Assessment notices under sections 143(2) and 142(1) invalid against company in CIRP after Resolution Plan approval

The Bombay HC held that assessment notices issued under sections 143(2) and 142(1) of the Income Tax Act against a company undergoing CIRP were invalid. The court ruled that once the NCLT approved the Resolution Plan, which expressly barred initiation of proceedings relating to periods prior to the effective date (10th November 2022), the tax authorities could not proceed with assessments for pre-effective date periods. The respondents had failed to submit claims to the IRP despite public announcements and were bound by the approved Resolution Plan. All assessment proceedings were set aside as they violated IBC provisions.

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Issues Involved:
1. Validity of notices issued u/s 143(2) and 142(1) of the Income Tax Act, 1961 post approval of the Resolution Plan by NCLT.
2. Impact of the Resolution Plan on claims and liabilities prior to the Effective Date.
3. Applicability of the judgment in Ghanshyam Mishra and Sons Private Limited v/s Edelweiss Asset Reconstruction Company Limited.

Summary:

Issue 1: Validity of Notices Issued u/s 143(2) and 142(1) of the Income Tax Act, 1961 Post Approval of the Resolution Plan by NCLT

The petitioner challenged the notices issued by the Assessing Officer (A.O.) and the Jurisdictional Assessing Officer (JAO) under sections 143(2) and 142(1) of the Income Tax Act, 1961. The court noted that the notices were issued after the approval of the Resolution Plan by NCLT, which stipulated that no new proceedings could be initiated against the corporate debtor for claims related to the period prior to the Effective Date (10th November 2022). The court referenced the case of Alok Industries Limited vs. Assistant Commissioner of Income Tax, where it was held that all statutory dues not part of the Resolution Plan stand extinguished.

Issue 2: Impact of the Resolution Plan on Claims and Liabilities Prior to the Effective Date

The Resolution Plan, approved by NCLT, explicitly stated that all liabilities, obligations, and claims arising until the Effective Date shall stand waived, extinguished, abated, and discharged in perpetuity. The court emphasized that the Resolution Plan binds all stakeholders, including the Central Government, State Government, and local authorities. The court cited the judgment in Ghanshyam Mishra and Sons Private Limited v/s Edelweiss Asset Reconstruction Company Limited, which held that all dues, including statutory dues, not part of the Resolution Plan, shall stand extinguished.

Issue 3: Applicability of the Judgment in Ghanshyam Mishra and Sons Private Limited v/s Edelweiss Asset Reconstruction Company Limited

The court reiterated the Supreme Court's ruling in Ghanshyam Mishra, which concluded that once a Resolution Plan is approved by the Adjudicating Authority, all claims not part of the Resolution Plan are extinguished. The court also referenced similar judgments from other High Courts, including the Telangana High Court in Sirpur Paper Mills Limited and Another vs. Union of India and Others, and the Delhi High Court in Rishi Ganga Power Corporation Ltd. vs. Assistant Commissioner of Income Tax, which supported the principle that no new proceedings could be initiated for claims prior to the Effective Date.

Conclusion:

The court held that the impugned notices issued under sections 143(2) and 142(1) of the Income Tax Act were invalid and bad in law as they violated the provisions of the Insolvency and Bankruptcy Code and the approved Resolution Plan. The court quashed and set aside the impugned notices and all consequential actions undertaken by the respondents pursuant to these notices. The petition was disposed of, and the rule was made absolute in terms of prayer clause (b).

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