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2025-10-03
It is a common feature in the corporate sphere for companies to undergo business re-organization to achieve commercial, strategic, regulatory or other considerations. The typical forms of business re-organizations include:
- Mergers & Amalgamation
- Demerger
- Conversion
- Slump Sale/Exchange
- Bankruptcy Re-organization
- Restructuring
- Any other mode
In this article the main focus is on Mergers & Amalgamation and its impact on assessment proceedings of the amalgamating entity.
In common parlance, a ‘merger’ refers to combining of two or more companies into a single entity, with one company continuing as the surviving entity. The surviving company takes over all the assets, liabilities and operations of the others. On the other hand, an ‘amalgamation’ involves combining of two or more companies to form an entirely new entity. In this process, none of the original existing companies survive. Instead, the newly incorporated company takes over all the assets, liabilities, operations, and shareholders of the former amalgamating companies. For tax purposes “amalgamation” is defined u/s.2(1B) of the Income Tax Act, 1961.
The process of mergers and amalgamation is provided under provisions of Section 230 to Section 232 of the Companies Act, 2013 wherein application is to be made before the National Company Law Tribunal (“NCLT”) for the sanction of the scheme of merger and amalgamation.
However, certain companies may opt for fast-track merger/ amalgamation u/s. 233 of the Companies Act, 2013 by filing copy of the scheme with the Central Government, registrar and the official liquidator where the registered office of the company is situated.
In case of mergers & amalgamation where at least one of the entities ceases to exist, the moot question arises as to whether the assessment proceedings or any other proceedings initiated in the name of such non-existent entities remains valid in law.
For instance, say the application for merger is filed with NCLT or a scheme is filed with the Registrar in case of fast-track merger and the assessment proceedings are initiated in the name of the amalgamating company before the order approving the merger (or filing the approved scheme with the Registrar, in case of fast-track merger) is received. If thereafter, the final assessment order is passed in the name of amalgamating company, which ceases to exist pursuant to such approval, the validity of the assessment becomes questionable. This can be better understood with the help of the following example:
An application for Scheme of Amalgamation between A Ltd. and B Ltd. was filed with NCLT on March 28, 2018 wherein B Ltd. (the Amalgamating Company) was proposed to be merged with A Ltd. (the Amalgamated Company). Meanwhile, the assessment proceedings in case of B Ltd. for Financial Year (“FY”) 2017-18 [Assessment Year (“AY”) 2018-19] commenced on June 15, 2018 by issuance of notice u/s.143(2), followed by a notice u/s.142(1) to B Ltd. on September 30, 2018. Subsequently, the NCLT Order was passed on November 30, 2018 approving the scheme of amalgamation which an appointed date of April 01, 2018.
There can be two possible scenarios:
- B Ltd. intimates the Assessing Officer (“AO”) regarding the amalgamation with A Ltd. vide letter dated December 15, 2018 and this fact is brought to the AO’s attention during the course of personal hearing.
- B Ltd. does not intimate the AO regarding the amalgamation with A Ltd., nor is this fact disclosed during the course of the personal hearing.
The AO, thereafter, passed final assessment order in the name of B Ltd. on March 28, 2019, notwithstanding that B Ltd is a non-existent entity. It is pertinent to note that the PAN of B Ltd. continued to remain active on the said date.
The question that arises in such cases is two-fold: first, what is the appointed date and the effective date, and second, whether a final assessment order passed in the name of a non-existent entity remains valid after the effective date.
In every scheme of amalgamation, an effective date is specified. This is the date from which the business of the transferor company is deemed to have been carried on by the transferee company. Consequently, assessment proceedings are required to be completed after taking into account the schemes of arrangement and amalgamation as sanctioned by the NCLT.
As per Section 170(1) of the Act, the successor of an assessee shall be assessed in respect of the income of the previous year after the date of succession. Section 170(1) makes it clear that it is incumbent upon the department to assess the total income of the successor in respect of the previous assessment year after the date of succession.
To support the above, reference is invited to the Hon’ble Supreme Court in the case of Marshall Sons & Co. (India) Ltd. v. ITO [TS-5102-SC-1996-O], wherein it was noted that every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation shall take place, and such date can be modified by the court. But where the court does not prescribe any specific date but merely sanctions the scheme presented to it, as had happened in the instant case, it should follow that the date of amalgamation is the date specified in the scheme as ‘the transfer date’. Also, the assessment is supposed to be made on the transferee company taking into account the income of both the transferor and transferee companies.
In the case of Dalmia Power Ltd. v. ACIT [TS-785-SC-2019], the Hon’ble Supreme Court relying on the judgement of Marshall & Sons (supra) held that where the Court does not prescribe any specific date but merely sanctions the scheme presented, it would follow that the date of amalgamation/date of transfer is the date specified in the scheme as the transfer date. It was further held that pursuant to the Scheme of Arrangement and Amalgamation, the assessment of the transferee company must take into account the income of both the transferor and transferee companies. Further, the purpose of assessment proceedings is to assess the tax liability of an assessee correctly in accordance with law. Accordingly, the assessment is to be completed after taking into account the schemes of arrangement and amalgamation as sanctioned by the NCLT.
