Manpreet Estates LLP Vs ACIT (ITAT Mumbai Bench)
Revenue Slept Through the Resolution Plan & Woke Up With a Reassessment Order: Unclaimed Tax Dues Stand Extinguished Under IBC – ITAT Mumbai
Summary: The assessee, Manpreet Estates LLP, challenged the reassessment framed u/s 143(3) r.w.s. 147, principally contending that the proceedings were initiated and completed despite the subsistence of the Corporate Insolvency Resolution Process [CIRP] under the Insolvency and Bankruptcy Code, 2016.
The reassessment had resulted in an addition of ₹4.50 crore u/s 68 r.w.s. 115BBE. According to the AO, the assessee had failed to establish the nature and source of the amount credited in its books. The assessee explained that the amount represented consideration received on sale of property, which had been wrongly reflected in the books as advances received. It also expressed its willingness during the reassessment proceedings to offer the amount as business income after deducting the corresponding cost incurred.
However, the assessee raised a more fundamental jurisdictional objection. The contention was that the reassessment proceedings themselves could not survive in view of the provisions of the IBC and the resolution plan approved by the NCLT.
The CIRP against the assessee had commenced on 24.11.2023 pursuant to an order of the NCLT, Mumbai Bench. Once the CIRP commenced, the statutory moratorium contemplated u/s 14 of the IBC came into operation. Despite this, the AO issued notice u/s 148A on 02.05.2024 seeking to reopen the assessment for AY 2020-21.
Meanwhile, a resolution plan submitted by Wadhwa Group Holdings Private Limited was placed before the NCLT. The NCLT approved the resolution plan by its order dated 07.10.2024. Nevertheless, the income-tax proceedings continued and the AO ultimately passed the reassessment order on 22.03.2025, much after the resolution plan had already received statutory approval.
The assessee argued that the initiation of reassessment during the moratorium was itself legally unsustainable. It was further submitted that once the resolution plan had been approved, all claims relating to the pre-CIRP period which did not form part of the approved plan stood extinguished by operation of law.
Another significant objection was that, upon commencement of the CIRP, the management of the assessee vested in the Resolution Professional [RP]. Therefore, all statutory notices were required to be served upon the RP. Failure to serve the notices upon the person legally authorised to represent the corporate debtor went to the root of the reassessment proceedings.
Most importantly, the Income-tax Department had admittedly not lodged any claim before the RP in respect of the proposed income-tax liability for AY 2020-21. The tax claim was therefore not included in the resolution plan approved by the NCLT.
The assessee relied upon the Supreme Court judgment in Ghanashyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [126 taxmann.com 132 (SC)]. The Supreme Court had authoritatively held that once a resolution plan is approved u/s 31(1) of the IBC, the claims provided in the plan stand frozen and become binding upon the corporate debtor, its employees, members, creditors, guarantors and all other stakeholders, including the Central Government, State Governments and local authorities.
On the date of approval of the resolution plan, every claim which does not form part of the plan stands extinguished. Thereafter, no person or authority is entitled to initiate or continue proceedings in respect of such an omitted claim.
The Supreme Court had further clarified that the 2019 amendment to section 31 of the IBC was clarificatory and declaratory in nature. Consequently, statutory dues payable to the Central Government, State Government or any local authority also stand extinguished if they are not included in the approved resolution plan.
The assessee also relied upon the Bombay High Court decision in Alok Industries Ltd. v. ACIT [161 taxmann.com 285 (Bom.)]. The High Court held that, upon approval of a resolution plan, claims of governmental authorities, including income-tax dues, stand fully and finally settled in accordance with that plan. Reassessment proceedings initiated after the approval of the resolution plan in respect of a period prior to the closing date were therefore invalid and liable to be quashed.
The Tribunal noticed that the NCLT’s order approving the resolution plan contained a specific clarification based upon the Supreme Court’s ruling in Ghanashyam Mishra. It declared that all claims which were not part of the resolution plan would stand extinguished and that no person would thereafter be entitled to initiate or continue proceedings in respect of such claims.
In the present case, it was an admitted position that the Revenue had not filed any claim before the NCLT or the RP. The income-tax demand arising from the reassessment was therefore not part of the approved resolution plan.
