Income Tax Act, 1961 - Sections 147, 144B, and 148 - Insolvency and Bankruptcy Code, 2016 - The assessee underwent Corporate Insolvency Resolution Process (CIRP), with a resolution plan approved by the National Company Law Tribunal (NCLT) on 05.10.2021. Post-approval, the Income Tax Department issued a notice under Section 148 for AY 2013-14, seeking to reopen the assessment, citing alleged non-disclosure of income and unsecured loans. The assessee objected, arguing that the approved resolution plan extinguished all prior claims, including tax liabilities - Whether the reassessment proceedings and demand raised under Sections 147 and 144B for a period preceding the approval of the CIRP resolution plan are valid, given the extinguishment of claims under the Insolvency and Bankruptcy Code - HELD - As per the Insolvency and Bankruptcy Code, once a resolution plan is approved by the NCLT, all previous liabilities, including statutory dues like income tax, stand extinguished, unless specifically addressed in the resolution plan. Referring to the Supreme Court's judgment in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., the court emphasized that no claims related to periods prior to the resolution plan's approval can be pursued against the corporate debtor. The court noted that the tax department’s attempt to reopen the assessment and raise demands conflicted with the principles established under the IBC, where all such claims are deemed settled through the resolution process - The High Court quashed the reassessment order under Section 147 and the demand notice under Section 156 for AY 2013-14. The court ruled in favor of the petitioner, GSL Nova Petrochemicals Ltd., affirming that the tax liabilities for the pre-CIRP period were extinguished by the NCLT-approved resolution plan. The petition was allowed, and the rule was made absolute
2024-VIL-191-GUJ-DT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 10925 of 2022
Date: 01.10.2024
GSL NOVA PETROCHEMICALS LIMITED
Vs
NATIONAL FACELESS ASSESSMENT CENTRE
For the Petitioner No. 1: MR TUSHAR HEMANI, LD. SR. ADV FOR MS VAIBHAVI K PARIKH (3238)
For the Respondent No. 1: MR DEV PATEL, LD. ADV FOR MR. VARUN K. PATEL (3802)
CORAM
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
HONOURABLE MRS. JUSTICE MAUNA M. BHATT
ORAL JUDGMENT
(PER: HONOURABLE MRS. JUSTICE MAUNA M. BHATT)
1. Heard learned Senior Advocate Mr. Tushar Hemani for learned advocate Ms. Vaibhavi K. Parikh for the petitioner and learned advocate Mr. Dev Patel for learned Senior Standing Counsel Mr. Varun K. Patel for the respondent.
2. Rule, returnable forthwith. Learned advocate Mr. Dev Patel waives service of notice of rule for and on behalf of the respondent.
3. This petition under Article 226 of the Constitution of India is filed challenging the Assessment Order under Section 147 read with Section 144B of the Income Tax Act, 1961 (for short ‘the Act’) dated 29.03.2022 and also the demand notice of even dated under section 156 of the Act, for the Assessment Year 2013-14.
4. The brief facts are as under:
4.1. The petitioner in this case is a Company incorporated under the provisions of the Companies Act, 1956. The Corporate Insolvency Resolution Process (for short ‘the CIRP’) under the Insolvency and Bankruptcy Code, 2016 (for short ‘the Code’) was initiated in the case of petitioner before the National Company Law Tribunal (for short ‘the NCLT’) and the Resolution Plan by Mr.Sunil Kataria and other was approved by Committee of Creditors.
4.2. The above referred Resolution Plan came to be approved by the NCLT vide order dated 05.10.2021 passed under the provisions of the IBC Code in IA No.197 (AHM) of 2021 in CP (IB) 770 of 2019. It is the case of the petitioner that thus, all the claims which have not been dealt with during the CIRP period or filed within the statutory period stood extinguished pursuant to the order passed by the NCLT.
4.3. subsequent thereto, IA No.793 of 2021 in CP(IB) No.770/NCLT/AHM/2019 was moved for minor modification in sub-clause XIII of clause 17 of the order of the NCLT dated 05.10.2021 and consequently, the NCLT passed an order dated 16.12.2021 in IA No.793 of 2021 in CP(IB) No.770/NCLT/AHM/2019 whereby subclause XIII of clause 17 of the order dated 05.10.21 was replaced.
4.4. Meanwhile, the case of the petitioner for the year under consideration was reopened by the respondent by issuance of notice dated 31.03.2021 under Section 148 of the Act. The petitioner, vide letter dated 21.02.2022 (filed on 23.02.2022) raised objections against the reopening. It was stated in the reply that the CIRP has been initiated in the case of the petitioner and the resolution plan has also been approved by the NCLT. Therefore, neither any notice could have been issued by the respondent nor any demand could have been raised by the respondent for the year under consideration and in view of the same, the respondent was requested to drop the reassessment proceedings.
