Income Tax Appellate Tribunal - Delhi
Jekpl Private Limited,Noida vs Dcit, Circle-13(1), Delhi on 17 January, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : I : NEW DELHI
BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER
AND
SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER
ITA No.759/Del/2022
Assessment Year: 2017-18
JEKPL Private Limited, Vs DCIT,
Tower B, 20th Floor, Circle-13(1),
Alphathum, Plot No.1, Delhi.
Sector-90,
Gautam Budh Nagar,
Uttar Pradesh - 201 305.
PAN: AABCE2251K
(Appellant) (Respondent)
Assessee by : Shri Neeraj Jain, Advocate &
Ms. Richa Aggarwal, AR
Revenue by : Shri Dharamvir Singh, CIT-DR
Date of Hearing : 22.10.2024
Date of Pronouncement : 17.01.2025
ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the Assessee against the final assessment order dated 23.02.2022 of the National Faceless Assessment Centre, Delhi (hereinafter referred to as the Ld. AO) passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for assessment year 2017-18.
ITA No.759/Del/2022
2. Heard and perused the record. The controversy raised in this appeal by way of ground no. 2 with its sub-grounds is variation to returned income cannot be made on the appellant in terms of provision of Insolvency and Bankruptcy Code, 2016 ('IBC'), in the background that as the assessee company, on 03.03.2017, had filed an application under section 10 of the IBC before the Allahabad Bench of the NCLT. The said application was admitted by the NCLT vide order dated 17.03.2017. The NCLT, while admitting the resolution application announced moratorium under section 14 of the IBC effective from 17.03.2017 till any resolution plan is approved under section 31 of the IBC and subsequently M/s Atyant Capital emerged as the successful resolution applicant, to acquire the assessee company. The successful resolution applicant submitted its final resolution plan/ scheme which was duly approved by, inter alia, the Committee of Creditors. Thereafter, the aforesaid final resolution plan was filed before the NCTL and was duly approved by the said adjudicating authority vide order dated 17.01.2020 (as amended by order dated 04.02.2020).
3. The claim of assessee is that on approval of the resolution plan by NCLT under section 31 of the IBC, the same becomes binding on all the stakeholder including the income tax authorities. All the liabilities of the corporate debtor (assessee in the present case) relating to the period prior to approval of the resolution plan stand settled in accordance with the approved resolution plan read with provisions of IBC. It is also submitted that as per the approved terms 2 ITA No.759/Del/2022 of resolution plan, the net income tax asset / liabilities appearing on the balance sheet of the corporate debtor (assessee in the present case) on effective date (date of approval of final resolution plan by NCLT) shall be extinguished or annulled.
3.1 It is submitted for the assessee that any liability (including statutory dues/ liabilities) which relates to the period prior to the approval of resolution plan by NCLT and which arises subsequently after the approval of resolution plan by NCLT shall stand extinguished/ annulled on approval of the resolution plan, even though the same is not specifically provided to be discharged in the resolution plan. In that view of the matter, no liability including tax, interest or penalty, whatsoever, relating to the period prior to 4.02.2020 could be raised/ claimed against the corporate debtor (assessee).
4. The DRP vide direction dated 11.01.2022 has sustained the validity of order passed by the assessing officer/TPO allegedly holding that:
'the code does not stay any proceedings under the Income Tax Act, 1961 but only states that the claims of the department will be entertained by the Official Liquator duly appointed."
5. Ld. Counsel of assessee has reasserted the contentions as submitted before the DRP and reliance was placed on the decision of Hon'ble Calcutta High Court in the case of Minosha India Limited vs. CIT [ITA No. 97/2003] wherein Hon'ble High Court held that once the resolution plan is approved by the NCLT, the corporate debtor starts with a clean slate and cannot be faced 3 ITA No.759/Del/2022 with surprise demands and that the assessment order for period prior to the resolution and any consequential proceedings that arise from the said assessment order cannot be enforced. The relevant part of the decision is as follows;
The law under the subject has been well settled by the aforementioned decision and other decisions as well. It is not in dispute that in case on hand an application was filed by the resolution professional of the corporate debtor before National Company Law Tribunal, Mumbai Bench dated February 18, 2019 seeking an approval of the successful resolution plan under Section 30(6) of the Insolvency & Bankruptcy Code (the Code) the said resolution plan was approved by the National Company Law Tribunal vide order dated November 28, 2019. In such circumstances the resolution applicant cannot be faced with undecided claims and it goes without saying once the plan is approved the resolution applicant starts on a clean slate and it cannot be faced with surprise claims. Therefore, the assessment order which is the subject matter of the appeal cannot be enforced any longer, nor the consequential proceedings which arose from the assessment year.
5. For the above reasons, GA 2 of 2022 is allowed and the assessment order passed in case of the appellant/assessee dated March 30, 1998 and all proceedings arising therefrom are held to have been permanently extinguished.
6. In the light of the above, the appeal stands disposed of on the above terms and the substantial questions of law are left open. 5.1 Reliance in this regard is also placed by the Ld. Counsel of assessee on the decision of Hon'ble Bombay High Court in the case of Uttam Value Steels Ltd. vs. ACIT [WP No. 9420/2022] wherein court proceedings initiated under section 153C of the Act were quashed holding that that once a resolution plan is duly approved under IBC, no proceedings in respect of any dues relating to period prior to approval of resolution plan can be continued or initiated against the corporate debtor/ assessee. The relevant findings as relied are as under: 4 ITA No.759/Del/2022
"18. The aforesaid position in law squarely applies to the facts of the instant case, and necessitates quashing the Impugned Proceedings. Evidently and admittedly, the tax proceedings against the Vinod Jatia Group pre-date the CIRP and no matter when the liabilities are purported to get crystallised, even if they are allowed to get crystallised, they would relate to the period prior to the approval of the resolution plan of the Petitioner-Assessee, and therefore stand extinguished. This is why the Supreme Court has clearly ruled that initiation and continuation of proceedings relating to the period prior to the approval of the resolution plan cannot be indulged in. Upon completion of the CIRP. the Petitioner- Assessee has completely changed hands and has begun on a clean slate under new ownership and management.
