PUNE SHOLAPUR ROAD DEVELOPMENT COMPANY LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 14(1)(1), MUMBAI

The relevant facts, as emanating from the record, are that the assessee-company had filed its return of income for the assessment year 2014-15 and assessment proceedings were thereafter undertaken by the Assessing Officer. Subsequently, proceedings under section 148 of the Act were initiated and the reassessment proceedings culminated in an order dated 23.05.2023 passed under section 143(3) read with section 147 and section 144B of the Act. Pursuant to the said reassessment, a substantial demand was raised against the assessee. The assessee's grievance before the learned CIT(A) was that, in view of the resolution process and the subsequent approval of the resolution plan by the National Company Law Tribunal, the tax liabilities relating to the period covered by the resolution plan stood extinguished and, consequently, the assessment order and the demand arising therefrom could not survive.

It is not in dispute that the assessee-company formed part of the IL&FS Group and was subjected to a resolution process under the Insolvency and Bankruptcy Code, 2016. The National Company Law Tribunal, Mumbai Bench, by its order dated 14.10.2022, approved the resolution plan in respect of the relevant Phase-2 SPVs, including the assessee. As noticed in the proceedings before the learned CIT(A), the tax liabilities pertaining to the period prior to 15.10.2018 stood extinguished in respect of the Phase-2 SPVs, including the assessee. The assessment year under consideration, namely assessment year 2014- 15, admittedly falls within the period prior to the said cut-off date.

The learned CIT(A), while considering the assessee's challenge, accepted the legal effect of the resolution plan. The appellate order records the position that, once the NCLT-approved resolution plan had come into force, the tax liabilities pertaining to the period prior to 15.10.2018 stood extinguished. The learned CIT(A) also considered the decision of the Hon'ble Supreme Court in Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., 126 taxmann.com 132, and the judgment of the Hon'ble Bombay High Court in Uttam Value Steels Ltd. v. ACIT.,166 taxmann.com 493. However, after accepting the position regarding extinguishment of the relevant tax liability, the learned CIT(A) proceeded to hold the appeal to be infructuous instead of annulling the assessment order and the consequential demand. It is this aspect of the order which is challenged before us.

We have heard the learned Authorised Representative (ld.AR) and the learned Departmental Representative (ld.DR) and carefully considered the material available on record. The ld.DR relied upon the order of the learned CIT(A), whereas the ld.AR submitted that, once the resolution plan had been approved by the NCLT and the tax liabilities pertaining to the relevant period stood extinguished, the subsequent assessment order could not create a fresh liability in respect of the said period. It was accordingly submitted that the assessment order as well as the consequential demand ought to be quashed.

The issue which arises for our consideration is, therefore, a narrow one. The question is whether, after approval of the resolution plan by the NCLT, an assessment order could validly be passed in respect of a period falling prior to the cut-off date specified in the resolution plan, so as to create a tax liability and consequential demand against the corporate debtor, when such liability was not part of the approved resolution plan. In our considered view, the answer has to be found principally in the effect of section 31 of the Insolvency and Bankruptcy Code, 2016, as explained by the Hon'ble Supreme Court and subsequently applied by the Hon'ble Bombay High Court.

The starting point of the discussion is the judgment of the Hon'ble Supreme Court in Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [2021] 126 taxmann.com 132. The Hon'ble Supreme Court, while examining the effect of approval of a resolution plan under section 31 of the Insolvency and Bankruptcy Code, held that once the resolution plan is duly approved by the Adjudicating Authority, the claims as provided in the resolution plan stand frozen and become binding upon the corporate debtor and all concerned stakeholders, including the Central Government, State Governments and local authorities. The Hon'ble Supreme Court further held that all dues, including statutory dues owed to the Central Government, State Government or local authority, which are not part of the resolution plan, stand extinguished and that no person is entitled to initiate or continue proceedings in respect of a claim which is not part of the resolution plan. The principle underlying the judgment is that the successful resolution applicant must be able to take over the corporate debtor with certainty as to the liabilities attaching to it and should be able to commence the business on a fresh slate without being confronted with undisclosed or subsequently raised claims relating to the past.

