The issue under consideration is whether issuance of penalty order in the name of erstwhile dissolved company is justified in law?
ITAT states that, 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. Accordingly, following the aforesaid ratio and principle laid down by the Hon’ble Supreme Court, we hold that impugned penalty order passed by the AO in the name of erstwhile dissolved company is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B; and hence order passed on amalgamated entity which ceases to exist is a nullity. Such an illegality cannot be cured on the ground that assessee participation in the proceedings as there cannot operate as an estoppel against law. Accordingly, impugned penalty order is quashed.
In the result appeals of the assessee are allowed.
FULL TEXT OF THE ITAT JUDGEMENT
The aforesaid appeals have been filed by the assessee against impugned orders dated 19.9.2016 and 12.9.2016, passed by Ld. CIT (Appeals) – 30, New Delhi in relation to the penalty u/s 271(1)(c) for the assessment years 2003-04 and 2004-05 respectively.
2. Since grounds raised in both the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order for the sake of ready reference. Grounds of appeal for the assessment year 2003-04 are reproduced hereunder which is almost similar to ground raised in Asstt. Year 2004-05:-
1. “BECAUSE the Ld. CIT(A) has erred in law and on facts in holding that passing of penalty order in the name of Padampat Gopal Krishna Ramapati Organisation Ltd. cannot be considered as fatal and is curable as per provision of section 292BB of the Act.
2. BECAUSE the Ld. CIT (A) has erred in law and on facts in sustaining the penalty order particularly when the notice issued under section 274 of the Act did not specify the grounds for which penalty was to be imposed.
3. BECAUSE the Ld. CIT(A) has erred in law and on facts in sustaining the imposition of penalty in respect of disallowance of deferred revenue expenditure of Rs. 8,66,280/- as the same are nil in subsequent year i.e. A.Y. 2004-05.
4. BECAUSE the Ld. CIT (A) has erred in confirming the imposition of penalty on erroneous assumption of facts.
5. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice.”
2. Before us, Ld. Counsel submitted that the AO has passed the penalty order in the case of amalgamated company Padampat Gopal Krishna Ramapati Organisation Ltd. and not in the case of the assessee company; hence the same is not a valid order. He submitted that amalgamation took place on 14.12.2007 which was not only on record but also AO was fully aware of such amalgamation. In support of his contention he has highlighted following dates and events:-
|1||30.09.2005||Original return for AY 2004-05 was filed U/s 139 by the erstwhile company namely Ankur Distributors Pvt. Ltd. (in short “ADPL”) on 20.10.2004 alongwith all the requisite details, declaring loss of Rs. 34,78,041/- (pg. 1 of PB). As no notice U/s 143(2) had been issued, the return so filed stood assessed on the expiry of stipulated period.|
|2||14.12.2007||Thereafter, the company Ankur Distributors Pvt. Ltd. got amalgamated and merged with Gahoi Buildwell Ltd. (now known as V3S Infratech Ltd.) vide order dated 14.12.2007 of Hon’ble Bombay High Court w.e.f. 01.04.2006 (appointed date), copy of the said order along with related documents appears at page 42-83 of PB. Consequently, it was dissolved without winding up pursuant to and in accordance with the provisions of section 391(2) read with section 394 of the Companies Act, 1956. The information of amalgamation was duly placed on record of the Assessing Officer.|
|3||19.01.2009||Search and seizure action U/s 132 was carried out in Kurele group, however, no panchna|
|4||02.07.2010||Notice under section 153A was issued for A.Y. 2004-05 on 02.06.2010 in the name of “M/s Ankur Distributors Pvt. Ltd.” (pg. 2 of PB).|
|5||02.08.2010||Letter dt. 26.07.2010, objecting to the issue of notice U/s 153A was filed by the amalgamated Co., pointing out the absence of panchnama in the name of ‘ADPL’ and inter alia, stating (para 8 at pg. 7 of PB) that company namely ‘ADPL’ got merged with Gahoi Buildwell Ltd. as per order of Hon’ble Mumbai High Court dated 14.12.2007 w.e.f. 01.04.2006 (pg. 3-8 of PB) and also filed ITR showing already assessed loss of Rs. 34,78,041/- in compliance to notice U/s 153A (pg. 9-10 of PB).|
|6||28.09.2010||AO’s letter disposing off the objection.|
|7||24.12.2010||Assessment order U/s 153A/143(3) was framed in the name of “M/s Ankur Distributors Pvt. Ltd. (since merged with Gahoi Buildwell Ltd., now known as V3S Infratech Ltd.)” Wherein loss of Rs. 30,30,423/- was disallowed U/s 94(7) and expenses of Rs. 92,549/- were disallowed U/s 14A of the Act and penalty proceedings were initiated for wrongly claiming excess business loss and contravention of provisions of S. 94(7) of the Act.|
|8||24.12.2010||Notice U/s 274 was issued (pg. 38 of PB) in the name of “M/s Ankur Distributors Pvt. Ltd., (since merged with Gahoi Buildwell Ltd. Now known as V3S Infratech Ltd.)” stating as under: “ * have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1,2,3,4 & 5.”|
