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Facts
The Revenue appealed against three orders of the CIT(A) concerning assessment years 2017-18 and 2018-19. The assessee company underwent insolvency proceedings. The CIT(A) allowed the appeals solely on the basis that the insolvency proceedings had concluded and the company was acquired on a 'clean slate' basis.
Held
The Tribunal held that while the Insolvency and Bankruptcy Code (IBC) overrides the Income Tax Act in matters of recovery, tax authorities retain the jurisdiction to assess and determine tax liability, even during appellate proceedings. The 'clean slate' principle applies to enforceability and recovery, not to the determination of claims.
Key Issues
Whether the CIT(A) was justified in not adjudicating the grounds of appeal on merits due to the pendency or culmination of insolvency proceedings under IBC, and whether assessment and appellate proceedings are barred during such proceedings.
Sections Cited
270A, 143(3), 31, 32A, 14, 33(5)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT (ACCOUNTANT & SHRI RAJ KUMAR CHAUHAN
ORDER Per: Bench These appeals by the Revenue are directed against These appeals by the Revenue are directed against These appeals by the Revenue are directed against three separate orders passed by the Ld. Commi separate orders passed by the Ld. Commissioner of Income Tax ssioner of Income Tax (Appeals)-National Faceless Appeal Centre, Delhi [in short the National Faceless Appeal Centre, Delhi [in short the National Faceless Appeal Centre, Delhi [in short the Ld. CIT (A)]. The appeals having appeals having and 5460 . 5459 and 5460 of 2024 are arising in relation to the quantum assessment are arising in relation to the quantum assessment are arising in relation to the quantum assessment proceedings for a for assessment years 2017-18 to 2018 2018-19, whereas the appeal having the appeal having ITA No. 5461 of 2024 is connected with the is connected with the penalty levied under Section 270A of the Income penalty levied under Section 270A of the Income penalty levied under Section 270A of the Income-tax Act, 1961 (in short the ‘Act’) (in short the ‘Act’) for AY 2018-19.
The core issue The core issue arising in these appeals is narrow and legal arising in these appeals is narrow and legal in character, namely, in character, namely, whether the learned CIT(A) CIT(A) was justified in not adjudicating the grounds of appeal
during the pendency adjudicating the grounds of appeal during the pendency adjudicating the grounds of appeal during the pendency or culmination of proceedings under the Insolvency and or culmination of proceedings under the Insolvency and or culmination of proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”) Bankruptcy Code, 2016 (“IBC”) before the National Company before the National Company Law Tribunal (“NCLT”) Law Tribunal (“NCLT”). Since the controversy is common, ITA Since the controversy is common, No. 5459/Mum/2024 is treated as the lead appeal, and the No. 5459/Mum/2024 is treated as the lead appeal, and the decision herein shall apply decision herein shall apply mutatis mutandis to the connected to the connected appeals. Briefly stated, the assessee, a public limited company
3. Briefly stated the assessee, a public limited company belonging to the Videocon group, was engaged in the business belonging to the Videocon group, was engaged in the business belonging to the Videocon group, was engaged in the business of manufacturing and trading of electrical and electronic of manufacturing and trading of electrical and electronic of manufacturing and trading of electrical and electronic to 5461/MUM/2 to 5461/MUM/2024 3 Trend Electronics Limited appliances. For Assessment Year 2017 appliances. For Assessment Year 2017-18, it filed its return of 18, it filed its return of income declaring a loss of ₹41,93,16,017/-. The return was income declaring a loss of . The return was selected for scrutiny and assessment was completed under selected for scrutiny and assessment was completed under selected for scrutiny and assessment was completed under section 143(3) of the Income section 143(3) of the Income-tax Act, 1961 on 29.11.2019. tax Act, 1961 on 29.11.2019. 3.1 Before the L Ld. CIT (A) in the statement of the facts CIT (A) in the statement of the facts filed, the assessee informed that it had filed an applicat ssessee informed that it had filed an applicat ssessee informed that it had filed an application for corporate insolvency resolution process before the solvency resolution process before the solvency resolution process before the NCLT under the Insolvency and nsolvency and Bankruptcy Code, 2016 which was 2016 which was adjudicated by the adjudicating authority under the adjudicating authority under Section 7 of the adjudicating authority under the IBC code. 3.2 However, despite notifying despite notifying by the ld CIT(A) on various by the ld CIT(A) on various dates, interalia, , on 20.02.2020, 08.01.2021, 15.03.2022, on 20.02.2020, 08.01.2021, 15.03.2022, 29.12.2022, 08.09. 29.12.2022, 08.09.2023, 27.02.2024 and 10.05.2024, neither 2023, 27.02.2024 and 10.05.2024, neither any appearance was made before the appearance was made before the Ld. CIT (A) d. CIT (A) nor, any written submission was filed written submission was filed. The Notices were issued . The Notices were issued displayed on Income-tax Business A tax Business Application (ITBA) (ITBA) system, and successfully delivered to e successfully delivered to e-mail ID of the Assessee the Assessee provided on ITBA portal. However, the . However, the assessee neither filed any submission neither filed any submission nor made any request for adjournment. Therefore, on the basis nor made any request for adjournment. Therefore, on the basis nor made any request for adjournment. Therefore, on the basis of this statement of the facts, the this statement of the facts, the Ld. CIT (A) was of the view (A) was of the view that assessee was under liquidation process that assessee was under liquidation process, therefore statutory therefore statutory dues to the central government dues to the central government already stands extinguished stands extinguished and therefore allowed the appeal of the assessee. and therefore allowed the appeal of the assessee. and therefore allowed the appeal of the assessee. The CIT(A) allowed the appeal primarily on the premise that, consequent he appeal primarily on the premise that, consequent he appeal primarily on the premise that, consequent to 5461/MUM/2 to 5461/MUM/2024 4 Trend Electronics Limited upon liquidation of the assessee as a going concern and its upon liquidation of the assessee as a going concern and its upon liquidation of the assessee as a going concern and its acquisition on a “clean slate” basis, all statutory dues, including acquisition on a “clean slate” basis, all statutory dues, including acquisition on a “clean slate” basis, all statutory dues, including income-tax dues, stood extinguished in terms of the IBC and tax dues, stood extinguished in terms of the IBC and tax dues, stood extinguished in terms of the IBC and the law laid down by the Hon’ble Supreme Court in n by the Hon’ble Supreme Court in Ghanshyam n by the Hon’ble Supreme Court in Mishra & Sons (P.) Ltd. Mishra & Sons (P.) Ltd. The relevant finding of the of the Ld. CIT (A) is reproduced as under: reproduced as under:- “9.3 In the case of the appellant, the appeal for the 9.3 In the case of the appellant, the appeal for the 9.3 In the case of the appellant, the appeal for the AY AY 2018 2018-19 19 was was also also pending pending before before the the undersigned. The appellant had replied in the undersigned. The appellant had replied in the undersigned. The appellant had replied in the appellate proceedings for the AY 2018-19. The appellate proceedings for the AY 2018 appellate proceedings for the AY 2018 appellant submitted that the company was acquired appellant submitted that the company was acquired appellant submitted that the company was acquired as going concern by Mr as going concern by Mr. Jayprakash Bihani and Mr. . Jayprakash Bihani and Mr. Nandkishor Baheti (hereinafter referred as "Auction Nandkishor Baheti (hereinafter referred as "Auction Nandkishor Baheti (hereinafter referred as "Auction Purchasers") in e Purchasers") in e-auction at an agreed consideration auction at an agreed consideration of Rs.48,05,00,000/- on clean slate basis on clean slate basis. The of Rs.48,05,00,000/ liquidation order by National Company Law Tribunal liquidation order by National Company Law Tribunal liquidation order by National Company Law Tribunal (NCLT) dated 10.02.2023 a (NCLT) dated 10.02.2023 and copy of the sale nd copy of the sale certificate dated 07.08.2023 of the appellant were certificate dated 07.08.2023 of the appellant were certificate dated 07.08.2023 of the appellant were submitted and considered. submitted and considered. 