Delhi High Court: In a case wherein the issue for consideration before the Court was whether the assessment orders dated 21-11-2019 and 06-12-2019 and two demand notices of the same date respectively (‘impugned assessment orders and notices’) were sustainable in law, the Division Bench of Rajiv Shakdher* and Girish Kathpalia, JJ., opined that the terms contained in the approved Resolution Plan (‘RP’) was binding on all the stakeholders, including those who could had filed claims, but did not do so. Since, the respondent failed to lodge its claim, they could not enforce the impugned orders and notices, given the binding nature of the approved RP. The Court opined that since the respondent failed to lodge its claims, the impugned demand raised by the respondent automatically stood extinguished. Thus, the Court quashed the impugned assessment orders and notices.
Background
On 11-12-2017, the petitioner, Rishi Ganga Power Corporation Limited, filed its Return of Income for Assessment Year 2017-2018. Thereafter, pursuant to the assessment proceedings being carried out, an assessment order was passed on 06-12-2019. The result was thus, that the petitioner loss return was morphed into a return, which required it to pay tax.
Meanwhile, a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 was filed with the National Company Law Tribunal, Chandigarh Bench (‘NCLT’) by Punjab National Bank, a financial creditor of the petitioner. Thereafter, after the petitioner under NCLT was admitted, and NCLT issued directions for appointment of an Interim Resolution Professional (‘IRP’) and also indicated that the moratorium had kicked in under Section 14 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’).
The Resolutions Plans was also filed by the three entities including Kundan Care Products Ltd. (‘KCPL’). KCPL submitted its Expression of Interest to a Resolution Plan dated 27-04-2018 and revised financial proposal was accepted by the Committee of Creditors on 30-06-2018. Thereafter, Resolution Plan filed by KCPL was approved by the NCLT on 13-11-2018 and just before the approval, a notice dated 09-08-2018 under Section 143(2) of the Income Tax Act, 1961 (‘the Act’) was served on the petitioner.
Thereafter, impugned demand orders and notices was issued against the petitioner. The petitioner had challenged the first assessment order and demand notice dated 22-11-2019. The order dated 21-11-2019 was passed under Section 272A(1)(d) of the Act by the respondent for failure on the petitioner’s part to respond to the notices issued under Section 142(1) of the Act. As per the said order, the respondent was charged with a penalty of Rs. 10,000 and the demand notice dated 22-11-2019 was sought to recover the said amount.
The petitioner had also challenged the second order and demand notice dated 06-12-2019. The assessment order dated 06-12-2019 issued under Section 143(3) of the Act, the petitioner’s income was assessed at Rs. 28,93,60,000 against a loss declared of Rs. 3,13,43,192. The Assessing Officer (‘AO’), via the same assessment order, also initiated penalty proceedings against the petitioner under Section 271AAC of the Act. Accordingly, a demand notice amounting to Rs 12,05,47,497 was raised and the petitioner was granted thirty days to defray the tax demand.
Since the petitioner failed to comply with the notices under Section 142(1) and 143(2) of the Act, a show cause notice dated 01-05-2019 was issued under Section 274 of the Act. The notice required the authorized representatives of the petitioner to appear before the concerned officer on 08-05-2019.
On 11-02-2020, the new management which took over the affairs of the petitioner wrote to the AO and explained the reasons for non-participation in the assessment proceeding and made a request for deletion of the additions made via the impugned assessment order since the moratorium was in place. As there was no response from the revenue, the petitioner filed the present writ petition.
The issue in consideration before the Court was whether the impugned assessment orders and notices issued by the respondent were sustainable in law.
Analysis, Law, and Decision
The Court opined that Regulation 7 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 required operational creditors to submit their claim with proof to the IRP, which were not necessarily the claims that had been adjudicated. Therefore, the submissions made by the respondent was untenable as the respondent being an operational creditor could lodge a claim which needed to be adjudicated.
The Court opined that considering that the respondent had not lodged its claim despite the publication of public announcement by RP, no provision could be made in the approved RP. The Court further opined that the terms contained in the approved RP was binding on all the stakeholders, including those who could had filed claims, but did not do so. Since, the respondent failed to lodge its claim, they could not enforce the impugned orders and notices, given the binding nature of the approved RP.
The Court opined that Section 31 of the IBC stipulated that once the RP was approved, it should be binding on the corporate debtor and its employees, members and creditors which included Central Government, State Government and Local Authority to whom a debt was paid in respect of payment of dues were owed. The Court relied on Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, and opined that the provision also stipulated that the approved plan would bind the guarantors and other stakeholders involved in forging the same.
The Court Ruchi Soya Industries Limited v. Union of India, (2022) 6 SCC 343 and Sree metaliks Ltd. v. Additional Director General, 2023 SCC OnLine Del 941 and opined that since the respondent failed to lodge its claims, the impugned demand raised by the respondent automatically stood extinguished.
Thus, the Court quashed the impugned assessment orders and notices.
[Rishi Ganga Power Corp. Ltd. v. Assistant Commissioner of Income Tax, 2023 SCC OnLine Del 6994, decided on 31-10-2023]
*Judgment authored by- Justice Rajiv Shakdher
Advocates who appeared in this case :
For the Petitioner: Tarun Jain and Ms Dharitry Phookan, Advocates;
For the Respondent: Shubhendu Bhattacharya, Advocate for Kunal Sharma, Senior Standing Counsel
