Case Note & Summary
The petitioners, Uttam Galva Metallics Ltd. (the corporate debtor) and its director, challenged reassessment proceedings initiated by the Income Tax Department for Assessment Year 2016-17 under Sections 148 and 142(1) of the Income-tax Act, 1961. The company had undergone a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), and its resolution plan was approved by the NCLT on May 6, 2020, which provided for a full waiver of all tax and tax-related interest dues prior to the CIRP. Despite this, the Revenue issued a notice under Section 148 on March 27, 2021, alleging that income of Rs. 111.28 Crores had escaped assessment based on survey proceedings against third parties. The petitioners objected, asserting that the resolution plan was binding on the Revenue under Section 31 of the IBC and that the company had a clean slate. The Revenue rejected the objections, arguing that the moratorium under Section 14 of the IBC ended with the approval of the plan and that reassessment could continue against the company. The Bombay High Court, relying on the Supreme Court's decision in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, held that once a resolution plan is approved under Section 31 of the IBC, it is binding on all stakeholders, including the Central Government and tax authorities. The court emphasized that the legislative intent is to ensure that no surprise claims are made against the successful resolution applicant, and the corporate debtor starts with a clean slate. Consequently, the court quashed all impugned notices and communications, ruling that the reassessment proceedings were unsustainable.
Headnote
A) Insolvency and Bankruptcy Code - Resolution Plan - Binding Effect - Section 31 IBC - Once a resolution plan is approved by the NCLT under Section 31 of the IBC, it is binding on the Central Government and all statutory authorities, including the Income Tax Department, and no reassessment proceedings can be initiated for the period prior to the CIRP. (Paras 12-13) B) Income Tax Act - Reassessment - Jurisdiction - Sections 148, 142(1) - After approval of a resolution plan under IBC, the corporate debtor starts with a clean slate, and the Revenue cannot pursue reassessment for escaped income relating to the pre-resolution period, as all claims are extinguished. (Paras 4-5, 13) C) Insolvency and Bankruptcy Code - Clean Slate - Binding on Tax Authorities - Section 31 IBC - The Supreme Court in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited (2021) 9 SCC 657 held that after approval of a resolution plan, no surprise claims should be flung on the successful resolution applicant, and the plan binds all stakeholders including tax authorities. (Paras 13-14)
Issue of Consideration
Whether reassessment proceedings under the Income-tax Act, 1961 can be initiated or continued against a corporate debtor after its resolution plan has been approved under Section 31 of the Insolvency and Bankruptcy Code, 2016, thereby extinguishing all past claims including tax dues.
Final Decision
The court allowed the writ petition, quashing and setting aside all impugned notices and communications in connection with the reassessment proceedings for Assessment Year 2016-17. Rule made absolute.
Law Points
- Resolution plan binding on all stakeholders including tax authorities
- Clean slate principle after CIRP
- No reassessment for pre-resolution period
- Section 31 IBC overrides Income-tax Act