Another critical question that arises is whether the notice issued in the name of the non-existent entity remains valid in the above-mentioned scenarios, (i) where AO is informed of the scheme of amalgamation, and (ii) where AO is not informed of the scheme of amalgamation. To answer this question attention is invited to the following judicial precedents:
- The Supreme Court in the case of PCIT v. Maruti Suzuki India Ltd. [TS-429-SC-2019] noted that the AO 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 legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation.
- In the case of Spice Entertainment Ltd. v. CST [TS-475-HC-2011(DEL)], the High Court held that it was incumbent upon the income tax authorities to substitute the successor in place of the said/dead person when the same was brough to knowledge of AO during assessment proceedings. Mere participation by the Appellant would be of no effect as there is no estoppel against law. Once it is found that assessment is framed in the name of non-existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act.
- In the case of CLSA India (P.) Ltd. v. DCIT [TS-5148-HC-2023(Bombay)-O], the High Court following the decision of Maruti Suzuki (supra) and Spice Entertainment (supra) held that once the AO is brought to the notice regarding the non-existence of entity the order of assessment would not be procedural defect but render it void. Further, the High Court also noted that the PAN in the name of non-existent entity had remained active does not create an exception in favour of the revenue to dilute in any manner the principles as held above.
- In the case of CIT v. Sony Mobile Communications India Private Limited (Now merged with Sony India Pvt. Ltd. [TS-5067-HC-2023(Delhi)-O], wherein the AO was duly informed of the amalgamation that had taken place and was also furnished a copy of the scheme the High Court held that framing of order in the name of non-existing entity is not a mistake which can be corrected, by taking recourse to the powers available with the revenue under Section.292B of the Act.
- In the case of PCIT v. Mahagun Realtors (P.) Ltd. [TS-5036-SC-2022-O], wherein the AO was not informed of the amalgamation/non-existent company and also further the representative of the non-existent company corresponded with the AO in the name of the said company and also while filling the return of income (“ROI”) of non-existent entity it was mentioned that there was no business re-organization in amalgamation section of the ROI. On these facts, the Hon’ble Supreme Court did not quash the assessment order framed in the name of non-existent entity.
- In the case of Skylight Hospitality LLP v. ACIT [TS-5246-HC-2018(Delhi)-O], the High Court noted that despite noting the background correctly, the notice issued was not addressed in the correct name and even the PAN number mentioned was incorrect. It was held that human errors and mistakes cannot and should not nullify proceedings which are otherwise valid and no prejudice had been caused. This is the effect and mandate of Section 292B of the Act.
As can be seen from the above judicial decisions, where the Assessee has duly fulfilled its responsibility of informing the AO that company has ceased to exist and still the order is passed in the name of non-existent entity then the defect cannot be cured as per the provisions of Section 292B of the Act and would make the entire proceedings as void-ab-initio and bad-in-law. However, where the Assessee does not inform the AO or misrepresents this fact to the AO, then the order passed in the name of non-existent entity would not vitiate the proceedings and order as bad-in-law.
The implication of the above judicial precedents in the illustration above would be that where B Ltd. intimates the AO regarding the amalgamation, the assessment order passed may be held as bad-in-law by the Court(s). However, in a situation where B Ltd. does not intimate the AO regarding the amalgamation, then the Court may hold the assessment order as valid and not bad-in-law.
Accordingly, where the merger is undertaken and the amalgamated company represents the amalgamating company as a successor, the provisions of 292B would not apply if an order is still passed in the name of a non-existent entity. Consequently, such an order would be bad-in-law.
However, where AO passes order in the name of the amalgamated company whose PAN remains active but also acknowledges in the order that a merger has occurred and that the amalgamating company is a non-existent entity, the provisions of Section 292B would apply Accordingly, the order may be considered valid and not bad-in-law.
To summarize, the conduct of the parties is crucial in determining the validity of an order issued in the name of a non-existent entity. If it is found that the parties acted with mala fide intent, the order may still be considered valid and not legally flawed.
Is the Assessee required to take No Objection Certificate (“NOC”) from the Income-tax Department in connection with the Scheme of Amalgamation filed before NCLT?
There is no specific requirement under the Act to obtain a NOC from the tax department. Similarly, there is no mandatory NOC required even under the Companies Act, 2013. Typically, the NCLT issues a notice to the Tax Department regarding the scheme and can raise objections if any. If the department does not respond or raise any objections within the stipulated time, the NCLT may proceed with the approval of the scheme, even if the department has not explicitly provided a no-objection certificate. However, the NCLT's approval of the scheme does not exempt the companies from their obligations under the Income Tax Act, and any tax liability will be addressed in accordance with the law. Typically, the NCLT passes the order approving the Scheme, observing that the amalgamated company shall undertake to comply with tax laws and liability if any arising as a result of the merger.
As a practice, why is PAN of amalgamating companies not surrendered/deactivated after such companies ceases to exist post amalgamation?
