1. These three cross appeals (two by the assessees and one by the department) relate to the assessment years 1980-81. Since, in all these appeals common contentions have been raised, for the sake of convenience the appeals are consolidated and disposed of by a common order.
3. The appeals involve interesting legal issues and we, therefore, shall set out in detail the facts of the case. The assessees in this case are two limited companies belonging to the maker group and were engaged in construction activities. M/s. Haribhai Estates Pvt. Ltd., had calendar year as its previous year and M/s. Paramount Premises Pvt.
Ltd., had year ending 31st March, as its previous year. These two companies, along with the third one in the same group, decided to amalgamate with another company of the same group, viz., Maker Recohdo Contracting Pvt. Ltd., which later on changed its name to Makers Development Services Ltd. A scheme of amalgamation was prepared and the interested parties petitioned to the High Court of Bombay on 28-4-1980 for approval of the scheme. The scheme was approved by the High Court and certified copy of the Court's order sanctioning the scheme of amalgamation was received by the parties concerned on 25-7-1980. The appointed date as far as Haribhai Estates Pvt. Ltd., was concerned was 1-1-1980 and in the case of M/s. Paramount Premises it was 1-4-1980.
These two companies filed their returns of income for the assessment year 1980-81 along with the financial accounts up to the period ending 31-12-1979 in the case of the former and 31-3-1980 in the case of the latter. Assessments were also completed in the normal course by the AO on the amalgamated company as the successor of these two companies.
Thereafter, the AO initiated action under Section 147 against these two amalgamating companies, as according to him, he had reasons to believe that income chargeable to tax, had escaped assessment. It will have to be recalled in this connection that the assets, mostly stock-in-trade, of these two companies were got valued by M/s. K.G. Kapadia & Co., as on 1-1-1980 and the amalgamated company took the assets at the revalued price. The amalgamating companies were following the completed contract method in regard to its construction activities and no income for the assessment year 1980-81 or for the earlier years was declared. The amounts spent on construction projects were treated as the stock-in-trade and were carried over from year to year. It was the claim of these two amalgamating companies, which are appellants in this case, that the profits would be declared only when the project was substantially completed and this was accepted by the department in the sense that no attempt was made to disturb the amounts disclosed by th&assessce in the returns of income filed by these two companies.
There was a huge difference between the realisable value as per the valuation reports filed by M/s. K.G. Kapadia & Co., of the stock-in-trade and value of the same as per the books of account of the amalgamating companies. These amounts, according to the AO, had escaped assessments in the assessment year 1980-81 and that was the provocation lor the AO to start proceedings under Section 147(a) against the amalgamating companies. There was a letter also from M/s. Haribhakti & Co., Chartered Accountants spelling out the exchange ratio, or in other words the number of shares that the shareholders of the amalgamating companies should get in exchange of the shares held in the amalgamating companies. The reopened assessments were completed including the difference arising out of the valuation in the total income of the amalgamating companies and this inclusion was promptly challenged by the assesses before the CIT(A). The CIT(A) cancelled the reassessment orders on the ground that notice of reopening was not validly served.
In was served on a party which did not exist. There was a request by the assessee that there should be a decision on merits as well. The CIT(A), acting on the request by the assessee, decided the issue and that decision went against the assessee.
The department thereafter issued a fresh notice under Section 148 after getting the proper approval from the CIT and completed the assessment.
The addition made in the reassessment which was cancelled by the CIT(A) on a technical ground that the notice was not served properly, was repeated in the second reassessment also. This order also came to be challenged before the CIT(A). The CIT(A) held that reassessment proceedings were validly initiated. He also upheld the addition made by the AO and while doing so entirely depended on the order passed by his predecessor while cancelling the reassessment. It is these orders, which are now challenged before us.
4. It may be necessary for us to mention that the CIT had taken action under Section 263 against the amalgamated company and such action was taken with a view to roping in the same amount which had been the subject matter of addition in the case of the amalgamating companies.
His order was promptly challenged by the assessee before the Tribunal.
The Tribunal held that the order of the CIT was without jurisdiction and in that view cancelled the same. In the assessment of the amalgamated company for the assessment year 1985-86 the same addition was made. Assessment year 1985-86 was the year in which the project was substantially completed. Here again, the addition made in the case of the amalgamated company was deleted by the Tribunal. The Tribunal took the view that as far as the amalgamated company was concerned, the stocks were taken over the their realisable value in the year of amalgamation and, therefore, there would be no justification for taking the cost of the amalgamating companies as the cost of the amalgamated company. The Tribunal also adverted to the provisions of Section 43C of the Act which was inserted w.e.f. 1-4-1988. In view of the fact that these provisions have no retrospective effect, additions made by the revenue authorities were held to be unsustainable. The issue raised before us, has to be judged in the light of this background facts.
5. A preliminary objection was raised by the learned Departmental Representative that the assessee should be barred from arguing this appeal on merits of the CIT(A)'s decision. The challenge, if any, could only be to the reopening of the assessment. In this connection it was submitted that the CIT(A) originally had decided the issue on merit and this was not contested by the assessee inasmuch as no appeal was filed against the order of the CIT(A) against the initial reassessment order.
6. We have heard the parties to the dispute and in our view the objection raised by the learned Departmental Representative has to be rejected. The initial reassessment order had been cancelled by the CIT(A) and it is inconceivable that assessee could file an appeal against such order though on merits there was a finding against it.
Once the assessment has been cancelled on the ground that there was no valid service of notice, the whole proceedings stand vacated. The findings of the CIT in the circumstances on merit will have no consequence. In any case, the department has made a reassessment once again and that is the order which is under challenge in these appeals.
7. It is contended by the learned counsel for the assessee Sri N. A.Palkhivala, that the order passed by the CIT(A) cannot be sustained. He has not applied his mind to the facts of the case at all. He has merely relied on the order of his predecessor. The second order of reassessments which arc under appeal now, can be set aside on preliminary objection. The appointed date as per the order of the Court was 1-1-1980 in the case of M/s. Haribhai Estates Pvt. Ltd., one of the appellants, and 1-4-1980 in the case of M/s. Paramount Premises Pvt.
