The Role and Powers of the Assessing Officer in Light of NCLT Decisions

 

Introduction

The intersection of corporate insolvency proceedings and tax administration has emerged as a critical area of legal discourse in India. The establishment of the National Company Law Tribunal (NCLT) under the Companies Act, 2013, and the subsequent enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), have fundamentally altered the landscape of corporate governance and insolvency resolution. Within this framework, the role and powers of the Assessing Officer (AO) under the Income Tax Act, 1961, have undergone significant transformation, particularly in matters where NCLT decisions directly impact tax assessments and demands. This article examines the evolving relationship between the powers exercised by Assessing Officers and the decisions rendered by the NCLT, exploring the statutory framework, regulatory mechanisms, and judicial interpretations that govern this interplay.

Understanding the National Company Law Tribunal

The National Company Law Tribunal represents a watershed moment in India’s corporate adjudication system. Constituted on June 1, 2016, under Section 408 of the Companies Act, 2013 [1], the NCLT consolidated the jurisdiction previously distributed among the Company Law Board, the Board for Industrial and Financial Reconstruction, and various High Courts. This consolidation was recommended by the Justice V. Balakrishna Eradi Committee, which recognized the need for a specialized forum to address corporate disputes efficiently and expeditiously.

The NCLT operates as a quasi-judicial body with both judicial and technical members. The composition ensures that corporate matters are adjudicated with both legal expertise and practical business acumen. The tribunal exercises extensive powers including adjudication of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, resolution of oppression and mismanagement cases under Sections 241 and 242 of the Companies Act, 2013, approval of mergers and amalgamations, winding up of companies, and various other corporate restructuring matters [2]. The tribunal’s decisions carry the binding force of civil court orders, creating a framework within which various stakeholders, including tax authorities, must operate.

The Assessing Officer: Powers and Functions

An Assessing Officer, as defined under the Income Tax Act, 1961, refers to the Income Tax Officer, Assistant Commissioner, Deputy Commissioner, Joint Commissioner, or Additional Commissioner authorized by the Central Board of Direct Taxes to exercise powers under the Act. The AO serves as the primary interface between taxpayers and the tax administration, entrusted with the responsibility of assessing income, determining tax liability, and ensuring compliance with tax laws [3].

The powers conferred upon Assessing Officers are substantial and multifaceted. Under Section 131 of the Income Tax Act, 1961, an AO possesses powers similar to those granted to civil courts under the Code of Civil Procedure, 1908. These powers encompass the authority to summon and examine any person under oath, compel the production of books of accounts and documents, inspect records, and conduct inquiries necessary for assessment purposes. Additionally, Section 132 empowers Assessing Officers to conduct search and seizure operations when there exists reasonable belief that a person has failed to disclose income or has concealed information relevant to tax assessment [4].

The assessment process undertaken by Assessing Officers involves scrutiny of income tax returns, verification of claims made by taxpayers, computation of tax liability after considering allowable deductions and exemptions, and issuance of demand notices under Section 156 of the Income Tax Act, 1961, specifying the amount payable by the assessee. The AO also possesses powers of reassessment under Section 147 when income is believed to have escaped assessment, subject to specified time limits and procedural safeguards. These extensive powers underscore the pivotal role Assessing Officers play in tax administration and revenue collection.

The Intersection: NCLT Decisions and Tax Administration

The relationship between NCLT decisions and the powers of Assessing Officers has evolved through a combination of legislative amendments and judicial pronouncements. The most significant statutory intervention came with the introduction of Section 156A of the Income Tax Act, 1961, through the Finance Act, 2022. This provision addresses the modification and revision of tax demand notices in cases where an Adjudicating Authority under the IBC has reduced any tax, interest, penalty, or other sum previously demanded.

Section 156A specifically mandates that when an Adjudicating Authority under the IBC reduces any demand issued under Section 156, the Assessing Officer must modify the demand accordingly and serve a revised notice of demand on the assessee [5]. The provision further stipulates that if the Adjudicating Authority’s order is subsequently modified by the National Company Law Appellate Tribunal or the Supreme Court, the demand notice must be further revised to reflect such changes. This statutory mechanism ensures that tax demands remain consistent with the determinations made by insolvency adjudicating authorities, thereby maintaining coherence between the insolvency resolution process and tax administration.

