2024 (7) TMI 503 - AT - Income Tax

Income tax demand post Insolvency proceedings concluded - Whether, the provisions of the IBC code 2016 would prevail over the Income Tax Act 1961, and if so to what extent? - HELD THAT - Referred Sub Section 6 of Section 178 of the Act was amended by Section 247 r/w 3rd schedule of IBC with effect from 01.11.2016 which makes it clear that IBC code will override the provisions of Income Tax Act 1961. The three judges bench of Hon ble Supreme Court in Sundaresh Bhatt, Liquidator of ABC Shipyard V. Central Board of Indirect Taxes and Customs 2022 (8) TMI 1161 - SUPREME COURT has held that the respondent could only initiate assessment or re assessment of the duties and other levies, once a moratorium is imposed in terms of Section 14 or 33(5) of the IBC as the case may be, the respondent authority, only has limited jurisdiction to assess/determine the quantum of the customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues. Liquidator has an obligation to ensure that assessment is legal and he has been provided with sufficient power to question any assessment if he finds the same to be excessive. Thus we hold that the provisions of IBC 2016 would prevail over the Income Tax Act. Income Tax authorities have limited jurisdiction to assess/determine the quantum of Income Tax dues but have no authority to initiate recovery of such dues at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC. The Income Tax Authorities are like any other creditor, may stake their claim before liquidator or adjudicatory authority as the case may be, within the statutory limitation period provided under the IBC for substantiating its claim under the waterfall mechanism related to the order of priority as provided u/s. 53 of IBC 2016. The first point is accordingly determined in positive except to the extent that the Income Tax Authorities are not barred from determining the tax dues, which is sine qua non for staking its claim as creditor before the liquidator or the adjudicatory authority as the case may be, under the provisions of IBC. Whether learned CIT(A) erred in not adjudicating the issue on merit, merely because of the pendency of the liquidation process against the assessee corporate debtor? - Secondly, in view of the findings given at point no.1 referred as above, it is easily concluded that Learned CIT(A) has erred is not adjudicating the matter on merit, which was with respect to the determination of tax dues only, more so, when the liquidator, himself, was pursuing the matter before the first appellate authority. The second point is accordingly determined in positive. Thus, the case deserves to be restored back to the file of CIT(A) for the disposal of the case on merits in accordance with law. It is clarified that we have not made any observations in respect of the merits of the case.

Summary

Issues:
1. Whether the provisions of the IBC code 2016 prevail over the Income Tax Act 1961, and to what extent?
2. Whether the CIT(A) erred in not adjudicating the issue on merit due to the liquidation process against the corporate debtor?

Analysis:
1. The appeal was against an order passed by the CIT(A) partly allowing the assessee's appeal against the assessment order for the Assessment Year 2012-13. The appellant, a limited company engaged in ship operation, ceased to exist due to demerging and amalgamation. The assessing officer proceeded with the assessment based on available information and assessed income for the year. Penalty proceedings were also initiated. The CIT(A) deleted the addition made by the assessing officer, citing section 33(5) of IBC 2016. The Revenue filed an appeal questioning the CIT(A)'s decision based on various legal grounds, including the applicability of the IBC and the Moratorium under section 14 of the IBC Code.

2. The tribunal considered whether the IBC provisions would prevail over the Income Tax Act and to what extent. It was noted that the NCLT had appointed an official liquidator for the corporate debtor. The Revenue argued that no leave of the adjudicating authority was required for assessment proceedings, citing relevant case law. The respondent argued that no legal proceedings could be initiated after the appointment of the liquidator, referring to specific provisions of the Companies Act. The tribunal analyzed Section 238 of the IBC, which states that the provisions of the Code override other laws. It was highlighted that Section 178(6) of the Income Tax Act, as amended by the IBC, clarifies that the IBC prevails over the Income Tax Act. A Supreme Court precedent was cited to support the limited jurisdiction of Income Tax authorities during the moratorium period.

3. The tribunal held that the IBC provisions would prevail over the Income Tax Act but clarified that Income Tax authorities have limited jurisdiction during the moratorium period. They can assess tax dues but cannot initiate recovery during this time. The case was remanded back to the CIT(A) for a fresh order on merit. The tribunal emphasized that no observations were made on the merits of the case. The appeal was allowed for statistical purposes, setting aside the impugned order and directing a fresh decision by the CIT(A) after providing an opportunity for hearing to the appellant through the liquidator.