Ltd. As on the last date of the accounting years the companies were intact. They had drawn up their financial accounts and the returns were also filed. The amalgamating companies carried on their business even thereafter. A certified copy of the Court's order sanctioning the scheme of amalgamation was received as late as on 25-7-1980. It would, therefore, be unreasonable to contend that the business of the amalgamating companies came to an end as on the last date of the respective accounting years of the amalgamating companies. Assessee had followed a method of accounting which method has been accepted by the department in the matter of valuation of the closing stock or work-in-progress for the year under consideration. There is, therefore, no escapement of income and on this preliminary ground alone, assessment is liable to be cancelled. On merits, Sri Palkhivala did not have much to say. He merely relies on the Tribunal's order in the case of the amalgamated company and contends that the department had no case for making the addition. The scheme of amalgamation, according to the learned counsel for the assessee, is the one that was approved by the High Court of Bombay and this is what has been pinpointed in the concurring order by the Judicial Member in the amalgamated company's case for the year 1985-86. Once the court has approved the amalgamation, it would be futile to argue, as has been done by the revenue, that the whole scheme was a device intended to frustrate the efforts of the revenue to collect legitimate tax. The court cannot be a party to such alleged dubious device. This is a finding of the Tribunal in the case of the amalgamated company. Reliance placed by the department before the CIT on the decision of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 would be of little help. Apart from the fact that the said decision is being reviewed by the Supreme Court itself, that decision could be invoked only in a case where there was a clever device and not in the case of a scheme approved by the High Court. Needless to mention here that the notice of amalgamation has been sent to the Government of India though not to the income-tax department. This also would preclude the department from contending that the scheme was approved ex pane vis-a-vis the department. The clue to the problem in fact could unmistakably be found in the provisions of Section 43C. These provisions inserted by the Finance Act w.e.f. 1 -4-1988 clearly lays down that where an asset which becomes the property of an amalgamated company under a scheme of amalgamation, is sold after the 29th day of February, 1988, by the amalgamated company as stock-in-trade of the business carried on by it, the cost of acquisition of the said asset to the amalgamated company in computing the profits and gains from the sale of such asset shall be the cost of acquisition of the said asset to the amalgamating company. These provisions were totally not available to the revenue prior to the 29th day of February, 1988. This will also unmistakably go to show that prior to that date neither the amalgamating company nor the amalgamated company could be taxed on the notional increase in the value of the stock-in-trade transferred by the amalgamating company to the amalgamated company. If the amalgamating company could be taxed there was no need for insertion of Section 43C.The idea was not to tax this amount in case of both amalgamating company and amalgamated company.
The insertion of Section 43C was only with a view to plugging a loop-hole or a lacuna in the Act. When such is the position in law, the addition which was in fact sought to the made first in the amalgamating company's case and thereafter in amalgamated company's case, would have no legs to stand upon. The issue raised in these appeals and also in the appeals filed in the case of the amalgamated company is the result of confusion in the minds of revenue authorities and that would be clear from the fact that the CIT who approved the issue of notice under Section 148 in this case had also started action under Section 263 in the case of the amalgamated company for this very year. There was another attempt to tax the amalgamated company for the assessment year 1985-86 when the construction projects were substantially completed. On the question of reopening, Mr. Palkhivala, the learned counsel for the assessee has, this much to say that there was no with-holding of any vital facts. As a matter of fact by letter dated 3-3-1981, assessee companies had informed the AO that they had merged with M/s. Maker Development Services Ltd. A copy of the scheme of amalgamation as approved by the High Court of Bombay was also furnished. In such circumstances for the department to contend that the primary facts necessary for the assessment were not furnished would be totally un fair. As a matter of fact, the act of amalgamation was known to the AO as even the original assessments were made on the amalgamated company as the successor of amalgamating companies. The assessee could not be held guilty of with-holding the primary facts when such facts were within the knowledge of the AO. The order, therefore, deserves to be cancelled both on merit and also for assumption of jurisdiction without the sanction of law.
8. The learned Departmental Representative, on the other hand, contends that the reference to the order of the ITAT, in the amalgamated company's case for the assessment years 1981-82 and 1985-86 is totally irrelevant. In amalgamation different consequences would follow in the case of the amalgamated company and the amalgamating companies. The Tribunal decided the issue in favour of the amalgamated company for the years 1981-82 and 1985-86 mainly relying on the new provisions inserted by the Finance Act, 1988, in the form of Section 43C w.e.f. 1-4-1988.
Such provisions are totally not available to the assessee. An objection has been raised that if the amalgamating company is taxed, as has been done in the assessment order, that would lead to the double jeopardy.
This is not the case here. Since the amount which is added in the amalgamating company's case was sought to be added in amalgamated company' s case, and the same was deleted by the Tribunal. It is argued by the assessee before CIT(A) that the amalgamation was in the nature of a slump sale and lot of reliance was placed on the decision of the Supreme Court in the case reported in CIT v. Mugneeram Bangur & Co.
[1965] 57 ITR 299 but that decision would be of little help to the assessee. In that case the Supreme Court decided the issue in favour of the assessee for the reason that the sale was that of a whole concern and for a lump sum price. In this case excepting the stock-in-trade, most of the assets were taken at the book value. It was only the stock-in-trade which was valued at the realisable value. In such circumstances, for the assessee to contend that this was a slump sale would be totally incorrect. Reliance is then placed on the decision in Associated Clothiers Ltd. v. CIT [1967] 63 ITR 224 where the Supreme Court had clearly held that where assessee company sold the property for a stated consideration which was not shown to be notional and that consideration was in excess of the original cost of the asset, the difference between its original cost and its written down value was profit exigible to tax. Reliance is also placed on the decision in CIT v. Pathinen Grama Arya Vysya Bank Ltd, [1977] 109 ITR 788 (Mad.). The learned Departmental Representative thereafter has taken us through the decision of the Gujarat High Court in Wood Polymer Ltd., In re [1977] 109 ITR 177. That was also a case of amalgamation and the sanction for the scheme was refused by the court. The court in that case observed that it would not, by approving a scheme of amalgamation, be a party to an arrangement for avoiding payment of capital gains tax. In this case what was sought to be avoided is the income tax and of a substantial amount and, therefore, the fact that the scheme of amalgamation had been approved has to be ignored. Our attention is also invited to the decision of the Kerala High Court in Josna Bank Ltd. v. CIT [1974] 97 ITR 72 where, according to the Departmental Representative, the facts are identical. In the said case the scheme of amalgamation of the assessee, Josna Bank, with Lord Krishna Bank was sanctioned by the Central Government under Section 45(7) of the Banking Regulation Act, 1949. Under the scheme, the Lord Krishna Bank was, inter alia, to take over the investments of the assessee bank inclusive of Government securities. Clause 4(2) of the scheme provided for the valuation of such investments at the market value prevailing on the day immediately preceding the prescribed date. The difference between the book value of the investments and the market value was found to be Rs. 55,544.