9.4. The appellant relied on the order of the Hon'ble 9.4. The appellant relied on the order of the Hon'ble 9.4. The appellant relied on the order of the Hon'ble NCLT, Mumbai in the case of Gaurav Jain v. Gaurav Jain v. NCLT, Mumbai in the case of Sanjay Gupta [2021] 130 taxmann.com 23 Sanjay Gupta [2021] 130 taxmann.com 23 Sanjay Gupta [2021] 130 taxmann.com 23 (NCLT- -Mum.) it was held that crux of the sale as that crux of the sale as “going concern going concern” is that the equity shareholding of is that the equity shareholding of to 5461/MUM/2 to 5461/MUM/2024 5 Trend Electronics Limited the Corporate Debtor was extinguished, and the the Corporate Debtor was extinguished, and the the Corporate Debtor was extinguished, and the acquirer would take over the undertaking. The acquirer would take over the undertaking. The acquirer would take over the undertaking. The undertaking included the business of the Corporate undertaking included the business of the Corporate undertaking included the business of the Corporate Debtor, assets, properties, Debtor, assets, properties, licenses and rights but licenses and rights but excluding liabilities. excluding liabilities. 9.5 Further, Hon'ble Supreme Court in the case of Supreme Court in the case of 9.5 Further, Hon'ble Ghanshyam Ghanshyam Mishra Mishra & & Sons Sons (P.) (P.) Ltd. Ltd. v. v. Ghanshyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Construction Co. Ltd. [2021] Edelweiss Asset Construction Co. Ltd. [2021] Edelweiss Asset Construction Co. Ltd. [2021] 126 taxmann.com 132 (SC) 126 taxmann.com 132 (SC), C.A. No. 8129 of C.A. No. 8129 of 2019 and 1550 to 1554 of 2021, dat 2019 and 1550 to 1554 of 2021, dated 13.04.2021 ed 13.04.2021 held as under: held as under:
"86. As discussed hereinabove, one of the "86. As discussed hereinabove, one of the "86. As discussed hereinabove, one of the principal objects of I&B Code is, providing principal objects of I&B Code is, providing principal objects of I&B Code is, providing for revival of the Corporate Debtor and to for revival of the Corporate Debtor and to for revival of the Corporate Debtor and to make it a going concern. I&B Code is a make it a going concern. I&B Code is a make it a going concern. I&B Code is a complete Code in itself. Upon admission of complete Code in itself. Upon admission of complete Code in itself. Upon admission of petition under petition under section 7, there are various section 7, there are various important duties and functions entrusted to important duties and functions entrusted to important duties and functions entrusted to RP and CoC. RP is required to issue a RP and CoC. RP is required to issue a RP and CoC. RP is required to issue a publication inviting claims from all the publication inviting claims from all the publication inviting claims from all the stakeholders. He is required to collate the stakeholders. He is required to collate the stakeholders. He is required to collate the said information and submit necessary said information and submit necessary said information and submit necessary details in the informa details in the information memorandum. tion memorandum. The resolution applicants submit their plans The resolution applicants submit their plans The resolution applicants submit their plans to 5461/MUM/2 to 5461/MUM/2024 6 Trend Electronics Limited on the basis of the details provided in the on the basis of the details provided in the on the basis of the details provided in the information memorandum. The resolution information memorandum. The resolution information memorandum. The resolution plans undergo deep scrutiny by RP as well plans undergo deep scrutiny by RP as well plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be as CoC. In the negotiations that may be as CoC. In the negotiations that may be held between CoC and the reso held between CoC and the reso held between CoC and the resolution applicant, various modifications may be applicant, various modifications may be applicant, various modifications may be made so as to ensure, that while paying made so as to ensure, that while paying made so as to ensure, that while paying part of the dues of financial creditors as part of the dues of financial creditors as part of the dues of financial creditors as well as operational creditors and other well as operational creditors and other well as operational creditors and other stakeholders, stakeholders, stakeholders, the the the Corporate Corporate Corporate Debtor Debtor Debtor is is is revived and is made an on revived and is made an on-going concem. going concem. After After CoC Co C approves approves the the plan, plan, the the Adjudicating Authority is required to arive Adjudicating Authority is required to arive Adjudicating Authority is required to arive at a subjective satisfaction, that the plan at a subjective satisfaction, that the plan at a subjective satisfaction, that the plan conforms conforms conforms to to to the the the requirements requirements requirements as as as are are are provided in sub provided in sub-section (2) of Section 30 of section (2) of Section 30 of the the the I&B I&B I&B Code. Code. Code. Only Only Only thereafter, thereafter, thereafter, the the the Adjudicating Adjudicating Authority Authority can can grant grant its its approval to the plan. It is at this stage, that approval to the plan. It is at this stage, that approval to the plan. It is at this stage, that the plan becomes binding on Corporate the plan becomes binding on Corporate the plan becomes binding on Corporate Debtor, its employees, members, creditors, Debtor, its employees, members, creditors, Debtor, its employees, members, creditors, guarantors and other stakeholders involved guarantors and other stakeholders involved guarantors and other stakeholders involved in the resolution Plan. The legislative intent in the resolution Plan. The legislative intent in the resolution Plan. The legislative intent behind this is, to freeze a behind this is, to freeze all the claims so ll the claims so that the resolution applicant starts on a that the resolution applicant starts on a that the resolution applicant starts on a to 5461/MUM/2 to 5461/MUM/2024 7 Trend Electronics Limited clean slate and is not flung with any clean slate and is not flung with any clean slate and is not flung with any surprise claims. If that is permitted, the very surprise claims. If that is permitted, the very surprise claims. If that is permitted, the very calculations on the basis of which the calculations on the basis of which the calculations on the basis of which the resolution applicant submits its plans, resolution applicant submits its plans, resolution applicant submits its plans, would go haywire and the plan wo would go haywire and the plan wo would go haywire and the plan would be unworkable. unworkable.
