2024 (4) TMI 937 - HC - Income Tax

Reassessment proceedings against company insolvent/dissolved - whether the demand raised pursuant to the assessment order passed after the resolution plan approved by the NCLT on 1st July 2022 would extinguish or not? - HELD THAT - The Hon ble Apex Court in case of Ghanshyam Mishra Sons (P) Ltd 2021 (4) TMI 613 - SUPREME COURT has held that once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of section 31 of IBC the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees members creditors including the Central Government any State Government or any local authority guarantors and other stake holders. On the date of approval of the resolution plan by the adjudicating authority all such claims which are not part of the resolution plan shall stand extinguished and no person is entitled to initiate or continue any proceeding in respect to a claim which is not part of the resolution plan. In view of the above conclusion arrived at by the Apex Court after considering the entire Scheme of the IBC the demand which was raised pursuant to the order by issuing the demand notice cannot be said to be in respect to a claim which is part of the resolution plan. The proceedings which were continued under section 147 r.w.s. 144 by the respondent was also not a proceeding in respect to a claim which is not part of the resolution plan. In such circumstances the notices issued by the CIT (A) and reference for the hearing of the appeals filed by the petitioner challenging the assessment order would extinguish on 01.07.2022 as no demand would remain in existence in absence of any claim raised before the RP by the respondent authority - so far as the framing of the reassessment pertaining to the Assessment Year 2018-19 in absence of any demand pending as on 01.07.2022 and as such demand raised subsequently would not be a part of the claim to be made before the RP. As no demand to be claimed was in existence when the NLCT passed the order on 01.07.2022 and therefore the demand which has arisen pursuant to the assessment order dated 13.03.2022 cannot be said to have been extinguished. Therefore so far as notices issued by the CIT (Appeals) are accordingly quashed and set aside.

Summary

Issues Involved:
1. Legal prohibition against coercive actions by respondents.
2. Quashing of impugned notices and proceedings under the Income Tax Act.
3. Stay on implementation, operation, and execution of impugned notices.

Summary:

Issue 1: Legal Prohibition Against Coercive Actions by Respondents
The petitioner sought a declaration that the respondents are legally prohibited from taking any coercive action against the petitioner Corporate Debtor in respect of any claims/offences that occurred prior to the Effective Date and are prohibited from continuing proceedings under the Income Tax Act. The court noted that the National Company Law Tribunal (NCLT) had approved a resolution plan on 01.07.2022, which extinguished all liabilities of the Corporate Debtor prior to the Corporate Insolvency Resolution Process (CIRP) approval date.

Issue 2: Quashing of Impugned Notices and Proceedings Under the Income Tax Act
The petitioner challenged the assessment order passed on 13.03.2023 under sections 147 and 144 of the Income Tax Act, 1961, for the Assessment Year 2018-19, as well as the demand notice issued under section 156 of the Act. The court referenced the Supreme Court's decision in Ghanshyam Mishra & Sons (P) Ltd vs. Edelweiss Asset Reconstruction Co. Ltd, which held that once a resolution plan is approved by the adjudicating authority, all claims not part of the resolution plan stand extinguished. Consequently, the court quashed the notices issued by the CIT (A) and set aside the assessment order and demand notice as they were not part of the resolution plan approved by the NCLT.

Issue 3: Stay on Implementation, Operation, and Execution of Impugned Notices
The petitioner requested a stay on the implementation, operation, and execution of the impugned notices issued by the respondent. The court found that the reassessment proceedings initiated prior to the NCLT's approval of the resolution plan would not survive, and therefore, the demand raised pursuant to the assessment order dated 13.03.2023 could not be enforced. The court granted the stay on the implementation and operation of the impugned notices.

Conclusion:
The court quashed the impugned notices and set aside the assessment order and demand notice issued by the respondents, holding that the reassessment proceedings initiated prior to the NCLT's approval of the resolution plan would not survive. The court granted a stay on the implementation and operation of the impugned notices, making the rule absolute to the extent of quashing the notices and setting aside the assessment order and demand notice. The petition was dismissed concerning the prayer for staying the reassessment order dated 13.03.2023. No order as to costs.