Case Analysis Mahan Energen Limited vs Deputy Commissioner of Income Tax C/SCA/14368/2024
Synopsis
The petitioner company was undergoing Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016. A resolution plan was approved by the National Company Law Tribunal on 1st November 2021. The plan expressly provided that all tax liabilities (assessed and unassessed) under the Income Tax Act, 1961 shall stand waived and extinguished. Subsequently, the Income Tax Department issued a notice under Section 148 and an order under Section 148A(d) dated 5th April 2023 seeking to reopen the assessment for Assessment Year 2016-17. The petitioner challenged the notice. The Gujarat High Court, relying on the Supreme Court decisions in Essar Steel (2020) and Ghanshyam Mishra (2021), held that once a resolution plan is approved under Section 31 of the IBC, all claims not part of the plan stand extinguished. Consequently, the reassessment notice and order were quashed. The petition was allowed.
Court: High Court of Gujarat at Ahmedabad
Coram: Honourable Mr. Justice A. S. Supehia and Honourable Mr. Justice Pranav Trivedi
Date of Judgment: 17th April 2026
Citation: Special Civil Application No. 14368 of 2024
Core Law: Insolvency and Bankruptcy Code, 2016 – Section 31 (approval of resolution plan); Income Tax Act, 1961 – Section 148 (reassessment), Section 148A (notice for reassessment); extinguishment of tax dues upon approval of resolution plan
2. Legal Framework
Major laws and provisions involved
Insolvency and Bankruptcy Code, 2016 – Section 31 (approval of resolution plan binding on all stakeholders); Section 30(6); Section 7 (initiation of CIRP)
Income Tax Act, 1961 – Section 148 (reassessment notice), Section 148A (procedure for reassessment)
Constitution of India, 1950 – Article 226 (writ jurisdiction)
Key legal principles applied
Resolution plan approved under Section 31 IBC is binding on all stakeholders: Once the adjudicating authority approves a resolution plan, it becomes binding on the corporate debtor, its employees, members, creditors, including the Central Government, State Government, and local authorities. All claims that are not part of the resolution plan stand extinguished.
Tax dues (assessed and unassessed) are extinguished if not included in the resolution plan: The Supreme Court in Ghanshyam Mishra held that statutory dues owed to the Central Government, if not part of the resolution plan, shall stand extinguished, and no proceedings in respect of such dues for the period prior to the approval date can be continued.
The 2019 amendment to Section 31 IBC is clarificatory and retrospective: The amendment made it explicit that the resolution plan binds the Central Government and State Government. The Supreme Court held that this amendment is clarificatory and declaratory in nature, effective from the inception of the IBC.
No reassessment can be initiated after approval of resolution plan for pre‑approval periods: If the resolution plan provides for waiver and extinguishment of all past tax liabilities (as in the present case), the tax department cannot initiate fresh reassessment proceedings for assessment years prior to the approval date.
Relevant precedents relied upon
Committee of Creditors of Essar Steel India Ltd. v. Satishkumar Gupta (2020) 8 SCC 531 – Successful resolution applicant takes over on a “fresh slate”; all claims must be submitted to the resolution professional; no undecided claims can surface after approval.
Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. (2021) 9 SCC 657 – Once resolution plan is approved, all claims not part of the plan stand extinguished; statutory dues owed to Government also extinguished; 2019 amendment to Section 31 is clarificatory.
3. Basic Facts of the Case
The petitioner, Mahan Energen Limited, a company registered under the Companies Act, 1956, filed its return of income for Assessment Year 2016-17 on 16th March 2017, declaring income of Rs.1,73,790/-. The case was selected for scrutiny, and the assessment was completed on 26th December 2018 accepting the returned income.
Thereafter, the petitioner was subjected to insolvency proceedings under the IBC. A Corporate Insolvency Resolution Process (CIRP) was initiated under Section 7 of the IBC, which was admitted by the Adjudicating Authority (NCLT) on 1st November 2021. An Interim Resolution Professional was appointed, who invited claims from creditors. The Resolution Plan submitted by Adani Power Limited for the revival of the petitioner was approved by the NCLT on 1st November 2021 under Section 30(6) of the IBC.
The Resolution Plan specifically provided for the waiver and extinguishment of all unassessed/assessed tax liabilities for the period prior to the NCLT approval date. The relevant clause stated: “All stamp duty liabilities or Tax liability arising pursuant to the transactions contemplated under this Resolution Plan shall be exempted or waived off.”
Despite this, the Deputy Commissioner of Income Tax issued a notice under Section 148A(b) on 22nd March 2023, an order under Section 148A(d) on 5th April 2023, and a consequential notice under Section 148 dated 5th April 2023, seeking to reopen the assessment for AY 2016-17. The petitioner challenged these notices and order by filing a writ petition under Article 226.
