IBC Overrides Tax Claims; HC Quashes Pre-CIRP Proceedings

The Petitioner, Sivana Realty Private Limited, underwent the Corporate Insolvency Resolution Process (CIRP) and its Resolution Plan was approved by the NCLT, Mumbai, on 19.07.2023 under Section 31 of the Insolvency and Bankruptcy Code, 2016. The Resolution Plan attained finality and was implemented. During CIRP, the Income Tax Department had filed its claims.

Despite this, the Revenue continued to initiate and pursue reassessment, demand, and penalty proceedings for Assessment Years 2011-12 to 2021-22, all relating to the period prior to approval of the Resolution Plan. This included notices under Sections 148, 148A(d), penalty notices, and multiple assessment orders passed even after the Resolution Plan approval, despite the interim protection granted by the NCLT restraining coercive action. Aggrieved by such continued proceedings, the Petitioner approached the Bombay High Court.

Issue Raised: Whether income tax authorities can initiate or continue assessment, reassessment, or penalty proceedings for periods prior to approval of a Resolution Plan under Section 31 of the IBC.

HC Held: The Bombay High Court allowed the writ petition and quashed all impugned proceedings. It held that once a Resolution Plan is approved under Section 31 of the IBC, it is binding on all stakeholders, including statutory authorities, and all claims not forming part of the Resolution Plan stand extinguished. Relying on the Supreme Court rulings in Ghanashyam Mishra & Sons Pvt. Ltd and Vaibhav Goyal, the Court reiterated that no proceedings can be initiated or continued for pre-resolution dues once the plan is approved.

The determinative factor is the period to which the liability relates, not the date of passing the order. The Court further held that penalty proceedings cannot survive independently once the underlying tax liability is extinguished. It also found the Revenue’s continuation of proceedings despite NCLT’s interim protection to be without jurisdiction. Thus, all assessment orders, reassessment notices, demand notices, and penalty proceedings pertaining to AY 2011–12 to 2021–22 were quashed. The Court directed the Revenue to withdraw such proceedings; update records, including the Income Tax Portal, within 12 weeks; and refrain from any coercive action.

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