2022 (12) TMI 1525 - AT - Income Tax

Income Tax Department claims prior to September 2018 ruled not maintainable under Section 14 IBC moratorium

The ITAT Kolkata dismissed all appeals as infructuous following a moratorium declared under Section 14 of the Insolvency and Bankruptcy Code, 2016. The ... Income tax proceedings/claims against company insolvent/dissolved - application u/s 7 of Insolvency and Bankruptcy Code, 2016 was filed by the financial creditor against the assessee before the NCLT, Guwahati Bench and moratorium was declared under Section 14 of Insolvency and Bankruptcy Code, 2016 - HELD THAT:- Since as per the order of the NCLT, Guwahati Bench, any claim of the Income Tax Department against the assessee company made prior to 20th September, 2018 are not maintainable in the eyes of law, all the instant bunch of appeals deserves to be quashed being infructuous. For the claims which have been allowed to be raised or admitted by the NCLT, Guwahati Bench and if they are raised in the instant bunch of appeals, then liberty is granted to the respective parties to file Miscellaneous Application for recalling of such issues within the time limit provided under the Act. Thus, all captioned appeals are dismissed as infructuous in terms indicated herein above. ISSUES PRESENTED AND CONSIDERED 1. Whether statutory delay in filing two appeals should be condoned where parties filed reasons showing they were prevented by reasonable cause. 2. Whether Income-tax appeals against assessments for multiple assessment years are maintainable before the Appellate Tribunal when the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC) has approved a resolution plan and the NCLT has subsequently extinguished tax claims made prior to the date of approval of that resolution plan. 3. Whether claims admitted or allowed by the NCLT to be raised against the corporate debtor despite approval of the resolution plan remain open to adjudication in tax appeals, and if so, the remedy available to raise such issues before the Tribunal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeals Legal framework: Procedural discretion to condone delay in filing appeals where appellant shows reasonable cause for delay. Precedent treatment: No contrary authority considered; standard principles of condonation applied. Interpretation and reasoning: The Tribunal reviewed the condonation applications and the reasons stated by both parties, found the explanations to constitute reasonable cause preventing timely filing, and exercised its discretion in favour of admitting the appeals for adjudication. Ratio vs. Obiter: Ratio - delay condoned as the Tribunal accepted the proffered reasonable cause; this is a binding procedural determination in the particular appeals. Conclusion: Delay in I.T.A. Nos. for AY 2006-07 (28 days) and AY 1998-99 (5 days) is condoned and the appeals admitted for adjudication. Issue 2 - Maintainability of tax appeals after NCLT approval of resolution plan and extinguishment of pre-plan tax claims under IBC Legal framework: Section 31 of the Insolvency and Bankruptcy Code (as amended) - approved resolution plan binds the corporate debtor and its creditors, including Central/State Governments and local authorities, and extinguishes certain pre-plan dues; Section 14 moratorium; role of Resolution Professional and Committee of Creditors (CoC). Precedent treatment: The Tribunal relied on and followed the rulings of the Supreme Court (including the principles in the Essar Steel judgment) and later Supreme Court authority (Ghanashyam Mishra) clarifying that post-approval the resolution plan is binding and that pre-plan statutory claims in respect of Central/State/local authorities stand extinguished where not part of the plan; High Court authority (Ultratech Nathdwara) supporting restricted judicial interference and the commercial wisdom of the CoC was also cited. Interpretation and reasoning: The Tribunal examined the sequence of events: filing under section 7 IBC, declaration of moratorium, admission of tax claim by the IRP, approval of the resolution plan by CoC and NCLT on 20.09.2018, partial payment under the plan, and subsequent NCLT orders (IA decisions) whereby pre-20.09.2018 tax claims were extinguished. Applying the amended Section 31 and the cited precedents, the Tribunal reasoned that pre-plan claims of tax authorities that were not included in the resolution process cease to be enforceable against the corporate debtor; therefore tax appeals contesting such extinguished claims are rendered infructuous and not maintainable before the Tribunal. The Tribunal noted the NCLT's specific finding that claims prior to the approval date which were not filed before the RP are not to be entertained, and treated the NCLT's extinguishment orders as operative to deprive the tax appellate forum of jurisdiction over those claims. Ratio vs. Obiter: Ratio - where an NCLT has approved a resolution plan and extinguished pre-plan tax claims under Section 31 (as amended) and related IA orders, appeals against such pre-plan tax demands are not maintainable and are to be dismissed as infructuous. Obiter - observations regarding policy or broader implications of the amended Section 31 and the desirability of a 'clean slate' (while supported by precedents) are explanatory but the Tribunal's operative holding rests on application of the statutory scheme and specific NCLT orders. Conclusion: The bulk of the tax appeals relating to assessment years prior to 20.09.2018 are dismissed as infructuous and not maintainable because the NCLT, in terms of Section 31 and relevant judgments, has extinguished the Income-tax Department's claims prior to the approval date. Issue 3 - Treatment of claims allowed/admitted by the NCLT or Resolution Professional and procedural remedy Legal framework: Where claims were expressly admitted or allowed to be raised/admitted during the resolution process or by specific IA/NCLT order, those particular claims may survive the general extinguishment; general principles of res judicata and limited scope for reopening matters post resolution-plan approval. Precedent treatment: The Tribunal referenced precedents emphasizing that the resolution plan and the CoC's commercial decision should produce certainty and avoid 'surprise' post-plan claims; successful resolution applicants should not face undecided claims thereafter. Interpretation and reasoning: The Tribunal distinguished claims that were specifically admitted by the IRP or permitted by the NCLT from those that were not part of the resolution process. For any claims which the NCLT has allowed to be raised or admitted, the Tribunal observed that those issues remain open and therefore parties are granted procedural liberty to move the Tribunal by miscellaneous application seeking recall/rehabilitation of such issues within statutory time limits under the Act. This preserves adjudication where NCLT-permitted claims exist, while upholding extinguishment for the rest. Ratio vs. Obiter: Ratio - where an NCLT order admits or allows particular tax claims despite the general extinguishment, those specific claims can be pursued, subject to appropriate procedural steps (miscellaneous application to recall issues). Obiter - commentary on the interaction between admission by an IRP and later extinguishment, as applied to other factual matrices, is explanatory. Conclusion: Appeals are dismissed as infructuous except insofar as they raise issues corresponding to claims that were expressly admitted/allowed to be raised by the NCLT/IRP; for those, parties have liberty to file miscellaneous applications to recall such issues within the time limits prescribed by the Act.