2024 (4) TMI 712 - HC - Income Tax

Income tax proceedings against company dissolved / insolvent - Jurisdiction or authority to reopen or assess income for any period prior to the approval of the Resolution Plan - Distinction between voluntary and involuntary corporate insolvency - respondents chose to commence proceedings referable to Section 144B HELD THAT - Resolution Plan once approved would bring the curtains down on any claims pertaining to a period prior to the approval of the RP is no longer res integra. We note that while dealing with an identical issue, we had in Ireo Fiverriver Pvt. Ltd 2024 (4) TMI 665 - DELHI HIGH COURT as held successful resolution applicant cannot be foisted with any liabilities other than those which are specified and factored in the Resolution Plan and which may pertain to a period prior to the resolution plan itself having been approved. Section 144B power entails proceedings for assessment, reassessment or re-computation being initiated in terms of the faceless procedure of assessment as prescribed therein. Any effort to assess, reassess or re-compute could tend to lean towards a re-computation of liabilities which otherwise stands freezed by virtue of the Resolution Plan having been approved. Such an action or recourse would clearly be barred by Section 31 of the IBC which binds all creditors of the corporate debtor, including the Central and State Governments or any other local authority to whom a debt is owed. A Section 144B action is what the Supreme Court frowned upon and chose to describe as the hydra head and thus being contrary to the clean slate principle which the IBC advocates. We, consequently, find ourselves unable to sustain the impugned action. We find ourselves unable to sustain that line of reasoning bearing in mind the undisputable legal position which obtains in light of the scheme of the IBC and which fails to incorporate any distinction between voluntary and involuntary corporate insolvency. As we read the provisions of the Act, the IBC does not erect different levels of protection or insulation dependent upon whether corporate insolvency had been initiated voluntarily or on the basis of a petition referable to Section 7 of the IBC. In our considered opinion, the purport of Section 31 of the IBC stands conclusively settled by the Supreme Court in terms of the judgments rendered in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta and Ghanashyam Mishra 2019 (11) TMI 731 - SUPREME COURT . We also bear in mind that upon commencement of CIRP, the petition is duly advertised in terms of the provisions made in Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and which would thus constitute due public announcement. The respondents, therefore, cannot sustain the invocation of Section 144B based on their own failure to lodge a claim within the time stipulated.

Summary

Issues Involved:
1. Validity of Notices Issued u/s 144B, 143(2), and 142(1) of the Income Tax Act.
2. Applicability of Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC).
3. Jurisdiction of Income Tax Authorities Post-Approval of Resolution Plan.

Summary:

Issue 1: Validity of Notices Issued u/s 144B, 143(2), and 142(1) of the Income Tax Act

The petitioner impugns notices issued u/s 144B of the Income Tax Act, 1961 [Act] for Assessment Year [AY] 2021-22 dated 27 June 2022, and consequential notices u/s 143(2) and 142(1) dated 28 June 2022 and 05 September 2022, respectively.

Issue 2: Applicability of Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC)

The petitioner contends that once the Resolution Plan is duly accepted, the bar created in terms of Section 31 of the IBC would apply, depriving respondents of the jurisdiction to reopen or assess income for any period prior to the approval of the Resolution Plan, as supported by the Supreme Court decision in Ghanashyam Mishra and Sons Pvt. Ltd vs. Edelweiss Asset Reconstruction Company Ltd. (2021) 9 SCC 657.

Issue 3: Jurisdiction of Income Tax Authorities Post-Approval of Resolution Plan

Upon the commencement of CIRP and the subsequent approval of the Resolution Plan by NCLT on 15 March 2022, the respondents initiated proceedings u/s 144B on 27 June 2022. The court noted that a Resolution Plan, once approved, brings the curtains down on any claims pertaining to a period prior to its approval. This position was reiterated in Ireo Fiverriver Pvt. Ltd. v. Income Tax Department & Anr. W.P.(C) 12461/2022 and supported by the Supreme Court judgments in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. and Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta.

The court emphasized that Section 144B actions could lead to re-computation of liabilities, which stands frozen by the approved Resolution Plan, thereby barred by Section 31 of the IBC. The court found the impugned actions unsustainable.

Addressing a contrary judgment by the Madras High Court in Dishnet Wireless Ltd. v. Assistant Commissioner of Income Tax (OSD) 2022 SCC OnLine Mad 3643, the court respectfully disagreed, noting that the IBC does not distinguish between voluntary and involuntary insolvency in terms of protections offered.

Conclusively, the court allowed the writ petition, quashing the impugned notices dated 27 June 2022, 28 June 2022, and 05 September 2022.