4.5. However, the respondent vide order dated 20.03.2022 disposed of the objections raised against reopening and inter alia held that reopening is justified.
4.6. Subsequently, the respondent issued a show-cause notice dated 25.03.2022 calling upon the petitioner to show cause as to why variation proposed in the draft assessment order should not be made and the assessment should not be completed accordingly.
4.7. The petitioner, vide letter dated 27.03.2022 again submitted that the CIRP has been initiated in the case of the petitioner and the resolution plan has also been approved by the NCLT. Accordingly, neither any notice could have been issued by the respondent nor any demand could have been raised by the Respondent for the year under consideration.
4.8. The Respondent framed the assessment for the year under consideration under Section 147 read with Section 144B of the Act vide order dated 29.03.2022 determining total income of the petitioner at Rs. 1,35,54,576/-. Consequently, demand of Rs.4,61,73,520/- came to be raised.
4.9. The petitioner being aggrieved and dis-satisfied with Assessment Order passed under Section 147 read with Section 147 if the Act as well as the demand notice for the Assessment Year 2013-14 filed this petition.
5.1. Learned Senior Advocate Mr.Tushar Hemani for the petitioner submitted that in view of the settled legal position and in view of resolution plan being approved by order dated 05.10.2021, all past dues of the Income Tax Department got extinguished and therefore, the Assessment Order passed under Section 147 read with Section 144B of the Act as well as the demand notice issued for the Assessment Year 2013-14 deserves to be quashed and set aside.
5.2. In support of his submissions, he relied upon decision of Hon’ble Supreme Court in the case of Ghanashyam Mishra & Sons Private Limited versus Edelweiss Asset Reconstruction Company Limited & Ors reported in (2021) 9 SCC 657.
6. On the other hand, opposing the petition, learned advocate Mr.Dev Patel submitted that the re-assessment notice was issued based on the information received by the assessing officer from the investigation wing that assessee had received accommodation entry of Rs. 1,35,54,576/- as unsecured loan from various parties. On account of not full and true disclosure by the assessee, the income chargeable to tax had escape assessment and therefore, notice under section 148 was rightly issued for the Assessment Year 2013- 14. It was submitted that in view of clear statutory provision, the powers of the respondent cannot be curtailed when procedure in accordance with law has been followed. He further submitted that the decision relied upon by the petitioner in case of Ghanashyam Mishra (Supra) is with regard to extinguish of the claim after approval of resolution plan by NCLT and this being not the recovery proceedings, the decision would not be applicable.
7. Considering the submissions made on behalf of both the sides and upon perusal of the record, it is noticed that pursuant to insolvency proceedings initiated under the Code, a resolution plan was approved by the Tribunal. It is also on record that the claims lodged by various parties were verified and admitted in the proceedings before NCLT. After consideration of the claims by all concerns the plan was approved. In the decision of Hon’ble Supreme Court in case of Ghanashyam Mishra (Supra) it is held as under:
“102. NCLT found, that by email dated 6.1.2018, EARC had submitted its claim in Form ‘C’ for an amount of Rs.648,89,62,395/-. In response to the said email, RP sought a clarification, as to whether the corporate guarantee had been invoked by the applicant. RP had not received any response till 21.2.2018 from EARC. Despite repeated requests made by RP, EARC did not respond to the query made by RP. From the record placed before NCLT, it was clear, that EARC had not invoked the corporate guarantee. NCLT therefore posed a question to itself, as to whether an uninvoked corporate guarantee could be considered as matured claim of the applicant. NCLT found, that once the moratorium was applied under Section 14 of I&B Code, EARC was prevented from invoking the corporate guarantee. NCLT further found, that the OMML’s guarantee had not been invoked by EARC till the date of completion of CIRP process and once the moratorium was imposed, it could not invoke the corporate guarantee. NCLT therefore found, that there is no illegality or irregularity in not admitting the claim of EARC.”
8. Thus, in view of above clear provisions of law no person would be entitle to initiate or continue any proceedings in respect of any claim for any dues relating to the period prior to approval of resolution plan. In view of approval of resolution plan, all liabilities of all stakeholders including that of Government/ Statutory Authority shall stand extinguished after approval of the resolution plan. We therefore, deem it appropriate to quash and set aside the Assessment Order passed under Section 147 read with Section 144B of the Act as well as the demand notice issued for the Assessment Year 2013-14. The petition is accordingly allowed. Rule is made absolute. No orders as to cost.
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