SC upholds validity of Assessment Order passed in name of non-existing amalgamating Co.

Case Details: PCIT v. Mahagun Realtors (P.) Ltd. - [2022] 137 taxmann.com 91 (SC)

Judiciary and Counsel Details

• • Uday Umesh Lalit and S. Ravindra Bhat, JJ.

Facts of the Case

Assessee-Mahagun Realtors Private Limited (Amalgamating Co.) was engaged in the development of the real estate. Assessee amalgamated with Mahagun India Private Limited by virtue of an order of the High Court.

After such amalgamation, survey proceedings were conducted in respect of the assessee. During proceedings, some discrepancies in its books of account were noticed. Assessing Officer (AO) passed the assessment order making several additions under various heads. The assessment order showed the assessee as “Mahagun Relators Private Ltd, represented by Mahagun India Private Ltd”.

Said order was challenged before lower authorities and courts held that the assessment order passed in the name of non-existing entity would be without jurisdiction. The matter reached the Supreme Court.

Supreme Court Held

The Supreme Court held that amalgamation is unlike the winding up of a corporate entity. In the case of amalgamation, the outer shell of the corporate entity is undoubtedly destroyed. However, the business and the adventure lives on within a new corporate residence, i.e., the transferee company.

Therefore, it is essential to look beyond the mere concept of the destruction of the corporate entity, which ends or terminates any assessment proceedings. There are analogies in civil law and procedure whereupon amalgamation, the cause of action, or the complaint does not per se cease – depending of course, upon the structure and objective of enactment.

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 the instant case, there was no intimation by the assessee regarding the amalgamation of the company. The return of amalgamating Co. was also filed pursuant to notice by the AO. Though that entity ceased to exist in law, appeals were filed on its behalf before the CIT(A), and a cross-appeal was filed before ITAT.

Thus, the assessee’s conduct, commencing from the date the search took place and before all forums, reflects that it consistently held itself out as the assessee. Accordingly, the order of the High Court was to be set aside, and the matter is restored to file of ITAT, which shall proceed further.