2022 (5) TMI 1015 - HC - Income Tax

Revision u/s 263 - contention raised by the assessee was that the proceedings are liable to be stayed since the assessee has been admitted for Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) and presently the assessee is under moratorium by orders of the National Company Law Tribunal (NCLT) - HELD THAT - Firstly, AO after receipt of the reply dated 26th March, 2022 did not hear the assessee on the issue relating to the effect of IBC. The so called hearing by way of exchange of chat messages cannot satisfy the test of fairness or the test embodied in the principles of fair play. That apart AO was so adamant and he even failed to take note of the order passed by the PCIT-II, who had acceded to similar request made on behalf of the assessee for a later assessment year which was pending on the file of the PCIT-II u/s 263 - we are of the considered view that the observations made against Advocate appearing for the appellant/assessee were not required in the facts and circumstances of this case. While on this issue we take note of the decision of the High Court of Judicature of Madras in the case of Director General of Income Tax (INV.) and Others vs. T. S. Kumaraswamy, Proprietor, Christy Friedgram Industry and Others 2019 (5) TMI 194 - MADRAS HIGH COURT . The said appeal filed by the Income Tax Department was directed against certain adverse remarks made against the officer of the Income Tax Department and their senior standing counsel. The first objection which was raised was by the writ petitioner/assessee that he should be heard in the matter. This was rejected by the following decisions of the Hon ble Supreme Court as the writ petitioner/assessee was not concerned with the subject in issue and, therefore, no notice was required to be issued to the assessee. The next aspect of the matter is whether the observations/remarks made by the learned Single Judge against the officer of the Department and the senior standing Counsel are required to be expunged or not. The court noted the decision in Manish Dixit v. State of Rajasthan 2000 (10) TMI 970 - SUPREME COURT wherein the Supreme Court pointed out and cautioned that before any ex parte remark is made by the Court against any person, particularly, when such remarks could eschew serious consequences on the future career of the person, he should be given an opportunity of being heard in the matter in respect of the proposed remarks or strictures otherwise the adverse remark would be in violation of the principals of natural justice. On similar grounds the adverse remarks were quashed in the case of State of Gujarat Vs. K.V. Joseph 2000 (11) TMI 1253 - SUPREME COURT Testa Setalvad v. State of Gujarat 2004 (4) TMI 640 - SUPREME COURT and also in Samya Sett v. Shambu Sarkar 2005 (8) TMI 741 - SUPREME COURT In the result, the appeal is allowed. The assessment order is set aside and the matter is restored to the file of the assessing officer and the matter shall be kept in abeyance till the completion of the insolvency resolution proceedings.

Summary

Issues Involved:
1. Validity of the assessment proceedings during the pendency of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Alleged violation of principles of natural justice due to lack of personal hearing.
3. Adverse remarks and imposition of costs on the appellant's counsel by the learned Single Bench.

Analysis:

1. Validity of the Assessment Proceedings During CIRP:
The appellant challenged the notice dated 23rd March, 2022, issued to give effect to the order under Section 263 of the Income Tax Act, 1961. The appellant contended that the proceedings should be stayed due to the ongoing CIRP under the IBC and the moratorium imposed by the NCLT. The appellant cited Section 14 of the IBC and relevant judicial precedents, including Alchemist Asset Reconstruction Company vs. Hotel Gaudavan (P) Ltd. & Ors. and PCIT vs. Monnet Ispat and Energy Ltd., to argue that the IBC provisions override the Income Tax Act. The appellant requested the assessing officer to keep the proceedings in abeyance until the completion of CIRP. Despite these arguments, the assessing officer proceeded with the assessment, leading to the appellant filing a writ petition.

2. Alleged Violation of Principles of Natural Justice:
The appellant argued that they were not afforded a proper opportunity for a personal hearing, as the hearing was conducted through chat messages, which they claimed was ineffective. The appellant highlighted that the assessing officer did not consider the judicial pronouncements and the order passed by PCIT-II, who had acceded to a similar request for a different assessment year. The court observed that the assessing officer failed to provide a meaningful opportunity for a personal hearing and did not consider the legal arguments presented by the appellant. The court noted that the assessment order was ex parte and that the assessing officer committed a grave error by not staying the proceedings during the CIRP.

3. Adverse Remarks and Imposition of Costs on Counsel:
The learned Single Bench had imposed a cost of Rs. 10,000/- on the appellant's counsel, Mr. Somak Basu, for alleged rude behavior and disrespectful conduct in court. The appellant's counsel denied these allegations, stating that his intention was to persuade the court to consider the relevant sections of the IBC and the principles of natural justice. The court referred to various judicial precedents, including Neeraj Garg vs. Sarita Rani & Ors., which emphasized the importance of judicial restraint and the need for judges to avoid unnecessary remarks against counsel. The court concluded that the adverse remarks and costs imposed on the appellant's counsel were unwarranted and should be expunged.

Conclusion:
The court allowed the appeal, set aside the assessment order dated 30th March, 2022, and restored the matter to the file of the assessing officer, directing that the proceedings be kept in abeyance until the completion of the CIRP. The court also expunged the adverse remarks and vacated the costs imposed on the appellant's counsel. The application for stay was closed, and no costs were awarded.