2024 (5) TMI 1359 - AT - Income Tax

Validity of income tax proceedings against company dissolved/insolvent - claim or demand assessed/raised/ordered by Income-tax Department endeavoring to saddle the Company with a liability for a period prior to approval of the Resolution Plan - HELD THAT - As decided in Tata Steel Ltd. 2023 (11) TMI 202 - DELHI HIGH COURT dues payable to creditors in a Corporate Insolvency Resolution Proceedings under the Insolvency and Bankruptcy Code 2016 including statutory creditors for periods prior to the date when the Resolution Plan is approved can only be paid in accordance with the terms contained in the Resolution Plan; that where no provision is made for claims lodged on behalf of the creditors or there is failure to lodge a claim with the Resolution Professional all such claims stand extinguished; that this position in law obtains because of the provisions of Section 31 of the Code which inter-alia stipulates that once the Resolution Plan is approved it shall be binding on the Corporate Debtor and inter-alia its creditors which include inter-alia the Central Government under any law for the time being in force and also on authorities to whom statutory dues are owed; that the provision also stipulates that the Approved Plan shall be binding on guarantors and other stakeholders involved in forging; that a successful applicant whose Resolution Plan has been approved should not be put in a position where it is called upon to liquidate dues of creditors including statutory creditors which are not imbedded in the Resolution Plan. Section 238 of the Code squarely states that any ambiguity that the provisions of the Code shall have effect not withstanding anything inconsistent contained in any other law for the time being enforce or any instrument having effect under any such law; that thus where matters covered by the Code are concerned including Insolvency Resolution of Corporate persons if the provisions contained therein are inconsistent with any other Statutes including the Income Tax Act 1961 they shall override such laws; and that if such an approach is not adopted it will undermine the entire object and purpose of the enactment of the Code. See Ghanashyam Mishra Sons Pvt. Ltd. Vs Edelweiss Asset Reconstruction Co. Ltd 2021 (4) TMI 613 - SUPREME COURT Also decided in Garden Silk Mills P. Ltd. 2023 (6) TMI 806 - ITAT SURAT the provisions of the IBC would prevail over those of the Income Tax Act; that where the petition had been admitted by the NCLT u/s 7 of the Code and moratorium model u/s 14 of the IBC had been declared and the NCLT had already appointed an Interim Resolution Professional but the IRP had not impleaded himself to represent the assessee company in the appeal before the Income Tax Appellate Tribunal. In view of the provisions of Section 14 of the IBC there could not be any continuation of any pending proceedings before the Income Tax Appellate Tribunal.

Issues Involved:
1. Legality of the order passed u/s 250(6) of the Income Tax Act, 1961.
2. Justification of enhancement of addition u/s 69C.
3. Addition of Rs. 16,27,714/- representing 2% of alleged bogus purchase.
4. Applicability of the Insolvency and Bankruptcy Code, 2016 (IBC) overriding other laws.

Summary:

1. Legality of the order passed u/s 250(6) of the Income Tax Act, 1961:
The assessee challenged the order passed by the CIT(A)-5, Ludhiana, under section 250(6) of the Income Tax Act, 1961, which upheld the action of the assessing officer in resorting to provisions of section 148. The Tribunal found that the order was passed ignoring the provisions of the Insolvency and Bankruptcy Code, 2016, which overrides the provisions of other laws, including the Income Tax Act.

2. Justification of enhancement of addition u/s 69C:
The CIT(A) enhanced the addition to Rs. 8,13,85,737/- from Rs. 2,08,60,900/- made by the assessing officer by resorting to the provisions of section 69C instead of section 68. The Tribunal noted that the CIT(A) incorrectly applied section 69C, and the enhancement was not justified in light of the overriding provisions of the IBC.

3. Addition of Rs. 16,27,714/- representing 2% of alleged bogus purchase:
The Tribunal found that the addition of Rs. 16,27,714/- representing 2% of alleged bogus purchase of Rs. 8,13,85,737/- was also not justified due to the overriding provisions of the IBC.

4. Applicability of the Insolvency and Bankruptcy Code, 2016 (IBC) overriding other laws:
The Tribunal highlighted that the assessee company underwent a Corporate Insolvency Resolution Process (CIRP) under the IBC, approved by the National Company Law Tribunal (NCLT). The Tribunal emphasized that the IBC provisions override other laws, including the Income Tax Act, and any claims or demands by the Income Tax Department for periods prior to the approval of the Resolution Plan stand extinguished. The Tribunal relied on precedents like 'Tata Steel Ltd. Vs Dy. Commissioner of Income Tax' and 'Ghanashyam Mishra and Sons (P) Ltd. Vs Edelweiss Asset Reconstruction Co. Ltd.' to support its decision.

Conclusion:
The Tribunal allowed the appeal, setting aside and canceling the order under appeal, and accepted the additional ground raised by the assessee, noting that the provisions of the IBC override the Income Tax Act, and any claims or demands by the Income Tax Department for periods prior to the approval of the Resolution Plan are not maintainable.

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