We have no hesitation to say, that the 87. We have no hesitation to say, that the 87. We have no hesitation to say, that the word "other stakeholders would squarely word "other stakeholders would squarely word "other stakeholders would squarely cover the Central Government, an cover the Central Government, any State cover the Central Government, any State Government or any local Government or any local authorities. The authorities. The legislature, noticing that on account of legislature, noticing that on account of legislature, noticing that on account of obvious omission, certain tax au obvious omission, certain tax authorities thorities were not abiding by the mandate of 1 & B were not abiding by the mandate of 1 & B were not abiding by the mandate of 1 & B Code and continuing with the proceedings, Code and continuing with the proceedings, Code and continuing with the proceedings, has brought out the 2019 amendment so as has brought out the 2019 amendment so as has brought out the 2019 amendment so as to declaratory and clarificatory in nature to declaratory and clarificatory in nature to declaratory and clarificatory in nature and therefore retrospective in operation." and therefore retrospective in operation." and therefore retrospective in operation." cure the said mischief. We therefore cure the said mischief. We therefore cure the said mischief. We therefore hold, that the 2019 amendment is that the 2019 amendment is declaratory declaratory and clarificatory in nature and therefore, and clarificatory in nature and therefore, and clarificatory in nature and therefore, retrospective in operation. retrospective in operation.
9.6 The Hon'ble Supreme Court in the case of 9.6 The Hon'ble Supreme Court in the case of 9.6 The Hon'ble Supreme Court in the case of Ghanshyam Mishra case concluded that, Ghanshyam Mishra case concluded that, Ghanshyam Mishra case concluded that, to 5461/MUM/2 to 5461/MUM/2024 8 Trend Electronics Limited “(i)That once a resolution plan is duly approved by )That once a resolution plan is duly approved by )That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Adjudicating Authority under sub section (1) of Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution Section 31, the claims as provided in the resolution Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the plan shall stand frozen and will be binding on the plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, Corporate Debtor and its employees, members, Corporate Debtor and its employees, members, creditors, including the Central Government, any creditors, including the Central Government, any creditors, including the Central Government, any State Gov State Government or any local authority, guarantors ernment or any local authority, guarantors and other stakeholders. On the date of approval of and other stakeholders. On the date of approval of and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all resolution plan by the Adjudicating Authority, all resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, such claims, which are not a part of resolution plan, such claims, which are not a part of resolution plan, shall stand extinguished and no person will be shall stand extinguished and no person will be shall stand extinguished and no person will be entitled t entitled to initiate or continue any proceedings in o initiate or continue any proceedings in respect to a claim, which is respect to a claim, which is not part of the resolution not part of the resolution plan; (ii) 2019 amendment to Section 31 of the I&B Code (ii) 2019 amendment to Section 31 of the I&B Code (ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and is clarificatory and declaratory in nature and is clarificatory and declaratory in nature and therefore will be effective from the date on which therefore will be effective from the date on which therefore will be effective from the date on which I&B Code has come into effect; Code has come into effect; (iii) Consequently, all the dues including the (iii) Consequently, all the dues including the (iii) Consequently, all the dues including the statutory dues owed to the Central Government, statutory dues owed to the Central Government, statutory dues owed to the Central Government, any State Government or any local authority, if not any State Government or any local authority, if not any State Government or any local authority, if not part part part of of of the the the resolution resolution resolution plan, plan, plan, shall shall shall stand stand stand extinguished and no proceedings in respect of extinguished and no proceedings in respect extinguished and no proceedings in respect such dues for the period prior to the date on which such dues for the period prior to the date on which such dues for the period prior to the date on which to 5461/MUM/2 to 5461/MUM/2024 9 Trend Electronics Limited the Adjudicating Authority grants its approval the Adjudicating Authority grants its approval the Adjudicating Authority grants its approval under section 31 could be continued." under section 31 could be continued."
9.7 As per the order of the Hon'ble NCLT, Mumbai 9.7 As per the order of the Hon'ble NCLT, Mumbai 9.7 As per the order of the Hon'ble NCLT, Mumbai wherein it ordered for the liquidation of the wherein it ordered for the liquidation of the wherein it ordered for the liquidation of the appellant company ( appellant company (Corporate Debtor) Trend Corporate Debtor) Trend Electronics Electronics Electronics Limited, Limited, Limited, as as as going going going concern, concern, concern, the the the company was acquired by Mr. Jaiprakash Bihani company was acquired by Mr. Jaiprakash Bihani company was acquired by Mr. Jaiprakash Bihani and and and Mr. Mr. Mr. Nandkishore Nandkishore Nandkishore Baheti Baheti Baheti as as as auction auction auction purchasers, on Clean Slate Basis by a sale purchasers, on Clean Slate Basis by a sale purchasers, on Clean Slate Basis by a sale certificate dated 07.08.202. certificate dated 07.08.202.
10. Accordingly, as the appellan 10. Accordingly, as the appellant company is t company is acquired by the auction purchasers following the acquired by the auction purchasers following the acquired by the auction purchasers following the order of the Hon'ble NCLT, Mumbai allowing for order of the Hon'ble NCLT, Mumbai allowing for order of the Hon'ble NCLT, Mumbai allowing for liquidation of the appellant as going concern on liquidation of the appellant as going concern on liquidation of the appellant as going concern on Clean Slate Basis, it's all dues including statutory Clean Slate Basis, it's all dues including statutory Clean Slate Basis, it's all dues including statutory dues to Central Govt any State Govt., or any local dues to Central Govt any State Govt., or any dues to Central Govt any State Govt., or any authority, stands extinguished. In view of the above, authority, stands extinguished. In view of the above, authority, stands extinguished. In view of the above, the appeal of the appellant on additional ground is the appeal of the appellant on additional ground is the appeal of the appellant on additional ground is allowed. allowed. Before us, appearances were entered on behalf of both the 4. appearances were entered on behalf of both the appearances were entered on behalf of both the Resolution Professional and the new management. It was Resolution Professional and the new management. It was Resolution Professional and the new management. It was clarified that the resolution/liquidation process had concluded clarified that the resolution/liquidation process had concluded clarified that the resolution/liquidation process had concluded to 5461/MUM/2 to 5461/MUM/2024 10 Trend Electronics Limited and the new management was authorised to pursue the and the new management was authorised to pursue the and the new management was authorised to pursue the proceedings. The principal submission proceedings. The principal submission advanced on behalf of advanced on behalf of the assessee was that, in view of sections 31 and 32A of the IBC the assessee was that, in view of sections 31 and 32A of the IBC the assessee was that, in view of sections 31 and 32A of the IBC and the binding precedents of the Hon’ble Supreme Court, no and the binding precedents of the Hon’ble Supreme Court, no and the binding precedents of the Hon’ble Supreme Court, no proceedings in respect of past tax dues could continue after proceedings in respect of past tax dues could continue after proceedings in respect of past tax dues could continue after approval of the acquisition plan by the NCLT. I approval of the acquisition plan by the NCLT. I approval of the acquisition plan by the NCLT. It was further contended that the Revenue had already lodged its claims contended that the Revenue had already lodged its claims contended that the Revenue had already lodged its claims before the NCLT, which stood admitted, and therefore the before the NCLT, which stood admitted, and therefore the before the NCLT, which stood admitted, and therefore the appellate proceedings under the Income appellate proceedings under the Income-tax Act were rendered tax Act were rendered infructuous. Relevant part Relevant part of his submission is reproduced as submission is reproduced as under:- “8. As per Section 31 of the IBC, if the NCLT is “8. As per Section 31 of the IBC, if the NCLT is “8. As per Section 31 of the IBC, if the NCLT is satisfied that the CoC satisfied that the CoC have met the requirements of have met the requirements of law while arriving at a draft resolution plan, it shall, law while arriving at a draft resolution plan, it shall, law while arriving at a draft resolution plan, it shall, by order, approve the resolution plan which shall be by order, approve the resolution plan which shall be by order, approve the resolution plan which shall be binding on the corporate debtor and its employees, binding on the corporate debtor and its employees, binding on the corporate debtor and its employees, members, members, members, creditors, creditors, creditors, including including including the the the Central Central Central Government, to whom a d Government, to whom a debt in respect of the ebt in respect of the payment of dues arising under any law for the time payment of dues arising under any law for the time payment of dues arising under any law for the time being in force, such as authorities to whom statutory being in force, such as authorities to whom statutory being in force, such as authorities to whom statutory dues are owed. This provision essentially embodies dues are owed. This provision essentially embodies dues are owed. This provision essentially embodies the clean slate principle. the clean slate principle.
