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TMI Blog2022 (1) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... Government, or any local authority which does not form a part of the approved resolution plan shall stand extinguished. Clarifying further it has been held that once a resolution plan is approved by the adjudicating authority, all such claims /dues owed to the State / Central Government or any local authority including the tax authorities who were not part of the resolution plan shall stand extinguished. In the present case, it is seen that the date of approval of the resolution plan by the Tribunal is 19.07.2018. For the assessment year 2017-18, the resolution professional on behalf of the corporate debtor had filed the return of income on 07.11.2017. In that return of income, the corporate debtor disclosed loss of ₹ 15,49,43,866-00 and claimed refund of ₹ 11,47,698-00 on account of TDS. Thus the return was filed prior to approval of the resolution plan. After approval of the resolution plan by the Tribunal on 19.07.2018, Deputy Commissioner of Income Tax, CPC, Bangalore, issued notice dated 02.10.2018 to the corporate debtor stating that there was some arithmetical error in the return of income which needed to be corrected. Corporate debtor i.e. petitioner No.1 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be entitled to verify such claim and pass appropriate order. But for the period covered by the resolution plan, it cannot carry out any scrutiny or carry out assessment in respect of the corporate debtor. To that extent, the impugned notices cannot be justified. What the resolution plan provides and which is in conformity with the law laid down by the Supreme Court is that on and from the date of approval of the resolution plan by the Tribunal, the same would prevail over the claims of the Income Tax Department and such claims which are outside the resolution plan for the period covered by the resolution plan would stand extinguished. The impugned notices seek to initiate assessment proceedings under Section143 (3) of the Act for a period which is squarely covered by the resolution plan as approved by the Tribunal - impugned notices dated 22.09.2019, 21.10.2019 and 30.10.2019 being wholly unsustainable in law are hereby set aside and quashed. Petition allowed. - W.P.No.25827 of 2019 - - - Dated:- 18-1-2022 - HON BLE SRI JUSTICE UJJAL BHUYAN AND HON BLE DR.JUSTICE CHILLAKUR SUMALATHA Counsel for Petitioner : Sri S. Niranjan Reddy Counsel for the respondents : M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution plan as approved by the Tribunal vide order dated 19.07.2018, dealt with the various claims made against the corporate debtor i.e. petitioner No.1. As per the approved resolution plan, the total claim of the operational creditors of the corporate debtor was quantified at ₹ 95.71 crores and the payment as per the resolution plan was fixed at ₹ 9.50 crores. 7. Petitioner No.1 had filed return for the assessment year 2017-18 on 17.10.2018. Thereafter respondent No.2 issued notice dated 22.09.2019 under Section 143(2) of the Income Tax Act, 1961 (briefly, the Act hereinafter) read with Rule 12E of the Income Tax Rules, 1962 (briefly, the Rules hereinafter). Responding to the said notice, petitioner No.1 stated in the letter dated 14.10.2019 that as the resolution plan has been approved by the Tribunal, all proceedings and claims arising from dues prior to approval of resolution plan stood discharged by virtue of Section 31(1) of the IBC. In addition, petitioner No.1 also informed respondent No.2 that the factory remained closed from September 2014 onwards due to severe financial crisis; it was also stated that there were no sales and purchase transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the resolution plan. 13. Petitioners have further referred to and relied upon the provisions of Section 238 of the IBC which says that provisions of IBC shall have an overriding effect over all other laws. 14. This Court by order dated 20.12.2019 stayed the operation of the notices dated 22.09.2019, 21.10.2019 and 30.10.2019 till the next date of hearing, which order has been continued from time to time. 15. Petitioners have filed an additional affidavit. It is stated that return of income for the assessment year 2017-18 was filed on 07.11.2017 by the resolution professional on behalf of petitioner No.1. In the said return loss of ₹ 15,49,43,866-00 was shown and refund of ₹ 11,47,698-00 on account of tax deduction at source (TDS) was claimed. 16. Resolution plan of petitioner No.2 in relation to petitioner No.1 was approved by the Tribunal on 19.07.2018. Referring to Clause 7.5 of the resolution plan, it is stated that the said clause specifically provides that there would be no further claims binding on the petitioners subsequent to the completion date, particularly, in the context of the Act. 17. Even so, vide notice dated 02.10.2018 issued by the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2017-18, answering respondent is entitled to undertake proceedings which would establish the veracity and correctness of such claims. 23. Impugned notice dated 22.09.2018 was issued electronically pursuant to an automated Computer Aided Scrutiny Selection (CASS) for limited scrutiny of the return filed by the petitioner on 17.10.2018 with respect to investment, business loss etc. The subsequent notices dated 21.10.2019 and 30.10.2019 were issued by the third respondent under Section 142 of the Act. Thus the impugned notices are in accordance with the Act, within jurisdiction and maintainable. 