Tax liabilities extinguished pre-acquisition; NCLT directs AO action

The Tribunal allowed the assessee's appeal for statistical purposes, directing the Assessing Officer to take necessary action in accordance with the law. The National Company Law Tribunal's order extinguishing all tax liabilities and proceedings related to the period before the acquisition of control by the resolution applicant was considered binding, following legal precedents emphasizing the overriding effect of the Insolvency and Bankruptcy Code. The case was restored to the file of the Assessing Officer for appropriate action in light of the NCLT order and judicial pronouncements.

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Issues Involved:
1. Confirmation of addition of Rs. 6,16,270/- on account of sundry balances written off towards excise duty and others.
2. Effect of the National Company Law Tribunal (NCLT) order on pending tax liabilities and proceedings.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs. 6,16,270/- on Account of Sundry Balances Written Off:

The primary issue in this appeal is the confirmation of an addition of Rs. 6,16,270/- made by the Assessing Officer (AO) on account of sundry balances written off towards excise duty and others. The assessee, engaged in the business of manufacturing ferro alloys, had filed its return declaring a total income of Rs. 47,33,384/- and paid income-tax on the book profit of Rs. 5,03,88,957/- under section 115JB of the Income-tax Act, 1961. The AO noted that the assessee had debited Rs. 14,29,442/- in its profit and loss account towards sundry balances written off, which included Rs. 6,08,854/- on account of excise duty and Rs. 7,416/- for other items. These amounts were disallowed by the AO as they were not offered for taxation in earlier years, leading to an addition of Rs. 6,16,270/- to the total income of the assessee. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, stating that no new material facts were presented. Aggrieved by this decision, the assessee appealed to the Tribunal.

2. Effect of the NCLT Order on Pending Tax Liabilities and Proceedings:

During the pendency of the appeal, significant developments occurred. The National Company Law Tribunal (NCLT), Kolkata Bench, approved a resolution plan for the assessee company under the Insolvency and Bankruptcy Code, 2016. The Ld. Counsel for the assessee submitted that, as per the NCLT order dated 11.10.2018, all dues under the Income-tax Act, including taxes, duties, penalties, interest, fines, and cesses related to periods before the acquisition of control by the resolution applicant, would be extinguished. This includes any assessments or proceedings pending as of the NCLT order date. The Ld. Counsel argued that the present appeal, involving AY 2013-14, relates to a period before the NCLT order, and thus, all tax liabilities and proceedings should be considered extinguished.

The Tribunal considered the legal position established by various judicial pronouncements, including the Hon'ble Supreme Court's decisions in the cases of Pr. CIT v. Monnet Ispat & Energy Ltd., Swiss Ribbons (P.) Ltd. v. Union of India, and Ghanshyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. These rulings emphasized that the Insolvency and Bankruptcy Code, 2016, has an overriding effect over other enactments, including the Income-tax Act, and that once a resolution plan is approved by the NCLT, it is binding on all stakeholders, including tax authorities.

The Tribunal noted that the resolution plan approved by the NCLT provided for the waiver of all liabilities related to income tax, including contingent liabilities, disputed liabilities, interest, penalties, and any other demands. The Tribunal also referred to a similar case, Palogix Infrastructure (P.) Ltd. v. ACIT, where the ITAT Kolkata held that all tax liabilities and proceedings related to periods before the NCLT order date would be extinguished.

Conclusion:

Given the binding nature of the NCLT order and the legal precedents, the Tribunal concluded that the present appeal, involving AY 2013-14, should be restored to the file of the AO for necessary action in accordance with the law. The appeal of the assessee was allowed for statistical purposes, and the AO was directed to take appropriate action in light of the NCLT order and the judicial pronouncements.

Order Pronounced:

The appeal of the assessee was allowed for statistical purposes, and the order was pronounced in the open court on 09th May 2022.

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