The High Court of Judicature at Bombay has issued a decisive ruling protecting companies operating under the Insolvency and Bankruptcy Code from legacy tax reassessment claims. In a judgment delivered on October 16, 2026, the Division Bench of Justice B. P. Colabawalla and Justice Farhan P. Dubash quashed a series of notices issued by the Assistant Commissioner of Income Tax seeking to reopen assessment proceedings for the 2020-21 financial year against Swan Defence and Heavy Industries Ltd., formerly known as Reliance Naval and Engineering Ltd.

The court’s decision reaffirms the sanctity of a resolution plan once approved by the National Company Law Tribunal. By setting aside the Show Cause Notice dated March 31, 2026, and subsequent orders issued under the Income Tax Act, the court established that once a resolution process concludes, the entity emerges with a clean slate regarding past statutory liabilities, even when the tax department claims to have discovered new evidence of potential fraud or tax evasion.

Rejection of Post-Resolution Assessment

The dispute emerged after the Income Tax Department attempted to initiate re-assessment proceedings for the 2020-21 period, relying on fresh information purportedly sourced from the Enforcement Directorate. The department alleged that the company had engaged in fraudulent transactions, reversal trades involving shell entities, and intentional tax evasion. Despite the company’s assertion that all past claims were legally extinguished upon the approval of the resolution plan by the NCLT Ahmedabad Bench on December 23, 2022, the tax authorities maintained that their intent was not to recover past dues but to conduct a necessary inquiry into suspicious activities.

The Revenue argued that the Insolvency and Bankruptcy Code should not serve as a shield for corporate misconduct or fraudulent practices. However, the High Court found these arguments insufficient to overcome the legal finality provided by the approved resolution plan. The court observed, “We observe that the Income Tax Department could not have proceeded against the Petitioner after approval of Resolution Plan by the NCLT for a period prior to approval of such Plan, notwithstanding the fact that some new information was received by the Income Tax Department. At this stage, no liability can be fastened on the Petitioner for any actions prior to approval of the Resolution Plan.”

Impact of Judicial Precedent

This ruling draws significant strength from established legal doctrine, notably the Supreme Court’s landmark decision in the Ghanshyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Ltd. case. The High Court also referenced its own recent ruling in Alok Industries Ltd. vs. Assistant Commissioner of Income Tax , which solidified the stance that statutory dues are subject to the same extinguishment principles as other claims once a resolution plan receives legal approval.

The Bench expressed its perplexity regarding the department's persistence, noting that a nearly identical petition for the same assessment year had already been adjudicated upon in August 2025. In that instance, the High Court had quashed similar reassessment notices by applying the same principles of the Insolvency and Bankruptcy Code. The court questioned the department’s decision to re-initiate these proceedings despite the prior judicial intervention, emphasizing that such actions created an academic exercise when the underlying liability could no longer be legally enforced against the corporate debtor.

Investigatory Scope and Former Management

While the ruling provides substantial relief for Swan Defence and Heavy Industries Ltd., the court clarified the boundaries of this protection. The judgment does not grant blanket immunity for individuals who managed the company's affairs during the period when the alleged tax misdeeds occurred.

The court explicitly noted that the Income Tax Department retains the power to pursue legal action against the individuals responsible for the company’s management prior to the approval of the resolution plan. By clearly distinguishing between the corporate entity, which undergoes a "fresh start" via the NCLT, and the former directors or management, the High Court has balanced the objective of the insolvency process with the state's interest in penalizing financial fraud.

The final order mandates that the Show Cause Notice dated March 31, 2026, the order passed on June 29, 2026, under Section 148A(3) of the Income Tax Act, and the corresponding notice under Section 148 are quashed and set aside. This decision serves as a significant signal to tax authorities regarding the limitations of their power to reopen historical assessments in the face of finalized insolvency resolutions, reinforcing the primacy of the insolvency framework in corporate restructuring.

The case concludes with the court making the rule absolute, effectively ending the current reassessment attempt. Any further action by the department will now be confined to the personal accountability of the former management, provided such action is supported by independent evidence and the relevant provisions of the law. This ensures that while the company is protected from the burden of legacy tax claims, the regulatory oversight over past individual misconduct remains an available, albeit separate, legal avenue.