24. As petitioner No.1 was a loss-making entity no tax was payable and consequently no monies remain recoverable so as to require any claim to be made by respondent No.3 vis- -vis petitioner No.1. Therefore, there was no requirement for the respondents to submit any claim before the resolution professional. As respondent Nos.2 and 3 have no claim against petitioner No.1 and are not operational creditors, contentions advanced by the petitioners on the presumption that Income Tax Department i.e. respondent No.2 is an operational creditor are totally misplaced. There is no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l creditor of petitioner No.1. It is a settled legal position that once a resolution plan is approved by the Tribunal and the corporate debtor has complied with the obligations under the resolution plan, all the prior dues and proceedings would stand extinguished. Thus any claim on the petitioners for the past period prior to approval of resolution plan stood discharged by virtue of Section 31 of IBC. However, this would not take away the right of the petitioner to make claims against the respondents by way of set off of carry forward of accumulated losses and unabsorbed depreciation for the past period against profits of future years. Thus petitioner is entitled and eligible to claim set off of brought forward losses including unabsorbed depreciation against future profits and consequently eligible to refund for the assessment year 2017-18. 31. Putting the matter in perspective it is stated that the original return of income for the assessment year 2017-18 was filed on 07.11.2017. For the reasons indicated this was revised by petitioner No.1 on 17.10.2018. Therefore, the contention of the answering respondent that the return of income was filed by petitioner No.1 on 17.10.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the adjudicating authority, all concerned including the Income Tax Department would be bound by the resolution plan. Learned counsel for the petitioners has referred to the resolution plan, more particularly, to Clause 7.5 (c) thereof to contend that all existing income tax dues would stand extinguished and all notices proposing to initiate any proceeding against the corporate debtor in relation to the period prior to the date of the Tribunal s order would stand abated. Income Tax Department cannot proceed on the basis of the impugned notices. If there is any doubt on this count, Section 238 IBC makes it abundantly clear that provisions of the IBC would prevail over the Act. 35 .However, learned counsel for the petitioners referring to Clause 17.7(c) of the resolution plan submits that notwithstanding the binding nature of the resolution plan as approved by the Tribunal, it would not come in the way of the petitioners to raise claims against the respondents by way of set off of carry forward of accumulated losses and unabsorbed depreciation for the past period against profits of future years including entitlement to refund. 36. In support of his submissions, learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishing evidence / information for a limited scrutiny of the revised return. She points out that the revised return was filed on 17.10.2018 after approval of the resolution plan on 19.07.2018. 40. Learned counsel for the respondents submits that contrary to the contention of the petitioners, what the petitioners are seeking by way of the revised return is carry forward of accumulated losses and unabsorbed depreciation to be set off against future profits. This has to be verified and an assessment has to be made without which the benefit of carry forward may not be available to the petitioner. Therefore, learned counsel for the respondents would contend that there is no inconsistency between the resolution plan and by extension IBC with the impugned notices and the Act. Therefore, question of Section 238 IBC having overriding effect is redundant. She has also referred to the provisions of Section 79 of the Act prior to its substitution with effect from 01.04.2020. Referring to the said provision, more particularly, to the third proviso thereof, she submits that the provision contained in Section 79 providing for carry forward and set off of losses subject to the conditions stipula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , ineffective and results in undue delay in resolution, therefore, the proposed legislation. 2. The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters concerned therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. 3. The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expressions relevant for Part II are defined in Section 5. As per Section 5 (1), Adjudicating Authority for the purposes of Part II shall mean National Company Law Tribunal (Tribunal) constituted under Section 408 of the Companies Act, 2013. Liquidation Commencement Date has been defined under sub-Section (17) of Section 5 to mean the date on which proceedings for liquidation commences. Section 5 (20) defines Operational Creditor to mean a person to whom such debt is owed and includes any person to whom such debt has been legally assigned or transferred. On the other hand, Operational Debt has been defined under sub-Section (21) of Section 5 to mean or claim in respect of the provisions of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority. As per Section 5 (26), resolution plan means a plan proposed by a resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II. Explanation below sub-Section (26) clarifies that a resolution plan may include provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary contained in any law enacted by the Parliament or by any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the order of priority and within such period and in such manner as prescribed thereunder. Section 53 is extracted hereunder: 53. Distribution of assets:- (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely- a) the insolvency resolution process costs and the liquidation costs paid in full; b) the following debts which shall rank equally between and among the following- (i) workmen s dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in Section 52; c) wages and any unpaid dues owed to employees other than workmen for the period of twelve mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue