Notice under s.148 read with s.147 invalid after approval of resolution plan; clean-slate under s.133(6) protects company

HC held that a notice under s.148 read with s.147 issued to the company after approval of a resolution plan, for a period prior to the closing date, is invalid. The court found s.148/s.147 cannot be used to collect third-party evidence or to pursue assessments against the corporate debtor post-resolution, noting s.133(6) and the Code provide appropriate mechanisms. Once the resolution plan attains finality the clean-slate principle protects the new management and the company; the approved plan is binding on the Central/State Governments, rendering the reassessment notice bad in law.

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Issues Involved:
The judgment involves challenging a notice issued under section 148 of the Income-tax Act, 1961 for the assessment year 2013-14, rejection of objections for the same assessment year, assessment order passed under section 144 r.w.s. 147, and a penalty notice issued under section 274 r.w.s. 271(1)(c) for the assessment year 2013-14.

Issue 1: Validity of Notice and Proceedings

The petitioner challenged the notice issued by respondent no. 1 under section 148 of the Act for the assessment year 2013-14, post the approval of the resolution plan by the NCLT. The Court held that the notice was invalid and bad in law as it was contrary to the provisions of the Insolvency and Bankruptcy Code, 2016 (the Code). The resolution plan approved under the Code is binding on all parties, including the Central Government, and any dues, including income tax dues, were deemed to be fully discharged and settled for any period prior to the closing date. The Court emphasized that proceedings cannot be initiated contrary to the resolution plan, as it has overriding effect over inconsistent laws.

Issue 2: Extinction of Dues

Referring to the Apex Court's decision in Ghanshyam Mishra & Sons Pvt. Ltd. v/s. Edelweiss Asset Reconstruction Company Ltd, the Court concluded that all dues, including statutory dues owed to the government, not part of the resolution plan, shall stand extinguished. No proceedings in respect of such dues for a period prior to the approval of the resolution plan could be continued.

Issue 3: Modification of Demand

Section 156A of the Act, inserted by the Finance Act, 2022, mandates the modification of demand payable by an assessee if reduced due to an order by the Adjudicating authority under the Code. The Assessing Officer is required to conform to the order and give effect to the resolution plan.

Issue 4: Scope of Reassessment Proceedings

The Court clarified that reassessment proceedings under section 147/148 can only be initiated for bringing to tax income that has escaped assessment. The present management may not be aware of relevant facts for the period sought to be reopened, making the proposed reassessment futile. The revenue can take steps against previous management but not by issuing a notice under section 148, which requires the petitioner's active participation.

Conclusion:
The Court quashed and set aside the notice, objections rejection, assessment order, and penalty notice for the assessment year 2013-14. The petitioner agreed to withdraw the appeal against the assessment order. The judgment kept all rights and contentions of the parties open for further legal actions in accordance with the law.

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