/ Revenue: Advocates Gaurav Gupta, Shivendra Singh and Yojit Pareek
Case Title: International Hospital vs. DCIT
Case Number: ITA 116/2023
