2021 (8) TMI 1418 - AT - Income Tax

Income Tax demands post insolvency proceedings - application of the waterfall mechanism mentioned in section 53 of the Code, the liquidation value due to unsecured financial creditors, operational creditors and other creditors of the assessee becomes nil - HELD THAT - It is clear that in terms of the resolution plan as approved by the NCLT, all claims or demands or liabilities or obligations owed or payable to or assessed by or assessable by the Central Government/State Government in relation to any period prior to the acquisition, will be written off in full and will be deemed to be permanently extinguished. This position of law is clear in view of the decision of Hon ble Supreme Court in the case of Ghanashyam Mishara and Sons vs. Edleweiss Assets Reconstruction Company Ltd. ( 2021 (4) TMI 613 - SUPREME COURT ). We are of the considered opinion that the dues to the Income-tax Department for the assessment year 2013-14, which are reflected in the list-B appended to NCLT order stood fully extinguished and no useful purpose would be served by adjudicating this matter. With this view of the matter, we dismiss the appeal of the Revenue.

Summary

Issues:
Challenge to order passed by CIT(A) deleting certain entries in the assessment for the year 2013-14, due to insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.

Analysis:
The Revenue appealed against the deletion made by the CIT(A) regarding outstanding secured loans and insolvency proceedings initiated by a secured financial creditor under the Insolvency and Bankruptcy Code, 2016 (IBC). The National Company Law Tribunal (NCLT) admitted the petition, declared moratorium, and approved a resolution plan. The NCLT observed a significant difference between the liquidation value of the company and the admitted claims of creditors, resulting in the liquidation value being insufficient to satisfy secured financial creditors fully. The approved resolution plan extinguished all liabilities and obligations of the assessee towards unsecured financial creditors, operational creditors, and other creditors as per the waterfall mechanism under section 53 of the Code.

The assessee contended that dues to the Central Government, including those of the Income-tax Department, were operational debts under section 5(21) of the IBC. The Income-tax Department filed claims reflected in the Corporate Insolvency Resolution Process (CIRP) list. The Revenue acknowledged this legal position but noted that the matter was pending before the High Court and other adjudication authorities.

Upon reviewing the submissions and records, it was noted that the NCLT's order reflected a significant disparity between the total admitted secured financial creditors' claims and the company's liquidation value. The resolution plan approved by the NCLT resulted in the complete write-off and extinguishment of all claims, demands, liabilities, or obligations owed to the Central Government/State Government prior to the acquisition. This legal position was reinforced by a Supreme Court decision in a relevant case.

Consequently, the Tribunal concluded that the Income-tax Department's dues for the assessment year 2013-14, as reflected in the NCLT's list, were fully extinguished. Therefore, the Tribunal dismissed the Revenue's appeal, deeming further adjudication unnecessary. The decision was pronounced in an open court during a virtual hearing on August 16, 2021.