Gujarat High Court
Kunvarji Fincorp Private Limited vs Deputy Commissioner Of Income Tax ... on 16 January, 2023
Author: Sonia Gokani
Bench: Sonia Gokani
NEUTRAL CITATION
C/SCA/903/2022 ORDER DATED: 16/01/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 903 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 1110 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 1111 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 1113 of 2022
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KUNVARJI FINCORP PRIVATE LIMITED
Versus
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), AHMEDABAD
& 1 other(s)
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Appearance:
MR B S SOPARKAR(6851) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) WITH Mr. DEV D. PATEL, ADVOCATE for the
Respondent(s) No. 1,2
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CORAM:HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MR. JUSTICE SANDEEP N. BHATT
Date : 16/01/2023
COMMON ORAL ORDER
(PER : HONOURABLE MS. JUSTICE SONIA GOKANI)
1. Since the issues raised in all the captioned writ- applications are more or less the same, identical of law and facts, those were heard analogously and are being disposed of by this common order.
2. The Special Civil Application No.903 of 2022 is treated as the lead matter.
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3. The petitioner is before this Court under Article 226 of the Constitution of India, challenging the notice issued by respondent no.1 under Section 148 of the Income-tax Act dated 30.03.2021 directing the petitioner to furnish the return of income for the A.Y.2016-17 on the ground that this is a notice issued without jurisdiction and is illegal as the notice issued to the non-existing person.
4. The brief facts leading to the present petition as follows:-
4.1 The petitioner is a limited company. The two companies namely, Kaizen Stocktrade Pvt. Ltd. and Kaizen Finstock Pvt.
Ltd. were amalgamated into the petitioner company by an order dated 05.08.2016 in Company Petition No.235 of 2016 in Company Application No.221 of 2016. The Court sanctioned the Scheme of Amalgamation of two Transferor Companies viz. Kaizen Stocktrade Private Limited and Kaizen Finstock Private Limited with petitioner company - Kunvarji Fincorp Private Limited, which proposed under Section-391 and 394 of Page 2 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined the Companies Act, 1956.
4.2 The notice of petitions had been served upon the office of the Official Liquidator for the Transferor Companies. It had been also served upon the Central Government and affidavit also had been filed by the Regional Director, North-Western Region, Ministry of Corporate Affairs. The Court also considered the observation of the Regional Director that it had invited the I.T. Department raising the objections. No reply had been received from the department within the statutory period envisaged as per the Circular of Ministry of Corporate Affairs for the Transferor Companies and therefore, it was presumed that the department had no objection to the proposed scheme of arrangement. However, the department had sought that the transferee company would mandatorily comply with all conditions laid down under Sub-section 2 to 5 of Section 72A and Sub-section 19(AA) of Section-2(1B) of the Act. Taking note of the fact that the petitioner company agreed to comply with the applicable provisions of the Income Tax Act and considering over all the facts and circumstances couple with all the documents presented before this Court, Page 3 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined this Court concluded that the Scheme of Amalgamation put for before it is in the interest of the shareholders and creditors as well as in the Public Interest and is accordingly deserving the sanction. Therefore, had allowed all the petitionss with the following order:-
"10. Prayers in terms of paragraph 16(a) of the Co. Petitions No. 235, 236 and 237 of 2016 are hereby granted.
11. The petitions are disposed of accordingly. So far as the costs to be paid to the Central Govt. Standing Counsel is concerned, I quantify the same at Rs. 7,500/- per petition. The same may be paid to the learned Standing Counsel appearing for the Central Govt. Costs to be paid to the Office of the Official Liquidator is quantified at Rs. 7,500/- per petition payable only by the Transferor Companies. The same may be paid to the Office of the Official Liquidator.
12. The petitioner companies are further directed to lodge a copy of this order, the detailed schedule of immovable assets of the Transferor Companies as on the date of the order and the Scheme duly authenticated by the Registrar, High Court of Gujarat, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty, if any, on the same within 60 days from the date of the order.Page 4 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023
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13. The Petitioner companies are directed to file a copy of this order alongwith a copy of the scheme with the concerned Registrar of Companies, electronically, along with INC-28 in addition to physical copy as per relevant provisions of the Act.
