Facts of the Case

The Revenue challenged the order passed by the Income Tax Appellate Tribunal (ITAT), Delhi, whereby the assessment framed against Dimension Apparels Pvt. Ltd. under Sections 143(3), 153A and 153C of the Income Tax Act was quashed.

The assessment order dated 31.12.2010 pertained to Assessment Years 2003-04 to 2008-09. The assessee contended that it had ceased to exist with effect from 07.12.2009 due to amalgamation with another company pursuant to an order passed under Sections 391(2) and 394 of the Companies Act, 1956.

The assessee argued before the Commissioner of Income Tax (Appeals) that the assessment order was invalid because it had been passed against a non-existent entity after amalgamation. The CIT(A) accepted the contention and held that assessment on a dissolved/amalgamated company is impermissible in law.

The ITAT affirmed the findings of the CIT(A), following which the Revenue filed appeals before the Delhi High Court.

Issues Involved

  1. Whether an assessment order passed against an amalgamating company after its dissolution/amalgamation is legally valid?
  2. Whether Sections 170(1) and 170(2) of the Income Tax Act permit assessment upon a non-existent amalgamating company?
  3. Whether Section 292B can cure the defect of framing assessment against a non-existent entity?
  4. Whether participation by the amalgamated company in assessment proceedings validates the assessment proceedings?

Petitioner’s Arguments (Revenue)

The Revenue contended that under Sections 170(1) and 170(2) of the Income Tax Act, where business succession takes place and the predecessor cannot be found, assessment could be made upon the successor in like manner.

It was further argued that the defect, if any, in the assessment order was merely procedural or technical in nature and therefore protected under Section 292B of the Income Tax Act.

The Revenue also submitted that the assessee had participated in the assessment proceedings throughout and therefore could not subsequently challenge the validity of the assessment order. Reliance was placed upon the judgment in Marshall Sons and Co. vs. Income Tax Officer (1992) 195 ITR 417.

Respondent’s Arguments (Assessee)

The assessee argued that no substantial question of law arose for consideration. It was submitted that once amalgamation takes effect, the amalgamating company ceases to exist in the eyes of law and therefore no assessment can be framed against such non-existent entity.

The assessee relied upon:

  • Saraswati Industrial Syndicate v. CIT
  • Spice Entertainment Ltd. vs. CIT
  • Commissioner of Income Tax v. Vived Marketing Servicing Pvt. Ltd.

It was further argued that the defect was jurisdictional in nature and therefore could not be cured by invoking Section 292B of the Income Tax Act.

Court Findings / Observations

The Delhi High Court held that Section 170(2) specifically provides that where the predecessor cannot be found, assessment must be made upon the successor company and not upon the dissolved predecessor company.

The Court observed that after amalgamation, the transferor company ceases to exist as a legal entity. Relying upon Saraswati Industrial Syndicate v. CIT, the Court reiterated that the amalgamating company loses its independent existence upon amalgamation.

The Court further relied upon its earlier judgment in Spice Entertainment Ltd. vs. CIT, wherein it had been held that framing assessment against a non-existing entity is not a procedural defect but a jurisdictional defect.

It was specifically held that Section 292B cannot cure a jurisdictional defect arising from assessment framed against a non-existent entity.

The Court also rejected the Revenue’s contention regarding participation in proceedings and held that there can be no estoppel against law. Participation by the amalgamated company does not validate an otherwise void assessment order.

 

Court Order

The Delhi High Court dismissed all appeals filed by the Revenue and upheld the orders of the CIT(A) and ITAT quashing the assessment framed against the amalgamated company.

Important Clarification

  • Assessment framed against a company that has ceased to exist due to amalgamation is void ab initio.
  • Such defect is jurisdictional and cannot be cured under Section 292B of the Income Tax Act.
  • The Assessing Officer is legally required to substitute the successor/amalgamated company in place of the dissolved entity.
  • Participation in assessment proceedings by the amalgamated company does not validate assessment against a non-existent company.
  • Sections 159 and 176 of the Income Tax Act are not applicable to cases involving amalgamation/dissolution of companies.

Sections Involved

  • Section 143(3) of the Income Tax Act, 1961
  • Section 153A of the Income Tax Act, 1961
  • Section 153C of the Income Tax Act, 1961
  • Section 170(1) & 170(2) of the Income Tax Act, 1961
  • Section 292B of the Income Tax Act, 1961
  • Section 159 of the Income Tax Act, 1961
  • Section 176 of the Income Tax Act, 1961
  • Sections 391(2) & 394 of the Companies Act, 1956

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:3161-DB/SRB08072014ITA3272014.pdfTop of Form

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