Full Text
HIGH COURT OF DELHI
Date of Decision: 02.02.2023
COMMISSIONER OF INCOME TAX ......Appellant
Through: Mr Sanjay Kumar, Sr. Standing Counsel with Ms Easha Kadian, Adv.
PVT. LTD.) ….Respondent
Through: Mr Nageswar Rao, Advocate.
HON'BLE MS JUSTICE TARA VITASTA GANJU [Physical Hearing/Hybrid Hearing (as per request)]
RAJIV SHAKDHER, J. (Oral):
JUDGMENT
1. This appeal is directed against the order dated 06.07.2018 passed by the Income Tax Appellate Tribunal [in short “Tribunal”] concerning Assessment Year (AY) 2010-2011.
2. This appeal has a chequered history, inasmuch as it has been placed before us, on account of a difference of opinion in the coordinate bench which was constituted at the relevant point in time. It is evident from a perusal of the order dated 18.05.2021, passed by a bench comprising Hon’ble Mr Justice Rajiv Sahai Endlaw [as he then was] and Hon’ble Mr Justice Sanjeev Narula, that two issues were being considered when the said order was passed:
(i) First, as to whether the Tribunal had rightly entertained the additional ground raised before it? The additional ground concerned the jurisdiction of the AO in having the assessment order framed against a company, which was not in existence.
(ii) Second, whether this was a case, in which a substantial question of law arose, having regard to the judgment rendered by the Supreme Court in Principal Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC). 2.[1] Insofar as the first issue is concerned, both learned judges were of the view, that the Tribunal had correctly entertained the additional ground raised before it which concerned facets involving jurisdiction. This is apparent from a perusal of paragraph 18 and 22 of the order dated 18.05.2021.
3. It is in these circumstances, that the matter was then listed before the roster bench, on 27.07.2021. By the time the order dated 27.07.2021 was passed, the roster for Direct Taxes got changed. 3.[1] On 27.07.2021, the roster bench which thereafter dealt with Direct Tax framed the following question of law: “a) Whether notice under Section 143(2) of the Income Tax Act, 1961 having been issued in the name of erstwhile existing company, would the assessment order be legal and valid against the amalgamated company?
4. The facts, which are necessary for deciding the question of law, as framed, are captured by the Tribunal in the impugned order. Broadly, the facts necessary for adjudication are the following:
(i) The earlier avatar of the respondent/assessee was a company, going by the name Sony Ericsson Mobile Communications (India) Private Limited.
(ii) The Income Tax return concerning the aforementioned assessment year was filed by Sony Ericsson Mobile Communications (India) Private Limited.
(iii) The name of the company i.e., Sony Ericsson Mobile
Communications (India) Private Limited was changed to Sony Mobile Communications (India) Private Limited [in short “erstwhile company”], with effect from 18.04.2012.
5. Pursuant to a scheme of amalgamation sanctioned by this Court via judgment dated 23.07.2013, the erstwhile company merged into Sony India Pvt. Ltd. i.e., the respondent/assessee. As per the scheme of amalgamation, the merger took place with effect from 01.04.2013.
6. The record shows, that on 06.12.2013, a communication was addressed to the appellant/revenue, informing it about the factum of merger. This communication was accompanied by the scheme of amalgamation, as sanctioned by this Court. 6.[1] Importantly, in the interregnum i.e., when the erstwhile company was in existence, a notice under Section 143(2) of the Income Tax Act [in short “Act”] was issued on 29.08.2011. This Assessing Officer (AO), on, 02.05.2012, followed this with a questionnaire issued under Section 142(1) of the Act, which was served, once again, on the erstwhile company, albeit after the change in name had been effected, insofar as the erstwhile company was concerned.
7. The record also shows (and this is something concerning which there is no dispute), that the AO referred the matter to the Transfer Pricing Officer (TPO) with regard to the determination of Arm’s Length Price (ALP) involving the international transaction said to have been undertaken by the respondent/assessee. The TPO opined, that an upward adjustment amounting to Rs.56,30,78,638/- would have to be made. Accordingly, a draft assessment order was framed by the AO on 31.03.2014.