|9||05.07.2013||Appeal against merit was partly allowed by Id. CIT(A) wherein disallowance U/s 94(7) was restricted to Rs. 28,51,847 by Id. CIT(A) and no further appeal was filed by the assessee.|
|10||03.02.2015||Second Notice/Letter for imposition of penalty was issued by the Assessing Officer (pg. 39 of PB)|
|11||16.03.2015||Penalty order in the name of “M/s Ankur Distributors Pvt. Ltd.” was passed by holding that assessee has concealed the particulars of its income and imposed penalty of Rs. 8,83,319/- w.r.t. reduction of the loss claimed of Rs. 29,44,396/-|
|12||19.09.2016||CIT (A) partly allowed the appeal by confirming the imposition of penalty with respect of reduction of loss of Rs. 28,51,847/-.|
3. He submitted that now this issue stands covered by the judgment of Hon’ble Supreme Court in the case of Principal Commissioner of Income Tax vs Maruti Suzuki India Ltd.,reported in (2019) 107 taxman.com 375, wherein the Hon’ble Supreme Court has held that assessment order passed in the name of amalgamating company having ceased to exist as a result of approved scheme of amalgamation is a substantive illegality and not a procedural violation of the nature adverted to section 292B and hence such an order is without jurisdiction.
4. On the other hand, Ld. CIT (DR) strongly relied upon the order of the Ld. CIT (A) on this point, wherein he has held that mentioning of the original name prior to the merger on 1.4.2006 cannot be considered as fatal and is curable as per provision of section 292BB.
5. After considering the rival submissions and on perusal of the impugned order we find that Ld. AO has passed the impugned penalty order in the following name :-
“M/s. Padampat Gopal Krishna Ramapanti Organization Ltd. (Merged with Gohoi Buildwell Ltd. Now known as V3S Infratech Ltd.)”
6. It is an undisputed fact that the said company was amalgamated with V3S Infratech Ltd. vide order dated 1.4.2006 of the Hon’ble Bombay High Court from the appointed date of 1.4.2006. Consequently, the erstwhile company was dissolved in accordance with provision of section 391(2) read with section 394 of the Companies Act 1956. Despite all these information before the AO, the AO instead of passing the order in the case of V3S Infratech Ltd. has passed the penalty order of erstwhile company, i.e., amalgamated company, M/s. Padampat Gopal Krishna Ramapati Organisation Ltd. Such an order is definitely an illegal order and it is not a procedural irregularity which can be cured u/s 292B. This precise issue had come up for consideration by the Hon’ble Supreme Court in the case of Principal CIT vs. Maruti Suzuki India Ltd. (supra) wherein Hon’ble Supreme Court after considering the various judgments of Hon’ble Delhi High Court in the case of Sky Light Hospitality LLP vs ACIT(2018) 92 taxmann. Com 93 (SC) and catena of other judgments have concluded that any order passed in the name of non existing company, i.e., amalgamated company which has ceased to exist as a result of approved scheme of amalgamation is a substantive illegality which is not curable in terms of section 292B. In that case M/s Suzuki Power Train India Limited was amalgamated with M/s Maruti Suzuki India Limited by the order of Hon’ble High Court w.e.f. 1st April 2012 vide order dated 29th January 2013. The AO was informed on 2nd April 2013. AO still issued notice to the erstwhile company, Suzuki Powertrain India Limited and below it mentioned now known as M/s. Maruti Suzuki India Ltd. and final assessment order was passed in the name of “M/s. Suzuki Powertrain India Limited (amalgamated with Maruti Suzuki India Limited)”. The Hon’ble Court after considering the following facts has observed and held as under:-
“19. While assessing the merits of the rival submissions, it is necessary at the outset to advert to certain significant facets of the present case:
(i) Firstly, the income which is sought to be subjected to the charge of tax for AY 2012-13 is the income of the erstwhile entity (SPIL) prior to amalgamation. This is on account of a transfer pricing addition of Rs. 78.97 crores;
(ii) Secondly, under the approved scheme of amalgamation, the transferee has assumed the liabilities of the transferor company, including tax liabilities;
(iii) Thirdly, the consequence of the scheme of amalgamation approved under Section 394 of the Companies Act 1956 is that the amalgamating company ceased to exist. In Saraswati Industrial Syndicate Ltd., the principle has been formulated by this Court in the following observations:
“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 of scheme of arrangement. In amalgamation two 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 two 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 two or more undertakings to a new 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 show that it is intended to include such an acquisition. See: Halsbury’s Laws of England (4th edition volume 7 para 1539). Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two 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.”