19. Consequently, all the notices and communications issued by the Revenue in connection with the Impugned Proceedings, and the consequential actions as impugned in this Writ Petition are hereby quashed and set aside in terms of prayer clauses (a), which for facility is extracted below:-
(a)That this Hon 'ble Court be pleased to issue a writ of Mandamus or any other appropriate writ, order or direction in the nature of Mandamus under Article 226 of the Constitution of India directing the Respondents to forthwith cancel and withdraw the six notices all dated 30th March 2021 issued by Respondent No. 1 to the Petitioner under Section 153C of the Income Tax Act for AY 2013-2014 to AY 2018-2019 and the three notices dated (i) 16th January 2021 under Section 133(6) of the Act. (ii) 30thMarch 2021 under Section 143(2) of the Act and (iii) 18th January 2022 under Section 142(1) of the Act issued by the Respondent No.l for AY 2019-2020 as well as for closing of all proceedings against the Petitioner No. 1;
20. Rule is made absolute in the aforesaid terms and the writ petition is disposed of accordingly.
5.2 Reliance in this regard is also placed on decision of various Courts and Tribunal as under:
- Murli Industries Limited vs. ACIT: 324 CTR 355 - Alok Industries Ltd. v. ACIT (2024) 161 taxmann.com 285(Bom) - M. Tech Developers (P.) Ltd. vs. NFAC, Delhi [2024] 161 taxmann.com 736 (Delhi) 5 ITA No.759/Del/2022 - Raj Rayon Industries Ltd. v. PCIT: I.T.A. No.830/Mum/2022
5.3 Reliance in this regard is also placed on the decision of Hon'ble Delhi High Court in appellant's own case for AY 2008-09 [ITA No. 999/2017] wherein court has adopted a 'clean state approach' and closed the appeal stating as under:
"13. Having regard to the fact that the claims which are the subject matter of the present appeal concern the period prior to the approval of the resolution plan by the NCLT, in which no provision has been made for statutory dues, the continuation of this appeal would serve no purpose.
14. The court in these matters adopts a "clean slate " approach, and therefore, this appeal would have to be closed.
15. The appeal is, accordingly, closed."
5.4 Further, our attention is also invited decision of Delhi Tribunal in appellant's own case for AY 2011-12 [ITA No. 3538/Del/2016) wherein Tribunal has followed the order passed by High court and dismissed the appeal of revenue stating as under:
"2. At the outset, we find that the ld. AR placed on record a decision of the Hon'ble Jurisdictional High Court in assessee's own case passed in ITA999/2017 dated 05.09.2023 wherein the fact of assessee being in the clutches of Hon'ble National Company Law Tribunal (NCLT) and a modified resolution plan was passed thereon on 04.02.2020 was noted. Further, it was noted that the resolution plan did not make any provision towards any statutory dues payable by the assessee. The assessee's counsel before the Honble High Court had stated that the revenue herein had not lodged its claim towards statutory dues before the Resolution Professional (RP). The Hon 'ble High Court noticed that the Corporate Insolvency Resolution Process (CIRP) in case of the assessee commenced on 19.03.2017. The Honble High Court noted that out of the total amount of Rs 123.10 crores available for distribution. no amounts were earmarked for payment of statutory dues by NCLT m its order dated 4.2.2020 in view of the fact that the revenue had not lodged any claims before the RP. Though 6 ITA No.759/Del/2022 this High Court order was passed, for the Asst Year 2008-09, still the fact that the revenue had not lodged any claim before the RP holds good for the year under consideration also. The Hon'ble High Court also had noted in Paras 13 to 15 as under :-
"13. Having regard to the fact that the claims which are the subject matter of the present appeal concern the period prior to the approval of the resolution plan by the NCLT,. in which no provision has been made for statutory dues, the continuation of this appeal would serve no purpose.
14. The court in these matters adopts a "clean slate" approach, and therefore, this appeal would have to be closed.
15. The appeal is accordingly, closed".
3. The aforesaid decision of Hon"ble High Court shall squarely apply to the year under consideration also and hence we deem it fit and appropriate to dismiss the appeal of the revenue as no purpose would be served by keeping this appeal pending before this tribunal and even if the revenue succeed before this tribunal, still it could not recover any dues from the assessee company in view of the fact, that it had failed to implead itself by lodging its claim before the RP and no monies were allocated for distribution towards any statutory dues in the order passed by the NCLT dated 4.2.2020. Accordingly, the grounds raised by the revenue are dismissed.
6. Ld. DR has vehemently opposed the claim of assessee and on conclusion of hearing has filed written submissions, which though are lengthy but for fairness to his attempt to defend the issue, are reproduced below;
"1. In this case, it is important to note that:
(i) There is no documentary evidence brought on record by the assessee to substantiate that after issue of notice under 143(2) of the Act, which signified start of scrutiny assessment proceeding in its case, the Jurisdictional assessing officer was intimated about start of CIRP by way of some letter /communication. Rather, as evident from TPO's order under 92CA(3) of the Act, the assessee chose not the comply various notices issued by the department authorities, few of which were issued during period of moratorium too, for the reason best known to it. This failure on the part of the assessee to intimate assessing officer about ongoing 7 ITA No.759/Del/2022 corporate insolvency resolution process need to be seen adversely against the assessee.
(ii) Major part of assessment proceedings calling various details on different issues were undertaken by the Department subsequent to lifting of moratorium under section 14 of IBC. Further, as stated above, the assessee was not forthcoming to submit the details called. Thus, during the period of moratorium, there was no occasion or possibility available with the assessing officer to have any idea about outcome of the ongoing assessment proceeding i.e. whether such proceeding will lead to raising of some tax demands in the hands of assessee or not. At the time, when moratorium ended, proceeding before TPO were at very preliminary stage. On the other hand, the assessee was well aware about ongoing assessment proceedings in its case for relevant assessment year as notice under section 143(2) was issued on 13.08.2018 itself and as recorded in the assessment order, it was duly served on the assessee. After receipt of notice dated 13.08.2018, the assessee could have brought it to the notice of the assessing officer that it was admitted under CIRP by way of a letter addressed to the assessing officer. But, it failed to do so. Here, it would be pertinent to highlight that if assessee claims to have mentioned fact of getting admitted under CIRP in return of income for AY 2017-18 e-filed of e-filing website of the department, it can not be considered as due intimation from the side of the assessee to the assessing officer because of the fact the e-filed income tax returns are processed by the CPC and by the jurisdictional assessing officers.
(iii) As evident from the facts noted in approval order under section 31 of the IBC, the plan in first instance was approved by the Hon'ble NCLT on 15.12.2017 indicating that last date for filing proof of claim before Resolution Professional(RP) had expired much before the case of the assessee for AY 2017-18 was selected for scrutiny by way of issue of notice under section 13.08.2018. ( In Hon'ble High court decision dated 05.09.2023 for AY 2008-09 in case of assessee in ITA 999/2017, such last date for filing proof of claim is mentioned as 31.03.2017). Thus, at the time of expiry of such last date for filing proof of claim, even filing of return of income of AY 2017-18 had not become due and infact, return of income for AY 2017-18 was filed by the assessee on 30.11.2017 only. Therefore, there was no occasion, possibility or obligation on the part of jurisdictional assessing officer to intimate RP about selection of the case for AY 2017-18 for scrutiny, ongoing assessment proceedings and likely tax demand to be raised in this case.
Thus, facts in instant appeal are clearly distinguishable in the sense that at the time of last date for filing proof of claim before RP, the return of income for AY 2017-18 was neither filed nor selected for scrutiny. 8 ITA No.759/Del/2022 Therefore, it is not a case of failure on the part of the Revenue to lodge its claim before RP.
(iv) In this case, tax demand was raised and notice under Section 156 of the Act was issued and served upon the assessee only after resolution plan had been approved by NCLT under Section 31 of the Insolvency & bankruptcy Code (IBC) and period of moratorium issued under Section 14 of IBC was already over. Hence, as per facts of the instant case, no demand under Section 156 of the I.T Act was raised for AY 2017-18 by way of impugned Assessment during the period of moratorium under Section 14 of IBC.
