2025 (1) TMI 504 - AT - Income Tax

Company under IBC resolution plan gets protection from section 271(1)(c) penalty proceedings under section 14 moratorium

M/s Bhushan Steels Ltd. Versus ACIT Central Circle -3 New Delhi

The ITAT Delhi ruled on penalty proceedings under section 271(1)(c) against a dissolved company where NCLT had approved a resolution plan under the ... Penalty u/s 271(1)(c) against company dissolved - National Company Law Tribunal (NCLT) is seized of the proceedings initiated under section 7 of the Insolvency and Bankruptcy Code, 2016 and has already approved a resolution plan and granted the moratorium in respect of any other proceedings pending before any authority or tribunal etc.- HELD THAT:- Section 14 of IBC Code is very clear on the aspect that once moratorium is drawn and the insolvency commencement date is declared any institution of suits or definition of pending suits or proceedings against the creditor, debtor (in the present facts of the case of assessee before us) including the execution of any judgment, decree, or order in any Court of law, Tribunal, Arbitration Resolution Plan/Process has been accepted by the NCLT. At this juncture, we refer to the decision in the case of Ghanshyam Manz Retails Pvt. Ltd. Mishra and Sons Pvt. Ltd. [2021 (4) TMI 613 - SUPREME COURT] wherein has considered a situation wherein, the resolution plan was approved by the adjudicating authority under Section 31(1) of the IBC Code. Hon’ble Supreme Court observed that, once the resolution plan was drawn, the claim as provided in the resolution plan stood frozen, and will be binding on the corporate debtor, its employee, its members, creditors, Central Government and any State Government or legal authority, guarantor and other stakeholders. We also note that in the present facts of the case, the resolution plan is yet to be finalized. When, we read the newly inserted provisions of Section 156A of the Act, it is necessary to remand the appeal to the AO to take necessary steps/action as per Rules. Our above order applies mutatis mutandis to all the assessment years in appeal. Hence, in the above circumstances, we deem it fit and proper to remand these appeals back to AO to take necessary steps as per Section 156A of the Act. Accordingly, we partly allow the appeals filed by the assessee. 1. ISSUES PRESENTED and CONSIDEREDThe judgment addresses several core legal issues:Whether the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, was justified.Whether the enhancement of income by the CIT(A) using the best judgment method was appropriate.Whether the penalty related to Zinc and transport expenses was correctly levied.Whether the penalty concerning disallowance under Section 14A of the Act was valid.The impact of the National Company Law Tribunal (NCLT) proceedings on the current appeals.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Penalty under Section 271(1)(c)Relevant legal framework and precedents: Section 271(1)(c) of the Income Tax Act pertains to penalties for concealment of income or furnishing inaccurate particulars.Court's interpretation and reasoning: The tribunal noted that penalty proceedings are independent of assessment proceedings and require a different set of considerations.Key evidence and findings: The CIT(A) levied a penalty based on alleged concealment and inaccurate particulars, but the tribunal questioned the conclusiveness of such findings.Application of law to facts: The tribunal emphasized the need for clear evidence of concealment or inaccurate particulars, which was not sufficiently demonstrated.Treatment of competing arguments: The assessee argued that the penalty was based on debatable and contentious additions, which the tribunal found persuasive.Conclusions: The tribunal found the imposition of the penalty under Section 271(1)(c) to be unjustified given the lack of conclusive evidence.Issue 2: Enhancement of IncomeRelevant legal framework and precedents: Section 144 of the Act allows for best judgment assessment when accounts are rejected.Court's interpretation and reasoning: The tribunal questioned the logic of using a different company's profit rates for enhancement.Key evidence and findings: The enhancement was based on estimated income using Tata Steel Ltd.'s profit rates.Application of law to facts: The tribunal found the method of enhancement flawed due to lack of comparability.Treatment of competing arguments: The assessee argued against the rejection of books and the estimation method, which the tribunal found reasonable.Conclusions: The tribunal deemed the enhancement method inappropriate and unsupported by evidence.Issue 3: Penalty on Zinc and Transport ExpensesRelevant legal framework and precedents: Penalty provisions under Section 271(1)(c) require evidence of concealment or inaccurate particulars.Court's interpretation and reasoning: The tribunal noted the lack of evidence for malafide intention or contumacious conduct.Key evidence and findings: Penalty was based on disallowed expenses related to Zinc purchases and transport costs.Application of law to facts: The tribunal highlighted the absence of evidence for concealment or inaccuracy.Treatment of competing arguments: The assessee's settlement with Customs and Central Excise was not seen as a basis for penalty under the Act.Conclusions: The tribunal found the penalty on these expenses unjustified.Issue 4: Penalty under Section 14ARelevant legal framework and precedents: Section 14A deals with disallowance of expenditure related to exempt income.Court's interpretation and reasoning: The tribunal noted that the penalty was levied without establishing concealment or inaccurate particulars.Key evidence and findings: The penalty was based on disallowed expenses under Section 14A.Application of law to facts: The tribunal found the basis for the penalty to be insufficient.Treatment of competing arguments: The assessee argued that the disallowance was a disputed matter, partially allowed by CIT(A).Conclusions: The tribunal concluded that the penalty under Section 14A was not justified.Impact of NCLT ProceedingsRelevant legal framework and precedents: The Insolvency and Bankruptcy Code (IBC) and Section 14 impose a moratorium on proceedings.Court's interpretation and reasoning: The tribunal acknowledged the NCLT's moratorium and its effect on the appeals.Key evidence and findings: The tribunal referred to the Supreme Court's decision in Ghanashyam Mishra & Sons (P). Ltd. regarding the binding nature of resolution plans.Application of law to facts: The tribunal deemed it necessary to remand the appeals to the Assessing Officer for action under Section 156A.Conclusions: The appeals were remanded to the Assessing Officer due to the ongoing NCLT proceedings.3. SIGNIFICANT HOLDINGSVerbatim quotes of crucial legal reasoning: 'The penalty proceedings are independent of the assessment proceedings and require a different set of considerations.'Core principles established: Penalties under Section 271(1)(c) require clear evidence of concealment or inaccurate particulars; enhancement based on unrelated profit rates is flawed; NCLT proceedings impact ongoing appeals.Final determinations on each issue: The penalties under Section 271(1)(c) were deemed unjustified; the enhancement of income was found inappropriate; penalties related to Zinc, transport expenses, and Section 14A disallowance were not upheld; appeals were remanded due to NCLT proceedings.