Facts of the Case

The petitioner, Surya Manufacturing Private Limited, challenged an order dated 10.04.2024 passed under Section 148A(d) of the Income-tax Act for Assessment Year 2017-18, holding it to be a fit case for issuance of notice under Section 148. The petitioner also challenged the consequential reassessment proceedings.

The petitioner had undergone Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. A resolution plan was approved by the National Company Law Tribunal on 28.07.2021 under Section 30 of the IBC, pursuant to which management and control of the petitioner was taken over by a successful resolution applicant.

The petitioner contended that no provision was made in the approved resolution plan for any outstanding income tax dues for AY 2017-18 and therefore any attempt to reopen assessment for pre-CIRP periods was impermissible in law.

Issues Involved

Whether reassessment proceedings under Sections 148 and 148A could be initiated for pre-CIRP assessment years after approval of a resolution plan under the Insolvency and Bankruptcy Code, whether income tax dues not provided for in the resolution plan stood extinguished, and whether the clean slate doctrine applied to bar reassessment proceedings.

Petitioner’s Arguments

The petitioner argued that once a resolution plan is approved by the NCLT, all claims and liabilities arising prior to the commencement of CIRP which are not part of the resolution plan stand extinguished. It was contended that reopening of assessment for AY 2017-18 amounted to enforcement of a pre-CIRP claim, which was barred in view of the clean slate doctrine as laid down by the Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. Reliance was also placed on earlier Delhi High Court decisions in Ireo Fiveriver Pvt. Ltd. and Asian Colour Coated Ispat Ltd.

Respondent’s Arguments

The Revenue sought to justify the reassessment proceedings but fairly conceded that the issue raised by the petitioner was covered by binding precedents of the Delhi High Court which had applied the clean slate doctrine to income tax proceedings initiated after approval of resolution plans under the IBC.

Court Order / Findings

The Delhi High Court noted that it was undisputed that the petitioner’s CIRP had culminated in approval of a resolution plan by the NCLT on 28.07.2021 and that no income tax dues for AY 2017-18 were provided for in the plan. The Court held that the issue was squarely covered by its earlier decisions in Ireo Fiveriver Pvt. Ltd. v. Income Tax Department and Asian Colour Coated Ispat Ltd. v. ACIT, which followed the Supreme Court ruling in Ghanashyam Mishra & Sons.

Applying the clean slate doctrine, the Court held that all pre-CIRP liabilities, including statutory dues such as income tax, which were not part of the resolution plan stood extinguished. Consequently, reassessment proceedings initiated for AY 2017-18 were without jurisdiction.

Important Clarification

The High Court clarified that income tax authorities cannot reopen or reassess income for pre-CIRP assessment years once a resolution plan has been approved under the IBC, if such tax dues were not specifically provided for in the resolution plan. Approval of the resolution plan grants the successful resolution applicant a clean slate free from past liabilities.

Final Outcome

The writ petition was allowed. The order dated 10.04.2024 passed under Section 148A(d) of the Income-tax Act and all consequential reassessment proceedings initiated in respect of Assessment Year 2017-18 were set aside. All pending applications were disposed of.

Link to download order https://www.mytaxexpert.co.in/uploads/1769756855_SURYAMANUFACTURINGPRIVATELIMITEDVsASSISTANTCOMMISSIONEROFINCOMETAXORS..pdf

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