Post-Resolution Income Tax Assessment Violates IBC Clean Slate: Delhi HC

National Sewing Thread Company Limited Vs DCIT (Delhi High Court)

The Delhi High Court allowed the writ petition filed by National Sewing Thread Company Limited challenging the assessment order dated 22.05.2024 passed under Section 143(3) of the Income Tax Act, 1961 for AY 2022-23, along with the consequential demand and penalty notices issued under Sections 156 and 274. The petitioner’s Corporate Insolvency Resolution Process had commenced pursuant to an NCLT, Chennai order dated 29.08.2019.

Its resolution plan was approved by the Committee of Creditors on 13.09.2021 and finally approved by the NCLT on 06.12.2021 with reliefs and concessions, including extinguishment of past dues and claims not forming part of the approved plan. A new management thereafter assumed control of the company to implement the plan on a clean-slate basis. The petitioner contended that the subsequent income-tax assessment and notices were incompatible with the binding effect of the approved resolution plan under Section 31(1) of the Insolvency and Bankruptcy Code, 2016.

The Court accepted the contention and observed that once a resolution plan is approved by the adjudicating authority, the claims provided in it become frozen and bind the corporate debtor, its employees, members, creditors, governmental authorities, guarantors and other stakeholders. Claims not forming part of the resolution plan stand extinguished, and proceedings concerning such claims cannot be initiated or continued. The Court followed IREO Fiveriver Pvt Ltd Vs Income Tax Department & Anr., which had applied the Supreme Court’s clean-slate doctrine in Ghanashyam Mishra & Sons (P) Ltd. Vs Edelweiss Asset Reconstruction Co. Ltd. and Committee of Creditors of Essar Steel India Ltd. Vs Satish Kumar Gupta.