Elucidating the objective of Section 31(1) of IBC, it 9. Elucidating the objective of Section 31(1) of IB 9. Elucidating the objective of Section 31(1) of IB was held in the case of Essar Steel India Limited of Essar Steel India Limited was held in the case to 5461/MUM/2 to 5461/MUM/2024 11 Trend Electronics Limited Vs Satish Kumar Gupta (2020) 8 SCC 531, that Vs Satish Kumar Gupta (2020) 8 SCC 531 Vs Satish Kumar Gupta (2020) 8 SCC 531 it meant to ensure that the successful resolution it meant to ensure that the successful resolution it meant to ensure that the successful resolution applicant (or, as the case may be, the Auction applicant (or, as the case may be, the Auction applicant (or, as the case may be, the Auction Purchaser) starts running the business of the Purchaser) starts running the business of the Purchaser) starts running the business of the corporate de corporate debtor on a fresh slate. It was also btor on a fresh slate. It was also specifically held that the resolution applicant (or, as specifically held that the resolution applicant (or, as specifically held that the resolution applicant (or, as the case may be, the Auction Purchaser) cannot the case may be, the Auction Purchaser) cannot the case may be, the Auction Purchaser) cannot suddenly be faced with 'undecided' claims after the suddenly be faced with 'undecided' claims after the suddenly be faced with 'undecided' claims after the resolution plan submitted by him is approved by resolution plan submitted by him is approved by resolution plan submitted by him is approved by NCLT as it would l NCLT as it would lead to uncertainties in how much ead to uncertainties in how much amount would be payable by the resolution amount would be payable by the resolution amount would be payable by the resolution applicant (or, as the case may be, the Auction applicant (or, as the case may be, the Auction applicant (or, as the case may be, the Auction Purchaser). Purchaser).
In Ghanashyam Mishra & Sons Pvt Ltd Vs Ghanashyam Mishra & Sons Pvt Ltd Vs 10. In Edelweiss Asset Reconstruction Co Ltd (2021) 9 Edelweiss Asset Reconstruction Co Ltd (2021) 9 Edelweiss Asset Reconstruction Co Ltd (2021) 9 SCC 657 SCC 657, it was held that on the date of approval of date of approval of resolution plan (or, as the case may be, the resolution plan (or, as the case may be, the resolution plan (or, as the case may be, the Acquisition Plan) by the NCLT, all claims for the past Acquisition Plan) by the NCLT, all claims for the past Acquisition Plan) by the NCLT, all claims for the past period, shall stand extinguished and no person, period, shall stand extinguished and period, shall stand extinguished and will be entitled to initiate or continue any will be entitled to initiate or continue any will be entitled to initiate or continue any proceedings in respect to a claim, which is not proceedings in respect to a claim, which i proceedings in respect to a claim, which i part of the said plan part of the said plan. Further, all the dues . Further, all the dues including including including the the the statutory statutory statutory dues dues dues owed owed owed to to to the the the Government, if not part of the resolution plan, if not part of the resolution plan, Government to 5461/MUM/2 to 5461/MUM/2024 12 Trend Electronics Limited shall stand extinguished and no proceedings in shall stand extinguished and no proceedings in shall stand extinguished and no proceedings in respect of such dues for the period prior to the respect of such dues for the period prior to the respect of such dues for the period prior to the date on which the date on which the NCLT grants its approval NCLT grants its approval under Section 31 of IBC could be continued. under Section 31 of IBC could be continued. under Section 31 of IBC could be continued. Vaibhav Vaibhav Goel Goel Vs Vs Deputy Deputy 11.
Similarly, Similarly, in in Commissioner of Income Tax 2025 (3) TMI 1052 Commissioner of Income Tax 2025 (3) TMI 1052 Commissioner of Income Tax 2025 (3) TMI 1052 (SC), following the law laid down in , following the law laid down in Ghanashyam Ghanashyam Mishra (supra) Mishra (supra), it was held that all the dues , it was held that all the dues including the statutory dues owed to the Central including the statutory dues owed to the Central ng the statutory dues owed to the Central Government, shall stand extinguished and no Government, shall stand extinguished and no Government, shall stand extinguished and no proceedings could be continued in respect of such proceedings could be continued in respect of such proceedings could be continued in respect of such dues for the period prior to the date on which the dues for the period prior to the date on which the dues for the period prior to the date on which the NCLT grants its approval under Section 31 of IBC. NCLT grants its approval under Section 31 of IBC. NCLT grants its approval under Section 31 of IBC. Murli urli Industries Industries Ltd Ltd Vs Vs 12.
Similarly, Similarly, in in Assistant Commissioner of Income Tax (2022) Assistant Commissioner of Income Tax (2022) Assistant Commissioner of Income Tax (2022) 441 ITR 8 (Bom) 441 ITR 8 (Bom), it was held that the aim and , it was held that the aim and object of IBC is to revive the Corporate Debtor by object of IBC is to revive the Corporate object of IBC is to revive the Corporate putting quictus to the claims against it. Providing putting quictus to the claims against it. Providing putting quictus to the claims against it. Providing certainty to the resolution applicant of 'no' claims in certainty to the resolution applicant of certainty to the resolution applicant of future against the Corporate Debtor appears to be future against the Corporate Debtor appears to be future against the Corporate Debtor appears to be the essence of the resolution. the essence of the resolution.