The legislative intent behind Section 156A was to address a critical gap in the Income Tax Act. Prior to this amendment, there existed no clear procedure or mechanism for reducing tax demands from the outstanding demand register when a resolution plan approved by the NCLT provided for settlement or waiver of tax dues. This created practical difficulties in implementing resolution plans and threatened the viability of corporate debtors undergoing insolvency resolution. The introduction of Section 156A resolved this anomaly by creating a statutory obligation on Assessing Officers to align their demands with NCLT-approved resolution plans.

The Overriding Effect of the Insolvency and Bankruptcy Code

A fundamental principle governing the interaction between NCLT decisions and Assessing Officer powers is the overriding effect of the Insolvency and Bankruptcy Code. Section 238 of the IBC, 2016, explicitly provides that the provisions of the Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. This non-obstante clause establishes the supremacy of the IBC over other statutes, including the Income Tax Act, 1961, in matters relating to insolvency resolution [6].

The practical implication of this overriding effect manifests most prominently during the moratorium period prescribed under Section 14 of the IBC. Once a corporate insolvency resolution process is initiated, Section 14 prohibits the institution or continuation of suits, proceedings, or execution of judgments against the corporate debtor. This moratorium extends to proceedings before tax authorities, effectively restricting the Assessing Officer’s ability to initiate or continue assessment proceedings or recovery actions during the moratorium period. The statutory freeze on legal proceedings ensures that the insolvency resolution process proceeds unimpeded, allowing the corporate debtor breathing space to formulate and implement a viable resolution plan.

However, the overriding effect of the IBC does not completely eliminate the Assessing Officer’s jurisdiction. Rather, it channels that jurisdiction through the insolvency framework. Tax authorities are entitled to file their claims before the Resolution Professional during the corporate insolvency resolution process. These claims are then evaluated and treated in accordance with the provisions of the IBC and the approved resolution plan. The key distinction is that tax claims must be pursued through the insolvency mechanism rather than through independent assessment or recovery proceedings.

Extinguishment of Tax Claims Under Approved Resolution Plans

One of the most significant consequences of NCLT-approved resolution plans for Assessing Officers relates to the extinguishment of tax claims not included in the resolution plan. The Supreme Court’s landmark judgment in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited has established the definitive principle that upon approval of a resolution plan by the NCLT, all claims not forming part of the approved plan stand extinguished, including statutory dues owed to the Central or State Governments [7].

This principle has far-reaching implications for Assessing Officers. Once a resolution plan receives NCLT approval and the approval becomes final (meaning no appeal is filed before the NCLAT within the prescribed period), the Revenue cannot pursue any tax demands relating to periods prior to the approval date that were not included in the resolution plan. This applies regardless of whether assessment proceedings were pending, completed, or not yet initiated at the time of NCLT approval. The extinguishment is comprehensive and absolute, barring the Revenue from instituting fresh assessment proceedings or recovery actions for extinguished claims.

The Madras High Court, in Commissioner of Income Tax v. Empee Distilleries Limited, reinforced this principle by holding that assessment orders, appellate orders, and pending proceedings all stand extinguished upon NCLT approval of a resolution plan [8]. The court emphasized that the Revenue is bound by the resolution plan accepted by the NCLT and is not entitled to anything more than what is provided therein. This judicial stance reflects the policy objective of ensuring that resolution plans, once approved, are implemented effectively without being undermined by subsequent claims or proceedings.

However, it is crucial to note that the extinguishment principle applies only to claims relating to the period prior to the date of NCLT approval of the resolution plan. The Assessing Officer retains full jurisdiction to assess income and levy taxes for periods subsequent to the approval date. The resolution plan creates a clear demarcation between pre-approval and post-approval liabilities, with the former being governed by the resolution plan and the latter remaining subject to normal tax administration procedures.

Jurisdictional Limitations Following Corporate Restructuring

NCLT decisions involving mergers, amalgamations, or corporate restructuring also impact the Assessing Officer’s jurisdiction. When an amalgamation scheme is approved by the NCLT, the amalgamating company ceases to exist as a separate legal entity, being absorbed into the amalgamated company. This cessation of legal existence creates jurisdictional challenges for Assessing Officers seeking to complete assessments or raise demands against the amalgamating company.

