2024 (5) TMI 57 - HC - Income Tax

Section 148 notices invalid against company post-resolution plan approval for pre-closure assessment periods

The Principal Commissioner of Income Tax, Central-4 Versus Patanjali Foods Ltd. (formerly known as Ruchi Soya Industries Ltd.)

The Bombay HC held that Section 148 notices issued to a company post-resolution plan approval for assessment periods prior to closure were invalid. ... Validity of reopening of assessment against the ex-promoters - notice u/s 148 against petitioner company after the approval of the resolution plan for a period prior to closing - liability of previous management - HELD THAT:- As we find all these petitions will be covered by the judgment of this Court in Alok Industries Limited [2024 (3) TMI 1083 - BOMBAY HIGH COURT] wherein held that Section 148 read with Section 147 of the Act only deals with a situation where any income chargeable to tax has escaped assessment for any assessment year. We are unable to fathom as to how the provisions of Section 148 of the Act can be applied for collection of evidences of third party, ex-promoters etc., and we say this because there are separate provisions under Section 133(6) of the Act in which, such evidences can be collected. We are also unable to understand how the provisions of Section 148 of the Act can be used when the proceedings are not for recovery of tax. Both Petitioner and respondent agreed. Petitioner at the same time states that Revenue’s doors should not be closed and they must be permitted to take such steps as advised against the ex-promoters because the purpose of passing the orders or issuance of notices under Sections 148A/143C/143(3)/148 of the Income Tax Act, 1961 were only to take action against the ex-promoters of Respondent-company. At the same time we make it clear that if Revenue wants to take any steps as they proposed to, it may do so in accordance with law. We express no opinion. Issues involved: The judgment covers the validity of notice issued under section 148 of the Income Tax Act, 1961, the rejection of objections for assessment year 2013-14, the assessment order passed under section 144 r.w.s. 147, and the penalty notice issued under section 274 r.w.s. 271(1)(c) for the same assessment year.Validity of Notice under Section 148: The Court found that the notice issued under section 148 for the assessment year 2013-14, after the approval of the resolution plan, was invalid and against the provisions of the Insolvency and Bankruptcy Code. The resolution plan approved under the Code is binding on all parties, and all dues, including income tax dues, were deemed fully discharged and settled for any period before the closing date.Legal Precedent: Referring to the Ghanshyam Mishra & Sons Pvt. Ltd. v/s. Edelweiss Asset Reconstruction Company Ltd. case, the Court emphasized that all dues, including statutory dues, not part of the resolution plan, stand extinguished. No proceedings regarding such dues prior to the approval under section 31 of the Code can be continued.Effect of Finance Act, 2022: The Court highlighted section 156A of the Act, inserted by the Finance Act, 2022, which mandates the Assessing Officer to modify the demand payable in conformity with the order by the Adjudicating authority under the Code. The resolution plan's effect must be acknowledged and implemented.Scope of Section 147/148: It was noted that proceedings under section 148 can only be initiated for bringing to tax income that has escaped assessment. The current management may not be aware of the relevant facts for the period in question, making the proposed reassessment proceedings futile.Liability of Previous Management: While the Revenue can take action against ex-promoters and third parties, it cannot be done through a notice under section 148, as it requires the company to participate in the proceedings. The notice and subsequent orders for the assessment year 2013-14 were quashed and set aside.Disposition: The petitioner agreed to withdraw the appeal against the assessment order. The Court clarified that if the Revenue wishes to take any steps, they may do so in accordance with the law. All rights and contentions of the parties were kept open, and the petitions were disposed of.