PCIT Central-4 Vs Patanjali Foods Ltd. (Supreme Court of India)
The Supreme Court of India dismissed the appeal filed by the Principal Commissioner of Income Tax (Central) 4 against Patanjali Foods Ltd., effectively upholding the Bombay High Court’s judgment. The High Court had earlier quashed reassessment notices and subsequent orders issued under Sections 148, 143C, 143(3), and 148A of the Income Tax Act, 1961, pertaining to the assessment year 2013-14. The High Court’s decision rested on the principle that such reassessment proceedings initiated after the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC) are invalid.
The Bombay High Court’s ruling, which the Supreme Court has now affirmed, was based on the “clean slate” principle enshrined in the IBC. This principle, as interpreted by the courts, provides that once a resolution plan is approved by the National Company Law Tribunal (NCLT), it binds all stakeholders, including tax authorities. The resolution plan effectively discharges all claims, including tax dues, relating to the period prior to the plan’s closing date. The High Court, relying on the Supreme Court’s decision in Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., emphasized that dues not included in the resolution plan stand extinguished.
The High Court clarified the scope of Section 148 of the Income Tax Act, which deals with reassessment of escaped income. It held that this provision cannot be used for conducting inquiries or collecting evidence against ex-promoters or third parties. The court pointed out that the Income Tax Act provides separate mechanisms, such as Section 133(6), for such purposes. The High Court also noted that the new management of the company, post-resolution plan, might be unaware of the facts pertaining to the period sought to be reopened, rendering reassessment proceedings futile.
While the Supreme Court upheld the quashing of the reassessment notices, both the High Court and the Supreme Court clarified that the revenue authorities are not precluded from taking action against the ex-promoters or other third parties through other legal avenues available to them. The courts, however, explicitly stated that such actions cannot be initiated under Section 148 of the Income Tax Act against the company itself. The Supreme Court, in its brief order, simply stated that it was not inclined to interfere with the High Court’s observations and dismissed the special leave petition.
Read High Court Order: Insolvency Resolution Plan Binds All Parties, Discharges Prior Tax Claims
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
