Income Tax Reassessment Notice Issued Post Approval of Resolution Plan Not Maintainable

A recent ruling involved the petitioner challenging an income tax reassessment notice issued after the approval of a resolution plan by the National Company Law Tribunal (NCLT). The Hon’ble High Court of New Delhi in the case of Asian Colour Coated Ispat Limited v. Additional Commissioner of Income Tax and Ors., (2024 SCC OnLine Del 5459), dated August 7, 2024, held that once a resolution plan is approved under the Insolvency and Bankruptcy Code (IBC), 2016, income tax reassessment for periods before the plan’s approval is impermissible.

The petitioner, Asian Colour Coated Ispat Limited, had undergone insolvency proceedings initiated by the State Bank of India (SBI) under Section 7 of the IBC, 2016. The NCLT approved the resolution plan, and the petitioner duly communicated this approval to the tax authorities. Despite this, the Additional Commissioner of Income Tax issued a reassessment notice under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2014-15, prompting the petitioner to seek judicial relief.

The Court quashed the reassessment order, emphasizing that the approval of a resolution plan under the IBC, 2016 binds all creditors, including the tax authorities and government authorities to whom statutory dues are owed. In addition, the statutory injunction under Section 31 of the IBC, 2016, prevents any claims or reassessments pertaining to periods before the resolution plan’s approval. It further noted that allowing such reassessments would undermine the resolution process’s finality and the comprehensive debt resolution envisioned under the IBC, 2016.