Therefore, the present appeal is liable to be 13. Therefore, the present appeal is liable to be 13. Therefore, the present appeal is liable to be dismissed. dismissed. to 5461/MUM/2 to 5461/MUM/2024 13 Trend Electronics Limited Since the Revenue had already lodged its Since the Revenue had already lodged its Since the Revenue had already lodged its claims for AY 2017 claims for AY 2017-18 and AY 2018 18 and AY 2018-19 before the NCLT, the the NCLT, the present appeals cannot be present appeals cannot be continued: continued: 3.1 He further submit e further submitted that since Revenue has already lost evenue has already lost its claim for AY 2017 for AY 2017-18 and 2018-19, before the NCLT the 19, before the NCLT the present appeals cannot be continued. Relevant present appeals cannot be continued. Relevant present appeals cannot be continued. Relevant part of his submission is repro produced as under:- “14. At this juncture, it is relevant to note that the At this juncture, it is relevant to note that the At this juncture, it is relevant to note that the Revenue had in fact intimated the Assessee's Revenue had in fact intimated the Assessee's Revenue had in fact intimated the Assessee's outstanding demand for AY 2017 outstanding demand for AY 2017-18 and AY 2018 18 and AY 2018- 19 to the NCLT and the same was admitted by the 19 to the NCLT and the same was admitted by the 19 to the NCLT and the same was admitted by the NCLT on 17.10.2019 during the CIRP stage. As per NCLT on 17.10.2019 during the CIRP stage. As per NCLT on 17.10.2019 during the CIRP stage. As per Regulation 12(2) o Regulation 12(2) of the Insolvency and Bankruptcy f the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, Board of India (Liquidation Process) Regulations, Board of India (Liquidation Process) Regulations, 2016, here a stakeholder does not file a fresh claim 2016, here a stakeholder does not file a fresh claim 2016, here a stakeholder does not file a fresh claim during the liquidation stage, the claim filed and during the liquidation stage, the claim filed and during the liquidation stage, the claim filed and admitted during the CIRP is deemed to have been admitted during the CIRP is deemed to have been admitted during the CIRP is deemed to have been filed in liquidation as filed in liquidation as well.
15. Accordingly, once the Revenue's claims for the 15. Accordingly, once the Revenue's claims for the 15. Accordingly, once the Revenue's claims for the relevant years stood admitted and were liable to be relevant years stood admitted and were liable to be relevant years stood admitted and were liable to be considered by the liquidator for distribution in considered by the liquidator for distribution in considered by the liquidator for distribution in accordance with the waterfall mechanism under the accordance with the waterfall mechanism under the accordance with the waterfall mechanism under the to 5461/MUM/2 to 5461/MUM/2024 14 Trend Electronics Limited IBC, the same claims cannot now be re-agitated IBC, the same claims cannot now be re IBC, the same claims cannot now be re through the present appellate proceedings. through the present appellate proceedings. through the present appellate proceedings. Without prejudice, the instant proceedings Without prejudice, the instant proceedings Without prejudice, the instant proceedings cannot be continued qua the new management cannot be continued qua the new management cannot be continued qua the new management of the Assessee pursuant to liquidation under of the Assessee pursuant to liquidation under of the Assessee pursuant to liquidation under IBC: 3.2 He further submitted that e further submitted that instant proceeding cannot be proceeding cannot be continued qua the continued qua the management of the assessee pursuant to the management of the assessee pursuant to the liquidation under IBC code. Relevant part on under IBC code. Relevant part of his submissi of his submission is reduced as under reduced as under:- ……. “16. Reference may also be made to Section 32A(2) “16. Reference may also be made to Section 32A(2) “16. Reference may also be made to Section 32A(2) of IBC which inter alia states that no action shall be of IBC which inter alia states that no action shall be of IBC which inter alia states that no action shall be taken against the pro taken against the property of the corporate debtor perty of the corporate debtor (i.c, the Assessee herein) in relation to an offence (i.c, the Assessee herein) in relation to an offence (i.c, the Assessee herein) in relation to an offence committed prior to the commencement of the CIRP, committed prior to the commencement of the CIRP, committed prior to the commencement of the CIRP, where such property is covered under: where such property is covered under: a. A resolution plan approved by the NCLT a. A resolution plan approved by the NCLT a. A resolution plan approved by the NCLT under Section 31 of IBC, which results in under Section 31 of IBC, which results in under Section 31 of IBC, which results in the change in control of the corporate d change in control of the corporate d change in control of the corporate debtor to a person who was not a person who was not a promoter or in the promoter or in the management or control of the corporate debtor management or control of the corporate debtor management or control of the corporate debtor or a related party of such a person. or a related party of such a person. or a related party of such a person.
to 5461/MUM/2 to 5461/MUM/2024 15 Trend Electronics Limited b. Sale of liquidation assets to a person who b. Sale of liquidation assets to a person who b. Sale of liquidation assets to a person who was not a promoter or in the managem was not a promoter or in the managem was not a promoter or in the management or control of the corporate debtor or a related party control of the corporate debtor or a related party control of the corporate debtor or a related party of such a person. of such a person.
The objective of Sections 32A of IBC ensure 17. The objective of Sections 32A of IBC ensure 17. The objective of Sections 32A of IBC ensure maximization of value of the Corporate Debtor by maximization of value of the Corporate Debtor by maximization of value of the Corporate Debtor by allowing a resolution applicant to submit the allowing a resolution applicant to submit the allowing a resolution applicant to submit the resolution plan/Acquisition Plan without being resolution plan/Acquisition Plan with resolution plan/Acquisition Plan with concerned concerned concerned about about about various various various imponderables imponderables imponderables or or or unspecified liabilities. It entitles the resolution unspecified liabilities. It entitles the resolution unspecified liabilities. It entitles the resolution applicants to take over the corporate debtor on a applicants to take over the corporate debtor on a applicants to take over the corporate debtor on a fresh slate. fresh slate.
Section 32A(2) of IBC ensures that no action 18. Section 32A(2) of IBC ensures that no action 18. Section 32A(2) of IBC ensures that no action would be taken against any property of the would be taken against any property of th would be taken against any property of th corporate debtor in relation to any offense that may corporate debtor in relation to any offense that may corporate debtor in relation to any offense that may have been committed by the erstwhile management have been committed by the erstwhile management have been committed by the erstwhile management of the corporate debtor prior to the initiation of the of the corporate debtor prior to the initiation of the of the corporate debtor prior to the initiation of the CIRP. It similarly extends that warranty in respect of CIRP. It similarly extends that warranty in respect of CIRP. It similarly extends that warranty in respect of the properties of the corporate debtor once a the properties of the corporate debtor once the properties of the corporate debtor once resolution plan stands approved or in case of a sale resolution plan stands approved or in case of a sale resolution plan stands approved or in case of a sale of liquidation assets. of liquidation assets.
As held in Nitin Jain, Liquidator PSL Limited Nitin Jain, Liquidator PSL Limited 19. As held in Vs Enforcement Directorate 287 (2022) DLT Vs Enforcement Directorate 287 (2022) DLT Vs Enforcement Directorate 287 (2022) DLT to 5461/MUM/2 to 5461/MUM/2024 16 Trend Electronics Limited 625, Section 32A was inserted in IBC to ensure that , Section 32A was inserted in IBC to ensure that , Section 32A was inserted in IBC to ensure that neither the resolution nor the li neither the resolution nor the liquidation process quidation process once set into motion and fructifying and resulting in once set into motion and fructifying and resulting in once set into motion and fructifying and resulting in a particular mode of resolution coming to be duly a particular mode of resolution coming to be duly a particular mode of resolution coming to be duly accepted and approved, comes to be bogged down accepted and approved, comes to be bogged down accepted and approved, comes to be bogged down or clouded by unforeseen or unexpected claims or or clouded by unforeseen or unexpected claims or or clouded by unforeseen or unexpected claims or events. The IBC essentially envisages the process of events. The IBC essentially envisages events. The IBC essentially envisages resolution resolution resolution or or or liquidation liquidation liquidation to to to move move move forward forward forward unhindered. unhindered.
