Tribunal Invalidates Tax Dept Actions Post-Liquidation, Denies Additional Fees & Orders Audit

The Tribunal declared the Income Tax Department's actions post-liquidation initiation as violative of the Insolvency and Bankruptcy Code, disallowing the assessment orders and penalty notices. It held that the erstwhile liquidator was not entitled to additional fees as his asset realization was minimal. The claim for payment for professional services during liquidation was denied due to unsatisfactory performance. An independent audit of Corporate Insolvency Resolution Process costs was ordered to address discrepancies, emphasizing transparency and accountability in the process. The judgments were delivered in line with legal provisions and precedents, ensuring fairness for all parties.

---

---

Issues Involved:

1. Validity of Income Tax Department's actions post-liquidation initiation.
2. Entitlement and calculation of fees for the erstwhile liquidator.
3. Payment for professional services rendered during the liquidation period.
4. Audit of Corporate Insolvency Resolution Process (CIRP) costs.

Issue-wise Detailed Analysis:

1. Validity of Income Tax Department's Actions Post-Liquidation Initiation:

The applications IA No.317/2021 and IA No.535/2021 were filed by the liquidator of M/s Supreme Tex Mart Limited against the Deputy Commissioner of Income Tax, Punjab, challenging the Income Tax Department's actions post-liquidation initiation. The liquidator argued that the demands and penalty proceedings initiated by the Income Tax Department were violative of the Insolvency and Bankruptcy Code (IBC), 2016, specifically Section 33(5), which prohibits the institution of any legal proceedings against the corporate debtor post-liquidation order. The Income Tax Department contended that assessment and penalty proceedings do not fall under "other legal proceedings" as per Section 33(5) and that they were entitled to claim dues as an operational creditor under IBC. The Tribunal referred to the provisions of IBC and relevant judgments, including the decision of the Hon'ble High Court of Telangana and Andhra Pradesh in Leo Edibles & Fats Ltd. vs. The Tax Recovery Officer, which clarified that tax dues must be settled as per the priority set under Section 53 of IBC. The Tribunal concluded that the Income Tax Department's actions were contrary to the provisions of IBC and allowed the applications, declaring the assessment orders and penalty notices as violative of the Code.

2. Entitlement and Calculation of Fees for the Erstwhile Liquidator:

IA No.893/2020 was filed by the erstwhile liquidator seeking remuneration for the period he served as liquidator. The applicant argued that he was entitled to fees for his tenure based on the services rendered. The current liquidator contended that the fees should be calculated based on the realization and distribution of assets as per Regulation 4 of the IBBI (Liquidation Process) Regulations, 2016. The Tribunal referred to the applicable regulations and the decision of Hon'ble NCLAT in Mr. Dhiren Shantilal Shah Liquidator of Meka Dredging Company Pvt. Ltd. vs. Amma Lines Pvt. Ltd., which clarified that the liquidator's fees should be based on the realization and distribution of assets. As the erstwhile liquidator had only realized a small amount from the sale of one asset, the Tribunal held that no additional fees were due to the applicant and dismissed the application.

3. Payment for Professional Services Rendered During the Liquidation Period:

IA No.18/2021 was filed by a professional service provider seeking payment for services rendered during the liquidation period. The applicant claimed that the erstwhile liquidator had appointed them on a retainership basis and that part of the payment was still pending. The current liquidator disputed the claim, stating that the work assigned was irregular and incomplete, necessitating the engagement of another professional. The Tribunal noted the lack of a written contract and the unsatisfactory performance of the applicant. It observed that the applicant failed to complete the assigned work and that the current liquidator had to incur additional costs to rectify the pending work. Consequently, the Tribunal dismissed the application, denying the claim for additional payment.

4. Audit of Corporate Insolvency Resolution Process (CIRP) Costs:

IA No.574/2021 was filed by the State Bank of India, a financial creditor, seeking an audit of the CIRP costs incurred by the corporate debtor. The applicant highlighted discrepancies in the CIRP costs and the valuation of assets conducted by the erstwhile liquidator. The current liquidator supported the need for an audit, citing irregularities in the accounts and the non-handing over of books of accounts by the erstwhile liquidator. The Tribunal acknowledged the discrepancies and ordered an independent audit of the books of accounts to ascertain the actual CIRP costs. It directed the liquidator to appoint an independent auditor and allowed the application, emphasizing the need to retrieve relevant information from the corporate debtor's computerized data.

Conclusion:

The Tribunal addressed the issues comprehensively, emphasizing the supremacy of the IBC over other laws, the proper calculation of liquidator's fees based on asset realization and distribution, the necessity of satisfactory completion of professional services for payment, and the importance of auditing CIRP costs to ensure transparency and accountability. The judgments were delivered in accordance with the legal provisions and relevant precedents, ensuring fair and just outcomes for all parties involved.

---