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2025 (5) TMI 260 - HC - Income TaxReopening of assessment against company under insolvency - Jurisdiction or authority to reopen or assess income for any period prior to the approval of the Resolution Plan - HELD THAT - On perusal of the order we are surprised to note that the objections regarding the jurisdiction of the authority to continue the proceeding has not been dealt with by the assessing officer and proceeded to make certain observations on merits and held the transaction to be a bogus transaction and that it remained unexplained. The manner in which the assessing officer has passed the order dated 24.4.2023 has to be necessarily deprecated. The purpose of issuing a show cause notice is to afford an opportunity to the assessee to explain and if the assessee has made an explanation the assessing authority is duty bound to consider the explanation and deal with the points raised in the explanation and then proceed to record his conclusion. This basic principle has been lost sight of by the assessing officer while passing the order dated 24.4.2023. This ground would be more than sufficient to quash the said order and the entire proceeding. Since submissions were made on either side on the other issue as well we have examined the other contentions. Whether the assessing officer could have continued the proceeding on and after the admission of the application by NCLT and the public announcement thereof and after the NCLT has approved the resolution plan - We find the answer in the decision of Ghanashyam Mishra 2021 (4) TMI 613 - SUPREME COURT wherein held that once the resolution plan is duly approved by the adjudicating authority under sub- section (1) of section 131 the claims as directed in the resolution plan shall stand frozen and will be binding on the corporate debtor and it s employees members creditors including the Central Government any State Government or any local authority guarantors and other stakeholders. As on the date of approval of the resolution plan by the adjudicating authority all such claims which are not a part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim which is not part of the resolution plan. The decision of the Hon ble Supreme Court is clearly apply to the facts of the case on and after approval of the resolution plan which was done by NCLT on 11.8.2023 the assessing authority could not have proceeded further and on this ground also the order impugned in the writ petition is liable to be set aside. As provision of IBC shall override the provision of the Income Tax Act. In this regard we refer to the decision of the Hon ble Supreme Court in Monnet Ispat And Energy Ltd. 2018 (8) TMI 1775 - SC ORDER wherein the Hon ble supreme Court has held that going by section 238 of IBC it is obvious that the court will override anything inconsistent contained in any other enactment including the Income Tax Act. Thus for all the above reasons we hold that the proceeding initiated by the respondent/department commencing from the issuance of notice u/s 148A(b) of the Act and culminating in the order passed under section 148A(d) of the Act and the consequential notice issued u/s 142(1) of the Act should ex facie without jurisdiction and unsustainable in law.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Locus Standi of the Corporate Debtor Post-Resolution Plan Approval Relevant Legal Framework and Precedents: The Court referred to the Supreme Court decision in Ghanashyam Mishra & Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited, which clarified the locus standi of a corporate debtor post-approval of a resolution plan by the NCLT. Court's Interpretation and Reasoning: The Court noted that the resolution applicant steps into the shoes of the corporate debtor and takes over its management. However, the corporate debtor itself retains locus to challenge proceedings, as the approval of the resolution plan does not divest the corporate debtor of its right to seek judicial remedies. Key Findings: The Department's objection that the appellant corporate debtor lacked locus standi was rejected based on the Supreme Court's clear ruling that the corporate debtor can maintain writ petitions despite the resolution plan approval. Conclusion: The appellant has locus standi to file writ petitions challenging the reassessment proceedings. Issue 2: Validity of Income Tax Proceedings Under Section 148A(d) Post-Insolvency Admission and Moratorium Relevant Legal Framework and Precedents: The Insolvency and Bankruptcy Code, 2016, particularly sections 227, 239(2)(zk), 131(1), and 238, and the Income Tax Act, 1961, including sections 148A(b), 148A(d), 142(1), and 178(6). The Supreme Court's ruling in Ghanashyam Mishra was pivotal, establishing that once a resolution plan is approved, claims not included in the plan are extinguished and no proceedings can be initiated or continued against the corporate debtor. Court's Interpretation and Reasoning: The Court observed that the moratorium under IBC prohibits initiation or continuation of proceedings against the corporate