Income tax demand case remanded to Assessing Officer due to insolvency proceedings under Section 14 IBC moratorium

The ITAT Mumbai remanded an income tax demand case back to the Assessing Officer following insolvency proceedings. The tribunal held that Section 14 of IBC prohibits continuation of proceedings once moratorium is declared and insolvency commencement date is set. Since a registered Insolvency Professional was appointed by NCLT and no representative appeared for the assessee, the tribunal referenced the Supreme Court decision in Ghanshyam Mishra case regarding resolution plan binding effects. As the resolution plan was pending finalization, the tribunal directed the AO to take necessary steps before NCLT under newly inserted Section 156A of the Income Tax Act.

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Issues:
1. Admittance of the assessee as a corporate debtor by NCLT and its implications on tax liabilities.
2. Interpretation of Section 14 of IBC regarding the prohibition of suits and proceedings against the corporate debtor.
3. Application of Section 156A of the Act in cases where tax liabilities are reduced due to insolvency proceedings.

Analysis:
1. The appeal arose from an order passed by the Ld. CIT(A)-17, Mumbai for Assessment Year 2007-08, following the assessee's admission as a corporate debtor by the NCLT. The NCLT imposed a moratorium under Section 14 of the IBC, prohibiting suits, proceedings, and asset transfers against the corporate debtor.

2. The Ld. DR argued that the demand under Section 156 of the Act cannot be enforced unless the Revenue is included as a secured creditor before the NCLT. Referring to Section 178(6) and newly inserted Section 156A, the DR highlighted the need for the Assessing Officer to modify the demand in conformity with the insolvency order.

3. The Tribunal observed that the appointment of a registered Insolvency Professional by the NCLT rendered the assessee unable to represent themselves. Citing a Supreme Court decision, the Tribunal emphasized that once a resolution plan is approved, the claims stand frozen. As the resolution plan was pending in this case, the Tribunal decided to remand the appeal to the Ld. AO for necessary steps before the NCLT under Section 156A of the Act.

4. Consequently, the Tribunal partially allowed the appeal, deeming it appropriate to remand the matter to the Ld. AO for further action in accordance with Section 156A of the Act. The decision was pronounced in open court on 18/10/2024.

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