(iv) Fourthly, upon the amalgamating company ceasing to exist, it cannot be regarded as a person under Section 2(31) of the Act 1961 against whom assessment proceedings can be initiated or an order of assessment passed;
(v) Fifthly, a notice under Section 143 (2) was issued on 26 September 2013 to the amalgamating company, SPIL, which was followed by a notice to it under Section 142(1);
(vi) Sixthly, prior to the date on which the jurisdictional notice under Section 143 (2) was issued, the scheme of amalgamation had been approved on 29 January 2013 by the High Court of Delhi under the Companies Act 1956 with effect from 1 April 2012;
(vii) Seventhly, the assessing officer assumed jurisdiction to make an assessment in pursuance of the notice under Section] 43 (2). The notice was issued in the name of the amalgamating company in spite of the fact that on 2 April 2013, the amalgamated company MSIL had addressed a communication to the assessing officer intimating the fact of amalgamation. In the above conspectus of the facts, the initiation of assessment proceedings against an entity which had ceased to exist was void ab initio.
20. In Spice Entertainment, a Division Bench of the Delhi High Court dealt with the question as to whether an assessment in the name of a company which has been amalgamated and has been dissolved is null and void or, whether the framing of an assessment in the name or such company is merely a procedural defect which can be cured. The High Court held that upon a notice under Section 143 (2) being addressed, the amalgamated company had brought the fact of the amalgamation to the notice of the assessing officer. Despite this, the assessing officer did not substitute the name of the amalgamated company and proceeded to make an assessment in the name of a non-existent company which renders it void. This, in the view of the High Court, was not merely a procedural defect. Moreover, the participation by the amalgamated company would have no effect since there could be no estoppel against law:
“11. After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f. 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said ‘dead person’. When notice under Section 143 (2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the AO. He, however, did not substitute the name of the appellant on record. Instead, the Assessing Officer made the assessment in the name of M/s Spice which was non existing entity on that day. In such proceedings an assessment order passed in the name of M/s Spice would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppel against law.
12. Once it is found that assessment is framed in the name of non-existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act.”
Following the decision in Spice Entertainment, the Delhi High Court quashed assessment orders which-were framed in the name of the amalgamating company in:
(i) Dimension Apparels;
(ii) Micron Steels; and
(iii) Micra India.
21. In Dimension Apparels, a Division Bench of the Delhi High Court affirmed the quashing of an assessment order dated 31 December 2010. The Respondent had amalgamated with another company and thus, ceased to exist from 7 December 2009. The Court rejected the argument of the Revenue that the assessment was in substance and effect in conformity with the Act by reason of the fact that the assessing officer had used correct nomenclature in addressing the Assessee; stated the fact that the company had amalgamated and mentioned the correct address of the amalgamated company. It was the Revenue’s contention that the omission on the part of the assessing officer to mention the name of the amalgamated company is a procedural defect. The Delhi High Court rejected this contention. In doing so, it relied on the holding in Spice Entertainment, where the High Court expressly clarified that “the framing of assessment against a non-existing entity/person” is a jurisdictional defect. The Division Bench also relied on the holding in Spice Entertainment that participation by the amalgamated company in proceedings does not cure the defect as “there can be no estoppel in law”, to affirm the quashing of the assessment order.
22. In Micron Steels, a notice was issued to Micron Steels Pvt Ltd (original assessee) after it had amalgamated with Lakhanpal Infrastructure Pvt Ltd. A Division Bench of the Delhi High Court upheld the setting aside of assessment orders, noting that Spice Entertainment is an authority for the proposition that completion of assessment in respect of a non-existent company due to the amalgamation order, would render the assessment a nullity.
