Notice Quashed u/s 263: Resolution Plan Approval Extinguishes Tax Liabilities per Bankruptcy Code.

The court quashed the notice under Section 263 of the Income Tax Act, ruling in favor of the petitioner. It held that all liabilities, including those of government authorities, were extinguished following the approval of the resolution plan under the Insolvency and Bankruptcy Code. The Deputy Commissioner's claim was verified and admitted, but the court emphasized that the resolution plan's approval nullified such claims, rendering the notice unjust and illegal. The decision was based on a Supreme Court ruling that extinguishes all liabilities post-approval of the resolution plan, thereby curtailing the respondent's powers in this context.

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Issues:
Challenge to notice initiating revision proceedings under Section 263 of the Income Tax Act, 1961 for Assessment Year 2017-18.

Analysis:
The petitioner, engaged in the business of electrical transmission line, filed its return of income for Assessment Year 2017-18, declaring a total loss. The case was selected for scrutiny assessment, and an order was passed determining the total loss after various additions and disallowances. Subsequently, insolvency proceedings were initiated under the Insolvency and Bankruptcy Code, resulting in the approval of a resolution plan for the company's revival. The Deputy Commissioner of Income Tax filed a claim, which was verified and admitted, making them an Operational Creditor. The petitioner argued that all admitted claims got extinguished upon the approval of the resolution plan, rendering the notice under Section 263 of the Act unjust and illegal.

The petitioner contended that all past dues of the Income Tax Department were extinguished upon the approval of the resolution plan, citing a Supreme Court decision in support of their argument. The respondent, on the other hand, argued that the powers of the respondent cannot be curtailed when the legal procedure has been followed, and the decision relied upon by the petitioner was not applicable to the present case as it pertained to recovery proceedings, not the initiation of Section 263 proceedings.

Upon considering the submissions, the court noted that the resolution plan was approved, and the claim by the Deputy Commissioner of Income Tax was verified and admitted. Referring to a Supreme Court decision, the court emphasized that all liabilities, including those of Government/Statutory Authorities, stand extinguished after the approval of the resolution plan. Consequently, the court quashed and set aside the notice issued under Section 263 of the Act, ruling in favor of the petitioner.

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