Bombay High Court
Uttam Value Steels Ltd. And Anr vs Assistant Commissioner Of Income Tax ... on 28 August, 2024
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
2024:BHC-OS:13765-DB
916-OSWPL-9420-2022.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO. 9420 OF 2022
1. Uttam Value Steels Ltd.
2. Mr. Subodh Karmarkar ...Petitioners
Versus
1. Assistant Commissioner of Income Tax
2. Deputy Commissioner of Income Tax
3. Union of India ...Respondents
Mr. Vikram Deshmukh, a/w Siddhi Doshi, i/b ALMT Legal,
Advocates for the Petitioners.
Mr. Suresh Kumar, Advocate for Respondents.
CORAM : G. S. KULKARNI &
SOMASEKHAR SUNDARESAN, JJ.
DATE : AUGUST 28, 2024
ORAL JUDGEMENT: (Per, Somasekhar Sundaresan J.)
1. Rule. Respondents waive service. Rule is made returnable
forthwith with the consent of the parties, taken up for final hearing and
disposal.
Impugned Proceedings:
2. This Petition challenges multiple identified notices and
Digitally
signed by
ASHWINI
ASHWINI JANARDAN
JANARDAN VALLAKATI
VALLAKATI Date:
2024.09.05
14:58:26
+0530
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Ashwini Vallakati
916-OSWPL-9420-2022.doc
communications in connection with proceedings (" Impugned
Proceedings") under the Income-tax Act, 1961 (" the Act") issued by the
Revenue to the Uttam Value Steels Ltd. (" Petitioner-Assessee"), a
company that has been successfully resolved under a Corporate
Insolvency Resolution Process ("CIRP") under the Insolvency and
Bankruptcy Code, 2016 ("IBC").
3. Essentially, the Impugned Proceedings entailed issuance of
notices under:
i) Section 153C (Assessment of income of any other
person);
ii) Section 143 (2) (Assessment);
iii) Section 142(1) (Inquiry before assessment); and
iv) Section 133(6) (Power to call for information)
Resolution of the Petitioner-Assessee:
4. The Petitioner-Assessee was admitted into a CIRP by an
order dated June 26, 2018 passed by the National Company Law
Tribunal, New Delhi ("NCLT"). Various processes under the IBC were
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undertaken. Eventually, the company came to be resolved pursuant to a
resolution plan finalized by the Committee of Creditors, and approved
by the NCLT under Section 31 of the IBC by an order dated May 6,
20201. The resolution plan, as approved by the NCLT, entails a full
waiver of all tax and tax-related interest dues pertaining to the period
prior to commencement of the CIRP.
5. Evidently prior to the commencement of the CIRP, on April
17, 2018, the Revenue had carried out search and seizure action under
Section 132 of the Act against the Vinod Jatia group and it was alleged
by the Revenue that certain companies belonging to the Vinod Jatia
group had engaged in bogus transactions and had made bogus entries in
their books of accounts. Such companies are said to have entered into
transactions with the Petitioner-Assessee too.
6. On March 15, 2021 i.e., well after the approval of the
resolution plan, the Revenue wrote to the Petitioner-Assessee initiating
proceedings under Section 153C of the Act in respect to Assessment Year
2013-14 to 2018-19. Thereafter, the Revenue also issued notices under
Section 143(2) and 142(1) of the Act for Assessment Year 2019-20. The
The record shows that this order was pronounced on April 30, 2020, but delivered
on May 6, 2020.
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Petitioner-Assessee was also issued multiple summons under Section
133(6) (Power to call for information) of the Act.
7. On January 4, 2022 the Petitioner-Assessee made a detailed
representation objecting to the initiation of such proceedings on the
ground that the resolution plan having been approved on May 6,
2020, all past claims pertaining to the Petitioner-Assessee including
claims raised by the Revenue, stood extinguished. It was also contended
that the Revenue could not initiate fresh proceedings for past claims
pertaining to the period prior to the initiation of CIRP. In a nutshell,
the Petitioner-Assessee sought that such proceedings be dropped.
