2024 (12) TMI 1116 - HC - Income Tax

Reassessment proceedings initiated against company insolvent - HELD THAT -On perusal of the documents brought before the Court and considering the submissions made on behalf of the parties this Court is of the view that the initiation of reassessment proceedings u/s 148A (b) and 148A (d) of the Income Tax Act 1961 and the subsequent issuance of the notice u/s 148 were in violation of the statutory preconditions under the Act. Section 14 of the IBC imposes a moratorium that prohibits proceedings against a company undergoing Corporate Insolvency Resolution Process (CIRP). Furthermore the resolution plan approved by the National Company Law Tribunal (NCLT) has overriding authority as per Section 238 of the IBC and expressly precludes reassessment or revision proceedings for the period prior to the effective date stipulated in the plan. The Court holds that the reassessment proceedings initiated against the petitioner are without jurisdiction arbitrary and unsustainable in law. Consequently the writ petition is allowed and the impugned notices and orders issued under Sections 148A (b) 148A (d) and 148 of the Income Tax Act along with all consequential proceedings are quashed.

Issues:
1. Jurisdiction of reassessment proceedings under the Income Tax Act, 1961 in light of the Insolvency and Bankruptcy Code, 2016.
2. Compliance with statutory requirements and legal principles in initiating reassessment proceedings.
3. Effect of a resolution plan approved by the National Company Law Tribunal on tax proceedings.
4. Allegations of suspicious transactions and the genuineness of transactions.
5. Consideration of objections raised by the petitioner in response to the notices issued.
6. Lawfulness of reassessment proceedings and adherence to legal safeguards.

Analysis:
The petitioner invoked the writ jurisdiction of the High Court, alleging arbitrary, high-handed, and unlawful actions in the reassessment proceedings initiated by the respondent authorities. The petitioner contended that the respondent authorities failed to adhere to statutory requirements mandated under the Income Tax Act and acted in an arbitrary and illegal manner. The petitioner argued that the provisions of the Insolvency and Bankruptcy Code, 2016, have an overriding effect over the Income Tax Act and that the reassessment proceedings were impermissible due to the moratorium imposed under the IBC and the resolution plan approved by the NCLT. The petitioner emphasized that no reassessment or revision proceedings could be initiated for the period prior to the effective date stipulated in the resolution plan, as per Serial No. 36 under the heading "Taxation." The petitioner also highlighted that the respondent authorities disregarded the binding nature of the NCLT's order and the provisions of the approved resolution plan, constituting a violation of judicial discipline and legal safeguards provided under the IBC.

The respondent authorities contended that reassessment proceedings were initiated based on credible information regarding suspicious transactions allegedly involving shell companies. The respondents argued that the Resolution Plan approved by the NCLT did not prohibit reassessment proceedings initiated before the "Appointed Date" and that the petitioner had not demonstrated the existence of an "Effective Date" as defined in the Resolution Plan. The respondents relied on a judgment from the Madras High Court, emphasizing that proceedings under the IBC cannot dilute the statutory rights of the Income Tax Department under the Income Tax Act. The respondents asserted that the reassessment proceedings were lawfully initiated and did not contravene the provisions of the IBC or the approved Resolution Plan.

Upon perusal of the documents and submissions, the Court held that the initiation of reassessment proceedings and the subsequent issuance of notices were in violation of statutory preconditions under the Income Tax Act. The Court noted that the moratorium under Section 14 of the IBC prohibited proceedings against a company undergoing CIRP and that the resolution plan approved by the NCLT had overriding authority, precluding reassessment or revision proceedings for the period before the effective date. Citing a relevant case law, the Court emphasized the binding nature of approved resolution plans and held that the reassessment proceedings were without jurisdiction, arbitrary, and unsustainable in law. Consequently, the Court allowed the writ petition, quashed the impugned notices and orders, and disposed of all pending applications without costs.

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