2025 (11) TMI 1855 - HC - Income Tax

Income tax notices under Sections 143(2) and 142(1) quashed; resolution plan binds authorities, extinguishes prior claims

HC held that once a Resolution Plan is approved by NCLT, it is binding on the corporate debtor and all stakeholders, including tax authorities, and all ... Validity of income tax proceedings post approval of Resolution Plan/ company dissolved/non-existent - whether the notices impugned herein are sustainable in law in light of the approval of the Resolution Plan by the NCLT, when such notices are issued for a period prior to the approval of such Plan? - HELD THAT:- Once a Resolution Plan is approved by the Adjudicating Authority, the said Plan becomes binding on the corporate debtor and all stakeholders, including the Central and State Governments or any local authority, in respect of statutory dues. The Hon’ble Supreme Court in Ghanshyam Mishra & Sons Pvt. Ltd. [2021 (4) TMI 613 - SUPREME COURT] has categorically held that all claims which are not part of the approved Resolution Plan stand extinguished, and no person is entitled to initiate or continue any proceedings in respect thereof. In the Petitioner’s own case, this Court, vide its orders dated 6th August 2025, has already taken a similar view. In that matter, reassessment proceedings initiated under Sections 148A(b), 148A(d), and 148 of the Act for A.Y. 2020-21 were quashed on the ground that the alleged tax liability pertained to a period prior to the approval of the Resolution Plan dated 26th April 2024. This Court held that allowing the Department to pursue reassessment proceedings for a period prior to the approval of the Resolution Plan would defeat the object of the Insolvency and Bankruptcy Code, 2016, as the successful Resolution Applicant is entitled to revive the corporate debtor on a clean slate basis. The principle laid down in the said judgment squarely applies to the present proceedings, since, the impugned notices under Sections 143(2) and 142(1) of the Act seeks information for the period prior to the approval of the Resolution Plan. Therefore, the issue raised herein is no longer res integra. In the present case, the relevant assessment year is A.Y. 2024-25, corresponding to the F.Y. 2023-24. The Resolution Plan came to be approved on 26th April 2024. Consequently, any liability or proceeding arising out of or relating to a period prior to 26th April 2024, would necessarily stand extinguished upon approval of the Resolution Plan. We are of the considered view that the impugned notice dated 24th June 2025 issued under Section 143(2) of the Act and the Notice dated 26th September 2025 issued under Section 142(1) of the Act are unsustainable in law and without jurisdiction, as they seek to reopen or continue proceedings in respect of a period which stood extinguished by virtue of the Resolution Plan approved by the NCLT on 26th April 2024. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, after approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016, the income-tax authorities can issue and pursue notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961 for a period prior to the date of approval of the resolution plan. 1.2 Whether income-tax scrutiny/assessment proceedings for an assessment year forming part of the pre-resolution period are maintainable when no claim for such year was lodged before the Resolution Professional during the Corporate Insolvency Resolution Process. 1.3 Whether, in light of binding precedents of the Supreme Court and earlier orders of the High Court in relation to the same corporate debtor, the impugned notices are without jurisdiction and liable to be quashed. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Effect of approved resolution plan on post-approval tax proceedings for pre-approval periods Legal framework 2.1 The Court considered Section 31 of the Insolvency and Bankruptcy Code, 2016 regarding binding effect of an approved resolution plan on the corporate debtor and all stakeholders, including Central and State Governments and local authorities in respect of statutory dues. The Court relied on the law declared by the Supreme Court in Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. and Vaibhav Goel & Anr. v. Deputy Commissioner of Income Tax & Anr. Interpretation and reasoning 2.2 It was undisputed that: (a) Corporate Insolvency Resolution Process was initiated against the corporate debtor by order of the NCLT dated 31 May 2019; (b) that order stood restored by the Supreme Court on 1 August 2022; and (c) the NCLT approved the resolution plan of the successful resolution applicant on 26 April 2024. 