Case Note & Summary
The petitioner, Murli Industries Limited, a corporate debtor undergoing insolvency resolution under the Insolvency and Bankruptcy Code, 2016 (IBC), challenged two notices issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961. The notices, dated 25.03.2021 and 24.03.2021, called upon the petitioner to submit returns for assessment years prior to the approval of its resolution plan, on the ground that income had escaped assessment. The petitioner argued that after the approval of the resolution plan by the National Company Law Tribunal (NCLT) on 11.12.2019, the corporate debtor is discharged from past liabilities and no reassessment proceedings can be initiated. The court framed the issue as whether the Income Tax Department can issue a Section 148 notice to a corporate debtor after the resolution plan is approved. The court analyzed the interplay between the IBC and the Income Tax Act, noting that Section 14 of the IBC imposes a moratorium on initiation of proceedings against the corporate debtor, and Section 31 makes the resolution plan binding on all stakeholders, including the government. The court held that once a resolution plan is approved, the corporate debtor is freed from past debts and liabilities, and the tax authority cannot reopen assessments for prior years. The reassessment notices were quashed, and the petitions were allowed. The court emphasized that the IBC is a complete code and overrides the Income Tax Act in case of conflict.
Headnote
A) Insolvency and Bankruptcy Code - Reassessment Notice - Section 148 Income Tax Act, 1961 read with Section 14, 31 Insolvency and Bankruptcy Code, 2016 - The court considered whether a notice under Section 148 can be issued to a Corporate Debtor after approval of a resolution plan. Held that once a resolution plan is approved, the Corporate Debtor is discharged from past liabilities and the tax authority cannot reopen assessments for prior years. The moratorium under Section 14 IBC bars initiation of such proceedings. (Paras 3-18) B) Income Tax Act - Reassessment - Section 147, 148 Income Tax Act, 1961 - The court examined the validity of reassessment notices issued after the approval of the resolution plan. Held that the notices are invalid as the income tax department is bound by the resolution plan and cannot claim dues not included in the plan. (Paras 10-18) C) Insolvency and Bankruptcy Code - Resolution Plan - Binding Effect - Section 31 Insolvency and Bankruptcy Code, 2016 - The court held that a resolution plan approved by the National Company Law Tribunal (NCLT) is binding on all stakeholders, including the Income Tax Department, and no fresh proceedings can be initiated for pre-resolution period claims. (Paras 15-18)
Issue of Consideration
Whether the Income Tax Department can issue notice under Section 148 of the Income Tax Act, 1961 to a Corporate Debtor for assessment years prior to the date of approval of the Resolution Plan under the Insolvency and Bankruptcy Code, 2016, on the ground that income has escaped assessment.
Final Decision
The court allowed the writ petitions and quashed the impugned notices dated 25.03.2021 and 24.03.2021 issued under Section 148 of the Income Tax Act, 1961.
Law Points
- Insolvency and Bankruptcy Code
- 2016 overrides Income Tax Act
- 1961
- Section 148 notice cannot be issued after approval of resolution plan
- moratorium under Section 14 IBC bars initiation of proceedings
- resolution plan binds all stakeholders including tax authorities
