In case of companies , the merger of the companies are part of business restructuring . The process of merger is such that the total time taken is often quite longer , because of the various inquiries by Regional Director of companies (MCA) and lastly order of approval of scheme of amalgamation by the jurisdictional High Court.It often happens , that either a notice of scrutiny assessment or re-assessment notice is issued in case of companies part of scheme of amalgamation. In fact , often the assessing officer are in dark or even if told about the proposed merger , do not give to much value to such notices by the assessee and continue the proceeding. This post clarifies the legal position of the notices or assessment or any proceeding , subsequent to the approval of the scheme of amalgamation or merger of companies.
Notice Issued After Approval of Merger is Illegal
It has been held by high court that if the notice of any proceeding under Income Tax Act is issued in the name of the assessee company which has merged with another company , then such notice is void . The reason is that the assessment is done on a person , but that person was not in existence after the merger !
The Hon’ble Delhi High Court has considered the validity of notice issued under Section 143(2) of the Act after amalgamation in the case of M/s Spice Entertainment Ltd. vide ITA; nos. 475 and 576/2000. Their Lordships held as under.
“11. After the sanction of the scheme on 11th April,2004, the Spice ceases to exist 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 Assessing Officer. He, however, did not substitute the name of the appellant on record. Instead, the Assessing Officer made the assessment in the name of MIs Spice which was non existing entity on that date. In such proceedings and assessment order passed in the name of MIs 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 estoppels against law.”
Similarly , Delhi High Court upheld the ITAT decision in Commissioner of Income-tax-III v. Dimension Apparels (P.) Ltd.  370 ITR 288 (Delhi) which quashed the assessment order framed u/s 153A and 153C of the Income Tax Act, 1961 on the ground that the assessment was made on a person who was not in existence. It also noted that
“As early as 1960, in CIT v. Express Newspapers Ltd.  40 ITR 38 (Mad), the Madras High Court held that
“there cannot be an assessment of non-existent person. The assessment in the instant case was made long after the Free Press Company was stuck off from the register of the companies, and it could not be valid.” (Emphasis Supplied)
In case before Gujarat High Court in case of Khurana Engineering Ltd. Vs DCIT (OSD) – I  34 taxmann.com 261 (Gujarat) fact was that an amalgamation scheme was presented before the Gujarat High Court for its sanction. The High Court by the order dated 18th March 2011 sanctioned the scheme by order dated 18th March 2011, the transferor company merged in the transferee company, however, with effect from the appointed date, namely, 1.4.2009.
When the A.O issued notice under section 142(1) calling upon one M/s. Khurana Infrastructure and Toll Road Pvt. Ltd. to furnish certain details for the assessment year 2010-11, the assessee challenged notice dated 20th June 2012
Hon’ble High Court held that
“we have no hesitation in holding that the transferor company would no longer be amenable to assessment proceedings for the assessment year 2010-11. The notice for producing documents for such assessment would, therefore, be invalid”
Search Assessment Invalid !
In case before ITAT , Delhi , G Bench , in case of Satwant Exports (P.) Ltd.ACIT Cir 21, New Delhi  65 SOT 39 (Delhi – Trib.)(URO) ,one of the ground raised by the assessee was whether the notice issued u/s 153C was invalid as notice u/s 153C was issued in name of assessee company , which had merged with another company much before the date of issue of notice.
