Bombay High Court
Amns Khopoli Limited vs Assisstant Commissioner Of Income-Tax on 23 April, 2024
Author: K.R. Shriram
Bench: K.R. Shriram, Neela Gokhale
2024:BHC-OS:6965-DB 1/21 447-WPL-6313-2024.doc
Digitally
signed by
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
PURTI
PURTI PRASAD
PRASAD PARAB
ORDINARY ORIGINAL CIVIL JURISDICTION
PARAB Date:
2024.04.30
19:33:05
+0530
WRIT PETITION (L) NO. 6313 OF 2024
AMNS Khopoli Limited
(Formerly known as Uttam Galva
Steels Limited), a company,
registered under the Companies Act,
1956, having its registered office at
Administration Block, Survey No.71-75
Village Donvat, Khopoli - Pen Road,
Khalapur, Raigad,
Maharashtra - 410 203, India ....Petitioner
V/s.
1. Assistant Commissioner of Income
Tax (International Tax), Circle 1(1)(1), Delhi
Having its office at 4th Floor, Room No.409,
E2 Civic Centre, E2 Block, Civic Centre,
Minto Road, New Delhi - 110 002.
2. Assistant Commissioner of Income Tax,
Central Circle 5(4), Mumbai having
its office at Room No. 1927, 19th Floor,
Air India Building, Nariman Point,
Mumbai, Maharashtra - 400 021.
3. Union of India,
Through the Secretary
Department of Finance, Ministry of Finance,
Government of India, North Block,
New Delhi - 110 001. ...Respondents
----
Mr. Venkatesh Dhond, Senior Advocate a/w Mr. Niraj Seth, Ms. Shreya
Gupta, Mr. Abhijeet Sadikale, Ms. Swagata Ghosh, Ms. Prachi Gupta and
Ms.Karishma Rao i/b Shardul Amarchand Mangaldas & Co. for Petitioner.
Ms. Swapna Gokhale for Respondents-Revenue.
----
CORAM : K.R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
DATED : 23rd APRIL 2024
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ORAL JUDGMENT : (PER : K.R. SHRIRAM, J.)
1. Since the pleadings in the petition are completed, we have decided to dispose the petition at the admission stage itself.
2. Rule. Rule made returnable forthwith.
3. Petitioner was formerly known as Uttam Galva Steels Limited (UGSL). Pursuant to the Corporate Insolvency Resolution Process (CIRP) of UGSL under the provisions of the Insolvency and Bankruptcy Code, 2016 (the Code), 100% shareholding of UGSL was acquired by AM Mining India Pvt. Ltd. (Resolution Applicant) and thereafter the name of UGSL was changed to the present name, i.e., AMNS Khopoli Limited.
4. Respondent No.1 is the Assessing Officer (A.O.) who has issued the notice dated 31st May 2023 under Section 143(2) of the Income Tax Act, 1961 (the Act) informing petitioner that the income tax return for Assessment Year 2022-23 for relevant Financial Year 2021-22 has been selected for scrutiny assessment. This was followed by notices dated 28 th August 2023, 8th January 2024 and 29th January 2024 issued by Respondent No.2, the Jurisdictional Assessing Officer (JAO), under Section 142(1) of the Act. All these notices are impugned in this petition.
5. Mr. Dhond states it appears that the statement made in Paragraph No. 14 that all impugned notices have been issued in Mumbai is Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 3/21 447-WPL-6313-2024.doc not entirely correct. The first notice issued under Section 143(2) of the Act was actually issued from Delhi.
6. It is petitioner's case that on 1st October 2020 the National Company Law Tribunal (NCLT), Mumbai admitted a petition filed by the State Bank of India under Section 7 of the Code against UGSL and appointed an Interim Resolution Professional (IRP). The NCLT also declared a moratorium under Section 14 of the Code. A public announcement was made on 8th October 2020 by the IRP in accordance with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and calling upon the creditors of UGSL to submit on or before 20 th October 2020 proof of their claims. Though respondent being Central Government Department was covered under the definition of operational creditors under the Code, no claims or proof of claims were submitted by Respondent No.1 or Respondent No.2. On 4th November 2020, the first meeting of the Committee of Creditors (CoC) was held and the IRP was appointed as the Resolution Professional (RP). On 9 th May 2021 the Resolution Applicant submitted a Resolution Plan before the CoC which was approved by the CoC on 2nd June 2021 and submitted to NCLT for approval. By an order dated 14th October 2022 NCLT approved the Resolution Plan. The operative part of the NCLT's order dated 14th October 2022 provided as under :
Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 4/21 447-WPL-6313-2024.doc ORDER The Application IA No. 1271 of 2021 in CP 920 of 2020 be and the same is allowed. The Resolution Plan annexed to the Application is hereby approved. It shall become effective from this date and shall form part o f this order.
