SC Upholds: IBC Resolution Plan Overrides Tax Filing Delays; Losses Must Be Carried Forward.
The Dispute
The Situation: The assessee-company underwent the Corporate Insolvency Resolution Process (CIRP). During this time, the Resolution Professional failed to complete statutory audits or file Income Tax Returns (ITR) for AY 2018-19 and 2019-20.
The New Management’s Action: Once the NCLT approved the resolution plan, the new management immediately conducted audits and filed the returns belatedly. They applied to the CBDT under Section 119(2)(b) to condone the delay.
The CBDT’s Rejection: The CBDT refused, stating the company had not proved “genuine hardship.”
The Judicial Verdict
The High Court (upheld by the SC) quashed the CBDT’s order. It held that since the new management only gained control after the NCLT approval, they could not be held responsible for the prior inaction. Refusing to condone the delay would frustrate the very purpose of the Resolution Plan and cause “genuine hardship” to the new investors.
II. Carry Forward of Losses & The “Clean Slate” Theory (Section 72)
A Resolution Plan approved by the NCLT is binding on the Income Tax Department; the Department cannot deny the carry forward of losses specifically allowed in the Plan.
The Legal Conflict
The Revenue often tries to deny the carry forward of business losses under Section 72 if the return was filed belatedly (Section 80).
The Ruling
Supremacy of IBC: Under Section 31 of the IBC, a Resolution Plan approved by the NCLT is binding on all stakeholders, including the Central Government and Tax Authorities.
Annexure-5 (Reliefs & Concessions): The specific Resolution Plan in this case explicitly allowed the “carry forward and set off of brought forward losses.”
The Verdict: The Court held that the Revenue cannot ignore the approved plan. Failure to allow the carry forward of losses would disregard the entire “Clean Slate” principle of the IBC.
III. The Supreme Court’s Technical Dismissal
The Supreme Court dismissed the Revenue’s SLP primarily because:
Time Barred: The SLP was filed with a 162-day delay.
Insufficient Cause: The Court found the Revenue’s explanation for the delay “absolutely insufficient.”
By dismissing the SLP, the High Court’s ruling stands as a powerful precedent for all companies emerging from insolvency.
Key Takeaways for New Managements & Resolution Applicants
Audit the RP’s Work: Immediately upon taking over, check if all ITRs for the CIRP period were filed. If not, file them immediately along with a Section 119(2)(b) application.
Rely on the Resolution Plan: Ensure that the “Reliefs and Concessions” section of your Resolution Plan specifically mentions the carry forward of tax losses and the condonation of past procedural defaults.
Clean Slate Principle: The tax department cannot raise “old ghosts” or deny statutory benefits (like loss set-off) if the NCLT-approved plan provides for them.
Timely Action: While the Court was lenient here due to the IBC context, always aim to file condonation applications as soon as the accounts are audited to demonstrate bona fides.