2025 (2) TMI 90 - HC - Income Tax

Reassessment proceedings against company dissolved - HELD THAT - On perusal of the documents brought before the Court and considering the submissions made on behalf of the parties this Court is of the view that the initiation of reassessment proceedings under Sections 148A (b) and 148A (d) of the Income Tax Act 1961 and the subsequent issuance of the notice under Section 148 were in violation of the statutory preconditions under the Act. The respondents failed to conduct a preliminary inquiry under Section 148A(a) and acted solely on external reports without demonstrating independent application of mind thereby rendering the proceedings arbitrary and illegal. Section 14 of the IBC imposes a moratorium that prohibits proceedings against a company undergoing Corporate Insolvency Resolution Process (CIRP). The resolution plan approved by the National Company Law Tribunal (NCLT) has overriding authority as per Section 238 of the IBC and expressly precludes reassessment or revision proceedings for the period prior to the effective date stipulated in the plan. The respondents actions are in direct contravention of these provisions. Court holds that the reassessment proceedings initiated against the petitioner are without jurisdiction arbitrary and unsustainable in law. Consequently the writ petition is allowed and the impugned notices and orders issued under Sections 148A (b) 148A (d) and 148 of the Income Tax Act along with all consequential proceedings are quashed.

Summary

The petitioner invoked the writ jurisdiction under Article 226 of the Constitution of India, challenging the actions of the respondent authorities as arbitrary and unlawful. The petitioner, a company under the Companies Act, 1956, had filed its return for the assessment year 2019-20, declaring a loss and receiving a refund. Subsequently, the Bank of India initiated proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), leading to the approval of a resolution plan by the National Company Law Tribunal (NCLT) on December 19, 2023. This plan stipulated that no proceedings could be initiated against the petitioner for the period prior to the effective date.

Despite the resolution plan, the respondent issued a notice under Section 148A(b) of the Income Tax Act, alleging suspicious transactions involving the petitioner and certain shell entities. The petitioner responded, emphasizing the moratorium under Section 14 of the IBC, arguing that reassessment proceedings were impermissible. However, the respondents proceeded with reassessment, leading to the petitioner's claim that these actions were without jurisdiction and contrary to legal principles.

The petitioner contended that the IBC, as a special statute, overrides the Income Tax Act, with the resolution plan prohibiting reassessment for the period before the effective date. The petitioner argued that the respondents disregarded the binding nature of the NCLT's order and the provisions of the resolution plan, constituting a violation of judicial discipline. The petitioner also denied allegations of suspicious transactions, asserting that all transactions were duly accounted for and disclosed.

The respondents argued that the reassessment was based on credible information regarding bogus transactions and that the resolution plan did not prohibit proceedings initiated before the "Appointed Date." They cited a judgment from the Madras High Court, asserting that the IBC does not dilute the statutory rights of the Income Tax Department.

The Court found that the initiation of reassessment proceedings violated statutory preconditions under the Income Tax Act, as the respondents failed to conduct a preliminary inquiry and acted on external reports without independent application of mind. The Court emphasized that Section 14 of the IBC imposes a moratorium on proceedings against companies undergoing CIRP, and the resolution plan has overriding authority, precluding reassessment for the period prior to the effective date.

The Court cited the Supreme Court's decision in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which held that once a resolution plan is approved, claims not part of the plan are extinguished, and no proceedings can be continued for such claims. The Court also noted that the respondents failed to provide the petitioner with access to third-party statements, breaching natural justice, and initiated reassessment beyond the statutory limitation period.

Consequently, the Court held that the reassessment proceedings were without jurisdiction, arbitrary, and unsustainable in law. The writ petition was allowed, quashing the impugned notices and orders, and directing the respondents to refrain from initiating proceedings against the petitioner in violation of the resolution plan. All pending applications were disposed of, with no order as to costs.