{"id":7569,"date":"2020-05-27T10:09:51","date_gmt":"2020-05-27T04:39:51","guid":{"rendered":"https:\/\/itatonline.org\/articles_new\/?p=7569"},"modified":"2020-05-27T10:13:06","modified_gmt":"2020-05-27T04:43:06","slug":"analysis-of-the-judgement-of-the-supreme-court-in-pcit-vs-maruti-suzuki-india-ltd-along-with-subsequent-developments","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/analysis-of-the-judgement-of-the-supreme-court-in-pcit-vs-maruti-suzuki-india-ltd-along-with-subsequent-developments\/","title":{"rendered":"Analysis Of The Judgement Of The Supreme Court In PCIT vs. Maruti Suzuki India Ltd Along With Subsequent Developments"},"content":{"rendered":"

\"nehal-shah-tanupriya-patel\"In PCIT vs. Maruti Suzuki India Ltd<\/a> 107 Taxmann.com 375, the Supreme Court considered the important issue whether proceedings initiated by the Department against a person who ceases to exist due to death or amalgamation is valid or not. CAs Nehal Shah and Tanupriya Patel have explained the true scope of the judgement and raised several pertinent follow-up questions. One of the interesting questions raised is whether, if the assessee’s successor omits to inform the Department of the death or amalgamation of an entity, the proceedings against the entity are curable and valid. A pdf copy of the article is available for download<\/a><\/strong><\/p>\n

I. INTRODUCTION <\/u><\/strong><\/h3>\n

1.1 An enormous litigation is going around in Income tax proceedings wherein assessment Orders or notices initiating assessment proceedings are issued\/passed in the name of non-existing entities i.e. those entities which are either merged, amalgamated, wound up, etc before passing of the Assessment Order hence such entities becomenon-existent entities in the eyes of law. Whether on such facts assessment order passed in the name of erstwhile entity shall be a valid order or not?<\/p>\n

<\/p>\n

1.2 Hon’ble Supreme Court in the latest decision of Maruti Suzuki India Ltd<\/a><\/strong> 107 taxmann.com 375deals with the above situation [otherwise than in case of death] and held that a notice issued in the name of the amalgamating entity after amalgamation is void because the amalgamating entity ceases to exist andthis is a substantive illegality and not a procedural violation of the nature adverted to in section 292BB.The Hon’ble Supreme Court has also distinguished the decisions rendered by Hon’ble Delhi High court in the case of Skylight Hospitality LLP<\/strong> 405 ITR 296\/[2018] 90 taxmann.com 413 (Delhi) and SLP dismissed by it in [2018] 92 taxmann.com 93. The facts and findings of Hon’ble Supreme Court are discussed here under which have been followed in a number of pronouncements rendered subsequently.<\/p>\n

II. FACTS :<\/h3>\n

2.1 The brief facts are that the assessee SPIL was a joint venture between SMC and MSIL. Scheme of amalgamation was approved by the High Court by which SPIL (Amalgamating company) was amalgamated with MSIL (Amalgamated Company) w.e.f. 01.04.2012. The series of events which took place subsequently are as under:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
\n Date<\/strong> <\/td>\nParticulars<\/strong><\/td>\n<\/tr>\n
\n

28.11.2012<\/p>\n<\/td>\n

\n

Return of income for AY 2012-13<\/u> was filed by SPIL (Amalgamating company) declaring income of Rs. 212.5 crore<\/p>\n<\/td>\n<\/tr>\n

\n

29.01.2013<\/p>\n<\/td>\n

\n

Scheme of amalgamation of SPIL and MSIL<\/u><\/strong> was approved<\/u><\/strong> by the High Court with effect from 1 April 2012<\/p>\n<\/td>\n<\/tr>\n

\n

02.04.2013<\/p>\n<\/td>\n

\n

MSIL intimated the Assessing Officer<\/u><\/strong>about the amalgamation.<\/p>\n<\/td>\n<\/tr>\n

\n

26.09.2013<\/p>\n<\/td>\n

\n

The case was selected for scrutiny<\/u><\/strong> by the issuance of a notice under Section 143(2) followed by a notice under Section 142(1) to the amalgamating company i.e. SPIL. <\/u><\/strong><\/p>\n<\/td>\n<\/tr>\n

\n

04.09.2015<\/p>\n<\/td>\n

\n

The AO asked for disclosure of information in the course of assessment proceedings and same was addressed to SPIL(Now known as MSIL)<\/strong><\/p>\n<\/td>\n<\/tr>\n

\n

22.01.2016<\/p>\n<\/td>\n

\n

The Transfer Pricing Officer passed an order under Section 92CA (3) making an adjustment of Rs. 78.97 crores in respect of royalty paid by the assessee for the relevant previous year.<\/p>\n<\/td>\n<\/tr>\n