i. It shall be binding on the Corporate Debtor, its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force is due, guarantors and other stakeholders involved in the Resolution Plan.
ii. Further in terms of the Judgment of Hon'ble Supreme Court in the matter of Ghanshyam Mishra and Sons Private Limited v/s Edelweiss Asset Reconstruction Company Limited, on the date of approval of the 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 a part of the Resolution Plan.
iii. The Memorandum of Association (MoA) and Articles of Association (AoA) shall accordingly be amended and filed with the Registrar of Companies (RoC), Mumbai, Maharashtra for information and record. The Resolution Applicant, for effective implementation of the Plan, shall obtain all necessary approvals, under any law for the time being in force, within such period as may be prescribed.
iv. The moratorium under Section 14 of the Code shall cease to have effect from this date.
v. The Applicant shall supervise the implementation of the Resolution Plan and file status of its implementation before this Authority from time to time, preferably every quarter.
vi. The Applicant shall forward all records relating to the conduct of the CIRP and the Resolution Plan to the IBBI along with copy of this Order for information.
vii. The Applicant shall forthwith send a certified copy of this Order to the CoC and the Resolution Applicant, respectively for necessary compliance.
7. Following the order passed dated 14 th October 2022 by the NCLT and the implementation of the Resolution Plan, name of "UGSL" was changed to "AMNS Khopoli Limited" as mentioned earlier.
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8. It is petitioner's case that in terms of the Resolution Plan approved by NCLT any claim and/or liability pertaining to the period prior to the effective date, i.e., 10 th November 2022 (Effective Date) stood extinguished and/or settled in terms of the Resolution Plan and all proceedings, suits, claims, etc. in connection with the corporate debtor, i.e., UGSL or its affairs, in relation to any period prior to the Effective Date, shall stand withdrawn and dismissed. Mr. Dhond submitted that approved Resolution Plan also provides that all new claims, disputes, litigations or other judicial orders, administrative proceedings including recovery of demands etc., shall be deemed to be barred and shall not be initiated or admitted against the corporate debtor, i.e., petitioner in relation to period prior to the Effective Date which is 10th November 2022.
9. It will be useful to reproduce the relevant paragraphs of Resolution Plan which read as under :
"Extinguishment of Claims:
2 Notwithstanding anything contained under applicable Law or otherwise, all liabilities, obligations and/or Claims that arise until the Effective Date shall stand waived, extinguished, abated, discharged in perpetuity and no party /Stakeholder shall have any claim against the Corporate Debtor and/or the Resolution Applicant for Claims, whether claimed or unclaimed, contingent or crystallized, known or unknown, arising until the Effective Date or on account of the steps undertaken for the implementation of the Resolution Plan and the Corporate Debtor and/or the Resolution Applicant shall not at any time be, directly or indirectly, held responsible or liable in relation thereto.
e. Other than as set out in this Resolution Plan, the Resolution Applicant and the Corporate Debtor shall have no responsibility or liability in respect of any Claims (whether contingent or crystallized, known or unknown, filed or not filed assessed or not Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 6/21 447-WPL-6313-2024.doc assessed and whether or not in relation to or on account of notice, proceedings, compounding, non-compliance, non-filling, non- preparation of documents. reports, or pursuant to any surveys or summons) against the Corporate Debtor attributable to the period until the Effective Date or on account of the steps undertaken for the implementation of the Resolution Plan. All liabilities (Whether unclaimed, contingent or crystallized, known or unknown, filed or not filed) in relation to any Guarantees and all other forms of credit support provided by the Corporate Debtor until the Effective Date (whether on behalf of group companies (current or former) or otherwise) shall stand extinguished and discharged with effect from the Effective Date and the Corporate Debtor and/or the Resolution Applicant shall at no point of time be, directly or indirectly, held responsible or liable in relation thereto.
3. Without prejudice to the generality of paragraph 2 above, the Claims relating to the Corporate Debtor shall stand waived, extinguished, abated, discharged in perpetuity in the manner set out herein.