14. Filing and issuance of drawn up order is hereby dispensed with.
15. All concerned authorities to act on a copy of this order along with the scheme duly authenticated by the Registrar, High Court of Gujarat. The Registrar, High Court of Gujarat shall issue the authenticated copy of this order alongwith Scheme as expeditiously as possible."
4.3 In a return filed by the petitioner for the A.Y.2016-17, the fact of amalgamation was indicated and the case was picked up for re-assessment and notice under Section-142(1) was issued on 22.02.2018. The petitioner replied to the same vide letter dated 20.03.2018 and on 04.12.2018, the order of assessment under Section-143(3) noting the assessment was completed considering the income of the petitioner and those two companies, which have been merged with the petitioner. Page 5 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023
NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined 4.4 The Notice under Section-148 was issued on 30.03.2021 in the name of predecessor company i.e. Kaizen Finstock Pvt. Ltd. seeking to re-open the assessment for A.Y.2016-17.
Through e-mail 28.04.2021, the respondent no.1 appraised of the factam of amalgamation and pointing out that the notice is bad ab-initio. However, no response has been given and hence, petitioner has approached this Court seeking following reliefs:-
7. This Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, direction or order and be pleased to:
(a) quash and set aside the impugned notice dated 30.03.2021 at Annexure-'A' to this petition;
(b) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the notice at Annexure-'A' to this petition and stay further proceedings for assessment and recovery and for A.Y.2016-17;
(d) any other and further relief deemed just and proper be granted in the interest of justice;
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(e) to provide for the cost of this petition. 4.5 This Court issued the notice on 24.01.2022 by following order [Coram: Mr. Justice J.B. Pardiwala (As His Lordships Then was) And Ms. Justice Nisha .M. Thakore]:-
1. We have heard Mr. Bandish Soparkar, the learned counsel appearing for the writ applicant.
2. The subject matter of challenge in the present writ application is to the notice issued by the respondent No.1 under Section 148 of the Income Tax Act, 1961 directing the writ applicant to furnish the returns of income for the A. Y. 2016-17. To put it in other words, the Revenue is contemplating to reopen the assessment for the A. Y. 2016-17.
3. Mr. Soparkar pointed out that two companies namely Kaizen Stocktrade Pvt. Ltd. and Kaizen Finstock Pvt. Ltd. got amalgamated into the writ applicant -
company by an order dated 5th August 2016. He further pointed out that the assessment order under Section 143(3) of the Act also came to be passed in the case of the writ applicant dated 4th December 2018 after considering the income of the writ applicant as well as the two companies which got merged with the writ applicant.
4. Despite the aforesaid, the impugned notice dated Page 7 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined 30th March 2021 has been issued in the name of the predecessor company i.e. Kaizen Finstock Pvt Ltd. According to Mr. Soparkar, the notice is illegal in view of the pronouncement of this High Court in the case of Gayatri Microns Ltd vs. Assistant Commissioner of Income-tax reported in 424 ITR 288 (Gujarat).
5. Let Notice be issued to the respondents for final disposal of this writ application, returnable on 7 th March 2022. Let there be an adinterim order in terms of para 7(c). Direct service is permitted.
5. Learned senior standing counsel Mr. Varun Patel appeared in response to the notice for final disposal and this Court has heard the learned advocate Mr. Bandish Soparkar as well as learned senior counsel Mr. Varun Patel.
6. It is pointed out to this Court that the order of 05.08.2016 had been intimated to the officer on 20.03.2018 in reply to the notice under Section-142(1) of the Income-tax Act for the A.Y.2016-17. While replying to the said notice, there has been specific averment in the first paragraph itself addressed to Circle 2(1)(2) that the companies viz. M/s. Kaizen Stocktrade Pvt. Ltd. [PAN : AADCK0048A] and Kaizen Finstock Pvt. Ltd. [PAN : AAECK6956E] as per the decision of Page 8 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined this Court on 31st August, 2016 with record date of 1 st April, 2015 had acquired by the present petitioner.