8. On February 17, 2022 the Revenue wrote to the Petitioner-
Assessee contending that the submissions of the Petitioner-Assessee do
not find any support from any legal provision. After its failure to
convince the Revenue, the Petitioner-Assessee has invoked the writ
jurisdiction under Article 226 of the Constitution of India praying for
quashing and setting aside of the Impugned Proceedings including all
the notices and communications received from the Revenue on the
ground that Section 31 of the IBC explicitly makes the resolution plan
binding on the Revenue. The Petitioner-Assessee has also submitted
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that the law declared by the Supreme Court, interpreting Section 31 of
the IBC fully covered the position that the Petitioner-Assessee is in, and
that a corporate debtor after being resolved, starts with a clean slate and
cannot be pursued for past tax claims.
Revenue's Defence of Impugned Proceedings:
9. The Revenue has filed an affidavit in reply dated June 21,
2022 ("Reply Affidavit") opposing the petition. The Reply Affidavit
essentially sets out the various actions initiated against the Vinod Jatia
group and the alleged tax violations indulged in by that group. The
Revenue has asserted that the submissions of the Petitioner-Assessee do
not find support from any legal provision. The Reply Affidavit admits
that tax demands that relate to past claims would indeed stand waived,
but insinuates that the Revenue's pursuit of proceedings does not relate
to past claims and is consequently, legitimate. Yet, the Reply Affidavit
indeed confirms that the search and seizure proceedings were initiated
prior to commencement of CIRP. The Reply Affidavit does not explain
how the Impugned Proceedings relate to liabilities emerging after the
CIRP. The implicit contention of the Revenue is that tax liabilities that
are crystallized after the commencement of the CIRP would not be past
tax claims and would constitute future liability because these liabilities
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did not exist in a crystallized form prior to the CIRP, and therefore such
liabilities would not stand resolved by the resolution plan.
10. On March 28, 2022, a Division Bench of this Court, on a
prima facie examination of the matter granted ad interim relief by
restraining the Revenue from taking any further steps, whether coercive
or otherwise in relation to the Impugned Proceedings. Such interim
relief has continued till date.
Section 31(1) of IBC and its import:
11. At the outset, it would be necessary to extract the provisions
of Section 31(1) of the IBC, since it makes the terms of resolution of
corporate debtors binding on the world at large. They are extracted
below:
"31. (1) If the Adjudicating Authority is satisfied that the resolution
plan as approved by the committee of creditors under sub-section (4)
of section 30 meets the requirements as referred to in sub-section (2)
of section 30, it shall by order approve the resolution plan which shall
be binding on the corporate debtor and its employees, members,
creditors, including the Central Government, any State Government or
any local authority to whom a debt in respect of the payment of dues
arising under any law for the time being in force, such as authorities
to whom statutory dues are owed, guarantors and other stakeholders
involved in the resolution plan."
[Emphasis Supplied]
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12. Even a plain reading of the foregoing would show that once
the Adjudicating Authority (the NCLT) approves the resolution plan, it
would be binding on, among others, the Central Government and its
agencies in respect of payment of any statutory dues arising under any
law for the time being in force. It is now trite law that the effect of
resolution of a corporate debtor is that the terms of resolution bind tax
authorities and their enforcement actions - a position in law declared in
numerous judgments of the Supreme Court. While it is not necessary to
extract from a long line of decisions of the Supreme Court to note the
effect of approval of the resolution plan under Section 31 of the IBC, as
rightly pleaded by the Petitioner-Assessee the judgment in Ghanshyam
Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction
Company Limited2 (Ghanshyam Mishra) comprehensively summaries
the import of various judgments on the point. The following extracts
from Ghanshyam Mishra are noteworthy:
64. It could thus be seen, that the legislature has given paramount
importance to the commercial wisdom of CoC and the scope of
judicial review by adjudicating authority is limited to the extent
provided under Section 31 of the I&B Code and of the appellate
authority is limited to the extent provided under sub-section (3) of
Section 61 of the I&B Code, is no more res integra.