The aforesaid principle assumes particular significance in the present case because the assessment year under consideration is assessment year 2014-15, whereas the resolution plan approved by the NCLT provided for extinguishment of liabilities relating to the period prior to 15.10.2018. Thus, the liability sought to be fastened upon the assessee by the reassessment order dated 23.05.2023 pertains to a period which was already covered by the resolution plan. The mere fact that the assessment order was passed subsequent to the approval of the resolution plan cannot, in our view, revive a liability which had ceased to survive under the approved resolution plan.

The aforesaid principle has been specifically applied to income-tax proceedings by the Hon'ble Bombay High Court in Uttam Galva Metallics Ltd. v. Assistant Commissioner of Income-tax [2024] 166 taxmann.com 492. In that case, the Revenue had sought to continue reassessment proceedings relating to a period prior to the approval of the resolution plan. The Hon'ble High Court, after considering the judgment of the Hon'ble Supreme Court in Ghanashyam Mishra, held that dues which were not part of the resolution plan stood extinguished and that no person was entitled to initiate or continue any proceedings in respect of any such dues. Significantly, the Court did not restrict the effect of the resolution plan merely to recovery of an already crystallised demand. The Court considered the validity of the reassessment proceedings themselves and held that continuation of existing proceedings and initiation of new proceedings relating to the period prior to the resolution plan could not survive after approval of the resolution plan.

The decision of the Hon'ble Bombay High Court in Uttam Value Steels Ltd. v. Assistant Commissioner of Income-tax [2024] 166 taxmann.com 493 is also directly relevant. In that case, proceedings initiated under the Income-tax Act in respect of a period prior to the effective date were considered in the light of the approved resolution plan. The Court held that where the relevant dues were not part of the resolution plan, they stood extinguished and that the Revenue could not, by initiating or continuing proceedings thereafter, seek to fasten such liability upon the corporate debtor. The decision thus reinforces the principle that the effect of approval of a resolution plan is not confined to the stage of recovery but extends to proceedings which seek to give effect to a claim which itself no longer survives.

We may also refer to the judgment of the Hon'ble Bombay High Court in Swan Defence and Heavy Industries Ltd. v. Assistant Commissioner of Income-tax [2025] 177 taxmann.com 467. The facts of that case involved initiation of proceedings under sections 148A(3) and 148 in respect of an earlier assessment year after approval of the resolution plan. The Hon'ble Bombay High Court, following the principles laid down in Ghanashyam Mishra and the subsequent decisions of the Court, held that a belated claim relating to the period covered by the resolution plan could not thereafter be introduced by the Revenue. The Court consequently quashed the proceedings initiated under sections 148A(3) and 148.

The decision in Swan Defence is of particular relevance because the Hon'ble Bombay High Court also considered the judgment of the Hon'ble Madras High Court in Dishnet Wireless Ltd. v. Assistant Commissioner of Income-tax [2022] 139 taxmann.com 493. In Dishnet Wireless, the learned Single Judge of the Madras High Court had considered the particular factual circumstances of that case and held that the resolution process did not preclude the Income-tax Department from proceeding under sections 147 and 148. The Hon'ble Bombay High Court in Swan Defence, however, distinguished the factual situation before it and, with respect to the reasoning in Dishnet Wireless, observed that the reasoning adopted therein was in conflict with the decision of the Hon'ble Supreme Court in Ghanashyam Mishra. The Bombay High Court accordingly followed the principle that, once the resolution plan had been approved, a claim relating to the earlier period could not thereafter be introduced through fresh proceedings under the Income-tax Act.

