2023 (11) TMI 201 - HC - Income Tax

Income tax demands and penalties against company extinguished after successful resolution under Section 31 IBC

Rishi Ganga Power Corporation Ltd. Versus Assistant Commissioner Of Income Tax

Delhi HC held that income tax demands and penalties against a company that underwent successful CIRP under IBC were extinguished. The revenue department ... Recovery of Income tax demand with penalty against company dissolved - Conclusion of CIRP proceedings under IBC - Extinguishment of liability as per the approved resolution plan - HELD THAT:- Some of the notices issued u/s 143(2)predated the order passed by the NCLT, whereby KCPL’s RP was approved. These notices adverted to the fact that additions concerning share application money and depreciation claimed by RGPCL were proposed to be made for AY 2017-18 [Financial Year (FY) 2016- 17]. Thus, limited scrutiny was proposed. The notices were based on the ROI filed by RGPCL. Therefore, the additions to RGPCL's income were, quite clearly, on the anvil. Thus the submission advanced on behalf of the revenue insofar as the tax demand, which is the subject matter of the impugned order and notice dated 06.12.2019, is concerned, is untenable in law. An operational creditor can lodge a claim which needs to be adjudicated. As far as the impugned order and notice are concerned, it will have to suffer the same fate as the penalty which was imposed, and the consequential demand that was created had its genesis in the failure of the previous management of RGPCL in responding to the statutory notices. These notices concerned the aspects mentioned in the first notice issued under Section 143(2) of the 1961 Act. Thus, having regard to the fact that the revenue had not lodged its claim, despite the publication of the public announcement by the Resolution Professional inviting claims from creditors, including statutory/operational creditors such as the revenue, no provision could be made [even if it may otherwise have been possible] in the approved RP. The terms contained in the approved RP are binding on all stakeholders, including those who could have filed claims but chose not to lodge them. The revenue, having failed to lodge its claim, cannot enforce the impugned orders and notices, given the binding nature of the approved RP. Section 31 of the 2016 Code, among other things, stipulates that once the RP is approved, it shall be binding on the corporate debtor and its employees, members, and creditors, which includes the Central Government, State Government, Local Authority to whom a debt in respect of payment of dues arising under any law for the time being in force and also on authorities to whom statutory dues are owed. Furthermore, the provision also stipulates that the approved plan will bind the guarantors and other stakeholders involved in forging the same. [See Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory Vs. Edelweiss Asset Reconstruction Company Limited through the Director, [2021 (4) TMI 613 - SUPREME COURT]. Since the revenue failed to lodge its claims, the impugned demands raised by the revenue stand automatically extinguished. [See Ruchi Soya Industries Limited and Others Vs Union of India and Others, [2022 (3) TMI 60 - SUPREME COURT] and Sreemetaliks Limited Vs. Additional Director General and Ors. [2023 (2) TMI 682 - DELHI HIGH COURT] Therefore, the submission made on behalf of the revenue that it should be allowed to enforce the impugned orders and notices is misconceived in law. Issues Involved:1. Legal tenability of impugned assessment orders and notices.2. Impact of the moratorium under the Insolvency and Bankruptcy Code, 2016 (IBC) on the impugned orders and notices.3. Binding nature of the Resolution Plan (RP) approved by the National Company Law Tribunal (NCLT) on statutory creditors.Summary:1. Legal Tenability of Impugned Assessment Orders and Notices:The petitioner, Rishi Ganga Power Corporation Ltd. (RGPCL), challenged two sets of orders and notices. The first set includes an order dated 21.11.2019 and a demand notice dated 22.11.2019, imposing a penalty of Rs. 10,000/- under Section 272A(1)(d) of the Income Tax Act, 1961 (1961 Act) for non-compliance with notices issued under Section 142(1). The second set comprises an assessment order dated 06.12.2019 under Section 143(3) of the 1961 Act, assessing RGPCL's income at Rs. 28,93,60,000/- and initiating penalty proceedings under Section 271AAC, resulting in a demand of Rs. 12,05,47,497/-.2. Impact of Moratorium under IBC:RGPCL filed its Return of Income for AY 2017-18 on 11.12.2017. Meanwhile, a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was admitted by the NCLT on 25.01.2018, initiating a moratorium under Section 14 of the IBC. Despite this, the revenue issued several notices under Sections 143(2) and 142(1) of the 1961 Act, culminating in the impugned orders and notices. The new management of RGPCL, post-approval of the RP, requested the deletion of the additions made in the assessment order, citing the moratorium.3. Binding Nature of Approved RP on Statutory Creditors:The RP submitted by Kundan Care Products Ltd. (KCPL) was approved by the NCLT on 13.11.2018. The revenue did not lodge its claim with the Resolution Professional despite the public announcement. The court held that the approved RP binds all stakeholders, including statutory creditors like the revenue. The revenue's failure to lodge its claim meant it could not enforce the impugned orders and notices. The court cited several precedents, including Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and others, to support this conclusion.Conclusion:The court quashed the impugned notices and orders, stating that the revenue's failure to lodge its claim resulted in the automatic extinguishment of the impugned demands. The writ petition was disposed of accordingly, with parties bearing their respective costs.