The PAN of amalgamating companies may be kept active, due to several reasons, including:
- Filing of pending income tax returns for pre-amalgamation period
- Payment of outstanding taxes or processing of refunds claims pertaining to pre-amalgamation period
- Any compliance requirements under the Income-tax Act or allied laws
- Pendency of litigation proceedings
The Uttarakhand High Court in Delta Electronics India (P.) Ltd. v. PCIT (supra) as also the Bombay High Court in the case of CLSA India (P.) Ltd. v. Dy. CIT [2023], followed by Bombay High Court in Dhirendra Bhupendra Sanghvi v. ACIT, held that the stand of the revenue that the reassessment was justified in view of the fact that the PAN in the name of the non-existent entity had remained active does not create an exception in favour of the revenue to dilute in any manner the principles enunciated by the Apex Court in Saraswati Industrial Syndicate Ltd. v. CIT [TS-5016-SC-1990-O] and in the case of Maruti Suzuki India Ltd. (supra).
On whose PAN the return of income of non-existent entity i.e. amalgamating company would be filed?
Let’s address this question, by way of an illustration.
The application for Scheme of Amalgamation between A Ltd. and B Ltd. was filed with NCLT on May 01, 2025 wherein B Ltd. (the Amalgamating Company) was amalgamated with A Ltd. (the Amalgamated Company). The Scheme was approved by NCLT on October 24, 2025 with an appointed date as November 01, 2025.
The following questions may arise with respect to the filing of return of income of A Ltd. and B Ltd. for FY 2025-26 i.e. AY 2026-27 as well as in relation to litigation proceedings:
- Under which company’s PAN should the return of income of B Ltd. be filed? Should A Ltd., as a successor, file the return of income of B Ltd.?
- Can A Ltd. file two return of income, one for B Ltd. for the period April 01, 2025 to October 31, 2025 and another for itself, the period April 01, 2025 to October 31, 2025 (standalone) and the period November 01, 2025 to March 31, 2026 (consolidated for A Ltd. & B Ltd.)?
- On whose PAN whose PAN would the tax department issue notices for assessment proceedings or any other proceedings of B Ltd.?
- Can two proceedings be initiated on the same PAN by the ITD?
The due date to file ROI u/s.139(1) of the Act is October 31, 2026.
Answer to (i):
A Ltd. would file the return of income of B Ltd. for the period April 01, 2025 to October 31, 2025 as a successor to B Ltd. but under the PAN of B Ltd.
Further, A Ltd. would have to file the following details on the income tax portal to register itself as successor of B Ltd:
- Category of assessee on behalf of whom you want to register
- Select Type: Merger or amalgamation
- PAN of the amalgamated company
- Effective date of merger/ amalgamation/ takeover
- Upload copy of order passed by NCLT permitting merger or amalgamation
- Upload copy of PAN card of the principal officer of company succeeding the business.
Answer to (ii):
Yes, A Ltd. can file two returns of income i.e. one for B Ltd. as successor for the period April 01, 2025 to October 31, 2025 and another for the period April 01, 2025 to October 31, 2025 (standalone) and the period November 01, 2025 to March 31, 2026 (consolidated for A Ltd. & B Ltd.)
Answer to (iii):
The tax department should ideally issue notices on the name of A Ltd. as successor to B Ltd. but PAN would be of B Ltd.
Answer to (iv):
The system of tax department allows it to issue notices only for one proceeding at a time, i.e. separate notices on the same PAN with different names cannot be issued by the tax department.
Migration of PAN & TAN:
The successor entity must apply for a new PAN & TAN and must inform the tax department about the merger/amalgamation so that the existing PAN is linked with the new entity which will ensure that all the proceedings, filing of return, refund of TDS etc. are transferred to the new PAN and TAN. Further, post-merger the successor entity has to file the TDS returns, reply to notices, file income tax returns etc. under PAN & TAN of Amalgamated Company
Conclusion:
The validity of assessment proceedings against non-existent entities continues to be a nuanced issue. Timely intimation of amalgamation to the tax officer is critical, and subsequent representations should clearly be made by the successor, acknowledging that the predecessor has ceased to exist pursuant to the approved scheme. Courts, through rulings such as Spice Infotainment Ltd. and Maruti Suzuki India Ltd., have consistently held that an assessment framed in the name of a non-existent entity is void ab initio and constitutes a jurisdictional defect that cannot be cured under Section 292B, even if the assessee participates in the proceedings or its PAN remains active. However, where the assessee fails to file timely intimation or does not disclose the fact of amalgamation or otherwise transaction is tainted, decisions such as Mahagun Realtors (P) Ltd. and Skylight Hospitality LLP have upheld proceedings in the name of the predecessor as valid. This dichotomy underscores the importance of proactive compliance by assessees to mitigate litigation risk.
Disclaimer:
The views expressed in this document are personal views of the author. This document is intended to provide certain general information and should not be construed as professional advice. It should neither be regarded as comprehensive nor sufficient for the purposes of decision making. The author does not take any responsibility for accuracy of the document nor undertakes any legal liability for any of the contents in this document. Without prior permission of the author, this document may not be quoted in whole or in part or otherwise.
