PCIT Vs Mahagun Realtors (P) Ltd. (Supreme Court of India)
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:
(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.
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…”.
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 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.”
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.
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.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
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 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 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 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
