Pendency of Insolvency Proceedings: Delhi HC quashes Reassessment Notice u/s 148 of Income Tax Act [Read Order]

The Delhi High Court decided on a matter before it seeking to impugn a notice under Section 148 of the Income Tax Act issued by the Assistant Commissioner of Income Tax for the Assessment Year 2014-15.

The Writ Petition was lodged by Asian Colour Coated Ispat Limited, a wholly owned subsidiary of JSW Steel, impugning a notice that was issued for reassessment while a Resolution Plan under the statutory regime of the Insolvency and Bankruptcy Code, 2016 ( IBC ) was underway.

The Petitioner company was incorporated as a limited company in 2005 under the provisions of the Companies Act, 1956 and was primarily involved in the business of manufacturing, processing, importing and exporting steel products, tubes, pipes and other allied articles.

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The turn of events leading up to this petition began with an application filed by the State Bank of India on 04 April, 2016 who claimed to be a financial creditor to the Petitioner company. The State Bank of India filed an application under Section 7 of the IBC. Section 7 of the IBC provides the means for a financial creditor to file an application to initiate a corporate insolvency resolution process against a corporate debtor. The National Company Law Tribunal proceeded to admit the matter and a moratorium was enforced under Section 14 of the IBC while an Interim Resolution Professional was appointed.

Subsequently, in 2018, a Committee of Creditors (CoC) was formed and public notices inviting Expression of Interest from parties were invited. In response to the same, JSW Steel Coated Products Limited proceeded to present a Resolution Plan for the consideration of the CoC; the Resolution Plan was subsequently passed in liaison with the CoC and approved by the NCLT on 26 October 2020.

The Petitioner was later presented with a Section 148 notice for initiating a reassessment and a 142(1) notice by the Respondent on separate occasions requiring the Petitioner to furnish their Return of Income online and other allied documents. The Petitioner company, after seeking a number of unfruitful preliminary objections towards the reassessment, proceeded to file a Writ Petition before the Delhi High Court which was subsequently disposed of on 17 February, 2022.

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The Respondent meanwhile sought to acquire a legal opinion that would recognize them as an Operational Creditor under Section 5 of the IBC and included the contention that the assessment order in force may not have been passed fairly before a moratorium was declared over the Petitioner company.

The counsel for the Petitioner relied on the cases of Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company (2021) and Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta &Ors. (2020) while contending that the Respondent had no proper “jurisdiction or authority to commence any action for reassessment pertaining to a period prior to the approval of the Resolution Plan by virtue of Section 31 of the IBC”.

The Counsel for the Respondent asserted their claim that the Respondent’s contentions with regards to the requirement of Reassessment cannot be wholly excluded by the Court simply because a Resolution Plan has been approved by the CoC and NCLT under the provisions of the IBC.

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The Counsel for the Respondent relied on various rulings pronounced by the Hon’ble Supreme Court that rebuked the enforceability of the Resolution Plan, citing its inadequacy in light of Section 30(2) of the IBC.

The Division Bench of the Delhi High Court comprising Justice Yashwant Varma and Justice Ravinder Dudeja while adjudging this matter opined that the Respondents have at no point “questioned the validity of the Resolution Plan”. The Coram thus, set aside the contentions of the Respondent and upheld the arguments of the Petitioner while adducing precedents laid down by the same Court and concluded that the proposed reassessment for A.Y. 2014-15 would not sustain, also while quashing the impugned notice under Section 148 issued by the Respondent.

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