AO can’t issue scrutiny notice for period covered by resolution plan approved by NCLT under IBC

Case Details: Sirpur Paper Mills Ltd. v. Union of India - [2022] 135 taxmann.com 188 (Telangana)

Judiciary and Counsel Details

• • Ujjal Bhuyan and Dr. Chillakur Sumalatha, JJ.
  • S. Niranjan Reddy for the Petitioner. 
  • Ms. Mamatha Chowdary for the Respondent.

Facts of the Case

The assessee was a company incorporated under the Companies Act, 1956. It was engaged in the business of paper manufacturing. M/s. Rama Road Lines and others had filed an application under the Insolvency and Bankruptcy Code, 2016 (IBC) as operational creditors to initiate the assessee’s corporate insolvency resolution process.

The National Company Law Tribunal (NCLT) had admitted the application, and a moratorium was ordered. The Resolution Professional made a public announcement inviting claims from all the creditors. The resolution plan was revised from time to time, and as sought by the creditors, the final plan was submitted, which was duly approved by the Tribunal.

Later, the Assessing Officer issued a notice under section 143(2). The assessee submitted the response that as the Tribunal has approved the resolution plan, all proceedings and claims arising from dues prior to the approval of the resolution plan stood discharged by virtue of Section 31(1) of the IBC.

However, without considering the assessee’s reply, AO sent another notice under Section 142(1) calling upon the assessee to furnish the accounts and details regarding its immovable assets. The assessee filed the instant writ petition before the High Court.

High Court Held

The High Court held that once the adjudicating authority approves a resolution plan, all such claims/dues owed to the State / Central Government or any local authority, including the tax authorities who were not part of the resolution plan, shall stand extinguished.
In the given case, AO sought information to make the assessment for the assessment year 2017-18 as the return assessee had been taken up for scrutiny under CASS. The assessment year 2017-18 covers the period before the approval of the resolution plan by the Tribunal.
Accordingly, the notices issued to initiate assessment proceedings under Section 143(3) for a period that is squarely covered by the resolution plan as approved by the Tribunal stands abated.