(v) In light of peculiar facts discussed above, particularly as discussed in point (iii) and (iv) above, the instant appeal is distinguishable on facts from facts as discussed in decisions of Hon'ble Delhi High Court's assessee's own case for AY 2008-09 [ITA No. 999/2017] and Hon'ble ITAT, Delhi's in assessee's own case for AY 2011-12 [ITA No. 3538/Del/2016] as for both these years, there was failure on the part of Revenue to lodge already existing claim before RP , which resulted in non-provision of tax dues in finally approved resolution plan. (In both these years, tax demand was already existing at the time when RP had called upon various categories of creditors to file their respective claim of proof.) Therefore, even if Revenue had succeeded before Hon'ble High Court and Hon'ble ITAT for AY 2008- 09 and 2011-12 respectively, it would not have been in a position to recover any dues from the assessee company as it had failed to implead itself by lodging its claim before RP in respect of already existing demands. It was in this back drop that it was held that continuation of Revenue's appeals for AY 2008-09 and 2011-12 would serve no purpose and therefore, appeal proceeding were closed. As discussed above, facts for AY 2017-18 are materially different as even return of income was not filed when last date for lodging of claim before RP had expired. Therefore, there was no failure on the part of Revenue to lodge proof of claim before RP during window provided for such lodging of claims. In view of the same, ratio of above decisions, which is on the point of consequence of failure to lodge already existing claim in time as allowed by RP, will not be applicable to the instant case.
Similarly, reliance placed on decision of Hon'ble High court of Calcutta in the case of Minosha India Limited (ITA/97/2003 and IA No. GA /2/2022) is misplaced. In that case, assessment year involved by AY 1995-96 as assessment order raising demand was passed on 30.03.1998 whereas resolution plan was approved on 28.11.2019. Thus, tax liability in question was already existing at the time of final plan was approved by the adjudicating authority. Therefore, the Revenue was required to lodge its claim before RP within the time period allowed for the said purpose. If Revenue fails to file claim in time for consideration of RP and final 9 ITA No.759/Del/2022 resolution plan get approved, then such claim cannot be enforced subsequently by the Revenue. This is the ratio emerging from aforesaid decision of Hon'ble High Court of Calcutta. Therefore, as discussed in earlier paragraph, fact of instant appeal as distinguishable and ratio of aforesaid judgement cannot be made applicable to instant appeal.
3. In this regard, reliance is placed upon judgment dated 26.08.2022 delivered by three judges bench of Hon'ble Supreme Court in the case of Sundaresh Bhatt ( Liquidator of ABG Shipyard) vs Central Board Of Indirect Taxes And Customs (CIVIL APPEAL No. 7667 of 2021) (Copy submitted during hearing ), where in Hon'ble Supreme court has explained interplay between IBC Act and determination of Tax, interest, fine under another Act (Custom Act in that case) during the period of moratorium. In the said judgement Hon'ble Apex Court has held that :-
"Para 43 In the above context, the judgment of this Court in S.V.Kondaskar v. V.M. Deshpande, AIR 1972 SC 878, is extremely relevant. In that case, this Court, while expounding the interplayof Section 446 of the Companies Act 1956 (bankruptcy provision)with the Income Tax Act, 1961, held as follows:
7.Looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of Section 446, read as a whole, it appears to us that the expression "other legal proceeding" in sub-section (1) and the expression "legal proceeding" in sub-section (2) convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding up court. The Income Tax Act is, in our opinion, a complete code and it is particularly so with respect to the assessment and re-assessment of income tax with which alone we are concerned in the present case. The fact that after the amount of tax payable by an assessee has been determined or quantified its realisation from a company in liquidation is governed by the Act because the income tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under Section 446 of the Act.
The liquidation court, in our opinion, cannot perform the functions of Income Tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the Court. The orders made by the Income Tax Officer in the course of assessment or re-assessment proceedings are subject to appeal to the higher hierarchy under the Income Tax Act. There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then there are provisions for revision by the Commissioner of Income Tax. It would lead to anomalous consequences 10 ITA No.759/Del/2022 if the winding up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income tax. The argument on behalf of the appellant by Shri Desai is that the winding up court is empowered in its discretion to decline to transfer the assessment proceedings in a given case but the power on the plain language of Section 446 of the Act must be held to vest in that court to be exercised only if considered expedient. We are not impressed by this argument. The language of Section 446 must be so construed as to eliminate such startling consequences as investing the winding up court with the powers of an Income Tax Officer conferred on him by the Income Tax Act, because in our view the legislature could not have intended such a result.
8. The argument that the proceedings for assessment or re-assessment of a company which is being wound up can only be started or continued with the leave of the liquidation court is also, on the scheme both of the Act and of the Income Tax Act, unacceptable. We have not been shown any principle on which the liquidation court should be vested with the power to stop assessment proceedings for determining the amount of tax payable by the company which is being wound up. The liquidation court would have full power to scrutinize the claim of the Revenue after income tax has been determined and its payment demanded from the liquidator. It would be open to the liquidation court then to decide how far under the law the amount of income tax determined by the Department should be accepted as a lawful liability on the funds of the company in liquidation. At that stage the winding, up court can fully safeguard the interests of the company and its creditors under the Act. Incidentally, it may be pointed out that at the Bar no English decision was brought to our notice under which the assessment proceedings were held to be controlled by the winding up court. On the view that we have taken, the decisions in the case of Seth Spinning Mills Ltd., (In Liquidation) (1962) 46 ITR 193 (Punj) (Supra) and the Mysore Spun Silk Mills Ltd., (In Liquidation) (1968) 68 ITR 295 (Mys) (supra) do not seem to lay down the correct rule of law that the Income Tax Officers must obtain leave of the winding up court for commencing or continuing assessment or re-assessment proceedings." Para 44 Therefore, this Court held that the authorities can only take stepsto determine the tax, interest, fines or any penalty which is due.However, the authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium. Weare of the opinion that the above ratio squarely applies to the interplay between the IBC and the Customs Act in this context.
Para 45 From the above discussion, we hold that the respondent couldonly initiate assessment or re-assessment of the duties and otherlevies. They cannot transgress such boundary and proceed to initiate recovery in violation of Sections 14 or 33(5) of the IBC.The interim resolution 11 ITA No.759/Del/2022 professional, resolution professional or theliquidator, as the case may be, has an obligation to ensure that assessment is legal and he has been provided with sufficient power to question any assessment, if he finds the same to be Excessive".(Emphasis Supplied) Thus, as per aforesaid judgment of Hon'ble Apex Court, there cannot be any bar on determination of Tax or interest in case of a Corporate Debtor under the provision of Income Tax Act during the period of Moratorium. Further, even proceeding in relation to Assessment or Re-assessment for determination of Tax or interest may also be initiated during period of moratorium.
