Reassessment Invalid after Approval Of CIRP Resolution: ITAT upholds Deletion of ₹6.41 Cr Addition on Undisclosed Income [Read Order]

The Income Tax Appellate Tribunal (ITAT) upheld deleting the addition of ₹6.41 crore on the basis of the undisclosed income was upheld by the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) which observed that the reassessment proceedings cannot be sustained if the resolution plan under the IBC has been approved by the National Company Law Tribunal (NCLT).

The assessee Delhi Control Devices Pvt. Ltd.had not filed its return of income for the Assessment Year 2018-19.Based on information regarding interest income contractual receipts foreign remittances, sale of immovable property, purchases and bad debts written off the Assessing Officer issued a notice under Section148 of the Income Tax Act alleging escapement of income.

Subsequently, the assessment was completed under Sections 147 read with 144B and an addition of ₹6.41 crore was made.During the proceedings the assessee submitted that it had undergone the Corporate Insolvency Resolution Process (CIRP) and that the NCLT had approved the resolution plan on September 28, 2022.

Further the company was taken over by Statecon Electronics India Ltd. The assessee argued that in view of the approved resolution plan, any demand or proceedings relating to the prior period stood extinguished.

The Revenue had taken the stance that the reassessment proceedings had commenced before the finalization of the CIRP and that the intent was only to determine the correct liability and not for recovery.

It was further stated that the fact that the insolvency proceedings had commenced would not disallow the initiation of the reassessment proceedings as provided under Sections 147 and 148 of the Act.

However, the assessee relied on the fact that the NCLT-approved resolution plan clearly stated that there would be no claims or proceedings initiated prior to the approval.

The Tribunal consisted of Mahavir Singh (Vice President) and S. Rifaur Rahman (Accountant Member) stated that once the resolution plan is approved as provided under Section 31 of the IBC, it is binding on all the parties involved including the government authorities.

Relying on judicial precedents in the cases of M Tech Developers Pvt. Ltd., Asian Colour Coated Ispat Ltd., and Patanjali Foods Ltd., the Tribunal stated that the demand for the proceedings initiated prior to the approval of the resolution plan would not be sustained.

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