Income Tax Department is Entitled to Pass Orders Beyond the Period Covered by the Resolution Plan: Telangana HC

Petition filed to challenge the notices dated 22.09.2019, 21.10.2019, and 30.10.2019 issued by the respondent for the assessment year 2017-18 as being illegal and non-est and further seek a direction to the said respondents not to reopen their claims which were settled in insolvency proceedings. 

Facts

• Petitioner No.1 is a company incorporated under the Companies Act, 1956 and is engaged in the business of paper manufacturing. Similar is the status of petitioner No.2. 
• M/s. Rama Road Lines and others had filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) as operational creditor for initiating corporate insolvency resolution process of petitioner No.1. 
• As per Section 21 of the IBC, a committee of creditors was constituted from amongst the financial creditors of the corporate debtor i.e. petitioner No.1. 
• Thereafter, the resolution professional made a public announcement on 25.09.2017 inviting claims from all the creditors. It is stated that respondents did not submit claims before the resolution professional. 
• The final resolution plan was submitted by petitioner No.2 on 30.04.2018. The same was approved by the committee of creditors and it was approved by the Tribunal, vide its order dated 19.07.2018. 
• Petitioner No.1 had filed return for the assessment year 2017-18 on 17.10.2018. Thereafter respondent No.2 issued notice dated 22.09.2019 under Section 143(2) of the Income Tax Act, 1961 read with Rule 12E of the Income Tax Rules, 1962.
• Respondent again sent notice under Section 142(1) of the Act on 22.10.2019 calling upon petitioner No.1 to furnish the accounts for the assessment year 2017-18 as well as details regarding its immovable assets. This was followed by another notice issued by respondent on 30.10.2019. 

Findings

In that return of income, the corporate debtor disclosed loss of Rs.15,49,43,866-00 and claimed refund of Rs.11,47,698-00 on account of TDS. Thus the return was filed prior to approval of the resolution plan. 

Respondents are seeking to pass assessment order under Section 143 (3) of the Act since the case of petitioner No.1 was selected for limited scrutiny under CASS. However, the period of the assessment order would be a period covered by the resolution plan. 

Beyond the period covered by the resolution plan, the Income Tax Department would be entitled to verify such claim and pass appropriate order. But for the period covered by the resolution plan, it cannot carry out any scrutiny or carry out assessment in respect of the corporate debtor. To that extent, the impugned notices cannot be justified. 

Judgment

It was held that impugned notices dated 22.09.2019, 21.10.2019 and 30.10.2019 being wholly unsustainable in law are hereby set aside and quashed.

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