ITAT held the said notices illegal and decided the case against the income tax department. Here is what was concluded by the ITAT
11. If the totality of the facts are summarized it can be said that a company incorporated under the Indian Companies Act is a juristic person and its takes its birth and gets life with its incorporation. It dies with the dissolution as per the provisions of the Companies Act. It is a trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law. Having regard this consequence provided in law, a number of cases the Hon’ble Apex Court held that assessment upon a dissolved company is impermissible as there is no provision in the I.T. Act to make an assessment upon a non-existent company. In the case of Saraswati Industrial Syndicate Ltd. v. CIT  186 ITR 278/53 Taxman 92, the legal position was explained. In amalgamation two are more companies are fused into one by merger or by taking over by another. The amalgamation is a blending of two or more existing undertaking into one undertaking, and the share holders of each blending company become substantially the share holders in the company which is to carry on the blending undertakings. Therefore, no assessment can be framed on a non-existent entity. Identical view was expressed by Hon’ble High Court of Calcultta in INK Agencies (P.) Ltd. (supra), wherein notice was issued upon a company which was not in existence at the time of issuance of notice due to its winding up. It was held that transferor company would no longer be amenable to assessment proceedings. Likewise, Hon’ble Gujarat High Court in Torrent (P.) Ltd. (supra) on the issue of validity of assessment on a non existent person held the same a nullity.
Mistakes Can’t Be Rectified u/s 292B
In this regard , the decision of ITAT, Delhi M/s Images Credit and Portfolio (P) Ltd. (amalgamated with Sainath Associates Pvt. Ltd.) Vs. ACIT (ITAT Delhi), I.T.A. No. 5301 to 5305/Del/13, Date of Order: 19.12.2014 is also worth relying , because in that case ITAT held the notice u/s 153C as Void on the ground that the same was issued after the company ceased to exist. The facts in brief was as under :
- Delhi High Court approved the amalgamation w.e.f. appointed date i.e. 1st April,2008.
- The order approving amalgamation was passed on 25th day of May,20 10 by which M/s Image Credit and Portfolio P.Ltd. which is a transferor company merged and amalgamated with M/s Sainath Associates Pvt.Ltd. which is a transferee company.
- Thus M/s Image Credit and Portfolio Pvt.Ltd. i.e. the assessee ceased to exist after 25th day of May,2010.
- The notice under Section 153C in the name of M/s Image Credit and Portfolio Pvt.Ltd. was issued on 10th September,2010 i.e. after the date when M/s Image Credit and Portfolio Pvt.Ltd. ceased to exist.
The ITAT held by relying on Spice Entertainment decision by Delhi High Court as under :
“in the case of the assessee notice under Section 1 53C was issued in the name of M/s Image Credit and Portfolio Pvt.Ltd. on 10th September,20 10 when this company was not in existence. Therefore, the ratio of the decision of Hon’ble Jurisdictional High Court in the case of M/s Spice Entertainment Ltd. (supra) would be squarely applicable to the issue of notice under Section 153C in the case of the assessee. Whether the assessee intimated about the amalgamation before the issue of notice under Section 1 53C or not would not be relevant for deciding the issue of validity of the notice under Section 153C of the Act. Whether the assessee intimated or not the fact remains that M/s Images Credit and Portfolio (P) Ltd. Ceased to exist after the approval of amalgamation by the Hon’ble Jurisdictional High Court i.e. 25th day of May,2010. Whether it is in the knowledge of the Revenue or not any notice issued in the name of a non existent person is a nullity. Therefore, we hold that the issue of notice under Section 153C of the Act on 10th September,2010 was void.”
In this regard , the judgment of Punjab & Haryana High Court in CIT v. Norton Motor,  275 ITR 595/146 Taxman 701, that while Section 292B can cure technical defects, it cannot cure a “jurisdictional defect in the assessment notice
Conclusion on The Issue of Merger of Companies
Based on the aforesaid decision it is clear that :
- Notice of any proceeding under I.T.Act after amalgamation or merger of companies subsequent to the date of merger approved by the High Court has to be in name of amalgamated company and not in name of amalgamating company . So , any notice issued in name of merging company after date of approval , shall be Void.
- Similar is the case of Assessment order . It will be void if passed after approval of scheme by High Court in name of merging company name.If the proceeding was correcyly pending , teh final assessment order has to be in name of new merged company and not the company which is not in existence.
- The error in not writing the amalgamating company in notice or assessment order is not amendable u/s 292B of the Income Tax Act .