On a cumulative reading of Sections 31, 32A 20. On a cumulative reading of Sections 31, 32A 20. On a cumulative reading of Sections 31, 32A and other provisions of IBC, it is apparent that the and other provisions of IBC, it is apparent that the and other provisions of IBC, it is apparent that the legislative intent behind liquidation sale process is legislative intent behind liquidation sale process is legislative intent behind liquidation sale process is to ensure that the successful ac to ensure that the successful acquirer starts from a quirer starts from a clean slate. This is also in line with the general clean slate. This is also in line with the general clean slate. This is also in line with the general objective of IBC (as occurring in its preamble) to objective of IBC (as occurring in its preamble) to objective of IBC (as occurring in its preamble) to maximize maximize maximize value value value of of of assets assets assets of of of persons persons persons under under under liquidation, liquidation, liquidation, to to to promote promote promote entrepreneurship entrepreneurship entrepreneurship and and and balance the interests of all the stakeholders balance the interests of all the stakeholders balance the interests of all the stakeholders including alteration in the order of priority of including alteration in the order of priority of including alteration in the order of priority of payment of Government dues. payment of Government dues.
Accordingly, no action can be initiated through 21. Accordingly, no action can be initiated through 21. Accordingly, no action can be initiated through the the the present present present proceedings proceedings proceedings against against against the the the current current current management of the Assessee. In any event, the new management of the Assessee. In any event, the new management of the Assessee. In any event, the new management, having acquired the Company on a management, having acquired the Company on a management, having acquired the Company on a to 5461/MUM/2 to 5461/MUM/2024 17 Trend Electronics Limited going concern and clean slate basis from the going concern and clean slate basis from the going concern and clean slate basis from the erstwhile management erstwhile management, is not in a position to furnish , is not in a position to furnish the requisite documentary evidence to substantiate the requisite documentary evidence to substantiate the requisite documentary evidence to substantiate the claim for deductions. the claim for deductions. Proceedings Proceedings Proceedings can can can continue continue continue against against against the the the Assesssee only when moratorium is in force; Assesssee only when moratorium is in force; Assesssee only when moratorium is in force; however, after approval of Acquisition Plan by however, after approval of Acquisition Plan by however, after approval of Acquisition Plan by NCLT, the present NCLT, the present proceedings must abate: proceedings must abate:
3.3 Further, he , he submitted that proceeding submitted that proceeding could continue against the assessee however, after approval of the acquisition against the assessee however, after approval of the acquisition against the assessee however, after approval of the acquisition plan by the NCLT, the present proceeding must abate. Relevant plan by the NCLT, the present proceeding must abate. Relevant plan by the NCLT, the present proceeding must abate. Relevant para of his submission is reduced as under: submission is reduced as under:- “22. It is submitted that the Supreme Court has “22. It is submitted that the Supreme Court has “22. It is submitted that the Supreme Court has Sundaresh Sundaresh Bhatt, Bhatt, unequivocally unequivocally held held in in Liquidator of ABG Shipyard Vs Central Board Liquidator of ABG Shipyard Vs Central Board Liquidator of ABG Shipyard Vs Central Board of Indirect Taxes and Customs 2022 (381) ELT of Indirect Taxes and Customs 2022 (381) ELT of Indirect Taxes and Customs 2022 (381) ELT 731 (SC) 731 (SC), that when moratorium under Sections 14 , that when moratorium under Sections 14 and 33(5) of IBC is in force, t and 33(5) of IBC is in force, tax authorities can only ax authorities can only assess/determine the quantum of customs duty but assess/determine the quantum of customs duty but assess/determine the quantum of customs duty but cannot initiate recovery of dues by means of cannot initiate recovery of dues by means of cannot initiate recovery of dues by means of sale/confiscation. sale/confiscation.
However, once the CIRP or as the case may be, 23. However, once the CIRP or as the case may be, 23. However, once the CIRP or as the case may be, the liquidation is concluded, no proceedings can the liquidation is concluded, no proceedings can the liquidation is concluded, no proceedings can continue as held in the case of Ghanashyam Ghanashyam continue as held in Mishra (supra). Mishra (supra).
In the instant case, since liquidation of the 24. In the instant case, since liquidation of the 24. In the instant case, since liquidation of the Assessee on clean slate basis was approved by the Assessee on clean slate basis was approved by the Assessee on clean slate basis was approved by the NCLT NCLT NCLT vide vide vide its its its order order order dated dated dated 26.06.2023, 26.06.2023, 26.06.2023, no no no proceedings in respect of past tax dues can be proceedings in respect of past tax dues can be proceedings in respect of past tax dues can be continued. Therefore, the ins continued. Therefore, the instant proceedings (for AY tant proceedings (for AY 2017-18 and Ay 2018 18 and Ay 2018-19) is liable to be dismissed. 19) is liable to be dismissed. Adjudication Adjudication Adjudication proceedings proceedings proceedings and and and criminal criminal criminal proceedings are independent in nature: proceedings are independent in nature: proceedings are independent in nature: 3.4 He further submitted that if the Income further submitted that if the Income-tax D tax Department wishes to continue proceeding to continue proceeding in relation to old management, it relation to old management, it can continue without adjudicating the appeals. Relevant para of can continue without adjudicating the appeals. Relevant para of can continue without adjudicating the appeals. Relevant para of his submission is reduced his submission is reduced as under:- 25. It is submitted that even if the present appeals It is submitted that even if the present appeals It is submitted that even if the present appeals are disposed of, there would be no bar in law to are disposed of, there would be no bar in law to are disposed of, there would be no bar in law to initiate prosecution, initiate prosecution, if any, required under the law, if any, required under the law, against the erstwhile management of the Company. against the erstwhile management of the Company. against the erstwhile management of the Company. In this regard, reliance is placed on the case of In this regard, reliance is placed on the case of In this regard, reliance is placed on the case of Radheshyam Kejriwal Vs State of West Bengal Radheshyam Kejriwal Vs State of West Bengal Radheshyam Kejriwal Vs State of West Bengal (2011) (2011) 333 333 ITR ITR 58 58 (SC) (SC) wherein wherein it it was was to 5461/MUM/2 to 5461/MUM/2024 19 Trend Electronics Limited categorically held that adjudication proceedings and categorically held that adjudication procee categorically held that adjudication procee criminal proceedings are independent in nature to criminal proceedings are independent in nature to criminal proceedings are independent in nature to each other and that the finding in the adjudication each other and that the finding in the adjudication each other and that the finding in the adjudication proceedings against the person facing prosecution is proceedings against the person facing prosecution is proceedings against the person facing prosecution is not not not binding binding binding on on on the the the proceedings for proceedings proceedings for for criminal criminal criminal prosecution. prosecution.