The only Restriction placed as a consequence of such moratorium is that proceeding cannot be initiated for recovery of such tax or interest, as it would be in violation of Section 14 or 33(5) of the IBC. For recovery of Such Tax determined as a result of proceeding under the Income Tax Act, claim should be lodged before the Resolution Professional as per the procedure prescribed under IBC.
In light of ratio laid down above decision of Hon'ble Supreme Court, the demand raised by the Assessing Officer in the instant case subsequent to expiry of Moratorium period is fully justifiable and in accordance with law.
4. Kind attention of Hon'ble Bench is drawn to para 95 of judgment of Hon'ble Supreme Court in the case of Ghanshyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited in CA No. 8129 of 2019 (Forming part of P/B Vol II filed by the assessee) which explains the position of law with respect of claims forming part of resolution plan or not forming part of resolution plan and their fate consequent to approval of the plan. First of all, it should be taken note of that in the said judgement, Honorable Apex Court has explained the fate of claim which are forming and not forming part of finally approved resolution plan. Thus, this judgement is about those cases, where a Claim was in existence at the time of approval of resolution plan. This judgement is not about those situations where a claim is not in existence on the date of approval of the resolution plan by the adjudicating authority. In other words, this judgement does not deal with or cover those situations or cases, where a claim arises due to some legal proceedings after date of approval of resolution plan. This aspect is manifestly evident from sub para (i) and ( iii) of para 95 of the judgement, wherein Hon'ble Supreme Court clearly mentions about the fate of those claims or dues, which are forming or not forming part of the finally approved resolution plan. Thus, this judgement is essentially on the point of enforcement of recovery of dues or claims already existing on the date of finalization of resolution plan. This judgement is not in contradiction with later judgement of Hon'ble Supreme Court in the case of Sundaresh Bhatt, where in it is categorically held that 12 ITA No.759/Del/2022 authorities can only take steps to determine the tax, interest, fines or any penalty, which is due and they are only restrained from enforcing a claim for recovery or levy of interest on tax due during the period of moratorium. Both these judgements have to be read harmoniously. If facts of the instant appeal are seen, then it is the judgement in the case of Sundaresh Bhatt, which would find application to the instant case as the issue involved is not about recovery of already existing tax demand and issue is of validity of assessment proceedings partly undertaken during period of moratorium wherein demand was raised after moratorium period was over. Judgement of Hon'ble Supreme Court in the case of Ghanshyam Mishra and Sons Private Limited will not find application in the instant case due to distinguishable facts.
5. Thus, issue involved in the instant appeal is covered in favour of Revenue in light of the ratio laid down in above discussed judgement of Hon'ble Supreme Court in the case of Sundaresh Bhatt.
6. In the course of hearing, the AR of the assessee also relied upon decision of Honorable High Court of Delhi in the case of M.Tech developers Private Limited ( WP 15567/2022). In this regard, it is respectfully submitted that in the said decision, Honorable High Court has not taken into consideration above mentioned judgement dated 26.08.2022 of Hon'ble Supreme Court in the case of Sundaresh Bhatt. Moreover, while concluding its finding, Honorable High Court has stated as under :
" .....The respondents, therefore, cannot sustain the invocation of section 144B based on their own failure to lodge a claim within the time stipulated.
14. Accordingly, and for all the aforesaid reasons, we allowed the instant writ petition...."
Above observation/ finding indicate that perhaps High Court had based its decision on the ground that Revenue had failed to lodge a claim with the resolution professional within the time stipulated. This is not the situation in the instant case as elaborate explained in earlier paragraphs. Further, in case of any conflict between decisions of Hon'ble High Court and Hon'ble Supreme Court, it would be the decision of Hon'ble Supreme Court which shall prevail. In view of the same, it is respectfully submitted that assessee is not entitled to get relief in respect of issue raised by it relying upon aforesaid decision of Hon'ble Delhi High Court.
7. Reliance is also placed upon decision of Hon'ble Madras High Court in the case of M/s Dishnet Wireless Limited Vs. ACIT (OSD) (W.P. No. 34668 of 2018) (Copy submitted during hearing). While passing said judgement, Hon'ble Madras High Court had duly taken into consideration judgment of Hon'ble Supreme Court in the case of Ghanshyam Mishra & Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657. Recently Division Bench of Hon'ble High 13 ITA No.759/Del/2022 Court of Madras in case of CIT Vs. Dishnet Wireless Limited (2024) 165 Taxmann.com 416 has concurred with the view of expressed in aforesaid Writ Petition No. 34668 of 2018. Relevant part of said decision in the case of M/s Dishnet Wireless Limited Vs. ACIT (OSD) (W.P. No. 34668 of 2018)is reproduced as under:
"17. The learned Junior Standing Counsel for the respondentsfurther submits that the claim of the Income Tax Department had notcrystalized and therefore the question of extinguishment of any claimwhich was yet to be articulated in an Assessment Order cannot be said tohave been extinguished.
18. The learned Junior Standing Counsel further submits that theSupreme Court in the case of Ghanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 which was relied by the learned Senior Counsel for the petitioner, has itselfanswered the issue against the petitioner in as much as the amount whichwas due had crystalized before the Resolution Plan was approved.
19. It is submitted that in the facts of the present case, only noticeunder Section 148 of the Income Tax Act, 1961 has been issued and theobjections of the petitioner for reopening of the assessment had beenoverruled by a speaking order. It is also submitted that the petitionershave an alternate remedy against the Assessment Order that has been permitted to be passed and kept in a sealed cover in terms of the interimorder dated 27.12.2018.
20. The learned Junior Standing Counsel drew attention to Section238 of the Insolvency and Bankruptcy Code, 2016 and submits that thereis no bar under the law which inhibits or eclipses the power of theIncome Tax Department to continue with the proceedings initiated underSection 148 of the Income Tax Act, 1961.
21. I have considered the arguments advanced by the learnedSenior Counsel for the petitioners and the learned Junior StandingCounsel for the respondent Income Tax Department. Arguments in theseWrit Petitions are inspired from the decision of the Hon'ble SupremeCourt in Ghanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss AssetReconstruction Co. Ltd., (2021) 9 SCC 657.
22. The Hon'ble Supreme Court in Paragraph No.138 inGhanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss AssetReconstruction Co. Ltd., (2021) 9 SCC 657, held as under:-
138. In the foregoing paragraphs, we have held that the 2019 Amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will have a retrospective operation. As such, when the 14 ITA No.759/Del/2022 resolution plan is approved by NCLT, the claims, which are not part of the resolution plan, shall stand extinguished and the proceedings related thereto shall stand terminated.Since the subject-matter of the petition are the proceedings, which relate to the claims of the respondents prior to the approval of the plan, in the light of the view taken by us, the same cannot be continued. Equally the claims, which are not part of the resolution plan, shall stand extinguished.
23. The above conclusion was arrived based on the conclusion in Paragraph No. 102, wherein the questions framed by the Hon'ble Supreme Court were answered as under:-
Conclusion.
102. In the result, we answer the questions framed by us as under:-
102.1. That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members,creditors, including the CentralGovernment, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by theadjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.
