Resolution plan approval under Section 31(1) IBC extinguishes all unspecified debts including tax reassessment proceedings

Bombay HC quashed reassessment proceedings for AY 2016-17 against a corporate debtor whose resolution plan was approved under IBC. The court held that once a resolution plan is approved under Section 31(1) of IBC, only debts specified in the plan remain payable, binding all authorities including tax departments. All other dues stand extinguished. Reassessment proceedings relating to pre-resolution plan periods are prohibited and cannot be continued or initiated. The company operates under new ownership on a clean slate post-CIRP completion.

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Issues Involved:
1. Validity of reassessment proceedings initiated by the Revenue under the Income-tax Act, 1961 after the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016.
2. Binding nature of the resolution plan on the Revenue and extinguishment of past tax claims.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The Petitioner-Assessee challenged the reassessment proceedings initiated by the Revenue for the Assessment Year 2016-17 under Sections 148 and 142(1) of the Income-tax Act, 1961. The reassessment notice was issued on March 27, 2021, after the resolution plan had been approved by the National Company Law Tribunal (NCLT) on May 6, 2020. The Petitioner-Assessee argued that after the approval of the resolution plan under Section 31 of the Insolvency and Bankruptcy Code (IBC), all past claims and dues are extinguished. The Revenue contended that the moratorium on proceedings ended with the approval of the resolution plan, allowing them to continue reassessment proceedings.

2. Binding Nature of the Resolution Plan on the Revenue:
Section 31(1) of the IBC states that once a resolution plan is approved by the NCLT, it is binding on all stakeholders, including the Central Government and tax authorities. The Supreme Court in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited clarified that upon approval of the resolution plan, all claims not part of the plan are extinguished, and no proceedings can be initiated or continued for such claims. The judgment emphasized that the legislative intent is to provide a fresh start for the corporate debtor, free from past claims.

Conclusion:
The court held that the reassessment proceedings initiated by the Revenue pertain to a period prior to the approval of the resolution plan and are therefore extinguished. The continuation of such proceedings is in direct conflict with the law as declared in Ghanshyam Mishra. The court quashed all notices and communications issued by the Revenue in connection with the reassessment proceedings for AY 2016-17, as they are untenable and misconceived. The court issued a writ of Mandamus directing the cancellation and withdrawal of the impugned notices and closure of all proceedings against the Petitioner-Assessee.

Judgment:
The writ petition was allowed, and the rule was made absolute in the terms of the prayer clauses, quashing the reassessment notices and proceedings initiated by the Revenue. All pending interim applications were disposed of, and no costs were awarded.

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