Assessee claimed that this amount should be added to its loss. The claim was rejected by the Tribunal. On a reference, it was held that the assessee was entitled to the deduction.
9. It is then pointed out that amalgamation can in certain ways be compared to the dissolution of the firm. Relying on the decision in A.L.A. Firm v. CIT [1976] 102 ITR 622 (Mad.), it is contended that on dissolution the stocks of the firm required to be revalued at market price for determining the profits of the firm prior to the dissolution.
In that case the Madras High Court has held that as the stock-in-trade of a firm did not cease to become stock-in-trade on its dissolution and there was no authority for the proposition that the option to value the stock-in-trade at cost or market value whichever is lower was available to the firm even at the point of termination of the business, the revaluation of the properties at the prevailing market value was justified and the assessment of the profit arising on such revaluation was justified. This decision should set at rest the controversy raised by the assessee. Similar is the view taken by the Kerala High Court in Popular Workshops v. CIT [1987] 166 ITR 348 and the Andhra Pradesh High Court in V.C. Venkata Subbaiah Chetly & Sons v. CIT [1988] 171 ITR 590.
10. It is then argued that, it was the commercial expediency that had persuaded the assessee companies to amalgamate with M/s. Maker Development Services Ltd., is a hollow claim and in this connection the learned Departmental Representative relies on the letter received by the revenue from Exim Bank. In the said letter it has been made very clear by the bank that there was no precondition made by the working group for increase in the paid-up capital. The claim that the IDBI and the other financing bodies wanted the assessee to have a company with solid equity base to execute the contracts in Iraq and it was for that reason the amalgamation had taken place has to be Lald at rest in the light of the letter dated 9th August, 1988, received by the revenue.
The scheme in fact was conceived with a view to avoiding the taxes and that would be evident if one looks at the equity base of the amalgamating companies and the amalgamated company. The amalgamating companies with which we are concerned are, Haribhai Estates Pvt. Ltd., with paid-up capital of Rs. 10 lakhs, M/s. Paramount Premises Pvt.
Ltd., with the paid-up capital of Rs. 50,200 and M/s. Maker Development Services Pvt. Ltd., with the paid-up capital of Rs. 10 lakhs. These were to merge in Maker Recondo Contraction P. Ltd., with the paid-up capital of only Rs. 2,000. If this is not a tax saving device it would be difficult to conceive what could indeed be a tax saving device. It is then submitted that this is a case where the decision of the Supreme Court in McDowell & Co. Ltd.'s case (supra) would clearly be applicable. There was no compelling need for amalgamation. Two established companies with a sound equity base were made to merge with a company which was newly floated and that too with a very meagre share capital. This is nothing but an arrangement to deprive the revenue of its legitimate taxes. Our attention in this connection is invited to the decision of the Supreme Court in the case in Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. 77. In the said case the court had clearly held that it was the duty of the court in every case where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smoke-screen and discover the true state of affairs. The court is not to be satisfied with the form and leave well alone the substance of a transaction. A plea was also raised that there in fact was no consideration when these two assessees had transferred their stock-in-trade to the amalgamated company. This submission according to the learned Departmental Representative, is not correct. The consideration has been received by the shareholders of the amalgamating companies and that consideration was substantial would be evident from the number of shares received by the shareholders in exchange for the shares held by them in the amalgamating companies.
That the consideration received by third party is a good consideration has now been established by the decision of the Bombay High Court in Keshub Mahindra v. CGT [ 1968] 70 ITR 1. Inviting our attention to this decision in CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC), it is submitted that it would be open to the AO to make a departure from the procedure followed in the past for valuation of the closing stock and substitute a proper and recognised method of valuation of the stock and arrive at the correct profits and gains of the business. This, according to the learned Departmental Representative is, especially necessary when the business operations are terminated. It is also within the competence of the Assessing Officer to lay bare the scheme of an assessee intended to deny revenue the legitimate tax dues. The piercing of corporate veil is a concept which has been well recognised.
This is to enable the Assessing Officer to look to the nature and substance of the transaction and not the form. The apparent may not be real as in this case and the law has given ample powers to the ITO to get at the truth of any arrangement or scheme devised by an assessee.
If the ITO has proceeded to do the same, assessee cannot make a grievance of it. The learned Departmental Representative also contends that though the completed contract method of accounting appears to have been followed in the case of the amalgamating companies, nothing prevents to the Assessing Officer to make a departure and determine the correct profits of the year under appeal.
11. The challenge by assessee's learned counsel to the reopening can at best be regarded as a desperate attempt in salvage operations. It is a well established principle of law and admits of no dissent that the duty is on the assessee to disclose all primary facts necessary for its assessment. If primary facts are withheld or if they are not fully disclosed it would not be open for an assessee to contend that the ITO with due diligence could have discovered the primary facts and, therefore, there would be no justification for initiating proceedings under Section 147(a). It is only the inferential facts, which the assessee is not liable to disclose. In this connection it is submitted thatassessee had withheld from the Assessing Officer the valuation report of K.G.'Kapadia & Co., and also the contents of the letter from Haribhakti & Co., C.As. The letter dated 3-3-1981 was not filed in the course of the assessment proceedings for the year under consideration.
The scheme of the amalgamation does not indicate the amounts for which the stocks of the amalgamating companies were taken over by the amalgamated company. The Assessing Officer, if he had properly investigated could get at the truth of the matter is no defence. In this connection our attention is drawn to the decisions in Malegaon Electricity Co. (P.) Ltd. v. CIT [1970] 78 ITR 466 (SC)and CIT v. AJ.Rahimtulla [1986] 160 ITR 784 (Bom.). In the latter case, the question was about the applicability of Section 2(6A)(e) of the Act. Assessee had not filed a copy of the balance sheet of the company of which he was a substantial share-holder. The court in the circumstances held that it was necessary for the assessing authority to consider whether or not the loan advanced to the assessee by the company fell within the four corners of Section 12(B) read with Section 2(6A)(c) of the Income-tax Act, 1922 and in order to do this, it was necessary that he should know, inter alia, whether or not the company had accumulated profits. Inasmuch as assessee had not filed the balance-sheet, the court had held that there was a non-disclosure of the primary facts and upheld the action under Section 147(a) of the Act.
