Reassessment barred where alleged tax escapement predates resolution plan approval and claims extinguished by plan order
Bombay HC held that reassessment proceedings for A.Y. 2019-20 cannot proceed because the alleged escapement relates to a period prior to approval of the resolution plan and past claims stood extinguished by the Plan Approval Order; no claim was filed during the CIRP, and permitting reassessment would derail the resolution process. The court relied on SC precedent (Ghanshyam Mishra) and subsequent SC authority (Vaibhav Goel) affirming that demands raised after NCLT approval of a resolution plan are invalid, and therefore quashed the reassessment for the relevant assessment year.
ISSUES PRESENTED AND CONSIDERED
1. Whether income-tax re-assessment proceedings initiated after approval of a resolution plan can proceed in respect of alleged escapement of tax for periods prior to the plan approval when such claims were not disclosed or filed as claims during the Corporate Insolvency Resolution Process (CIRP).
2. Whether the moratorium under the Insolvency and Bankruptcy Code and the Plan Approval Order operate to extinguish past claims (including tax claims) not included in the approved resolution plan, thereby ousting the jurisdiction of income-tax authorities to initiate or continue reassessment for the pre-plan period.
3. Whether a notice under Section 148A(1) and order under Section 148A(3) of the Income Tax Act issued after approval of a resolution plan, in respect of alleged escapement prior to plan approval and not made a claim in CIRP, are valid or liable to be quashed.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of post-plan re-assessment for pre-plan alleged escapement
Legal framework: The Code confers moratorium during CIRP (Section 14) and allows approval of a resolution plan (Section 31) which, by necessary effect, governs treatment of claims. The Income Tax Act empowers reopening of assessments by notice (Section 148A process) for escapement of income.
Precedent treatment: The Court applied and followed the principle in Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. and the subsequent Supreme Court reiteration in Vaibhav Goel v. DCIT that approval of a resolution plan displaces late or belated claims not made in the CIRP and that post-approval demands in relation to pre-plan liabilities are invalid. The Court also relied on consistent High Court precedents quashing re-assessment proceedings post-plan approval where claims were not part of the approved plan.
Interpretation and reasoning: The Court examined the Plan Approval Order and observed that its paragraphs extinguished past claims. Because the alleged escapement relates to the period before plan approval and was not filed as a claim during the CIRP, permitting reassessment would undermine the efficacy of the resolution plan and the "clean slate" principle the plan confers on the corporate debtor and the resolution applicant. The issuance of the impugned notices and orders after plan approval cannot revive claims extinguished by the plan nor can they be used to include belated claims that were not earlier made.
Ratio vs. Obiter: The holding that post-approval reassessment is invalid in respect of pre-plan escapement not filed as a claim in CIRP is treated as ratio of the decision.
Conclusion: Re-assessment proceedings initiated after approval of the resolution plan in respect of alleged escapement prior to plan approval are impermissible and liable to be quashed where the claims were not made in the CIRP and the plan expressly or effectively extinguished past claims.
Issue 2 - Effect of moratorium and plan approval on jurisdiction of tax authorities
Legal framework: Section 14 of the Code imposes a moratorium during CIRP; Section 31 grants binding effect to an approved resolution plan. These statutory provisions aim to consolidate and determine liabilities via the CIRP and the approved plan.
Precedent treatment: The decision follows the Supreme Court authority that an approved resolution plan precludes belated claims and reinforces the moratorium's effect during the CIRP; High Court precedents are applied in a consistent manner to similar fact situations.
Interpretation and reasoning: The Court reasoned that the combined operation of the moratorium period and the Plan Approval Order deprives revenue authorities of the competence to subsistently assert pre-plan claims outside the CIRP mechanism once the plan is approved and all past claims are extinguished by that order. The Court relied on the text of the Plan Approval Order (paras 26-27) which it found to extinguish past claims and on the absence of any claim by tax authorities during the CIRP.
Ratio vs. Obiter: The conclusion that moratorium and plan approval extinguish and bar later assertion of pre-plan claims not made in CIRP is treated as ratio; observations about policy consequences for the resolution applicant are corollary reasoning integral to the ratio.
Conclusion: The moratorium and Plan Approval Order operate to bar subsequent initiation or continuation of proceedings by tax authorities in respect of pre-plan liabilities that were not presented as claims during the CIRP.
Issue 3 - Consequence of revenue not filing claim during CIRP and timing of notice
Legal framework: CIRP provides procedure for filing and adjudicating claims; approved resolution plan is implemented thereafter. Income-tax reassessment provisions permit notices but do not override statutory bars created by an effective CIRP and approved plan.
Precedent treatment: The Court followed precedent establishing that failure by a creditor (including a statutory authority) to file its claim during CIRP and to have it dealt with in the resolution plan precludes later enforcement outside the plan once the plan has been approved.
Interpretation and reasoning: Because the revenue did not file any claim in relation to the alleged escapement during the period of CIRP, and the reassessment notice and order were issued after plan approval, permitting reassessment would result in undermining the approved plan and impede the rehabilitation envisaged by the Code. The Court treated the absence of a claim in the CIRP as a decisive factual and legal bar to subsequent proceedings.
Ratio vs. Obiter: The specific holding that failure to file a claim during CIRP bars later reassessment (when plan extinguishes past claims) is ratio; related policy observations are explanatory.
Conclusion: Non-filing of a tax claim during CIRP, coupled with issuance of reassessment measures only after plan approval, disentitles the revenue to continue or initiate reassessment; the impugned notice and order issued post-plan are invalid.
Disposition / Relief
Because the alleged escapement relates to a period prior to approval of the resolution plan, was not made a claim during the CIRP, and the Plan Approval Order extinguished past claims, the Court quashed and set aside the notice under Section 148A(1) and the order under Section 148A(3) issued after plan approval and directed that reassessment proceedings for the relevant assessment year cannot be continued. No order as to costs was made.
TaxTMI 
AI Drafter ✕
TaxTMI 
