MONNET ISPAT & ENERGY LTD.,NEW DELHI vs. DCIT, CIRCLE- 17(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘E’ NEW DELHI

BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER

ITA No.2485/Del/2019 Assessment Year: 2010-11 With ITA No.2486/Del/2019 Assessment Year: 2011-12

Monnet Ispat And Energy Vs. Assistant Commissioner of Limited, Income Tax, Monnet House, 11, Masjid Circle-17(1), Moth, Commercial Complex, New Delhi Greater Kailash, Part-II, New Delhi PAN :AAACM0501D (Appellant) (Respondent)

Appellant by Sh. V.K. Jain, CA Respondent by Ms. Sarita Kumari, CIT(DR) Date of hearing 17.11.2022 Date of pronouncement 25.01.2023

ORDER PER SAKTIJIT DEY, JM: Captioned appeals by the assessee arise out of two separate

orders, both dated 23.01.2019, of learned Commissioner of

Income Tax (Appeals)-6, Delhi, pertaining to assessment years

2010-11 and 2011-12.

ITA Nos.2485 & 2486/Del/2019 AYs: 2010-11 & 2011-12

relate to the powers of the Assessing Officer in framing

assessments as well as raising tax demand in the face of order

passed by the National Company Law Tribunal (NCLT) imposing

moratorium under the provisions of Insolvency and Bankruptcy

Code (IBC) -2016.

provide a brief factual backdrop. The assessee is a resident

corporate entity. Pursuant to a search and seizure operation

conducted under section 132 of the Income-tax Act, 1961 (for

short ‘the Act’) in case of the assessee, proceedings under section

153A was initiated against the assessee for the impugned

assessment years. Subsequently, assessment orders were passed

under section 143(3) read with section 153A of the Act enhancing

the income declared by the assessee after making a number of

additions. Against the assessment orders so passed, the assessee

preferred appeals before learned Commissioner (Appeals). While

deciding the appeals, learned Commissioner (Appeals) granted

partial relief to the assessee. Being aggrieved with the decision of

learned Commissioner (Appeals), both, the assessee and the

Revenue went in appeal before the Tribunal. The appeals were 2 | P a g e

ITA Nos.2485 & 2486/Del/2019 AYs: 2010-11 & 2011-12

disposed of by the Tribunal by deleting certain additions made by

the Assessing Officer. Whereas, issues relating to some other

additions were restored back to the Assessing Officer for fresh

adjudication. In the fresh assessment proceedings in pursuance

to the direction of the Tribunal, as alleged by the Assessing

Officer, the assessee did not respond to the notices issued and

queries raised seeking information and details. However, vide

letter dated 11.12.2017 Sh. Sumit Binani, Insolvency Resolution

Professional (IRP) requested the Assessing Officer not to proceed

with the assessment proceedings in view of the order passed by

NCLT imposing moratorium in terms of section 14 of the IBC

Code. Further, the IRP intimated the Assessing Officer that while

considering the appeals filed by the department against the

orders of the Tribunal, the Hon’ble Delhi High Court in order

dated 04.09.2017 has also dismissed the appeals of the Revenue

in view of the moratorium imposed by the NCLT. The Assessing

Officer, however, proceeded to complete the assessments in spite

of the moratorium imposed by NCLT giving the following two

reasons:

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i. The proceedings before the NCLT are applicable to normal

creditors of the assessee and not to proceedings under the

Income Tax Act; and

ii. Against the order of the Hon’ble Delhi High Court dismissing

the appeals of the Revenue, CBDT has given approval for

filing Special Leave Petition (SLP) before Hon’ble Supreme

Court.

completed the assessments ex-parte raising tax demands.

preferred appeals before learned Commissioner (Appeals).

However, by the impugned orders, learned Commissioner

(Appeals) dismissed both the appeals.

submitted that in the face of moratorium order passed by the

NCLT, the Assessing Officer could not have proceeded to complete

the assessments. He submitted, the Assessing Officer not only

has declined to give effect to the moratorium order of the NCLT

but even went to the extent of not following the decision of the

Hon’ble Jurisdictional High Court by saying that the department

is contemplating filing of SLP. He submitted, the Assessing Officer 4 | P a g e

ITA Nos.2485 & 2486/Del/2019 AYs: 2010-11 & 2011-12

has not only acted in a high handed manner but has not even

followed the binding decision of the Hon’ble Jurisdictional High

Court. He submitted, the plea of the Assessing Officer of not

following the jurisdictional High Court’s decision is no more

available as the Hon’ble Supreme Court has dismissed the SLP

filed by the department by holding that section 238 of the IBC

Code will override any inconsistency contained in any other

enactment including the Income Tax Act. Thus, he submitted, the

assessment orders passed despite the moratorium imposed by

NCLT are invalid in the eye of law.