65. Bare reading of Section 31 of the I&B Code would also make it
(2021) 9 SCC 657
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abundantly clear that once the resolution plan is approved by the
adjudicating authority, after it is satisfied, that the resolution plan as
approved by CoC meets the requirements as referred to in sub-section
(2) of Section 30, it shall be binding on the corporate debtor and its
employees, members, creditors, guarantors and other stakeholders.
Such a provision is necessitated since one of the dominant purposes of
the I&B Code is revival of the corporate debtor and to make it a
running concern.
67. Perusal of Section 29 of the I&B Code read with Regulation 36 of
the Regulations would reveal that it requires RP to prepare an
information memorandum containing various details of the corporate
debtor so that the resolution applicant submitting a plan is aware of
the assets and liabilities of the corporate debtor, including the details
about the creditors and the amounts claimed by them. It is also
required to contain the details of guarantees that have been given in
relation to the debts of the corporate debtor by other persons. The
details with regard to all material litigation and an ongoing
investigation or proceeding initiated by the Government and statutory
authorities are also required to be contained in the information
memorandum. So also the details regarding the number of workers
and employees and liabilities of the corporate debtor towards them
are required to be contained in the information memorandum.
68. All these details are required to be contained in the information
memorandum so that the resolution applicant is aware as to what are
the liabilities that he may have to face and provide for a plan, which
apart from satisfying a part of such liabilities would also ensure, that
the corporate debtor is revived and made a running establishment.
The legislative intent of making the resolution plan binding on all the
stakeholders after it gets the seal of approval from the adjudicating
authority upon its satisfaction, that the resolution plan approved by
CoC meets the requirement as referred to in sub-section (2) of Section
30 is that after the approval of the resolution plan, no surprise claims
should be flung on the successful resolution applicant. The dominant
purpose is that he should start with fresh slate on the basis of the
resolution plan approved.
[Emphasis Supplied]
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13. Ghanshyam Mishra went on to deal with amendments made
to Section 31 of the IBC to include within its ambit dues owed to the
Central Government and its agencies, in the following words:
84. It is clear that the mischief which was noticed prior to
amendment of Section 31 of the I&B Code was that though the
legislative intent was to extinguish all such debts owed to the Central
Government, any State Government or any local authority, including
the tax authorities once an approval was granted to the resolution
plan by NCLT; on account of there being some ambiguity, the
State/Central Government authorities continued with the
proceedings in respect of the debts owed to them. In order to remedy
the said mischief, the legislature thought it appropriate to clarify the
position that once such a resolution plan was approved by the
adjudicating authority, all such claims/dues owed to the
State/Central Government or any local authority including tax
authorities, which were not part of the resolution plan shall stand
extinguished.
94. We have no hesitation to say that the words "other stakeholders"
would squarely cover the Central Government, any State
Government or any local authorities. The legislature noticing that on
account of obvious omission certain tax authorities were not abiding
by the mandate of the I&B Code and continuing with the
proceedings, has brought out the 2019 Amendment so as to cure the
said mischief. We therefore hold that the 2019 Amendment is
declaratory and clarificatory in nature and therefore retrospective in
operation.
95. There is another reason which persuades us to take the said
view. Clause (10) of Section 3 of the I&B Code defines "creditor"
thus:
"3. (10) "creditor" means any person to whom a debt is owed and
includes a financial creditor, an operational creditor, a secured
creditor, an unsecured creditor and a decree-holder;"
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96. Clauses (20) and (21) of Section 5 of the I&B Code define
"operational creditor" and "operational debt" respectively as such:
"5. (20)"operational creditor" means a person to whom an
operational debt is owed and includes any person to whom such debt
has been legally assigned or transferred;
(21)"operational debt" means a claim in respect of the provision of
goods or services including employment or a debt in respect of the
payment of dues arising under any law for the time being in force
and payable to the Central Government, any State Government or
any local authority;"
97. "Creditor" therefore has been defined to mean "any person to
whom a debt is owed and includes a financial creditor, an
operational creditor, a secured creditor, an unsecured creditor and
a decree-holder". "Operational creditor" has been defined to mean
a person to whom an operational debt is owed and includes any
person to whom such debt has been legally assigned or transferred.
