Failure of a Resolution Professional (RP) to file returns constitutes “Genuine Hardship” for the new management.
The Facts: During the Corporate Insolvency Resolution Process (CIRP), the erstwhile management was suspended, and the RP was in control. The RP failed to conduct statutory audits or file Income Tax Returns (ITR) for AY 2018-19 and 2019-20. Once the NCLT approved the resolution plan, the new management discovered these lapses, immediately conducted audits, and filed the returns belatedly.
The Dispute: The CBDT rejected the application for condonation of delay under Section 119(2)(b), claiming the assessee failed to prove “genuine hardship.”
The Decision: The High Court held that “genuine hardship” should be construed liberally. Since the new management had no control over the company during the CIRP, they could not be penalized for the RP’s inaction. Denying condonation would frustrate the very purpose of the NCLT-approved resolution plan.
Result: CBDT order quashed; delay condoned.
A Resolution Plan approved by the NCLT is binding on the Income Tax Department as a “stakeholder.”
The Facts: The approved resolution plan specifically included an annexure for “Relief and Concessions,” which granted the Corporate Debtor the right to carry forward and set off accumulated business losses as of the effective date.
The Dispute: The Revenue hesitated to allow the carry-forward of losses because the returns (AY 2019-20) were filed belatedly, which normally triggers a forfeiture of the right to carry forward losses under Section 80 of the Income-tax Act.
The Decision: Under Section 31 of the IBC, an approved resolution plan is binding on all stakeholders, including Central and State Governments.
The court ruled that the Revenue cannot ignore the specific concessions (carry forward of losses) granted in the plan.
Failure to allow the set-off would undermine the financial viability of the revived company.
Result: Assessee allowed to carry forward losses despite the delay in filing the return.
Key Takeaways for Resolution Applicants
The Clean Slate Theory: Once a resolution plan is approved, the new management starts with a “clean slate.” Past procedural lapses (like non-filing of returns) by the previous management or the RP should not result in the loss of substantive tax benefits like accumulated losses.
CBDT’s Limited Discretion: The CBDT cannot use a narrow interpretation of “hardship” to bypass the statutory mandate of the IBC.
Strategic Drafting: It is critical to include specific clauses regarding the carry forward of losses (Section 72) and MAT credit in the “Relief and Concessions” annexure of the Resolution Plan to ensure they are legally binding on the Tax Department.
HIGH COURT OF GUJARAT
Technovaa Plastic Industries (P.) Ltd.
v.
Central Board of Direct Taxes*
BHARGAV D. KARIA and P. M. Raval, JJ.
R/SPECIAL CIVIL APPLICATION NO. 501 of 2024
MAY 9, 2025
Ms. Shailee S. Joshi for the Petitioner. Ms. Maithili D. Mehta for the Respondent.
ORDER
P.M. Raval, J.- Heard learned Senior Advocate Mr.M.R.Bhatt assisted by learned advocate Ms.Shailee Joshi for the petitioner and learned Senior Standing Counsel Ms.Maithili Mehta for the respondents.
2. Having regard to the controversy arising in the present petition which is in narrow compass, with the consent of learned advocates appearing for the respective parties, the matter is taken up for final disposal today.
3. Rule returnable forthwith. Learned Senior Standing Counsel Ms.Maithili Mehta waives service of notice of rule for and on behalf of the respondents.
4. By way of the present petition, the petitioner has prayed for quashing and setting aside impugned order dated 3.11.2023 passed by respondent No.l – CBDT rejecting the application filed by the petitioner under section 119(2)(b) of the Income Tax Act, 1961 (for short “the Act”) for condonation of delay in filing return of income for the Assessment Years 2018-19 and 2019-20.
5. Brief facts of the case are as follows :
5.1 One Rassendra Chern Export Private Limited in the capacity as Operational Creditor preferred an application bearing No.CP(IB) 189 of 2018 under section 9 of the Insolvency and Bankruptcy Code, 2016 (for short “the IBC”) for initiation of Corporate Insolvency Resolution Process (CIRP) against the petitioner Corporate Debtor before the National Company Law Tribunal, Ahmedabad (for short “NCLT”). NCLT vide order dated 12.11.2018 was pleased to admit the said application and to impose moratorium under section 14 of IBC. Thus, from 12.11.2018, suspended management of the company lost all their powers to manage the affairs of the company.
5.2 It is the case of the petitioner that on 19.9.2019, the Committee of Creditors after deliberation approved the resolution plan of Kankriya Enterprises Private Limited by 100% voting. Subsequently, vide order dated 4.9.2020, the NCLT approved the resolution plan holding it to be binding on Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan including the resolution petitioner.
