Income Tax Department cannot raise fresh claims after a Resolution Plan is approved: Bombay High Court [Read Judgment]

The Bombay High Court has held that the Tax department cannot raise fresh claims after a resolution plan is approved.

The issue raised was Whether the Authorities of the Income Tax Department can issue notice under Section 148 of the Income Tax Act, 1961 to a Corporate Debtor, calling upon it to submit a return in the prescribed form for the assessment year falling prior to the date of approval of Resolution Plan under Insolvency and Bankruptcy Code, 2016 on the ground that Respondent No. 1 – Assessing Officer had a reason to believe that the income chargeable to tax of the Corporate Debtor has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961

In the present case, one M/s. Edelweiss Asset Reconstruction Company Limited filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 to initiate Corporate Insolvency Resolution Process against the Petitioner. The said Application was admitted by the National Company Law Tribunal, Mumbai vide order dated 05.04.2017 and on 11.04.2017, an Interim Resolution Professionawas appointed by the NCLT. The IRP was later appointed as the Resolution Professional (hereinafter referred to as “RP’) of the Petitioner company. The RP made a public announcement in accordance with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016, calling upon the creditors to submit a proof of their claim. In response, the Deputy Commissioner of Income Tax (TDS) submitted a claim for Rs. 50,23,770/-. According to the Petitioner, this was the only claim received from the Respondents, Income Tax Department in response to the public announcement. The Respondents did not raise any other claim.

The division bench of Justice Sunil B.Shukre and Justice Anil L.Pansare held that Explanation to Section 147 of the Income Tax Act, 1961 creates a deeming fiction of cases where the income chargeable to tax has escaped assessment. Clause (a) deals with a situation where no return of income has been furnished by the assessee although his total income exceeded maximum amount which is not chargeable to income tax. Clause (b) deals with a situation where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowances or relief in the return.

“There are other Clauses also that would indicate the reasons for escaping the assessment. The point is, once the public announcement is made under the IBC by the Resolution Professional calling upon all concerned, including the statutory bodies, to raise claim, it would be expected from all the stakeholders to diligently raise their claim. The Income Tax authorities in that sense, ought to have been diligent to verify the previous years’ assessment of the Corporate Debtor as permissible under the law and to raise the claim in the prescribed form within time before the Resolution Professional. In the present case, the Income Tax Authorities failed to do so and therefore, the claim stood extinguished,” the Court said.

Murli Industries Ltd vs Assistant Commissioner of Income Tax MECL Building

CITATION: 2022 TAXSCAN (HC) 169

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.