Case Law Details
Diamond Power Infrastructure Ltd. Vs ACIT (Gujarat High Court)
Gujarat High Court held that notice issued under section 148 of the Income Tax Act after approval of resolution plan by the adjudicating authority under Sub-section (1) of Section 31 of the IBC is liable to be quashed and set aside.
Facts- A search and seizure operation was carried out u/s. 132 of the Income Tax Act, 1961 on 10.04.2018 in case of the petitioner. After the search operation, an Application u/s. 7 of the Insolvency and Bankruptcy Code, 2016 was filed by the Bank of India.
NCLT passed an order on 24.08.2018 admitting the Corporate Debtor in Corporate Insolvency Resolution Process and one Mr.R.D.Choudhary was appointed as an Interim Resolution Professional.
The respondent-Income Tax Department preferred an Application seeking permission to proceed further with the assessment proceedings for Assessment Years 2013-14 to 2018-19 before the NCLT. The NCLT by order dated 27.05.2020 granted such permission.
The NCLT by order dated 20th June, 2022 approved the Resolution Plan on the basis of the approval granted by the Committee of Creditors (CoC) and on the basis of the Information Memorandum which provided the claims of the creditors of the petitioner.
Thereafter, the respondent-Authority passed an Assessment Order dated 29th June, 2022 for Assessment Years 2013-14 to 2019-20 raising the demand in case of the petitioner. In view of the order passed by the NCLT, the respondent-Authority also preferred an Appeal before the National Company Law Appellate Tribunal with a prayer for inclusion of the claims of the respondent-Authority.
During the pendency of the Appeal filed by the respondent-Authority before the NCLAT, the impugned notice dated 30th March, 2023 was issued u/s. 148 of the Act to re-open the assessment for Assessment Year 2016-17. The petitioner has therefore preferred this petition challenging the notice.
Conclusion- Held that once a Resolution Plan has duly approved by the adjudicating authority under Sub-section (1) of Section 31 of the IBC, the claims as provided in the Resolution Plan shall stand frozen and will be binding on the Corporate Debtor, its employees, members, creditors including the Central Government, any State Government or any local authority, guarantors and other stakeholders and on the date of approval of the Resolution Plan by adjudicating authority, all such claims which are not part of the Resolution Plan shall stand extinguished as no person is entitled to initiate or continue any proceeding in respect to a claim which is not part of the Resolution Plan.
Thus held that the impugned notice issued under Section 148 of the Act is not tenable in the eyes of law and is accordingly, quashed and set aside.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned Senior Advocate Mr.Manish R. Bhatt with learned advocate Mr.Mayur Kishanchandani for learned advocate Ms.Shailee S. Joshi for the petitioner and learned Senior Standing Counsel Mr.Karan G. Sanghani for the respondent No.1.
2. Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Karan Sanghani waives service of notice of rule for and on behalf of the respondent No.1.
3. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs :
“A. Issue a Writ, Order or Direction in the nature of mandamus or any other appropriate Writ, Order or Direction quashing and setting aside the Notice u/ s. 148 of the Income Tax Act, 1961 dated. 31.03.2023 and subsequent Notice u/s. 142(1) dated 10.10.2023 and 19.01.2024 issued by the Respondent; and (Annex. P-1, P-2, P-3 )
B. Pending admission, final hearing and final outcome of this Petition, this Hon’ble Court may be pleased to stay the effect, operation and re-assessment proceedings emanating from the Notice u/ s. 148 dated. 30.03.2023 and subsequent Notices u/s. 142(1) dated., 10.10.2023 & 19.01.2024 issued by the Respondent to the Petitioner under the Income Tax Act, 1961; and (Annexure P-1, P-2, P-3 )
C. Pass any other order this Hon’ble Court may deem fit and necessary, in the interest of justice and good faith.”
4. The brief facts of the case are as under :
4.1. A search and seizure operation was carried out under Section 132 of the Income Tax Act, 1961 (for short ‘the Act’) on 10.04.2018 in case of the petitioner. After the search operation, an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short ‘the IBC’) was filed by the Bank of India before the National Company Law Tribunal, Ahmedabad (for short ‘the NCLT’).
4.2. The NCLT passed an order on 24.08.2018 in I.A. No.672 of 2019 in C.P.(I.B.) No.137 of 2018 by admitting the Corporate Debtor in Corporate Insolvency Resolution Process (for short the ‘CIRP’) and one Mr.R.D.Choudhary was appointed as an Interim Resolution Professional (for short ‘the IRP’).
4.3. It appears that the respondent-Income Tax Department preferred an Application seeking permission to proceed further with the assessment proceedings for Assessment Years 2013-14 to 201819 before the NCLT. The NCLT by order dated 27.05.2020 granted such permission by observing as under :
“8.1 This Adjudicating Authority is of the considered view that once the CIRP is triggered and moratorium is imposed, all the legal proceedings, execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority are prohibited against the Corporate Debtor except supply of essential goods or services to the Corporate Debtor.