Recent judicial pronouncements have clarified that once an amalgamating company ceases to exist pursuant to an NCLT-approved scheme, the Assessing Officer lacks jurisdiction to initiate or continue assessment proceedings against the non-existent entity [9]. Any notices issued to the amalgamating company after the scheme becomes effective are void and without legal consequence. However, the Income Tax Act contains provisions enabling the AO to proceed against the amalgamated company or the legal successor for liabilities of the amalgamating entity, subject to compliance with prescribed procedures.

The timing of NCLT approval assumes critical importance in determining jurisdictional questions. If assessment proceedings were initiated and notices were issued before the effective date of the amalgamation scheme, those proceedings may continue against the appropriate successor entity. Conversely, if the amalgamation became effective before the issuance of assessment notices, the AO must follow the procedures prescribed under the Income Tax Act for assessing successor entities. The failure to observe these procedural requirements can result in the invalidation of assessment orders and demand notices.

The interaction between NCLT proceedings and tax administration imposes certain procedural obligations on Assessing Officers. When a corporate debtor enters the insolvency resolution process, the AO must file claims before the Resolution Professional within the stipulated timeline. The claim should be comprehensive, covering all tax demands, whether crystallized through completed assessments or anticipated from ongoing or potential assessment proceedings.

The Calcutta High Court and various tribunals have held that the Revenue’s failure to file adequate claims during the insolvency process cannot be rectified by subsequently raising fresh demands after approval of the resolution plan. This principle emphasizes the importance of vigilance and proactive claim filing by tax authorities during insolvency proceedings. Assessing Officers must monitor insolvency proceedings involving taxpayers within their jurisdiction and ensure timely and complete filing of claims to protect revenue interests.

Where a resolution plan is approved by the NCLT and provides for specific treatment of tax dues, Section 156A mandates that the Assessing Officer issue a modified demand notice reflecting the reduced liability. The modified notice must be issued promptly and should clearly specify the sum payable in accordance with the NCLT-approved plan. Failure to comply with this statutory obligation can result in the demand being challenged through writ proceedings or appeals, potentially resulting in quashing of the original demand.

Furthermore, when assessment proceedings are ongoing during the corporate insolvency resolution process, the Assessing Officer must inform the Resolution Professional about such proceedings and the likely tax demand. This enables the Resolution Professional to factor potential tax liabilities into the resolution plan. The Delhi Bench of the Income Tax Appellate Tribunal has observed that where notices under Section 143(2) were issued during the pendency of insolvency proceedings, the assessee company should have informed the AO about the admission under Corporate Insolvency Resolution Process, and the AO should have communicated with the Resolution Professional about ongoing assessment proceedings.

Balancing Revenue Interests and Insolvency Resolution

The framework governing Assessing Officer powers in relation to NCLT decisions reflects a careful balance between protecting revenue interests and facilitating successful insolvency resolution. The Insolvency and Bankruptcy Code was enacted with the objective of promoting entrepreneurship, maximizing the value of assets of corporate debtors, and balancing the interests of all stakeholders. Allowing unlimited scope for tax authorities to pursue claims outside the insolvency framework would undermine these objectives and render resolution plans unworkable.

Simultaneously, the complete exclusion of tax authorities from the insolvency process would prejudice legitimate revenue interests and create opportunities for abuse. The statutory framework addresses this tension by requiring tax authorities to participate in the insolvency process through the mechanism of claim filing, subjecting tax claims to the same treatment as other creditor claims within the IBC framework, ensuring that resolution plans receive comprehensive evaluation by all stakeholders including tax authorities, and preserving the Assessing Officer’s powers for post-approval periods while extinguishing claims for pre-approval periods that were not included in approved resolution plans.

This balanced approach recognizes that once a corporate debtor has successfully undergone insolvency resolution through an NCLT-approved plan, imposing additional tax burdens relating to the pre-resolution period would defeat the rehabilitative purpose of the IBC. The extinguishment of such claims represents a policy choice favoring corporate revival and continued employment over historical revenue claims that creditors, including tax authorities, had the opportunity to pursue within the insolvency framework but failed to secure in the approved resolution plan.