23. In Micra India, the original assessee Micra India Pvt. Ltd had amalgamated with Dynamic Buildmart (P) Ltd. Notice was issued to the original assessee by the Revenue after the fact of amalgamation had been communicated to it. The Court noted that though the assessee had participated in the assessment, the original assessee was no longer in existence and the assessment officer did not the take the remedial measure of transposing the transferee as the company which had to be assessed. Instead, the original assessee was described as one in existence and the order mentioned the transferee’s name below that of the original assessee. The Division Bench adverted to the judgment in Dimension Apparels wherein the High Court had discussed the ruling in Spice Entertainment. It was held that this was a case where the assessment was contrary to law, having been completed against a non-existent company.
24. A batch of Civil Appeals was filed before this Court against the decisions of the Delhi High Court, the lead appeal being Spice Enfotainment. On 2 November 2017, a Bench of this Court consisting of Hon’ble Mr Justice Rohinton Fali Nariman and Hon’ble Mr Justice Sanjay Kishan Kaul dismissed the Civil Appeals and tagged Special Leave Petitions in terms of the following order:
Heard the learned Senior Counsel appearing for the parties.
We do not find any reason to interfere with the impugned judgment(s) 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.”
25. The doctrine of merger results in the settled legal position that the judgment of the Delhi High Court stands affirmed by the above decision in the Civil Appeals.
26. The order of assessment in the case of the respondent for AY 2011-12 was set aside on the same ground. This resulted in a Special Leave Petition by the Principal Commissioner of Income Tax – 6 Delhi32 . The Special Leave Petition was dismissed by a two judge Bench of this Court consisting of Hon’ble Mr Justice Rohinton Fali Nariman and Hon’ble Ms Justice Indu Malhotra on 16 July 2018 in view of the order dated 2 November 2017 governing Civil Appeal No. 285 of 2014 in Spice Enfotainment and the connected batch of cases. Though. leave was not granted by this Court, reasons have been assigned by this Court for rejecting the Special Leave Petition. The law declared would attract the applicability of Article 141 of the Constitution. For, as this Court has held in Kunhayammed:
“40 … Where the order rejecting an SLP is a speaking order, that is, where reasons have been assigned by this Court for rejecting the petition for special leave and are stated in the order still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of Article 141 of the Constitution. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, tribunal or authority to express any opinion in conflict with or in departure from the view taken by this Court because permitting to do so would be subversive of judicial discipline and an affront to the order of this Court. However this would be so not by reference to the doctrine of merger.”
27. The submission however which has been urged on behalf of the Revenue is that a contrary position emerges from the decision of the Delhi High Court in Skylight Hospitality LLP which was affirmed on 6 April 2018 by a two judge Bench of this Court consisting of Hon’ble Mr Justice A K Sikri and Hon’ble Mr Justice Ashok Bhushan. In assessing the merits of the above submission, it is necessary to extract the order dated 6 April 2018 of this Court:
“In the peculiar facts of this case, we are convinced that wrong name given in the notice was merely a clerical error which could be corrected under Section 292B of the Income Tax Act.
The special leave petition is dismissed.
Pending applications stand disposed of.”
