Telangana High Court
Vrdv Traders Private Limited vs Union Of India on 19 June, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
WRIT PETITION Nos.1194, 10020 and 10752 of 2023
COMMON ORDER:
(per the Hon’ble Sri Justice P.Sam Koshy)
Heard Mr. V.Aneesh, learned counsel for the petitioner, and Ms. J.Sunita,
learned Junior Standing Counsel for the respondents.
2. The instant three writ petitions have been filed by the petitioner assailing
three different orders passed by respondent No.3 under Section 148A(b) of the
Income Tax Act, 1961 (briefly ‘the Act’ hereinafter) and the notice dated
31.07.2022 issued by respondent No.3 under Section 148 of the Act along with
the subsequent notice dated 02.11.2022 passed by respondent No.4 proposing to
complete the assessment under Section 144B of the Act and the subsequent
notice issued, and also, challenging all consequential proceedings contending it
to be violative of Article 14 and 19 of the Constitution of India and also Section
31 of the Insolvency and Bankruptcy Code, 2016.
3. The instant writ petitions pertain to the same assessee in respect of three
different assessment years i.e. 2014-15, 2015-16 and 2016-17. Writ Petition
No.1194 of 2023 is in respect of assessment year 2014-15, Writ Petition
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No.10020 of 2023 is in respect of assessment year 2015-16 and, Writ Petition
No.10752 of 2023 is in respect of assessment year 2016-17.
4. So far as the assessment year 2014-15 is concerned, the petitioner was
issued with a notice dated 29.06.2021, under Section 148 of the Act intimating
the petitioner as regards the decision to propose assess and reassess of the
income / loss for the assessment year 2014-15 pertaining to certain incomes
chargeable to tax which has escaped assessment within the meaning of Section
147 of the Act. Meanwhile, after the decision of the Hon’ble Supreme Court in
the case of Union of India and Others vs. Ashish Agarwal 1, a fresh notice
was issued on 18.05.2022 to the petitioner under Section 148 of the Act. The
reason for issuance of the notice was that, certain manipulative reversal trades
emerged from the trading data received under the project Falcon, wherein it was
seen that the assessee has undertaken trades through its broker M/s. Expro
Securities and, from the said data, it was reflected of the petitioner to have
undertaken both sale as well as purchase trades from eight unique contracts and,
on further scrutiny, it was also found that there were certain chief characteristics
which were reflected from the said transactions like:
(i) Identical purchase and sale quantity 1 (2023) 1 Supreme Court Cases 617 Page 3 of 14 (ii) Huge variation in purchase price and sale price.
(iii) Trades carried out between same party and counter-party i.e. if a
client A purchased X qty from a counter-party client B, then A sells X qty to
B only.
(iv) Time gap between purchase and sale transactions few seconds and
not more than an hour.
(v) Insignificant change in the price of the underlying scrip as compared
to the change in buy rates and sell rates.
(vi) Trading separately in deep in-the-money options and deep out-of-the-
money options on individual stocks, which were thinly traded.
(vii) The trades by these loss-making entities, in many cases, contribute to
70% to 100% of total traded volume for the contracts on those days.”
5. Based on the aforesaid suspicious transactions, prima facie, the Income
Tax authorities found the petitioner to be indulged in generating non-genuine
transactions by reversing trading in currency derivatives on the BSE / USE
during the previous year 2013-14 and believing the income chargeable to tax
having escaped assessment, the notices were issued.
6. There is no dispute so far as the petitioner having not received the said
notices. Moreover, it also goes to show that the petitioner in fact had responded
to the said notices by giving a detailed reply on 18.06.2022 and, it is only
thereafter, after a due consideration of his reply, the Income Tax authorities
passed the order under Section 148A(d) of the Act on 31.07.2022.