102.2. The 2019 Amendment to Section 31 of theI&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which the I&B Code has come into effect.
102.3. Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued.
24. In Ghanashyam Mishra & Sons (P) Ltd. Vs. EdelweissAsset Reconstruction Co. Ltd., (2021) 9 SCC 657, the Hon'bleSupreme Court also held that "The legislative intent of making theresolution plan binding on all the stakeholders after it gets the seal ofapproval from the adjudicating authority upon its satisfaction, that theresolution plan approved by CoC meets the requirement as referred to insub-section (2) of Section 30 is that after the approval of the resolutionplan, no surprise claims should be flung 15 ITA No.759/Del/2022 on the successful resolutionapplicant. The dominant purpose is that he should start with fresh slateon the basis of the resolution plan approved."
25. In M/S.Ruchi Soya Industries Ltd. referred to supra, this hadgiven liberty to the petitioner therein to obtain a clarification from theNCLT as to whether the plan included customs duty paid by thepetitioner therein on the import under the subject Bill of Entry therein,whereas, in the present case, the documents reveal that the income taxwas not under the contemplation of NCLT.
26. Upon admission of petitions under Section 7, there are variousimportant duties and functions entrusted on the Resolution Professionaland the Committee of Creditors (COC). The Resolution Professional isrequired to issue a publication inviting claims from all the stakeholders.He is required to collate information and submit necessary details in theinformation memorandum. The resolution applicants are required tosubmit their plans on the basis of the details provided in the informationmemorandum. The Resolution Plans undergo deep scrutiny by theResolution Professional as well as Committee of Creditors (COC).
27. Negotiations may be held between Committee of Creditors(COC) and the Resolution Applicant and various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After Committee of Creditor (COC) approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in Sub-Section (2) toSection 30 of the Insolvency and Bankruptcy Code, 2016.
28. Only thereafter, the adjudicating authority can grant itsapproval to the plan. It is at this stage that the plan becomes binding onthe corporate debtor, its employees, members, creditors, guarantors andother stakeholders involved in the resolution plan. The legislative intentbehind this is to freeze all the claims so that the resolution applicant startson a clean slate and is not flung with any surprise claims.
29. The Resolution Plan submitted on behalf of the petitioners by the Insolvency Resolution Professional under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 on 21.05.2019 has not contemplated any concession from the Income Tax Department though Notices under Section 148 of the Income Tax Act, 1961 had already been issued during March, 2018.
30. Corporate Insolvency Resolution Plan approved under Section31 of the Insolvency and Bankruptcy Code, 2016 (IBC) did not contemplate tax dues 16 ITA No.759/Del/2022 under the Income Tax Act, 1961. Further, at the stage, the proceedings under 148 of the Act, 1961 had not crystallized.
31. The objections of the respective petitioners were also not in the light of the voluntary Corporate Insolvency Resolution Proceedings initiated by the petitioners.
32. Since the proceedings under the Code were initiated by the petitioners few days prior to the initiation of the proceedings under Section 148 of the Income Tax Act, 1961, it was incumbent for the WEB C petitioners to have ensured proper notice to the Income Tax Department and obtained appropriate concession in Corporate Insolvency Resolution Plan.
33. That apart, claims of the Income Tax Department were not considered by the NCLT, Mumbai, while approving the Resolution Plan and therefore the question of abetment of such rights of the Income Tax Department cannot be countenanced.
34. The provisions of Insolvency and Bankruptcy Code, 2016(IBC) cannot be interpreted in a manner which is inconsistent with any other law in the time being in force.
35. Therefore, Corporate Insolvency Resolution Plan sanctioned and approved cannot impinge on the rights of the Income Tax Department to pass any fresh Assessment Order under Section 148 read with Sections 143(3) and 147 of the Income Tax Act, 1961.
36. Therefore, the proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be pressed into service to dilute the rights of the Income Tax Department under the Income Tax Act, 1961 to re-open the assessment under Section 148 of the Income Tax Act,1961.
37. In my view, the Income Tax Department was not precluded from reopening the assessment completed under Section 143(3) of the Income Tax Act, 1961.
In the instant case, the assessee has not submitted any document/evidence or resolution plan to show that Resolution Plan submitted on behalf of the assessee by the Insolvency Resolution Professional( IRP) under IBC had contemplated any concession from the income Tax Department as notice under section 143(2) of the Act had already been served upon the assessee during pendency of resolution process and around 16 months before final approval of resolution plan by Hon'ble NCLT.
There is also no evidence produced by the assessee to show that Resolution Professional had made some communication with the jurisdictional 17 ITA No.759/Del/2022 Assessing Officer intimating him about ongoing CIRP in the case of assessee company and inquiring about any tax demand likely to be raised for AY 2017-18 despite the fact notice under section 143(2) of the Act was already issued by the AO on 13.08.2018 and was also duly served. The onus was on the assessee acting through RP to make AO aware about resolution proceedings and inquire into demands likely to be raised for AY 2017-18, which were at initial stage and bring the same to the knowledge of Hon'ble NCLT for taking appropriate decision as per the law. The assessee did not bring any evidence to show that RP did not fail in this regard. As a consequence of such failures, there is no document or evidence brought on record by the assessee to show that the adjudicating authority had taken into consideration ongoing assessment proceedings for AY 2017- 18 and its impact before final approval of Resolution plan. Therefore, ratio of above decision of Hon'ble High court of Madras is clearly applicable to the instant case. Above failure on the part of assessee company acting through RP during resolution process, particularly when notice under section 143(2) of the Act had been issued and proceeding before TPO had also been initiated and assessee was aware about the same, goes against the assessee in this case.
8. The assessee is contending that once a corporate debtor is admitted to NCLT and moratorium is declared under section 14 of IBC, no tax demand can ever be raised against that corporate debtor for a previous year falling prior to declaration of such moratorium even after period of such moratorium is over (consequent to passing of final resolution order). In support of such proposition, the assessee is relying upon 'Clean Slate' approach propounded by Honourable Supreme Court in the resolution matters dealt under IBC. Aforesaid proposition made by the assessee is contrary to the provisions of IBC and decisions of Hon'ble Supreme Court in Case of Sundaresh Bhatt vs Central Board Of Indirect Taxes And Customs (CIVIL APPEAL No. 7667 of 2021). The concept of 'Clean Slate' propounded by the Courts is with regard to recovery of those tax dues or debts from a corporate debtor, which were existing at the time of declaration of moratorium under section 14 of IBC.