7. He has urged that this should be construed as sufficient intimation and yet the notice has been issued, which is impugned in the petition on 30.03.2021 for the A.Y.2016-17 for Kaizen Finstock Pvt. Ltd., which no longer exists. The amalgamating company having ceased to exist as a result of the approved scheme, it is urged that no notice can be issued to the non-existing company relying on the two decisions of Gayatri Microns Ltd. Vs. Assistant Commissioner of Income- tax reported in 424 ITR 288 (Gujarat) and Principal CIT Vs. Maruti Suzuki Ltd. reported in 416 ITR 613 (SC).
8. Learned senior standing counsel Mr. Varun Patel has urged that Maruti Suzuki decision has been already considered by the Apex court in the case of Principal Commissioner of Income-tax Vs. Mahagun Realtors (P.) Ltd. reported in 443 ITR 194 (SC) and therefore, the Court shall need to consider that decision, which speak of the outer shell of corporate entity having been destroyed; in other sense of Page 9 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined term, the corporate venture continues, enfolded within the new or the existing transferee entity. Therefore, it is urged that it is essential to look beyond the mere concept of destruction of corporate entity. He also further pointed out that a manner of intimation also should have been different to the decision as well as the change which has been brought subsequently of-course inserted in Income-tax Act 2022 w.e.f.01.04.2022.
9. Mr. Varun Patel, learned senior standing counsel submitted that for the purpose of explaining as to how the insertion of provision of Sub-section 2A of Section 170 has also permitted the assessment or re-assessment or any other proceedings where there is a succession. During the course of pendency of such succession is brought to our notice by learned counsel. However, as fairly said that this is not applicable in case of the present petitioner; this also does not in any manner specify the manner of intimation to the authority concerned. There is no format given nor is it specified as to whether within what time the intimation is to be given, but in the instant case, almost after two years, such Page 10 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined intimation has been given and the assessment had also taken place in the case of present petitioner taking into consideration the amalgamation that had been permitted.
10. Noticing thus the submission of both the sides and the materials on record, it is not requiring much of debate that in the instant case, this Court on 05.08.2016 after following the requisite procedure which also includes giving of notice to the Income-tax Department, has chosen to decide the plea of amalgamation and approved the Scheme of Amalgamation in the interest of shareholders, creditors and has also taken note of the public interest. This decision had been intimated by the present petitioner and reply to the notice under Section- 142(1) of the Income-tax Act for the A.Y.2016-17, not only, it had specified that it has required the two companies i.e.M/s. Kaizen Stocktrade Pvt. Ltd. [PAN: AADCK0048A] and Kaizen Finstock Pvt. Ltd. [PAN: AAECK6956E] and this communication addressed to Circle 2(1)(2) provides for order of the Court dated 31st August, 2016.
11. In absence of any particular format for intimating the Page 11 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined authority concerned, this intimation on the part of the petitioner is sufficient intimation to the department. We need to make also a note of the fact that the notice, which is impugned in the present petition is also issued by the very officers Circle 2(1)(2), to whom the intimation had been given by the petitioner.
12. The Apex court in the case of Principal CIT Vs. Maruti Suzuki Ltd. (Supra) had noted that the Assessing Officer was informed of the amalgamating company having ceased to exist as a result of the approved Scheme of Amalgamation. The Court has held that the legal principle provides that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. This Court in the case of Gayatri Microns Ltd. Vs. Assistant Commissioner of Income-tax was considering the the case of issuance of notice under Section- 148 to one of the three transferee companies for reopening the assessment. The Court considered whether the transferor company had ceased to exist as a result of the approved Scheme of Amalgamation. Answering that in the affirmation has held that in such case, the notice issued under Section- Page 12 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023
NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined 148 in its name would be fundamentally illegal and without jurisdiction.