.....
j. All Claims (whether unclaimed, contingent or crystallized, known or unknown, filed or not filed) of Governmental Authorities in relation to all Taxes which the Corporate Debtor was or may be liable to pay (including with respect to financial years under assessment or open for assessment subsequent to the Effective Date as per the statute of limitation under the relevant Law), all deductions and all withholding Taxes on any payment, as required under Applicable Law and pertaining to the period until the Effective Date or on account of the steps undertaken for the implementation of the Resolution Plan shall stand extinguished on the Effective Date and the Corporate Debtor and/or the Resolution Applicant shall at no point of time be, directly or indirectly, held responsible or liable in relation thereto.
k. The Resolution Applicant and/or the Corporate Debtor (including: (i) any director or officer of the Corporate Debtor who was associated with the Corporate Debtor prior to the Effective Date and continues to be a director or officer of the Corporate Debtor following the Effective Date; and (ii) any individual who becomes a director or officer of the Corporate Debtor following the Effective Date) shall not be liable under any Proceedings (including any Tax Proceedings) in relation to any Claims in so far as the Claims relate to the period until the Effective Date, including in connection with any prior transfer of assets, contracts or business by the Corporate Debtor or any of its Subsidiaries or Affiliates (whether current or previously existing). No Person shall claim the lack of knowledge or actual notice of this Resolution Plan Process as a reason for continuation of any Proceedings against the Corporate Debtor and/or the Resolution Applicant. Such extinguishment of liability shall not affect the claims of the Corporate Debtor in relation to the amounts owed to it. Further, the Resolution Applicant and/or the Corporate Debtor shall not be Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 7/21 447-WPL-6313-2024.doc liable under any Tax Proceedings by way of assessment, reassessment, rectification, revision, or appeal for any period upto the Effective Date which results in reduction of carry forward of losses or unabsorbed depreciation or payment of taxes or reduction of tax refunds.
l. Upon approval of the Resolution Plan by the Adjudicating Authority, all Non-Compliances of the Corporate Debtor for the period until the Effective Date or on account of the steps undertaken for the implementation of the Resolution Plan (including but not limited to those relating to Tax, securities laws and foreign exchange regulations), shall be deemed to be waived by all the Governmental Authorities."
9. From the Effective Date, all inquiries, investigations, suits, claims, disputes, Proceedings (including any Tax Proceedings) against the Corporate Debtor, pending or threatened, present or future in relation to any period until the Effective Date, or arising on account of implementation of this Resolution Plan, shall stand withdrawn and dismissed and all liabilities and obligations therefore, whether or not set out in the balance sheets of the Corporate Debtor or the profit and loss account statements of the Corporate Debtor will be deemed to have been written off fully, and permanently extinguished and no adverse orders passed in the said matters should apply to the Corporate Debtor or the Resolution Applicant. Upon approval of this Resolution Plan, all new inquiries, assessments, reassessments, rectifications, revisions, surveys, summons, investigations, notices, suits, claims, disputes, litigations, arbitrations or other judicial, regulatory (including any Tax Proceedings) or administrative proceedings will be deemed to be barred and will not be initiated or admitted against the Corporate Debtor in relation to any period until the Effective Date and the Corporate Debtor and/or the Resolution Applicant shall at no point of time be, directly or indirectly, held responsible or liable in relation thereto.
12. No Governmental Authority (including regulatory, judicial and quasi-judicial authority) shall issue any orders, directions, decrees, Judgments etc. that will be in contravention of the provisions of the Resolution Plan (including the financial plan).
VI Term of the Resolution Plan .....
The Resolution Plan, once approved by the CoC and following the Plan Approval Order, shall be binding on the Governmental Authorities or any local authority whose Claim, debt, liability including contingent liabilities as on the Effective Date, in each case, whether or not such Claim, debt, liabilities including contingent liabilities is reduced to judgment, fixed, equitable, matured, unmatured, disputed, undisputed, secured, unsecured, contingent, crystallised, admitted, rejected, under verification, assessed or unassessed, recognized in the financial statements or Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 8/21 447-WPL-6313-2024.doc not, and whether or not such Claim, debt, liability is in relation to or on account of notice, proceedings, compounding, Non- Compliance, non-filling, non-preparation of documents, reports, or pursuant to any surveys or summons, under any applicable Law for the time being in force. Any such Claim, debt, liability including contingent liabilities shall be deemed to be dealt with in the Resolution Plan.
(Emphasis supplied)
10. Petitioner replied to the notices received calling upon respondent to withdraw the notices, since the Resolution Plan as approved by NCLT stipulates that no person shall be entitled to initiate any proceedings or inquiry, assessment, regulatory including any tax proceedings or administrative proceedings against petitioner in relation to the period before the Effective Date. This would include such claims whether contingent, crystallized, known, unknown or not filed, or of the government authorities in relation to all taxes pertaining to a period prior to the Effective Date, all which would stand extinguished. Respondent vide its letter dated 5th January 2024 declined to withdraw the notices but have taken a stand that the A.O. is not prohibited from initiating or continuing the assessment proceedings and therefore there was nothing wrong in issuing notices under Section 143(2) and 142(1) of the Act which are an essential part of the assessment proceedings. Respondent also stated that on finalization of assessment proceedings, the demand if any shall not be enforced. Paragraph No.5 of the said letter dated 5 th January 2024 reads as under :
5. In view of the above, it may be reasonably concluded that under the Insolvency and Bankruptcy Code, 2016
(a) The Assessing Officer is not prohibited to initiate/continue the assessment proceedings.