As per 'Clean Slate approach', a corporate debtor should come out of the resolution process (CIRP) without any baggage of past dues relating to taxes or debts as all such prior existing taxes, dues or debts are required to be lodged with the Resolution Professional as per the prescribed procedure within the given time frame during the resolution process, when moratorium is in place. The resolution professional is required to settle all such claims as per the procedure and in accordance with the priority set under IBC for different type of creditors. Thus, it is expected that all the claims till the date of application admitted by NCLT have been duly taken into consideration and addressed as per the provision of IBC Act before approval of resolution plan by NCLT. Once such facility of lodging the 18 ITA No.759/Del/2022 claim and its settlement has been made duly available under IBC for all type of creditors, then there does not remain any basis for any creditor to make claim for recovery from a corporate debtor after resolution process has been finally approved and moratorium is over. This is the rational behind 'Clean slate approach' adopted by Indian courts in CIRP matters. The principle of 'Clean Slate' does not have any applicability to the facts of instant appeal as impugned assessment order was finalized and tax demand in question was raised after resolution plan had been approved and moratorium was not in place. Thus, there was no occasion available with the Revenue to lodge any claim with Resolution profession with regard to tax demand for assessment year 2017-18. Further, the company acting through RP had apparently failed to communicate with the Assessing officer during assessment proceedings to intimate about ongoing resolution process, inquiring into demand likely to be raised and bringing the same to the notice of Hon'ble NCLT.
Moreover, in case, interpretation given by the assessee is accepted, it would tantamount to giving blanket protection to a corporate debtor assessee from recovery of all demands, which may arise in future in respect of an earlier assessment year due to some tax evasion relating information coming to the knowledge of Income Tax department at a later stage. Such a blanket restriction on operation of provisions of the Income tax Act can never be intent of legislation like IBC. It is respectfully submitted that provision of IBC and Income Tax Act need to be read and interpreted harmoniously as upheld by Hon'ble High Court of Madras in the case of M/S Dishnet Wireless Limited.
9. In view of the above, the submission made by the assessee on this issue is found to be unjustifiable and devoid of merit. Therefore, contention of the Assessee may kindly be rejected on the point of validity of assessment proceedings and appeal may kindly be fixed for hearing on merit."
7. We intend to understand the issue by referring to certain basic aspects, definition and provisions of IBC, which have direct bearing on the issue. The Code provides for two key processes, namely, (a) Corporate Insolvency Resolution Process (CIRP) and (b) Corporate Liquidation Process (CLP), in respect of corporate debtor. Select stakeholders have certain rights and privileges in these processes. Financial creditors (FC) have a right to trigger a 19 ITA No.759/Del/2022 CIRP and join the committee of creditors (CoC), which approves the resolution plan. The operational creditors (OC) have a right to trigger a CIRP, a right to join the CoC in certain circumstances, a right to attend (not vote in) the meetings of the CoC in certain circumstances, and a right to the repayment of their debts which is not less than the amount to be paid to them in the event of a liquidation of the corporate debtor.
"Section 2 (6): "claim" means-- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;
Section 2 (10): "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder;
Section 2 (11): "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;
Section 2 (30): "secured creditor" means a creditor in favour of whom security interest is created;
Section 5 (7): "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; Section 5 (8): "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes--
............................................................................................. g.
Section 5 (10): "information memorandum" means a memorandum prepared by resolution professional under sub-section (1) of section 29;
Section 5 (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;20 ITA No.759/Del/2022
Section 5 (21): "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;
Section 30 (2): The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan-- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor; (b) provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53; (c) provides for the management of the affairs of the corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board.
Section 53 (1): Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely: - (a) the insolvency resolution process costs and the liquidation costs paid in full; (b) the following debts which shall rank equally between and among the following: - (i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following: --
(i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be.
Section 13 read with section 15 of the Code requires a public announcement calling for the submission of claims.
21 ITA No.759/Del/2022
Section 18(1) of the Code requires the interim resolution professional (IRP) to receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15. Section 25 (2) (e) requires a resolution professional to maintain an updated list of claims.
CIRP regulations require the information memorandum to include details of claims of creditors. These provisions, read with definitions cited above, envisage submission and collation of all claims - operational debt, financial debt or other debts of FCs, OCs and other creditors."
8. We have given thoughtful consideration to the submissions and perused the record. As with regard to the basic facts, there is no dispute that on 03.03.2017, an application u/s 10 of the IBC was filed before the Allabahad Bench of NCLT and on 16.03.2016, while admitting the petition, a moratorium u/s 24 of the IBC was made effective. The finalization plan was approved on 17.01.2020 as amended by order dated 04.02.2020. Thus, with regard to all the liabilities of the corporate debtors relating to the period prior to 04.02.2020, the resolution plan settled them.
9. Now, as with regard to the present case in hand, we need to determine if the status of department, for the relevant tax liability claim for AY 2017-18 is of corporate debtor, so same stands extinguished after acceptance of resolution plan on 4.2.2020. The issue now boils down to examine the contention of Ld. DR, that as the tax liability in question was not already existing at the time of final plan was approved by the adjudicating authority, therefore, the Revenue was not required to lodge its claim before RP within the time period allowed for the said purpose. So, if Revenue has failed to file claim in time for consideration 22 ITA No.759/Del/2022 of RP and final resolution plan got approved, still such claim can be enforced subsequently by the Revenue.
10. In this context we find from the assessment order that return of income for AY 2017-18 was filed by the assessee company on 30.11.2017, i.e., after the moratorium order on 17.03.2017. The assessment order mentions that on 13.08.2018, notice u/s 143(2) of the Act was issued. Thus, it was after the moratorium order of 17.03.2017, the assessment proceedings were actually initiated as it is only by virtue of notice u/s 143(2) of the Act the AO can be said to have taken cognizance of the return of the assessee to examine if the assessee had not understated the income or has not computed excessive loss or has not under-paid the taxes in any manner.
11. As with regard to right of any authority established under law to initiate proceedings of assessment of any tax, the issue is no more res integra and we accept the plea of department that the moratorium order did not put fetters on the power of AO, to continue the assessment proceedings and complete the same. Reliance is placed on decision of Hon'ble Supreme Court in Sundaresh Bhatt, Liquidator Case (supra).
12. Here itself we will like to rely on decision dated 20.05.24 of NCLAT in Commissioner of State Tax Department versus Ramchandra Dallaram Chaudhary Liquidator of M/s Anil Ltd. vide Comp. App. (AT) (Ins) No. 34 23 ITA No.759/Del/2022 of 2024 & I.A. No. 105, 106, 990 of 2024 reported in (2024) ibclaw.in 331 where the Hon'ble Appellate Tribunal has held that the claims of Tax Assessment Orders passed during the moratorium under Sections 14 & 33(5) IBC can be considered as Unsecured Operational Debt. However, that is the case where due to no Resolution of the Corporate Debtor, a Liquidation Order was issued against the Corporate Debtor. It is pertinent to mention that the Hon'ble Appellate Tribunal on the question of the Assessment order passed during the CIRP and Liquidation process has considered the Hon'ble Apex Court decision in Sundaresi Bhatt (supra), which is heavily relied before us by the ld. DR.
13. However, the case before us is not of a failed resolution leading to liquidation but a successful resolution. So the conclusion of DRP that 'the code does not stay any proceedings under the Income Tax Act, 1961 but only states that the claims of the department will be entertained by the Official Liquidator duly appointed.", does not help the department. Inspite of claim of department arising out of assessment concluded during the pendency of IP, being held as unsecured operation debt for liquidation proceedings by the NCLAT, the same is not applicable in case of assessee, where there is successful resolution.
