Gujarat High Court
Kunvarji Fincorp Private Limited vs Deputy Commissioner Of Income Tax ... on 6 February, 2023
Author: Sonia Gokani
Bench: Sonia Gokani
C/SCA/935/2022 ORDER DATED: 06/02/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 935 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 966 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 981 of 2022
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KUNVARJI FINCORP PRIVATE LIMITED
Versus
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), AHMEDABAD
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Appearance:
MR B S SOPARKAR(6851) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) SENIOR COUNSEL 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 : 06/02/2023
COMMON ORAL ORDER
(PER : HONOURABLE MS. JUSTICE SONIA GOKANI)
1. Draft amendment is permitted in cause-title and Paragraphs-2.5 & 3.2 of Special Civil Application No.935 of 2022 where instead of 'successor to Kaizen Fincorp Private Limited', it should be 'successor to Kaizen Stocktrade Private Limited'.
Fresh copy of the same shall be brought on record.
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2. This group of petitions are preferred, which involve identical question of law and facts, and therefore, are being decided by a common order.
3. The challenge is to the notice issued under Section-148 of the Income Tax Act by the respondent no.1.
4. The facts had drawn from Special Civil Application No.935 of 2022.
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 order dated 05.08.2016 passed in Company Petition No.235 of 2016 in Company Application No.221 of 2016.
4.2 The petitioner for the A.Y.2016-17 filed a return. Case was picked-up for re-assessment and a notice under Section-
142(1) was issued on 22.02.2018, which has been replied by the petitioner on 20.03.2018.
Page 2 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023C/SCA/935/2022 ORDER DATED: 06/02/2023 4.3 It is averred by the petitioner that on 04.12.2018, the assessment order under Section-143(3) of the Act was passed after considering the income of the petitioner and of the two other companies.
4.4 The notice dated 29.03.2021 was issued under Section-
148 in the name of earlier company i.e. Kaizen Stocktrade Pvt.
Ltd.
4.5 According to the petitioner, the notice is bad ab-initio inasmuch as even Kaizen Stocktrade Pvt. Ltd. is amalgamated into the petitioner and erstwhile company Kaizen Stocktrade Pvt. Ltd. has ceased to exist. The ratio according to the petitioner is covered by the decision of CIT Vs. Maruti Suzuki Ltd.
5. The company which is no longer in existence and amalgamated, could not have been issued the notice under Section-148, following the same prays in paragraph-7 as under:-
Page 3 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023C/SCA/935/2022 ORDER DATED: 06/02/2023 7(a) quash and set aside the impugned notice dated 29.03.2021 at Annexure-'A' to this petition;
(c) 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.2013-14;
(d) any other and further relief deemed just and proper be granted in the interest of justice;
6. Heard learned advocate Mr. Bandish Soparkar assisted by learned advocate Mr. Anjaria for the petitioner - assessee and learned senior standing counsel Mr. Varun Patel assisted by learned advocate Mr. Dev Patel for the respondent -
department.
7. It is urged before this Court that this group of other such matters in relation to the very company for other assessment years have been decided in Special Civil Application No.903 of 2022 and allied matters on 16.01.2023 and on the reasoning mutatis mutandis applied to case of the present group of matters, where the Court has held thus:-
Page 4 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023C/SCA/935/2022 ORDER DATED: 06/02/2023 "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 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 issued by the Officer Circle 2(1)(1).
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 Page 5 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023 C/SCA/935/2022 ORDER DATED: 06/02/2023 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-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.
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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 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 Page 7 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023 C/SCA/935/2022 ORDER DATED: 06/02/2023 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. 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 have taken place and statements were recorded by the revenue of the Directors and Managing Director of the Page 8 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023 C/SCA/935/2022 ORDER DATED: 06/02/2023 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 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:-
Page 9 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023C/SCA/935/2022 ORDER DATED: 06/02/2023 "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.
*** **** **** ****
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.Page 10 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023
C/SCA/935/2022 ORDER DATED: 06/02/2023
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 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 Page 11 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023 C/SCA/935/2022 ORDER DATED: 06/02/2023 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 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.
17. We are conscious of the fact that the Income-tax Department had already been issued the notice by this Page 12 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023 C/SCA/935/2022 ORDER DATED: 06/02/2023 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."
8. The petitions here also are allowed. The actions of the respondent - authority issuance of notice under Section-148 deserves to be interfered with. The show-cause notices issued by the respondents are quashed and set aside with consequential reliefs. This could not in any manner preclude the respondent to initiate the action against the present petitioners in accordance with law.
9. We noticed that the intimation given to the Department Page 13 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023 C/SCA/935/2022 ORDER DATED: 06/02/2023 was in response to the notice under Section-142 in the year 2018 and thereafter, the notice, which is impugned in the instant case is of March 2021, after three years of intimation.
We could notice that the notice is issued by the Officer, Circle 2(1)(1), Ahmedabad whereas, the intimation under Section-
142 was issued by the Officer, Circle 2(1)(2), Ahmedabad. The Department has now made an advancement with the use of employment of technologies advance. The assessment is also faceless and if return of income is to be filed, is also in e-
mode, the entire materials were available with the officer concerned in e-mode and therefore, lack of inter-departmental co-ordination or non-application of mind to the materials already available with the department, is hardly be a ground for the Court to hold non-service of the intimation.
10. The petitions stand disposed of in above terms.
(SONIA GOKANI, J) (SANDEEP N. BHATT,J) A. B. VAGHELA Page 14 of 14 Downloaded on : Wed Feb 08 20:46:35 IST 2023