Delhi High Court held that once a Resolution Plan is approved, all pre-approval claims are barred, thereby prohibiting reassessment actions under Section 144B of the Income Tax Act, 1961.
Delhi High Court Division Bench comprising Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav was hearing a petition and observed that once a Resolution Plan is approved under Section 31 of the Insolvency and Bankruptcy Code, 2016, all pre-approval claims, including tax assessments, are barred, binding all creditors and authorities, thereby prohibiting reassessment actions under Section 144B of the Income Tax Act, 1961.
The petitioner challenged the notices issued under Section 144B of the Income Tax Act, 1961, for the assessment year 2021-22, and the subsequent notices under Sections 143(2) and 142(1) of the Act. The primary contention was based on Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC), arguing that once a Resolution Plan is approved, as upheld by the Supreme Court in Ghanashyam Mishra and Sons Pvt. Ltd vs. Edelweiss Asset Reconstruction Company Ltd., all prior claims are extinguished, depriving authorities of jurisdiction to reassess income for periods before the plan's approval.
The case's salient facts reveal that the proceedings before the NCLT began on November 12, 2020, following a petition under Section 7 of the IBC. The Corporate Insolvency Resolution Process (CIRP) commenced, and the Resolution Professional (RP) notified the Income Tax authorities, requesting them to lodge claims per the IBC. The petitioner filed their return for AY 2021-22 on March 10, 2022, reporting a net loss. The NCLT approved the Resolution Plan on March 15, 2022, but the respondents initiated proceedings under Section 144B later on June 27, 2022.
The court held that any claims pertaining to periods before the approval of the Resolution Plan are barred by Section 31 of the IBC, binding all creditors, including government authorities. The court emphasized that Section 144B actions contradict the clean slate principle advocated by the IBC. The court also dismissed the distinction made by the Madras High Court between voluntary and involuntary insolvency, asserting that the IBC provides uniform protection irrespective of the nature of insolvency initiation.
Consequently, the court quashed the impugned notices dated June 27, 2022, June 28, 2022, and September 5, 2022, upholding the petitioner's challenge and reaffirming the binding nature of an approved Resolution Plan under the IBC.
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