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2023 (3) TMI 508 - AT - Income TaxIncome Tax demands in view of the order passed by NCLT imposing moratorium in terms of section 14 of the IBC Code - Powers of AO in framing assessments as well as raising tax demand in the face of order passed by NCLT imposing moratorium under the provisions of Insolvency and Bankruptcy Code (IBC) - 2016 - HELD THAT - As could be seen from the observations of the NCLT, debt due to various creditors, such as, unsecured financial creditors, operational creditors and other creditors, including Income Tax Department were extinguished and determined at Nil as per waterfall mechanism mentioned under section 53 of the IBC Code. This is clearly evident from List B of the Report of the IRP and finds place at entry 47 of List-B appended to the final order of the NCLT in respect of income tax demand for various assessment years. At this stage, it is further necessary to observe, though, at the stage of CIRP before NCLT, AO had communicated to the IRP regarding the upward revision in tax demand relating to various assessment years starting from 2005-06 to 2014-15, however, the IRP declined to consider the revised demand of the AO as Insolvency Resolution Process period has ended. Thus, the aforesaid facts clearly reveal that the Income Tax demands relating to the assessee for assessment years 2005-06 to 2014-15 have been fully extinguished and reduced to Nil in the final order of the NCLT. Thus we quash the impugned assessment orders. Resultantly, the impugned orders of Commissioner (Appeals) are set aside.
Issues Involved:
1. Powers of the Assessing Officer in framing assessments and raising tax demands during the moratorium imposed by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) - 2016. Issue-wise Detailed Analysis: 1. Powers of the Assessing Officer During NCLT Moratorium: The appeals by the assessee arise from orders dated 23.01.2019, by the Commissioner of Income Tax (Appeals)-6, Delhi, for assessment years 2010-11 and 2011-12. The core issue is whether the Assessing Officer (AO) could frame assessments and raise tax demands despite a moratorium imposed by the NCLT under the IBC-2016. Factual Background: The assessee, a resident corporate entity, was subjected to a search and seizure operation under section 132 of the Income-tax Act, 1961. This led to proceedings under section 153A for the relevant assessment years. The AO enhanced the income declared by the assessee, resulting in appeals to the Commissioner (Appeals), who granted partial relief. Both the assessee and the Revenue appealed to the Tribunal, which deleted certain additions and remanded other issues back to the AO. Moratorium and NCLT Orders: During the fresh assessment proceedings, the AO was informed by the Insolvency Resolution Professional (IRP) about the NCLT's moratorium order under section 14 of the IBC Code, and the Delhi High Court's dismissal of the Revenue's appeals due to the moratorium. Despite this, the AO completed the assessments ex-parte, arguing that: - The NCLT proceedings applied to normal creditors, not the Income Tax Act proceedings. - The Central Board of Direct Taxes (CBDT) had approved filing a Special Leave Petition (SLP) against the Delhi High Court's order. Assessee's Argument: The assessee's counsel contended that the AO acted beyond his powers by disregarding the NCLT's moratorium and the Delhi High Court's binding decision. The Supreme Court had dismissed the SLP, affirming that section 238 of the IBC Code overrides inconsistencies in other enactments, including the Income Tax Act. Tribunal's Observation: The Tribunal noted that the NCLT's moratorium prohibited continuation of proceedings against the corporate debtor. The AO's completion of assessments despite being aware of the moratorium and the High Court's order was deemed void-ab-initio. The Tribunal referenced the Supreme Court's ruling in Ghanashyam Mishra and Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Ltd., which upheld the overriding effect of the IBC Code. Final NCLT Order and Liquidation Value: The NCLT's final order on 24.07.2018 determined the liquidation value due to unsecured financial creditors, operational creditors, and other creditors, including the Income Tax Department, as NIL. The Tribunal emphasized that the Income Tax demands for assessment years 2005-06 to 2014-15 were extinguished and reduced to Nil, as per the waterfall mechanism under section 53 of the IBC Code. Previous Tribunal Decisions: The Tribunal cited its previous decisions, which dismissed Revenue's appeals for similar assessment years, affirming that the Income Tax demands were extinguished by the NCLT's final order. Conclusion: In light of the above, the Tribunal quashed the impugned assessment orders and set aside the orders of the Commissioner (Appeals), allowing the assessee's appeals. Order Pronounced: The order was pronounced in the open court on 25th January, 2023.
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