PCIT v. Mahagun Realtors Private Limited

Case snapshot

Sections / provisions: 143(3)

Questions before the Court / Tribunal

• S. 143(3): Assessment-Order passed in the name of non-existent amalgamating entity-valid. [Companies Act, 1956, S. 394, 481] It was held that corporate death upon amalgamation does not invalidate assessment as after amalgamation, the amalgamating entity is treated 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. Therefore, 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. matter is restored to the file of…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

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, Mahagu n 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

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 o f 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

sought by letter dated 27.08.2010. In the R OI, 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 objection 4 to the ITAT. The revenue’s appeal was dismissed; the assessee’s cross objection was allowed only on a single point, i.e., tha t MRPL was not in existence when the

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 28 8. 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.”

Appellant / petitioner / assessee submissions

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 assess ee 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 cas h 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

Revenue / respondent submissions

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 non - existent 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 notic e 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

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 al ways 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.

Court / Tribunal analysis and reasoning

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 Limited 5 (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 curabl e 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

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 destructio n 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 struct ure and objective of enactment.

National Ekco Radio and Engineering Company had acquired all the interest, rights including leasehold and tenancy rights of th e 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

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 i t continues as such with the other is not sustainable in law.

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 (Subsi diary 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 sanctionin g 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.

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 34 2 (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”.

Operative decision and relief

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.”

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 200708 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 MRPL - which 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,

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 t he 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.

Ratio and legal principle

The narrow proposition associated with PCIT v. Mahagun Realtors Private Limited concerns s. 143(3): assessment-order passed in the name of non-existent amalgamating entity-valid. [companies act, 1956, s. 394, 481] it was held that corporate death upon amalgamation does not invalidate assessment as after amalgamation, the amalgamating entity is treated 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. therefore, 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. matter is restored to the file of… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in Civil Appeal No. 2716 of 2022 (arising out of SLP(C) No. 4063/2020).

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Quashed / set aside” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: S. 143(3): Assessment-Order passed in the name of non-existent amalgamating entity-valid. [Companies Act, 1956, S. 394, 481] It was held that corporate death upon amalgamation does not invalidate assessment as after amalgamation, the amalgamating entity is treated 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. Therefore, 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. matter is restored to the file of… Its practical value lies in the way the Supreme Court of India connected the governing provisions—143(3)—to the procedural posture and evidence before it.

The authority level is Supreme Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 143(3) and the decision date 2022-04-05; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

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Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is PCIT v. Mahagun Realtors Private Limited, the proceeding is Civil Appeal No. 2716 of 2022 (arising out of SLP(C) No. 4063/2020), and the decision is dated 2022-04-05. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as S. Ravindra Bhat, J. (authoring judge identified in judgment). A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 143(3). The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Quashed / set aside. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is REVIEW_CURATIVE_DOCKET_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 143(3) — apply the exact version considered in the judgment.

Case network

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• M/s Suneja Towers Private Limited & Anr Vs Anita Merchant — Supreme Court of India · Quashed / set aside
• State of Gujarat and Anr Vs Saw Pipes Ltd — Supreme Court of India · Quashed / set aside

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