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7. Similar, if not identical are the facts so far as assessment year 2015-16 is
concerned, wherein the notices issued to the petitioner under Section 148 of the
Act was on 13.05.2022, to which also there is no denial of having not received
the said notice. To the said notice also, the petitioner submitted a reply on
18.06.2022 and the Income Tax authorities vide its order dated 30.06.2022
passed an order under Section 148A(d) of the Act. Simultaneously, the
authorities did issue the notice under Section 148 of the Act on the same day
itself i.e. on 30.06.2022. The petitioner thereafter gave a response to the said
notice under Section 148 of the Act on 16.08.2022 followed by subsequent
notice under clause (b) of Section 148 of the Act on 31.03.2023, followed by
the notice under Sub-Section (1) of Section 142 of the Act on 05.04.2023 which
has led to the filing of the writ petition.
8. As was the case in the proceedings drawn for the assessment year 2014-
15, in the present case also, the petitioner in fact responded to the notices and
submitted a detailed reply on 18.06.2022 and it only thereafter that the Income
Tax authorities have passed the impugned order for the assessment year 2015-
16. Surprisingly, no reasons have been disclosed either in the instant petitions or
in any of the submissions as to why in the two detailed responses filed by the
petitioner before the Income Tax authorities for both the assessment years vide
their reply of the same day dated 18.06.2022, the petitioner did not refer to the
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proceedings before NCLT or the petitioner establishment having undergone the
Corporate Insolvency Resolution Process (CIRP). It was also not informed to
the authorities about the Resolution Professional (RP) being appointed and
further constitution of a Committee of Creditors (CoC) to evaluate the
resolution plans etc. It was also not brought to the notice of the authorities in
respect of the NCLT having approved the resolution plan submitted by the
successful resolution applicant vide its order dated 31.01.2020. The order of the
NCLT approving the resolution plan was dated 31.01.2020, whereas, the
response that the petitioner gave to the notice issued by the Income Tax
authorities was dated 18.06.2022.
9. Another aspect which needs consideration at this juncture is that, though
the proceedings for the assessment year 2014-15 and 2015-16 were initiated in
the year 2022, notices having been admittedly received by the petitioner, yet no
steps were taken to contest the case so far as its tenability in the light of the
petitioner establishment having undergone Corporate Insolvency Resolution
Process and the resolution plan having been duly accepted by the NCLT.
10. Similar are the facts in respect of the assessment year 2016-17. The only
improvement being that, upon receipt of the notices from the Income Tax
authorities on 30.03.2023, under Section 148A(b) of the Act for the assessment
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year 2016-17, the petitioner responded that they had taken the plea of the
proceedings before the NCLT and the approval of the resolution plan and
thereafter contended that in view of the order passed by the NCLT, the
proceedings before the Income Tax authorities for all previous years prior to
approval to the resolution plan having been approved, is not sustainable and the
present batch of writ petitions have been filed primarily on the said ground of
non-sustainability of the proceedings before the Income Tax authorities.
11. Learned counsel for the petitioner relied upon the following decisions of
this Court, in support of his contentions, viz.,
1) Sujana Universal Industries Limited vs. The Union of India
represented by its Secretary and Ors.2
2) M/s. Matha Nimishamba Devi Trust vs. The State of Telangana and
Ors.3
12. Referring to the decisions of this Court on similar set of facts, the learned
counsel for the petitioner also contended that the issue raised in the present writ
petitions is squarely covered by the judgment of the Hon’ble Supreme Court in
the case of Ghanshyam Mishra and Sons Private Limited vs. Edelweiss
Asset Reconstruction Company Limited 4 which is the basis on which the
2
Order dated 11.03.2024, in W.P.No.24895 of 2023
3
Order dated 11.03.2024, in W.P.No.15124 of 2022
4
(2021) SCC OnLine SC 313
Page 7 of 14
judgments have been passed by this High Court as also by many other High
Courts.
13. According to the learned counsel for the petitioner, in view of Section 31
of the Insolvency and Bankruptcy Code, the resolution plan which stands
approved by the NCLT would be binding on all Corporate Debtors as also the
other creditors including the Central Government or any State Government or
any local authorities to whom the debt or payment of dues are owed by the
petitioner. According to the learned counsel for the petitioner, even if they are
liable to make any payment to the Income Tax Department, but now that the
resolution plan has been approved by the NCLT, the entire liability if any stands
extinguished in view of the Insolvency and Bankruptcy Code having an
overriding effect. Thus, the learned counsel for the petitioner prayed for an
appropriate relief.