Now, it is evident from the above extract that it was in the peculiar facts of the case that this Court indicated its agreement that the wrong name given in the notice was merely a clerical error, capable of being corrected under Section 292B. The “peculiar facts” of Skylight Hospitality emerge from the decision of the Delhi High Court34 . Skylight Hospitality, an LLP, had taken over on 13 May 2016 and acquired the rights and liabilities of Skylight Hospitality Pvt. Ltd upon conversion under the Limited Liability Partnership Act 200835. It instituted writ proceedings for challenging a notice under Sections 147/148 of the Act 1961 dated 30 March 2017 for AY 2010-2011. The “reasons to believe” made a reference to a tax evasion report received from the investigation unit of the income tax department. The facts were ascertained by the investigation unit. The reasons to believe referred to the assessment order for AY 2013-2014 and the findings recorded in it. Though the notice under Sections 147/148 was issued in the name of Skylight Hospitality Pvt. Ltd. (which had ceased to exist 33 Special Leave Petition (C) No. 7409 of 2018 34 “Sky Light Hospitality LLP v Assistant Commissioner of Income Tax : (2018) 405 ITR 296 (Delhi) 35 “LLP Act 2008” 24 upon conversion into an LLP), there was, as the Delhi High Court held “substantial and affirmative material and evidence on record” to show that the issuance of the notice in the name of the dissolved company was a mistake. The tax evasion report adverted to the conversion of the private limited company into an LLP. Moreover, the reasons to believe recorded by the assessing officer adverted to the approval of the Principal Commissioner. The PAN number of the LLP was also mentioned in some of the documents. The notice under Sections 147/148 was not in conformity with the reasons to believe and the approval of the Principal Commissioner. It was in this background that the Delhi High Court held that the case fell within the purview of Section 292B for the following reasons:
“18…There was no doubt and debate that the notice was meant for the petitioner and no one else. Legal error and mistake was made in addressing the notice. Noticeably, the appellant having received the said notice, had filed without prejudice reply/letter dated 11.04.2017. They had objected to the notice being issued in the name of the Company, which had ceased to exist. However, the reading of the said letter indicates that they had understood and were aware, that the notice was for them. It was replied and dealt with by them. The fact that notice was addressed to M/s. Skylight Hospitality Pvt. Ltd., a company which had been dissolved, was an error and technical lapse on the part of the respondent. No prejudice was caused.”
28. The decision in Spice Entertainment was distinguished with the following observations:
“19. Petitioner relies on Spice Infotainment Ltd. v. Commissioner of Service Tax, (2012) 247 CTR 500. 25 Spice Corp. Ltd., the company that had filed the return, had amalgamated with another company. After notice under Section 147/148 of the Act was issued and received in the name of Spice Corp. Ltd., the Assessing Officer was informed about amalgamation but the Assessment Order was passed in the name of the amalgamated company and not in the name of amalgamating company. In the said situation, the amalgamating company had filed an appeal and issue of validity of Assessment Order was raised and examined. It was held that the assessment order was invalid. This was not a case wherein notice under Section 147/148 of the Act was declared to be void and invalid but a case in which assessment order was passed in the name of and against a juristic person which had ceased to exist and stood dissolved as per provisions of the Companies Act. Order was in the name of non-existing person and hence void and illegal.”
29. From a reading of the order of this Court dated 6 April 2018 in the Special Leave Petition filed by Skylight Hospitality LLP against the judgment of the Delhi High Court rejecting its challenge, it is evident that the peculiar facts of the case weighed with this Court in coming to this conclusion that there was only a clerical mistake within the meaning of Section 292B. The decision in Skylight Hospitality LLP has been distinguished by the Delhi, Gujarat and Madras High Courts in:
(i) Rajender Kumar Sehgal;
(ii) Chandreshbhai Jayantibhai Patel; and
(iii) Alamelu Veerappan.
30. There is no conflict between the decisions of this Court in Spice Enfotainment (dated 2 November 2017) and in Skylight Hospitality LLP (dated 6 April 2018).
31. Mr Zoheb Hossain, learned Counsel appearing on behalf of the Revenue urged during the course of his submissions that the notice that was in issue in Skylight Hospitality Pvt. Ltd. was under Sections 147 and 148. Hence, he urged that despite the fact that the notice is of a jurisdictional nature for reopening an assessment, this Court did not find any infirmity in the decision of the Delhi High Court holding that the issuance of a notice to an erstwhile private limited company which had since been dissolved was only a mistake curable under Section 292B. A close reading of the order of this Court dated 6 April 2018, however indicates that what weighed in the dismissal of the Special Leave Petition the peculiar facts of the case were. Those facts have been noted above. What had weighed with the Delhi High Court was that though the notice to reopen had been issued in the name of the erstwhile entity, all the material on record including the tax evasion report suggested that there was no manner of doubt that the notice was always intended to be issued to the successor entity. Hence, while dismissing the Special Leave Petition this Court observed that it was the peculiar facts of the case which led the court to accept the finding that the wrong name given in the notice was merely a technical error which could be corrected 36 Civil Appeal No. 285 of 2014 and connected cases 37 Special Leave Petition No. 7409 of 2018 27 under Section 292B. Thus, there is no conflict between the decisions in Spice Enfotainment on the one hand and Skylight Hospitality LLP on the other hand. It is of relevance to refer to Section 292B of the Income Tax Act which reads as follows:
“292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”
In this case, the notice under Section 143(2) under which jurisdiction was assumed by the assessing officer was issued to a non-existent company. The assessment order was issued against the amalgamating company. This is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B.