"Operational debt" has been defined to mean a claim in respect of
the provision of goods or services including employment or a debt in
respect of the payment of dues arising under any law for the time
being in force and payable to the Central Government, any State
Government or any local authority.
98. It is a cardinal principle of law that a statute has to be read as a
whole. Harmonious construction of clause (10) of Section 3 of the
I&B Code read with clauses (20) and (21) of Section 5 thereof would
reveal that even a claim in respect of dues arising under any law for
the time being in force and payable to the Central Government, any
State Government or any local authority would come within the
ambit of "operational debt". The Central Government, any State
Government or any local authority to whom an operational debt is
owed would come within the ambit of "operational creditor" as
defined under clause (20) of Section 5 of the I&B Code.
Consequently, a person to whom a debt is owed would be covered by
the definition of "creditor" as defined under clause (10) of Section 3
of the I&B Code. As such, even without the 2019 Amendment, the
Central Government, any State Government or any local authority to
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whom a debt is owed, including the statutory dues, would be covered
by the term "creditor" and in any case, by the term "other
stakeholders" as provided in sub- section (1) of Section 31 of the
I&B Code.
[Emphasis Supplied]
14. In conclusion, to put matters beyond a pale of doubt, the
Supreme Court declared as follows:
Conclusion
102. In the result, we answer the questions framed by us as under:
102.1. That once a resolution plan is duly approved by the adjudicating
authority under sub-section (1) of Section 31, the claims as provided in
the resolution plan shall stand frozen and will be binding on the
corporate debtor and its employees, members, creditors, including the
Central Government, any State Government or any local authority,
guarantors and other stakeholders. On the date of approval of
resolution plan by the adjudicating authority, all such claims, which are
not a part of resolution plan, shall stand extinguished and no person
will be entitled to initiate or continue any proceedings in respect to a
claim, which is not part of the resolution plan.
102.2. The 2019 Amendment to Section 31 of the I&B Code is
clarificatory and declaratory in nature and therefore will be effective
from the date on which the I&B Code has come into effect.
102.3. Consequently all the dues including the statutory dues owed to
the Central Government, any State Government or any local authority,
if not part of the resolution plan, shall stand extinguished and no
proceedings in respect of such dues for the period prior to the date on
which the adjudicating authority grants its approval under Section 31
could be continued.
[Emphasis Supplied]
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15. It is therefore crystal clear that once a resolution plan is duly
approved under Section 31(1) of the IBC, the debts as provided for in the
resolution plan alone shall remain payable and such position shall be
binding on, among others, the Central Government and various
authorities, including tax authorities. All dues which are not part of the
resolution plan would stand extinguished and no person would be
entitled to initiate or continue any proceedings in respect of any claim
for any such due. No proceedings in respect of any dues relating to the
period prior to the approval of the resolution plan can be continued or
initiated.
16. In this clear view of the matter, there can be no manner of
doubt that the Impugned Proceedings initiated by the Revenue and
sought to be defended as if they relate to liabilities that somehow
emerge after the CIRP, are wholly misconceived and untenable. The
resolution plan, upon its approval, brought a quietus to all claims
pursued or capable of being pursued by the Revenue against the
Petitioner-Assessee for any operation prior to the CIRP. The stance of
the Revenue in the Reply Affidavit, namely, that if the tax claim amount
had not been crystallised, would be future dues and not past dues, is
totally untenable. Ghanshyam Mishra makes it clear that the
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continuation of existing proceedings and the initiation of new
proceedings, as they relate to operations prior to the CIRP, are totally
prohibited after the approval of the resolution plan. Consequently,
nothing would survive insofar as the Impugned Proceedings relate to
the Petitioner-Assessee.