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(b) The notices issued u/s 143(2) and 142(1) of the I.T. Act are an essential part of the assessment proceedings and therefore, the same may be lawfully continued under the Income-tax Act 1961. Thus, after careful consideration of various contentions of the assessee, it is concluded that the assessment proceedings requires to be lawfully continued under the Income Tax Act, 1961.
(c) On finalization of assessment proceedings, demand if any shall not be enforced.
11. In the affidavit in reply respondents have taken the same stand.
Ms. Gokhale further submitted that though the accepted position is Revenue will not be able to recover any money from petitioner even if it is found that the tax paid was less than what the tax payable based on the assessment proceedings, completion of assessment proceedings will aid the Revenue from taking further steps against the ex-promoters of petitioner. A similar situation came up for consideration before this court in the case of Alok Industries Limited vs. Assistant Commissioner of Income Tax 1 where the court following the judgment of the Hon'ble Apex Court in Ghanshyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Ltd. 2, held that all dues including statutory dues owed to the Central Government, 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 a period prior to the date on which the Adjudicating Authority grants its approval under Section 31 of the Act could be continued. Even though in the case of Alok Industries Limited (supra) notices had been issued under Section 148A of the Act and Section 148 of the Act, in our view that would
1. (2024) 161 taxmann.com 285 (Bombay)
2. (2021) 9 SCC 657 Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 10/21 447-WPL-6313-2024.doc not make any difference. We should also note that even in Alok Industries Limited (supra) the Revenue had made it clear that they do not wish to recover any money from assessee. It will be useful to reproduce the order passed in Alok Industries Limited (supra) which reads as under :
"1 Petitioner is challenging the notice dated 27 th February 2021 issued by respondent no.1 under section 148 of the Income-tax Act, 1961 ("the Act") for the assessment year 2013-14, the order dated 6th December 2021 passed by respondent no.1 rejecting the objections of petitioner for assessment year 2013-2014, the assessment order dated 18th February 2022 passed under section 144 r.w.s. 147 of the Act for assessment year 2013-2014 and the penalty notice dated 23rd March 2022 issued under section 274 r.w.s. 271(1)(c) of the Act for the assessment year 2013-14.
2 On or about 29th June 2017, State Bank of India filed a petition before the National Company Law Tribunal ("NCLT") for initiation of Corporate Insolvency Resolution Process ("CIRP") against petitioner under the provisions of the Insolvency and Bankruptcy Code, 2016 ("the Code"). The NCLT admitted the petition on 18 th July, 2017. On 26th June 2018, (resolution applicant) had filed a resolution plan.
3 The NCLT vide order dated 8 th March 2019 allowed the resolution plan of the Resolution Applicant. As per the resolution plan, the liquidated value of all operating debt (including the debt, if any, of the Income-Tax Department which is also part of operating debt) was NIL. The resolution plan further provided that all claims (whether final or contingent, whether disputed or undisputed, and whether notified or claimed against the Company) of all Governmental Authorities (including in relation to Taxes, and all other dues and statutory payments to any Governmental Authority), relating to the period prior to the Closing Date, shall stand fully and finally discharged and settled. The closing date of the resolution plan is the date when the resolution plan has been given effect to, i.e., 14th September, 2020.
4 After the resolution plan has been given effect to, respondent no.1 has initiated reassessment proceedings against petitioner for assessment year 2013-14 by issuing a notice under section 148 of the Act dated 27th February, 2021. Although, petitioner filed objections to the initiation of reassessment proceedings by submitting, inter alia, that the proceedings for assessment year 2013-14, being a period prior to the closing date are non-est and could not have been initiated by the Income-tax Department in view of the resolution plan approved by the NCLT, respondent no.1, vide order dated 6th December 2021, rejected the submission of petitioner by inter alia holding that ".......all income tax proceedings are not always for recovery of tax, it can be used for Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 11/21 447-WPL-6313-2024.doc collection of evidence of third parties, ex-promoters etc......''.
5 Thereafter, respondent no.1 has also proceeded to pass an order dated 18th February 2022 under section 144 r/w section 147 of the Act, making an addition of Rs.109.70 crores to the income of petitioner. It is noted that although at paragraph 9.5 of the assessment order, respondent no.1 notes that the assessment order is passed on a protective basis, respondent no.1 has also proceeded to issue a notice of demand raising a demand of Rs. 305.70 crores. Further, respondent no.1 has initiated penalty u/s 271(1)(c) of the Act.
