2025 (6) TMI 1948 - AT - Income Tax

Locus standi of directors to file appeal during liquidation process - maintainability of the appeals filed by the assessee company under liquidation - NCLT initiated Corporate Insolvency Resolution Process against this company which led to its liquidation and liquidator was appointed - HELD THAT - As present appeals directed before us are signed by some directors of the company. On appointment of liquidator those directors do not have any locus standi to file and pursue these appeals. The Liquidator has though issued Letter of Authority in favour of the counsel however has not replaced Form 36 duly signed by him. This is not done despite liquidation process going on for almost 5 years. In view of this these appeals filed by the assessee before us are dismissed as not properly verified and also not substituting the form no 36 duly signed and verified by the liquidator. Thus the appeals filed by assessee are not maintainable and hence dismissed. The Liquidator is granted liberty that if he wants to continue the above proceedings involved in these appeals fresh Form 36 is required to be filed along with petition for condonation of delay that why it has not been done for such a long time. The coordinate Bench may take a decision at that time in accordance with law regarding recall of this order.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appeals filed by the assessee company during the ongoing Corporate Insolvency Resolution Process (CIRP) and subsequent liquidation are maintainable when the appeals are not verified or represented by the appointed Liquidator but by erstwhile directors who no longer have locus standi.

- Whether failure to substitute Form 36, duly signed and verified by the Liquidator, affects the maintainability of the appeals filed by the assessee company under liquidation.

- Whether the appeals filed by the Revenue (Assessing Officer) against the assessee company under liquidation are infructuous due to the liquidation status and inability to recover any tax dues from the company's assets.

- Conditions under which the Liquidator or Revenue may seek restoration or continuation of the appeals during or after the liquidation process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Appeals Filed by the Assessee Company During Liquidation When Not Represented by the Liquidator

Relevant Legal Framework and Precedents: Under the insolvency and taxation laws, once a company is admitted into CIRP and subsequently into liquidation, the management and control of the company's affairs vest in the Liquidator appointed by the National Company Law Tribunal (NCLT). Directors lose their authority to represent the company in legal proceedings. Form 36, which authorizes representation before the Income Tax Appellate Tribunal (ITAT), must be signed by the person legally authorized to represent the company. Precedents establish that appeals or proceedings initiated or continued by unauthorized persons are not maintainable.

Court's Interpretation and Reasoning: The Tribunal observed that the appeals were filed and pursued by directors of the company despite the appointment of a Liquidator. Since the Liquidator is the sole legal representative post-liquidation, the directors lacked locus standi to file or continue appeals. The Tribunal emphasized that the Liquidator had not replaced Form 36 with his signature, which is mandatory for valid representation.

Key Evidence and Findings: The Tribunal noted that the liquidation process had been ongoing for almost five years, yet no substitution of Form 36 was made by the Liquidator. The appeals were signed and verified by directors who no longer had authority.

Application of Law to Facts: The Tribunal applied the principle that only the Liquidator can represent the company in legal proceedings during liquidation. The failure to file a fresh Form 36 by the Liquidator rendered the appeals not properly verified and hence not maintainable.

Treatment of Competing Arguments: Although the Liquidator issued a Letter of Authority to counsel, this did not substitute the requirement of filing Form 36. The Tribunal rejected any argument that the Liquidator's letter alone sufficed for representation.

Conclusion: Appeals filed by the assessee company during liquidation without proper authorization and verification by the Liquidator are dismissed as not maintainable.

Issue 2: Effect of Non-Substitution of Form 36 by the Liquidator

Relevant Legal Framework: Form 36 is a procedural requirement under the Income Tax Act for authorizing representation before the ITAT. It must be signed by the authorized person representing the appellant. Failure to file a valid Form 36 leads to non-maintainability of the appeal.

Court's Interpretation and Reasoning: The Tribunal held that despite the Liquidator issuing a Letter of Authority, the absence of a duly signed Form 36 was fatal to the appeals. The Tribunal granted liberty to the Liquidator to file a fresh Form 36 along with a petition for condonation of delay, explaining the long delay in substitution.

Conclusion: Non-substitution of Form 36 by the Liquidator results in dismissal of appeals, but restoration may be considered upon proper compliance.

Issue 3: Maintainability and Relevance of Revenue's Appeals During Liquidation

Relevant Legal Framework: The Revenue's appeals against assessment orders are subject to practical considerations of recovery. When a company is under liquidation and assets are being sold, recovery of tax dues may be impossible.

Court's Interpretation and Reasoning: The Tribunal noted that even if the Revenue succeeded in these appeals, there was no chance of recovering any tax dues from the company's assets, as these were being sold under liquidation. Therefore, the appeals were held to be infructuous.

Key Evidence and Findings: The Tribunal relied on public notices and e-auction sale notices published by the Liquidator, evidencing ongoing liquidation and asset disposal.

Application of Law to Facts: The Tribunal applied the principle that appeals which cannot lead to any effective relief or recovery are liable to be dismissed as infructuous.

Treatment of Competing Arguments: The Tribunal allowed the Revenue liberty to show that the claim was made before the NCLT during liquidation about the litigation and consequent demand, which could justify restoration of appeals.

Conclusion: Revenue's appeals were dismissed as infructuous, subject to restoration upon showing of proper claim before the NCLT.

Issue 4: Conditions for Restoration or Continuation of Appeals During Liquidation

Court's Interpretation and Reasoning: The Tribunal provided that the Liquidator may file a fresh Form 36 along with a petition for condonation of delay to continue the appeals. Similarly, the Revenue must demonstrate that claims related to the litigation were made before the NCLT during liquidation to seek restoration of appeals.

Conclusion: Restoration or continuation of appeals is subject to compliance with procedural formalities and demonstration of proper claims before the NCLT.

3. SIGNIFICANT HOLDINGS

"On appointment of liquidator, those directors do not have any locus standi to file and pursue these appeals."

"The appeals filed by the assessee before us are dismissed as not properly verified and also not substituting the form no 36 duly signed and verified by the liquidator. Thus, the appeals filed by assessee are not maintainable and hence dismissed."

"Even if the Revenue succeeds in these appeals, there is no chance of any recovery of any tax out of the assets of the assessee company. Therefore, these appeals have become infructuous. Accordingly, the appeals filed by the ld. AO are also dismissed."

"The Liquidator is granted liberty that if he wants to continue the above proceedings involved in these appeals, fresh Form 36 is required to be filed along with petition for condonation of delay that why it has not been done for such a long time."

Core principles established include:

• Post-liquidation, only the Liquidator has authority to represent the company