The Bombay High Court quashed the reassessment proceedings initiated by the Income Tax Department against Uttam Galva Metallics Ltd. for the assessment year 2016-17. The court held that once a resolution plan is approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC), it becomes binding on all stakeholders, including tax authorities. Consequently, any dues or claims not included in the resolution plan stand extinguished. The court reaffirmed the principle that a company, post-resolution, starts on a "clean slate," and no claims or reassessment proceedings can be pursued for periods preceding the resolution.

1. Background of the Case:

• Petitioner: Uttam Galva Metallics Ltd. and Mr. Subodh Karmarkar.
• Respondents: Assistant Commissioner of Income Tax, Union of India.
• The petition challenged the reassessment notices and proceedings initiated by the Revenue for Assessment Year (AY) 2016-17 under the Income Tax Act, 1961.

2. Insolvency Proceedings and Resolution Plan:

• Uttam Galva Metallics Ltd. underwent a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), and a resolution plan was approved by the National Company Law Tribunal (NCLT) on May 6, 2020.
• The resolution plan included a full waiver of all tax and related interest dues for the period prior to the commencement of CIRP.

3. Contested Reassessment Proceedings:

• Despite the resolution plan approval, the Revenue issued notices under Section 148 (income escaped assessment) and Section 142(1) (inquiry before assessment) of the Income Tax Act, 1961.
• The petitioner argued that post-resolution, the company should not be liable for any past dues as all claims were extinguished per the approved resolution plan.

4. Court’s Observations and Judgment:

• The court referred to Section 31(1) of the IBC, which binds all stakeholders, including government authorities, to the terms of the approved resolution plan.
• It cited the Supreme Court judgment in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, which clarified that all claims and dues not part of the resolution plan are extinguished.
• The court ruled that the reassessment proceedings against Uttam Galva Metallics Ltd. were impermissible, as they pertained to a period before the resolution plan's approval.

Acts and Sections Discussed:

• Income Tax Act, 1961:

  • Section 148: Issue of notice where income has escaped assessment.
  • Section 142(1): Inquiry before assessment.

• Insolvency and Bankruptcy Code, 2016:

  • Section 31(1): Makes the approved resolution plan binding on all creditors, including government authorities.

Ratio Decidendi:

The court held that under Section 31(1) of the IBC, an approved resolution plan is binding on all stakeholders, including tax authorities. Consequently, any claims or reassessment for periods before the plan's approval are extinguished, and further proceedings are barred. This ensures that the corporate debtor starts afresh post-resolution, free from past liabilities not included in the resolution plan.