Mcnally Bharat Engineering Co. Ltd Vs Union Of India & Ors (Calcutta High Court)
The Calcutta High Court ruled in favor of McNally Bharat Engineering Co. Ltd., quashing reassessment proceedings initiated by the Income Tax Department. The court held that the resolution plan approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) overrides the Income Tax Act. The petitioner, undergoing Corporate Insolvency Resolution Process (CIRP), had its resolution plan approved, which explicitly prohibited any proceedings or inquiries for the period prior to the plan’s effective date. Despite this, the Income Tax Department initiated reassessment proceedings based on alleged suspicious transactions, which the court deemed unlawful.
The court emphasized the overriding effect of the IBC, particularly Section 238, and the binding nature of the NCLT-approved resolution plan. It noted the respondents’ failure to conduct a preliminary inquiry under Section 148A(a) of the Income Tax Act and their reliance on external reports without demonstrating independent application of mind. The court also highlighted the violation of Section 14 of the IBC, which imposes a moratorium on proceedings against a company in CIRP. Furthermore, the court criticized the respondents for not providing the petitioner with complete access to third-party statements, thus denying them a fair opportunity to defend themselves. The decision reinforces the supremacy of IBC resolution plans in protecting companies undergoing insolvency proceedings from tax reassessments initiated for periods prior to the plan’s effective date, ensuring legal safeguards are upheld.