5.3 The resolution petitioner, after taking over the control of the affairs of the company, noticed that not only the audit was not carried out but return of the income was also not filed by the resolution professional appointed by the NCLT. Pursuant to which, the resolution petitioner carried out the audit and made arrangement for filing of income tax return. The income tax return for the Assessment Year 2019-20 came to be belatedly filed under section 139(4) of the Act by the new management on 30.11.2020 since the resolution professional had not filed the same on time. Similarly, income tax return for the Assessment Year 2021-22 also came to be filed belatedly on 15.03.2022 setting off brought forward business losses.
5.4 Thereafter, return for Assessment Year 2011-22 was selected for scrutiny and a Show-Cause cum draft assessment order was passed by the respondent authority disallowing brought forward business losses on the ground that return for Assessment Year 2019-20 for which set off is claimed was filed beyond the due date.
5.5 It is the case of petitioner that vide order dated 21.12.2022, the final assessment order came to be passed under section 143(3) read with section 144B of the Act for the Assessment Year 2021-22 without considering the adjournment request of the petitioner and further disallowing the losses brought forward for the Assessment Year 2019-20 and therefore, the said order came to be challenged before this Court by filing Special Civil Application No.432 of 2023 and this Court was pleased to grant ad-interim relief.
5.6 At this stage, it was realised that return for the Assessment Year 2019-20 was not treated to be valid coupled with the fact that return for the Assessment Year 2018-19 was not filed by the resolution professional. Therefore, the petitioner preferred an application on 02.01.2023 under section 119(2)(b) of the Act for condonation of delay in filing the return of income for the Assessment Year 2018-19.
5.7 On 13.01.2023, the petitioner preferred Special Civil Application No.757 of 2023 before this Court praying to direct the respondent No. 1 Board to decide the application preferred under section 119(2)(b) of the Act in time bound manner. Pursuant to which, this Court vide order dated 20.2.2023 while disposing of the said petition directed the respondent No.l Board to take up and decide the said application within six weeks from the date of receipt of the copy of the said order.
5.8 Despite of hearing the application and providing further details as sought by the respondent No. 1 Board, the respondent No. 1 Board having not complied with the directions given by this Court in Special Civil Application No.757 of 2023, the petitioner preferred the contempt petition. However, vide order dated 03.11.2023, respondent No.l Board rejected the application preferred by the petitioner seeking condonation of delay in filing return of income for the Assessment Years 2018-19 and 2019-20. Hence, the present petition.
6. Learned Senior Advocate Mr.M.R.Bhatt appearing for the petitioner has contended that the respondent authority has failed to consider vital aspect of the matter, more particularly, hardships which the petitioner would be facing as the losses are not allowed to be carried forward since the suspended management could not file return within stipulated time and it was incumbent upon the resolution professional to file the income tax return and the NCLT, Ahmedabad having approved the resolution plan on 04.09.2020, the new management of the Technovaa Plastic Industries Private Limited – petitioner herein carried out the audit for the Assessment Years 2018-19 and 2019-20 on 28.11.2020 and the return of income under section 139(4) of the Act for the Assessment Year 2019-20 was filed on 30.11.2020 with a delay of 365 days. Thus, learned Senior Advocate appearing for the petitioner has argued that it is only after the approval of resolution plan that the petitioner took up process of getting accounts audited and also filing the income tax return.
6.1 Learned senior advocate has further argued that the finding at paragraph 5.1 of the impugned order passed by the respondent Board that the new management which took over the affairs of the company would have consulted the professionals / tax experts and carried out due diligence on the liabilities of the company which it was willing to bear the consequences of would stand negated in view of the fact that it is only after the resolution plan was approved, the petitioner filed the income tax return.
6.2 It is further argued that the respondent Board has failed to consider various judgments on hardships in relation to condonation of delay and the petitioner prays for allowing the present petition.
6.3 Lastly, it is argued that the respondent Board has wrongly interpreted the provisions of Section 31 of the IBC by observing that the Income Tax Department has not made claim with regard to the current application of the petitioner, as the petitioner has purportedly suffered losses for the Assessment Years 2018-19 and 2019-20 and therefore, the case laws cited by the petitioner has no relevance with regard to condonation proceedings under the Act.
7. Learned Senior Standing Counsel Ms.Maithili Mehta appearing for the respondents has supported the findings given by the respondent Board. It is further argued that Section 31 of the IBC 2016 deals with the approval of resolution plan which clearly provides that once the resolution plan is approved by the NCLT, the same shall be binding on the Corporate Debtors and various stakeholders including Central Government so the same is also binding upon the present petitioner. Hence, the petitioner is bound to comply with the directions given in paragraphs 14 and 15 of the order passed by the NCLT on 4.9.2020 and thus, the petitioner assessee has to apply for any concession, relief or dispensation before the concerned statutory/competent authority as the case may be as and when required and in the present case, before the income tax authority and thus, the contention of the assessee is misplaced, erroneous and is required to be rejected.