12. In reply, the learned counsel for the assessee contends that the reliance by the learned Departmental Representative on the decision of the Madras High Court in the case of A.L.A. Firm (supra) is totally misplaced. The Court has held that the option given to an assessee to value the stock-in-trade at cost or market value, whichever is lower, was not available to the assessee at the point of termination of the business. In this case, the assessees had not terminated the business as on the last day of the previous year, the business was in fact, not discontinued. The scheme for amalgamation was formulated sometime in the month of April and it received the approval of the High Court much later. The business was carried on as usual, the stocks were taken overas on the appointed dates which were 1-1-1980 in the case of M/s.
Haribhai Estates Pvt. Ltd. and 1-4-1981 in the case of M/s. Paramount Premises Pvt. Ltd. for the reason that the Court had fixed these dates as the appointed dates. The decisions in the case of ALA. Firm (supra) and also in the cases in V.C. Venkata Subbaiah Chetty & Sons (supra) and Popular Workshops (supra) on which a lot of store is Lald by went against the assessec because there was a dissolution of the firm and the assets were taken over by one of the partners or distributed amongst the partners. Such a procedure is even normally not followed when there is succession to the business as contemplated under Section 188 of the Income-tax Act. In such circumstances, to contend that the decision of the Madras High Court in A.L.A Firm's case (supra) would set at rest all controversy raised in these appeals will have no meaning. It is then submitted that the decision in the case of Wood Polymer Ltd. (supra) in fact supports the case of the assessees. The Court in that case had refused to pass an order approving amalgamation.
The Court no doubt held that it would not countenance a scheme with the avowed object of defeating tax. But the Court also observed that it was charged with a duty, before it finally permitted dissolution of the transferor-company, to ascertain whether its affairs had been carried on, not only in a manner not prejudicial to its members but in public interest. The 'public interest' has been explained as an expression which should take its colour and content from the context in which it was used. This enabled the court to find out why the transferor-company came into existence for what purpose it was set up, who were its promoters, who were controlling it, what object was sought to be achieved through creation of the transferor-company and why it was being dissolved by merging it with another company. The Court also held that it was not merely to act as a rubber stamp. If this test is applied, it would appear that the Department has absolutely no case.
The scheme of amalgamation was moved before the High Court of Bombay.
The Court examined this scheme and thereafter approved the same. If the arguments of the Departmental Representative were to be accepted, it would indirectly mean that the Court in this case acted as mere rubber stamp. The fact that the scheme of amalgamation has been approved by the High Court of Bombay gives it a respectability which cannot be impugned by the Revenue authorities and this is the matter that has been highlightedby the Judicial Member of thelTAT while passing the concurrent order in the case of the amalgamated company.
Our attention is then invited to the decision in the case of Indo Continental Hotels & Resorts Ltd., Inre [1990] 185 ITR 38 (Raj.). That was a case where the scheme of amalgamation was approved by the Court.
Even when objection was raised by the Department that the scheme was conceived solely with a view to avoiding payment of capital gains tax.
The Court observed while approving the scheme of amalgamation, if the conditions mentioned in Section 391 of the Companies Act, 1956, were satisfied the scheme would be approved. In the penultimate para of the order, the Court no doubt observed that if the only purpose of the amalgamation scheme would have been avoiding capital gains tax liability, the matter would have been different and that the Act rests powers in the Court to sanction amalgamation scheme. In case the conditions mentioned in Sections 391 and 394 were satisfied and the court is further satisfied that it was in public interest. Thus, once the scheme is approved by the Court the same docs not admit of any argument that the scheme was with a view to avoiding any type of tax liability.
Our attention is then invited to the decision in Union of India v.Ambalal Sarabhai Enterprises Ltd. [1984] 147 ITR 294 (Guj.). In that case, again, the Gujarat High Court held that even if all the statutory formalities were carried on, the Court had the power to scrutinise a scheme of amalgamation. In this case, an amalgamation was brought about to strengthen the equity base of the company in the group and such a move was the result of persuasion by the financial institutions. This enabled the assessee to bid successfully and execute a massive construction project in Iraq which involved construction of 2000 tenements. The project executed by the assessee brought to the country the precious foreign exchange which is badly required. This alone would go to show that the amalgamation was in public interest. In such circumstances, reference to an extract from Palmer's Company Law - 23rd Edition by the Departmental Representative would be of no avail.
It is then submitted that the decision of the Josna Bank Ltd. (supra), will not in any way help the case of the Department. In that case, the assessee was a bank and a scheme for amalgamation of the assessee bank with another Bank Lord Krishna Bank Ltd., was sanctioned by the Central Government under Sub-section (7) of Section 45 of the Banking Regulation Act, 1949. Under the scheme, the Lord Krishna Bank Ltd., was, inter alia, to take over the investments of the assessee-bank inclusive of Government securities. Clause4(2) of the scheme provided for the valuation of such investments at the market value prevailing on the day immediately preceding the prescribed date. The difference between the book value of the investments and the market value was found to be Rs. 55,544.05. The assessee claimed that this amount should be added to its loss. The claim though rejected by the Department, was allowed in reference. A pLaln reading of the judgment of the High Court would make it very clear that the controversy resolved to by the Court in that case had nothing to do with the controversy generated by the Department in the assessee's case. That was an amalgamation contemplated under Sub-section (4) of Section 45 of the Banking Regulation Act, 1949 and not Sections 391 and 394 of the Companies Act.
