Gujarat High Court Quashes Demand Notice And Assessment Order In Absence Of Any Claim Not Forming Part Of Resolution Plan

The Gujarat High Court has quashed the demand notice and assessment order in the absence of any claim not forming part of the resolution plan (RP).

The bench of Justice Bhargav D. Karia and Justice Niral R. Mehta has observed that, as per the Insolvency and Bankruptcy Code (IBC), the demand that was raised pursuant to the order dated March 13, 2023, by issuing the demand notice dated March 20, 2023, cannot be said to be in respect to a claim that is part of the resolution plan. The bench stated that the proceedings, which were continued under Section 147 of the Income Tax Act, 1961, by the department, were also not proceeding with respect to a claim that was not part of the resolution plan.

The petitioner-company/assessee was subjected to insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), as an application under Section 7 of the IBC was preferred by the Financial Creditor-State Bank of India on February 3, 2021. The petition of the bank was admitted, and the Creditor Insolvency Resolution Process (CIRP) was initiated by the National Company Law Tribunal (NCLT). Sunilkumar Kabra was appointed Interim Resolution Professional (IRP) by the NCLT.

IRP made a public announcement of the CIRP of the petitioner company and called upon its creditors to submit their claim with the requisite proof. The Committee of Creditors (COC) was also formed by the IRP on February 26, 2021.

The NCLT approved the application filed by the IRP under Section 13(6) of the IBC, and the resolution plan submitted by the resolution applicant was approved.

The petitioner submitted that, as per clause 12.3(viii) of the resolution plan as approved by the NCLT, the resolution applicant will not be liable in respect of any reassessment, reopening, revision, review, or other proceedings under the direct and indirect statutes.

The petitioner preferred the petition on the ground that the resolution applicant is not liable for any income tax proceedings prior to the effective date. The petitioner has therefore challenged the notices issued by the Commissioner of Income Tax (Appeals) in respect of the assessment years 2013-14 to 2018-19 for fixing the hearing of appeals filed by the petitioner against the assessment orders for the respective assessment years.

During the pendency of this petition, the respondent passed the assessment order under Section 147, read with Section 144, and issued the demand notice under Section 156.

The petitioner contended that notices issued under Section 148, along with orders under Section 148A(d), and the proceedings pursuant to the notice were extinguished after the order passed by the NCLT approved the resolution plan. Therefore, no order would have been passed by the respondent on March 13, 2023, and a notice of demand could not have been issued by the respondent as the entire reassessment proceedings stand extinguished in view of the provision of Section 31 read with Section 238 of the IBC.

The court held that the notices issued by the CIT (A) and reference for the hearing of the appeals filed by the petitioner challenging the assessment order would be extinguished on July 1, 2022, as no demand would remain in existence in the absence of any claim raised before the RP by the respondent authority. However, so far as the framing of the reassessment pertaining to the Assessment Year 2018-19 in the absence of any demand pending as of July 1, 2022, and as such, demand raised subsequently would not be a part of the claim to be made before the RP.

Counsel For Petitioner: Dhinal A Shah

Counsel For Respondent: Karan G Sanghani

Case Title: Surya Exim Limited Thro Director Bhawani Singh Versus Union Of India & Ors.

LL Citation: 2024 Livelaw (Guj) 42

Case No.: R/Special Civil Application No. 1195 Of 2023

Click Here To Read The Order