The Hon’ble Gujarat High Court in Maruti Koatsu Cylinders Ltd. v. Dy. Commissioner of Income-tax[i] quashed the reassessment proceedings on the grounds that the Petitioner's case was transferred to another assessing officer (‘AO’) under s. 127(2) of the Income-tax Act, 1961 (‘Act’), and the original AO lacked authority or jurisdiction to conduct reassessment proceedings. Further, the High Court also noted that as the Petitioner's insolvency proceedings were completed, the past tax dues have been extinguished. Therefore, the reassessment proceedings for such a period are not maintainable.
Brief Facts
On 25.05.2018, an application under s. 10 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) was filed for initiation of insolvency proceedings in the case of the Petitioner. The application was admitted, and an interim resolution professional (‘IRP’) was appointed, who was later confirmed as the resolution professional (‘RP’) by the committee of creditors (CoC) of the Petitioner.
On 16.08.2019, the National Company Law Tribunal (‘NCLT’) approved the resolution plan (‘Plan’) in the case of the Petitioner. Further, on 22.10.2019, the final order was passed in the Petitioner's case, whereby the NCLT waived the Petitioner's bank loans and statutory dues.
On 11.01.2023, the Principal Commissioner of Income Tax, Vadodara, transferred the Petitioner’s case from Vadodara to Ahmedabad under s. 127(2) of the Act. Despite the transfer order, the AO at Vadodara issued a notice on 14.02.2023 under s. 148A(b) of the Act, asking the Petitioner to explain why the assessment for the assessment year (‘A.Y.’) 2019-20 should not be reopened.
The Petitioner could not file the response due to the change in office location, email ID, etc.; therefore, the AO passed the order under s. 148A(d) of the Act on 20.03.2023, holding that income of Rs.1,01,25,402/- had escaped assessment for the A.Y. under consideration.
Aggrieved by the order dated 20.03.2023, the Petitioner filed a writ petition under a. 226 of the Constitution of India, challenging the order of the AO under s. 148A(d) of the Act for the A.Y. 2019-20.
Observations of the High Court
The High Court held that following the transfer of the case from Vadodara to Ahmedabad under s. 127(2) of the Act, the AO at Vadodara did not have any jurisdiction to issue notices for reassessment.
Further, the High Court relied on the Supreme Court's prominent decision in the case of Ghanashyam Mishra & Sons (P.) Ltd. versus Edelweiss Asset Reconstruction Co. Ltd,[ii] wherein it was held that once a Plan is approved under the IBC, the past statutory dues (which have not been admitted) stand extinguished. The High Court noted that the Gujarat High Court also followed this decision in the case of Surya Exim Ltd. v. Union of India[iii], wherein this legal position was reiterated.
In the present case, the High Court noted that the Plan in the case of the Petitioner was duly approved by the NCLT and the statutory dues of the period (for which the reassessment proceedings were initiated), the reassessment proceedings for such period were not maintainable as they had attained finality.
On the basis of the above reasoning, the High Court quashed the reassessment proceedings and set aside the order under s. 148A(d) of the Act.
Conclusion
The Gujarat High Court emphasised the legal position that once a case is transferred from one AO to another AO under s. 127 of the Act, the erstwhile assessing officer cannot assume jurisdiction for a reassessment of any escaped income, and any reassessment has to be done by the AO to whom the case has been transferred.
Notably, the High Court reaffirmed a settled legal position: once the NCLT approves a Plan under the IBC, past tax demands become unsustainable. This is a consistent view of the High Courts and the Supreme Court regarding tax demands in cases where the Plans have been approved.
End Notes
[i] [2024] 165 taxmann.com 332 (Gujarat).
[ii][2021] 126 taxmann.com 132/166 SCL 237 (SC).
[iii] [2024] 161 taxmann.com 749 (Gujarat).
Authored by Pratik Sainy of Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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