14. According to the learned counsel for the petitioner, once the NCLT
approved the resolution plan, its order and the plan approved, gets statutory
force and is binding on all the stakeholders to whom the petitioner owe to pay.
15. Per contra, the learned Junior Standing Counsel for Income Tax
Department, referring to the Counter filed in one of the writ petitions i.e. Writ
Petition No.1194 of 2023, contended that it is a case where the respondents
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intend to reopen the assessment under certain peculiar factual circumstances.
According to the learned Junior Standing Counsel, recently the respondents
received certain information from the investigating wing whereby it was
reflected in the inside portal of the Income Tax Department that the petitioner’s
case was identified as a high-risk transaction with potential tax liabilities and it
was in these circumstances that respondent No.3 decided to initiate assessment
proceedings by issuing notice under Section 148 of the Act.
16. According to the learned Junior Standing Counsel, from the documents
which reflected that the petitioner had certain transactions made through Shree
Sati Finvest Pvt. Ltd. which is a shell company as per the Departmental
database. It was also reflected that the petitioner was dealing with shell entities
with certain unexplained reverse trading as per the information received from
different investigation dissemination reports. Based upon which, it was the
contention of the learned Junior Standing Counsel that all these transactions
with shell entities appears to have been carried out for income tax purpose and,
as such, there is an escapement of income, based upon which the notice under
Section 148A(b) was issued. The said notice was issued after the Assessing
Officer had recorded the reasons for him to believe that there was an
escapement of income.
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17. For all the aforesaid reasons, the learned Junior Standing Counsel for
Income Tax Department, prayed for rejection of the writ petitions.
18. Having heard the contentions put forth on either side and on perusal of
records, what is necessary to be appreciated at this juncture is the fact that,
undoubtedly the petitioner had undergone the Corporate Insolvency Resolution
Process and a resolution plan was put up before the NCLT for approval and
NCLT vide its order dated 31.01.2020 had allowed the resolution plan. Under
the normal circumstances, upon issuance of an order of approval of the
resolution plan by the NCLT under the Insolvency and Bankruptcy Code, all the
liabilities that stood due to all the creditors would stand extinguished upon
passing of the resolution plan by the NCLT. The said aspect would be
applicable in the instant case as well, and the law in this regard is by now well
settled, those which have been relied upon by the learned counsel for the
petitioner starting from the judgment of the Hon’ble Supreme Court in the case
of Ghanshyam Mishra and Sons Private Limited (supra) and those which
have been passed by this High Court also.
19. However, what we need to consider at this juncture is, the reasons for
which the reopening of the assessment has been proposed and initiated. Going
by the information collected, it was found that the petitioner is said to have
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undertaken both sale as well as purchase trades from at least eight contracts.
On further scrutiny certain characteristics were reflected and all these
characteristics are what have been reflected in the paragraph No.4 of this order.
The authorities found that the transactions inter se between all these eight
contracts were of similar nature inasmuch as the quantity purchased and sold
were identical. In all the cases, there is huge variation between the purchased
price and the sale price. Further, the trades carried out between the same party
and the counter party also had similar facts. The time gap between the purchase
and sale is very momentary and that it lasts at time for only a few seconds, if
not, more than an hour. Likewise, there was insignificant change in the price of
the underlying scrip as compared to the changes in buying and selling rates.
20. Similarly another characteristic which was revealed was that of repeated
trading in deep in-the-money auctions and deep out-of-the-money auctions on
individual stocks which were thinly traded. Based upon these information
collected, the authorities found that there are strong reasons to believe that all
these fraudulent transactions reflected the illegalities those are going on and the
object behind it is to evade payment of tax and the income chargeable to tax
roughly amounts to over Rs.3 crores for the assessment year 2024-15.
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21. So far as reopening of assessment is concerned, this Court is of the firm
view that there is no doubt as regards non-sustainability of a recovery initiated
subsequent to the Corporate Insolvency Resolution Process having been
initiated and approval of the resolution plan, which is otherwise impermissible.
Nonetheless, if the Department wants to have reassessment of the assessment
order, the same is not barred under law even after the resolution process having
been finalized and the resolution plan having been given effect to.