The Income Tax Department did not dispute the legal position regarding extinguishment of tax dues under the IBC.
4. Issues Before the Court
Issue No. Issue 1 Whether, after the approval of the resolution plan under Section 31 of the IBC (which provided for waiver and extinguishment of all past tax liabilities), the Income Tax Department can issue a notice under Section 148 for reassessment for an assessment year prior to the approval date? 2 Whether the impugned notice under Section 148 and order under Section 148A(d) are liable to be quashed in light of the Supreme Court decisions in Essar Steel and Ghanshyam Mishra?
5. Ratio Decidendi (Principles Laid Down)
A. Resolution plan under Section 31 IBC extinguishes all claims not part of the plan (paras 8-10)
The court quoted extensively from Essar Steel and Ghanshyam Mishra. In Essar Steel, the Supreme Court held that a successful resolution applicant cannot be faced with “undecided” claims after the resolution plan is accepted; all claims must be submitted to and decided by the resolution professional. In Ghanshyam Mishra, the court held that once a resolution plan is approved, the claims as provided in the plan stand frozen and are binding on all stakeholders, including the Central Government, State Government, and local authorities. All claims not part of the resolution plan shall stand extinguished, and no person will be entitled to initiate or continue any proceedings in respect of such claims.
B. The Resolution Plan expressly waived tax liabilities (paras 6, 7)
The court examined the relevant portion of the resolution plan (extracted in para 6). The plan provided that “all stamp duty liabilities or Tax liability arising pursuant to the transactions contemplated under this Resolution Plan shall be exempted or waived off.” The court interpreted this to mean that all tax liabilities, assessed and unassessed under the Income Tax Act, stand waived and extinguished.
C. No occasion for reassessment after approval of plan (para 10)
Applying the Supreme Court decisions to the facts, the court held that upon the complete extinguishment of all tax liabilities of the corporate debtor upon approval of the resolution plan on 1st November 2021, there could be no occasion for the respondents to issue the order under Section 148A(d) or the notice under Section 148 on 5th April 2023. The merits of the reassessment notice became academic.
D. Department conceded the legal position (para 5.1)
The court noted that the learned Senior Standing Counsel for the Income Tax Department was “not in a position to controvert the position of law as far as the extinguishment of the tax dues are concerned in terms of Section 31 of the IBC.”
6. New Legal Principles Established / What is New
This judgment does not create a new legal principle but reaffirms and applies the settled law from the Supreme Court in the context of reassessment proceedings under the Income Tax Act:
A successful resolution applicant takes over the corporate debtor on a “fresh slate”. No past tax liabilities (whether assessed or unassessed) can be enforced against the corporate debtor after the approval of the resolution plan, unless specifically provided for in the plan.
The Income Tax Department cannot initiate reassessment proceedings under Section 148 for assessment years prior to the approval date if the resolution plan extinguishes all past tax liabilities. The department is bound by the resolution plan approved under the IBC.
The 2019 amendment to Section 31 IBC is clarificatory and retrospective, meaning that even for resolution plans approved before the amendment, the binding effect on the Government applies.
7. Court’s Examination and Analysis
On the Resolution Plan (paras 6-7)
The court extracted the relevant clause from the resolution plan. Although the clause specifically mentioned “tax liability arising pursuant to the transactions contemplated under this Resolution Plan,” the court interpreted it broadly to cover all tax liabilities. The court did not discuss any ambiguity but accepted the petitioner’s submission that all tax liabilities stood extinguished.
On the Supreme Court precedents (paras 8-9)
The court quoted paragraph 107 of Essar Steel (successful resolution applicant cannot be faced with undecided claims) and paragraphs 102.1, 102.2, and 138 of Ghanshyam Mishra (all claims not part of resolution plan extinguished; 2019 amendment clarificatory; proceedings for pre‑approval period cannot be continued). The court held that these principles apply directly to the present case.
On the absence of dispute from the Department (para 5.1, 10)
The court noted that the Department did not controvert the legal position. This made the decision straightforward.
On the relief (para 11)
The court quashed the impugned notice under Section 148 dated 5th April 2023 and the impugned order under Section 148A(d) dated 5th April 2023. Rule was made absolute. No order as to costs.
8. Critical Analysis and Final Outcome
Critical analysis
Strengths of the judgment:
The judgment correctly applies binding Supreme Court precedents. There is no ambiguity in the law after Ghanshyam Mishra: statutory dues, including tax dues, are extinguished if not part of the resolution plan.
The court did not venture into the merits of the reassessment (whether there was any escapement of income). This was appropriate because the jurisdictional issue (extinguishment of dues) was sufficient to quash the notice.
The judgment protects the “fresh slate” principle of the IBC, which is essential to attract resolution applicants. If past tax liabilities could be revived after approval, the entire purpose of the IBC would be defeated.