debtor during insolvency resolution. The notices under Section 148A(b) were issued after the moratorium commenced, and the reassessment order under Section 148A(d) was passed after the resolution plan was approved. The Court held that such proceedings are ex facie without jurisdiction. Key Evidence and Findings: The timeline showed that the NCLT admitted the insolvency application on 8th October 2021, public announcement was made on 11th October 2022, notices under Section 148A(b) were issued in March 2023, and the resolution plan was approved on 11th August 2023. Despite objections and requests to drop proceedings, the Department proceeded with reassessment. Application of Law to Facts: The Court applied the Supreme Court's principle that claims not included in the approved resolution plan stand extinguished, and no proceedings can continue. The Department's continuation of reassessment proceedings post-approval violated this principle and the moratorium under IBC. Treatment of Competing Arguments: The Department relied on a Madras High Court decision distinguishing voluntary and non-voluntary insolvency to justify continuation of proceedings. The Court rejected this distinction, holding that the IBC does not differentiate between voluntary and non-voluntary insolvency for the purpose of moratorium and overriding effect. The Division Bench of the Delhi High Court's contrary view was accepted. Conclusion: The reassessment proceedings initiated and continued by the Department after the insolvency admission and resolution plan approval were without jurisdiction and unsustainable in law. Issue 3: Consideration of Objections by the Assessing Officer Relevant Legal Framework: Principles of natural justice and procedural fairness require that the assessing officer consider and deal with the objections raised by the assessee before passing an order. Court's Interpretation and Reasoning: The Court noted that the assessing officer failed to address the jurisdictional objections raised by the appellant and instead proceeded to make merit-based observations, including characterizing transactions as bogus without considering the explanations. Key Findings: This failure to consider the appellant's objections amounted to a breach of procedural fairness and was a sufficient ground to quash the reassessment order. Conclusion: The reassessment order under Section 148A(d) was liable to be quashed due to non-consideration of objections. Issue 4: Overriding Effect of the Insolvency and Bankruptcy Code Over Income Tax Act Relevant Legal Framework: Section 238 of the IBC provides that its provisions have overriding effect notwithstanding anything inconsistent in any other law. Section 178(6) of the Income Tax Act acknowledges that IBC provisions override contrary provisions in the Income Tax Act. Court's Interpretation and Reasoning: The Court emphasized that the IBC's overriding effect precludes continuation of any proceedings under the Income Tax Act inconsistent with the moratorium and resolution plan provisions of the IBC. Key Evidence: Reference was made to the Supreme Court's decision in PCIT vs. Monnet Ispat and Energy Ltd., which upheld the overriding effect of the IBC over other enactments. Conclusion: The IBC provisions override the Income Tax Act provisions, rendering the reassessment proceedings invalid post-approval of the resolution plan. 3. SIGNIFICANT HOLDINGS "The resolution applicant steps into the shoes of the corporate debtor. Such finding in this respect would also not be sustainable in law." "Once the resolution plan is duly approved by the adjudicating authority under sub-section (1) of section 31, the claims as directed in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders." "On the date of approval of the resolution plan by the adjudicating authority, all such claims, which are not a part of the resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim, which is not part of the resolution plan." "The purpose of issuing a show cause notice is to afford an opportunity to the assessee to explain and if the assessee has made an explanation, the assessing authority is duty bound to consider the explanation and deal with the points raised in the explanation and then proceed to record his conclusion. This basic principle has been lost sight of by the assessing officer." "In terms of section 238 of the Insolvency and Bankruptcy Code, 2016, the said provision states that the provision of IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of such law." "A conjoint reading of section 238 of IBC and section 178(6) of the Income Tax Act will clearly show that the provision of IBC shall override the provision of the Income Tax Act." "The proceeding initiated by the respondent/department commencing from the issuance of notice under section 148A(b) of the Act and culminating in the order passed under section 148A(d) of the Act and the consequential notice issued under section 142(1) of the Act should ex facie be without jurisdiction and unsustainable in law." Final determinations:
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