meanwhile has passed the final order on 24.07.2018 in case of

the assessee, wherein, taking note of the fact that there is huge

difference in the total amount of secured financial creditors and

the liquidation value of the company, the NCLT applied the

waterfall mechanism provided under section 53 of the IBC Code

and determined the liquidation value due to unsecured financial

creditors, operational creditors and other creditors of the assessee

as NIL. Thus, he submitted, in view of the final order of the NCLT,

the present demands having been written off, hence, no more

enforceable, as, they have been extinguished. Thus, he submitted, 5 | P a g e

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the assessment orders have to be declared as null and void. He

submitted, under identical facts and circumstances, the Tribunal

in two separate orders has dismissed the appeals of the Revenue

for assessment years 2005-06, 2006-07, 2007-08 and 2013-14.

of assessment proceedings the assessee neither appeared nor

furnished the necessary details as called for by the Assessing

Officer. Therefore, in absence of the required information and

details, the Assessing Officer was compelled to complete the

assessments ex-parte.

materials on record. From the facts on record, it is patent and

obvious that on applications made by secured and unsecured

financial creditors, operational creditors and others, Corporate

Insolvency Resolution Process (CIRP) was initiated against the

assessee in NCLT. On 18.07.2017, NCLT Bench, Mumbai, has

passed an order of moratorium with the following directions:

“11. In view .same, this Bench hereby admits this Petition prohibiting all of the following of item-I, namely: I (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

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(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

(II) That the supply of essential goods or services to the corporate debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period. (III) That the provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (IV) That the order of moratorium shall have effect from 18.7.2017 till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan tinder sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33 as the case may be, (v) That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code. That this Bench hereby appoints Mr. Sunlit Binani, Room No4 46 (VI) Floor 24, Commerce House, Ganesh Chandra Avenue, Kolkata 700013, Registration No. IBBI/IPA-0014F-N0000512016- 2017/10025 as Interim Resolution Professional to carry the functions as mentioned under Insolvency 6z Bankruptcy Code.

By the time, the assessment proceedings were taken up in

pursuance to the direction of the Tribunal for the impugned

assessment years, the moratorium order of the NCLT has already

been passed and IRP has been appointed. In such a scenario, the

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assessee had no locus standi to appear in the assessment

proceedings. A reading of the assessment orders clearly reveal

that in pursuance to the statutory notices issued by the Assessing

Officer, the IRP, vide letter dated 11.12.2017, has clearly

intimated the fact of moratorium imposed by the NCLT as well as

the order passed by Hon’ble Delhi High Court dismissing the

appeals of the Revenue on the ground that in view of the

moratorium imposed by NCLT proceedings cannot continue.

Therefore, the submission of learned Departmental Representative

that necessary details called for by the Assessing Officer was not

submitted before the Assessing Officer is far from reality. In fact,

the Assessing Officer, though, was conscious of the moratorium

imposed by the NCLT and the order of the Hon’ble jurisdictional

High Court categorically holding that in view of moratorium

imposed by the NCLT the Income Tax Act proceedings cannot

continue, however, he has proceeded to complete the assessments

by firstly stating that NCLT order imposing moratorium is not

applicable to Income Tax proceeding and secondly, against the

decision of the Hon’ble Delhi High Court, the department was

contemplating filing SLP in Hon’ble Supreme Court. Both the

aforestated reason of the Assessing Officer have to be rejected at 8 | P a g e

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the threshold as they run in the teeth of the settled legal position

declared by the Hon’ble Supreme Court in case of Ghanashyam

Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction

Company Ltd. (Civil Appeal No.8129 of 2019, order dated

13.04.2021). It is surprising to note that even though the order of

the Hon’ble Jurisdictional High Court, dismissing a batch of

appeals filed by the Revenue arising out of Income Tax Act

proceedings due to moratorium imposed by NCLT was brought to

the notice of the Assessing Officer, however, disregarding such

order he went ahead to complete the assessments in spite of

moratorium imposed by the NCLT. Therefore, the assessment

orders are void-ab-initio.

