Resolution plan approval extinguishes pre-approval tax liabilities, invalidating reassessment proceedings under the Income-tax Act.

Approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 can extinguish pre-approval tax claims where the plan expressly provides for waiver of assessed and unassessed liabilities. On that settled principle, claims not forming part of the approved plan stand frozen against the corporate debtor and cannot be continued or initiated after approval. Applying that effect, the Gujarat HC held that once the assessee's pre-approval income tax liabilities were extinguished, there was no surviving basis for the reassessment notice under Section 148 or the order under Section 148A(d), and both were quashed.

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Issues: Whether, after approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016, pre-approval income tax liabilities stood extinguished so as to invalidate the reassessment notice under Section 148 of the Income-tax Act, 1961 and the order under Section 148A(d) of the Income-tax Act, 1961.

Analysis: The approved resolution plan expressly provided for waiver and extinguishment of all tax liabilities, assessed and unassessed, for the period prior to the approval date. The legal effect of approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 is that claims not forming part of the plan stand frozen against the corporate debtor and stand extinguished, with no person entitled to continue or initiate proceedings in respect of such claims. Applying that settled position, the Court found that once the tax liabilities had been completely extinguished on approval of the plan, there was no surviving basis for issuing the impugned reassessment notice or the order under Section 148A(d).

Conclusion: The challenge succeeded and the impugned notice and order were quashed and set aside in favour of the assessee.

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