In this context, it is necessary to advert to the provisions of Section 170 which deal with succession to business otherwise than on death. Section 170 provides as follows:
“170. (1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,—
(a) the predecessor shall be assesseed in respect of the income of the previous year in which the succession took place up to the date of succession;
(b) the successor shall be assesseed in respect of the income of the previous year after the date of succession.
(2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.
(3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assesseed on the predecessor, cannot be recovered from him, the 99[Assessing] Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor and the successor shall be entitled to recover from the predecessor any sum so paid.
(4) Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section. Explanation.—For the purposes of this section, “income” includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession”
Now, in the present case, learned Counsel appearing on behalf of the respondent submitted that SPIL ceased to be an eligible assessee in terms of the provisions of Section 144C read with clause (b) of sub section 15. Moreover, it has been urged that 29 in consequence, the final assessment order dated 31 October 2016 was beyond limitation in terms of Section 153(1) read with Section 153 (4). For the purposes of the present proceeding, we do not consider it necessary to delve into that aspect of the matter having regard to the reasons which have weighed us in the earlier part of this judgment.
32. On behalf of the Revenue, reliance has been placed on the decision of this Court in Commissioner of Income Tax, Shillong v Jai Prakash Singh (1996) 3 SCC 525 (“Jai Prakash Singh”). That was a case where the assessee did not file a return for three assessment years and died in the meantime. His son who was one of the legal representatives filed returns upon which the assessing officer issued notices under Section 142 (1) and Section 143 (2). These were complied with and no objections were raised to the assessment proceedings. The assessment order mentioned the names of all the legal representatives and the assessment was made in the status of an individual. In appeal, it was contended that the assessment proceedings were void as all the legal representatives were not given notice. In this backdrop, a two judge Bench of this Court held that the assessment proceedings were not null and void, and at the worst, that they were defective. In this context, reliance was placed on the decision of the Federal Court in Chatturam v CIT(1947) 15 ITR 302 (FC) holding that the jurisdiction to assess and the liability to pay tax are not conditional on the validity of the notice : the liability to pay tax is founded in the charging sections and not in the machinery provisions to determine the amount of tax. Reliance was also placed on the decision in Maharaja of Patiala v CIT (1943) 11 ITR 202 (Bombay) (“Maharaja of Patiala”). That was a case where two notices were issued after the death of the assessee in his name, requiring him to make a return of income. The notices were served upon the successor Maharaja and the assessment order was passed describing the assessee as “His Highness…late Maharaja of Patiala”. The successor appealed against the assessment contending that since the notices were sent in the name of the Maharaja of Patiala and not to him as the legal representative of the Maharaja of Patiala, the assessments were illegal. The Bombay High Court held that the successor Maharaja was a legal representative of the deceased and while it would have been better to so describe him in the notice, the notice was not bad merely because it omitted to state that it was served in that capacity. Following these two decisions, this Court in Jai Prakash Singh held that an omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where the liability is created by a distinct substantive provision. The omission or defect may render the order irregular but not void or illegal. Jai Prakash Singh and the two decisions that it placed reliance upon were evidently based upon the specific facts. Jai Prakash Singh involved a situation where the return of income had been filed by one of the legal representatives to whom notices were issued under Section 142(1) and 143(2). No objection was raised by the legal representative who had filed the return that a notice should also to be served to other legal representatives of the deceased assessee. No 40 (1943) 11 ITR 202 (Bombay) 31 objection was raised before the assessing officer. Similarly, the decision in Maharaja of Patiala was a case where the notice had been served on the legal representative, the successor Maharaja and the Bombay High Court held that it was not void merely because it omitted to state that it was served in that capacity.
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 two 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.
7. Accordingly, following the aforesaid ratio and principle laid down by the Hon’ble Supreme Court, we hold that impugned penalty order passed by the AO in the name of “M/s. Padampat Gopal Krishna Ramapanti Organization Ltd. (Merged with Gohoi Buildwell Ltd. Now known as V3S Infratech Ltd.)” is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B; and hence order passed on amalgamated entity which ceases to exist is a nullity. Such an illegality cannot be cured on the ground that assessee participation in the proceedings as there cannot operate as an estoppel against law. Accordingly, impugned penalty order is quashed.
8. In the result appeals of the assessee are allowed.
Order Pronounced in the open court on 13th September, 2019.