Court quashes Income Tax Department notices for 2017-18, ruling them unsustainable under resolution plan.

The court set aside and quashed the notices issued by the Income Tax Department for the assessment year 2017-18, ruling them unsustainable as they pertained to a period covered by the resolution plan approved by the National Company Law Tribunal. The court held that the resolution plan, once approved, extinguished prior claims of the Income Tax Department and was binding on all stakeholders. The writ petition was allowed, with no order as to costs.

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Issues Involved:
1. Legality of the notices issued by the Income Tax Department for the assessment year 2017-18.
2. Applicability of the Insolvency and Bankruptcy Code (IBC) to the claims of the Income Tax Department.
3. Binding nature of the resolution plan approved by the National Company Law Tribunal (NCLT) on the Income Tax Department.
4. Entitlement of the corporate debtor to carry forward unabsorbed depreciation and accumulated losses.

Issue-wise Detailed Analysis:

1. Legality of the Notices Issued by the Income Tax Department:
The petitioners sought the quashing of notices dated 22.09.2019, 21.10.2019, and 30.10.2019 issued under Sections 143(2) and 142(1) of the Income Tax Act, 1961, arguing that these notices were illegal and non-est post the approval of the resolution plan by the NCLT. The respondents contended that the notices were issued in exercise of their statutory jurisdiction and were necessary to verify the claims of carry forward of accumulated losses and unabsorbed depreciation. However, the court found that the notices pertained to the period before the approval of the resolution plan and were thus not maintainable.

2. Applicability of the Insolvency and Bankruptcy Code (IBC) to the Claims of the Income Tax Department:
The petitioners argued that the Income Tax Department was an operational creditor under Sections 5(20) and 5(21) of the IBC, and as such, their claims were extinguished upon the approval of the resolution plan by the NCLT under Section 31(1) of the IBC. The respondents countered that they were not operational creditors and had no claims against the corporate debtor. The court, however, held that the provisions of the IBC, specifically Section 238, have an overriding effect on other laws, including the Income Tax Act, thereby extinguishing the claims of the Income Tax Department that were not part of the resolution plan.

3. Binding Nature of the Resolution Plan Approved by the NCLT on the Income Tax Department:
The petitioners asserted that the resolution plan, once approved by the NCLT, was binding on all stakeholders, including the Income Tax Department, and extinguished all prior claims. The court referred to Clause 7.5(c) of the resolution plan, which stated that all dues under the Income Tax Act for the period prior to the completion date would stand extinguished, and no reassessment or revision could be initiated post the Tribunal's order. The court upheld this view, citing Supreme Court judgments that reinforced the binding nature of the resolution plan on all creditors, including the tax authorities.

4. Entitlement of the Corporate Debtor to Carry Forward Unabsorbed Depreciation and Accumulated Losses:
The petitioners claimed the right to carry forward unabsorbed depreciation and accumulated losses to set off future tax obligations as provided in Clause 17.7(c) of the resolution plan. The respondents argued that the assessment proceedings were necessary to verify such claims. The court clarified that while the Income Tax Department could verify claims of carry forward and set off for future periods not covered by the resolution plan, it could not initiate assessment proceedings for the period covered by the resolution plan. The court concluded that the impugned notices were unsustainable as they pertained to a period covered by the resolution plan.

Conclusion:
The court set aside and quashed the impugned notices dated 22.09.2019, 21.10.2019, and 30.10.2019, holding them unsustainable in law. The writ petition was allowed, with no order as to costs.

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