The above principle has also been recognised in the other decisions relied upon by the ld.AR. In Sirpur Paper Mills Ltd. v. Union of India [2022] 135 taxmann.com 188 (Telangana), the High Court considered proceedings relating to the period prior to the resolution plan and held that the same could not survive in view of the terms of the approved resolution plan. In TUF Metallurgical (P.) Ltd. v. Union of India [2023] 157 taxmann.com 424 (Delhi), the Delhi High Court dealt with tax claims pertaining to periods prior to approval of the resolution plan and applied the principle of extinguishment of such claims. Likewise, in Rishi Ganga Power Corporation Ltd. v. Assistant Commissioner of Income-tax [2024] 158 taxmann.com 72 (Delhi), the Delhi High Court considered the position where the Revenue had not lodged its claim before the Resolution Professional despite the public announcement inviting claims and held that the Revenue could not thereafter enforce the assessment order against the corporate debtor. The assessee has also placed reliance upon Murli Industries Ltd. v. Assistant Commissioner of Income-tax [2022] 441 ITR 8 (Bom.) and the decision of the Delhi Bench of the Tribunal in JEKPL Private Limited v. DCIT, ITA No. 759/Del/2022. These decisions, though rendered in their respective factual settings, are consistent with the fundamental principle that claims relating to the period covered by an approved resolution plan cannot subsequently be revived contrary to the terms of the plan.

In the present case, the factual position is clear. The resolution plan was approved by the NCLT on 14.10.2022 and the relevant tax liabilities relating to the period prior to 15.10.2018 stood extinguished. The assessment year before us is 2014-15 and therefore falls wholly within the period covered by the extinguishment. The reassessment proceedings culminated in an assessment order only on 23.05.2023, i.e. after approval of the resolution plan. Consequently, on the date on which the impugned reassessment order was passed, the Revenue was already bound by the NCLT-approved resolution plan and could not create, through a subsequent assessment order, a fresh tax claim in respect of the period for which the liability had already stood extinguished.

We are unable to accept that the mere quantification of the liability through an assessment order subsequent to approval of the resolution plan can alter the legal position. The relevant consideration is not merely the date on which the tax liability was quantified, but the period to which the underlying claim relates. Here, the claim relates to assessment year 2014-15. The fact that the assessment order was passed subsequently cannot convert an extinguished pre-resolution claim into a new and enforceable liability arising after the resolution plan. To permit such a course would defeat the finality attached to the resolution process and would enable a claim relating to the past to be brought into existence merely by passing an assessment order after approval of the resolution plan.

We may also observe that the present case is not merely one where a validly surviving demand is incapable of recovery. The issue is anterior to recovery. The very proceedings which culminated in the assessment order dated 23.05.2023 relate to a period covered by the resolution plan and seek to determine and impose a tax liability which, in view of the approved resolution plan and the law declared by the Hon'ble Supreme Court, no longer survives against the assessee. The assessment order cannot, therefore, be treated as an independent source for creating a fresh liability when the underlying claim itself stands extinguished.

The learned CIT(A), in our view, correctly appreciated the effect of the NCLT-approved resolution plan and the principle laid down in Ghanashyam Mishra. However, having reached the conclusion that the relevant tax liability stood extinguished, the learned CIT(A) erred in merely holding the appeal to be infructuous. Once the assessment order dated 23.05.2023 had been passed in respect of a period for which the tax liability stood extinguished pursuant to the approved resolution plan, the consequential demand raised pursuant to such assessment could not survive. The appropriate consequence was, therefore, to annul the assessment order and quash the consequential demand rather than merely dismissing the appeal as infructuous.

In view of the foregoing discussion, and respectfully following the principles laid down by the Hon'ble Supreme Court in Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. and the subsequent decisions of the Hon'ble Bombay High Court in Uttam Value Steels Ltd., Uttam Galva Metallics Ltd. and Swan Defence and Heavy Industries Ltd., we hold that the reassessment order dated 23.05.2023, insofar as it relates to assessment year 2014-15 and seeks to create a tax liability for a period covered by the NCLT-approved resolution plan, cannot survive. The consequential demand of Rs. 240.65 crore raised pursuant to the said assessment order also cannot survive. The order of the learned CIT(A) is accordingly modified to this extent and the assessment order dated 23.05.2023 is annulled and the consequential demand is quashed.

In the result, the appeal filed by the assessee is allowed.