2023 (8) TMI 1022 - AT - Income Tax

Revenue's Appeal Dismissed Over Share Premium Addition; NCLT Moratorium Halts Proceedings

ACIT Circle-7 (2) Delhi Versus M/s Dharitrimaa Urja Pvt. Ltd.

The appeal by the Revenue against the deletion of addition of share premium received under section 56(2)(viib) of the Income Tax Act, 1961 was dismissed. ... Addition on account of share premium received u/s 56(2) (viib) - AR submitted that the NCLT admitted the application filed under IBC Code 2016 Insolvency and Bankruptcy Code and the same has been admitted - HELD THAT:- Considering the fact that the NCLT has declared moratorium consequently, as per Section 14 of the IBC 2016, it is order to prescribe the registration 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, penal or other authorities. In view of the same, the present appeal filed by the Department of Revenue is deserves to be dismissed, ISSUES PRESENTED AND CONSIDERED 1. Whether the admission of an insolvency application by the insolvency tribunal and the consequent moratorium under Section 14 of the Insolvency and Bankruptcy Code bars the continuation of an income-tax appeal before the Appellate Tribunal. 2. If the moratorium under Section 14 IBC applies, whether the Appellate Tribunal must dismiss the appeal and whether such dismissal can be without prejudice to the Revenue's right to approach the Tribunal later on any cause of action touching the issues involved. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of Section 14 IBC moratorium on continuation of the income-tax appeal Legal framework: Section 14 of the Insolvency and Bankruptcy Code imposes a moratorium which, upon admission of a corporate insolvency resolution process, prohibits the institution or continuation of suits or proceedings against the corporate debtor and the execution of any judgment, decree or order. Precedent Treatment: The judgment does not cite or rely upon any prior decisions; the Tribunal's conclusion rests on the statutory text and the admitted insolvency order issued by the insolvency tribunal. Interpretation and reasoning: The Tribunal recorded that the insolvency tribunal admitted an insolvency application and declared a moratorium. Applying the language of Section 14 IBC - which expressly covers continuation of proceedings against the corporate debtor in courts, tribunals and arbitration - the Tribunal found that continuation of the present appellate proceedings was barred. The Tribunal treated the moratorium as operative at the time of hearing and concluded that it precluded adjudication of the appeal on merits while the moratorium subsists. Ratio vs. Obiter: Ratio - where a corporate insolvency resolution process has been admitted and a moratorium declared under Section 14 IBC, continuation of pending appellate proceedings against the corporate debtor is barred and the appellate forum should not proceed to decide the appeal on merits while the moratorium is in force. Obiter - the Tribunal's brief factual reliance on the specific admission order and dates is ancillary to the statutory application. Conclusions: The moratorium under Section 14 IBC prevents continuation of the appeal; consequently, the Tribunal held that it could not proceed to decide the dispute on merits while the moratorium stood. Issue 2 - Form of dismissal and reservation of rights to approach the Tribunal later Legal framework: Section 14 IBC contemplates suspension of judicial or quasi-judicial processes against a corporate debtor for the duration of the moratorium. The statutory prohibition does not, on its face, extinguish substantive rights but restrains procedural continuation. Precedent Treatment: No prior authority is referenced. The Tribunal's handling is grounded on the statutory prohibition and practical consequence of the moratorium. Interpretation and reasoning: Recognising the statutory bar, the Tribunal dismissed the appeal. However, the Tribunal expressly provided that the dismissal is without prejudice to the Department's right to approach the Tribunal later, if necessary, on any cause of action touching the issues involved in the appeal. The Tribunal thereby balanced the moratorium's mandatory suspension of proceedings with preservation of the parties' substantive rights to seek adjudication post-moratorium. Ratio vs. Obiter: Ratio - where continuation is barred by moratorium, the appropriate procedural disposition is dismissal of the appeal during the moratorium period, coupled with explicit preservation of parties' rights to re-initiate or seek relief after the moratorium ceases. Obiter - the Tribunal's suggestion that the Department may be given an 'opportunity' to approach the Tribunal if necessary is procedural guidance rather than a substantive ruling on the underlying tax issues. Conclusions: The Tribunal dismissed the appeal on account of the moratorium but preserved the Revenue's right to re-institute or pursue the matter before the Tribunal later on the same causes of action once permissible. Related and ancillary points 1. The Tribunal did not adjudicate any of the substantive tax issues raised in the grounds of appeal (e.g., chargeability under section 56(2)(viib), applicability of valuation date, relevance of valuation reports under rule 11UA, computation of net asset value, assessment year attribution, interest under section 234B/234C/234D as alleged, or penalty under section 271(1)(c)/(1)(g)/(1)(e) - as pleaded). These substantive issues remain unconsidered and preserved for adjudication post-moratorium. 2. Cross-reference: The conclusion on Issue 1 directly dictates the disposition in Issue 2 - because continuation is statutorily barred, the procedural consequence is dismissal with reservation, rather than adjudication on merit. 3. Practical effect: The dismissal operates as a stay of adjudication during the moratorium; it does not amount to a determination on the merits, and parties retain the ability to seek adjudication after the moratorium is lifted.