IBC Resolution Plan Overrides Tax Revision Powers under Section 263 of Income Tax Act
- REEDLAW
- Aug 30
- 3 min read
Updated: Sep 1
REEDLAW Legal News Network reports: In a landmark ruling, the Gujarat High Court has held that the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC) effectively overrides the Income Tax Department’s powers to revise assessments under Section 263 of the Income Tax Act. The Court clarified that all pre-existing tax liabilities of the corporate debtor are extinguished once the resolution plan is sanctioned, reinforcing the finality of IBC proceedings.
The Gujarat High Court Division Bench of Justice Bhargav D. Karia and Justice D.N. Ray, while adjudicating a Special Civil Application, held that the approval of an IBC resolution plan extinguishes all pre-existing tax liabilities of the corporate debtor. The Court further observed that such approval overrides the Income Tax Department’s powers under Section 263 of the Income Tax Act to revise assessments, thereby reaffirming the supremacy of the IBC resolution framework over pre-existing tax claims.
The petitioner, a company engaged in manufacturing components for the general engineering and automotive industries, filed a writ petition under Article 226 of the Constitution of India challenging the issuance of a notice under Section 263 of the Income Tax Act, 1961, dated 13 January 2025. The notice sought to revise the assessment order passed under Section 147, read with Sections 144 and 144B for Assessment Year 2015-16. The petitioner contended that after the initiation of the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 and approval of the Resolution Plan by the National Company Law Tribunal (NCLT) on 12 October 2023, all tax liabilities, whether assessed or unassessed, stood extinguished.
It was argued on behalf of the petitioner that once a Resolution Plan is approved under Section 31 of the IBC, all dues of the corporate debtor, including statutory dues, except those specifically provided in the plan, stand extinguished. Reliance was placed on the judgments of the Hon’ble Supreme Court in Committee of Creditors of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505 and Ghanashyam Mishra and Sons Private Limited Through The Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited Through The Director and Others, REEDLAW 2021 SC 04534, which held that a successful resolution applicant takes over the corporate debtor on a “fresh slate” and that all claims not forming part of the approved plan cannot survive. The petitioner also submitted that even on merits, the impugned notice was untenable as Section 92BA(i) had been omitted by the Finance Act, 2017, and therefore the original assessment could not be termed erroneous.
The respondent Revenue did not dispute the legal position regarding the extinguishment of tax dues upon approval of the Resolution Plan, but urged the Court not to enter into the merits of the matter. The High Court observed that the approved Resolution Plan specifically provided for the waiver and extinguishment of all tax liabilities, including those arising from assessments, reassessments, revision proceedings, and penalties for periods prior to the NCLT approval date. The Court further relied on the binding effect of a Resolution Plan under Section 31(1) of the IBC and reiterated that no proceedings relating to such extinguished liabilities can continue.
Applying the settled law laid down by the Supreme Court, the Division Bench held that the issuance of a notice under Section 263 of the Act after the approval of the Resolution Plan was wholly without jurisdiction, as all prior tax claims stood extinguished. Consequently, the impugned notice dated 13 January 2025 was quashed and set aside. The petition was allowed, and the rule was made absolute, with no order as to costs.
Mr. B. S. Soparkar, Advocate, represented the Petitioner.
Mr. Karan G. Sanghani, Advocate, appeared for the Respondent(s) No. 1.
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