2024 (8) TMI 688 - AT - Income Tax

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 ... Validity of reassessment/ income tax proceedings against company insolvent/dissolved - scope of parallel proceeding when company in liquidation - HELD THAT:- It is seen that in this case, once it is a matter of record that the proceedings are before the Hon'ble NCLT, then it merely needs to be considered whether the present proceedings can continue or need to abate considering the express provisions of Section 178(6) of the Act, which expressly provides for the IBC having an overriding effect, when a Company is in liquidation. We observe that the liquidation proceedings have commenced as per the order of Hon'ble NCLT, Kolkata in the assessee’s case and an official liquidator has been appointed. It is a settled legal principle that from the time of appointment of official liquidator, the assessee company becomes defunct and the official liquidator steps into the shoes of the assessee. A reading of this provision makes it clear that once it is not possible to legally initiate any suit or other legal proceeding against the corporate debtor then the present proceedings before the ITAT are also affected and cannot proceed parallel to the proceedings under the IBC, 2016. From a plain reading of the provisions of Section 178(6) of the IBC, 2016, the IBC, 2016 has an overriding effect and therefore, the present proceedings cannot be sustained and the appeals need to be dismissed. We hereby dismiss all the appeals filed by the Revenue, with the liberty granted to the appellant/official liquidator to recall the present order when the occasion so warrants. 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.