\n

11.03.2016<\/p>\n<\/td>\n

\n

Thereafter, assessment proceedings continued with the participation of MSIL representing SPIL in the assessment proceedings. A draft assessment order was passed in the name of SPIL<\/u><\/strong> which sought to increase the total income of the assessee by Rs. 78.97 crores<\/p>\n<\/td>\n<\/tr>\n

\n

12.04.2016<\/p>\n<\/td>\n

\n

MSIL filed an application before the Dispute Resolution Panel (DRP) as the successor of SPIL, which was subsequently amalgamated<\/p>\n<\/td>\n<\/tr>\n

\n

14.10.2016<\/p>\n<\/td>\n

\n

DRP issued its order in the name of MSIL (amalgamated company)<\/p>\n<\/td>\n<\/tr>\n

\n

31.10.2016<\/p>\n<\/td>\n

\n

The final assessment order was passed in the name of SPIL<\/u><\/strong> (amalgamated with MSIL) making an addition of Rs. 78.97 crores to the total income.<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

As evident from the series of events which took place herein above, the final Assessment Order was passed by the Assessing Officer in the name of SPIL which was non-existent on the date of passing of such order (though the fact of amalgamation was duly intimated to the Assessing Officer by the amalgamated company). <\/p>\n

III. ISSUES BEFORE THE HON’BLE SUPREME COURT<\/h3>\n

(A) During pendency of assessment proceedings, an entitywas succeeded by another entity (otherwise than on death)<\/strong> and considering following set of facts, whether assessment order passed subsequently in name of said non-existing entity, would be without jurisdiction or not?\n<\/p>\n

(i) Notice issued u\/s 143(2) and 142(1) was issued in the name of non-existent entity and such notice was issued after the scheme of amalgamation which was approved by the High Court and such fact was intimated by the amalgamated company to the Assessing Officer before issuing such notice u\/s 143(2) of the Act.\n <\/p>\n

\n (ii) Assessment Order was passed in the name of non-existing entity.\n <\/p>\n

\n (iii) Along with the name of amalgamating company, the name of amalgamated company was also mentioned in the notice issued u\/s 142(1) as well as in assessment order passed u\/s 143(3).<\/p>\n

\n (iv) The representative of amalgamated company duly participated in the assessment proceedings.<\/p>\n

(B) Whether issuance of jurisdictional notice and subsequent assessment order passed in name of non-existing company is a substantive illegality and not a procedural violation of nature adverted to in section 292B or not?<\/p>\n

IV. DECISION OF SUPREME COURT :<\/h3>\n

(A) ON FACTS OF THE CASE<\/p>\n

(i) The income which is sought to be subjected to the charge of tax is the income of the erstwhile entity (SPIL)<\/strong> prior to amalgamation. This is on account of a transfer pricing addition of Rs. 78.97 crores, Under the approved scheme of amalgamation, the transferee has assumed the liabilities of the transferor company, including tax liabilities.<\/p>\n

(ii) 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 view of findings in the decision laid down in case of Saraswati Industrial Syndicate Ltd.<\/em> 186 ITR 278.<\/strong><\/p>\n

\n(iii) Upon the amalgamating company ceasing to exist, it cannot be regarded as a person under section 2(31)<\/u><\/strong> against whom assessment proceedings can be initiated or an order of assessment passed;<\/p>\n

\n(iv) The Assessing Officer assumed jurisdiction to make an assessment in pursuance of the notice under section 143(2). The notice was issued in the name of the amalgamating company in spite of the fact that prior to such date, the amalgamated company MSIL had addressed a communication to the Assessing Officer intimating the fact of amalgamation<\/strong>. In the above conspectus of the facts, the initiation of assessment proceedings against an entity which had ceased to exist was treated as void ab initio.<\/p>\n

(B) THE DECISION OF SPICE ENFOTAINMENT [SUPRA] DISCUSSED AND FOLLOWED BY THE SUPREME COURT :<\/p>\n

(i) In this case, amalgamation took place during the course of assessment proceedings and such facts were intimated to AO.The Hon’ble Delhi High court held that framing of assessment against a non-existing entity\/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a dead person hence same <\/u>cannot be cured within the provisions of section 292B. The participation by the amalgamated company in the Assessment Proceedings <\/u><\/strong>would have no effect since there could be no estoppel against law. <\/p>\n

(ii) Departmental appeal was dismissed by Supreme court<\/strong> in Civil Appeal No. 285 OF 2014, 286 OF 2014 dated 02\/11\/2017 and held that court do not find any reason to interfere with the impugned judgment(s) passed by the High Court. <\/p>\n

