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Madras HC: IBC Proceedings Can’t Dilute Rights Of Income Tax Department To Reopen Assessment

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IBC

Debangana Ray

Published on July 3, 2022 at 19:18 IST

The Madras High Court has ruled that the proceedings under the Insolvency and Bankruptcy Code, 2016 cannot dilute the rights of the income tax act to reopen the assessment under Section 148 of the Income Tax Act, 1961.

The Single Bench of Justice C. Saravanan held that the provisions of IBC cannot be misinterpreted to be inconsistent with any other law being at force.

The case dealt with an assessee M/s. Dishnet Wireless Limited submitted before the Madras High Court that the Income Tax Department was not entitled to proceed further with the reassessment proceedings in view of the definition of ‘claim’ as defined in Section 3(6) of the Insolvency and Bankruptcy Code, 2016.

The assessee contended that the Government is a “corporate debtor” and hence, it cannot proceed with the reassessment proceedings since the Corporation Insolvency Resolution Plan had been approved by the NCLT, Mumbai.

The Income Tax Department contended that writ petitions were filed by the assessee after a Moratorium under Section 14 of the Insolvency and Bankruptcy Code came into force.

The Income Tax Department averred that the said Moratorium did not preclude the Income Tax Department from re-opening the concluded assessment under Section 148 of the Income Tax Act, 1961.

The Income Tax Department submitted that there is no bar under the law that inhibits the income tax authorities’ power to continue with the reassessment proceedings initiated under Section 148.

Section 31 (1) of the Insolvency and Bankruptcy Code, 2016 provides that if the Adjudicating Authority is satisfied that the Resolution Plan approved by the committee of creditors meets the specified requirements, it shall approve the said Resolution Plan.

It also provides that the said Resolution Plan shall be binding on the corporate debtor and its employees, members or creditors, including the Central Government, State Government or any local authority to whom a debt in respect of payment of dues under any law in force is owed.

The Court noted that the Resolution Plan submitted by the Insolvency Resolution Professional on behalf of the assessee had not contemplated any concession from the Income Tax Department, despite the fact that notices under Section 148 had already been issued to the assessee before the submission of the said Resolution Plan.

The Court observed that the Corporate Insolvency Resolution Plan approved under Section 31 of the Insolvency and Bankruptcy Code did not contemplate the assessee’s tax dues under the Income Tax Act.

Also, the Court noted that the reassessment proceedings under the Income Tax Act had not been crystallized at the stage of approval of the said Resolution Plan.

The Court held that since the proceedings under the Insolvency and Bankruptcy Code were initiated prior to the initiation of the reassessment proceedings under the Income Tax Act, the assessee should have obtained appropriate concession in the said Corporate Insolvency Resolution Plan.

Since the claims of the Income Tax Department were not considered by the NCLT, Mumbai, while approving the Resolution Plan, the Court held that the power of the Income Tax Department to initiate reassessment proceedings under Section 148 of Income Tax Act cannot be impinged by the said Corporate Insolvency Resolution Plan.

Thus, the Court held that the proceedings under the Insolvency and Bankruptcy Code, 2016 cannot dilute the rights of the Income Tax Department to reopen the assessment under Section 148 of the Income Tax Act.

Therefore, the Court ruled that the Income Tax Department cannot be precluded from reopening the assessment under the Income Tax Act.

The Court, thus dismissed the writ petitions.