Resolution Plan Approved Under IBC, Income Tax Reassessment Not Sustainable: Delhi High Court

The Delhi High Court has quashed the income tax assessment order and held that the statutory injunct which would operate in respect of any claim which may pertain to a period prior to the Resolution Plan being approved.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that if a company is unable to pay its debts, which should include its statutory dues to the Government and/or other authorities and there is no plan which contemplates dissipation of those debts in a phased manner, uniform proportional reduction, the company would necessarily have to be liquidated and its assets sold and distributed in the manner stipulated in Section 53 IBC.

The petitioner/assessee was incorporated as a limited company and is in the business of manufacturing, processing, importing and exporting steel products, tubes, pipes and other allied articles. The State Bank of India, asserting itself to be a financial creditor, filed an application under Section 7 of the IBC. The petition ultimately came to be admitted by the National Company Law Tribunal when an Interim Resolution Professional came to be appointed and a moratorium enforced in terms of Section 14 of the IBC. The Additional Commissioner of Income Tax was duly apprised of the developments in terms of a letter.

The NCLT approved the plan. The factum of approval of the aforenoted Resolution Plan as well as the order of the NCLT was duly communicated to the respondents by the petitioner on 04 December 2020.

The reassessment notice came to be issued. The petitioner submitted its reply on 26 May 2021. The department had issued notices under Section 142(1) dated 07 September 2021 and 17 December 2021 directing the petitioner to upload its Return of Income online and to furnish all the documents and the information sought in the aforementioned notices. The petitioner additionally appears to have taken various preliminary objections to the proposed reassessment as would be evident from its communications.

The petitioner has challenged the notice issued under Section 148 of the Income Tax Act, 1961 and relating to Assessment Year 2014-15. A challenge is additionally laid to an order disposing of the objections which had been submitted by it.

Prior to the institution of the writ petition, the petitioner had instituted the writ petition assailing the Section 148 notice which came to be disposed of by the Court with a direction for the department to consider and dispose of the various objections which had been furnished by the writ petitioner before proceeding to commence the reassessment exercise.

The primary ground on which the action of reassessment is assailed is the approval of a Resolution Plan under the statutory regime constructed in terms of the Insolvency and Bankruptcy Code, 2016 and the statutory injunct which would operate in respect of any claim which may pertain to a period prior to the Resolution Plan being approved.

The petitioner contended that the department's stand denuded of jurisdiction or authority to commence any action for reassessment pertaining to a period prior to the approval of the Resolution Plan by virtue of Section 31 of the IBC.

The department contended that the department was clearly constrained from submitting any claims in the course of the CIRP since at that time assessment proceedings were yet to be concluded. The claim of the department cannot be brushed aside or ignored merely because a Resolution Plan has come to be approved under the IBC.

The court while allowing the petition held that once the resolution plan is approved, it shall be binding on the corporate debtor and its employees, members, and creditors, which includes the Central Government, State Government, Local Authority to whom a debt in respect of payment of dues arising under any law for the time being in force and also on authorities to whom statutory dues are owed.

Counsel For Appellant: Kavita Jha

Counsel For Respondent: Abhishek Maratha

Case Title: Asian Colour Coated Ispat Limited Versus ACIT

Citation: 2024 LiveLaw (Del) 892

Case No.: W.P.(C) 3498/2022

Click Here To Read The Order