14. Now we are required to consider if still the claim of department can be considered enforceable anymore. The Ld. DR has submitted that assessee or RP 24 ITA No.759/Del/2022 had not informed the department, so if no claim was raised before the completion of resolution process, that cannot prejudice the department.
15. To consider this argument and determine its effect on the plea of assessee before us, we find that in case of assessee for AY 2008-09 [ITA No. 999/2017] wherein court has adopted a 'clean state approach' and closed the appeal, it has been observed as under:
"13. Having regard to the fact that the claims which are the subject matter of the present appeal concern the period prior to the approval of the resolution plan by the NCLT, in which no provision has been made for statutory dues, the continuation of this appeal would serve no purpose.
16. The obvious conclusion of these observations is that for any period prior to approval of resolution plan, if no provision is made for statutory dues, the continuation of appeal will not serve any purpose, as the claim cannot be now settled or to say the recovery of demand stands annulled. Ld. DR says that as for AY 2008-09, as no claim was made in spite of crystallized demand the decision is distinguishable.
17. Now to examine the sustainability of this contention of ld. DR, as we go through the computation of income for the year ending 31.03.2017 and copy of Form 3CEB for the year ending 31.03.2017 and financial statements for the year ending 31.03.2017 made available at pages 102 to 106 of the paper book of the assessee, we find that as part of notes to financial statements for the year ending 31.03.2017 in the first paragraph itself it is disclosed that JEKPL has filed an 25 ITA No.759/Del/2022 application u/s 10 of the IBC which stands admitted by order dated 17.03.2017 of NCLT. The powers of the Board of Directors of the company stands suspended and exercised by the Resolution Professional (RP) appointed as per the provisions of the IBC from the date of the aforesaid order dated 17.03.2017. Further, the management of the affairs of the company also stands vested in the Resolution Professional from the date of the aforesaid order. Again, in para 2.2, this fact is re-asserted and it is mentioned that due to inability in meeting the obligations to wards its lenders the Corporate Insolvency Resolution Process (CIRP) stands admitted by the NCLT. It is mentioned in para 2.2 at page 15 of the paper book as part of notes for financial statements for the year ended 31.03.2017 that for the purpose of section 20(1) of the IBC r.w.s. 20(2)(e) as CIRP for the company stands extended upto 11.12.217 as a going concern the financial statements are prepared. Then, we find that as part of the notes to financial statements for the year ending 31.03.2017 with regard to the head 'Long term borrowings' on page No.25, it is mentioned that the company has defaulted on the principal and interest payments and both the State Bank of India and the Central Bank of India have recalled the loans. Further, the Resolution Professional (RP) had sought claims from the creditors as on 17.03.2017, i.e., date of admission of CIRP application by NCLT with the last date for submission of claims being 31.03.2017. This fact of insolvency proceedings is again re-asserted as a note to non-current investments on page No.30 and as loans and advances to related parties at page No.32. Then, vide 26 ITA No.759/Del/2022 note No.31, it is mentioned in regard to the EXIM Bank revoking counter guarantee, an admission of the claim of EXIM Bank by the Resolution Professional.
18. Further, we find that as Note No.36 of contingent liabilities in sub-clause (5), (6), (7) and (8), it is disclosed that for the different financial years, assessment orders u/s 143(3) have been received and there is pendency of appeals before the Commissioner of Income-tax (Appeals).
19. This all categorically establishes that the Assessing Officer was made aware of the fact of pendency of insolvency proceedings before the NCLT and that there was a moratorium effective from 17.03.2017. The fact of Resolution Professional seeking claims from creditors as on 31.03.2017 was also disclosed to the AO.
20. Now, in Ghanashyam Mishra's case (supra), in para 98, the Hon'ble Supreme Court has clarified that even a claim in respect of the dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority would come within the ambit of 'operational debts.' The Central Government, any State Government or any local authority to whom an operational debt is owed would come within the ambit of 'operational creditor' as defined under clause (2) of section 5 of IBC. Consequently, a person to whom a debt is owed would be 27 ITA No.759/Del/2022 covered by the definition of 'creditor' as defined under clause (10) of section 3 of IBC. On this basis, in Ghanashyam Mishra's case (supra), in para 102.1 to 102.3, the Hon'ble Supreme Court held as follows:-
"102.1 That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.
102.2. The 2019 Amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which the I&B Code has come into effect.
102.3. Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued."
21. Thus, definition of "claim" u/s "Section 2 (6) and definition u/s 5 (21) of "operational debt", make it very apparent the RP is required to consider 'claims', which may or may not be 'debt'. The ongoing assessment proceedings are likely to give rise to a debt but till same is not crystallized, it continues to be a 'claim' under IBC for which RP, was competent to consider to make it part of operational debt or at least inform the COC and prospective successful resolution applicant.
28 ITA No.759/Del/2022
22. In the case before us the Assessing Officer being made aware of the pendency of insolvency proceedings and Resolution Professional calling for claim of all the operational creditors, which certainly includes the Department having a claim in respect of dues arising under the Act, then, the Assessing Officer had an opportunity to raise the claim before the Resolution Professional as well as Committee of Creditors. The ld. DR was unable to cite before us any material which would show that the Assessing Officer had at any stage informed the assessee that in spite of insolvency proceedings going on, the assessment for the year under consideration is being taken further and shall be concluded by imposing a tax liability which will be binding on the company in spite of the moratorium order u/s 14 or consequential orders of adjudicating authority accepting the resolution plan.
23. We are of the considered view that when the status of the Department is like any other operational creditors, the Department is supposed to be vigilant to raise the claim in the insolvency proceedings, once the fact of appointment of Resolution Professional calling for the claim of operational creditors with regard to operational debts is brought into the knowledge of the Department. Certainly the authorities established under the IBC are not entitled to examine the validity of the claim under the respective tax statute, but certainly for the purpose of conclusiveness of the IBC proceedings such claim of revenue need to be brought to the notice of the IBC authorities, so that prospective resolution 29 ITA No.759/Del/2022 applicants have an opportunity of being alive to all the prospective claims, not part of resolution plan. If after final resolution plan is accepted by the adjudicating authority under IBC, any such claim surfaces, certainly the successful resolution applicant will be prejudiced. This will lead to a situation where government will be a beneficiary of the resolution plan and create a disadvantageous situation for the successful resolution applicant.
24. The aforesaid conclusion of this bench are duly bolstered by the judgement in Ghanashyam Mishra (supra) which categorically holds that there is no special status to Central Government or State Government or any local authorities for the purpose of IBC and the words 'other stakeholders' include them. In Innovative Industries Ltd. vs. ICICI Bank (2018) 1 SCC 407, referring to statement of objects and reasons of IBC, the Hon'ble Supreme Court has observed in para 13 that:
"One of the important objectives of the Code is to bring insolvency law in India under a single unified umbrella with the objective of speeding up of insolvency process."