22. The action of the respondents may be only bad in law in the event if after
reopening of the assessment and a fresh assessment is done, the authorities if go
in for recovery proceedings. However, the authorities cannot be found fault with
if they intend to do scrutiny of the proceedings to ascertain whether there has
been any illegal, fraudulent and fake transactions carried out and, if yes, at least
appropriate proceedings can be initiated against the director / directors who
were then responsible in managing the affairs of the business. Moreover,
nowhere does any judgment bar initiation of the proceedings subsequent to the
approval of the resolution plan.
23. The reasoning given by this Bench finds support from the judgment of the
Madras High Court wherein, in somewhat similar circumstances, in the case of
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Dishnet Wireless Ltd. vs. Assistant Commissioner of Income-tax (ODS)5 in
paragraph No.29 and 34 to 39, it was held as under, viz.,
“29. The Resolution Plan submitted on behalf of the petitioners by the
Insolvency Resolution Professional under Section 30(6) of the Insolvency
and Bankruptcy Code, 2016 on 21.05.2019 has not contemplated any
concession from the Income Tax Department though Notices under Section
148 of the Income Tax Act, 1961 had already been issued during March,
2018.
……………
34. The provisions of Insolvency and Bankruptcy Code, 2016 (IBC) cannot
be interpreted in a manner which is inconsistent with any other law in the
time being in force.
35. Therefore, Corporate Insolvency Resolution Plan sanctioned and
approved cannot impinge on the rights of the Income Tax Department to
pass any fresh Assessment Order under Section 148 read with Sections
143(3) and 147 of the Income Tax Act, 1961.
36. Therefore, the proceedings under the Insolvency and Bankruptcy Code,
2016 (IBC) cannot be pressed into service to dilute the rights of the Income
Tax Department under the Income Tax Act, 1961 to re-open the assessment
under Section 148 of the Income Tax Act, 1961.
37. In my view, the Income Tax Department was not precluded from
reopening the assessment completed under Section 143(3) of the Income
Tax Act, 1961.
38. Therefore, these Writ Petitions filed by these petitioners have to be
dismissed. The Assessment Orders which have been passed pursuant to the
interim order dated 27.12.2018 are directed to be given to the respective
5
[2022] 139 taxmann.com 493 (Madras)
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petitioners by the respondent, within a period of thirty days from the date of
receipt of a copy of this order.
39. If the petitioners are so aggrieved by such of those Assessment Orders,
the petitioners have to work out their Appellate remedy before the
Commissioner of Income Tax (Appeals) under Section 246A of the Income
Tax Act, 1961. Since the time for filing appeal would have already expired,
liberty is given to the petitioners to file such appeal before the Appellate
Commissioner, within a period of thirty days from the date of
communication of the Assessments Orders.”
24. Even otherwise what needs to be appreciated is that the Corporate
Insolvency Resolution Process should not be permitted to be used as a
mechanism to overcome any misdeeds, misappropriations or illegalities
deliberately done with an intention to evade tax. In the instant case, the
suspicion is there appears to be a large number of transactions and reverse
transactions made by the petitioner in the name of shell companies. It is this
which needs to be verified, scrutinized and enquired. If everything is genuine
and in accordance with law, even if there is tax evasion, the order of NCLT
approving the resolution plan would come to the rescue of the petitioner.
However, in the case if the apprehension of the Income Tax authorities is found
to be true, then the Income Tax authorities cannot be left remediless for taking
appropriate action for the so-called mischief, misdeeds, misappropriation or
illegality. Therefore, we are of the considered opinion that as of now it is only a
case of reopening of the assessment in the light of the information received so
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far as the petitioner dealing with shell companies with a mala fide intention of
evading tax and it is not a case where there has been an assessment order passed
fastening tax liability on the petitioner.
25. For all the aforesaid reasons, the present writ petitions in its given form,
stand rejected reserving the right of the petitioner to take appropriate remedies
that are available under the provisions of the Income Tax Act.
26. As a sequel, miscellaneous petitions pending if any, shall stand closed.
However, there shall be no order as to costs.
________________
P.SAM KOSHY, J
_______________________________
NARSING RAO NANDIKONDA, J
Date: 19.06.2025
GSD