7.1 Learned Senior Standing Counsel Ms.Maithili Mehta has further harped upon on the case of BU Bhandari Nandgude Patil Associates v. CBDT (Delhi)/(2018) 164 OTR 201 wherein it is held that the legislature has provided time limits for certain obligations under the Act and these time limits have to be observed to be able to claim deductions, allowances and avoid interest and penalty.
7.2 Learned Senior Standing Counsel Ms.Maithili Mehta has further argued that in determining whether genuine hardship caused to the petitioner assessee or not, one has to see whether delay in filing of the return, was due to a reasonable cause or not and has further relied upon the judgment of the Honourable Apex Court in the case of Ranka v. Rewa Coal Field Ltd. AIR 1962 SC 361 wherein it is held that everyday of delay needs to be explained with cogent evidences and thus argued to reject the present petition.
8. Having heard learned advocates for the respective parties and perused the impugned order as well as annexures appended with the petition, two issues are required to be decided i.e. (i) whether the respondent authority has correctly applied the term “genuine hardship” in the facts of the case ? and (ii) whether the resolution plan approved by the NCLT, Ahmedabad provides for any set off or carry forward of the losses of the erstwhile company ?
9. As far as the issue with regard to genuine hardship as covered by various judgments of the Honourable Apex Court is concerned, it is required to be noted that in the case of Shailesh Vitthalbhai Patel v. Chief CIT (Gujarat), there was delay of 23 days in filing the return for relevant Assessment Year by the assessee wherein the application for condonation of delay was rejected by the Chief Commissioner under section 119(2)(b) refusing to condone the delay wherein, it was held by this Court that in the matter of condonation of delay where the condonation was to be permitted to avoid genuine hardship, liberal rather than technical approach is expected from the authorities and thus, the impugned order passed by the Chief Commissioner refusing to condone the delay was quashed and set aside. In the present case, it is required to be noted that it is only after the approval of the resolution plan that the present petitioner company came into picture as regards to the management and control over the erstwhile company and having found that the audit was not carried out and the returns were also required to be filed so as to carry forward the losses, the petitioner company immediately got accounts audited and filed the returns coupled with the fact that the resolution plan itself provides as under.
“ANNEXURE-5 – RELIEF AND CONCESSIONS.
| 1. | XXX | XXX | XXX |
| 2. | XXX | XXX | XXX |
| 3. | XXX | XXX | XXX |
| 4. | XXX | XXX | XXX |
| 5. | XXX | XXX | XXX |
| 6. | XXX | XXX | XXX |
| 7. | XXX | XXX | XXX |
| 8. | XXX | XXX | XXX |
9. The Central Board of Direct Taxes to exempt the Corporate Debtor from the applicable provisions of Section 79 read with Section 2(18) of the Income Tax Act, 1961 upon change in shareholding of the Corporate Debtor pursuant to the Resolution Plan and allow carry forward and set off of brought forward losses of the Corporate Debtor as on the Effective Date in this regard, an opportunity to be provided by Resolution Professional to the Commissioner of Income Tax, Gujarat to submit his views and objections, if any, to enable NCLT to pass suitable orders for permitting carry forward of depreciation and losses as per the provisions of the Income Tax Act, 1961.”
10. Thus, in view of the aforesaid facts and circumstances of the case, it can be seen that Annexure-5 -Relief and Concessions, more particularly, paragraph 9 provides for carry forward and set off of brought forward losses of the Corporate Debtor as on the Effective Date and thus, the petitioner company has all the right to carry forward losses if any of the previous year and the respondent authority in failing to allow would disregard the entire resolution plan which is binding upon them also and as such, this Court has not gone into the aspect whether losses are available or not, but only concerned with regard to genuine hardship that may be caused to the petitioner. If the delay is not condoned in the facts and circumstances of the present case, more particularly, when we do not find any lapse on the part of the petitioner in filing the return of the concerned Assessment Year, very purpose of resolution plan as approved by the NCLT, Ahmedabad would be frustrated and not condoning the delay would amount to genuine hardship.
11. In the result, the present petition succeeds and the same is accordingly allowed. The impugned order dated 3.11.2023 at Annexure-A to the petition passed by the respondent No. 1 – CBDT rejecting an application for condonation of delay filed under section 119(2)(b) of the Act for the Assessment Years 2018-19 and 2019-2020 by the petitioner (Annexure-G collectively) are hereby quashed and set aside. The delay occurred in filing the income tax return for the years 2018-19 and 2019-20 is hereby condoned. The respondent authority to complete the assessment of the petitioner company in accordance with law.
12. Rule is made absolute to the aforesaid extent with no order as to costs.