2024 (3) TMI 654 - AT - Income Tax

Assessment against company dissolved/insolvent - proceedings initiated against the corporate debtor/assessee company including income tax proceedings and recovery of demand or giving effect of any order - Addition u/s 68 - transaction of share capital and share premium which was taken from different entities against the high premium - HELD THAT - As per the provisions of section 14 of the IBC Code institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority shall be prohibited during the moratorium period. Section 31 of the IBC relates to approval of the resolution plan and in terms of Section 31(1) of the IBC on approval, the resolution plan becomes binding on corporate debtor and its employees, members, creditors including the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under any law for the time being in force. The Hon ble Supreme Court in the matter of Ghanashyam Mishra 2021 (4) TMI 613 - SUPREME COURT has considered the scope of Section 31 (1) of the IBC and has held that once the resolution plan is sanctioned under Section 31(1) of the IBC, the claims provided in the plan will stand frozen and all such claims which are not part of the plan will stand extinguished. Thus, the law is well settled that on the approval of the resolution plan in terms of Section 31 of the IBC, the dues including the statutory dues of the Government or local authority, if not part of the resolution plan, gets extinguished and no proceedings in respect thereof for a period prior to the date of approval under Section 31 would continue. The decision of the Hon ble Calcutta HighCourt in West Bengal State Electricity Distribution Company Limited vs. Sri Vasavi Industries Limited 2022 (7) TMI 580 - CALCUTTA HIGH COURT makes it clear that any claim not made during the course of CIRP and before approval of resolution plan shall automatically be extinguished and the corporate debtor is deemed to start its operations with a clean slate after the resolution plan is approved. It has been consistently held by the Hon ble Supreme Court that the IBC is a complete Code in itself and in view of the provisions of Section 238 of the IBC, the provisions of the IBC would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force. We are of the view that as per section 31 of the Code, resolution plan as and when approved by the Adjudicating Authority shall be binding on the corporate debtor and its employees, members, creditors, guarantors, and other stakeholders involved in the resolution plan. Thus, this will prevent State authorities and Regulatory bodies including Direct Indirect Tax Departments from questioning the resolution plan. Thus, in view of the above, no proceedings can be initiated against the corporate debtor, that is, assessee company including income tax proceedings and recovery of demand or giving effect of any order. It is well settled now that IBC has an overriding effect 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. However, depending upon the result of such proceedings before the adjudicating authority in respect of the corporate debtor, appropriate steps if any, may be taken by the appellant. We, therefore, granting, leave to the appellant to seek the restoration of the appeal, if necessitated by the orders in the Corporate Insolvency Resolution Proceedings. Issue of limitation in filing fresh appeal , if need be, has already been dealt with in Hon ble Supreme Court in NDMC-v-Minosha (India) Ltd. 2022 (5) TMI 1123 - SUPREME COURT wherein on consideration of Section 60(6) of the Insolvency and Bankruptcy Code, 2016, it was held that the entire moratorium period will be excluded in computing limitation in respect of proceedings at the hand of a corporate debtor.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition of Rs. 83,750,000 under Section 68 of the Income Tax Act.
3. Impact of proceedings under the Insolvency and Bankruptcy Code (IBC), 2016 on the appeal.

Condonation of Delay:
The appeal was filed with a delay of 18 days due to the assessee's illness. The delay was condoned as there was no objection from the Departmental Representative.

Addition under Section 68:
The Assessing Officer (AO) added Rs. 83,750,000 to the assessee's income under Section 68 of the Income Tax Act, treating the amount as unexplained cash credits related to share capital and share premium transactions. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld this addition. The assessee contested this before the Tribunal.

Impact of IBC Proceedings:
The assessee's case was under Corporate Insolvency Resolution Process (CIRP) as per the order of the National Company Law Tribunal (NCLT). The Tribunal referred to multiple precedents, including the Supreme Court's rulings, which establish that once a resolution plan is approved under Section 31 of the IBC, all claims against the corporate debtor, including those by tax authorities, are extinguished.

Tribunal's Decision:
The Tribunal noted that the NCLT had declared a moratorium under Section 14 of the IBC, prohibiting the continuation of any proceedings against the corporate debtor. Consequently, the Tribunal dismissed the appeal as infructuous, stating that no proceedings could continue against the assessee during the moratorium period. The Tribunal also granted liberty to the AO to reinstitute the appeal if the resolution process under IBC ends.

Conclusion:
The appeal filed by the assessee was dismissed as infructuous due to the ongoing CIRP under the IBC, which prohibits any proceedings against the corporate debtor. The Tribunal's order aligns with the legal position that the IBC has an overriding effect on other laws, including the Income Tax Act.