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TMI Blog2024 (5) TMI 1359X X X X Extracts X X X X X X X X Extracts X X X X ..... ,714/- representing 2% of alleged bogus purchase of Rs. 8,13,85,737/-. 2. The following Additional Ground has also been raised: "That the order dated 29.12.2018 passed under section 250(6) of the Income Tax Act, 1961 by the learned Commissioner of Income Tax (Appeals) - 5, Ludhiana is against law and facts on the file in as much as the same has been passed ignoring the provisions of the Insolvency and Bankruptcy code, 2016, which overrides the provisions of the other laws for the time being in force and the Order dated 10.2.2021 passed by the National Company Law Tribunal, whereby, the Income Tax Department is precluded from undertaking any action with respect to any issues or transactions prior to the date of the commencement of the insolvency process and specifically deals with the order passed by the Assessing Officer." 3. The Additional Ground was admitted as it raises a purely legal issue, for which, no new evidence is required to be adduced at this stage. 4. Apropos the merits of the Additional Ground, the learned Counsel for the assessee has submitted that the order under appeal has wrongly been passed in violation of the provisions of the Insolvency and Bankruptcy Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been stated that further, in terms of the approved Resolution Plan, all claims that may be made against or in relation to any payments required to be made by the Company under any Applicable Law (whether or not such claim was notified to or claimed against the Company at such time, and whether or not such Governmental Authority was aware of such claim at such time) shall unconditionally stand abated, settled and/or extinguished with immediate effect. It has been stated that in terms thereof, any claim or demand assessed/raised/ordered by the Income-tax Department shall not be payable by the Company. It has been stated that no Governmental authority (including the Income-tax Department) shall have any further rights or claims against the Company, in respect of any claim relating to the period prior to the approval of the Resolution Plan. It is further stated that the approved Resolution Plan further categorically provides for the effect of the Resolution Plan once the same is approved by the Adjudicating Authority. It has been stated that in terms of the approved Resolution Plan, any liability arising for a period prior to the Resolution Plan shall immediately stand extinguishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion had been admitted by the NCLT and a moratorium u/s 14 of the Insolvency and Bankruptcy Code, 2016, 'IBC', for short, had been declared and the NCLT had already appointed Interim Resolution Professional (IRP), however, the said Interim Resolution Professional or 'IRP' had not impleaded himself to represent the assessee company in the appeal before the Tribunal, it was held that in view of the provisions of Section 14 of the IBC, there could be no continuation of any pending proceedings before the Income Tax Appellate Tribunal and that the appeal was to be dismissed as not maintainable in the format as presented. 7. Having considered the rival contentions in the light of the material placed on record with regard to the additional ground raised, it is seen that indeed the assessee company underwent a CIRP in terms of the IBC, under the aegis of the NCLT. With regard to the CIRP, Section 7 of the IBC provides that; Section 7. (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e), admitted the said petition. 7.2 It has been stated that subsequently, vide order dated 10.02.2021 (copy placed on file), passed by the NCLT, in furtherance of the CIRP, after complying with the statutory and procedural requirements of the IBC, the Resolution Plan (copy placed on record) submitted by the Consortium of ARR ESS Industries Pvt. Ltd. and Leading Edge Commercial FZE (i.e., the Resolution Applicant) was approved. This Resolution Plan was proposed. In relation to the CIRP under the IBC, for the assessee, SEL Manufacturing Industries Ltd., i.e., 'the assessee company' or the 'Corporate Debtor' subject to the approval of this Resolution Plan by the NCLT, Chandigarh Bench, the Resolution Applicant were to infuse requisite funds, to the extent of the equity investment and debt infusion proposed in the Resolution Plan, into the assessee company. 