6 Respondent no.1, in the Affidavit in reply filed through one Saurabh Yadav, Deputy Commissioner of Income Tax, Central Circle 6(2), Mumbai, affirmed on 20th August 2022, has stated that "...... Respondent No.1 is aware of the resolution plan (as submitted by petitioner) and because of that has not initiated any coercive action to recover the demand in petitioner's case...." .
7 In paragraph 4Q(v) respondent no.1 further stated in the affidavit that respondent no.1 has further stated that "...the section is for purpose of assessment/reassessment of escaped income. However before making assessment/reassessment of the escape income, the assessing officer causes necessary enquiries, if the Assessing officer finds/gathers evidence with respect to any other person or with regard to ex-promoters, ex-employees of petitioner, then, the same shall be used, for the purpose of any proceedings under the Income tax Act or any law in respect of the said persons and the findings/evidences in the case of the assessee shall be used against the assessee in framing of the assessment. However, in view of the legal position, yet to be settled, the recovery of demand will not be enforced as being done in the case of petitioner."
8 Section 148 read with Section 147 of the Act only deals with a situation where any income chargeable to tax has escaped assessment for any assessment year. We are unable to fathom as to how the provisions of Section 148 of the Act can be applied for collection of evidences of third party, ex-promoters etc., and we say this because there are separate provisions under Section 133(6) of the Act in which, such evidences can be collected. We are also unable to understand how the provisions of Section 148 of the Act can be used when the proceedings are not for recovery of tax.
9 During the course of submission, the Learned ASG stated that in view of the legal position as it stands under the Code, once resolution plan has attained finality, new management and company can get the benefit of clean slate principle. While the department does not dispute that such benefit has to go to new management, the Learned ASG further submitted that while department would not go to the new management, this cannot, however, result into direct benefit to the erstwhile Directors to make them go scot-free from their evasions and misdeeds. Therefore, some assessment and fact finding process is required to be carried out, where erstwhile Directors' role is given a closer Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 12/21 447-WPL-6313-2024.doc scrutiny.
10 Even then, in our view, for reasons recorded above, Section 148 read with Section 147 of the Act cannot be applied against the company and the present management.
11 Considering the contentions of the parties, averments in the Petition, the affidavit in reply and the statement of learned ASG:-
(a) issue of notice under section 148 of the Act to petitioner company after the approval of the resolution plan for a period prior to closing is invalid and bad in law, having been issued contrary to the provisions of the Code and the Resolution Plan. Section 31 of the Code provides that the resolution plan which is approved under the Code is binding on the Corporate Debtor, its employees, members, creditors including the Central Government, State Government and any local authority to whom a debt or a statutory due is owned. Further, section 238 of the Code provides that the Code shall have effect notwithstanding anything inconsistent therein contain in any other law for the time being in force.
Therefore, the resolution plan approved under section 31 of the Code will be applicable even if the department contends that the same is inconsistent with the provisions of the Act. Hence, proceedings cannot be initiated contrary to the resolution plan. It is to be noted that as per paragraph 3.3.5 of the resolution plan, the value of all dues including income tax dues is treated as nil and is deemed to have been fully discharged and settled for any period prior to the closing date irrespective of whether final or contingent, whether disputed or undisputed, whether or not the Government authority was aware of such claim. Further para 3.3.3 of the Resolution Plan also provides that all proceedings initiated before any forum by the operational creditors (including the central government) shall stand withdrawn and abated. It is also noted that the Income-tax Department had challenged the order of the NCLT approving the resolution plan before the NCLAT, which appeal was rejected on account of delay and, hence, the resolution plan has become final.
(b) The Apex Court in Ghanshyam Mishra & Sons Pvt. Ltd. v/s. Edelweiss Asset Reconstruction Company Ltd. after considering the provisions of the Code has finally concluded in paragraph 102 that all dues including statutory dues owed to the Central Government, 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 a period prior to the date on which the Adjudicating Authority grants its approval under section 31 of the Act could be continued.
(c) Further, section 156A of the Act which has been inserted by the Finance Act, 2022 w.e.f. 1-4-2022 provides that if any amount payable by an assessee for which notice of demand has been issued, is reduced as a result of an order by the Adjudicating authority under the Code, the Assessing Officer shall modify the demand payable in conformity with such order. This section further makes it clear that effect of the resolution plan is required to be Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 13/21 447-WPL-6313-2024.doc given to by the Assessing Officer.
(d) The argument of the revenue that, proceedings under section 148 of the Act initiated for collection of evidence in respect of third parties, ex-promoters, etc. is not within the scope and ambit of section 147 / 148 of the Act, as reassessment proceedings under the said section can only be initiated for bringing to tax income which has escaped assessment, is correct. Further, petitioner's present management is ex-facie not aware of the relevant facts in respect of the period sought to be reopened and may well be incapable of properly participating in reassessment proceedings. In this view of the matter the proposed reassessment proceedings (no matter what the purpose) would be a futile endeavour.
