The Bombay High Court's recent judgment addresses crucial legal issues surrounding income tax reassessment proceedings, emphasizing the binding nature of resolution plans approved under the Insolvency and Bankruptcy Code and the necessity for statutory compliance by the Income Tax Department.

• In a recent judgment by the Bombay High Court, Alok Industries Limited v. Assistant Commissioner of Income Tax [2024] 161 taxmann.com 285, several crucial legal issues surrounding income tax reassessment proceedings were addressed. This article aims to delve into the key points of the judgment and its potential implications.

• The case involved a challenge to various notices and orders issued by the Income Tax Department against Alok Industries Limited for the assessment year 2013-14. The petitioner contested the validity of these actions, arguing that they were inconsistent with the resolution plan approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (the Code).

• The resolution plan, approved by the NCLT, had discharged and settled all claims against the company, including income tax dues, for the period prior to the closing date of the plan. Despite this, the Income Tax Department initiated reassessment proceedings against the company, prompting the legal battle that led to the present judgment.

• The High Court made several noteworthy observations and rulings:

1. Scope of Section 148 of the Income Tax Act: The court questioned the application of Section 148 of the Income Tax Act, which deals with the reopening of assessments for escaped income, for the purpose of collecting evidence against third parties or ex-promoters. It emphasized that separate provisions exist under Section 133(6) for such purposes.

2. Binding Nature of Resolution Plan: The court affirmed the binding nature of the resolution plan approved under the Code, highlighting that all dues, including income tax liabilities, stand discharged and settled as per the terms of the plan. It stressed that proceedings contrary to the resolution plan cannot be initiated.

3. Effect of Finality of Resolution Plan: Echoing the Supreme Court's stance in Ghanshyam Mishra & Sons Pvt. Ltd. v/s. Edelweiss Asset Reconstruction Company Ltd., the court reiterated that once a resolution plan attains finality, all dues not part of the plan stand extinguished, and proceedings in respect of such dues cannot be continued.

4. Statutory Compliance: The judgment underscored the necessity for the Income Tax Department to comply with Section 156A of the Act, which mandates the modification of demands in accordance with orders issued by the Adjudicating Authority under the Code.

5. Continued Liability of Previous Management: While acknowledging the possibility of action against ex-promoters or third parties for any liabilities, the court clarified that such actions cannot be pursued through notices issued under Section 148, as this would be futile and unjust towards the present management.

• Ultimately, the court quashed the notices and orders issued by the Income Tax Department against Alok Industries Limited for the assessment year 2013-14, affirming the sanctity of the resolution plan approved by the NCLT.

• In conclusion, the judgment in Alok Industries Limited v. Assistant Commissioner of Income Tax elucidates important principles regarding the interplay between income tax proceedings and resolution plans under the Insolvency and Bankruptcy Code. It underscores the need for statutory compliance and adherence to the terms of resolution plans, while also recognizing the rights of the Income Tax Department to take lawful steps in accordance with established legal principles.

Topic- Principal Commissioner of Income-tax, Central-4 Versus Patanjali Foods Ltd.

Court: Bombay High Court

Date:17/04/2024

Team Taxonation

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