Facts of the Case

The petitioner challenged the Assessment Order dated 22 May 2024 passed under Section 143(3) of the Income Tax Act, 1961 for Assessment Year 2022–23, along with the consequential Demand Notice under Section 156 and penalty notices under Section 274 issued by the Deputy Commissioner of Income Tax.

The petitioner contended that these actions were initiated after approval of a Resolution Plan for revival and restructuring of the company by the National Company Law Tribunal (NCLT), Chennai, on 6 December 2021 under the Insolvency and Bankruptcy Code (IBC), 2016.

Earlier, the company had undergone Corporate Insolvency Resolution Process (CIRP), initiated on 29 August 2019. The approved Resolution Plan provided for extinguishment of all past claims and liabilities not forming part of the plan, enabling the company to operate under new management on a “clean slate basis.”

Issues Involved

  1. Whether income tax assessment and penalty proceedings initiated after approval of a Resolution Plan are legally sustainable for pre-resolution liabilities.
  2. Whether claims not included in the approved Resolution Plan stand extinguished under Section 31 of the IBC.
  3. Applicability of the “clean slate” doctrine to tax authorities as stakeholders.

Petitioner’s Arguments

The petitioner argued that once the Resolution Plan was approved by the NCLT, all prior liabilities and claims not incorporated in the plan stood extinguished. Therefore, issuance of assessment, demand, and penalty notices relating to pre-resolution periods violated the provisions and objectives of the IBC.

Reliance was placed on judicial precedents recognizing that the successful resolution applicant must take over the corporate debtor free from historical liabilities, unless expressly preserved in the Resolution Plan.

Respondent’s Position

Despite advance notice, no appearance was made on behalf of the respondents at the hearing. The Court proceeded to decide the matter based on the record and submissions of the petitioner.

Court Order / Findings

  • Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. — held that tax authorities are bound by the Resolution Plan and cannot pursue pre-resolution claims not included therein.
  • Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta — emphasized that the successful resolution applicant must start with a “fresh slate.”

Important Clarification

The judgment reinforces that tax authorities are bound by approved Resolution Plans under the IBC. Any claims—tax or otherwise—pertaining to periods prior to approval and not included in the plan are extinguished. The corporate debtor, under new management, cannot be burdened with historical liabilities, ensuring certainty and viability of the resolution process.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1772176714_THENATIONALSEWINGTHREADCOMPANYLIMITEDVsDEPUTYCOMMISSIONEROFINCOMETAXORS..pdf 

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