2022 (6) TMI 1073 - AT - Income Tax

Demand against company merged - scope of Proceedings under provisions of Insolvency and Bankruptcy Code, 2016 - HELD THAT - In the instant case, the assessee-company was merged with M/s.Agaral Mittal Concast P.Ltd., vide NCLT order dated 13.2.2019. Thereafter, Resolution plan submitted by the Mangalam Worldwide Pvt. Ltd. was approved by the Committee of Creditors, and final order to this effect was passed by the NCLT on 13.12.2021. In the present appeal of the assessee, the assessment year involved is 2014-15 and the demand had arisen on 9.12.2016 pursuant to the framing of assessment i.e. prior to the order of the NCLT dated 13.12.2021, and therefore, in view of overriding effect of the IBC proceedings, tax demand shall stand extinguished. As position of law in this regard is that, the proceeding under provisions of Insolvency and Bankruptcy Code, 2016 overrides the proceedings under the Income Tax Act, 1961. In other words, all the proceedings initiated or pending before different authorities shall stand abated in terms of approval of resolution plan by the NCLT. The present appeal pertains to Asst.Year 2014-15 and the demand had arisen on 9.12.2016 pursuant to framing of assessment i.e. prior to the order dated 13.12.2021 passed by the NCLT. Further, as per the Resolution Plan, there is no claim made by the Income Tax Department before the Insolvency Professional. In the Resolution Plan approved by the NLCLT, an exgratia amount of Rs.10 lakhs only approved to the operational creditors being statutory creditors viz. CGST Department made a claim of Rs.11.70 crores and Asstt.Comm. of Sales Tax claimed Rs.1.77 crores. Therefore, we hold that the present appeal pending before the Tribunal is not sustainable in law

Summary

Issues:
1. Disallowance of ROC expenses and share valuation addition under section 56(2)(viib) r.w.r 11U/11UA.
2. Disallowance of additional depreciation claim on DG set.
3. Disallowance of interest-free loans and advances under section 36(1)(iii).
4. Applicability of Insolvency and Bankruptcy Code, 2016 on tax demand post-merger.

Analysis:
1. The assessee contested the disallowance of ROC expenses and share valuation addition under section 56(2)(viib) r.w.r 11U/11UA. The CIT (A) upheld the AO's decision regarding the ROC expenses, treating them as capital expenditure. However, the assessee argued that these were regular business expenses and should be treated as revenue in nature. The share valuation addition was also disputed, as the assessee voluntarily valued the shares at a rounded figure, which the AO added back to the income. The Tribunal concluded that the additions made by the AO were not justified and should be deleted.

2. The AO disallowed the additional depreciation claim on a DG set, which was contested by the assessee. The CIT (A) partly allowed the appeal, but the assessee challenged this decision. The Tribunal noted the discrepancies in the assessment and found that the disallowance was not justified. Therefore, the appeal on this issue was upheld in favor of the assessee.

3. The disallowance of interest-free loans and advances under section 36(1)(iii) was another issue raised by the assessee. The AO had disallowed a specific amount, which was contested during the appeal. The CIT (A) partly allowed the appeal, leading to further challenges by the assessee. The Tribunal reviewed the facts and determined that the disallowance was not warranted, thus ruling in favor of the assessee on this issue.

4. The final issue revolved around the applicability of the Insolvency and Bankruptcy Code, 2016 on the tax demand post-merger. The NCLT approved the resolution plan involving the merger of the assessee company with another entity, extinguishing the tax demand. The Tribunal analyzed the legal implications of the NCLT order and the IBC provisions, concluding that the tax demand stood extinguished post-merger. Therefore, the appeal was dismissed as not maintainable in light of the merger and resolution plan approved by the NCLT.