Assessment proceedings invalid during moratorium under Section 14 of Insolvency and Bankruptcy Code 2016

The Bombay HC held that assessment proceedings cannot be initiated or continued during the Corporate Insolvency Resolution Process while the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 is operational. Relying on Monnet Ispat and Energy Limited precedent, the court determined that any assessment proceedings or orders passed during this moratorium period are invalid. However, once the moratorium ceases, the Revenue authorities are free to revive assessment proceedings if they are otherwise legally entitled to do so. This ruling reinforces the protective nature of the moratorium provisions during insolvency proceedings.

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ISSUES:

Whether assessment proceedings under the Income Tax Act, 1961 can be initiated or continued against a corporate debtor undergoing Corporate Insolvency Resolution Process (CIRP) during the Moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016).Whether notices issued under Sections 143(2), 144, and 156 of the Income Tax Act, 1961, during the Moratorium period, are valid.Whether recovery proceedings under the Income Tax Act, 1961 can be initiated during the Moratorium period.Whether the decision in Sundaresh Bhatt [Liquidator] of ABG Shipyard v. Central Board of Indirect Tax and Customs affects the applicability of the Moratorium under Section 14 of the IBC, 2016 to assessment proceedings under the Income Tax Act.

RULINGS / HOLDINGS:

The assessment proceedings under the Income Tax Act, 1961 could not have been initiated or continued while the Moratorium under Section 14 of the IBC, 2016 was in operation, as the Moratorium prohibits "the institution of suits or continuation of pending suits or proceedings against the corporate debtor."All notices issued under Sections 143(2), 144, and 156 of the Income Tax Act, 1961 during the Moratorium period are quashed and set aside as they violate the Moratorium imposed under Section 14 of the IBC, 2016.Recovery proceedings under Section 156 of the Income Tax Act cannot be initiated or proceeded with during the Moratorium period, consistent with the prohibition on execution of any judgment, decree or order against the corporate debtor.The decision in Sundaresh Bhatt [Liquidator] of ABG Shipyard (2023) is distinguishable on facts as it relates to the Customs Act, 1962, and reliance on it to justify continuation of assessment proceedings under the Income Tax Act during Moratorium is misplaced.

RATIONALE:

The Court applied Section 14 of the Insolvency and Bankruptcy Code, 2016, which mandates a Moratorium prohibiting "the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order."Section 238 of the IBC, 2016 provides that the Code will override any other law inconsistent therewith, including the Income Tax Act, 1961.The Court relied on the decision of the Delhi High Court in Principal Commissioner of Income Tax-6 v. Monnet Ispat and Energy Limited, upheld by the Supreme Court, which held that appeals or proceedings by the Revenue before other fora cannot proceed during the Moratorium.The Court rejected the Revenue's reliance on the Supreme Court decision in ABG Shipyard, noting that it did not consider the binding precedent of P. Mohanraj & Others v. Shah Brothers Ispat, which distinguished the earlier V. N. Deshpande decision relied upon in ABG Shipyard.The Court emphasized that once the Moratorium ceases, the Revenue is free to revive assessment proceedings if otherwise entitled in law.

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