PCIT Vs Patanjali Foods Ltd. (Bombay High Court)
Bombay High Court, in a batch of petitions including PCIT vs. Patanjali Foods Ltd., quashed reassessment notices issued under Section 148 of the Income Tax Act, 1961. The court’s decision aligns with its previous ruling in Alok Industries Limited v. Assistant Commissioner of Income Tax, which addressed similar issues related to reassessment proceedings initiated after the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). The court reiterated that once a resolution plan is finalized and implemented, it binds all parties, including the Income Tax Department, and discharges all claims, including tax dues, relating to the period prior to the closing date of the resolution plan.
The court emphasized the “clean slate” principle afforded to the new management of a company after a successful resolution under the IBC. This principle prevents the revival of old tax liabilities that were part of the resolution plan. The court clarified that while the Income Tax Department can investigate ex-promoters or third parties for potential wrongdoing, using Section 148 for this purpose is inappropriate. Section 148, read with Section 147, pertains specifically to income that has escaped assessment, not general evidence gathering. The court pointed out that other provisions, such as Section 133(6), exist for collecting evidence from third parties.
The High Court underscored the binding nature of the resolution plan approved by the National Company Law Tribunal (NCLT) under Section 31 of the IBC. Furthermore, Section 238 of the IBC gives it overriding effect over other laws, reinforcing the primacy of the resolution plan. The court cited the Supreme Court’s decision in Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., which affirmed that dues not included in the resolution plan are extinguished, and proceedings related to those dues cannot continue. Section 156A of the Income Tax Act, introduced by the Finance Act, 2022, further reinforces this principle by requiring Assessing Officers to modify demands in accordance with orders from the Adjudicating Authority under the IBC.
The Bombay High Court acknowledged the revenue’s contention regarding potential liabilities of the previous management. While the court did not express any opinion on the matter, it clarified that any steps taken by the revenue against ex-promoters or third parties must be in accordance with the law and cannot involve the revival of reassessment proceedings against the company itself under Section 148. The court’s decision effectively limits the scope of reassessment under Section 148 in cases where a resolution plan has been approved under the IBC, protecting the new management from the burden of past liabilities and clarifying the appropriate avenues for investigating potential wrongdoing by previous management.
Read SC Judgment: Post-IBC Resolution Reassessment Invalid for Patanjali: Supreme Court
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
