H L BUILDWELL PRIVATE LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2, LUDHIANA AND ORS

Facts

A search and seizure operation was conducted at the premises of H L Buildwell Private Limited (the petitioner) on 26.02.2020. For assessment year 2014-15, an assessment order dated 12.04.2022 was passed, adding Rs. 3,63,36,000/- to the assessee's income, along with a demand notice dated 12.04.2022 for Rs. 2,39,87,612/-. Meanwhile, a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) was declared by the National Company Law Tribunal (NCLT) on 15.02.2022. The Income Tax Department filed a claim with the Resolution Professional, which was rejected on 29.06.2022 and attained finality. Subsequently, a resolution plan was approved by the NCLT on 17.08.2023. Since the Income Tax Department's claim was rejected prior to the resolution plan's approval and did not form part of it, the petitioner filed a writ petition seeking to quash the assessment order, demand notices, and the appellate order.

Held

The High Court held that the impugned demand cannot be enforced against the petitioner. The Court relied on the Supreme Court's decision in Ghanashyam Mishra's case, which clearly states that once a resolution plan is approved by the adjudicating authority under Section 31(1) of the IBC, all claims not forming part of the resolution plan stand extinguished and cannot be initiated or continued. The Court noted that the Income Tax Department's claim was rejected by the Resolution Professional on 29.06.2022, much before the resolution plan was submitted and approved by the NCLT on 17.08.2023. Neither the NCLT's order nor the Resolution Professional's order was challenged by the revenue, thus attaining finality. Consequently, the Court overruled the revenue's objection regarding the maintainability of the writ petition and set aside the assessment order, demand notices, and the appellate order. The ratio decidendi is that claims not included in an approved resolution plan under the IBC are extinguished and cannot be enforced against the corporate debtor or its new management.

Key Issues

1. Whether the impugned demand, which was not part of the resolution plan approved by the NCLT, can be enforced against the petitioner, in light of the Supreme Court's decision in Ghanashyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Ltd. (2021) 9 SCC 657? (Question of law) Assessee's contention: The impugned demand is unsustainable as it was not part of the resolution plan approved by the NCLT. The claim was raised before the Resolution Professional and rejected, which order attained finality. Therefore, as per Ghanashyam Mishra's case, the demand cannot be enforced against the new management. Revenue's contention: The assessment proceedings were initiated and completed before the resolution plan was approved. The petition is not maintainable as the petitioner has an efficacious remedy before the Income Tax Appellate Tribunal to challenge the appellate authority's order.