Clean slate principle under insolvency law does not automatically erase income tax liabilities arising during CIRP

Under the Insolvency and Bankruptcy Code, 2016, the clean slate principle was applied only to pre-CIRP claims and not to tax liabilities arising during the CIRP period unless the approved resolution plan specifically extinguished them. Because the resolution plan and information memorandum disclosed pending tax matters, and the NCLT had not granted a blanket waiver of statutory dues, reassessment and consequential assessment for Assessment Year 2018-19 were held valid. The court also noted that the return was not filed within time and the taxpayer had not pursued statutory condonation relief under the Income-tax Act, 1961.

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Issues: Whether reassessment and assessment proceedings for Assessment Year 2018-19 could be sustained notwithstanding the approved resolution plan under the Insolvency and Bankruptcy Code, 2016, and whether the clean slate principle extinguished the income tax liability arising during the CIRP period.

Analysis: The liability in question related to income earned during the previous year 2017-18, when the corporate insolvency resolution process had already commenced. The resolution plan and the information memorandum disclosed pending and unassessed tax matters, and the National Company Law Tribunal did not grant a blanket waiver of statutory tax dues. The clean slate doctrine was held to operate in respect of pre-CIRP claims, but not to erase liabilities or statutory compliances arising during the CIRP period unless they were specifically covered by the approved plan. The petitioner had also not filed the return within time and had not pursued the statutory route for condonation and consequential relief under the Income-tax Act, 1961.

Conclusion: The reassessment and consequential assessment were held to be valid, and the petitioner was denied immunity from the tax liability for Assessment Year 2018-19.

Ratio Decidendi: The clean slate principle under the Insolvency and Bankruptcy Code, 2016 extinguishes only pre-CIRP claims not included in the resolution plan and does not, by itself, bar assessment or recovery of tax liabilities arising during the CIRP period where the resolution plan does not specifically extinguish them.

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