Income Tax Department cannot burden resolution applicants with new assessment orders after IBC plan approval

The Allahabad HC quashed an assessment order passed under Section 144 read with Section 144B of the Income Tax Act after approval of a resolution plan under the Insolvency and Bankruptcy Code. The court held that the Income Tax Department was aware of IBC proceedings as they had filed claims before the Resolution Professional. The court ruled that resolution applicants cannot be burdened with new claims after plan approval, as this would violate the Code's moratorium provisions and fundamental principle of providing a fresh start to successful applicants.

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Issues Involved:

1. Validity of the assessment order passed under Section 144 read with Section 144B of the Income Tax Act after the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC).
2. Impact of the approval of a resolution plan on pending tax claims and proceedings.
3. Application of Section 31 of the IBC regarding extinguishment of claims not included in the resolution plan.
4. Whether the Income Tax Department was informed about the resolution plan and its implications.

Detailed Analysis:

1. Validity of the Assessment Order:

The primary issue in this case was whether the assessment order dated April 28, 2021, passed under Section 144 read with Section 144B of the Income Tax Act, was valid after the approval of a resolution plan under the IBC. The petitioner argued that the assessment order was contrary to Section 31 of the IBC, as the resolution plan had already been approved on February 24, 2021. The court held that the assessment order was invalid because it was passed after the resolution plan's approval, which extinguished all pending claims not included in the plan. The court emphasized that the resolution applicant could not be burdened with liabilities beyond what was agreed in the resolution plan.

2. Impact of the Approval of a Resolution Plan on Pending Tax Claims:

The judgment highlighted that once a resolution plan is approved under Section 31 of the IBC, all claims not included in the plan are extinguished. The court referred to the Supreme Court's judgments in the cases of Committee of Creditors of Essar vs. Satish Kumar Gupta and Ghanshyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which clarified that a successful resolution applicant cannot be faced with undecided claims after the resolution plan's approval. The court reiterated that the resolution applicant starts with a "clean slate," and any attempt to impose new liabilities would be contrary to the IBC's objectives.

3. Application of Section 31 of the IBC:

The court extensively discussed the provisions of Section 31 of the IBC, which states that once a resolution plan is approved, it is binding on all stakeholders, including the Central and State Governments and local authorities. The court cited the Supreme Court's interpretation that the 2019 Amendment to Section 31 is declaratory and clarificatory, making it retrospective. Consequently, all dues, including statutory dues not part of the resolution plan, are extinguished, and no proceedings can be initiated or continued for such dues for periods before the plan's approval.

4. Notification to the Income Tax Department:

The respondents argued that the assessment was valid because the Income Tax Department was not properly informed about the resolution plan. However, the court found this argument meritless, as the petitioner had communicated the resolution plan's approval to the department on March 8, 2021, and the department had filed a claim before the Resolution Professional. Thus, the department was aware of the IBC proceedings, and the assessment order was invalid.

Conclusion:

The court concluded that the assessment order dated April 28, 2021, was quashed and set aside, as it was contrary to the provisions of the IBC. The court reiterated that any penalty proceedings initiated by the department could be challenged by the petitioner in accordance with the law. The writ petition was allowed, reinforcing the principle that a resolution applicant should not be burdened with liabilities beyond the resolution plan's scope.

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