Income-tax notices under s.148 invalid after resolution plan approval when tax claims weren't lodged during insolvency process

The HC held that income-tax notices under s.148 issued to the corporate debtor after approval of a resolution plan under the IBC were invalid where the tax authority failed to raise its claim during the insolvency process following the public announcement by the resolution professional. Absent any provision in the IT Act permitting post-plan reopening of assessments for claims not lodged or provided for in the resolution plan, the notices were quashed as beyond jurisdiction. The court rejected maintainability objections and allowed the petitions, deciding in favor of the assessee.

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Issues Involved:
1. Legality of issuing notice under Section 148 of the Income Tax Act, 1961 to a Corporate Debtor after the approval of a Resolution Plan under the Insolvency and Bankruptcy Code, 2016.
2. Maintainability of the writ petitions challenging the notice under Section 148.

Detailed Analysis:

1. Legality of Issuing Notice under Section 148:

Background and Facts:
The petitioner, a corporate debtor, was issued notices under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the year 2014-15. This occurred after the approval of the Resolution Plan by the National Company Law Tribunal (NCLT). The petitioner argued that such notices are invalid post-approval of the Resolution Plan, citing the Supreme Court's decision in Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited.

Resolution Plan and Approval:
The Resolution Plan submitted by Dalmiya Cement (Bharat) Limited was approved by the NCLT and upheld by the National Company Law Appellate Tribunal (NCLAT). The effective date for the Resolution Plan was 25.08.2020.

Contentions:
The petitioner contended that post-approval of the Resolution Plan, no new claims could be initiated against the corporate debtor. The respondents argued that the claim was not crystallized at the time of the Resolution Plan approval and thus could be raised subsequently.

Supreme Court Precedent:
The Supreme Court in Ghanashyam Mishra’s case clarified that once a Resolution Plan is approved, all claims not part of the plan are extinguished. This includes claims by statutory authorities like the Income Tax Department. The Court emphasized that the Resolution Plan aims to provide certainty to the Resolution Applicant, ensuring no surprise claims post-approval.

Binding Nature of the Resolution Plan:
The Supreme Court held that the Resolution Plan, once approved, binds all stakeholders, including statutory bodies. This ensures the Corporate Debtor starts on a clean slate. The legislative intent is to freeze all claims to prevent uncertainty for the Resolution Applicant.

Statutory Claims Post-Approval:
The Court noted that statutory claims not part of the Resolution Plan are extinguished upon its approval. This includes claims under the Income Tax Act, 1961. The overriding effect of the IBC (Section 238) ensures no inconsistency with other laws, including the Income Tax Act.

Conclusion on Legality:
The High Court concluded that the impugned notices under Section 148 could not be issued post-approval of the Resolution Plan. The claims should have been raised during the CIRP proceedings. The failure of the Income Tax Department to do so resulted in the extinguishment of their claims.

2. Maintainability of the Writ Petitions:

Preliminary Objection:
The respondents argued that the proper course of action for the petitioner was to file returns and seek reasons for the notice, as per the Supreme Court's decision in GKN Driveshafts (India) Ltd. Vs. Income-Tax Officer.

High Court’s Rejection of Preliminary Objection:
The High Court rejected this preliminary objection, citing the Supreme Court’s judgment in Ghanashyam Mishra’s case. It was held that the writ petition is maintainable when the proceedings are wholly without jurisdiction.

Contingencies for Invoking Article 226:
The Court referred to the Supreme Court's ruling that alternate remedies do not bar invoking Article 226 in cases where:
1. Fundamental Rights are enforced.
2. There is a violation of natural justice principles.
3. The proceedings are without jurisdiction or challenge the vires of an Act.

Conclusion on Maintainability:
The High Court found the impugned notices to be without jurisdiction, falling under the third contingency. Hence, the writ petitions were deemed maintainable.

Final Judgment:
The High Court allowed both writ petitions, quashing the impugned notices dated 25.03.2021 and 24.03.2021. The rule was made absolute, and no costs were awarded.

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