(e) Insofar as the contention/submission of the revenue regarding the possible liability of previous management, the Revenue may take whatever steps are available to them in law to take action, if any, against ex-promoter, other third parties, but the same cannot be done by issuing notice under section 148 of the Act which requires petitioner to file the return of income, and thereafter in response to such notice participate in further proceedings.
(f) In view of the aforesaid, the notice dated 27 th February 2021 issued by respondent no.1 under section 148 of the Act, the order dated 6th December 2021, rejecting the objections of petitioner, the assessment order dated 18th February 2022 passed under section 144 r.w.s. 147 of the Act and the penalty notice dated 23rd March, 2022 issued under section 274 r.w.s. 271(1)(c) of the Act for the assessment year 2013-14 are quashed and set aside.
(g) Petitioner undertakes to withdraw/apply to withdraw within two weeks the appeal against the order of assessment dated 18th February 2022 filed before the Commissioner of Income Tax(Appeal). Undertaking accepted.
12 Petition disposed.
13 At the same time, we make it clear that if, the revenue wants to take any steps as they proposed to, it may do so in accordance with law.
14 All rights and contentions of the parties are kept open."
12. This was followed by this court in The Principal Commissioner of Income Tax, Central - 4 vs. Patanjali Foods Ltd. (Formerly known as Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 14/21 447-WPL-6313-2024.doc Ruchi Soya Industries Ltd.3. The Telangana High Court in Sirpur Paper Mills Limited and Another vs. Union of India and Others 4, where also the Revenue was seeking to pass the Assessment Order under Section 143(3) of the Act as in the case at hand, held that the notices were unjustified and it was impermissible once the Resolution Plan is approved under the Code.
Paragraph No. 70, 71 and 72 of Sirpur Paper Mills Limited and Another (supra) reads as under :
70. From the above, it is evident that Income Tax authorities are seeking information for the purpose of making assessment for the assessment year 2017-18 as the return of the corporate debtor (petitioner No.1) has been taken up for scrutiny under CASS. The assessment year 2017-18 (previous year 2016-17) covers the period prior to approval of the resolution plan by the Tribunal on 19.07.2018. Clause 7.5 (c) as extracted and discussed above, bars all notices to initiate any proceeding against the corporate debtor in relation to the period prior to the date of the Tribunal's order, clarifying that such notices would stand abated. All assessment proceedings relating to the period prior to the completion date would stand terminated with all consequential liabilities being abated. That apart, as per paragraph No.17.7 (c) of the resolution plan, the corporate debtor is entitled to carry forward the unabsorbed and accumulated losses and to utilize such amounts to set off future tax obligations.
71 From the tone and tenor of the impugned notices what is evident is that respondents are seeking to pass assessment order under Section 143 (3) of the Act since the case of petitioner No.1 was selected for limited scrutiny under CASS. However, the period of the assessment order would be a period covered by the resolution plan. We have already noticed that petitioner No.1 through the resolution professional had filed return of income prior to order of the Tribunal approving the resolution plan. When arithmetical mistake was pointed out by the Income Tax Department, post such approval, petitioner No.1 carried out the correction and submitted revised return lowering the figure of loss sustained by petitioner No.1. Such a revised return cannot be construed as a fresh return filed by the petitioner No.1 since it is a continuation of the return of income filed earlier. In view of Clause 7.5 (c) of the resolution plan, as approved by the Tribunal and in view of the decisions of the Supreme Court in Committee of Creditors of Essar Steel India Limited (3 supra) and Ghanashyam Mishra (5 supra), the claim of the Income Tax Department which is outside the resolution plan would stand extinguished.
3. Writ Petition No. 1971 of 2023 Dated 17th April 2024 (Unreported)
4. 2022 SCC OnLine TS 130 Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 15/21 447-WPL-6313-2024.doc 72 Insofar carry forward of losses and adjustments against future profits are concerned, the same is provided by Clause 17.7 (c) of the resolution plan. However, as and when such carry forward and set off is claimed by the petitioner in future, i.e. beyond the period covered by the resolution plan, the Income Tax Department would be entitled to verify such claim and pass appropriate order. But for the period covered by the resolution plan, it cannot carry out any scrutiny or carry out assessment in respect of the corporate debtor.
To that extent, the impugned notices cannot be justified.
