Invalidity of Income Tax attachment order during CIRP; Resolution Professional's custodial rights upheld

The Tribunal deemed the provisional attachment order by the Income Tax Department during the Corporate Debtor's moratorium as invalid. It emphasized the Resolution Professional's custodial rights over the Corporate Debtor's assets during the Corporate Insolvency Resolution Process (CIRP) and directed the Department to release the properties to ensure the successful completion of the insolvency process within the specified timeframe.

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Issues:
1. Validity of provisional attachment order issued by the Income Tax Department against a Corporate Debtor under moratorium.
2. Impact of the attachment on the Corporate Insolvency Resolution Process (CIRP).
3. Rights and obligations of the Resolution Professional and the Income Tax Department during CIRP.

Issue 1: Validity of Provisional Attachment Order
The Tribunal considered the case where the Income Tax Department provisionally attached the assets of the Corporate Debtor under section 132(9B) of the Income-Tax Act, 1961. The Investigating Officer found incriminating documents during a search action, alleging tax evasion through claiming bogus depreciation. The Department provisionally attached assets for six months, which expired during the Corporate Insolvency Resolution Process (CIRP). The Applicant argued that the attachment order issued under section 281B of the IT Act, while the Corporate Debtor was under moratorium, was void in law as the income tax demand had not crystallized, and assessment was pending.

Issue 2: Impact on CIRP
The Resolution Professional contended that the attachment of the Corporate Debtor's properties could hinder the resolution process, affecting stakeholders' interests and potentially leading to liquidation. The Tribunal acknowledged the importance of maximizing stakeholders' interests and ensuring a smooth resolution process. The Resolution Professional sought the release of the properties to facilitate the CIRP and prevent adverse effects on the Corporate Debtor's restructuring efforts.

Issue 3: Rights and Obligations
The Tribunal emphasized that once CIRP is initiated and moratorium imposed, all assets come under the Resolution Professional and Committee of Creditors. Referring to the Insolvency and Bankruptcy Code, 2016, the Tribunal highlighted the Resolution Professional's custodial role over the Corporate Debtor's properties during CIRP. The Tribunal cited Section 238 of the Code, overriding other laws, and a Supreme Court decision supporting this interpretation. Consequently, the Tribunal directed the Income Tax Department to release the attached properties to the Resolution Professional to ensure the completion of the Corporate Insolvency Resolution Process within the stipulated time frame.

In conclusion, the Tribunal found the provisional attachment order by the Income Tax Department during the Corporate Debtor's moratorium to be invalid. The Tribunal underscored the Resolution Professional's custodial rights over the Corporate Debtor's assets during CIRP and directed the Department to release the properties for the successful resolution of the insolvency process.

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