Tax Demands Unclaimed in Approved Resolution Plan Stand

Tax Demands Unclaimed in Approved Resolution Plan Stand Extinguished and Reassessment Order Becomes Non-Operational

Issue

Whether tax reassessment proceedings initiated under Section 147 and consequential tax demands raised under Section 68 read with Section 115BBE for a period prior to the approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC) can be sustained or enforced if the Revenue failed to submit its claim before the NCLT.

Facts

The assessee-LLP was admitted into the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 with effect from November 24, 2023.
The NCLT duly approved a resolution plan submitted by Wadhwa Group Holdings Private Limited on October 7, 2024.
During the ongoing CIRP, the Assessing Officer issued a notice under Section 148A on May 2, 2024.
On March 22, 2025, the Assessing Officer completed the reassessment under Section 143(3) read with Section 147 for AY 2020-21, making an addition of Rs. 4.50 crores under Section 68 read with Section 115BBE and raising a consequential tax demand.
The Revenue department had not submitted any claim before the NCLT during the CIRP, and no provision for this claim was made in the approved resolution plan.

Decision

The tribunal held that upon approval of a resolution plan by the Adjudicating Authority (NCLT) under Section 31(1) of the IBC, all claims outlined in the plan stand frozen and become binding on all stakeholders, including the Central Government and statutory tax authorities.
All claims and statutory dues for periods prior to the resolution plan’s approval date that were not included in the plan stand fully extinguished.
No person or authority is entitled to initiate or continue any proceedings in respect of an extinguished claim after the approval of the resolution plan.
Consequently, since the Revenue failed to submit its claim before the NCLT, the reassessment proceedings and the consequential tax demand became non-operational and legally unenforceable in favor of the assessee.

Key Takeaways

Clean Slate Principle under IBC: Once a resolution plan is approved under Section 31 of the IBC, the corporate debtor starts with a “clean slate,” and all unsubmitted prior claims—including statutory tax dues—are permanently extinguished.
Overriding Effect of IBC: The provisions and timelines of the Insolvency and Bankruptcy Code override statutory tax recovery mechanisms under the Income-tax Act, 1961.
Extinguishment of Unclaimed Proceedings: Tax authorities cannot initiate or continue reassessment proceedings or enforce tax demands for pre-CIRP assessment years if they failed to file a claim before the Resolution Professional/NCLT prior to plan approval.

IN THE ITAT MUMBAI BENCH ‘F’

Manpreet Estates LLP

ACIT

Challa Nagendra Prasad, Judicial Member
and Prabhash Shankar, Accountant Member

IT Appeal No. 4386 (MUM) of 2026
[Assessment year 2020-21]

SEPTEMBER 11, 2026

Ravikant Pathak for the Appellant. Krishna Yadav, Sr. DR for the Respondent.

ORDER

Challa Nagendra Prasad, Judicial Member.- This appeal is filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-50, Mumbai, dated 28.02.2026 for the assessment year 2021-22.

2. The Assessee has raised the following grounds of appeal:

2. (b) The CIT(A) erred in confirming the addition made by the AO of Rs. 4,50,00,000 as unexplained money u/s 68 r.w.s. 115BBE of the Act on the ground that the Appellant has failed to establish the source of amount credited in the books of accounts. The Appellant submits that it had explained the nature and source of the credit of Rs 4,50,00,000 in its books of accounts along with documentary evidences and hence on the facts and circumstances of the case and in law, additions made by the AO u/s 68 r.w.s. 115BBE of the Act shall be deleted. Your Appellant craves leave to add, to alter OR to amend the aforesaid ground of appeal.

1. (a)The Commissioner of Income Tax (Appeals) 50, Mumbai (CIT(A)) erred in upholding the action of AO in issuing of notice under 148A(a) dtd. 05.02.2024 and 148 dtd. 12.04.2024 despite a statutory moratorium being in force against the Appellant under Section 14 of the IBC from 24.11.2023, pursuant to the NCLT, Mumbai Bench order in C.P.(IB) 481(MB)/C III/2023 and therefore the proceedings are void abintio. (b) The CIT(A) erred in not giving effect to Section 238 of the IBC, which grants an overriding effect to the provisions of the IBC over any other law for the time being in force. The reassessment proceedings under the Income Tax Act are thus directly barred by operation of Section 14 read with Section 238 of the IBC.

1. (c)The CIT(A) also failed to appreciate that upon initiation of CIRP, management powers of the Appellant vested in the Resolution Professional (RP) and all statutory notices were required to be served on the RP the failure to do so shall vitiate the entire proceedings for want of jurisdiction. (d) The CIT(A) erred in not appreciating that the Resolution Plan submitted by the Wadhwa group Holdings Private Limited was approved by the Honorable NCLT, Mumbai Bench, vide order dated 07.10.2024, and that pursuant to such approval, all claims (including statutory dues for the pre CRP period) not forming part of the approved Resolution Plan stand extinguished by operation of law under Section 31(1) of the IBC. The Income Tax Department did not file any claim relating to this issue before the RP, thereby making the reassessment order dated 22.03.2025 for AY 2020 21, being a pre CIRP period, as void and unenforceable.