Similarly, in P Jayappan Vs SK 26. Similarly, in P Jayappan Vs SK Perumal, First Income Tax Officer (1984) 149 ITR 696 First Income Tax Officer (1984) 149 ITR 696 First Income Tax Officer (1984) 149 ITR 696 (SC), it was held that a mere expectation of success , it was held that a mere expectation of success , it was held that a mere expectation of success in some proceeding in appeal under the IT Act in some proceeding in appeal under the IT Act in some proceeding in appeal under the IT Act cannot come in the way of the institution of the cannot come in the way of the institution of the cannot come in the way of the institution of the criminal proceedings. This is because, in principle, criminal proceedings. This is because, in principle, criminal proceedings. This is because, in principle, the result of proceeding under the IT Act would not he result of proceeding under the IT Act would not he result of proceeding under the IT Act would not be binding on the criminal court. The criminal court be binding on the criminal court. The criminal court be binding on the criminal court. The criminal court has to judge the case independently on the evidence has to judge the case independently on the evidence has to judge the case independently on the evidence placed before it. placed before it. 27.In light of the above, it is submitted that disposal 27.In light of the above, it is submitted that disposal 27.In light of the above, it is submitted that disposal of the instant appeals wou of the instant appeals would not come in the way of ld not come in the way of a potential launch of prosecution, if any, required a potential launch of prosecution, if any, required a potential launch of prosecution, if any, required under the law, against the erstwhile management of under the law, against the erstwhile management of under the law, against the erstwhile management of the Assessee the Assessee-Company.” 3.5 The learned Departmental Representative, on the other The learned Departmental Representative, on the other The learned Departmental Representative, on the other hand, submitted that hand, submitted that appellate proceedings und appellate proceedings under the Income- tax Act are confined to determination of tax liability and do not tax Act are confined to determination of tax liability and do not tax Act are confined to determination of tax liability and do not to 5461/MUM/2 to 5461/MUM/2024 20 Trend Electronics Limited amount to recovery amount to recovery. Relying upon the decision of the Coordinate Relying upon the decision of the Coordinate Bench in Doshian Water Solutions Private Limited Doshian Water Solutions Private Limited in Water Solutions Private Limited 78/Mum/2018 it was argued that there is no legal bar under it was argued that there is no legal bar under it was argued that there is no legal bar under the IBC to continuation of appellate proceedings, and that the the IBC to continuation of appellate proceedings, and that the the IBC to continuation of appellate proceedings, and that the embargo under sections 14 and 33(5) of the IBC operates only embargo under sections 14 and 33(5) of the IBC operates only embargo under sections 14 and 33(5) of the IBC operates only against coercive recovery against coercive recovery and not for continuing and not for continuing with the appeals. He submitted that appeals. He submitted that appeals before the Ld Ld. CIT (A) might result in refund of the tax collected, if any, if matter goes in lt in refund of the tax collected, if any, if matter goes in lt in refund of the tax collected, if any, if matter goes in favour of the assessee company. Further su favour of the assessee company. Further submitted that on the mitted that on the basis of the concealment or evasion of tax by the then oncealment or evasion of tax by the then oncealment or evasion of tax by the then management of the company, and confi management of the company, and confirmation of the order of rmation of the order of such an evasion before the ITAT, becomes basis for basis for considering of prosecution in respect of the old management, and therefore, prosecution in respect of the old management, and therefore, prosecution in respect of the old management, and therefore, these appeals should be decided should be decided to their logical end. to their logical end.
We have carefully considered the rival submissio We have carefully considered the rival submissio We have carefully considered the rival submissions and perused the record. perused the record. The CIT(A) allowed the appeal solely on the The CIT(A) allowed the appeal solely on the ground that, upon completion of the insolvency process and ground that, upon completion of the insolvency process and ground that, upon completion of the insolvency process and transfer of the company to new management on a clean slate transfer of the company to new management on a clean slate transfer of the company to new management on a clean slate basis, no tax proceedings could survive. In doing so, the CIT(A) basis, no tax proceedings could survive. In doing so, the CIT(A) basis, no tax proceedings could survive. In doing so, the CIT(A) proceeded on the assumption that continuation of appellate oceeded on the assumption that continuation of appellate oceeded on the assumption that continuation of appellate proceedings themselves was impermissible under the IBC. proceedings themselves was impermissible under the IBC. proceedings themselves was impermissible under the IBC.
4.1 This approach, in our considered view, is legally This approach, in our considered view, is legally This approach, in our considered view, is legally unsustainable. The Coordinate Bench of this Tribunal in unsustainable. The Coordinate Bench of this Tribunal in unsustainable. The Coordinate Bench of this Tribunal in (supra), after an Doshion Veolia Water Solutions Pv Doshion Veolia Water Solutions Pvt. Ltd.(supra) to 5461/MUM/2 to 5461/MUM/2024 21 Trend Electronics Limited exhaustive examination of the statutory framework and binding exhaustive examination of the statutory framework and binding exhaustive examination of the statutory framework and binding precedents, including precedents, including S.V. Kondaskar v. V.M. Deshpande S.V. Kondaskar v. V.M. Deshpande (AIR 1972 SC 878), Sundaresh Bhatt, Liquidator of ABG Shipyard v. Sundaresh Bhatt, Liquidator of ABG Shipyard v. Sundaresh Bhatt, Liquidator of ABG Shipyard v. CBIC, and PCIT (Customs) v. Rajendra Prasad Tak PCIT (Customs) v. Rajendra Prasad Tak, has PCIT (Customs) v. Rajendra Prasad Tak unequivocally held that unequivocally held that assessment and appellate proceedings assessment and appellate proceedings merely quantify or determine the tax liability and do not partake merely quantify or determine the tax liability and do not partake merely quantify or determine the tax liability and do not partake the character of recovery proceedings the character of recovery proceedings. Such proceedings, Such proceedings, therefore, do not fall within the mischief of the moratorium under therefore, do not fall within the mischief of the moratorium under therefore, do not fall within the mischief of the moratorium under sections 14 or 33(5) of the IBC. sections 14 or 33(5) of the IBC.
4.2 The Hon’ble Supreme Court has consistently drawn a clear The Hon’ble Supreme Court has consistently drawn a clear The Hon’ble Supreme Court has consistently drawn a clear distinction between determination of dues and and enforcement distinction between or recovery thereof or recovery thereof. While the IBC overrides the Income . While the IBC overrides the Income-tax Act in matters of recovery and prioritisati Act in matters of recovery and prioritisation of claims, it does on of claims, it does not denude the tax authorities of jurisdiction to assess or not denude the tax authorities of jurisdiction to assess or not denude the tax authorities of jurisdiction to assess or determine the correct tax liability, including through appellate determine the correct tax liability, including through appellate determine the correct tax liability, including through appellate proceedings. The quantified dues, if any, thereafter form part of proceedings. The quantified dues, if any, thereafter form part of proceedings. The quantified dues, if any, thereafter form part of the claims to be dealt with strictly in acc the claims to be dealt with strictly in accordance with the ordance with the waterfall mechanism under section 53 of the IBC. waterfall mechanism under section 53 of the IBC. waterfall mechanism under section 53 of the IBC.
