Delhi High Court Quashes Income Tax Notice Issued Prior To Date Of Approval Of Resolution Plan

The Delhi High Court has quashed the income tax notices and orders issued prior to the date of approval of the resolution plan.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed the notices and orders pertaining to the income tax claims of the respondents or department pertaining to the period much prior to the date of approval of the resolution plan. The notices and orders were issued by the department subsequent to the public announcement under Section 15 of the Code regarding the CIRP process pertaining to the assessee. The public announcement under Section 15 of the Code called for submission of claims by January 21, 2019, but the department did not file any claim till that date or even thereafter; it was only subsequent to approval of the resolution plan that the department issued the assessment order and demand notice, both dated December 12, 2019.

The petitioner/assessee took over the management of a company, namely Albus India Ltd., the erstwhile corporate debtor, in terms of the resolution plan. The plan submitted by the petitioner was accorded statutory approval under Section 31(1) of the Insolvency and Bankruptcy Code by the National Company Law Tribunal, and consequently, Albus India Ltd. became TUF India Ltd., which merged into the assessee operable with effect from April 1, 2021, under the competent authority of the Government of India.

Regarding the commencement of the Corporate Insolvency Resolution Process (CIRP), a public advertisement under Section 15 of the Code was notified, declaring the last date for submissions of claims as January 21, 2019. But until January 21, 2019, or even thereafter, the department opted not to submit any claim. On 02.12.2019, an intimation regarding approval of the resolution plan and change of management of Albus India Ltd. under order dated 05.11.2019 of the Tribunal was communicated to the Assistant Commissioner of Income Tax, Circle-2(2), Delhi, by the Chairman of the Monitoring Committee to implement the approved plan. The department passed an assessment order and demand notice, both dated 12.12.2019, against the assessee qua assessment, raising a tax claim of Rs. 9,71,79,357. An order dated September 10, 2021, under Section 272A(1)(d) and a demand notice was issued by the department by levying a penalty in the sum of Rs. 10,000 against the assessee. The two show cause notices, both dated January 27, 2022, under Sections 270A and 270AAC(1), were served by the department on the assessee, who sent replies claiming that the demands were barred and extinguished consequent upon approval of the resolution plan by the Tribunal.

The department issued a demand notice under Section 156, followed by an order dated March 16, 2022, under Section 270A, levying a penalty against the assessee. Finally, the department issued a demand notice and order, levying a penalty against the assessee.

The assessee contended that all the alleged demands and claims accruing out of pre-CIRP liabilities and obligations of the assessee were rendered infructuous upon approval of the resolution plan under Section 31(1) of the Code.

The department contended the revenue stands on foot different from the rest of the creditors; therefore, the income tax claims of the revenue shall not be affected by the provisions of the Code.

The issue raised was whether the department can justifiably claim and recover from the petitioners any amount of money towards income tax that accrued prior to approval of the resolution plan under Section 31 of the Code.

The court allowed the petition, and the notices and orders were set aside.

Counsel For Petitioner: Vaibhav Mahajan

Counsel For Respondent: Sunil Agarwal

Case Title: TUF Metallurgical Pvt. Ltd. Versus UOI

Citation: 2023 LiveLaw (Del) 1284

Case No.: W.P.(C) 10528/2022

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