Gujarat High Court Ruling: Penalty Orders Under Income Tax Act Not Permissible Post Resolution Plan Approval under IBC
In a significant judgment, a bench of Justices Bhargav D. Karia and D.N. Ray of the Gujarat High Court has ruled that penalty orders issued under Sections 270A, 271(1)(c), and 271AAC(1) of the Income Tax Act, 1961 cannot be enforced after the approval of the Resolution Plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC). The court emphasized that once the Adjudicating Authority approves a Resolution Plan, all claims, including statutory dues, are extinguished, preventing any further proceedings regarding such dues.
Key Facts:
An Operational Creditor initiated proceedings against Technovaa Plastic Industries Pvt. Ltd. (Corporate Debtor/Petitioner) by filing an application under Section 9 of the IBC before the National Company Law Tribunal (NCLT) in Ahmedabad. On November 12, 2018, the NCLT accepted the application and imposed a moratorium under Section 14 of the IBC, thus commencing the Corporate Insolvency Resolution Process (CIRP) against the Petitioner.
Subsequently, the National Faceless Assessment Centre issued penalty orders under various provisions of the Income Tax Act for the periods prior to September 4, 2020. Dissatisfied with these demand notices from the Respondents, the Petitioner filed a Writ Petition under Article 226 of the Constitution of India. Following the Committee of Creditors’ approval of the Resolution Plan, the Resolution Professional filed Interlocutory Application No. 617 of 2019 in CP(IB) No. 189 of 2018 before the NCLT, seeking approval under Section 31 of the IBC. The NCLT granted approval for the resolution plan on September 4, 2020.
Arguments:
The Petitioner contended that the demand notices were issued for periods predating the NCLT’s order of September 4, 2020. The approval of the Resolution Plan from Kankariya Enterprises Pvt. Ltd. signifies that any tax liabilities due to the Department, unless explicitly included in the Resolution Plan, are extinguished, prohibiting any demands for periods prior to the approval date.
Court Observations:
Upon review, the court recognized that after the NCLT’s approval of the Resolution Plan on September 4, 2020, only the claims expressly included in the plan bind the successful resolution applicant. All other statutory claims outside the plan are extinguished, thus halting any further actions for those dues as per Section 31 of the IBC.
The Supreme Court, in the case of Vaibhav Goel and Anr. Vs. Deputy Commissioner of Income Tax & Anr., underscored that once the Adjudicating Authority approves a Resolution Plan, it becomes binding on all parties involved, including creditors and governmental bodies. The 2019 amendment to Section 31(1), clarifying that statutory dues owed to government entities are included, was regarded as declaratory and retroactively effective from the inception of the IBC.
Additionally, the Apex Court referred to the case of Ghanashyam Mishra and Sons Pvt. Ltd., which asserted that any claim not included in the Resolution Plan is extinguished and cannot be further pursued. This principle was reiterated in Committee of Creditors of Essar Steel India Ltd., where it was asserted that a successful resolution applicant should not be confronted with unresolved or late claims following plan approval.
In conclusion, the court acknowledged that in this case, as the income tax dues for the assessment years 2012–13 and 2013–14 were not part of the approved Resolution Plan, they are extinguished and cannot be enforced against the corporate debtor. The court thus quashed and set aside the impugned demand notices stemming from the assessment and penalty orders.
