Case Law Details
ACIT (OSD) Vs GAIL Mangalore Petrochemicals Ltd. (ITAT Delhi)
Income Tax Appellate Tribunal (ITAT) Delhi dismissed an appeal by the Income Tax Department against GAIL Mangalore Petrochemicals Ltd. (formerly JBF Petrochemicals Limited). The case arose after the company underwent Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), 2016. The National Company Law Tribunal (NCLT) had approved GAIL’s resolution plan, but the Income Tax Department attempted to raise claims after the plan’s approval. The ITAT upheld that no fresh claims could be considered post-approval, reinforcing the binding nature of the resolution plan on all stakeholders, including statutory authorities.
The resolution process began when IDBI Bank initiated insolvency proceedings against the company in 2022 due to loan defaults. During the CIRP, the Resolution Professional (RP) invited claims from all creditors, including government entities, with a deadline set for submission. The Income Tax Department failed to submit its claims within the stipulated timeframe. After extensive evaluation, the Committee of Creditors (CoC) approved GAIL’s resolution plan with a 100% voting share, which was subsequently ratified by the NCLT in March 2023. Despite being notified and given the opportunity to object, the Tax Department did not raise any claims during the process.
Relying on Supreme Court precedents, including Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2019), the ITAT reiterated that once a resolution plan is approved under Section 31 of the IBC, all past claims, including statutory dues, are extinguished unless explicitly accounted for in the plan. The tribunal emphasized that the IBC, being a special statute, overrides other laws, including tax statutes, to ensure a clean slate for the corporate debtor.
This ruling aligns with previous judicial interpretations, including the Delhi High Court’s judgment in TUF Metallurgical Pvt. Ltd. v. Union of India, where tax claims raised post-resolution plan approval were similarly deemed invalid. The ITAT’s decision reinforces the principle that government agencies, like all other creditors, must adhere to the resolution framework set by the IBC. The Income Tax Department’s attempt to seek dues after the plan’s approval was dismissed, affirming that resolution plans, once sanctioned, are final and binding on all stakeholders.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is preferred by the Revenue against the order dated 30.03.2024 of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeals No. NFAC/2017-18/10082780 arising out of the appeal before it against the order dated 27.09.2021 passed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the National Faceless Assessment Centre, Delhi (hereinafter referred to as the Ld. AO).
2. On hearing both the sides it comes up from the facts stated before us by AR that GAIL Mangalore Petrochemicals Ltd. (previously known as JBF Petrochemicals Limited) (hereinafter referred to as “the Respondent Company”) was set up in September 2008 to operate a planned 1.25 million metric tonnes per year purified terephthalic acid (PTA) plant at Mangalore, Karnataka. The plant, a backward integration project of the Respondent Company’s polyester plant, was about to be commissioned in 2017 but ceased operations after the Respondent Company defaulted on a loan the very same year.
3. On an application filed by IDBI Bank Ltd. under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”), which pertains to the initiation of insolvency proceedings by the financial creditors in cases of default, the Respondent Company was admitted into Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) by the National Company Law Tribunal (hereinafter referred to as “NCLT”) vide order dated 28.01.2022. The NCLT’s order triggered the imposition of a moratorium, a legally mandated pause on all the proceedings (including litigation, arbitration, and enforcement actions) against the Respondent Company, and Mr. Sundaresh Bhat was first appointed as an Interim Resolution Professional (hereinafter referred to as “IRP”) and later on as Resolution Professional (hereinafter referred to as “RP”).
4. The RP issued a Public Announcement on 04.02.2022 in accordance with the provisions of the IBC, inviting claims from all the stakeholders of the Respondent Company, as mandated under section 13(2) of the IBC. Pursuant to the Public Announcement, the deadline for submission of claims, as stipulated in the announcement, was set as 16.02.2022. Following the receipt and verification of claims, the Committee of Creditors (hereinafter referred to as “CoC”) was duly constituted in accordance with Section 21 of the IBC.
5. On 18.04.2022, the RP, in accordance with Regulation 36A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as “the Insolvency Resolution Process Regulations”) invited Expression of Interest for the submission of a Resolution Plan for the Respondent Company.
