2022 (4) TMI 30 - AT - Income Tax

Recovery of Tax - Company under liquidation under the IBC - Disallowance on account of loss incurred out of trading in shares - HELD THAT - Assessment year involved is 2015-16, and the AO has passed the assessment order on 27.12.2017, and the appellate order thereupon was passed on 27.12.2018. While NCLT has passed Resolution plan on 22.11.2017, and in the absence of any Resolution Plan, it was ordered to be liquidated vide order dated 22.11.2017. On completion of liquidation process, assessee-company was dissolved by the NCLT vide order dated 30.6.2020. Claim of the Department was prior to the date of Resolution Plan approved by the NCLT, and therefore, the present income tax proceedings is hit by section 31(1) of Insolvency and Bankruptcy Code, 2016, which has overriding effect vis-a-vis. the Income Tax Act, 1961. All these events are within the knowledge of the Income Tax Department, as the OL of assessee-company has intimated the Department from time to time in writing, but no action has been taken by the Department. Once a company is dissolved it becomes a non-existent party and therefore no action can be brought in its name. Therefore, in view of overriding effect of IBC code to the Income Tax proceeding, we hold that Revenue is not entitled to recover the claim, if any arising from the present proceedings for Asst. year 2015-16, as the same is not part of the resolution plan.

Summary

Issues involved:
1. Disallowance of trading loss in shares.

Detailed Analysis:
1. The appeal was filed against the order confirming the disallowance of ?1,13,65,136 on account of loss from trading in shares for the assessment year 2015-16.
2. The assessee, a company trading in shares, declared a loss in the income tax return for the year. The assessing officer added the amount under section 68 of the Income Tax Act as unexplained cash and income. The Commissioner of Income Tax (Appeals) upheld the addition, leading to the appeal before the Tribunal.
3. The former Liquidator of the assessee informed the Tribunal that the company was ordered to be liquidated and dissolved by the National Company Law Tribunal. The company became non-existent with no assets available for distribution. The Income Tax Department did not raise any claims despite being informed.
4. The Tribunal noted the chronological events related to the company's insolvency and dissolution, including orders from the National Company Law Tribunal and intimation to the Income Tax Officer.
5. The Tribunal deliberated on the maintainability of the appeal by the non-existent company and the enforceability of the tax demand. Citing a Supreme Court judgment, it held that claims not part of the resolution plan approved by the Adjudicating Authority stand extinguished. As the company was dissolved, the Income Tax Department's claim related to the assessment year 2015-16 was extinguished.
6. Consequently, the Tribunal found the proceedings and the appeal infructuous, dismissing the same as the company was non-existent, and the claim by the Revenue was not recoverable due to the overriding effect of the Insolvency and Bankruptcy Code on the Income Tax Act.

This detailed analysis covers the issues involved in the legal judgment comprehensively, focusing on the disallowance of trading loss in shares and the implications of the company's dissolution on the tax demand.