Notice U/S 263 Of Income Tax Act Cannot Be Issued By Authority After Approval Of Resolution Plan U/S 31 Of IBC: Gujarat High Court

Brief Facts:

Amw Auto Component Limited (Petitioner) filed the return of income on 30.11.2015 for the Assessment Year 2015-16, declaring loss of Rs. 36,52,09,196/-.

The Petitioner was subjected to the insolvency proceedings under the Code, wherein, a Corporate Insolvency Resolution Process (“CIRP”) was initiated by the Indian Overseas Bank under Section 7 of the Code, which was admitted by the Adjudicating Authority by order dated 01.09.2020.

Further, under the CIRP, the Resolution Plan of Steel Wheels Limited for the revival of the Petitioner was approved by the Hon'ble Tribunal vide order dated 12.10.2023 under Section 30(6) of the Code. The said Resolution Plan provided for the waiver and extinguishment of all the unassessed/assessed tax liabilities for the period prior to theNational Company Law Tribunal (NCLT) approval date.

Principal Commissioner Of Income Tax Rajkot 1 (Respondent) has issued the impugned notice dated 13.01.2025, under Section 263 of Income Tax Act, 1961 (“the Act”). seeking to revise the assessment order dated 06.03.2023 for the Assessment Year 2015 16.

The above notice has been challenged in the present petition.

Contentions:

The Petitioner submitted that on the approval of the Resolution Plan under Section 31 of the Code, all dues of the Corporate Debtor except those which have been specifically provided for in the Resolution Plan would stand extinguished in terms of the provisions of the Code.

Observations:

The court noted the Resolution Plan which was approved by the Adjudicating Authority under section 31 of the Code and observed that all tax liabilities, assessed and unassessed under the Income Tax Act, 1961 “shall stand waived and extinguished” after the approval of the Resolution Plan.

The Supreme Court in The Committee of Creditors of Essar Steel Ltd. Vs. Satishkumar Gupta (2020) held that a successful resolution applicant cannot be burdened with undecided claims after the acceptance of their resolution plan as this would create uncertaintly in the amount to be paid by the SRA and disrupt the effetive takeover of the business of the corporate debtor.

Similarly, the Supreme Court in Ghanshyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Ltd. (2021) held that after the approval of the Resolution Plan by the Adjudicating Authority, all claims not included in the plan are extinguished and no further proceedings can be initiated or continued regarding such claims.

The Court in the above case further held that the Amendment Act of 2019 to section 31 of the code is clarificatory and applies retrospectively from the enactment of the Code. Consequently all dues including statutory dues owed to the government or local authorities if not part of the resolution plan are extinguished and cannot be pursued.

The court concluded that when all tax liabilities were extinguished upon approval of the Resolution Plan on 12 October 2023, the Respondents had no basis to issue the impugned notice under section 263 of the Income Tax Act on 13 January 2025 seeking to revise the Assessment Order dated 6 March 2023 for the Assessment Year 2015-2016.

Accordingly, the petition was allowed and the impugned notice was set aside.

Case Title: AMW Auto Component Limited Versus Principal Commissioner Of Income Tax Rajkot 1

Case Number: R/Special Civil Application No. 1593 Of 2025

Judgment Date:11/03/2025

Mr B S Soparkar- For The Petitioner(S) No. 1

Karan G Sanghani- For The Respondent(S) No. 1

Click Here To Read/Download The Order