2024 (12) TMI 989 - HC - Income Tax

Validity of Assessment Order passed u/s 144 r.w.s. 144B after the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC) - HELD THAT - We are of the view that the arguments raised by the learned counsel appearing on behalf of the respondents is without any merit on two counts. Firstly, it is clear by the letter dated March 8, 2021 that the petitioner had informed the Income Tax Authorities with regard to approval of resolution plan. Secondly, the department itself had filed a claim before the Resolution Professional, and accordingly, the argument that the department was not aware of the IBC proceedings holds no water. Even assuming that the department was not informed about the proceedings, the law is very clear as expounded in the judgments cited above. The resolution applicant cannot be saddled with new claims once a resolution plan has been approved. The argument that an assessment that has been kept pending for a prior period and is quantified subsequent to the approval of the Resolution Plan is an argument in sophistry. If this argument is accepted then all authorities would be in a position to keep assessment/re-assessment pending till completion of the Resolution Plan, and thereafter, culminate the same and saddle the successful Resolution Applicant with an unknown burden. Such an action cannot be countenanced as the same would be an anathema to the fundamental principles of the moratorium provided under the Code. The law cannot be read in a manner wherein the basic structure of the Code is breached by hindering the flow of the same by creation of roadblocks and dams the underlying principle of the Code is to give a fresh start to the Resolution Applicant. Any new liability being fastened after the approval of the Resolution Plan would inherently and palpably be illegal and go beyond the Lakshman Rekha of the Code. The impugned assessment order is quashed and set aside.

Issues Involved:

1. Validity of the assessment order passed under Section 144 read with Section 144B of the Income Tax Act after the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC).
2. Impact of the approval of a resolution plan on pending tax claims and proceedings.
3. Application of Section 31 of the IBC regarding extinguishment of claims not included in the resolution plan.
4. Whether the Income Tax Department was informed about the resolution plan and its implications.

Detailed Analysis:

1. Validity of the Assessment Order:

The primary issue in this case was whether the assessment order dated April 28, 2021, passed under Section 144 read with Section 144B of the Income Tax Act, was valid after the approval of a resolution plan under the IBC. The petitioner argued that the assessment order was contrary to Section 31 of the IBC, as the resolution plan had already been approved on February 24, 2021. The court held that the assessment order was invalid because it was passed after the resolution plan's approval, which extinguished all pending claims not included in the plan. The court emphasized that the resolution applicant could not be burdened with liabilities beyond what was agreed in the resolution plan.

2. Impact of the Approval of a Resolution Plan on Pending Tax Claims:

The judgment highlighted that once a resolution plan is approved under Section 31 of the IBC, all claims not included in the plan are extinguished. The court referred to the Supreme Court's judgments in the cases of Committee of Creditors of Essar vs. Satish Kumar Gupta and Ghanshyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which clarified that a successful resolution applicant cannot be faced with undecided claims after the resolution plan's approval. The court reiterated that the resolution applicant starts with a "clean slate," and any attempt to impose new liabilities would be contrary to the IBC's objectives.

3. Application of Section 31 of the IBC:

The court extensively discussed the provisions of Section 31 of the IBC, which states that once a resolution plan is approved, it is binding on all stakeholders, including the Central and State Governments and local authorities. The court cited the Supreme Court's interpretation that the 2019 Amendment to Section 31 is declaratory and clarificatory, making it retrospective. Consequently, all dues, including statutory dues not part of the resolution plan, are extinguished, and no proceedings can be initiated or continued for such dues for periods before the plan's approval.

4. Notification to the Income Tax Department:

The respondents argued that the assessment was valid because the Income Tax Department was not properly informed about the resolution plan. However, the court found this argument meritless, as the petitioner had communicated the resolution plan's approval to the department on March 8, 2021, and the department had filed a claim before the Resolution Professional. Thus, the department was aware of the IBC proceedings, and the assessment order was invalid.

Conclusion:

The court concluded that the assessment order dated April 28, 2021, was quashed and set aside, as it was contrary to the provisions of the IBC. The court reiterated that any penalty proceedings initiated by the department could be challenged by the petitioner in accordance with the law. The writ petition was allowed, reinforcing the principle that a resolution applicant should not be burdened with liabilities beyond the resolution plan's scope.

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