13. The Delhi High Court in Rishi Ganga Power Corporation Ltd. vs. Assistant Commissioner of Income Tax5 also took similar view. Paragraph Nos. 28 to 38 read as under :
28. Having heard learned counsel for the parties, what is not in dispute insofar as the instant case is concerned is that some of the notices issued under Section 143(2) of the 1961 Act predated the order dated 13.11.2018 passed by the NCLT, whereby KCPL's RP was approved. These notices are dated 09.08.2018, 28.09.2018 and 30.09.2018. These notices adverted to the fact that additions concerning share application money and depreciation claimed by RGPCL were proposed to be made for AY 2017-18 [Financial Year (FY) 2016- 17]. Thus, limited scrutiny was proposed. The notices were based on the ROI filed by RGPCL. Therefore, the additions to RGPCL's income were, quite clearly, on the anvil. The argument that the proposal had not fructified into tax demand is flawed for the following reason:
29. A perusal of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 [hereafter referred to as "2016 Regulations"] require operational creditors to submit their claim with proof to the IRP, which are not necessarily claims that have been adjudicated. As per Regulation 7 of the 2016 Regulations, operational creditors must file their claims with proof in the prescribed form, i.e., Form appended to the Schedule. Regulation 7, when read alongside particulars sought against Sr. No. 6 of Form B, would drive home the point that it can include claims that are disputed. The information sought, among other things, against Sr. No.6 of Form points in this direction :
Particulars xxx xxxxxx
6. Details of any dispute as well as the record of pendency or order of suit or arbitration proceedings.
xxx xxxxxx
5. 2023 SCC OnLine Del 6994 Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 16/21 447-WPL-6313-2024.doc
30. Furthermore, the definition of claim contained in Section 3(6)
(a) of the 2016 Code puts these aspects beyond doubt:
"3. Definitions.- In this Code, unless the context otherwise requires,-
xxx xxxxxx (6) "claim" means-
(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;
xxx xxxxxx"
31. Therefore, the submission advanced on behalf of the revenue insofar as the tax demand, which is the subject matter of the impugned order and notice dated 06.12.2019, is concerned, is untenable in law. An operational creditor can lodge a claim which needs to be adjudicated.
32. As far as the impugned order dated 21.11.2019 and notice dated 22.11.2019 are concerned, it will have to suffer the same fate as the penalty which was imposed, and the consequential demand that was created had its genesis in the failure of the previous management of RGPCL in responding to the statutory notices. These notices concerned the aspects mentioned in the first notice dated 09.08.2018, issued under Section 143(2) of the 1961 Act.
33. The aforementioned impugned order and notice, dated 21.11.2019, cannot have a life on its own and are inextricably linked to the fate of the impugned assessment order and notice dated 06.12.2019.
34. Thus, having regard to the fact that the revenue had not lodged its claim, despite the publication of the public announcement by the Resolution Professional inviting claims from creditors, including statutory/operational creditors such as the revenue, no provision could be made [even if it may otherwise have been possible] in the approved RP. The terms contained in the approved RP are binding on all stakeholders, including those who could have filed claims but chose not to lodge them. The revenue, having failed to lodge its claim, cannot enforce the impugned orders and notices, given the binding nature of the approved RP.
35. Section 31 of the 2016 Code, among other things, stipulates that once the RP is approved, it shall be binding on the corporate debtor and its employees, members, and creditors, which includes the Central Government, State Government, Local Authority to whom a debt in respect of payment of dues arising under any law for the time being in force and also on authorities to whom statutory dues are owed. Furthermore, the provision also stipulates that the approved plan will bind the guarantors and other stakeholders involved in forging the same. [See Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 17/21 447-WPL-6313-2024.doc Vs. Edelweiss Asset Reconstruction Company Limited through the Director, (2021) 9 SCC 657].
36. Since the revenue failed to lodge its claims, the impugned demands raised by the revenue stand automatically extinguished. [See Ruchi Soya Industries Limited and Others Vs Union of India and Others, (2022) 6 SCC 343 and Sreemetaliks Limited Vs. Additional Director General and Ors., 2023/DHC/001118 (at para
53)].
37. Therefore, the submission made on behalf of the revenue that it should be allowed to enforce the impugned orders and notices is misconceived in law.
Conclusion:
38. Thus, for the foregoing reasons, we are inclined to quash the impugned notices and orders. It is directed accordingly.
14. On Ms. Gokhale's submissions that Revenue's attempt is not to recover any dues from petitioner but only wants to complete the assessment proceedings so that they may take action against the ex-promoters should the need arise, we are afraid even that will not be appropriate because in the Resolution Plan it says :
l. Upon approval of the Resolution Plan by the Adjudicating Authority, all Non-Compliances of the Corporate Debtor for the period until the Effective Date or on account of the steps undertaken for the implementation of the Resolution Plan (including but not limited to those relating to Tax, securities laws and foreign exchange regulations), shall be deemed to be waived by all the Governmental Authorities.