8.2 The Insolvency and Bankruptcy Code, 2016 was enacted with a view to bring about a complete reorganization and insolvency resolution of Corporate Debtors in a time bound manner and to inspire life into a Corporate Debtor struggling to repay its debts, Section 238 was inserted in the Code. Provisions of this Section 238 override other laws as decided by the Hon’ble Supreme Court in Duncans Industries Ltd. v. A. J. Agrrochem.
8.3 The present application has been preferred by the Applicant to seeks permission from this Adjudicating Authority to carry out the assessment proceedings under Section 153A read with 281B of the Income Tax Act.
Considering the necessity of the assessment of tax, the prayer of the Applicant is accepted to the extent of only doing assessment for the AY 201314 to 2019-20.
8.4 It is also made clear that the Income Tax Department cannot proceed/file case against the Corporate Debtor without prior permission from this Adjudicating Authority.
8.5 It is also made dear that problems should not be there during assessment work for the Resolution Professional in completing the CIRP in time.
8.6 On the other hand, the Resolution Professional is directed to extend his full cooperation to the Income Tax Department in their assessment of tax of the Corporate Debtor.
8.7 The Income Tax Department may file their claim, if any, as an Operational Creditor with the Resolution Professional of the Corporate Debtor in time. The Resolution Professional may examine the claim of the Income Tax Department in accordance with the provisions of the Code.”
4.4. It appears that thereafter, the respondent-Authority addressed a letter dated 06.06.2020 to the Resolution Professional of the petitioner appraising that the demand is not yet cristalised. Thereafter, a letter dated 28.03.2022 was addressed to the Registry of the NCLT intimating that it is likelihood of raising huge demand from the petitioner.
4.5. The NCLT by order dated 20th June, 2022 approved the Resolution Plan on the basis of the approval granted by the Committee of Creditors (CoC) and on the basis of the Information Memorandum which provided the claims of the creditors of the petitioner.
4.6. Thereafter, the respondent-Authority passed an Assessment Order dated 29th June, 2022 for Assessment Years 2013-14 to 2019-20 raising the demand in case of the petitioner. In view of the order passed by the NCLT, the respondent-Authority also preferred an Appeal before the National Company Law Appellate Tribunal (for short ‘the NCLAT’) with a prayer for inclusion of the claims of the respondent-Authority.
4.7. During the pendency of the Appeal filed by the respondent-Authority before the NCLAT, the impugned notice dated 30th March, 2023 was issued under Section 148 of the Act to re-open the assessment for Assessment Year 2016-17.
4.8. The petitioner has therefore preferred this petition challenging the notice in view of the decision of the Hon’ble Apex Court in case of Ghanashyam Mishra and Sons Private Limited versus Edelweiss Asset Reconstruction Company Limited reported in (2021) 9 SCC 657 as the impugned notice would be without jurisdiction in view of the order passed by the NCLT on 20th June, 2022.
4.9. The petitioner has filed the further affidavit placing on record the order passed by the NCLAT on 21.05.2024 rejecting the Appeal preferred by the respondent-Authority during pendency of this petition along with the Resolution Plan approved by the NCLT on 20th June, 2022.
5.1. Learned Senior Advocate Mr.Manish Bhatt for the petitioner submitted that the respondent-Authority at no point of time has raised any claim on the basis of the Assessment Order passed pursuant to the permission granted by the NCLT before the Resolution Professional. Reliance was placed on the decision of the Hon’ble Apex Court in case of Ghanashyam Mishra (Supra) as well as the decision of this Court in case of Maruti Koatsu Cylinders Limited versus Deputy Commissioner of Income Tax, Circle 2(1)(1) and others rendered on 16th July, 2024 in Special Civil Application No.7470 of 2023 to submit that in view of the approval of the Resolution Plan by the NCLT on 20th June, 2022, the respondent-Authority could not have issued the impugned notice under Section 148 of the Act for reopening of the assessment for Assessment Year 2016-17.
5.2. It was further submitted that even the time period for challenging the order of NCLAT before the Hon’ble Supreme Court has also expired on 21.07.2024 as per the provisions of Section 62 of the IBC. It was therefore submitted that the order passed by the NCLT as well as NCLAT has achieved finality.
5.3. It was therefore submitted that the impugned notice is liable to be quashed and set aside being without jurisdiction as per the settled legal position.
6.1. On the other hand, learned Senior Standing Counsel Mr.Karan Sanghani for the respondent No.1 submitted that pursuant to the permission granted by the NCLT vide order dated 27.05.2021 to carry out the assessment proceedings for Assessment Years 2013-14 to 2019-20, there is an estimated additions totalling to Rs.17,93,51,52,026/- in accordance with the proposal of the Special Audit and huge demand was likely to be raised and the said fact was already intimated to the NCLT at the relevant point of time by the respondent-Department. It was also pointed out that there was an outstanding demand of Rs.3,83,27,242/- for Assessment Year 2009-10 in the case of the petitioner and ignoring such demand, the NCLT has approved the Resolution Plan vide order dated 20th June, 2022.
