Clean Slate Doctrine Under IBC Prevents Income Tax Dept from Reopening Assessments Excluded from Approved RP: Delhi HC [Read Order]

In a recent ruling, the Delhi High Court held that the Income Tax Department cannot raise claims that were not part of an approved resolution plan under the Insolvency and Bankruptcy Code (IBC), invoking the Clean Slate Doctrine.

Surya Manufacturing Pvt. Ltd. filed a writ petition challenging an order dated 10.04.2024 issued under Section 148A(d) of the Income Tax Act, which had concluded that it was a fit case for reassessment under Section 148 of the Income Tax Act.

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The petitioner pointed out that it had undergone a Corporate Insolvency Resolution Process (CIRP), and its resolution plan had been approved by the NCLT on 28.07.2021. The new management had taken over post-approval, and the petitioner argued that any tax claims arising prior to the CIRP, but not included in the resolution plan, stood extinguished by operation of law.

The petitioner relied heavily on the Clean Slate Doctrine as upheld by the Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657. According to the petitioner, since the Income Tax Department had not made any claims during the CIRP process, and such claims were not provided for in the approved plan, any subsequent reassessment was in direct violation of the IBC framework.

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The Income Tax Department’s counsel sought to justify its reassessment proceedings, but the court found no merit in the Department’s action.

The bench comprising Justice Vibhu Bakru and Justice Tejas Karia explained that all prior claims not incorporated in the plan are deemed extinguished once a resolution plan is approved under Section 31 of the IBC. The court observed that permitting such reassessments would undermine the finality and sanctity of the insolvency resolution process and contradict the Clean Slate Doctrine enshrined in the IBC.

The Delhi High Court quashed the reassessment order under Section 148A(d) and all proceedings arising from it. The court held that the Income Tax Department had no authority to initiate or pursue reassessment proceedings for claims excluded from the approved resolution plan. The writ petition was allowed.

To Read the full text of the Order CLICK HERE

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