Bombay High Court quashes SCN to Corporate Debtor, submit Return for Assessment Year falling earlier, approval of Resolution Plan under IBC

Bombay High Court quashes SCN to Corporate Debtor, submit Return for Assessment Year falling earlier, approval of Resolution Plan under IBC

The Bombay High Court quashed the show cause notice served by the company asking it to file returns for years prior to the approval of the Resolution Plan under the Indian Business Code (IBC).

The petitioner, Murli Industries Limited has raised the question of whether the Income Tax Department may issue a notice under Section 148 of the Income Tax Act, 1961, to a Corporate Debtor. It requires the submission of a return in the prescribed form for the year in which the Resolution Plan under the Insolvency and Bankruptcy Code, 2016 was approved merely on the grounds that Respondent was a Corporate Debtor during that assessment year. The Assessing Officer was of the opinion that the Corporate Debtor has evaded assessment and is in default under Section 147 of the Income Tax Act, 1961.

The Petitioner asserts that since the Resolution Plan was approved by the Adjudicating Authority, namely, the NCLT under IBC and the effective date for making the Resolution Plan operational was notified as 25th August, 2020. The Respondents - Income Tax Department could not have issued the impugned notice dated 25th March, 2021 that is even after the Resolution Plan was approved. In effect, the contentions assert that none of the claims that were not included in the Resolution Plan may be brought against the Corporate Debtor and no legal action may be brought against the Petitioner afterward, and thus the Respondents are not eligible to commence any legal action against the Petitioner for recovery of any debts.

Consequently, the explanation to section 147 of the Income Tax Act, 1961, justice Sunil B. Shukre and justice Anil L. Pansare ruled that cases, where the income can be taxed has escaped assessment, was deemed to have been taxed by deemed fiction. Despite the fact that the assessee's total income exceeded the amount of income not subject to income tax, clause (a) defines the situation in which the assessee has not furnished a return of income.

The Claim (b) deals with the case where a return of income had been furnished by the assessee but no assessment had been made, upon which the Assessing Officer discovered the assessee had understated their income or claimed excessive deductions, allowances, or reliefs. There are other clauses also that may indicate why they would be exempted from the assessment. It is expected for all the stakeholders to diligently file claims if the Resolution Professional makes the public announcement under the IBC by inviting all concerned, including statutory bodies, to do so.

As far as income tax authorities are concerned, they ought to have verified the previous year's assessment of the corporate debtor in line with law and to have filed the claim with the Resolution Professional within time. Accordingly, the Income Tax Authorities failed in their duties here and the claim was deemed extinguished.