6. The 90 days’ period for the submission of claims, as mandated under Regulation 12(2) of the Insolvency Resolution Process Regulations, got commenced on 28.01.2022 (when the Respondent Company was admitted into CIRP by the NCLT) and got concluded on 28.04.2022, during which no claims were filed by the Tax Department.
7. The last date for submission of Expressions of Interest for the submission of a Resolution Plan for the Company was 03.05.2022, and the deadline for submission of Resolution Plans was set as 17.06.2022 in accordance with the statutory framework governing the CIRP. However, on request of the prospective resolution applicants, the CoC in its meeting held on 06.2022 resolved to extend the period of submission of resolution plan to 08.08.2022. In the same meeting, the CoC also passed a resolution for extension of CIRP period by another 90 days and for filing of the application under section 12(2) of IBC before the NCLT in this regard. In view of the same, the RP filed an application before the NCLT, and on 07.07.2022, the NCLT was pleased to extend the CIRP period. Subsequently, in view of the above ongoing process, the CoC, in its meeting, resolved to further extend the deadline for submission of the resolution plan to 30.08.2022.
7.1 On 01.09.2022, the RP informed the CoC that three resolution plans were received from following prospective resolution applicants:
i. Consortium of Indian Oil Corporation Limited and ONGC Limited (“IOCL-ONGC Consortium”);
ii. MPCI Private Limited (“MCPI”); and
iii. GAIL (India) Limited (“GAIL”).
7.2 After evaluating in terms of both qualitative and quantitative criteria, on 15.10.2022, the CoC approved the Resolution Plan submitted by GAIL with 100% voting share. The Letter of Intent dated 16.10.2022 was duly acknowledged by GAIL, signifying their acceptance of the terms outlined in the resolution process. Also, on 18.10.2022, GAIL submitted a performance bank guarantee amounting to 10% of the total Resolution Plan value, i.e., 210,10,00,000.
8. The RP filed IA 899/22 on 20.10.2022 before the NCLT, seeking approval of the Resolution Plan pursuant to Section 30(6) of the IBC. The statutory period of 270 days for the completion of the CIRP, as prescribed under section 12(3) of the IBC, expired on 30.10.2022.
9. Upon the filing of IA 899/22, the NCLT, on 09.11.2022. issued notice to the Income Tax Department, affording an opportunity to appear and make submissions, including any claims or objections they may have had concerning the Resolution Plan. The matter was subsequently listed for hearing before the NCLT on 21.02.2023; however, no submissions were made on behalf of the Income Tax Department, either regarding their claims or any objections to the Resolution Plan.
10. After thoroughly considering the submissions made by the RP, the contents of the Resolution Plan, and all supporting material placed on record, the NCLT passed an order on 13.03.2023, approving the Resolution Plan. The copy of NCLT order dated 13.03.2023 is provided to us at page 96 to 111 of PB. The Resolution Plan was deemed compliant with the provisions of the IBC and was declared binding upon all stakeholders of the Respondent Company in accordance with Section 31 of the IBC.
11. The RP sent an email to the Income Tax Department intimating approval of the Resolution Plan by the NCLT. Dissatisfied with the order of the NCLT, the Commissioner of Income Tax (TDS-1), Mumbai, filed an appeal before the National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) challenging the approval of the Resolution Plan, primarily contending that the claims of the Tax Department were neither inadequately addressed nor duly considered in the approved plan. The appeal filed by the Tax Department before the NCLAT emphasized the priority status of the government dues and it was argued on behalf of the Tax Department that the Resolution Plan approved by the NCLT did not conform to the statutory requirements in this regard. However, after hearing the parties, the NCLAT, vide its order dated 15.10.2024, dismissed the appeal filed by the Income Tax Department, holding that the Resolution Plan had been approved following due process under the IBC, and was binding on all the stakeholders, including statutory authorities, as provided under Section 31 of the IBC. The NCLAT also observed that the Income Tax Department had been given an opportunity to raise claims or objections during the CIRP as well as again while hearing IA 899/22, but no submissions/ objections were made by the Income Tax Department at the relevant stages. The NCLAT further held that the IBC, being a special statute, overrides other laws, including claims for statutory dues under general law, and once a Resolution Plan is approved, such claims are extinguished to the extent provided in the plan. The NCLAT reaffirmed that the Resolution Plan could be implemented as per the framework approved by the NCLT, with no further interference warranted. The copy of NCLAT order dated 15.10.2024 is filed before us at page 112 to 135 of the Paper Book.
