Income tax reassessment proceedings against dissolved company held invalid for violating Sections 148A(b) and 148A(d) preconditions

Calcutta HC held that reassessment proceedings against a dissolved company were invalid. The court found that income tax authorities violated statutory preconditions under Sections 148A(b) and 148A(d) of the Income Tax Act, 1961 by failing to conduct preliminary inquiry under Section 148A(a) and acting solely on external reports without independent application of mind. The proceedings also violated Section 14 of the IBC which imposes moratorium during CIRP, and the NCLT-approved resolution plan under Section 238 IBC precluded reassessment for the relevant period. The writ petition was allowed and all impugned notices and orders were quashed.

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The petitioner invoked the writ jurisdiction under Article 226 of the Constitution of India, challenging the actions of the respondent authorities as arbitrary and unlawful. The petitioner, a company under the Companies Act, 1956, had filed its return for the assessment year 2019-20, declaring a loss and receiving a refund. Subsequently, the Bank of India initiated proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), leading to the approval of a resolution plan by the National Company Law Tribunal (NCLT) on December 19, 2023. This plan stipulated that no proceedings could be initiated against the petitioner for the period prior to the effective date.

Despite the resolution plan, the respondent issued a notice under Section 148A(b) of the Income Tax Act, alleging suspicious transactions involving the petitioner and certain shell entities. The petitioner responded, emphasizing the moratorium under Section 14 of the IBC, arguing that reassessment proceedings were impermissible. However, the respondents proceeded with reassessment, leading to the petitioner's claim that these actions were without jurisdiction and contrary to legal principles.

The petitioner contended that the IBC, as a special statute, overrides the Income Tax Act, with the resolution plan prohibiting reassessment for the period before the effective date. The petitioner argued that the respondents disregarded the binding nature of the NCLT's order and the provisions of the resolution plan, constituting a violation of judicial discipline. The petitioner also denied allegations of suspicious transactions, asserting that all transactions were duly accounted for and disclosed.

The respondents argued that the reassessment was based on credible information regarding bogus transactions and that the resolution plan did not prohibit proceedings initiated before the "Appointed Date." They cited a judgment from the Madras High Court, asserting that the IBC does not dilute the statutory rights of the Income Tax Department.

The Court found that the initiation of reassessment proceedings violated statutory preconditions under the Income Tax Act, as the respondents failed to conduct a preliminary inquiry and acted on external reports without independent application of mind. The Court emphasized that Section 14 of the IBC imposes a moratorium on proceedings against companies undergoing CIRP, and the resolution plan has overriding authority, precluding reassessment for the period prior to the effective date.

The Court cited the Supreme Court's decision in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which held that once a resolution plan is approved, claims not part of the plan are extinguished, and no proceedings can be continued for such claims. The Court also noted that the respondents failed to provide the petitioner with access to third-party statements, breaching natural justice, and initiated reassessment beyond the statutory limitation period.

Consequently, the Court held that the reassessment proceedings were without jurisdiction, arbitrary, and unsustainable in law. The writ petition was allowed, quashing the impugned notices and orders, and directing the respondents to refrain from initiating proceedings against the petitioner in violation of the resolution plan. All pending applications were disposed of, with no order as to costs.

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