Delhi High Court Distinguishes From SC’s Sky Light Judgment, Declines Assessment Issued In Wrong Name After Entity’s Merger

The Delhi High Court on Friday declined the Income Tax Department’s appeal to treat as ‘curable’, the error committed in naming the relevant entity while issuing reassessment notices.

A division bench of Justices Yashwant Varma and Dharmesh Sharma refused to grant the benefit which the Supreme Court had given to the Department in Sky Light Hospitality LLP v. Assistant commissioner of Income-tax (2018). It observed,

“It was the conduct of the assessee in Sky Light which had convinced the Supreme Court to observe that the mistake would not render the order of assessment invalid and that it could be saved under Section 292B of the. The facts of the present case are clearly not akin to what prevailed in Sky Light.”

In the facts of the present case however, the bench added, “we find that there was a valid disclosure made by the respondent-assessee and the AO being duly apprised of the factum of merger. Despite the above, it chose to make the draft assessment order in the name of a party which no longer existed on that date. This was, therefore, not a case where the factum of merger had either been suppressed or where the respondent had held out that Cairn still existed and could be proceeded against.”

The respondent-assessee M/s Vedanta Limited came into existence consequent to M/s Cairn India Limited amalgamating with it.

However, the Transfer Pricing Officer, while addressing a reference with respect to international transactions of the company, proceeded to pass an order under Section 92 CA(3) of the Income Tax Act, 1961 in the name of Cairn.

The TPO later passed another order seeking to rectify its ‘typographical error’ and the Assessing Officer passed an assessment order in the name of M/s Vedanta Limited. However, the AO chose to use the expression ‘formerly known as’, as if the assessee had undergone a mere change in name.

When the matter reached the High Court, the respondent-assessee contended that the factum of amalgamation was duly communicated to the TPO.

TPO on the other hand sought a benefit similar to what the Top Court had given in Sky Light (supra). It also claimed that the mistake would fall within the scope of Section 292B read along with Section 154.

The High Court at the outset cited the Supreme Court’s decision in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki (India) Limited (2020) where an order being framed in the name of a non-existent entity was held to be a fatal flaw which could neither be corrected nor rectified by taking recourse to Section 292B of the Act.

It distinguished from the Sky Light judgment on the basis of facts and stated that in the case at hand the Department failed to acknowledge the merger even at the stage of drawing reassessment.

It further rejected the Department’s recourse to Section 154, stating that the provision enables rectification of only an “accidental slip or omission”.

“It pertains to a power to rectify a mistake apparent from the record. Section 292B seeks to save orders which may suffer from similar mistakes provided they be otherwise compliant with the letter and spirit of the Act. However, and as the Supreme Court explained in Maruti Suzuki, the making of an order of assessment which is inherently flawed or suffering from a patent illegality, and which would include a case where the order is drawn in the name of a non-existent entity, cannot be saved or rescued,” Court held and dismissed Department’s appeal.

Appearance: Mr. Puneet Rai, Sr. Standing Counsel with Mr. Ashvini Kumar and Mr. Rishab Nangia, JSCs for Appellant; Mr. Ajay Vohra, Sr. Adv. with Mr. Prakash Kumar and Ms. Rashmi Singh, Advs for Respondent

Case title: Pr. Commissioner Of Income Tax-7 v. Delhi Vedanta Ltd.

Case no.: ITA 88/2022

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