notice by learned counsel for the assessee, in the meanwhile, the

NCLT has passed the final order on 24.07.2018 in case of the

assessee, wherein, following observations have been made:-

“5. The total amount of claims admitted by the Applicant Resolution Professional in the CIRP of the Corporate Debtor is Rs.11478,09,50,325 (Rupees eleven thousand four hundred seventy- eight crore nine lac fifty thousand three hundred twenty-five), details of which are set out herein below:

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Amount claimed S.N. Category of Amount of Creditor claims admitted (in Rs.) (in Rs.) 1. Financial Creditors 115,733,833,438 110,149,151,687 2. Operational Creditors 6,732,612,108 4,440,447,623 (other than workmen a n d e m p l o y e e s ) (unsecured) 3. Operational Creditors 2,210,000 (only workmen and employees) {unsecured) Other creditors 191,351,015 191,351,015 (unsecured) Total 122,660,006,561 114,780,950,325

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have noticed that the fair valuation of the company is almost double to the liquidation value given to the Corporate Debtor. When we have asked as to why so much difference has come in between liquidation value and fair value and how the COC approved the resolution plan that; is slightly above liquidation value, the Counsel appearing on behalf of the COG submitted that the COC has approved after thoughtful consideration looking at the upfront payment coming from the Resolution Applicant. In view of the same, though difference between fair value and liquidation value Is more, than two thousand crores rupees, this Bench, considering the submissions of the Counsel appearing on behalf of the COC and looking at the compliance of Section 30(2) of the Code, approved this Resolution plan.

the NCLT, debt due to various creditors, such as, unsecured

financial creditors, operational creditors and other creditors,

including Income Tax Department were extinguished and

determined at Nil as per waterfall mechanism mentioned

under section 53 of the IBC Code. This is clearly evident from

List –B of the Report of the IRP and finds place at entry 47 of

List-B appended to the final order of the NCLT in respect of

income tax demand for various assessment years. At this

stage, it is further necessary to observe, though, at the stage

of CIRP before NCLT, the Assessing Officer had communicated

to the IRP regarding the upward revision in tax demand

relating to various assessment years starting from 2005-06 to

2014-15, however, the IRP declined to consider the revised

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demand of the Assessing Officer as Insolvency Resolution

Process period has ended.

Tax demands relating to the assessee for assessment years

2005-06 to 2014-15 have been fully extinguished and reduced

to Nil in the final order of the NCLT. Taking note of the

aforesaid factual position, the Coordinate Bench, while

deciding Revenue’s appeal in assessment year 2013-14 vide

order dated 16.08.2021 passed in ITA No.173/Del/2018 has

held as under:

“5. We have gone through the record in the light of submissions made on either side. Dues to the Income-tax Department are reflected in list — B appended to the order dated 24.07.2018 passed by the NCLT. By such order, NCLT observed that there is a huge difference in the total amount of admitted secured financial creditors which is to the tune of Rs.1,14,78,09,50,325/- and the liquidation value of the company to the tune of Rs.23,56,35,25,186/- and therefore, by application of the waterfall mechanism mentioned in section 53 of the Code, the liquidation value due to unsecured financial creditors, operational creditors and other creditors of the assessee becomes nil. It is clear that in terms of the resolution plan as approved by the NCLT, all claims or demands or liabilities or obligations owed or payable to or assessed by or assessable by the Central Government/State Government in relation to any period prior to the acquisition, will be written off in full and will be deemed to be permanently extinguished. This position of law is clear in view of the decision of Hon’ble Supreme Court in the case of Ghanashyam Mishara and Sons vs. Edelweiss Assets Reconstruction Company Ltd. (Civil appeal No.8129/2019 — Order dated 13/04/2021).

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In these circumstances, we are of the considered opinion 4. that the dues to the Income-tax Department for the assessment year 2013-14, which are reflected in the list-B appended to NCLT order stood fully extinguished and no useful purpose would be served by adjudicating this matter. With this view of the matter, we dismiss the appeal of the Revenue.”

dated 27.08.2021 while deciding Revenue’s appeals for

assessment years 2005-06, 2006-07 and 2007-08 in ITA

No.6961, 6962 and 6963/Del/2017. Thus, in view of the

aforesaid, we quash the impugned assessment orders.

Resultantly, the impugned orders of learned Commissioner

(Appeals) are set aside.

above.

Order pronounced in the open court on 25th January, 2023

Sd/- Sd/- (ANADEE NATH MISSHRA) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 25th January, 2023. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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