What was contemplated under the scheme was transfer, inter alia, of all the investments of the assessee in Government securities. The Court in deciding the issue in favour of the assessee was led by the fact that the sale of securities and shares held by a bank as a general rule was in the course of the business and therefore the loss suffered by the assessee must be reflected in the accounts of the company for computing the income. There is an observation by the Court that the sale of the securities did not form part of the sale of the entire assets of the assessee-bank. The facts are entirely different and this decision would not be of any help in resolving the controversy. It is then submitted that the introduction of Section 43-C should put the matter beyond any doubt. The scope and effect of this new section has been explained by the Board in Circular No. 528, dated 16th December 1988 (See 176 ITR 154-Statules) at para 22.3. It was observed therein that a device resorted to by the taxpayers was to revalue the stock-in-trade taken over by an amalgamated company at the time of amalgamation. By this device, the amalgamating company was not liable to tax the difference arising on account of the revaluation of the stock-in-trade at a higher value. The amalgamated company also reduced its tax liability on the profit accruing to it in the subsequent sale of the stock-in-trade. The observation of the Board that the amalgamating company was not liable to tax on the difference arising on account of the revaluation of the stock in trade at a higher value would alone be sufficient to decide the issue in favour of the assessee. The reason behind the insertion of this new section viz. Section 43-C was to plug a loophole in the statute which resulted in escapement of revenue. If as contended by the Departmental Representative, the legal position is that the amalgamating company was liable to pay tax on the difference between the book value and the value at which the stocks were transferred to the amalgamated company, there would be no need for the insertion of this new section, because by inserting this new section, the same amount would be made liable to tax in the hands of the amalgamating company and also in the amalgamated company. This certainly could not be the intention of the law makers. Provisions of Section 43-C would apply only to those assets transferred on or after the 29th of February 1988 and therefore there would be no justification for holding that on a transfer of stock-in-trade by the amalgamating company to amalgamated company, the difference between the book value of the stock-in-trade and its market value would be exigible to tax. It is then argued that the decision of the Supreme Court in the case of McDowell & Co. Ltd. (supra) and also Workmen of Associated Rubber Industry Ltd. (supra) will have no role to play. The decision in the case of McDowell & Co.
Ltd. (supra) would apply only to those cases where the assessee by a device has sought to avoid taxes and the decision in the case in Workmen of Associated Rubber Industry Ltd. (supra) refers to a scheme which has been used as a device for defeating a welfare legislation.
The amalgamation approved by the Court can never be considered as a device employed to defeat the law relating to taxes on corporate bodies. The tax benefit, if any, to the amalgamated company was indeed in the nature of a fallout which even if it was intended, could not in any way damage the case of the assessee. This would be evident when viewed in the light of the legal position stated by the Gujarat High Court in the case of Ambalal Sarabhai Enterprises Ltd. (supra) and Rajasthan High Court in the case of Indo Continental Hotels & Resorts Ltd. (supra) that in amalgamation proceedings the Court has a duty to ensure that it was not a device intended solely for the purpose of tax avoidance and further that while approving the scheme, the Court would not act as mere rubber stamp. Since the scheme of amalgamation has been approved by the Bombay High Court, the plea that it was intended only as a scheme for avoidance or evasion of tax would not be available. The assessee further relies on the decision in CWT v. Arvind Narottam [1988] 173 ITR 479 (SC). In the said case, the Supreme Court has explained the earlier decision in the case of McDowell and held that where the true effect on the construction of the deeds is clear, the appeal to discourage tax avoidance is not of a relevant consideration.
Our attention is then invited to the decision in the case of CIT v.Budge Budge Amalgamated Mills Ltd. [1980] 122 ITR 561 (Cal.). It is pointed out that the High Court of Calcutta has approved the findings of the Tribunal in that case, that by amalgamation, the business as a whole stood transferred and though the ownership had changed hands, the identity had been substantially preserved and there was continuity, and the capital assets became the property of the transferee by succession.
The Court held, by virtue of Section 394 of the Companies Act, there was a devolution by operation of law. Though the issue before the Court was whether the amalgamated company would be entitled to the option available to an assessee to substitute the value of the asset as on 1-1-1954 or not, the findings of the Court would clearly go to indicate that there was continuity of business and not termination of the same, as has been contended by the learned Departmental Representative.
13. It is then contended that the reopening of the assessment is ab initio void and on that ground also the order passed by the Assessing Officer was liable to be cancelled. All the primary facts necessary for assessment were disclosed. That there was an amalgamation and the assessees stood amalgamated with M/s. Makers Development Services Ltd. was within tne knowledge of the ITO is evident from the fact that the original assessment in this case was made on the amalgamated company as a successor of the assessees. A letter dated 3-3-1981 was filed by which the assessee had informed the Assessing Officer that there was an amalgamation; a scheme of amalgamation was also enclosed. The scheme also indicated that the assets were taken over at their re-valued cost.
In such circumstances to contend that the assessee had not disclosed all primary facts necessary for its assessment would be totally unjustified.
Our attention in this connection is invited to the decision in Indian Oil Corpn. v. ITO [1986] 159 ITR 956 (SC). The assessee has claimed deduction of certain expenses incurred by the Burmah Oil Co. of London for management and secretarial work carried on behalf of the assessee in London. The claim was admitted by the ITO. Later, for assessment year 1963-64, the assessee had furnished a certificate from its London auditors which revealed that reasonable charges in relation to the total administrative expenses were about 10 per cent. The ITO required the assessee to produce similar certificates for the assessment years 1957-58, 1958-59 and 1959-60 and on the assessee failing to produce them, the ITO issued notice under Section 147(a) of the Income-tax Act, 1961. The Supreme Court held that the Department knew that London management expenses were incurred on behalf of the assessee by Brumah Oil Co. who were managing the affairs of the assessee as well as certain allied companies, and the expenses were allocated on pro rata basis. This fact was known to the Revenue while making the original assessment. The nature and the quantum of work done was disclosed; whether the payment made was excessive or not was, in the circumstances, held by the Supreme Court as an inferential fact. In this case also, all the primary facts were disclosed. That there was an amalgamation and in the scheme of amalgamation, the stocks were transferred at the revalued figure was not withheld. The non-mentioning of the revalued price would only tantamount to non-disclosure of inferential facts.
Our attention is then invited again to the decision of the Supierne Court in Gemini Leather Stores v. ITO[1975] 100 ITR 1. There again, on a writ petition filed by the assessee against the proceedings under Section 147(a), the High Court had held that the ITO did not apply his mind to the question whether the amounts, which according to the Department, had escaped assessment could be treated as part of the total income of the assessee. Since the assessee did not disclose the source of those amounts which were in the nature of drafts not recorded in the books of account, it was held that the conditions for revoking the jurisdiction under Section 147(a) were present. The Supreme Court reversed this decision. The Supreme Court held that it was plainly a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts.
The case in Tulsidas Kilachand v.D.R.Chawla [1980] 122 ITR458 (Bom.) also deals with the issue concerning reopening under Section 147(a).