2.3 The Court noted that once a resolution plan is approved under Section 31, it becomes binding on the corporate debtor and all stakeholders, including governmental authorities, and that the Supreme Court has categorically held that all claims not forming part of the approved resolution plan stand extinguished, and no person is entitled to initiate or continue proceedings in respect of such extinguished claims. 2.4 The Court accepted the petitioner's contention that under the approved resolution plan, any claim or liability pertaining to the period prior to 26 April 2024 stood extinguished or settled, and all proceedings, suits and claims relating to such prior period stood extinguished in terms of the plan. 2.5 The Court observed that the impugned notices under Sections 143(2) and 142(1) sought information and assessment for the period forming part of the financial year 2023-24, i.e. a period prior to the approval of the resolution plan on 26 April 2024, and therefore related to the pre-resolution period. 2.6 Applying Ghanshyam Mishra & Sons Pvt. Ltd., the Court held that any liability or proceeding arising out of or relating to a period prior to 26 April 2024 necessarily stood extinguished upon approval of the resolution plan, and that initiation or continuation of assessment proceedings for that period would be contrary to the binding effect of the resolution plan. Conclusions 2.7 The Court concluded that, after approval of the resolution plan on 26 April 2024, the income-tax authorities could not validly issue or pursue notices under Sections 143(2) and 142(1) in respect of a period prior to that date, as such proceedings seek to enforce claims that stood extinguished by virtue of the approved resolution plan. Issue 2: Maintainability of tax scrutiny for an assessment year where no claim was filed in CIRP Legal framework 2.8 The Court referred to the list of operational creditors (Government dues) submitted by the Resolution Professional to the NCLT and to the principle laid down by the Supreme Court in Ghanshyam Mishra & Sons Pvt. Ltd. and Vaibhav Goel & Anr. regarding extinguishment of claims not lodged or not provided for in the approved resolution plan. Interpretation and reasoning 2.9 It was noted that the respondents had submitted claims in respect of income-tax liability for A.Y. 2018-19 and A.Y. 2019-20 as part of the Government dues placed before the NCLT, but no claim was filed for the assessment year under consideration, A.Y. 2024-25. 2.10 The Court held that in the absence of any specific claim for A.Y. 2024-25 being lodged in the CIRP and provided for in the resolution plan, any subsequent issuance of notices under Sections 143(2) or 142(1) to scrutinize or assess income for a period forming part of the pre-resolution period is contrary to the law declared by the Supreme Court and inconsistent with the binding nature of the resolution plan. Conclusions 2.11 The Court concluded that scrutiny or assessment proceedings for A.Y. 2024-25, in so far as they relate to the pre-resolution period and were not the subject of a claim in CIRP, are not maintainable and any such proceedings are without jurisdiction. Issue 3: Effect of prior binding precedent and earlier orders in the same matter Legal framework 2.12 The Court relied on earlier orders passed in the petitioner's own case for A.Y. 2020-21 and A.Y. 2021-22, where reassessment proceedings under Sections 148A(b), 148A(d), and 148 were quashed on the basis that the alleged tax liabilities pertained to a period prior to approval of the same resolution plan. Interpretation and reasoning 2.13 The Court observed that in those earlier matters it had held that allowing the Department to pursue reassessment proceedings for periods prior to the approval of the resolution plan would defeat the object of the Insolvency and Bankruptcy Code, 2016, as the successful resolution applicant is entitled to revive the corporate debtor on a 'clean slate' basis. 2.14 The Court held that the principle laid down in those earlier orders squarely applied to the present case, as the impugned notices similarly sought scrutiny for a period prior to approval of the resolution plan, and that the issue was no longer res integra. Conclusions 2.15 The Court concluded that, in view of the binding Supreme Court decisions and its own prior orders concerning the same corporate debtor and the same resolution plan, the impugned notices were unsustainable in law and without jurisdiction. Overall disposition 2.16 The Court held that the notices dated 24 June 2025 under Section 143(2) and 26 September 2025 under Section 142(1) of the Income Tax Act, 1961, and all consequential orders/notices, are liable to be quashed and set aside, and accordingly allowed the writ petition, with no order as to costs.