2024 (5) TMI 164 - HC - Income Tax

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. ... Validity of Assessment Order u/s 143(3) once the Resolution Plan is approved under the Code - CIRP proceedings under IBC - Effect of Resolution Plan approved by the NCLT - HELD THAT:- Since the Resolution Plan expressively provides that no person shall be entitled to initiate any proceedings or inquiry, assessment, enforce any claim or continue any proceedings in relation to claims so long such result to a period prior to the Effective Date of the Resolution Plan, i.e., 10th November 2022 impugned notices are bad in law. Further, the impugned notices are bad in law also because respondents failed to take into account that after approval of the Resolution Plan by the NCLT, a creditor including the Central Government, State Government or local authority is not entitled to initiate proceedings on the Resolution Applicant, in relation to claims which are not part of the Resolution Plan approved by the NCLT. Pertinently, respondents had not submitted any claims to the IRP, as required under the Code, despite the public announcement being issued by the IRP, as prescribed under the Code. The impugned notice issued u/s 143(2) of the Act by Respondent No. 1 and the consequential impugned notices issued u/s 142(1) of the Act by Respondent No. 2 and all subsequent communications issued by Respondent No. 2 pursuant to the aforementioned impugned notices are bad in law since assessment and inquiry under the Act is sought to be initiated in gross violation of provisions of the Code in as much as it relates to a period prior to the Effective Date. The impugned notice issued under Section 143(2) of the Act and the impugned notices issued under Section 142(1) of the Act and all subsequent actions undertaken pursuant to the impugned notices issued under Section 142(1) of the Act are bad in law as no proceedings can be initiated against petitioner for a period prior to the Effective Date. Pertinently, the Resolution Plan provides that new claims, disputes, litigations or other judicial or administrative proceedings (including assessments) etc., will be deemed to be barred and shall not be initiated or admitted against Petitioner in relation to any period prior to the Effective Date. The approved Resolution Plan clearly provides that any claim and/or liability pertaining to the period prior to the Effective Date (i.e., 10th November 2022) stood extinguished and/or settled in terms of the Resolution Plan. The NCLT approved the Resolution Plan on 14th October 2022, which is binding on all stakeholders of petitioner including respondents. Reassessment proceedings set aside. 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 NCLTThe 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 DateThe 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 LimitedThe 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).