Assessment Pending Prior To Resolution Cannot Be Quantified After Approval Of Resolution Plan: Allahabad High Court
Upasna Agrawal
21 Dec 2024 12:05 PM IST
The Allahabad High Court has held that the resolution applicant cannot be burdened with new claims after approval of a resolution plan.
The bench comprising Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit held that the principle underlying the Insolvency and Bankruptcy Code, 2016 is to give a fresh start to the successful resolution applicant. It held that any action obstructing the aforementioned principle is illegal and beyond the 'Lakshman Rekha' of the Code.
“The argument that an assessment that has been kept pending for a prior period and is quantified subsequent to the approval of the Resolution Plan is an argument in sophistry. If this argument is accepted then all authorities would be in a position to keep assessment/re-assessment pending till completion of the Resolution Plan, and thereafter, culminate the same and saddle the successful Resolution Applicant with an unknown burden. Such an action cannot be countenanced as the same would be an anathema to the fundamental principles of the moratorium provided under the Code.”
Case Background
The petitioner was an erstwhile company which went through insolvency proceedings, wherein the Income Tax Department also put forward its claim. Upon approval of the resolution plan on 02.02.2021, the Department passed an assessment order dated 28.04.2021 under Section 144 read with 144B of the Income Tax Act, 1961. Aggrieved by the order, the petitioner approached the High Court.
Counsel for petitioner submitted that the department was informed of the successful resolution by letter dated 08.03.2021. It was contended that the entire proceedings were without basis in law on account of Section 31 of the Code. It was further submitted that under the resolution plan, all pending proceedings were extinguished.
Counsel for the respondent argued that the department had no notice of the resolution proceedings. It was further contended that the question of fresh proceedings initiated after the moratorium under Section 14 had been imposed has not been raised or answered, and therefore remains res integra.
High Court Verdict
In Uttam Galva Metallics Ltd. and Mr. Subodh Karmakar vs. Assistant Commissioner of Income Tax, Union of India, the Bombay High Court held that no dues for the period prior to the resolution plan could be claimed if not part of the same.
Dealing with the respondent's submissions, the Court observed that the department participated in the resolution process by filing a claim, and had been informed prior by letter dated 08.03.2021. Even if the department was unaware of the proceedings, it was held that the law is clear as to new claims fastened on the resolution applicant.
The Court observed that if the argument of the department regarding claims being kept pending and quantified subsequent to approval of the resolution plan was accepted, any authority could do the same and saddle the resolution applicant with an unknown burden.
The Court held that
“The law cannot be read in a manner wherein the basic structure of the Code is breached by hindering the flow of the same by creation of roadblocks and dams – the underlying principle of the Code is to give a fresh start to the Resolution Applicant. Any new liability being fastened after the approval of the Resolution Plan would inherently and palpably be illegal and go beyond the Lakshman Rekha of the Code.”
Accordingly, the Court quashed the assessment order, granting liberty to the petitioner to challenge penalty proceedings initiated, if any.
Case Title: M/S NS Papers Limited And Another v. Union Of India Through Secretary And Others [WRIT TAX No. - 408 of 2021]
