In a landmark ruling, the Gujarat High Court quashed multiple income tax penalties against Technovaa Plastic Industries, reinforcing legal protection for companies under approved IBC resolution plans. This judgment highlights critical safeguards against arbitrary penalties, particularly under Section 270A of the Income Tax Act.
🏛️ Case Summary:
Court: Gujarat High Court
Petitioner: Technovaa Plastic Industries Pvt. Ltd.
Respondents: Assistant Commissioner of Income Tax & Others
Citation: R/Special Civil Application No. 8640 of 2024
Date: 09-May-2025
⚖️ Background:
- The petitioner company went through Insolvency Resolution under the Insolvency and Bankruptcy Code (IBC).
- A Resolution Plan was approved by the NCLT.
- Despite this, the Income Tax Department initiated penalty proceedings under:
- Section 270A (under-reporting/misreporting of income)
- Section 271AAC(1) (tax on unexplained income)
- Section 271(1)(c) (concealment of income)
🔍 Court Observations:
- IBC Protection:
Once the resolution plan is approved under the IBC, all previous liabilities, including tax and penalty, stand extinguished unless specifically preserved. - Lack of Proper Notice:
The penalty notices did not provide adequate reasoning or opportunity to respond appropriately. - Misuse of Section 270A:
The department did not justify why the penalty provisions were invoked, especially under Section 270A which requires clear classification as “under-reporting” or “misreporting.” - Violation of Natural Justice:
Penalty orders were passed in a mechanical and automated manner, without application of mind or compliance with principles of natural justice.
✅ Final Judgment:
- All penalty orders and consequential actions were quashed.
-
The Court held that once the resolution plan under IBC is approved and implemented, no penalty or prosecution can continue for prior defaults unless specified.