8. Concededly, in the present case the notice under section 148 of the Act has been issued to Gayatri Integrated Services Private Limited which, as aforesaid, had long back got amalgamated with the petitioner vide order dated 18th June, 2015 passed by this court and thus, it had ceased to have its own existence so as to render it amenable for the reassessment proceedings under the provisions of section 147 of the Act. Moreover, the respondent and the department were duly informed by the petitioner about the amalgamation and despite the said factum having been brought to the notice of the respondent, statutory notice under section 148 came to be issued to Gayatri Integrated Services Private Limited for reopening the assessment on the ground that the respondent has reason to believe that income chargeable to tax for the assessment year 2012-13 has escaped the assessment within the meaning of section 147 of the Act.
9. The controversy in the present petition, is no longer res integra. The Apex Court in the case of Principal Commissioner of Income Tax vs. Maruti Suzuki India Limited (supra), in paragraph 33, has categorically held that if the company has ceased to exist as a result of the approved scheme of amalgamation then in that case, the jurisdictional notice issued in its name would be fundamentally illegal and without jurisdiction. It is also Page 13 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined held that upon the amalgamating entity ceasing to exist, it cannot be regarded as a person under sub- section (31) of section 2 of the Act; against whom assessment proceedings can be initiated. The Apex Court has further held that participation by the amalgamated company in the proceedings would be of no effect as there is no estoppel against law.
10. Similarly, this court, in the judgment in the case of Dharamnath Shares and Services (P) Ltd. (supra) while referring to its earlier decision in the case of Khurana Engineering Limited (supra) held that once the assessee company gets amalgamated with the transferee company, its independent existence does not survive and therefore it would no longer be amenable to the assessment proceedings. Thus, it is well settled proposition of law that upon its amalgamation the transferor company ceases to exist and becomes extinct, and it would no longer be amenable to the assessment proceedings considering the fact that the extinct entity would not be covered within the ambit of the provisions of the Act.
13. The Supreme Court in the case of Principal Commissioner of Income-tax Vs. Mahagun Realtors (P.) Ltd. was considering the case for the A.Y.2006-07, where there was no intimation regarding amalgamation of the company. Page 14 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023
NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined The return of income was filed by the assessee on 30.06.2006 in the name of MRPL and MRPL amalgamated with MIPL on 11.05.2007, w.e.f. 01.04.2006. The proceedings against MRPL stated in 27.08.2008 - when search and seizure was first conducted on assessee group of companies. Notices under Section 153A and Section 143(2) were issued in the name of MRPL and the representative from MRPL corresponded with the revenue in the name of MRPL. The assessee filed its return of income in the name of MRPL in May, 2010 and in the 'Business Reorganization' column of the form mentioned 'not applicable' in amalgamation section. It had contended that the intimation was sent to the revenue on 22.07.2010. The same was for the A.Y.2007-08 and not for the A.Y.2006-
07. The separate proceedings under Section 153A were initiated against MIPL for A.Y.2007-8 to 2008-09 and the proceedings against MRPL for those two assessment years were quashed by the Commissioner as the amalgamation was disclosed.
Since the amalgamation was known to the assessee, even at the stage when the search and seizure operations Page 15 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined have taken place and statements were recorded by the revenue of the Directors and Managing Director of the group. A return was filed, pursuant to notice, which also suppressed the factum of amalgamation; on the contrary, the return was filed by MRPL - the company which has ceased to be in existence, and yet, the appeals were filed on behalf of it before the Commissioner and a cross appeal was filed before the Tribunal. An affidavit before the court was also on behalf of the Director of MRPL and the assessment order had attributed the specific amounts surrendered by MRPL and that too, after considering the special auditor's report, bringing specific amounts to tax in the search assessment order.