The Tribunal accordingly held that, by virtue of the Supreme Court judgment and the final resolution plan approved by the NCLT, the reassessment proceedings stood extinguished. The reassessment framed for AY 2020-21 and the consequential demand became non-operational and could not survive.
Having decided the matter on this foundational issue, the Tribunal did not find it necessary to adjudicate the merits of the addition of ₹4.50 crore u/s 68 r.w.s. 115BBE. The assessee’s appeal was accordingly allowed.
Author’s Comment
The decision sends a clear message to the Revenue: IBC does not permit a statutory creditor to remain outside the insolvency process and thereafter recover its dues from the resurrected corporate debtor. If the Department has a claim relating to the pre-CIRP period, it must lodge that claim before the RP within the insolvency framework.
Once the resolution plan is approved, the successful resolution applicant must receive the corporate debtor on a clean slate. An income-tax demand cannot be resurrected through reassessment when the underlying claim was never placed before the RP and does not form part of the approved plan.
Interestingly, the Tribunal described the reassessment and demand as “non-operational” and held that they would not survive. In substance, therefore, the ₹4.50 crore addition became irrelevant—not because section 68 was examined on merits, but because the Revenue’s very right to pursue the omitted claim had already been extinguished under the IBC.
Cases Discussed
- Ghanashyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [126 taxmann.com 132 (SC)]
- Alok Industries Ltd. v. ACIT [161 taxmann.com 285 (Bom.)]
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI
This appeal is filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-50, Mumbai, dated 28.02.2026 for the assessment year 2021-22.
2. The Assessee has raised the following grounds of appeal:
1) 2. (b) The CIT(A) erred in confirming the addition made by the AO of Rs. 4,50,00,000 as unexplained money u/s 68 r.w.s. 115BBE of the Act on the ground that the Appellant has failed to establish the source of amount credited in the books of accounts. The Appellant submits that it had explained the nature and source of the credit of Rs 4,50,00,000 in its books of accounts along with documentary evidences and hence on the facts and circumstances of the case and in law, additions made by the AO u/s 68 r.w.s. 115BBE of the Act shall be deleted. Your Appellant craves leave to add, to alter OR to amend the aforesaid ground of appeal.
2) 1. (a)The Commissioner of Income Tax (Appeals) 50, Mumbai (CIT(A)) erred in upholding the action of AO in issuing of notice under 148A(a) dtd. 05.02.2024 and 148 dtd. 12.04.2024 despite a statutory moratorium being in force against the Appellant under Section 14 of the IBC from 24.11.2023, pursuant to the NCLT, Mumbai Bench order in C.P.(IB) 481(MB)/C III/2023 and therefore the proceedings are void abintio. (b) The CIT(A) erred in not giving effect to Section 238 of the IBC, which grants an overriding effect to the provisions of the IBC over any other law for the time being in force. The reassessment proceedings under the Income Tax Act are thus directly barred by operation of Section 14 read with Section 238 of the IBC.
3) 1. (c)The CIT(A) also failed to appreciate that upon initiation of CIRP, management powers of the Appellant vested in the Resolution Professional (RP) and all statutory notices were required to be served on the RP the failure to do so shall vitiate the entire proceedings for want of jurisdiction. (d) The CIT(A) erred in not appreciating that the Resolution Plan submitted by the Wadhwagroup Holdings Private Limited was approved by the Honorable NCLT, Mumbai Bench, vide order dated 07.10.2024, and that pursuant to such approval, all claims (including statutory dues for the pre CRP period) not forming part of the approved Resolution Plan stand extinguished by operation of law under Section 31(1) of the IBC. The Income Tax Department did not file any claim relating to this issue before the RP, thereby making the reassessment order dated 22.03.2025 for AY 2020 21, being a pre CIRP period, as void and unenforceable.
4) 2. (a) On the facts and circumstance of the case and in law, the CIT(A) erred in confirming an addition made by the AO of Rs.4,50,00,000 on account of consideration received on sale of property which was reflected incorrectly as advances received, by the Appellant company as unexplained cash credits u/s.68 r.w.s 115BBE of the IT Act without considering the facts substantiated by the Appellant during the Re-assessment Proceedings. The appellant submits that the amount represented receipt on account of sale of property and agreed to offer the same under the head Profits and gains from Business and Profession net of cost incurred during the reassessment proceedings.
