Bombay HC quashes SCN to Corporate Debtor, to submit Return for Assessment Year falling prior to approval of Resolution Plan under IBC [Read Order]

The Bombay High Court quashed the show cause notice  to Corporate Debtor, to submit return for assessment year falling prior to approval of Resolution Plan under IBC.

The petitioner, Murli Industries Limited has raised the issue 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, 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.

The Petitioner contends that the Resolution Plan having been approved by the Adjudicating Authority i.e., the NCLT under IBC and the effective date for making the resolution Plan operational having been notified as on 25.08.2020, the Respondents – Income Tax Department could not have issued the impugned notice dated 25.03.2021 i.e., subsequent to the approval of the Resolution Plan. The contentions are based on the proposition that the claims which were not a part of the Resolution Plan are not maintainable against the Corporate Debtor, nor can any claim be initiated thereafter and hence, the Respondents are not entitled to initiate any proceedings for recovery of any dues from the Petitioner.

The division bench of Justice Sunil B.Shukre and Justice Anil L.Pansare held that the 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.

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