IBC 2016 provisions prevail over Income Tax Act 1961 during liquidation proceedings per statutory amendment

ITAT Mumbai held that IBC 2016 provisions prevail over Income Tax Act 1961 following statutory amendment and SC precedent in Sundaresh Bhatt case. Income tax authorities have limited jurisdiction to assess/determine tax dues during moratorium but cannot initiate recovery proceedings, functioning as creditors who must stake claims before liquidator within statutory limitations under IBC's waterfall mechanism. CIT(A) erred in not adjudicating the matter on merits merely due to pending liquidation proceedings, particularly when liquidator was pursuing the appeal. Case remanded to CIT(A) for disposal on merits.

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Issues:
1. Whether the provisions of the IBC code 2016 prevail over the Income Tax Act 1961, and to what extentRs.
2. Whether the CIT(A) erred in not adjudicating the issue on merit due to the liquidation process against the corporate debtorRs.

Analysis:
1. The appeal was against an order passed by the CIT(A) partly allowing the assessee's appeal against the assessment order for the Assessment Year 2012-13. The appellant, a limited company engaged in ship operation, ceased to exist due to demerging and amalgamation. The assessing officer proceeded with the assessment based on available information and assessed income for the year. Penalty proceedings were also initiated. The CIT(A) deleted the addition made by the assessing officer, citing section 33(5) of IBC 2016. The Revenue filed an appeal questioning the CIT(A)'s decision based on various legal grounds, including the applicability of the IBC and the Moratorium under section 14 of the IBC Code.

2. The tribunal considered whether the IBC provisions would prevail over the Income Tax Act and to what extent. It was noted that the NCLT had appointed an official liquidator for the corporate debtor. The Revenue argued that no leave of the adjudicating authority was required for assessment proceedings, citing relevant case law. The respondent argued that no legal proceedings could be initiated after the appointment of the liquidator, referring to specific provisions of the Companies Act. The tribunal analyzed Section 238 of the IBC, which states that the provisions of the Code override other laws. It was highlighted that Section 178(6) of the Income Tax Act, as amended by the IBC, clarifies that the IBC prevails over the Income Tax Act. A Supreme Court precedent was cited to support the limited jurisdiction of Income Tax authorities during the moratorium period.

3. The tribunal held that the IBC provisions would prevail over the Income Tax Act but clarified that Income Tax authorities have limited jurisdiction during the moratorium period. They can assess tax dues but cannot initiate recovery during this time. The case was remanded back to the CIT(A) for a fresh order on merit. The tribunal emphasized that no observations were made on the merits of the case. The appeal was allowed for statistical purposes, setting aside the impugned order and directing a fresh decision by the CIT(A) after providing an opportunity for hearing to the appellant through the liquidator.

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