Company under liquidation cannot face tax reassessment proceedings as official liquidator steps into company's shoes under Section 178(6) IBC 2016

ITAT Kolkata dismissed Revenue's appeals against a company under liquidation proceedings. The tribunal held that once NCLT appointed an official liquidator, the company became defunct and the liquidator stepped into its shoes. Section 178(6) of IBC 2016 provides overriding effect, preventing parallel proceedings when a company is in liquidation. The reassessment proceedings could not continue alongside IBC proceedings. Appeals were dismissed with liberty to the official liquidator to recall the order when circumstances warrant.

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Issues:
- Appeals filed by Income Tax Department regarding liquidator appointment under Insolvency and Bankruptcy Code, 2016.

Analysis:
- The appeals involved cases where the Income Tax Department challenged re-assessment orders after liquidators were appointed under the Insolvency and Bankruptcy Code, 2016 (IBC). The common issue in all four appeals was the impact of the liquidation proceedings on the ongoing income tax assessments.

- Each appeal detailed the initial return of income, scrutiny, re-assessment, and subsequent appeals before the Commissioner of Income Tax (Appeals) leading to the appeals before the ITAT. The Income Tax Department challenged the decisions favoring the assessee in these cases.

- The timeline of events showed the progression from the filing of the Company Petition under Section 7 of the IBC to the appointment of a Liquidator under Section 33 of the IBC. The Liquidator was informed about the proceedings before the ITAT, leading to a response citing the initiation of liquidation proceedings under the IBC.

- During the hearing, it was highlighted that the matter was before the National Company Law Tribunal (NCLT), and communications from the Insolvency Professional were presented. The overriding effect of the IBC over the Income Tax Act, as per Section 238 of the IBC, was emphasized.

- The ITAT considered the provisions of Section 178(6) of the Income Tax Act, which states that the IBC has an overriding effect when a company is in liquidation. The appointment of an official liquidator results in the company becoming defunct, affecting legal proceedings against the corporate debtor.

- Citing Section 33(5) of the IBC, it was noted that no suit or legal proceeding can be initiated against the corporate debtor once a liquidation order is passed. The ITAT relied on the decision of the Hon'ble Apex Court in Pr. CIT v. Monnet Ispat & Energy Ltd., confirming the overriding effect of the IBC over the Income Tax Act.

- The ITAT referred to the order of the Hon'ble Calcutta High Court in the case of PCIT vs. Amrit Feeds Ltd., where similar appeals were dismissed considering the overriding effect of the IBC. The ITAT dismissed all appeals filed by the Revenue, granting liberty to the appellant/official liquidator to recall the order if necessary.

- The ITAT concluded that the appeals were dismissed in light of the overriding effect of the IBC and the appointment of the official liquidator, following the precedent set in similar cases. The decision was pronounced on 9th August, 2024.

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