Gujarat High Court Quashes Section 148 Reassessment Notice After IBC Resolution Plan Extinguishes All Prior Tax Liabilities

Case Background and Overview

AMW Auto Component Limited Vs ACIT (Gujarat High Court)

The Gujarat High Court recently delivered a significant ruling in favour of a corporate debtor that had successfully completed the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016. The central question before the Court was whether the Income Tax Department could legitimately issue a reopening notice under Section 148 of the Income Tax Act, 1961 in respect of a period whose tax liabilities had already been extinguished pursuant to an NCLT-approved resolution plan.

The Court answered this question decisively in the negative, quashing the impugned notice and reaffirming the "clean slate" doctrine as laid down by the Supreme Court of India in landmark insolvency jurisprudence.

Background Facts of the Case

The petitioner, AMW Auto Component Limited, is a company incorporated under the Companies Act, 1956, engaged in manufacturing components for the general engineering and automotive sectors.

Initiation of CIRP

  • The Indian Overseas Bank, acting as a financial creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, initiating CIRP against the petitioner.
  • The Adjudicating Authority (NCLT) admitted the application vide order dated 01.09.2020.
  • An Interim Resolution Professional was duly appointed and made a public announcement under Section 13, Section 15, and other applicable provisions of the Code read with Regulation 6 of the Insolvency Regulations, 2016, calling upon all creditors to submit their claims.

Approval of Resolution Plan

  • A resolution plan submitted by Steel Wheels Limited for the revival of the petitioner-company was approved by the NCLT under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 vide order dated 12.10.2023.
  • The approved resolution plan contained comprehensive provisions for the waiver and extinguishment of all tax liabilities — both assessed and unassessed — pertaining to the period prior to the NCLT approval date.

The Impugned Reassessment Notice

Despite the NCLT-approved resolution plan extinguishing all prior tax dues, the Income Tax Department issued a notice dated 31.03.2025 under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for Assessment Year 2021-22. This notice was challenged by the petitioner through a writ petition filed under Article 226 of the Constitution of India.

Key Provisions of the Approved Resolution Plan

The High Court undertook a careful examination of the resolution plan approved on 12.10.2023. The plan contained detailed and exhaustive provisions dealing with extinguishment of tax liabilities. The relevant extracts of the "Effect of the Resolution Plan" clause are reproduced below:

8.1 In terms of Section 31(1) of the IBC, this Resolution Plan shall be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a Debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders of the Corporate Debtor on and from the NCLT Approval Date.

(ii) It is also clarified that any Tax liabilities pertaining to a period prior to and Including the NCLT Approval Date (including penalties levied or leviable, prosecution and interest), even if such past liability pertaining to the aforesaid period arises any time in the future post the NCLT Approval Date whether assessed or unassessed or determined or undetermined, by the relevant Governmental Authority shall be deemed to be extinguished and written off with effect from the NCLT Approval Date.

(ll) All liabilities and obligations relating to any adjustment to income / recovery proceeding/ penalty proceedings u/s 270A of the Income Tax Act, 1961 or any other provisions of thereunder on account of income tax Proceedings outstanding for FY 12-13 or any other assessment year/financial year upto the NCLT Approval Date, shall stand extinguished.

(mm) On and from the NCLT Approval Date, all outstanding TDS demands against the Corporate Debtor for various years including TDS demand amounting to INR 0.65 cr shall stand waived and extinguished in entirety.