Surya Manufacturing Private Limited Vs ACIT (Delhi High Court)
Delhi High Court has intervened to quash a reassessment order and notice issued by the Income Tax Department against Surya Manufacturing Private Limited for the assessment year 2017-18. The court’s decision reinforces the “Clean Slate Theory” in the context of the Insolvency and Bankruptcy Code (IBC), holding that once a resolution plan is approved, pre-existing liabilities not included in the plan are extinguished.
Surya Manufacturing Private Limited had approached the High Court challenging an order dated April 10, 2024, passed under Section 148A(d) of the Income Tax Act, 1961, which deemed its case fit for the issuance of a notice under Section 148 for initiating reassessment proceedings. The company also sought to prohibit the tax authorities from reopening claims arising from liabilities predating the Corporate Insolvency Resolution Process (CIRP) that it had undergone.
The company highlighted that it had undergone a CIRP, which culminated in the approval of a resolution plan by the National Company Law Tribunal (NCLT) on July 28, 2021, under Section 30 of the IBC. Following the approval, the management of the company was taken over by M/s Alankit Finsec Limited as per the plan.
Surya Manufacturing contended that, based on the principle of the “Clean Slate Theory,” any debts or liabilities of the corporate debtor that were not specifically accounted for and provided in the approved resolution plan stand settled, waived, and extinguished. The company argued that the approved resolution plan in its case made no provision or allowance for any past dues towards the Income Tax Authorities for the period in question (AY 2017-18). Therefore, the attempt by the Assessing Officer to reopen the assessment for this period to tax alleged escaped income was legally unsustainable.
