Income tax proceedings against company in insolvency resolution invalid for pre-approval period claims under Section 31

The ITAT Chandigarh held that income tax proceedings against a company undergoing corporate insolvency resolution are invalid when claims relate to periods prior to resolution plan approval. Following Tata Steel Ltd. precedent, the tribunal ruled that statutory dues including income tax liabilities can only be paid according to resolution plan terms. Claims not included in or properly lodged with the resolution professional stand extinguished under Section 31 of the Insolvency and Bankruptcy Code, 2016. The Code's provisions override inconsistent provisions in other statutes including the Income Tax Act, 1961, as confirmed by SC in Ghanashyam Mishra case.

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Issues Involved:
1. Legality of the order passed u/s 250(6) of the Income Tax Act, 1961.
2. Justification of enhancement of addition u/s 69C.
3. Addition of Rs. 16,27,714/- representing 2% of alleged bogus purchase.
4. Applicability of the Insolvency and Bankruptcy Code, 2016 (IBC) overriding other laws.

Summary:

1. Legality of the order passed u/s 250(6) of the Income Tax Act, 1961:
The assessee challenged the order passed by the CIT(A)-5, Ludhiana, under section 250(6) of the Income Tax Act, 1961, which upheld the action of the assessing officer in resorting to provisions of section 148. The Tribunal found that the order was passed ignoring the provisions of the Insolvency and Bankruptcy Code, 2016, which overrides the provisions of other laws, including the Income Tax Act.

2. Justification of enhancement of addition u/s 69C:
The CIT(A) enhanced the addition to Rs. 8,13,85,737/- from Rs. 2,08,60,900/- made by the assessing officer by resorting to the provisions of section 69C instead of section 68. The Tribunal noted that the CIT(A) incorrectly applied section 69C, and the enhancement was not justified in light of the overriding provisions of the IBC.

3. Addition of Rs. 16,27,714/- representing 2% of alleged bogus purchase:
The Tribunal found that the addition of Rs. 16,27,714/- representing 2% of alleged bogus purchase of Rs. 8,13,85,737/- was also not justified due to the overriding provisions of the IBC.

4. Applicability of the Insolvency and Bankruptcy Code, 2016 (IBC) overriding other laws:
The Tribunal highlighted that the assessee company underwent a Corporate Insolvency Resolution Process (CIRP) under the IBC, approved by the National Company Law Tribunal (NCLT). The Tribunal emphasized that the IBC provisions override other laws, including the Income Tax Act, and any claims or demands by the Income Tax Department for periods prior to the approval of the Resolution Plan stand extinguished. The Tribunal relied on precedents like 'Tata Steel Ltd. Vs Dy. Commissioner of Income Tax' and 'Ghanashyam Mishra and Sons (P) Ltd. Vs Edelweiss Asset Reconstruction Co. Ltd.' to support its decision.

Conclusion:
The Tribunal allowed the appeal, setting aside and canceling the order under appeal, and accepted the additional ground raised by the assessee, noting that the provisions of the IBC override the Income Tax Act, and any claims or demands by the Income Tax Department for periods prior to the approval of the Resolution Plan are not maintainable.

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