Potential weaknesses or unresolved issues:
The resolution plan clause extracted by the court appears to refer to tax liability “arising pursuant to the transactions contemplated under this Resolution Plan” (e.g., stamp duty on transfer of assets). The court interpreted it as covering all past tax liabilities. The judgment does not discuss whether the clause was ambiguous or whether the plan specifically listed past income tax dues as extinguished. However, the Department did not contest, so the point was not argued.
The judgment does not discuss the situation where the resolution plan is silent on tax dues. In such cases, would tax dues be automatically extinguished? Under Ghanshyam Mishra, the answer is yes – if not part of the plan, they stand extinguished. This judgment reaffirms that.
The judgment does not address whether the reassessment notice could be issued against the corporate debtor (which is now under new management) or against the old management. Since the plan was approved, the corporate debtor continues, but the liability is extinguished.
Practical significance:
This judgment will be cited by resolution applicants and corporate debtors to challenge any reassessment or recovery proceedings initiated by the Income Tax Department for pre‑approval periods. It reinforces that tax authorities are bound by the resolution plan and cannot bypass the IBC process.
Final outcome
The writ petition was allowed. The impugned notice under Section 148 of the Income Tax Act dated 5th April 2023 and the impugned order under Section 148A(d) dated 5th April 2023 were quashed and set aside. Rule made absolute. No order as to costs.
9. Use in Court (Practical Application)
Corporate debtor or resolution applicant challenging reassessment notice after approval of resolution plan – The party can file a writ petition under Article 226 citing this judgment and Ghanshyam Mishra (2021) 9 SCC 657. Argue that upon approval of the resolution plan under Section 31 IBC, all past tax liabilities stand extinguished. The tax department cannot initiate reassessment for pre‑approval periods.
Income Tax Department seeking to reassess a corporate debtor after CIRP – The Department must examine whether the resolution plan specifically preserves any tax liability. If the plan extinguishes all past liabilities (or is silent), the Department cannot proceed. The only exception is if the plan expressly provides for the liability to survive or if the liability arose after the approval date.
Court determining the effect of a resolution plan on tax proceedings – The court must examine the resolution plan to see if it specifically provides for extinguishment of tax dues. If the plan is silent, the law under Ghanshyam Mishra is that all claims not part of the plan stand extinguished. The court should quash any pre‑approval tax proceedings.
10. Court Lines
Para 8 (quoting Essar Steel):
“A successful resolution applicant cannot suddenly be faced with ‘undecided’ claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor.”
Para 9 (quoting Ghanshyam Mishra):
“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.”
Para 10 (conclusion on extinguishment):
“Applying the decisions of the Hon'ble Apex Court to the facts of the present case, it is clear that on the complete extinguishment of all tax liabilities of the Corporate Debtor upon the approval of the Resolution Plan on 01.11.2021, there could be no occasion whatsoever for the respondents to issue the order under clause (d) of Section 148A of the Act on 05.04.2023 as well as notice under Section 148 of the Act on 05.04.2023.”
Para 11 (quashing):
“Resultantly, the petition succeeds and the impugned notice under Section 148 of the Act dated 05.04.2023 and impugned order under Section 148A(d) dated 05.04.2023 are hereby quashed and set aside.”
11. Legal Strategy Insight
For a petitioner (corporate debtor or resolution applicant) challenging tax reassessment after IBC resolution:
First, obtain a certified copy of the approved resolution plan. Identify the clause that provides for extinguishment of past liabilities. If the plan is silent, rely on Ghanshyam Mishra (para 102.1) that all claims not part of the plan stand extinguished. File a writ petition under Article 226 immediately upon receiving any reassessment notice or demand. Cite this judgment and the Supreme Court precedents.
Second, argue that the tax department is bound by the resolution plan under Section 31 IBC, as held in Ghanshyam Mishra. The department cannot take a contrary position. If the department does not controvert the legal position (as in this case), the court will quash the notice without requiring detailed arguments on merits.
Third, if the resolution plan was approved before the 2019 amendment, argue that the amendment is clarificatory and retrospective, so the extinguishment applies even to plans approved earlier. Rely on para 102.2 of Ghanshyam Mishra.
For a respondent (Income Tax Department) seeking to recover pre‑CIRP tax dues:
The Department must examine the resolution plan carefully. If the plan expressly excludes tax dues from extinguishment (i.e., provides that they shall survive and be paid), then reassessment may be possible. However, if the plan is silent or provides for extinguishment, the Department cannot proceed. The Department may also argue that the liability is not a “claim” under the IBC if it was not submitted to the resolution professional. But Ghanshyam Mishra held that even statutory dues not claimed are extinguished. The better strategy is to file claims during the CIRP process before the resolution plan is approved, not after.