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2024 (10) TMI 992 - AT - Income TaxValidity of reassessment proceedings post insolvency proceedings concluded - IBC overriding effects over other laws - HELD THAT - As per section 238 of the Insolvency and Bankruptcy Code, 2016, the provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Thus, the IBC has overriding effects over other laws and hence the appellate proceedings pending in this Tribunal cannot continue and are liable to be dismissed on account of being infructuous and in violation of the provisions of the IBC after approval of the Resolution Plan by the NCLT, more so when the plan has not been disputed by the Revenue in any court of law and has attained finality. Similar finding has been given in several judicial pronouncements in this regard. As held in the case of Maruti Koatsu Cylinders Ltd. 2024 (8) TMI 185 - GUJARAT HIGH COURT that when the NCLT has approved the application filed under section 13(6) of IBC, 2016 and resolution plan submitted by the applicant was approved, the AO would not have any jurisdiction to reopen the assessment with regard to the assessment year 2019-20. Thus in view of the legal provisions under the IBC, 2016, since the resolution Plan has been approved by the Adjudicating Authority, all proceedings pending in respect of the Corporate Debtor (CD), i.e. the assessee are barred thereafter and cannot be allowed to continue. Only the claims made as per the plan can be recovered. As regards the refund, if any arising on account of a favourable order is concerned, the Successful Resolution Applicant, i.e. Tega Industries Limited is entitled to pursue all actionable claims in favour of the assessee/CD after the approval of the plan. Hence, the appeal filed by the assessee cannot continue and is dismissed on account of being infructuous.
Issues Involved:
1. Deductibility of Management Service Fee and Royalty under Chapter XVII-B of the Income Tax Act, 1961 for AY 2009-10. 2. Disallowance of Provision for Freight Charges, Loss Order Provision, and Advisory Fee for AY 2013-14. 3. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961. 4. Impact of Corporate Insolvency Resolution Process (CIRP) on pending tax liabilities and appeals. Detailed Analysis: 1. Deductibility of Management Service Fee and Royalty for AY 2009-10: The assessee challenged the disallowance of management service fees amounting to Rs. 3,52,76,000 and royalty provision of Rs. 1,02,87,073 under Section 40(a)(ia) of the Income Tax Act, 1961, due to non-deduction of TDS under Chapter XVII-B. The Commissioner of Income Tax (Appeals) upheld the disallowance, arguing that the tax was deductible at source. The assessee contended that since the tax was deducted and deposited within the due date, the deduction should have been allowed either in the assessment year 2009-10 or the subsequent year. 2. Disallowance of Provisions and Advisory Fee for AY 2013-14: The assessee contested the disallowance of provision for freight charges (Rs. 46,82,901), loss order provision (Rs. 22,55,642), and advisory fee for the sale of land (Rs. 2,00,000). The CIT(A) disallowed these expenses, stating that they were not allowable under Section 37 of the Act as they were contingent liabilities. The assessee argued that these were actual liabilities and should be considered as revenue expenditure, not capital expenditure, and thus deductible. 3. Initiation of Penalty Proceedings under Section 271(1)(c): The assessee opposed the initiation of penalty proceedings under Section 271(1)(c), asserting that it neither furnished inaccurate particulars of income nor concealed any income. The CIT(A) deemed the initiation of penalty proceedings as premature. 4. Impact of CIRP on Pending Tax Liabilities and Appeals: During the pendency of the appeals, the assessee company underwent a Corporate Insolvency Resolution Process (CIRP) and was acquired by Tega Group following the approval of the resolution plan by the NCLT. The Tribunal considered whether statutory income-tax liabilities could be extinguished without the notice of insolvency proceedings to the concerned Income-tax Officer. The Tribunal noted that the resolution plan, once approved, binds all stakeholders, including tax authorities, and extinguishes all dues not part of the plan. The Tribunal referenced several judicial pronouncements, including the Supreme Court's decision in Ghanshyam Mishra and Sons Pvt Ltd v. Edelweiss Asset Reconstruction Company Ltd, which established that all claims not included in the resolution plan stand extinguished. The Tribunal concluded that, due to the overriding effect of the Insolvency and Bankruptcy Code, 2016, the pending appellate proceedings could not continue and were dismissed as infructuous. The Tribunal emphasized that the IBC has a prevailing effect over other laws, including the Income Tax Act, and that after the approval of the resolution plan, no proceedings can be initiated or continued against the corporate debtor for liabilities not included in the plan. Conclusion: Both appeals for AY 2009-10 and AY 2013-14 were dismissed as infructuous due to the approval of the resolution plan under the Insolvency and Bankruptcy Code, 2016, which extinguished all claims not part of the plan. The Tribunal ordered that the appeals could not continue in light of the overriding provisions of the IBC.
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