6.2. It was submitted that though the Appeal preferred by the Department has been dismissed by the NCLAT vide order dated 21.05.2024, the same is not accepted and the Department is contemplating to prefer Special Leave Petition before the Hon’ble Apex Court. It was therefore submitted that the decision of the Ghanashyam Mishra (Supra) would not be applicable in the facts of the case as the respondent-Department is vigilant enough to carry the matter to the Apex Court.
7. Considering the above submissions and in view of the facts emerging from the record, it is undisputed fact that the NCLT has approved the Resolution Plan vide order dated 20th June, 2022 which has now been upheld and confirmed by dismissal of the Appeal filed by the respondent-Authority by the NCLAT vide order dated 21.05.2024.
8. In view of the above such facts, the decision of the Hon’ble Apex Court in case of Ghanashyam Mishra (Supra) would be applicable wherein, it is held that once the NCLT has approved the Resolution Plan, all the past dues shall stand extinguished and respondent-Authority could not have assumed the jurisdiction to re-open the assessment as the same would have achieved the finality.
9. The NCLT while approving the Resolution Plan while dealing with the payments by the Resolution Applicant has observed in paragraph No.3.5.7 as under :
“3.5.7 The Tax authorities (being Other Operational Creditors and the Statutory Dues Creditors) shall immediately on the NCLT Approval Date withdraw the Proceedings filed against the Corporate Debtor, in lieu of the payment provided to them as Other Operational Creditors and the Statutory Dues Creditors as per this Resolution Plan. Post the NCLT Approval Date, no re-assessment /revision/search/special audit or any other proceedings or suits shall be initiated or pending against the Corporate Debtor in relation to period prior to the NCT Approval Date in respect of such Claims and dues and any consequential demand / action should be considered non-existing or considered as deemed to be completed and as not payable by the Corporate Debtor or the Resolution Applicant. Any proceedings/special audit from the Tax department including proceedings filed before the Supreme Court, High Court or any other court, tribunal or authority or agency, if any which were kept in abeyance in view of the insolvency process or otherwise shall not be revived post the NCLT Approval Order. The payment to the Tax authorities hereunder (being the Statutory Dues Creditors) shall be in full and finai settlement of all Tax dues and no further amounts whatsoever shall be payable to such Tax authorities.”
10. The Hon’ble Apex Court in case of Ghanashyam Mishra (Supra) has categorically held that once a Resolution Plan has duly approved by the adjudicating authority under Sub-section (1) of Section 31 of the IBC, the claims as provided in the Resolution Plan shall stand frozen and will be binding on the Corporate Debtor, its employees, members, creditors including the Central Government, any State Government or any local authority, guarantors and other stakeholders and on the date of approval of the Resolution Plan by adjudicating authority, all such claims which are not part of the Resolution Plan shall stand extinguished as no person is entitled to initiate or continue any proceeding in respect to a claim which is not part of the Resolution Plan.
11. The above observations of the Hon’ble Apex Court are contained in paragraph No.102 of the Judgment in case of Ghanashyam Mishra (Supra) which reads as under :
“102. NCLT found, that by email dated 6.1.2018, EARC had submitted its claim in Form ‘C’ for an amount of Rs.648,89,62,395/-. In response to the said email, RP sought a clarification, as to whether the corporate guarantee had been invoked by the applicant. RP had not received any response till 21.2.2018 from EARC.
Despite repeated requests made by RP, EARC did not respond to the query made by RP. From the record placed before NCLT, it was clear, that EARC had not invoked the corporate guarantee. NCLT therefore posed a question to itself, as to whether an uninvoked corporate guarantee could be considered as matured claim of the applicant. NCLT found, that once the moratorium was applied under Section 14 of I&B Code, EARC was prevented from invoking the corporate guarantee. NCLT further found, that the OMML’s guarantee had not been invoked by EARC till the date of completion of CIRP process and once the moratorium was imposed, it could not invoke the corporate guarantee. NCLT therefore found, that there is no illegality or irregularity in not admitting the claim of EARC.”
12. In the facts of the present case, the petitioner stands even on better footing as the order passed by the NCLT approving the Resolution Plan already has merged into the order passed by the NCLAT while dismissing the Appeal preferred by the respondent-Authority which has achieved finality in view of the provisions of Section 62 of the IBC which read as under :
“Section 62: Appeal to Supreme Court.
(1) Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order.
(2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days.”
13. It is not in dispute that the order passed by the NCLAT has never been challenged on or before 21.07.2024 i.e. on expiry of sixty days including the extended fifteen days as per Sub-section (2) of Section 62 of the IBC.
14. On an inquiry made by the Court, learned Senior Standing Counsel Mr.Karan Sanghani is unable to answer as to whether any SLP is preferred by the respondent-Authority as on date as per the averments made in the affidavit-in-reply dated 19th December, 2024.
15. In view of the foregoing reasons and considering the decision of the Hon’ble Apex Court in the facts of the case, the impugned notice issued under Section 148 of the Act is not tenable in the eyes of law and is accordingly, quashed and set aside. Rule is made absolute to the aforesaid extent. No orders as to cost.
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