That was a case where the WTO had completed the assessment, accepting valuation of certain properties given by the authorised valuer in his valuation report. This valuation report was submitted by the assessee.
Thereafter, the WTO received a valuation report prepared by the Executive Engineer of the Department. On the basis of the valuation report, the WTO issued notice under Section 17(1)(b) of the W.T. Act corresponding to Section 147(a) of the Income-tax Act. On a writ petition filed by the assessee, the Court quashed the notices issued to the assessee.
The assessee further relies on the decision reported in Khan Bahadur Hormasji Maneckji Dassabhoy Hormasji Bhiwandiwalla & Co. v. B.K. Sahu, IAC [1991] 188 ITR 203 (Bom.). In that case, the assessee had disclosed long-term capital gains on the sale of shares and the shares included bonus shares. On the plea that the assessee had not filed complete particulars as regards computation of the valuation of the bonus shares, the ITO assumed that income chargeable to tax must have escaped assessment and issued notice under Section 147(a). The Court held that the reassessment was not valid and was liable to be quashed. In this case, the issue of notice is merely on the belief that income chargeable to tax had escaped assessment as the assessee had not filed the valuation report and letter from the auditor. The assessee further relies on the decisions in 166 ITR 22 (sic), 120 ITR 40 (sic) and 159 ITR 331 (sic). All the above 3 cases, according to the assessee, support its contention that the reopening of this case is not valid and on that ground alone the assessment requires to be cancelled.
14. We have heard the parties to the dispute. In our view the claim of the Departmental Representative that on the basis of ALA. Firm (supra) (which case has been affirmed by the Supreme Court - ALA. Firm v. CIT[ 1991] 55 Taxman 497), the difference between the book value of the stock and its market value is liable to be taxed in the hands of the amalgamating company, has to be rejected. In that case, three questions were referred to the Supreme Court which were as follows:-- (1) Whether, on the facts and in the circumstances of the case, the reassessment made on the assessee firm for the assessment year 1961-62 under Section 147 of the Income-tax Act is valid in law? (2) Whether, on the facts and in the circumstances of the case, the assessment of the sum of $ 1,01,248 as revenue profit of the assessee-firm chargeable to tax for assessment year 1961-62 is justified in law? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in sustaining the assessment of the sum of $ 1,01,348 after having found that the Departmental Officers are bound by the Circular of the Central Board of Revenue? The Court upheld the reopening in that case only on the ground that it was under Clause (b) and not under Clause (a) of Section 147. We may recall that in this case the reopening has been under Clause (a) of Section 147 and this has been ruled out by the Supreme Court. The Supreme Court decided the other issues in favour of the Department only for the reason that the principle of valuing the closing stock of business at cost of market at the option of the assessee is a principle that would hold good only so long as there is a continuing business and that where a business is discontinued, whether on account of dissolution or closure or otherwise, by the assessee, then the profits could not be ascertained by taking the closing stock at market value.
In this case, as has been observed earlier, the business was not discontinued and as a matter of fact, it was carried on even after the close of the relevant accounting year. The business was taken over by the amalgamating company from the appointed date, which in this case, was a date succeeding the last day of the previous years only for the reason that that was held to be the appointed date by the Court. The decision in the case of ALA. Firm (supra) therefore would not be of any help in deciding the issue before us. Whether the amalgamating company could be taxed or not is a matter which has been considered by the CBDT and in this connection one does not have to go further than the CBDT Circular No. 528 dated 16-12-1988. In the said circular, the apex body of the Revenue Department has clearly stated as under : 22.3 Another device resorted to by the taxpayers is to revalue the stock-in-trade taken over by an amalgamated company at the time of amalgamation.... By this device, the amalgamating company or transferor, as the case may be, is not liable to tax on the difference arising on account of revaluation of the stock-in-trade at a higher value. The amalgamated company also reduces its tax liability on the profit accruing to it in the subsequent sale of the stock-in-trade.
It would be evident from the above that the perception of the apex body of the Revenue Department accords with the unstated law on amalgamation that the difference between the value of the closing stock as per the books and its market value is not liable to be taxed in the hands of the amalgamated company. We may also in this connection mention that the decision in the case of A.L.A. Firm (supra) has gone against the assessee for the reason that the Supreme Court was of the view that the real rights of the partners cannot be mutually adjusted on any other basis except by revaluation of the closing stock at the market price at the point of dissolution. And once this principle was applied and the stock-in-trade was valued at the market price, the surplus, if any, had to be got reflected as the profits of the firm and had to be charged to tax. The consequence on dissolution and the consequence on amalgamation are not the same. It would be worthwhile in this connection to refer to the decision of the Calcutta High Court in the case of Budge Budge Amalgamated Mills Ltd. (supra). In that case, the High Court had approved the Tribunal's finding that on amalgamation, the ownership of the. business had changed the hands, but the identity of the business had been substantially preserved and there was continuity. In the light of this discussion, the reliance placed by the Departmental Representative on the decision of the Kerala High Court in the casc of Josna Bank Ltd. (supra) would be of no avail. Apart from the fact that, in that case, the amalgamation was sanctioned under Section 45(7) of the Banking Regulation Act, 1949, and under that scheme, the investment held by the assessee-company were to be valued at the market price and transferred to the amalgamated company, it has to be remembered that the Court in that case decided the issue in favour of the assessee on the consideration that under the Banking Regulation Act, holding of securities by a bank is obligatory and such transaction of securities and shares were as a general rule, in the course of its business. There is not even an indication in that decision that on amalgamation, the difference between the value as per the books and the market price of the stock-in-trade was assessable in the hands of the amalgamating company. It has also to be remembered in that connection that there is a contra indication in the order of the Court that the amalgamating company was not totally wound up. The only thing that has happened was that the business had almost come to an end. The amalamation also cannot be treated as a device for the avoidance of taxes, and therefore, the law as Lald down by the Supreme Court in the case of McDowell & Co. Ltd. (supra) will have no role to play. As observed earlier, the amalgamation has the stamp of approval of the Bombay High Court and once such an approval has been granted, it can no longer be treated as a device. Such is the refrain of the Courts in the decisions in Wood Polymer Ltd., in re [1977] 109 ITR 177 (Guj.), Ambalal Sarabhai Enterprises Ltd.'s case (supra) and Indo Continental Hotels & Resorts Ltd.'s case (supra). In these decisions the Courts have held that a duty is cast on the Courts sanctioning amalgamations to go into the scheme in detail and satisfy themselves that the conditions mentioned in Sections 391 read with Section 394 of the Companies Act wereduly satisfied. The Courts were not to act as a mere rubber stamp and that if the intention behind the scheme was avoidance of tax only, the Courts arc duty bound to disapprove of such scheme. In such circumstances, to hold that the amalgamation in this case is in the nature ofa device would be totally wrong. We may in this connection refere to the decision reported in Madurai District Central Co-operative Bank Ltd. [1969] 73 ITR 479 (Mad.). In the said decision, the Supreme Court has held that where the true effect on the construction of the deeds is clear, appeal to discourage tax avoidance is not a relevant consideration. The Court in this case had referred to its own decision in McDowell & Co. Ltd.'s case (supra) and had this much to say:- ...It is true that tax avaoidance in an underdeveloped or developing economy should not be encouraged on practical as well as ideological grounds. One would wish, as noted by Reddy J., that one could get the enthusiasm of Justice Holmes that taxes are the price of civilization and one would like to pay that price to buy civilization. But the question which many ordinary taxpayers very often, in a country of shortages with ostentatious consumption and deprivation for the large masses, ask is, does he with taxes buy civilization or docs he facilitate the waste and ostentation of the few. Unless waste and ostentation in Government spending arc avoided or eschewed, no amount of moral sermons would change people's attitude to tax avoidance, This being the legal position, we are not inclined to accept the contention of the learned Departmental Representative that the amalgamation should be ignored and what he describes as, the surplus arising to the amalgamating company as a result of revaluation of stock-in-trade transferred to the amalgamated company should be brought to tax.