9. From the Effective Date, all inquiries, investigations, suits, claims, disputes, Proceedings (including any Tax Proceedings) against the Corporate Debtor, pending or threatened, present or future in relation to any period until the Effective Date, or arising on account of implementation of this Resolution Plan, shall stand withdrawn and dismissed and all liabilities and obligations therefore, whether or not set out in the balance sheets of the Corporate Debtor or the profit and loss account statements of the Corporate Debtor will be deemed to have been written off fully, and permanently extinguished and no adverse orders passed in the said matters should apply to the Corporate Debtor or the Resolution Applicant. Upon approval of this Resolution Plan, all new inquiries, assessments, reassessments, rectifications, revisions, Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 18/21 447-WPL-6313-2024.doc surveys, summons, investigations, notices, suits, claims, disputes, litigations, arbitrations or other judicial, regulatory (including any Tax Proceedings) or administrative proceedings will be deemed to be barred and will not be initiated or admitted against the Corporate Debtor in relation to any period until the Effective Date and the Corporate Debtor and/or the Resolution Applicant shall at no point of time be, directly or indirectly, held responsible or liable in relation thereto.
12. No Governmental Authority (including regulatory, judicial and quasi-judicial authority) shall issue any orders, directions, decrees, Judgments etc. that will be in contravention of the provisions of the Resolution Plan (including the financial plan).
15. In the circumstances, since the Resolution Plan expressively provides that no person shall be entitled to initiate any proceedings or inquiry, assessment, enforce any claim or continue any proceedings in relation to claims so long such result to a period prior to the Effective Date of the Resolution Plan, i.e., 10 th November 2022 impugned notices are bad in law.
Further, the impugned notices are bad in law also because respondents failed to take into account that after approval of the Resolution Plan by the NCLT, a creditor including the Central Government, State Government or local authority is not entitled to initiate proceedings on the Resolution Applicant, in relation to claims which are not part of the Resolution Plan approved by the NCLT.
Pertinently, respondents had not submitted any claims to the IRP, as required under the Code, despite the public announcement being issued by the IRP, as prescribed under the Code.
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16. The impugned notice issued under Section 143(2) of the Act by Respondent No. 1 and the consequential impugned notices issued under Section 142(1) of the Act by Respondent No.2 and all subsequent communications issued by Respondent No.2 pursuant to the aforementioned impugned notices are bad in law since assessment and inquiry under the Act is sought to be initiated in gross violation of provisions of the Code in as much as it relates to a period prior to the Effective Date.
17. The impugned notice issued under Section 143(2) of the Act and the impugned notices issued under Section 142(1) of the Act and all subsequent actions undertaken pursuant to the impugned notices issued under Section 142(1) of the Act are bad in law as no proceedings can be initiated against petitioner for a period prior to the Effective Date.
Pertinently, the Resolution Plan provides that new claims, disputes, litigations or other judicial or administrative proceedings (including assessments) etc., will be deemed to be barred and shall not be initiated or admitted against Petitioner in relation to any period prior to the Effective Date.
18. It will also be useful to quote Paragraph No. 95 from Ghanshyam Mishra and Sons Private Limited (Supra). Paragraph No. 95 reads as under :
"That once a resolution plan is duly approved by the Adjudicating Authority under sub-section (1) of Section 31, the claims as provided Purti Parab ::: Uploaded on - 30/04/2024 ::: Downloaded on - 11/05/2024 17:24:07 ::: 20/21 447-WPL-6313-2024.doc in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adiudicating 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. 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 Adjudicating Authority grants its approval under Section 31 could be continued. "
(Emphasis supplied)
19. The approved Resolution Plan clearly provides that any claim and/or liability pertaining to the period prior to the Effective Date (i.e., 10 th November 2022) stood extinguished and/or settled in terms of the Resolution Plan. The NCLT approved the Resolution Plan on 14th October 2022, which is binding on all stakeholders of petitioner including respondents.
20. In the circumstances, Rule made absolute in terms of prayer clause - (b) which reads as under :
(b) To issue a writ of Certiorari or writ in the nature of Certiorari or any other writ, order or direction under Article 226 read with Article 227 of the Constitution of India calling for the records and after examining the legality and validity thereof, quash, cancel and set aside the following :
(i) the Impugned 143(2) Notice dated 31 May 2023 issued by the Respondent No.1 (Exhibit E),
(ii) the First Impugned 142(1) Notice dated 28 August 2023 Respondent No.2 (Exhibit G),
(iii) the Second Impugned 142(1) Notice dated 8 January 2024 Respondent No.2 (Exhibit J),
(iv) the Third Impugned 142(1) Notice dated 29 January 2024 Respondent No.2 (Exhibit L),
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(vi) all consequential actions undertaken by Respondents Nos.1 in pursuance of the Impugned Notices.
21. Petition disposed.
(DR. NEELA GOKHALE, J.) (K.R. SHRIRAM, J.)
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