2024 (9) TMI 426 - HC - Income Tax

Validity of income tax proceedings once company dissolved - resolution plan approved u/s 31 of the Insolvency and Bankruptcy Code, 2016 on tax authorities - HELD THAT - Once a resolution plan is duly approved u/s 31 (1) of the IBC, the debts as provided for in the resolution plan alone shall remain payable and such position shall be binding on, among others, the Central Government and various authorities, including tax authorities. All dues which are not part of the resolution plan would stand extinguished and no person would be entitled to initiate or continue any proceedings in respect of any claim for any such due. No proceedings in respect of any dues relating to the period prior to the approval of the resolution plan can be continued or initiated. In this clear view of the matter, there can be no manner of doubt that the Impugned Proceedings initiated by the Revenue and sought to be defended as if they relate to liabilities that somehow emerge after the CIRP, are wholly misconceived and untenable. The resolution plan, upon its approval, brought a quietus to all claims pursued or capable of being pursued by the Revenue against the Petitioner-Assessee for any operation prior to the CIRP. The stance of the Revenue in the Reply Affidavit, namely, that if the tax claim amount had not been crystallised, would be future dues and not past dues, is totally untenable. Ghanshyam Mishra makes it clear that the continuation of existing proceedings and the initiation of new proceedings, as they relate to operations prior to the CIRP, are totally prohibited after the approval of the resolution plan. Consequently, nothing would survive insofar as the Impugned Proceedings relate to the Petitioner-Assessee. In Alok Industries Ltd. 2024 (3) TMI 1083 - BOMBAY HIGH COURT a Division Bench of this Court held in favour of the Assessee quashing various proceedings for reassessment initiated against a corporate debtor that had undergone a resolution under the IBC. Evidently and admittedly, the tax proceedings against the Vinod Jatia Group pre-date the CIRP and no matter when the liabilities are purported to get crystallised, even if they are allowed to get crystallised, they would relate to the period prior to the approval of the resolution plan of the Petitioner-Assessee, and therefore stand extinguished. This is why the Supreme Court has clearly ruled that initiation and continuation of proceedings relating to the period prior to the approval of the resolution plan cannot be indulged in. Upon completion of the CIRP, the Petitioner-Assessee has completely changed hands and has begun on a clean slate under new ownership and management. Consequently, all the notices and communications issued by the Revenue in connection with the Impugned Proceedings, and the consequential actions as impugned in this Writ Petition are hereby quashed and set aside.

Issues Involved:
1. Validity of notices and communications issued under the Income-tax Act, 1961 post-CIRP approval.
2. Binding nature of the resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 on tax authorities.
3. Interpretation and application of Section 31 of the IBC and relevant Supreme Court rulings.

Issue-wise Detailed Analysis:

1. Validity of Notices and Communications Issued Under the Income-tax Act, 1961 Post-CIRP Approval:
The Petitioner-Assessee challenged multiple notices and communications issued by the Revenue under Sections 153C, 143(2), 142(1), and 133(6) of the Income-tax Act, 1961. These notices were issued after the approval of the resolution plan by the NCLT. The Petitioner-Assessee argued that all past claims, including those by the Revenue, stood extinguished upon the approval of the resolution plan under Section 31 of the IBC. The Revenue contended that the claims pursued were not past claims but related to liabilities crystallized after the commencement of the CIRP. The court found this contention untenable, stating that the resolution plan binds all claims, including those from tax authorities, and extinguishes any dues not part of the plan.

2. Binding Nature of the Resolution Plan Approved Under Section 31 of the Insolvency and Bankruptcy Code, 2016 on Tax Authorities:
The court emphasized the binding nature of the resolution plan under Section 31 of the IBC, which makes it binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government, or any local authority. The court referred to the Supreme Court ruling in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, which clarified that once a resolution plan is approved, all claims not part of the plan are extinguished, and no proceedings can be initiated or continued in respect of such claims. The court reiterated that the resolution plan's approval results in a clean slate for the corporate debtor, prohibiting the initiation or continuation of any proceedings for past dues.

3. Interpretation and Application of Section 31 of the IBC and Relevant Supreme Court Rulings:
The court extracted and analyzed Section 31(1) of the IBC, emphasizing its binding effect on all stakeholders, including tax authorities. The court referred extensively to the Supreme Court's interpretation in Ghanshyam Mishra, which confirmed that the resolution plan's approval extinguishes all dues not included in the plan. The court noted that the 2019 Amendment to Section 31 was declaratory and clarificatory, making it retrospective in operation. Consequently, all dues, including statutory dues owed to the Central Government, State Government, or local authority, if not part of the resolution plan, stand extinguished. The court also cited judgments from coordinate benches, such as Alok Industries Ltd. and AMNS Khopoli Limited, which quashed similar proceedings initiated by the Revenue for periods prior to the CIRP.

Conclusion:
The court concluded that the Impugned Proceedings initiated by the Revenue were wholly misconceived and untenable. The resolution plan's approval brought a quietus to all claims pursued or capable of being pursued by the Revenue against the Petitioner-Assessee for any operation prior to the CIRP. The court quashed all notices and communications issued by the Revenue in connection with the Impugned Proceedings, directing the cancellation and withdrawal of the notices and the closure of all proceedings against the Petitioner-Assessee. The writ petition was disposed of accordingly, with no costs.

Judgement:
The court issued a writ of Mandamus directing the Respondents to cancel and withdraw the notices issued under Sections 153C, 133(6), 143(2), and 142(1) of the Income-tax Act for various assessment years and to close all proceedings against the Petitioner-Assessee. The rule was made absolute, and any pending interim applications were disposed of.

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