2. (a) On the facts and circumstance of the case and in law, the CIT(A) erred in confirming an addition made by the AO of Rs.4,50,00,000 on account of consideration received on sale of property which was reflected incorrectly as advances received, by the Appellant company as unexplained cash credits u/s.68 r.w.s 115BBE of the IT Act without considering the facts substantiated by the Appellant during the Re-assessment Proceedings. The appellant submits that the amount represented receipt on account of sale of property and agreed to offer the same under the head Profits and gains from Business and Profession net of cost incurred during the reassessment proceedings.

3. Ld. Counsel for the assessee, at the outset, submitted that the action of the Assessing Officer in issuing notice u/s. 148A of the Act dated 05.02.2024 and notice u/s. 148 of the Act dated 12.04.2024 is bad in law for the reason that statutory moratorium was enforced against the assessee u/s. 14 of the IBC from 24.11.2023 pursuant to the NCLT order, Mumbai Bench, in CP (IB)-481(MB)/C-III/2023, and therefore, the initiation of reassessment proceedings is void ab initio. Ld. Counsel for the assessee referring to the chart containing the sequence of events, submitted that in the case of the assessee the corporate insolvency resolution process was started on 24.11.2023 by virtue of the NCLT order and meanwhile a notice u/s. 148A(a) of the Act was issued on 02.05.2024. Subsequently, an order u/s. 148A(d) was passed on 04.12.2024. Ld. Counsel for the assessee submitted that the resolution plan filed by Wadhwa Group Holdings Private Limited was furnished on 30.04.2024, and the NCLT passed an order on 07.10.2024 allowing the resolution plan by NCLT. Subsequently, the assessment order was passed on 22.03.2025 r.w.s. 147 of the Act. Ld. Counsel for the assessee submitted that since the corporate insolvency resolution process was started in November 2023, the Assessing Officer should not have proceeded to reopen the assessment. Ld. Counsel for the assessee submitted that since there was no claim by the Revenue before the NCLT in the corporate insolvency resolution process, the demand cannot be thrust upon the assessee.

4. Ld. Counsel for the assessee referring to page 138 of the paper book submitted that the NCLT, Mumbai Bench, while granting relief and concessions in sub-clause (d) of the order, clearly clarified that in terms of the judgment of the Hon’ble Supreme Court in the case of Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. 166 SCL 237 (SC) on the date of approval of the resolution plan by the Adjudicating Authority, such claims which are not part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue proceedings in respect of a claim which is not part of the resolution plan.

5. Ld. Counsel for the assessee further referred to the judgment of the Hon’ble Bombay High Court in the case of Alok Industries Ltd. v. Asstt. CIT (Bombay), which is placed at page 74 of the paper book. Ld. Counsel for the assessee submitted that the Hon’ble Bombay High Court held that pursuant to the resolution plan having been approved by the NCLT, claims of governmental authorities, including income-tax dues, were to stand fully and finally discharged and settled, reassessment proceedings initiated against the assessee after approval of the resolution plan for the period prior to the closing date were invalid and were to be quashed.

6. Heard rival contentions and perused the orders of the authorities below. In the case of the assessee, the corporate insolvency resolution process was started on 24.11.2023, as is evident from the order passed by the NCLT, Mumbai Bench, on 24.01.2023. After the CIRP process was started, the Assessing Officer issued notice u/s. 148A on 02.05.2024, reopening the assessment of the assessee for the assessment year 2020-21. The resolution plan was approved by the NCLT by order dated 07.10.2024, which is placed at page 114 of the paper book. After the resolution plan was approved by the NCLT, the reassessment was concluded on 22.03.2025 by passing an order u/s. 143(3), r.w.s. 147 of the Act.

7. In the case of Ghanashyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (supra), the Hon’ble Supreme Court at paragraph 95, sub-clause (i), held as under:

“(i) That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;

(ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;

(iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under section 31 could be continued.”

8. Taking note of this judgment of the Hon’ble Supreme Court, the NCLT, Mumbai Bench, in the final resolution plan which was approved on 07.10.2024, while determining the relief and concessions, passed an order as under:

“d) It is hereby clarified that in terms of the Judgement of Hon’ble Supreme Court in the matter of Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, on the date of approval of the Resolution Plan by the Adjudicating Authority, all such claims which are not a part of Resolution Plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect of a claim which is not a part of the Resolution Plan.”

9. Therefore, by virtue of the judgment of the Hon’ble Supreme Court and the final resolution plan approved by the NCLT, since admittedly there was no claim by the Revenue before the NCLT, Mumbai Bench, in the resolution plan approved, the reassessment proceedings stand extinguished.

10. Thus, the reassessment framed by the Revenue in the case of the assessee for the assessment year 2020-21 and consequential demand raised therein becomes non-operational. Therefore, we hold that the reassessment proceedings, including the demand, will not survive.

11. In the result, the appeal of the assessee is allowed.