Tax liabilities for period prior to resolution plan approval stand extinguished upon sanction under Section 31 IBC.

In brief

The question

1. Whether the Income Tax Department can initiate reassessment proceedings under Section 148 of the Income Tax Act for a period prior to the approval of a Resolution Plan under the IBC

The court held

The Court held that upon the approval of the Resolution Plan under Section 31 of the IBC, all prior tax liabilities stood extinguished, and the Respondent had no jurisdiction to initiate reassessment proceedings

It also directed

The Court quashed the notice under Section 148 dated April 5, 2023, and the order under Section 148A(d) of the same date. The petition was allowed, and rule was made absolute

01Facts

The Petitioner, a registered company, filed its return for Assessment Year (AY) 2016-17 on March 16, 2017

¶ 4.1

Following scrutiny, assessment was completed on December 26, 2018

¶ 4.2

Subsequently, the Petitioner underwent Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), and a Resolution Plan by Adani Power Limited was approved by the NCLT on November 1, 2021

¶ 4.3, 4.5

This plan specifically provided for the waiver and extinguishment of all unassessed/assessed tax liabilities for the period prior to approval

¶ 4.5

Despite this, the Respondent-Department issued a notice under Section 148A(b) on March 22, 2023, followed by an order under Section 148A(d) and a notice under Section 148 on April 5, 2023

¶ 3, 4.6

02Issues

i.1. Whether the Income Tax Department can initiate reassessment proceedings under Section 148 of the Income Tax Act for a period prior to the approval of a Resolution Plan under the IBC

¶ 5, 10

03Law Applied

Section 31 of the Insolvency and Bankruptcy Code, 2016, which mandates that an approved Resolution Plan is binding on all stakeholders, including the Central Government

¶ 5.1, 9

The precedent of Committee of Creditors of Essar Steel India Ltd. v. Satishkumar Gupta (2020) 8 SCC 531, which established the "fresh slate" doctrine, preventing a successful resolution applicant from being faced with undecided claims post-approval

¶ 8

Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. (2021) 9 SCC 657, which held that all statutory dues owed to the Central or State Government not part of the resolution plan stand extinguished upon the plan's approval

¶ 9

Provisions in the judgment · 6 · Linked ones open on LawLens

Insolvency and Bankruptcy Code, 2016. Section 7 Section 13 Section 15 Section 30 Section 31 Section 60

04Reasoning

The Court examined the approved Resolution Plan, specifically the "Reliefs and Waivers" section, which explicitly stated that all tax liabilities (assessed or unassessed) under the Income Tax Act shall stand waived and extinguished

¶ 6.1, 7

Applying the "fresh slate" principle from Essar Steel, the court reasoned that the Petitioner must be allowed to run the business without the "hydra head" of past, undecided tax claims popping up

¶ 8

Since the Resolution Plan was approved on November 1, 2021, and successfully wiped out all prior liabilities, the Revenue had no legal authority to issue a reassessment notice in April 2023 for AY 2016-17

¶ 10

The Respondent-Department failed to controvert this legal position regarding the extinguishment of dues under Section 31 of the IBC

¶ 5.1

05Holding

¶ 10

The Court quashed the notice under Section 148 dated April 5, 2023, and the order under Section 148A(d) of the same date. The petition was allowed, and rule was made absolute

¶ 11

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