REVISIONAL PROCEEDINGS UNDER INCOME TAX ACT, 1961 DURING MORATORIUM IMPOSED UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

Section 263 of the Income Tax Act, 1961 (‘Act’ for short) provides for revision of the orders passed by the lower authorities to protect the interests of the Revenue.  Section 263(1) of the Act provides that the Principal Commissioner, Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act.  If he considers that any order passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including, -

• an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or
• an order modifying the order under section 92CA (reference to Transfer Pricing Officer); or
• an order cancelling the order under section 92CA and directing a fresh order under the said section.

It is, therefore, clear that the Income Tax Authorities may review any of the orders passed by the lower authorities which will retard the revenue of the Department.  The issue to be discussed in this article is as to whether the revisional proceedings may be initiated or continued when a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) with reference to decided case laws.

Prior to see the decided case laws we have to know about moratorium and its effects.  Section 14 of the Code provides that on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely-

• the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
• transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
• any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
• the recovery of any property by an owner or less or where such property is occupied by or in the possession of the corporate debtor.

In M/s. Reliance Home Finance Ltd. Versus PCIT, Mumbai - 8, Mumbai - 2026 (9) TMI 781 - ITAT MUMBAI, the Assessing Officer passed an assessment order in the case of the appellant for the financial year 2017–18 under Section 147 of the Act read with section 144B of the Act on 25.05.2023.  The Department considered this assessment order was prejudicial to the interests of the Department and therefore, initiated revisionary proceedings under Section 263 of the Act. The order under Section 263 of the Act was passed on 12.12.2015.

The appellant filed the present appeal against the order passed o 12,12,2025.  The appellant challenged the jurisdiction of the Authority since the order was passed after implementation of the moratorium under Section 14 of the Code passed by the National Company Law Tribunal in a corporate insolvency resolution process filed under Section 7 of the Code.  The appellant further submitted that-

• section 14 read with section 238 of the Code prohibits the Income Tax Authorities to institution of suits or continuation of pending suits or proceedings and accordingly the order under section 263 issued after the order of NCLT admitting the application under Section 7 of the Code against the appellant is bad in law and ought to be quashed;
• the Income-tax Department had duly been intimated about the NCLT order through an e-mail dated 20.11.2025 by Mr. Umesh B. Sonkar, the Resolution Professional in the case of the assessee;
• in Smaaash Entertainment Pvt. Ltd., Versus Assistant Commissioner of Income Tax Circle 16 (1). - 2025 (7) TMI 1241 - BOMBAY HIGH COURT, the High Court held that appeals filed by the Revenue before the High Court challenging the order passed by the ITAT could not proceed in light of the provisions of Section 14 of the Code.  The High Court gave liberty to the Department to revive the case once the moratorium ceases to exist.

The High Court considered the arguments put forth before it and perused the material available on record.  The short legal issue raised by the assessee through the additional ground is whether the revisional proceedings under section 263 of the Act could have been continued and culminated in an order during the subsistence of the moratorium declared under section 14 of the Code.  The High Court found that NCLT has declared moratorium under Section 14 of the Code on admission of the application for initiation of corporate insolvency resolution process against the corporate debtor i.e., the appellant.  The Resolution Professional also intimated the said fact to the income tax Department promptly on 20.11.2025 via email.

The High Court further observed that Section 14 of the Code, read with the overriding provision contained in section 238 thereof, prohibits, inter alia, the institution or continuation of proceedings against the corporate debtor during the currency of the moratorium.  The High Court also considered the case laws relied on by the appellant.  The Hon'ble Supreme Court in the case of Pr. Commissioner Of Income Tax Versus Monnet Ispat And Energy Ltd. - 2018 (8) TMI 1775 - SC Order upholding the overriding nature and supremacy of the provisions of the IBC Code 2016 over any other enactment in case of conflicting provisions, by virtue of a non obstante section 238 of the Code.  Once the moratorium ceases, the Revenue would be free to revive the proceedings, if otherwise permissible in law.

The High Court held that the impugned revisional order is sustainable after the commencement of moratorium under Section 14 of the Code.  The High Court set aside the impugned order and restored the case to the Principal Commissioner of Income Tax.  The High Court gave liberty to the Principal Commissioner of Income Tax to revive and reframe the revisional order/proceedings after cessation of the moratorium under section 14 of the Code, subject to and in accordance with the provisions of the Code, the Act and the law applicable at the relevant point of time. All issues on merits are expressly kept open.  The High Court further directed the Resolution Professional to intimate the Principal Commissioner of Income Tax regarding cessation of the moratorium immediately upon the moratorium coming to an end in accordance with law, so that the Principal Commissioner of Income Tax may thereafter proceed in the matter, if otherwise permissible in law, after affording reasonable opportunity of being heard to the assessee through the Resolution Professional or other person competent to represent the corporate debtor.