The Supreme court at para 25 of its order thus observed that 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.<\/strong><\/p>\n

(C) THE DECISION IN CASE OF APPELLANT FOR AY 2011-12 (Immediately previous year) DISCUSSED AND FOLLOWED BY THE SUPREME COURT <\/strong><\/p>\n

(i) Identical facts were in case of assessee for AY 2011-12<\/u>(except in said year amalgamation order was received during the course of assessment proceedings) and the Delhi High courtdecided issue in favour of assessee and held that assessment order passed subsequently in name of said non-existing entity would be without jurisdiction and deserved to be set aside.SLP filed by department against above decision(for AY 2011-12) was dismissed by Supreme court in (Civil) Diary No(s). 14106 of 2018, dated 16-7-2018.<\/p>\n

(ii) While deciding present issue in AY 2012-13, the Supreme court at para 34 of order observed that there is no reason to take a different view. There is a value which the court must abide by in promoting the interest of certainty in tax litigation. <\/p>\n

(D) DECISION OF SKYLIGHT HOSPITALITY [SUPRA] DISTINGUISHED BY THE SUPREME COURT<\/p>\n

In case of Skylight Hospitality, the AO duly mentioned the details of amalgamation in the copy of reasons recorded,fact was also mentioned in Tax Evasion Report, approval obtained from the Principal Commissioner, Order u\/s. 127 of the Act and even PAN of the LLP was mentioned in some of the documents. These facts clearly proved that notice issued u\/s 148\/147 was meant for the petitioner(amalgamated company) and no one else and mere issue of notice in the name of erstwhile company was a procedural lapse curable under section 292B. The Supreme Court thus observed that such clerical error has not been proved in the present case and it is evident from the facts that notice as well as order passed in the name of erstwhile company is substantive illegality and not curable u\/s 292B of the Act. On such grounds, the decision of Hon’ble Supreme Court in case of Skylight Hospitality was not followed in present case. <\/p>\n

IV. KEY TAKEAWAYS FROM COMBINED READING OF THE DECISIONS REFERRED HEREIN ABOVE <\/h3>\n

(i) Once assessee gets amalgamated with the transferee company, its independent existence does not survive and therefore it would no longer be amenable to the assessment proceedings.<\/p>\n

(ii) If reasons recorded in notice u\/s 148 or background material of such noticesor correspondence speaks that AO intended to issue notice in the name of amalgamated company and not in name of non-existent company, there was a mere error in addressing it non existing company as well as there is clerical error\/ procedural lapse in mentioning the name of the company, then the decision of Hon’ble Supreme Court\/Delhi High court in case of Sky Light Hospitality LLP shall apply and such defect shall be curable under the provisions of section 292B of the Act.The primary condition is that the Assessing Officer has to prove with evidences that the act of mentioning wrong name was a clerical mistake.<\/p>\n

However, where order is passed in the name of non-existing entityby the Assessing Officer out of ignorance even after being intimated by the assessee about succession of the assessee company, then such defect cannot be cured under the provisions of section 292B of the Act and the decision of Skylight Hospitality will not be applicable.<\/p>\n

(iii) In case where before or after issuing notice by AO amalgamation has taken place in assessment proceedings, and the amalgamated company had brought the fact of the amalgamation to the notice of the assessing officer and despite this, the assessing officer did not substitute the name of the amalgamated company , did not issue new notice u\/s 143(2)\/142(1) in name of amalgamated company and proceeded to pass Assessment Order in the name of a non-existent entity, such defect is not curable u\/s 292B and entire proceeding will be void.<\/p>\n

(iv) In order to be a valid notice \/ order, the same has to be passed in the name of existing entity only. Mere mentioning the name of both the entities shall not render the notice \/ order as valid and entire proceeding shall be void. <\/p>\n

(v) The participation by the amalgamated company in the Assessment Proceedings would have no effect since there could be no estoppel against law. <\/p>\n

These facts are also summarised by following flow chart:<\/p>\n

\"PR.<\/a><\/p>\n

VIII. RELEVANT DECISIONS RENDERED SUBSEQUENT TO ABOVE DECISION AND THEIR IMPACT <\/h3>\n

(a) Gujarat High court in the case of GAYATRI MICRONS LTD<\/u>.<\/strong>Vs ACIT [2020] 114 taxmann.com 318<\/u><\/strong> has held that transferor company had ceased to exist as a result of approved scheme of amalgamation and in such case notice issued under section 148 in its name would be fundamentally illegal and without jurisdiction.<\/p>\n

Similar observation is also made in following cases:<\/p>\n

(i) Decision of Mumbai ITAT in the case of Siemens Technology & Services (P.) Ltd Vs DCIT [2019] 112 taxmann.com 279<\/p>\n