15. That leaves us for consideration whether the re-opening of assessment is valid. We should, in this connection, like to observe that the fact that the assessee was amalgamated with M/s. Maker Development Services Ltd. was communicated to the ITO by a letter dated 3-3-1980 and the copy of scheme of amalgamation as approved by the High Court of Bombay was also enclosed. It is wrong to say that this letter was filed in connection with the assessment of the assessee for assessment year 1978-79 as the amalgamation has no relevance for that year. What really happened was that the letter was filed when the assessment, proceedings for assessment year 1978-79 were in progress.
Thus, the assessees were amalgamated with M/s. Maker Development Services Ltd., was known to the Revenue and this would also be evident from the fact that the initial assessment was made on the amalgamated company as successor to the assessee. Once this is the position, it would be difficult to contend that the assessee has not discharged the duty to disclose all primary facts. It is not necessary for the assessee in this connection to file before the ITO a copy of the valuation report and in this connection reliance can be placed on the decision of the Court reported in Indian Oil Corpn.'s case (supra).
That was a decision of the Supreme Court and in that case, the Supreme Court has clearly held that before assumption of jurisdiction under Section 147, there must be material before the ITO to come to the conclusion that there was omission or failure to disclose full and true material facts necessary for the assessment for the year and that those facts should be material and further the disclosure must be full and true. In this case, the assessee had clearly disclosed that there was an amalgamation and the Assessing Officer cannot claim having no knowledge about the same. If the position of the law is, as contended by the learned Departmental Representative, that the amalgamating company is to be charged on the difference between the value of the stocks as per the books and its market price, it was for him to find out the same. He cannot expect the assessee to come forward and furnish the Assessing Officer with a valuation report indicating the market price. Thus not furnishing to the Assessing Officer by the assessee of a copy of the valuation report, to our mind, is not tantamount to non-disclosure of material facts necessary for the assessment. The Auditors' letter was obtained in connection with the determination of the exchange ratio in regard to the shares held by the shareholders in the amalgamating company. We really fail to understand how this letter can have any bearing on the assessment of the amalgamating company. As a matter of fact, reference to the exchange ratio has been made by the High Court in the sanction granted by the Court in the matter of amalgamation. In such circumstances, the assumption of jurisdiction would be totally not correct. In this connection we may also refer to the decision of the Supreme Court in the case of ALA. Firm (supra).
That, as observed earlier, was a case where the assessee which was a firm was carrying on business of money-lending in Malaya. The firm's accounts for the year 1960-61 commenced on 13-4-1960, and the firm closed its accounts as on 13-3-1961 with effect from which date it was dissolved. For the assessment year 1961-62, the assessee filed the return of income along with the P & L account. In the Profit & Loss account filed along with the return, a sum was shown as difference in the valuation of the assets of the firm on its dissolution. The assessee claimed that the above sum was not assessable either as revenue or capital. The ITO completed the assessment under the Old Act.
Thereafter the ITO reopened the assessment under Section 147(6) taking the view that the revaluation of the difference should have been brought to tax in the assessment, year 1961-62 in view of the Madras High Court in the case of G.R. Ramachari & Co. v. CIT [1961] 41 ITR 142, and completed the assessment. The matter, after being adjudicated at various levels, finally came to the Supreme Court for its decision.
The Supreme Court held, that probably, the ITO looked at the facts of the case and accepted the assessee's contention that the surplus was not taxable. But in doing so he obviously missed to take note of the law Lald down in the case of G.R. Ramachari & Co. (supra) as there was nothing to show that the case had been brought to his notice. When he, subsequently, was aware of the decision, he initiated proceedings under Section 147(6). The material which constituted information, according to the Supreme Court, was the decision in the case of G.R. Ramachari (supra). The Supreme Court held that this could be sufficient material for sustaining the reopening under Section 147(6) of the Income-tax Act. However, the Supreme Court observed that all the material particulars were there in the records, and clearly action under Section 148 read with Section 147(a) could not be initiated. The assessment was sustained only because the reassessment proceedings were under Clause (b) of Section 147. It is undisputed fact in this case that the reopening was under Sub-clause (a) of Section 147 and not under sub-clause (b). Since the fact that there was amalgamation was known to the ITO, it could be futile to argue at this stage that the material facts necessary for assessment were withheld or not disclosed.