12. AR has drawn attention to the relevant clauses of the Resolution Plan, dealing with the treatment of government/ statutory dues, made available at page 59 to 60 of PB:
“4.4. Treatment of Government/ Statutory Dues
4.4.1. Pursuant to the settlement of the Statutory Creditors as per Clause 4,3.5 of Part D above and on Effective Date, all the dues under the provisions of Income Tax Act, 1961, including taxes, duty, penalties, interest, fines, cesses, unpaid tax deducted at source / tax collected at source, whether admitted or not, due or contingent, whether part of above claim of income tax authorities or not, asserted or unasserted, crystallized or uncrystallised, known, or unknown, secured or unsecured, disputed or undisputed, present or future, in relation to any period prior to the Closing Date, shall stand extinguished and the Corporate Debtor or Resolution Applicant shall not be liable to pay any amount against such demand.
4.4.2 All assessments/ appellate or other proceedings pending in case of the Corporate Debtor, on the Effective Date, relating to the period prior to that date, shall stand terminated and all consequential liabilities, if any, stand abated and should be considered to be not payable by the Corporate Debtor in relation to the period prior to the Effective Date and pending on that date shall stand abated and should not be proceeded against. Post the Effective Date, no re-assessment / revision or any other proceedings under the provisions of the Income Tax Act shall be initiated on the Corporate Debtor in relation to period prior to acquisition of control by the Resolution Applicant and any consequential demand should be considered non- existing and as not payable by the Corporate Debtor. Any proceedings which were kept in abeyance in view of the insolvency process or otherwise shall not be revived post the order of NCLT.
4.4.3. Any and all rights and entitlements of the Governmental Authorities including but not limited to the Central government, the State governments any regulatory or local authority or body or any agency or instrumentality thereof, or any other party or entity (under any agreement, lease, licence, approval, consent or permission) whether admitted or not, due or contingent, asserted or unasserted, crystallized or uncrystallised, known or unknown, disputed or undisputed, present or future, in relation to any period prior to the Effective Date, shall be deemed to be permanently extinguished by virtue of the order of the NCLT approving this Resolution Plan and the Corporate Debtor or the Resolution Applicant shall at no point of time, directly or indirectly, have any obligation, liability or duty in relation thereto.”
13. Now what is relevant is that as per the Resolution Plan, the Effective Date shall mean the date of approval of the Resolution Plan by the NCLT and as per the Resolution Plan, the Closing date shall mean 89 (eighty-nine) days from the Effective Date. Resolution Plan provided for two assurances to the Resolution Applicant (i.e. GAIL) of the Respondent Company:
a) All proceedings under the Act, pending on the date of approval of Resolution Plan by the NCLT (unless otherwise specifically stated/ agreed to/ dealt with in the Resolution Plan), relating to any period prior to that date, shall stand terminated, and all consequential liabilities/ demand, if any, shall stand abated; and
b) All dues under the Act, in relation to any period prior to the Closing date (i.e. 89 days from the date of approval of Resolution Plan by the NCLT) shall stand extinguished and the Respondent Company shall not be liable to pay any amount against such demand. In other words, any dues/ demands raised even subsequent to the date of approval of the Resolution Plan (but within 89 days therefrom) shall also stand extinguished.
