TaxTMI 
TaxTMI 
TaxTMI 
Once the Adjudicating Authority admits an application for initiation of corporate insolvency resolution process filed by a financial creditor/operational creditor/corporate applicant under the Insolvency and Bankruptcy Board of India Code, 2016 (‘Code’ for short) the Adjudicating Authority will declare a moratorium under Section 14 of the Code. Once moratorium is declared no suit can be initiated or the existing suits may be continued. This is applicable to all of the stakeholders including the Government Departments like income tax department.
The Delhi High Court, in the case of Pr. Commissioner Of Income Tax Versus Monnet Ispat And Energy Ltd. - 2018 (8) TMI 1775 - SC Order, has clearly held that even an appeal filed by the Department before the Income Tax Appellate Tribunal could not proceed or be instituted in light of the provisions of Section 14 of the Code. This order of the Delhi High Court was challenged before the Supreme Court. The Supreme Court, relying upon Section 238 of the Code, came to the conclusion that the Delhi High Court correctly decided the law and hence, the Special Leave Petition was dismissed. It was also held that it is clear that the moratorium continues till the completion of the corporate insolvency resolution process or until the Bench approves the resolution plan under sub-Section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, as the case may be. The Code will override anything inconsistent contained in any other enactment, including the Income Tax Act. The income tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons.
In Smaaash Entertainment Pvt. Ltd., Versus Assistant Commissioner of Income Tax Circle 16 (1). - 2025 (7) TMI 1241 - BOMBAY HIGH COURT, a corporate insolvency resolution process was initiated against the petitioner in this case (corporate debtor) by its creditors. The Adjudicating Authority admitted the said application and declared a moratorium under Section 14 of the Code on 06.05.2022. During the moratorium period the income tax department issued show cause notices to the petitioner under section 143 (2) of the Income Tax Act, 1961 (‘Act’ for short). Several notices were issued to the petitioner and the Authority made an assessment order. Further the Department passed an assessment order on 28.03.2024 under Section 144 of the Act. Further the department issued a demand of notice on the petitioner with direction to pay the tax as assessed.
The petitioner, being aggrieved against the said order filed a writ petition before the High Court. The petitioner prayed before the High Court to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, Order or direction, calling for the records of the Petitioner’s case and after going into the legality and propriety thereof, to quash and set aside the notice under section 143 (2) of the Act dated 01.06.2023 all notices issued in the course of the assessment proceedings, assessment order passed under section 144 of the Act dated 28.03.2024 and the impugned notice of demand under section 156 of the Act dated 28.03.2024v as well as the consequential show cause notices for levy of penalty.
The petitioner submitted the following before the High Court-
- Once an order passed under Section 14 of the Code, the assessment proceedings could not have proceeded, and which culminated in an order passed under Section 144 of the Act.
- No recovery notices could also have been issued under Section 156.
- The present assessment proceedings could not have continued or even been initiated while the Moratorium under Section 14 was in operation.
The petitioner relied on the ‘Monnet’ case (supra) and contended that the Department could not proceed for the assessment while the moratorium is in vogue.
The Department contended that though it is correct that recovery proceedings could not be initiated or proceeded with against the assessee because of the Moratorium, the same would not preclude the assessment proceedings being completed. In this regard the revenue relied on the Supreme Court judgment in SUNDARESH BHATT, LIQUIDATOR OF ABG SHIPYARD Versus CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS - 2022 (8) TMI 1161 - Supreme Court.
The High Court considered the submissions of the parties to the present writ petition.The High Court observed that the assessment proceedings could not have been initiated at all or continued while the Moratorium under Section 14 of the Code was in operation. The High Court considered the judgment of Supreme Court in ‘ABG Shipyard’ (supra). In the said case the Supreme Court passed order under Customs Act but not under the Income Tax Act. Therefore, the High Court distinguished the said case law for this case. The Customs Department could initiate assessment or reassessment of duties and other levies but could not initiate recovery in violation of Section 14 or 33 (5) of the Code.
The High Court also held that once the Moratorium under Section 14 ceases, the Department is free to revive the assessment proceedings, if they are otherwise entitled to in law. The High Court also directed the Revenue not to proceed to take any coercive action/ steps against the petitioner.