2021 (7) TMI 1445 - AT - Income Tax

Income tax proceedings against company dissolved / insolvent - Revision u/s 263 against company wherein proceedings u/s 7 of Insolvency and Bankruptcy code, 2016 has already been initiated against - HELD THAT - Admittedly, the proceedings under section 7 of Insolvency and Bankruptcy code, 2016 have been initiated by the National Company Law Tribunal in CP(IB) 307 of 2020 vide order dated 9 March 2021. The copy of the order is placed on record. There are prohibitions for the institution of fresh proceedings under section 14 of the Code 2016 against such company which overrides the provisions of Income Tax Act. As per section 14 of the Code, the order of the NCLT for initiation of liquidation of the Corporate Debtor would result in a moratorium on the initiation or continuation of legal proceedings by or against the corporate debtor being the assessee. We hold that the order passed under section 263 of the Act is not maintainable and liable to be quashed. Before parting, it is pertinent to note that AO is at liberty to make an application for re-institution of this appeal after the resolution process ends under IBC 2016. Ground of appeal of the assessee is allowed.

Summary

Issues:
Appeal against order under section 263 of the Income Tax Act, 1961 for Assessment Year 2016-2017.
1. Jurisdiction of the Learned Principal Commissioner of Income Tax-3.
2. Consideration of assessment order under section 143(3) as erroneous and prejudicial to revenue.
3. Initiation of proceedings under section 7 of Insolvency and Bankruptcy Code, 2016.
4. Prohibitions for institution of fresh proceedings post order under section 7 of Insolvency and Bankruptcy Code, 2016.

Jurisdiction Issue:
The appeal was filed against the order of the Learned Principal Commissioner of Income Tax-3 under section 263 of the Income Tax Act, 1961 for the Assessment Year 2016-2017. The assessee contended that the order passed by the PCIT was beyond jurisdiction, against the law, facts, and directions of the CBDT. The AR argued that the order under section 263 should be quashed, and the assessment order under section 143(3) should be upheld. The tribunal considered the contentions and held that the order under section 263 was not maintainable, thus allowing the appeal on technical grounds.

Assessment Order Issue:
The second ground of appeal raised by the assessee was regarding the PCIT considering the assessment order under section 143(3) as erroneous and prejudicial to revenue, directing a fresh assessment. The tribunal, after hearing both parties, concluded that the order under section 263 was not maintainable due to the initiation of proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016. Therefore, the direction given by the PCIT for verification was quashed, and the assessment order under section 143(3) was upheld.

Insolvency and Bankruptcy Code Issue:
The AR for the assessee informed the tribunal that proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016 had been initiated against the assessee company by the National Company Law Tribunal. The AR argued that no fresh proceedings could be initiated post the NCLT order under section 7 of the Code, as section 14 of the Code provides prohibitions against such actions. The tribunal agreed with the AR, holding that the order under section 263 was not maintainable post the NCLT order, and it was liable to be quashed.

Prohibitions for Fresh Proceedings Issue:
The tribunal noted that section 14 of the Insolvency and Bankruptcy Code, 2016 provides for a moratorium on the initiation or continuation of legal proceedings against the corporate debtor once the NCLT orders initiation of liquidation. Therefore, the tribunal held that the order under section 263 was not maintainable due to the prohibitions set forth in the Code. The tribunal allowed the appeal filed by the assessee, emphasizing that the AO could make an application for reinstitution of the appeal after the resolution process under the IBC 2016 concludes.