17. We may mention that a co-ordinate bench of this Court has
followed and applied Ghanashyam Mishra in at least two judgments, to
rule that proceedings initiated by the Revenue in respect of tax for a
period prior to the CIRP, cannot be continued. In Alok Industries Ltd. v.
Assistant Commissioner of Income-tax3, a Division Bench of this Court
held in favour of the Assessee quashing various proceedings for
reassessment initiated against a corporate debtor that had undergone a
resolution under the IBC. So also, in AMNS Khopoli Limited v. Assistant
Commissioner of Income Tax and Others4 (AMNS Khopoli) the
reassessment proceedings initiated in the facts of that case were
quashed and set aside by a Division Bench of this Court. In particular,
Paragraphs 15 and 16 of AMNS Khopoli are noteworthy and are
extracted below:-
[2024] 161 taxmann.com 285(Bombay)
2024 SCC OnLine Bom 1213
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15. In the circumstances, since the Resolution Plan expressively provides
that no person shall be entitled to initiate any proceedings or inquiry,
assessment, enforce any claim or continue any proceedings in relation to
claims so long such result to a period prior to the Effective Date of the
Resolution Plan, i.e., 10th November 2022 impugned notices are bad in
law.
Further, the impugned notices are bad in law also because respondents
failed to take into account that after approval of the Resolution Plan by
the NCLT, a creditor including the Central Government, State
Government or local authority is not entitled to initiate proceedings on
the Resolution Applicant, in relation to claims which are not part of the
Resolution Plan approved by the NCLT.
Pertinently, respondents had not submitted any claims to the IRP, as
required under the Code, despite the public announcement being issued
by the IRP, as prescribed under the Code.
16. The impugned notice issued under Section 143(2) of the Act by
Respondent No. 1 and the consequential impugned notices issued under
Section 142(1) of the Act by Respondent No. 2 and all subsequent
communications issued by Respondent No. 2 pursuant to the
aforementioned impugned notices are bad in law since assessment and
inquiry under the Act is sought to be initiated in gross violation of
provisions of the Code in as much as it relates to a period prior to the
Effective Date.
[Emphasis Supplied]
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Conclusion:
18. The aforesaid position in law squarely applies to the facts of
the instant case, and necessitates quashing the Impugned Proceedings.
Evidently and admittedly, the tax proceedings against the Vinod Jatia
Group pre-date the CIRP and no matter when the liabilities are
purported to get crystallised, even if they are allowed to get crystallised,
they would relate to the period prior to the approval of the resolution
plan of the Petitioner-Assessee, and therefore stand extinguished. This
is why the Supreme Court has clearly ruled that initiation and
continuation of proceedings relating to the period prior to the approval
of the resolution plan cannot be indulged in. Upon completion of the
CIRP, the Petitioner-Assessee has completely changed hands and has
begun on a clean slate under new ownership and management.
19. Consequently, all the notices and communications issued by
the Revenue in connection with the Impugned Proceedings, and the
consequential actions as impugned in this Writ Petition are hereby
quashed and set aside in terms of prayer clauses (a), which, for felicity,
is extracted below:-
(a) That this Hon'ble Court be pleased to issue a writ of Mandamus or
any other appropriate writ, order or direction in the nature of
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Mandamus under Article 226 of the Constitution of India directing the
Respondents to forthwith cancel and withdraw the six notices all dated
30th March 2021 issued by Respondent No.1 to the Petitioner under
Section 153C of the Income Tax Act for AY 2013-2014 to AY 2018-2019
and the three notices dated (i) 16th January 2021 under Section 133(6) of
the Act, (ii) 30th March 2021 under Section 143(2) of the Act and (iii)
18th January 2022 under Section 142(1) of the Act issued by the
Respondent No.1 for AY 2019-2020 as well as for closing of all
proceedings against the Petitioner No.1;
20. Rule is made absolute in the aforesaid terms and the writ
petition is disposed of accordingly.
21. Needless to say, any pending interim application taken out in
the writ petition, too would stand disposed of. No costs.
[SOMASEKHAR SUNDARESAN, J.] [G. S. KULKARNI, J.]
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