8. Section 5(20) of the IBC defines 'Operational Creditor' 20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; 8.1 Section 5(21) of the IBC describes 'Operational Debt'; (21) "operational debt" means a claim in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, shall immediately, irrevocably and unconditionally stand withdrawn, abated, settled and/or extinguished. (x) Pursuant to the approval of this Resolution Plan by the NCLT and upon transfer of the payments towards settlement of Operational Creditors to such Operational Creditors and of payments towards CIRP Cost on the Effective Date as envisaged herein, any and all rights and entitlements of, claims of demands made by or liabilities of obligations owed or payable to, any Operational Creditors by any Person in respect of the affairs of the Corporate Debtor (whether admitted/verified or not, due or contingent, asserted or undisputed, present or future) pertaining to the period prior to the NCLT Approval Date shall stand permanently extinguished with9out any further act or deed by the Resolution Applicant and the Resolution Applicant, the Corporate Debtor and the SPV shall not at any point of time directly or indirectly, have any obligation, liability or duty in relation thereto. (xi) The above said amount of Rs. 1.79 crores or amount mandatorily required to be paid as mentioned in Clause 5.4(e)(iii), whichever is higher, towards the Operational Creditors is the maximum paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards any Operational Creditors pertaining to the period prior to the NCLT approval date shall also stand permanently extinguished and the assessee company shall not have any obligation, liability or duty with regard thereto , directly or indirectly, at any point of time. Further, other than the general provisions of the Plan, extinguishment was also sought for expressly for, inter-alia, resolution of demand in respect of payment of tax on and before the NCLT approval date and the same were to stand settled at 'Nil' value. 11. Still further, in terms of the Plan, any liability arising for a period prior to the Resolution Plan shall stand extinguished or abated or withdrawn and nothing shall be due and payable. In this regard, the Resolution Plan specifically clearly states in clause (g), with regard to the claims under litigation, that all litigation/disputes and judicial proceedings against the assessee company in relation to any period prior to the NCLT approval date, shall be settled at 'Nil' value as against any amount determined, to be paid by the assessee company. It was specifically stated that all disputes in relation to any period on or before the NCLT approval date, sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her hand, enhanced the addition to Rs. 8,13,85,737/-, invoking the provisions of Section 69C of the Act instead of those of Section 68 as invoked by the AO, holding that it appeared that the AO had inadvertently applied the provisions of Section 68 to the case, instead of those of Section 69C. However, in view of our discussion in the preceding paragraph, we find that the assessee is correct in contending that; i) The impugned order has been passed ignoring the provisions of the Insolvency and Bankruptcy Code, 2016, which overrides the provisions of the other laws for the time being enforce, in so far as they are inconsistent with the provisions of the IBC, and, ii) That the impugned order has been passed in violation or ignorance of the order dated 10.02.2021, passed by the NCLT, Chandigarh, by which order, the Income Tax Department has been precluded from undertaking any action with respect to any issue/transaction prior to the date of commencement of the insolvency process, holding so while specifically dealing with the order passed by the AO. 13. In this regard, in 'Tata Steel Ltd. Vs Dy. CIT', [2014] 460 ITR 595 (Del), it has been held, by virtue of order dated 31.10.2023 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case too, it was held that the provisions of the IBC would prevail over those of the Income Tax Act; that where the petition had been admitted by the NCLT u/s 7 of the Code and moratorium model u/s 14 of the IBC had been declared and the NCLT had already appointed an Interim Resolution Professional, but the IRP had not impleaded himself to represent the assessee company in the appeal before the Income Tax Appellate Tribunal. In view of the provisions of Section 14 of the IBC, there could not be any continuation of any pending proceedings before the Income Tax Appellate Tribunal. 16. This decision, rather than helping the Department, in our considered opinion, goes to aid the case of the assessee instead. In fact, 'Ghanashyam Mishra & Sons Pvt. Ltd.' (supra) stands considered therein. Though the appeal of the assessee was dismissed, it was so done as not maintainable in the format presented, following the mandate of the provisions of the IBC, giving liberty to the IRP or his successor in interest to implead himself on behalf of the assessee company before the Hon'ble High Court at a later stage, in which event the appeals would be restored. 17. In view of the above, findi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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