Recent Judicial Developments

Recent decisions by High Courts across India have further clarified the scope of Assessing Officer powers in relation to NCLT decisions. The Telangana High Court, in NSL Mining Resources India Private Limited v. Union of India, dealt with a situation where a tax demand was issued after the NCLT had approved a resolution plan that extinguished all income tax dues. The court directed the Assessing Officer to issue a fresh order under Section 156A, taking into account the resolution plan approved by the NCLT. This decision underscores the mandatory nature of the AO’s obligation to modify demands in accordance with NCLT-approved resolution plans.

Similarly, tribunal decisions have consistently held that revenue authorities are bound by resolution plans accepted by the NCLT and are not entitled to pursue claims beyond what the resolution plan provides. These decisions emphasize that the finality of NCLT-approved resolution plans extends to all creditors, including statutory authorities like the Income Tax Department, ensuring uniformity in the treatment of creditor claims and preventing selective enforcement that could destabilize approved resolution plans.

Conclusion

The role and powers of the Assessing Officer in the context of National Company Law Tribunal (NCLT) decisions represent an evolving area of law that balances multiple statutory regimes and policy objectives. The legislative framework, particularly through the introduction of Section 156A of the Income Tax Act, 1961, and the overriding effect of the Insolvency and Bankruptcy Code, 2016, has created mechanisms for coordinating tax administration with insolvency resolution processes. Judicial pronouncements have reinforced the primacy of NCLT-approved resolution plans and have clarified the extent of extinguishment of tax claims not included in such plans.

Assessing Officers must navigate this complex landscape by remaining vigilant about insolvency proceedings involving taxpayers within their jurisdiction, filing comprehensive and timely claims during the corporate insolvency resolution process, modifying tax demands in accordance with NCLT-approved resolution plans as mandated by Section 156A, respecting the moratorium provisions under Section 14 of the IBC during insolvency proceedings, and recognizing the jurisdictional limitations arising from corporate restructuring approved by the NCLT. The framework ultimately serves to ensure that corporate insolvency resolution proceeds efficiently while maintaining appropriate protection for revenue interests through structured participation in the insolvency process.

As corporate insolvency becomes an increasingly common feature of India’s business landscape, the interaction between NCLT decisions and Assessing Officer powers will continue to evolve through further legislative refinements and judicial interpretations. The current framework reflects a maturation of India’s approach to balancing competing interests in insolvency proceedings, ensuring that rehabilitated corporate entities can emerge from insolvency with a clean slate while maintaining the integrity of the tax system for future periods.

References

[1] Ministry of Corporate Affairs, Government of India. (2016). National Company Law Tribunal. https://www.mca.gov.in/content/mca/global/en/about-us/organisation-chart/nclt.html 

[2] IndiaFilings. (2025). National Company Law Tribunal Powers & Jurisdiction. https://www.indiafilings.com/learn/national-company-law-tribunal-powers-jurisdiction/ 

[3] Tax2win. (2025). Understanding Income Tax Assessing Officer. https://tax2win.in/guide/income-tax-assessing-officer 

[4] ClearTax. (2025). Income Tax Assessing Officer. https://cleartax.in/s/income-tax-assessing-officer 

[5] TaxTMI. (2025). Section 156A – Modification and revision of notice in certain cases. https://www.taxtmi.com/acts?id=40763 

[6] Insolvency and Bankruptcy Board of India. (2016). Insolvency and Bankruptcy Code, 2016. https://ibbi.gov.in/ 

[7] Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, (2021) 9 SCC 657 (Supreme Court of India).

[8] TaxGuru. (2024). Tax Recovery Claims Extinguished After NCLT Resolution Plan Approval: Madras HC. https://taxguru.in/income-tax/tax-recovery-claims-extinguished-nclt-resolution-plan-approval-madras-hc.html 

[9] Taxscan. (2025). Annual Tax and Corporate Law Digest 2025: High Court Cases [Part XXXII]. https://www.taxscan.in/top-stories/annual-tax-and-corporate-law-digest-2025-high-court-cases-part-xxxii-1441129 

Authorized and published by Dhruvil Kanabar