14. All these according to the Court indicated that the order adopted a particular method of expressing the liability and it opined that the conduct of the assessee commencing from the date the search took place, and before all forums, reflected that it consistently held itself out as the assessee. It was held that the corporate death of an entity upon amalgamation per- se invalidate the assessment order ordinarily cannot be Page 16 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined determined on a bare application of Section 481 of the Companies Act, but, would depend on the terms of the amalgamation and the facts of each case. In light of this, the order of the High Court was not sustained and as the appeal of the revenue against the order of the Commissioner was not heard on merits, the Court had restored the matter on the file of Tribunal. While so holding the Court had taken note of decision of Principal CIT Vs. Maruti Suzuki Ltd. to hold thus:-
"31. 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 2012-13 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 non- existent 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.
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39. In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. This position now holds the field in view of the judgment of a co-ordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Entertainment on 2 November 2017. The decision in Spice Entertainment has been followed in the case of the respondent while dismissing the Special Leave Petition for AY 2011- 2012. In doing so, this Court has relied on the decision in Spice Entertainment.
40. We find 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. The view which has been taken by this Court in relation to the respondent for AY 2011-12 must, in our view be adopted in respect of the present appeal which relates to AY 2012-13. Not doing so will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency Page 18 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable."
32. The court, undoubtedly noticed Saraswati Syndicate. Further, the judgment in Spice (supra) and other line of decisions, culminating in this court's order, approving those judgments, was also noticed. Yet, the legislative change, by way of introduction of Section 2(1A), defining "amalgamation" was not taken into account. Further, the tax treatment in the various provisions of the Act were not brought to the notice of this court, in the previous decisions.
33. There is no doubt that MRPL amalgamated with MIPL and ceased to exist thereafter; this is an established fact and not in contention. The respondent has relied upon Spice and Maruti Suzuki (supra) to contend that the notice issued in the name of the amalgamating company is void and illegal. The facts of present case, however, can be distinguished from the facts in Spice and Maruti Suzuki on the following bases.
15. It is to be noticed that the Court specifically had held that the MRPL amalgamated with MIPL and ceased to exist thereafter. The contention of the respondent that the notice Page 19 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023 NEUTRAL CITATION C/SCA/903/2022 ORDER DATED: 16/01/2023 undefined issued in the name of amalgamating company being void and illegal relying on the Spice and Maruti Suzuki (supra) was not sustained only on the robot facts which had been presented before this Court holding that can be distinguished from the facts existed in those matters.
16. According to this Court, the facts applicable to the present case are those which existed in case of Maruti Suzuki and not as were before the Apex Court in case of Mahagun Realtors (P.) Ltd. (Supra). Here of-course, the intimation was given in reply to the notice under Section-142 in the month of March, 2018 by specifically intimating to the concerned officer of the factum of amalgamation by the petitioner and of its having acquired both the companies viz.Kaizen Stocktrade Pvt. Ltd. and Kaizen Finstock Pvt. Ltd. Again, it is the very officer who after three years of such amalgamation has issued notice which is impugned in the name of that company, which no longer existed on 30.03.2021 for the A.Y. 2016-17 and therefore, the grievance on the part of the petitioner requires to be sustained and the action of the respondent authority warrants interference.
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17. We are conscious of the fact that the Income-tax Department had already been issued the notice by this Court at the time of considering the request for approving the scheme of amalgamation, however, that would in no manner absolve any party of its obligation to intimate the final order of amalgamation, as is otherwise expected under the law. The statute since has not provided any format nor has any specified format otherwise prescribed this intimation in response to the notice under Section-142 of the Income Tax Act should be construed as a sufficient compliance and hence, all the petitions deserve to be allowed, quashing and setting aside the show-cause notices with consequential reliefs.
This of-course in no manner preclude the respondent to initiate the action against the present petitioner in accordance with law. The petition stands disposed of in above terms.
(SONIA GOKANI, J) (SANDEEP N. BHATT,J) A. B. VAGHELA Page 21 of 21 Downloaded on : Sun Sep 17 20:52:17 IST 2023