Income tax proceedings relating to the period prior to the approval of the resolution plan infructuous – Supreme Court dismissed Special Leave Petition (SLP) of Revenue
Income tax proceedings relating to the period prior to the approval of the resolution plan infructuous as upon completion of the CIRP, the assessee completely changes hands and begin on a clean slate under new ownership and management. Supreme Court dismisses Special Leave Petition of the Revenue.
ABCAUS Case Law Citation:
4660 (2025) (07) abcaus.in SC
the assessee was admitted into a CIRP by an order passed by the National Company Law Tribunal, New Delhi (“NCLT”). Various processes under the IBC were undertaken. Eventually, the company came to be resolved pursuant to a resolution plan finalized by the Committee of Creditors, and approved by the NCLT under Section 31 of the IBC by an order in the year 2020. The resolution plan, as approved by the NCLT, entailed a full waiver of all tax and tax-related interest dues pertaining to the period prior to commencement of the CIRP.
In the year 2021 i.e., well after the resolution plan was approved, the Revenue issued a notice under Section 148 of the Act seeking to initiate reassessment of the Petitioner-Assessee’s income for AY 2016-17, on the premise that income chargeable to tax had escaped assessment.
In the reasons for initiating the said reassessment, it was stated that the original assessment of the assessee had been completed accepting the returned loss. Thereafter, the Revenue had conducted survey proceedings against some companies and had reason to believe that dealings by the assessee with those could have led to income escaping assessment.
In response, the assessee filed objections asserting that after approval of a resolution plan under Section 31 of the IBC, the assessee had begun on a new slate with all past claims and dues being extinguished in terms of the resolution plan. The assessee made submissions on the import of Section 31 of the IBC and various case law interpreting the IBC.
The Revenue passed order, rejecting all the objections raised by the assessee and asserted that while recovery may be impermissible, prosecution of the erstwhile management and recovery from other persons would still be permissible.
Aggrieved by the rejection of the objections raised, the assessee filed a Writ Petition before the High Court praying for quashing and setting aside of the Impugned Proceedings including all notices and communications received from the Revenue.
The Hon’ble High Court observed that provisions of section 31(1) of IBC clearly shows that once the Adjudicating Authority (the NCLT) approves the resolution plan, it would be binding on, among others, the Central Government and its agencies in respect of payment of any statutory dues arising under any law for the time being in force. It is now trite law that the effect of resolution of a corporate debtor is that the terms of resolution bind tax authorities and their enforcement actions. Such a position in law was declared in numerous judgments of the Supreme Court.
The Hon’ble High Court observed that in view of the law laid by the Hon’ble Supreme Court, it is crystal clear that once a resolution plan is duly approved under Section 31(1) of the IBC, the debts as provided for in the resolution plan alone shall remain payable and such position shall be binding on, among others, the Central Government and various authorities, including tax authorities. All dues which are not part of the resolution plan would stand extinguished and no person would be entitled to initiate or continue any proceedings in respect of any claim for any such due. No proceedings in respect of any dues relating to the period prior to the approval of the resolution plan can be continued or initiated.
The High Court opined that the conduct of such proceedings would be directly in conflict with the law declared by the Hon’ble Supreme Court, which makes it clear that continuation of existing proceedings and initiation of new proceedings that relate to operations prior to the CIRP are totally prohibited after the approval of the resolution plan. Consequently, nothing in the Impugned Proceedings can legitimately survive.
The Hon’ble High Court opined that since the reassessment proceedings pre-date the CIRP. They would relate to the period prior to the approval of the resolution plan of the assessee, and therefore stood extinguished. This is why the Supreme Court has clearly ruled that initiation and continuation of proceedings relating to the period prior to the approval of the resolution plan cannot be indulged in. Upon completion of the CIRP, the Petitioner-Assessee has completely changed hands and has begun on a clean slate under new ownership and management.
Accordingly, the High Court quashed and set aside all the notices and communications issued by the Revenue in connection with the Impugned Proceedings.
Not satisfied by the dismissal of appeal by the High Court, the Revenue approached the Hon’ble Supreme Court by filing a Special Leave Petition (SLP) challenging the order of the High Court.
However, the Apex Court dismissed the SLP with following observation,
“We are not inclined to interfere with the impugned judgment and order of the High Court; hence, the Special Leave Petition is dismissed.”
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