8. Qua this, respondent/assessee preferred its objections with the Dispute Resolution Panel (DRP). The DRP dismissed the objections on 21.10.2014. It is pursuant to the dismissal of the respondent/assessee’s objection, that the AO framed the assessment order dated 22.12.2014 under Section 143(3) read with Section 144C of the Act.
9. As noticed hereinabove, the respondent/assessee raised an additional ground before the Tribunal, concerning the absence of jurisdiction with regard to the framing of the order by the AO under Section 143(3) of the Act.
10. In particular, the ground articulated by the respondent/assessee was, that the assessment order had been framed vis-à-vis the erstwhile company, which did not exist in the eyes of law.
11. It is this objection, which found favour with the Tribunal. The Tribunal, thus, allowed the appeal preferred by the respondent/assessee, and while doing so, made the following observations: “…The various other decisions relied by the Ld. Counsel for the assessee also support his case. So far as the various decisions relied by the Ld. DR are concerned these decisions in our opinion are distinguishable and not applicable to the facts of the present case. Since the final assessment in the instant case has been made on a non-existent company, therefore, following the decisions cited (supra) we hold that the assessment framed by the Assessing Officer on a non-existent company is a nullity in the eyes of law and void and the provisions of section 292B cannot rescue the department. Therefore, the order is unsustainable and accordingly the same is quashed. The additional ground raised by the assessee is accordingly allowed. Since the assessee succeeds on this legal ground, therefore, the various other grounds raised by the assessee in appeal are not adjudicated being academic in nature…”
12. It is in this backdrop, that submissions were advanced on behalf of the appellant/revenue by Mr Sanjay Kumar, learned senior standing counsel, while arguments on behalf of the respondent/assessee were put forth by Mr Nageswar Rao.
13. Mr Kumar submitted, that the judgment in Maruti Suzuki is distinguishable from the facts obtaining in the instant appeal. In this context, Mr Kumar adverted to the fact, that the jurisdictional notice under Section 143(2) of the Act [which is dated 29.08.2011] had been issued to the erstwhile company, when it was in existence, which was not the situation that obtained in Maruti Suzuki. 13.[1] The argument is, that in Maruti Suzuki, the Supreme Court ruled in favour of the assessee, as the jurisdictional notice had been issued to a company which was not in existence i.e., the amalgamating company. As per Mr Kumar, the impugned assessment order dated 22.12.2014, which had been framed in the name of the erstwhile company constitutes an irregularity and/or a mistake, which can be corrected, by taking recourse to the provisions of Section 292B of the Act. In support of this plea, Mr Kumar has placed reliance on the judgment of the Supreme Court in Principal Commissioner of Income Tax (Central) - 2 vs. Mahagun Realtors (P) Ltd 2022 SCC OnLine SC 407. 13.[2] Based on the said judgment, Mr Kumar’s contention is, that upon amalgamation, the amalgamating company dissolves, and therefore, the liability to tax can be determined in the given facts and circumstances of the case, by perusing the amalgamated company. 13.[3] It is in this context, that Mr Kumar has also relied upon the order sanctioning the amalgamation scheme i.e., order dated 23.07.2013.
14. Our attention has been drawn to the fact, that both in terms of the order sanctioning the amalgamation scheme as well as the amalgamation scheme itself, the respondent/assessee i.e., the amalgamated company was obliged to take over not only the liabilities of the erstwhile company, but also bear the burden of the proceedings which had been commenced against the erstwhile company being the transferee company.
15. On the other hand, Mr Nageshwar Rao, who appears on behalf of the respondent/assessee, as would be expected, has relied upon the ratio of the judgment in Maruti Suzuki. Mr Rao has also taken us through certain paragraphs of the judgment rendered by the Supreme Court in Mahagun Realtors to draw a distinction between the facts obtaining in that case, and those obtaining in the instant case.
16. We have heard the matter at some length.
17. Insofar as the crucial facts are concerned, as noticed above, there is no dispute.
18. Mr Kumar is right to the extent that the notice under Section 143(2) which is dated 29.08.2011 was issued to the erstwhile company. However, where we are unable to agree with him, is that because this notice was issued in the name of the erstwhile company, it would result in the non-applicability of the ratio enunciated by the Supreme Court in Maruti Suzuki. The reason why we say so is that when the Section 143(2) notice was issued i.e., on 29.08.2011, the amalgamation between the erstwhile company and the respondent company had not occurred. The amalgamation occurred only on 23.07.2013. 18.[1] Therefore, the position that this Court needs to examine, is to how the AO, thereafter, should have proceeded in the matter. As noticed above by us, despite the fact that the appellant/revenue was informed on 06.12.2013, that amalgamation had occurred, the AO proceeded on the wrong course.