25. In Ghanashyam Mishra (supra), the Hon'ble Supreme Court has also observed as follows:-
"61. It could thus be seen that one of the dominant objects of the I&B Code is to see to it that an attempt has to be made to revive the corporate debtor and make it a running concern. For that, a resolution applicant has to prepare a resolution plan on the basis of the information memorandum. The information memorandum, which is required to be prepared in accordance with Section 29 of the I&B Code along with Regulation 36 of the Regulations, is required to contain various details, which have been gathered by RP after receipt of various claims in response to the statutorily mandated public notice. The 30 ITA No.759/Del/2022 resolution plan is required to provide for the payment of insolvency resolution process costs, management of the affairs of the corporate debtor after approval of the resolution plan; the implementation and supervision of the resolution plan. It is only after the adjudicating authority satisfies itself that the plan as approved by CoC with the requisite voting share of financial creditors meets the requirement as referred to in sub-section (2) of Section 30, grants its approval to it. It is only thereafter that the said plan is binding on the corporate debtor as well as its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The moratorium order passed by the adjudicating authority under Section 14 shall cease to operate once the adjudicating authority approves the resolution plan. The scheme of the I&B Code therefore is, to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency to continue the business of the corporate debtor as a going concern until a resolution plan is drawn up. Once the resolution plan is approved, the management is handed over under the plan to the successful applicant so that the corporate debtor is able to pay back its debts and get back on its feet."
26. It is in this background that the Hon'ble Supreme Court in para 93 has come up with a theory of clean slate as follows:-
"93 As discussed hereinabove, one of the principal objects of the I&B Code is providing for revival of the corporate debtor and to make it a going concern. The I&B Code is a complete Code in itself. Upon admission of petition under Section 7 there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After CoC approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the I&B Code. Only thereafter, the adjudicating authority can grant its approval to the plan. It is at this stage that the plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The legislative intent behind this is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with 31 ITA No.759/Del/2022 any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans would go haywire and the plan would be unworkable."
27. Thus, we are of the considered view that whatever contentions the ld. DR has made are devoid of any substance. His heavy reliance on the Hon'ble Supreme Court decision in Sundaresh Bhatt (supra) is also of no assistance as in that case the issue was not at all concerning the claim of respondent Central Board of Indirect Taxes and Customs subsequent to the culmination of insolvency proceedings by approval of Resolution Plan. Rather, that was a case of liquidation and in that case, we find that the respondent Department had issued a notice on 04.07.2019 to the corporate debtor u/s 72(1) of the Act for customs dues and the Respondent also filed a concurrent claim of the customs dues before the Interim Resolution Professional, and the petitioner before the Hon'ble Supreme Court, defending the property of company, was the liquidator. Further, the issue in that case examined was with regard to the powers of the Customs Authorities to continue with the determination of quantum of Customs Duties and other levies and to that extent, the Hon'ble Supreme Court recognized the powers but also held that after assessment the respondent authority has to submit its claim concerning customs dues/operational debts in terms of the procedure laid down in strict compliance of the time period prescribed under the IBC before the adjudicating authority. There is nothing cited before, us as observed above, that in the case before us the Assessing Officer had made such claim or the Department had made any claim even in 32 ITA No.759/Del/2022 respect of any other tax due in regard to any previous assessment years for which the assessee was agitating.
28. Then in the case of TUF Metallurgical Pvt. Ltd. vs. UOI (W.P.(C) 10528/2022) & connected matter Hon'ble High Court of Delhi has also applied the principles laid down by the Hon'ble Supreme Court in the case of Ghanashyam Mishra (supra). In this case Hon'ble Delhi High Court entertaining a Writ petition filed on behalf of the successful resolution applicant has taken into consideration the fact that the successful resolution applicant had taken over the management of a company, the erstwhile corporate debtor in terms of resolution plan on 20.05.2019. Pertaining to the commencement of the CIRP, a public advertisement u/s 15 of the Code was notified declaring last date of submission of claim as 21.01.2019, but, till 21.01.2019 or even thereafter, the Revenue had not opted to submit any claim. Thereafter, the Department had passed an assessment order and a demand notice on 12.12.2019, i.e., after the resolution plan was approved and the management was taken over. When this and subsequent notices arising out of the assessment order for the assessment year 2017-18 were challenged before the Hon'ble Delhi High Court, the issue was adjudicated in favour of the Petitioner, successful resolution plan applicant, holding as follows:-
"8. In the present cases, as described above, the admitted factual matrix is that the notices and orders impugned in these writ petitions pertain to the income tax claims of the respondents/revenue pertaining to the period much prior to the date of approval of the Resolution Plan. The impugned 33 ITA No.759/Del/2022 notices and orders were issued by the respondents/ revenue admittedly subsequent to the public announcement under Section 15 of the Code regarding CIRP process pertaining to the petitioner/assessee. As noted above, pertaining to the WP(C) 10528/2022, the public announcement under Section 15 of the Code called for submission of claims by 21.01.2019, but the respondents/revenue did not file any claim till that date or even thereafter; it is only subsequent to approval of the Resolution Plan vide order dated 05.11.2019 of the Tribunal, (which order was communicated to respondents/revenue on 02.12.2019) that the respondents/revenue issued the impugned Assessment Order and Demand Notice both dated 12.12.2019. Similarly, in the other writ petition WP(C) 10628/2022, the impugned notices and orders were issued by the respondents/revenue much subsequent to the public announcement dated 30.09.2019 of commencement of CIRP under Section 13 of the Code; vide order dated 21.02.2022, the Tribunal approved the final Resolution Plan and that order was communicated by the petitioner/ assessee to the respondents/revenue, calling upon the latter to withdraw the earlier notices, but to no avail.
9. In nutshell, the Resolution Plans qua the petitioners/ assessees having been approved by the National Company Law Tribunal on 05.11.2019 (in WP(C) 10528/2022) and on 21.02.2022 (in WP(C) 10628/2022), the tax claims pertaining to the Assessment Year 2017-18 (in WP(C) 10528/2022) and Assessment Year 2014-15 (in WP(C) 10628/2022) stood extinguished.
10. The argument on behalf of respondents/revenue that being the State exchequer, it cannot be bound by the Resolution Process provisions of the Code has been recorded only to be rejected in view of the above quoted extract from the judgment in the case of Ghanshyam Mishra (supra).''
29. As a consequence of the aforesaid, we are inclined to hold that the assessment order may be valid so far as authority of ld. AO to conclude assessment is concerned. However, the same being not enforceable after 04.02.2020, it is non est and no recovery can be effected under the impugned assessment order subsequent to approval of resolution plan. Thus we sustain 34 ITA No.759/Del/2022 grounds no. 2.1, 2.2 and 2.3. As we hold that the claim of department under the impugned assessment is non est and unenforceable, the remaining grounds on merits become academic and need no formal adjudication further.
30. As a sequel to the aforesaid discussion the appeal of assessee is allowed with consequence so follow as per findings arrived above.
Order pronounced in the open court on 17.01.2025.
(BRAJESH KUMAR SINGH) (ANUBHAV SHARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 17th January, 2025.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asstt. Registrar, ITAT, New Delhi
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