Income Tax Department can’t carry out any Assessment of Corporate Debtor for the Period Covered by the Resolution Plan: Telangana HC [Read Judgment]

The Telangana High Court has held that the income tax department cannot carry out any assessment of Corporate Debtors for the Period Covered By the Resolution Plan.

The petitioner, Sirpur Paper Mills Limited has sought the quashing of notices dated 22.09.2019, 21.10.2019 and 30.10.2019 issued by respondent for the assessment year 2017-18 as being illegal and non-est and further seek a direction to the said respondents not to reopen their claims which were settled in insolvency proceedings.

According to the petitioners, respondents had ample opportunity to submit claims before the resolution professional. But it failed to do so. Be that as it may, the resolution plan as approved by the Tribunal vide order dated 19.07.2018, dealt with the various claims made against the corporate debtor i.e. petitioner No.1. As per the approved resolution plan, the total claim of the operational creditors of the corporate debtor was quantified at Rs.95.71 crores and the payment as per the resolution plan was fixed at Rs.9.50 crores.

The petitioner contended that the Income Tax Department is an operational creditor of the corporate debtor i.e. petitioner. As a consequence of approval of the resolution plan under Section 31(1) IBC, the resolution plan is binding on the corporate debtor as well as on the creditors and other stakeholders involved in the resolution plan. The rights/claims of respondents are well protected under IBC. Therefore, respondents cannot exercise an independent right after an order is passed by the Tribunal approving the resolution plan.

The division bench of Justice Ujjal Bhuyan and Justice Chillakur Sumalatha has held that all assessment proceedings relating to the period prior to the completion date would stand terminated with all consequential liabilities being abated. That apart, as per resolution plan, the corporate debtor is entitled to carry forward the unabsorbed and accumulated losses and to utilise such amounts to set off future tax obligations.

“Insofar carry forward of losses and adjustments against future profits are concerned, the same is provided by Clause 17.7 (c) of the resolution plan. However, as and when such carry forward and set off is claimed by the petitioner in future, i.e. beyond the period covered by the resolution plan, the Income Tax Department would be entitled to verify such claim and pass appropriate order. But for the period covered by the resolution plan, it cannot carry out any scrutiny or carry out assessment in respect of the corporate debtor. To that extent, the impugned notices cannot be justified,” the court observed. The court quashed the impugned notices being wholly unsustainable in law.

To Read the full text of the Judgment CLICK HERE

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