3. Ld. Counsel for the assessee, at the outset, submitted that the action of the Assessing Officer in issuing notice u/s. 148A of the Act dated 05.02.2024 and notice u/s. 148 of the Act dated 12.04.2024 is bad in law for the reason that statutory moratorium was enforced against the assessee u/s. 14 of the IBC from 24.11.2023 pursuant to the NCLT order, Mumbai Bench, in CP (IB)-481(MB)/C-III/2023, and therefore, the initiation of reassessment proceedings is void ab initio. Ld. Counsel for the assessee referring to the chart containing the sequence of events, submitted that in the case of the assessee the corporate insolvency resolution process was started on 24.11.2023 by virtue of the NCLT order and meanwhile a notice u/s. 148A(a) of the Act was issued on 02.05.2024. Subsequently, an order u/s. 148A(d) was passed on 04.12.2024. Ld. Counsel for the assessee submitted that the resolution plan filed by Wadhwa Group Holdings Private Limited was furnished on 30.04.2024, and the NCLT passed an order on 07.10.2024 allowing the resolution plan by NCLT. Subsequently, the assessment order was passed on 22.03.2025 r.w.s. 147 of the Act. Ld. Counsel for the assessee submitted that since the corporate insolvency resolution process was started in November 2023, the Assessing Officer should not have proceeded to reopen the assessment. Ld. Counsel for the assessee submitted that since there was no claim by the Revenue before the NCLT in the corporate insolvency resolution process, the demand cannot be thrust upon the assessee.
4. Ld. Counsel for the assessee referring to page 138 of the paper book submitted that the NCLT, Mumbai Bench, while granting relief and concessions in sub-clause (d) of the order, clearly clarified that in terms of the judgment of the Hon’ble Supreme Court in the case of Ghanashyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., 126 taxmann.com 132 (SC), on the date of approval of the resolution plan by the Adjudicating Authority, such claims which are not part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue proceedings in respect of a claim which is not part of the resolution plan.
5. Ld. Counsel for the assessee further referred to the judgment of the Hon’ble Bombay High Court in the case of Alok Industries Ltd. v. ACIT, 161 taxmann.com 285 (Bom.), which is placed at page 74 of the paper book. Ld. Counsel for the assessee submitted that the Hon’ble Bombay High Court held that pursuant to the resolution plan having been approved by the NCLT, claims of governmental authorities, including income-tax dues, were to stand fully and finally discharged and settled, reassessment proceedings initiated against the assessee after approval of the resolution plan for the period prior to the closing date were invalid and were to be quashed.
6. Heard rival contentions and perused the orders of the authorities below. In the case of the assessee, the corporate insolvency resolution process was started on 24.11.2023, as is evident from the order passed by the NCLT, Mumbai Bench, on 24.01.2023. After the CIRP process was started, the Assessing Officer issued notice u/s. 148A on 02.05.2024, reopening the assessment of the assessee for the assessment year 2020-21. The resolution plan was approved by the NCLT by order dated 07.10.2024, which is placed at page 114 of the paper book. After the resolution plan was approved by the NCLT, the reassessment was concluded on 22.03.2025 by passing an order u/s. 143(3), r.w.s. 147 of the Act.
7. In the case of Ghanashyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (supra), the Hon’ble Supreme Court at paragraph 95, sub-clause (i), held as under:
“(i) That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided 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 resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;
(ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;
(iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under section 31 could be continued.”
8. Taking note of this judgment of the Hon’ble Supreme Court, the NCLT, Mumbai Bench, in the final resolution plan which was approved on 07.10.2024, while determining the relief and concessions, passed an order as under:
“d) It is hereby clarified that in terms of the Judgement of Hon’ble Supreme Court in the matter of Ghanshyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited, on the date of approval of the Resolution Plan by the Adjudicating Authority, all such claims which are not a part of Resolution Plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect of a claim which is not a part of the Resolution Plan.”
9. Therefore, by virtue of the judgment of the Hon’ble Supreme Court and the final resolution plan approved by the NCLT, since admittedly there was no claim by the Revenue before the NCLT, Mumbai Bench, in the resolution plan approved, the reassessment proceedings stand extinguished.
10. Thus, the reassessment framed by the Revenue in the case of the assessee for the assessment year 2020-21 and consequential demand raised therein becomes non-operational. Therefore, we hold that the reassessment proceedings, including the demand, will not survive.
11. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 11/09/2026.
