2023 (6) TMI 612 - AT - Income Tax

Recovering any tax dues from the assessee declared insolvent under the insolvency and bankruptcy Act - HELD THAT - As assessee itself has made a representation before the learned CIT(A) as per submission dated 21 November 2022 stating that the tax dues for assessment year 2017-18 cannot be recovered from the assessee as it was part of the resolution plan. CIT(A) reached at a conclusion that when nothing can be recovered from the assessee, there could not have been any grievance on part of the assessee; therefore he held that the appeal of the assessee is infructuous and was dismissed. Before us also it is apparent that nothing is recoverable from the assessee as the insolvency resolution plan included assessment year 2017-18 and tax demand any arising out of that assessment proceedings is not at all enforceable. According to the provisions of section 246A, the appeal could be preferred before the learned CIT(A) if assessee is aggrieved with the specified assessment. When the learned CIT(A) has clearly held that assessment order is not enforceable, there is no reason for filing any appeal before him. Even otherwise, he has already directed AO that the above demand cannot be recovered and if he wants to educate this issue the learned assessing officer should proceed before NCLAT. In this case assessee is not required to pay any tax, there is no liability of any nature arising on the assessee as well as the order of the learned CIT(A) has become final holding that AO does not have any right to pursue any consequences out of the assessment order against the assessee therefore it is in consequential that whether the appeal of the assessee before CIT(A) is stated to be dismissed or allowed - Decided in favour of assessee.

Issues Involved:

1. Validity of the assessment order passed during the moratorium period under IBC.
2. Contravention of the provisions of the Insolvency and Bankruptcy Code (IBC) by the impugned order.
3. Violation of principles of natural justice.
4. Disallowance under Section 14A read with Rule 8D.
5. Addition of disallowance under Section 14A while calculating book profits under Section 115JB.
6. Capitalization of interest on CWIP.
7. Addition on account of unexplained cash credit.
8. Disallowance of foreign traveling expenses.
9. Levy of interest under Section 234C.
10. Non-granting of credit of Dividend Distribution Tax (DDT) paid and levy of interest under Section 115P.
11. Non-granting of deduction under Sections 36(1)(viia) and 36(1)(viii).

Summary:

1. Validity of the Assessment Order:
The assessee argued that the assessment order passed under Section 143(3) during the moratorium period declared by the NCLT under Section 14 of the Insolvency and Bankruptcy Code, 2016, is bad in law and ought to be quashed.

2. Contravention of IBC Provisions:
The CIT (A) erred in dismissing the appeal as infructuous against the order under Section 143(3), which was passed in contravention of the provisions of the IBC and the approved Resolution Plan (RP). The RP included specific relief regarding the tax-appeal proceedings for AY 2017-18, and once approved, it is binding on all parties, including the Central Government. The CIT (A) should have followed the judicial hierarchy and held that the assessment order for the captioned year cannot proceed further.

3. Violation of Natural Justice:
The CIT (A) did not provide the assessee an opportunity to make submissions on merits, violating the principles of natural justice. The assessee prayed for the order to be quashed on this ground.

4. Disallowance under Section 14A read with Rule 8D:
The AO made a disallowance of Rs. 3,65,56,216/- under Section 14A read with Rule 8D. The assessee contended that disallowance under Section 14A can only be made for expenditure incurred in relation to earning exempt income and that the AO failed to record any objective satisfaction for disregarding the suo-motu disallowance made by the assessee.

5. Addition of Disallowance under Section 14A while Calculating Book Profits under Section 115JB:
The AO added Rs. 1,87,26,158/- to the book profits under Section 115JB due to disallowance under Section 14A read with Rule 8D. The assessee prayed for the deletion or appropriate reduction of this addition.

6. Capitalization of Interest on CWIP:
The AO capitalized interest on CWIP amounting to Rs. 65,53,80,000/- on an ad-hoc basis. The assessee argued that the capital expenditure was incurred from owned funds with no nexus to borrowed funds and that no disallowance should be made under Section 36(1)(iii).

7. Addition on Account of Unexplained Cash Credit:
The AO made an addition of Rs. 4,00,00,000/- as unexplained cash credit under Section 68 read with Section 115BBE without granting an opportunity of being heard. The assessee prayed for the deletion of this addition.

8. Disallowance of Foreign Traveling Expenses:
The AO disallowed Rs. 4,05,00,000/- being 50% of foreign traveling expenses incurred during the year. The assessee contended that these expenses were incurred for business purposes and prayed for the disallowance to be deleted.

9. Levy of Interest under Section 234C:
The AO levied incorrect interest under Section 234C. The assessee argued that no interest would be applicable as the book profits included profit on the sale of investment accruing on March 31, 2017.

10. Non-granting of Credit of DDT Paid and Levy of Interest under Section 115P:
The AO did not grant credit for DDT paid amounting to Rs. 18,25,31,557/- and levied interest under Section 115P amounting to Rs. 7,11,00,869/-. The assessee prayed for the credit to be granted and the interest to be deleted.

11. Non-granting of Deduction under Sections 36(1)(viia) and 36(1)(viii):
The AO did not grant deductions under Sections 36(1)(viia) and 36(1)(viii) on the assessed income. The assessee prayed for the AO to be directed to calculate the deductions on the assessed income.

Conclusion:
The Tribunal noted that the Dewan Housing Finance Corporation Ltd was declared insolvent under the IBC, and the resolution plan included the assessment year 2017-18, making the tax demand unenforceable. The CIT (A) had held the appeal as infructuous, directing the AO to approach the NCLT and NCLAT if necessary. The Tribunal allowed the appeal of the assessee, following the decisions of coordinate benches in similar cases, and held that the assessment order is unenforceable. The appeal was allowed to the extent indicated.

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