To a poser what the Departmental stand would have been if the stock-in-trade were transferred by the amalgamating company to the amalgamated company, the Departmental Representative was evasive and replied that probably since in that case the amalgamated company would have borne the taxes, there could have been no action in the case of amalgamating company. Provisions of Section 147 are intended to bring to tax the income that had escaped assessment. The revenue that has so escaped could be collected from a different assessing entity would not be a ground for not initiating proceedings under Section 147. Under the scheme of the Act, the tax has to be borne by the person who has earned it and the assessment has to be made on the person to whom the income belongs. There cannot be any shifting of this tax liability except when there are express provisions to that effect. Thus, if the stocks are transferred by the amalgamating company to the amalgamated company, the fact that the tax could be borne by the amalgamated company is no argument for not taking action against the amalgamated company to tax its income if that is the position in law. We would like to add in this connection that the Valuation Report docs not give rise to any income.
That is only a means employed to determine the estimated market value of the stocks transferred. The value as determined in the valuation report can only be a matter of estimation and if the assessee has secured the valuation report in regard to the stock transferred and the same had not been filed before the Assessing Officer he cannot make that as the ground for reopening. We shall finally conclude by referring to thedecision in CIT v. Sri Bihariji Mills Ltd. [1976] 103ITR 599 where the High Court of Patna has held that in any proceedings under Section 34(1)(a) corresponding to Section 147, it was not for the assessee to satisfy the ITO that there was no concealment with regard to any question. It was for the ITO if that question was raised to establish that the assessee had failed to disclose fully and truly facts material to the assessment of income which had escaped assessment. Where the primary facts necessary for assessment are already within the knowledge of the ITO, no further duty of any disclosure is cast by law on the assessee. Such is the view taken by the Gujarat High Court in the case in Poonjabhai Vanmalidas & Sons (HUF) v. CIT [1974] 95 ITR 251 (FB) and the Supreme Court in CIT v.BhanjiLavji [1971] 79 ITR 582 (SC).
16. To sum up, the order passed by the Assessing Officer including the difference between the book value of the work-in-progress of the amalgamating company and its realisable value as per the valuation report is not liable to be included in the total income of the assessee for the reason : (1) That on the last day of the accounting year relevant to the assessment year, there has been no discontinuance of business as alleged. The business was carried on as usual and as per the Court order, the amalgamation took place on the appointed date which was a day later than the last day of the previous year and therefore the difference on account of valuation of work-in-progress, if taxable at all, could be taxed only in the subsequent assessment year.
(2) On amalgamation, when the amalgamating company transferred all the assets and the amalgamated company took up the ownership of the assets, continuation of the business is guaranteed and the process of amalgamation is complete by issue of shares of the amalgamated company to the shareholders of the amalgamating company. In such circumstances, there is no consideration flowing from the amalgamated company to the amalgamating company as the same ceases to exist no sooner the amalgamation takes place. Such is the view expressed by the CBDT in their Circular No. 528, dated 16-12-1988.
The escapement of revenue as a result of this legal position is sought to be plugged by insertion of Section 43C of the Income-ttax Act but this section comes into operation only with effect from 1-4-1988.
(3) There was no device as a result of formulating the scheme of amalgamation and getting it sanctioned by the Court and therefore the decision of the Supreme Court in the case of McDowell & Co. Ltd. (supra) would have no role to play. The Court sanctioning the amalgamation, has a duty cast on it to ensure that the conditions as per Section 391 read with Section 394 of the Companies Act are satisfied. Since the court shall not approve a scheme which has, as its sole purpose, avoidance of tax, existence of a device has to be ruled out, (4) The reopening of the assessment in this case under Clause (a) of Section 147, even if it be held that there was an escapement of income cannot be upheld. The fact that there was an amalgamation was within the knowledge of the Assessing Officer when he completed the assessment, which was reopened and which is now under appeal. The assessee had written to the Assessing Officer a letter dated 3-3-1981 informing him about this fact and also enclosing the scheme of amalgamation as approved by the High Court of Bombay. The primary facts necessary for its assessment were therefore disclosed fully and truly. Failure to file the valuation report does not tantamount to failure to disclose truly and fully all the material particulars.
The valuation report does not give rise to any income. It is only an estimate of the market price of the work-in-progress transferred by the amalgamating company to the amalgamated company.
18. That takes us to the departmental Income-tax Act No. 194 7/Bom./89.
The only ground raised in this appeal is that the learned CIT(A) was in error in holding that there was no proper assumption of jurisdiction by the Assessing Officer and for that reason the passing of the reassessment orders is invalid.
19. The original assessments in the case of the amalgamating companies were completed in the normal course. Thereafter action under Section 147(a) was initiated by the AO against the amalgamating companies.
Notice under Section 148 of the Income-tax Act was in the name of the amalgamating companies which had merged with M/s. Maker Development Services P. Ltd. The notice of reopening issued on the amalgamating companies was 31/2 years, after this event. Assessments were completed making huge addition to the income/loss returned by the amalgamating companies. Before the CIT(A) it was contested that the issue of notice under Section 148 was without jurisdiction; such notice having been issued on an assessee which no longer existed. It was claimed, that the assessment was ab initio void and was liable to be quashed. The matter was discussed at length by the CIT(A) in para 5.3 of his order. After elaborate discussion and after referring to the case law cited for and against assessee, the C1T(A) look the view that it was an imperative requirement of the law that the notice under Section 148 ought to have been issued in the name of the amalgamated company as the successor of the amalgamating companies. Since, a proper notice was not issued, the CIT(A) quashed the order of the Assessing Officer. The department is in appeal.
20. We have heard the parties to the dispute and in our view the order passed by the C1T(A) is not open to any serious challenge. The Assessing Officer issued a notice in the name of an assessee who did not exist at the relevant time. The business of that assessee had been taken over in the scheme of amalgamation by a successor company. It was, therefore, necessary for the Assessing Officer to issue the notice on the amalgamated company as the successor of amalgamating companies.
The order passed by the Assessing Officer, therefore, cannot be upheld.In this connection, the learned Departmental Representative has submitted that the notices issued on the amalgamating companies were duly received by the amalgamated company. Such notices were acted upon without any demur. It would, therefore, be not correct for the assessee to contend before the CIT(A) and thcCIT(A) to accept such contention that assumption of jurisdiction was not valid. In any case, failure to start proceedings on the successor company is not such a defect that cannot be cured and in this connection reliance has also been placed on the provisions of Section 29 IB of the Act. We arc of the view that issue of notice under Section 148 on an assessee-company which did not exist in the sense that it had merged totally in another company, is not a curable defect. It goes to the very root of the assessment. In any case, after the CIT(A) had cancelled the order, the department had reopened the assessment and had made a fresh assessment on the successor company in such circumstances, no interference is called for.