19. As a matter of fact, the DRP, while dealing with the respondent/assessee’s objection, had noticed the change that had been brought about, by virtue of the erstwhile company amalgamating with the respondent/assessee. Despite this fact being brought to the notice of the AO, he continued on the wrong course, and framed the wrong impugned assessment order dated 22.12.2014, in the name of a non-existent company i.e., the erstwhile company.
20. The other aspect, which Mr Kumar has emphasized on, at great length is the applicability of the judgment in Mahagun Realtors Private Ltd. The important aspect required to be noticed, is that both judgments i.e., Maruti Suzuki and Mahagun Realtors Private Ltd. have been rendered by a bench comprising two judges. What is pertinent, is that in Maruti Suzuki, the Supreme Court considered the earlier judgments rendered by it in the matter of Spice Infotainment vs. Commissioner of Income tax (2020) 18 SCC 353] and Skylight Hospitality LLP v Assistant Commissioner of Income Tax, Circle-28(1), New Delhi (2018) 13 SCC 147 (Delhi), which dealt with the issue at hand. 20.[1] In Maruti Suzuki, the Supreme Court made the following observations with regard to the aforementioned judgements:
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 292-B. The “peculiar facts” of Skylight Hospitality emerge from the decision of the Delhi High Court [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155: (2018) 405 ITR 296]. Skylight Hospitality, an LLP, had taken over on 13-5-2016 and acquired the rights and liabilities of Skylight Hospitality Pvt. Ltd. upon conversion under the Limited Liability Partnership Act, 2008 (the LLP Act, 2008). It instituted writ proceedings for challenging a notice under Sections 147/148 of the 1961 Act dated 30-3- 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 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 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 292-B for the following reasons: (Skylight Hospitality case [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155: (2018) 405 ITR 296], SCC OnLine Del para 18)
29. The decision in Spice Entertainment [Spice Entertainment Ltd. v. Commr. of Service Tax, 2011 SCC OnLine Del 3210: (2012) 280 ELT 43] was distinguished with the following observations: (Skylight Hospitality case [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155: (2018) 405 ITR 296], SCC OnLine Del para 19)
30. From a reading of the order of this Court dated 6-4-2018 [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] 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 292-B. The decision in Skylight Hospitality LLP [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155: (2018) 405 ITR 296] has been distinguished by the Delhi, Gujarat and Madras High Courts in:
(i) Rajender Kumar Sehgal [Rajender Kumar Sehgal v. CIT, 2018
(ii) Chandreshbhai Jayantibhai Patel [Chandreshbhai Jayantibhai
(iii) Alamelu Veerappan [Alamelu Veerappan v. CIT, 2018 SCC
31. There is no conflict between the decisions of this Court in Spice Enfotainment [CIT v. Spice Enfotainment Ltd., (2020) 18 SCC 353] (dated 2-11-2017) and in Skylight Hospitality LLP v. CIT [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] (dated 6-4-2018).” [Emphasis is ours] 20.[2] A perusal of paragraph 31 of the judgment in Maruti Suzuki would clearly reveal, that the Supreme Court concluded, that there was no conflict between the decisions rendered by the court in Spice Enfotainment Ltd. and Skylight Hospitality LLP.
21. Insofar as Mahagun Realtors is concerned, as observed hereinabove, the Court, once again, noticed the judgment rendered in Spice Enfotainment. As regards Maruti Suzuki, the Court in Mahagun Realtors made the following crucial observations:
33. In Maruti Suzuki (supra), the scheme of amalgamation was approved on 29.01.2013 w.e.f. 01.04.2012, the same was intimated to the AO on 02.04.2013, and the notice under Section 143(2) for AY 2012-2013 was issued to amalgamating company on 26.09.2013. This court in facts and circumstances observed the following: “35. In this case, the notice under Section 143(2) under which jurisdiction was assumed by the assessing officer was issued to a nonexistent 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.