2023 (3) TMI 38 - AT - Income Tax

Proceedings against corporate debtor - financial creditor Application u/s 7 of Insolvency and Bankruptcy Code 2016 against the assessee before NCLT allowed - HELD THAT - No proceedings can be initiated against the corporate debtor, i.e., assessee company including the present proceedings before this Tribunal, or the income tax proceedings and recovery of demand or giving effect of any order. It is well settled now that, IBC has overriding affect on all the acts including Income Tax Act which has been specifically provided u/s 178(6) of the I.T. Act as amended w.e.f. 01.11.2016. Thus, in view of moratorium declared by NCLT, all the proceedings in the Court of Law, Tribunal etc. cannot continue in view of Amendment to Section 178(6) of the Act, therefore, no useful purpose is going to be served in continuing the present proceedings. In view of the above, we dismiss the appeal in limine.

Issues:
1. Disallowance of expenditure by the Assessing Officer
2. Disallowance of amount spent on higher education of directors' children
3. Upholding additions made by Assessing Officer
4. Appreciation of facts of the case
5. Impact of NCLT judgment on ongoing proceedings

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) upholding an assessment by the Assessing Officer, which concluded the income at a higher amount than returned by the appellant. The first ground of appeal challenged this assessment, arguing that it was erroneous both in law and on facts. The Tribunal considered the arguments presented by both parties and the relevant provisions of the Income Tax Act. The Tribunal found that the financial creditor had filed an application under the Insolvency and Bankruptcy Code against the assessee, resulting in a moratorium on proceedings against the corporate debtor. Consequently, the Tribunal dismissed the appeal, citing the overriding effect of the IBC on all acts, including the Income Tax Act.

2. Another ground of appeal related to the disallowance of an amount spent on the higher education of directors' children. The appellant contested this disallowance, arguing that it was unjustified both in law and on facts. The Tribunal examined the provisions of the Income Tax Act and the arguments presented by the parties. However, in light of the NCLT judgment and the moratorium declared, the Tribunal concluded that continuing the proceedings would serve no useful purpose. Therefore, the appeal was dismissed, with liberty granted to seek remedial measures once the moratorium period was over or under specific circumstances in the interest of justice.

3. The appellant also challenged the additions made by the Assessing Officer, contending that they were not in line with binding decisions interpreting relevant provisions. The Tribunal carefully considered the submissions and the legal precedents cited. However, given the impact of the NCLT judgment and the resulting moratorium, the Tribunal decided to dismiss the appeal due to the overriding effect of the IBC on ongoing proceedings, including income tax matters.

4. Additionally, the appellant raised concerns about the Commissioner of Income Tax (Appeals) not appreciating the facts of the case. The Tribunal reviewed the facts presented, the arguments made by the parties, and the implications of the NCLT judgment. Ultimately, considering the moratorium in place and the overriding effect of the IBC on legal proceedings, the Tribunal dismissed the appeal, emphasizing the need to adhere to the provisions of the IBC and the limitations it imposed on ongoing cases.

5. The final issue addressed in the judgment was the impact of the NCLT judgment on the ongoing proceedings. The Tribunal noted the application filed under the Insolvency and Bankruptcy Code and the subsequent moratorium declared by the NCLT. Given the restrictions imposed by the moratorium, the Tribunal concluded that continuing the present proceedings would not be beneficial. Consequently, the appeal was dismissed, with the option for the assessee to seek appropriate measures once the moratorium period ended or under specific circumstances for the revival of the company in the interest of justice.

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