14. It is a settled law that once the Resolution Plan has been approved by the NCLT, new claims of the Tax Department cannot be considered. This position has been upheld by the Hon’ble Supreme Court in the case of Ghanashyam Mishra and Sons Private Limited Edelweiss Asset Reconstruction Company Limited (2021) (13 S.C.R. 737) (SC). The relevant extracts of the Hon’ble Supreme Court judgement are as follows:
“86. As discussed hereinabove, one of the principal objects of l&B Code is, providing for revival of the Corporate Debtor and to make it a going concern. I&B Code is a complete Code in itself. Upon admission of petition under Section 1, there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure, that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the Corporate Debtor is revived and is made an on-going concern. After CoC approves the plan, the NCLT is required to arrive at a subjective satisfaction, that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the l&B Code. Only thereafter, the NCLT can grant its approval to the plan. It is at this stage, that the plan becomes binding on Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution Plan. The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans, would go haywire and the plan would be unworkable
CONCLUSION
95. In the result, we answer the questions framed by us 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 anyState 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) …
(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 NCLT grants its approval under Section 31 could be continued. ”
(Emphasis supplied)
15. The similar view has been taken by the Hon’ble Supreme Court in the case of Committee of Creditors of Essar Steel India Limited Satish Kumar Gupta and Ors. (2019) (16 S.C.R. 275) (SC). It has been held by the Hon’ble Supreme Court that:
“67. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/ Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count.”
[Emphasis supplied)
16. AR has drawn our attention to the decision of Hon’ble Delhi High Court in the case of TUF Metallurgical Pvt. Ltd. vs. UOI (W.P.(C) 10528/2022) & connected matter where Hon’ble High Court has also applied the principles laid down by the Hon’ble Supreme Court in the case of Ghanashyam Mishra (supra) and held as follows:
“8. In the present cases, as described above, the admitted factual matrix is that the notices and orders impugned in these writ petitions pertain to the income tax claims of the respondents/revenue pertaining to the period much prior to the date of approval of the Resolution Plan. The impugned notices and orders were issued by the respondents/ revenue admittedly subsequent to the public announcement under Section 15 of the Code regarding CIRP process pertaining to the petitioner/assessee. As noted above, pertaining to the WP(C) 10528/2022, the public announcement under Section 15 of the Code called for submission of claims by 21.01.2019, but the respondents/revenue did not file any claim till that date or even thereafter; it is only subsequent to approval of the Resolution Plan vide order dated 05.11.2019 of the Tribunal, (which order was communicated to respondents/revenue on 02.12.2019) that the respondents/revenue issued the impugned Assessment Order and Demand Notice both dated 12.12.2019. Similarly, in the other writ petition WP(C) 10628/2022, the impugned notices and orders were issued by the respondents/revenue much subsequent to the public announcement dated 30.09.2019 of commencement of CIRP under Section 13 of the Code; vide order dated 21.02.2022, the Tribunal approved the final Resolution Plan and that order was communicated by the petitioner/ assessee to the respondents/revenue, calling upon the latter to withdraw the earlier notices, but to no avail.
9. In nutshell, the Resolution Plans qua the petitioners/ assessees having been approved by the National Company Law Tribunal on 05.11.2019 (in WP(C) 10528/2022) and on 21.02.2022 (in WP(C) 10628/2022), the tax claims pertaining to the Assessment Year 2017-18 (in WP(C) 10528/2022) and Assessment Year 2014-15 (in WP(C) 10628/2022) stood extinguished.
10. The argument on behalf of respondents/revenue that being the State exchequer, it cannot be bound by the Resolution Process provisions of the Code has been recorded only to be rejected in view of the above quoted extract from the judgment in the case of Ghanshyam Mishra (supra).’’
17. The similar view has been taken by the Hon’ble High Court of Calcutta also in the case of Principal Commissioner of Income-tax Subhlabh Steels (P.) Ltd. [2022] 141 taxmann.com 190 (Cal.) (HC).
18. We find that the sequence of relevant facts of insolvency proceedings establish that the impugned assessment order was framed on 27/09/2021 and during the insolvency proceedings income tax Department was informed by the resolution professional and only claim with regard to TDS violation of 10.14 Cr. was filed. The same was also not accepted in insolvency proceedings and even appeal by the department stands dismissed by the NCLAT. The resolution plan as adopted, in para-4.4 specifically, held that all dues of the revenue department in relation to any period prior to the closing date, which the date of approval of resolution plan by NCLT, shall stand extinguished. As discussed above, the law in this regard is quite settled now and we have no hesitation to hold that the impugned assessment order is not left with any legal sanctity and enforceability under law. The grounds of challenge of the order of ld. CIT(A) by the department no more survive. We accordingly dismiss the appeal.
Order pronounced in the open court on 08.01.2025.
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