Facts of the Case

The petitions challenged income tax demands raised after approval of resolution plans under the Insolvency and Bankruptcy Code.

  • In one case, the petitioner took over a corporate debtor pursuant to a resolution plan approved under Section 31(1) of IBC. The revenue did not submit claims during CIRP but later raised tax demands and penalties for AY 2017–18.
  • In the second case, CIRP was initiated and later a resolution plan was approved. Despite this, reassessment proceedings and demand notices were issued for AY 2014–15.
  • In both cases, the demands related to pre-CIRP liabilities, and were issued after approval of the resolution plan. 

Issues Involved

  1. Whether income tax claims pertaining to pre-CIRP period survive after approval of a resolution plan under Section 31 IBC.
  2. Whether the Income Tax Department can initiate or continue proceedings for such claims post approval of resolution plan.
  3. Whether government dues are treated differently from other creditors under IBC.

Petitioner’s Arguments

  • All pre-CIRP liabilities stand extinguished upon approval of resolution plan.
  • Revenue failed to submit claims within CIRP despite public notice.
  • Post-approval tax demands violate the binding effect of Section 31 IBC.
  • Relied on Supreme Court judgment in:
    • Ghanshyam Mishra & Sons Pvt Ltd vs Edelweiss Asset Reconstruction Co. Ltd.

Respondent’s Arguments

  • Revenue contended that government dues stand on a different footing.
  • Claimed that tax liabilities are not extinguished by IBC proceedings.
  • Supported validity of assessment orders and penalty notices.

Court Findings / Judgment

  • The Court relied on binding precedent of the Supreme Court and held:
    • Once a resolution plan is approved under Section 31:
      • All claims not included in the plan stand extinguished.
      • This includes statutory dues such as income tax.
  • Revenue failed to submit claims during CIRP despite opportunity.
  • All impugned notices and assessment orders were issued after approval of resolution plan, hence invalid.
  • The argument that government dues are superior was rejected.
  • The Court followed precedents:
    • Ghanshyam Mishra & Sons Pvt Ltd vs Edelweiss Asset Reconstruction Co. Ltd.
    • Ruchi Soya Industries Ltd vs Union of India
    • Sree Metaliks Ltd vs Additional Director General 

Court Order

  • Writ petitions allowed.
  • All assessment orders, demand notices, and penalty proceedings were quashed and set aside.

Important Clarification

  • Government authorities (including Income Tax Department) are bound by resolution plan.
  • Failure to file claim during CIRP results in complete extinguishment of dues.
  • Resolution plan has overriding effect over all prior liabilities.
  • IBC ensures clean slate principle for successful resolution applicants.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/60812122023CW105282022_184220.pdf

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