in view of admission of insolvency resolution application by the Tribunal against the assessee which prohibited institution of suits or continuation of pending suits or proceedings against the assessee. It was held that the above prohibition would cover the appeals filed by the Revenue against orders of the Income Tax Appellate Tribunal in respect of the tax liability of the assessee. While disposing of the appeals as such, liberty was granted to the Revenue to revive the appeals subject to further orders of the Tribunal. This order of the Delhi High Court has been affirmed by the Supreme Court in Principal Commissioner of Income Tax Vs. Monnet Ispat and Energy Limited (1 supra). Supreme Court has held that in view of Section 238 of IBC, it is obvious that it will override anything inconsistent contained in any other enactment including the Income Tax Act. Reference was made to its earlier decision in Dena Bank case (4 supra). 57. Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta (3 supra) was examining various questions as to the role of resolution applicants, resolution professionals, committee of creditors and juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment or any local authority is entitled to initiate any proceeding for recovery of dues from the corporate debtor which are not part of the resolution plan approved by the adjudicating authority? 59. After elaborate discussion, Supreme Court held that any debt in respect of payment of dues arising under any law for the time being in force including the ones owed to the Central Government or any State Government, or any local authority which does not form a part of the approved resolution plan shall stand extinguished. Clarifying further it has been held that once a resolution plan is approved by the adjudicating authority, all such claims /dues owed to the State / Central Government or any local authority including the tax authorities who were not part of the resolution plan shall stand extinguished. It has been held as follows: 95. In the result, we answer the questions framed by us as under: (i) That once a resolution plan is duly approved by the Adjudicating Authority under Sub-section (1) of Section 31, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not, asserted or unasserted, ctystallised or uncrystallised, known or unknown, secured or unsecured, disputed or undisputed, present or future, in relation to any period prior to the Completion Date, shall sand extinguished and the Corporate Debtor shall not be liable to pay any amount against such demand. All assessments / appellate or other proceedings pending in case of the Corporate Debtor, on the date of the order of NCLT relating to the period prior to that date, shall stand terminated and all consequential liabilities, if any, stand abated and should be considered to be not payable by the Corporate Debtor in relation to the period prior to the date of NCLT order and pending on that date shall stand abated and should not be proceeded against. Post the order of the NCLT, no re-assessment / revision or any other proceedings under the provisions of the Income Tax Act shall be initiated on the Corporate Debtor in relation to period prior to acquisition of control by the Resolution Applicant and any consequential demand should be considered nonexisting and as not payable by the Corporate Debtor. Any proceedings which were kept in abeyance in view of the insolvency process or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income which needed to be corrected. Corporate debtor i.e. petitioner No.1 found on verification that interest income of ₹ 97,28,737-00 was not disclosed under the head income from other sources though it has reduced while computing the income under the head business or profession . Therefore, petitioner No.1 filed a revised return on 17.10.2018 whereby the loss figure was reduced by the quantum of interest income. Accordingly the loss figure was revised at ₹ 14,52,15,129-00 {₹ 15,49,43,866-00 (-) ₹ 97,28,737-00}. Subsequently by letter dated 01.11.2018 petitioner No.1 informed the Deputy Commissioner of Income Tax, CPC, Bangalore, that the arithmetical mistake in the return was rectified in the revised return. 66. It was thereafter that the impugned notices came to be issued. Let us now examine the contents of the impugned notices. 67. As per the first notice dated 22.09.2019 issued under Section 143 (2) of the Act, petitioner No.1 was informed that there are certain issues which need further clarification for which the return of income has been selected for limited scrutiny under CASS. The issues were mentioned as under: i. Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order would be a period covered by the resolution plan. We have already noticed that petitioner No.1 through the resolution professional had filed return of income prior to order of the Tribunal approving the resolution plan. When arithmetical mistake was pointed out by the Income Tax Department, post such approval, petitioner No.1 carried out the correction and submitted revised return lowering the figure of loss sustained by petitioner No.1. Such a revised return cannot be construed as a fresh return filed by the petitioner No.1 since it is a continuation of the return of income filed earlier. In view of Clause 7.5 (c) of the resolution plan, as approved by the Tribunal and in view of the decisions of the Supreme Court in Committee of Creditors of Essar Steel India Limited (3 supra) and Ghanashyam Mishra (5 supra), the claim of the Income Tax Department which is outside the resolution plan would stand extinguished. 71. Insofar carry forward of losses and adjustments against future profits are concerned, the same is provided by Clause 17.7 (c) of the resolution plan. However, as and when such carry forward and set off is claimed by the petitioner in future, i.e. beyond ..... X X X X Extracts X X X X X X X X Extracts X X X X
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