Past Tax Claims Against Corporate Debtor Stands Extinguished Consequent To Approval Of Resolution Plan Under IBC: Bombay HC
Since upon the completion of Corporate Insolvency Resolution Process (CIRP), the Assessee has changed hands and commenced under a new ownership and management, the Bombay High Court held that tax proceedings pertain to period prior to the CIRP, and consequent to the approval of the resolution plan, the tax proceedings stand extinguished. The Division Bench of Justice G. S....
Since upon the completion of Corporate Insolvency Resolution Process (CIRP), the Assessee has changed hands and commenced under a new ownership and management, the Bombay High Court held that tax proceedings pertain to period prior to the CIRP, and consequent to the approval of the resolution plan, the tax proceedings stand extinguished.
The Division Bench of Justice G. S. Kulkarni and Justice Somasekhar Sundaresan observed that “provisions outlined in Section 31(1) of the Insolvency and Bankruptcy Code (IBC) stipulates that approval of resolution plan by the adjudicating authority is binding on Central Government and its agencies in respect of any statutory dues arising under any law for the time being in force, thus binding tax authorities and their enforcement actions”.
Facts of the case
The Petitioner-Assessee was admitted into a CIRP by an order of NCLT, and eventually, the company came to be resolved pursuant to a resolution plan finalized by the Committee of Creditors (CoC) u/s 31 of the IBC. The resolution plan, as approved by the NCLT, entails a full waiver of all tax and tax-related interest dues pertaining to the period prior to commencement of the CIRP. Evidently prior to the commencement of the CIRP, the AO carried out search & seizure action against the Vinod Jatia group alleging that certain companies belonging to the Vinod Jatia group had engaged in bogus transactions and had made bogus entries in their books of accounts. Such companies are said to have entered into transactions with the Petitioner.
The AO therefore intimated the Assessee about initiating proceedings u/s 153C along with multiple summons u/s 133(6). This was objected by assessee on the ground that the resolution plan having already been approved, all past claims pertaining to the Petitioner-Assessee including claims raised by the Revenue, stood extinguished. The Assessee's submission was however rejected. After its failure to convince the AO, the Petitioner approached the High Court praying for quashing & setting aside of all the notices and communications received from the Revenue on the ground that Section 31 of the IBC explicitly makes the resolution plan binding on the Revenue.
Observation of the High Court
The Bench found that the tax proceedings against the Vinod Jatia Group pre-date the CIRP and no matter when the liabilities are purported to get crystallised, even if they are allowed to get crystallised, they would relate to the period prior to the approval of the resolution plan of the Petitioner-Assessee, and therefore stand extinguished.
This is why the Supreme Court has clearly ruled that initiation and continuation of proceedings relating to the period prior to the approval of the resolution plan cannot be indulged in, added the Bench.
The Bench opined all dues which are not part of the resolution plan would stand extinguished, and no individual/person would be entitled to initiate or continue proceedings in respect of any claim for dues related to prior of the approval of the resolution plan.
The Revenue's contention that the impugned proceedings relate to liabilities that somehow emerge after the CIRP is wholly misconceived and untenable, as the resolution plan upon its approval brought quietus to all claims pursued by the Revenue against the Assessee for any operation prior to the CIRP, added the Bench.
The Bench also negated the Revenue's stance that the as the tax amount has not yet crystallized, it would be future dues and not past dues.
At the same time, the Bench emphasized that the continuation of existing proceedings and the initiation of new proceedings, relating to operations prior to the approval of CIRP are totally prohibited after the approval of resolution plan.
Hence, concluding that since tax proceedings against the Assessee predate the CIRP, it stands extinguished, and allowed Assessee's petition.
Counsel for Petitioner/ Assessee: Vikram Deshmukh and Siddhi Doshi
Counsel for Respondent/ Revenue: Suresh Kumar
Case Title: Uttam Value Steels Ltd. versus Assistant Commissioner of Income Tax and Ors
Case Number: Writ Petition (L) No. 9420 OF 2022