4.3 The principle of “clean slate”, as explained in The principle of “clean slate”, as explained in The principle of “clean slate”, as explained in Ghanshyam Mishra & Sons (P.) Ltd., operates at the stage of enforceability , operates at the stage of enforceability Mishra & Sons (P.) Ltd. and recovery of past claims against the successful resolution and recovery of past claims against the successful resolution and recovery of past claims against the successful resolution applicant pplicant pplicant or or or auction auction auction purchaser. purchaser. purchaser. It It It does does does not not not prohibit prohibit prohibit adjudication or determination of such claims, particularly adjudication or determination of such claims, particularly adjudication or determination of such claims, particularly to 5461/MUM/2 to 5461/MUM/2024 22 Trend Electronics Limited where such determination may also have collateral statutory where such determination may also have collateral statutory where such determination may also have collateral statutory consequences.
4.4 The relevant finding of the Tribunal The relevant finding of the Tribunal in in Doshion Veolia Water Solutions Pvt. Ltd.(supra) Water Solutions Pvt. Ltd.(supra), is reproduced as under: is reproduced as under:
“13. It appears that since no resolution plan was approved by 13. It appears that since no resolution plan was approved by 13. It appears that since no resolution plan was approved by the committee of creditors of corporate debt e of creditors of corporate debtor within the or within the corporate insolvency resolution process. On the direction of the corporate insolvency resolution process. On the direction of the corporate insolvency resolution process. On the direction of the committee of creditors, the committee of creditors, the Resolution Professional Resolution Professional moved an application for initiating liquidation process of corporate debtor, application for initiating liquidation process of corporate debtor, application for initiating liquidation process of corporate debtor, which was allowed by adjudicating authority as above. We which was allowed by adjudicating authority as a which was allowed by adjudicating authority as a take further guidance from the judgment dated 26.08.2022 take further guidance from the judgment dated 26.08.2022 take further guidance from the judgment dated 26.08.2022 passed by another three judges bench of Hon'ble Supreme passed by another three judges bench of Hon'ble Supreme passed by another three judges bench of Hon'ble Supreme Court in Civil l Appeal No. 7667 of 2021, Sundaresh Bhatt, al No. 7667 of 2021, Sundaresh Bhatt, Liquidator of ABC Shipyard V. Central Board of Indirect Taxes Liquidator of ABC Shipyard V. Central Board of Indirect Taxes Liquidator of ABC Shipyard V. Central Board of Indirect Taxes and Customs, wh and Customs, wherein Hon’ble Apex Court, vide paras 43,44,45 ble Apex Court, vide paras 43,44,45 & 54, has held as under & 54, has held as under”: "43, In the above context, the judgment of this Court in "43, In the above context, the judgment of this Court in "43, In the above context, the judgment of this Court in S.V. Kondaskar v. V.M. Deshpande, AIR 1972 SC 878, is S.V. Kondaskar v. V.M. Deshpande, AIR 1972 SC 878, is S.V. Kondaskar v. V.M. Deshpande, AIR 1972 SC 878, is extremely relevant. In that case, this Court, while extremely relevant. In that case, this Court, while extremely relevant. In that case, this Court, while expounding the interp expounding the interplay of Section 446 of the lay of Section 446 of the Companies Act 1956 (bankruptcy provision) with the Companies Act 1956 (bankruptcy provision) with the Companies Act 1956 (bankruptcy provision) with the Income Tax Act, 1961, held as follows: Income Tax Act, 1961, held as follows: "7 Looking at the legislative history and the "7 Looking at the legislative history and the "7 Looking at the legislative history and the scheme e e of of of the the the Indian Indian Indian Companies Companies Companies Act, Act, Act, particularly the language of Section 446, read particularly the language of Section 446, read particularly the language of Section 446, read as a whole, it appears to us that the expression as a whole, it appears to us that the expression "other legal proceeding" in sub-section (1) and "other legal proceeding" in sub section (1) and the expression "legal proceeding" in sub-section the expression "legal proceeding" in sub section (2) convey the same sense and the proceedings (2) convey the same sense and the proceedings (2) convey the same sense and the proceedings in both the sub-sections must be such as can in both the sub sections must be such as can appropriately be dealt with by the winding up appropriately be dealt with by the winding up court. The Income Tax Act is, in our opinion, a court. The Inco e Tax Act is, in our opinion, a complete code and in is particularly so with complete code and in s particularly so with respect to the assessment and re- assessment respect to the assessment and re assessment of income tax with which alone we of income tax with which alone w are concerned in the present case. The fact that concerned in the present case. The fact that concerned in the present case. The fact that to 5461/MUM/2 to 5461/MUM/2024 23 Trend Electronics Limited after the amount of tax payable by an assessee after the amount of tax payable by an assessee has has has been been been determined determined determined or or or quantified quantified quantified its its its realization from a company in liquidation is realization from a company in liquidation is governed by the Act because the income tax governed by the Act because the income tax governed by the Act because the income tax payable also being a d le also being a debt has to Doshion Veolia Water Solution 78/MUM/2018 Doshion Veo a Water Solution P. Ltd. rank pari passu with other debts due from the rank par ther debts due from the company does not mean that the assessment company does not mean that the assessment company does not mean that the assessment proceedings ceedings for computing the amount of tax amount of tax must be held to be such other legal proceedings must be held to be such other legal proce dings as can only be started or continued with the as can only be started with the leave of the liquidation court under Section 446 leave of the liquidation court under Sectio n 446 of the Act. The liquidation court, in our opinion, of the Act. The liquidation court, in our opinion, of the Act. The liquidation court, in our opinion, cannot annot perform the functions of Income Tax unctions of Income Tax Officers while assessing the amount of tax Officers whi essing the amount of tax payable by the assessees even if the assessees payable by the asse ssees be the company which is being wound up by be the wound up by the Court. The orders made by the Income Tax the Court. The orders ma de by the Income Tax Officer Officer in in the the course of assessment or reassessment proceedings are subject to reassessment proceedings are subject to appeal to the higher hierarchy under the Income appeal to the higher hierarchy under the Income Tax Act. There are also provisions Act. There are also provisions for reference for reference to the High Court and for appeals from to the High Court and for appeals from the decisions of the High Court to the Supreme decisions of the High Court to the Supreme decisions of the High Court to the Supreme Court and then there are provisions for revision Court and then there are provisions for revision Court and then there are provisions for revision by the Commissioner of Income Tax. It would by the Commissioner of In It would lead to anomalous consequences if the winding lead to if the winding up court were to be held empowered to transfer up court were to be held empowered to transfer up court were to be held empowered to transfer the as assessment proceedings to itself and assess the company as income tax. The assess the company as income tax. The assess the company as income tax. The argument on behalf of the appellant by Shri argument on behalf of the appe lant by Shri Desai is that the winding up court rt is empowered in its discretion to decline to empowered in its dis decline to transfer the assessment proceedings in a given transfer the ssessment proceedings in a given case but the power on the plain language of case but the power on the pl ain language of Section 446 of the Act must be held to vest in Section of the Act must be held to vest in that court to be exercised only if considered that court to be exercised only if considered that court to be exercised only if considered expedient. We are not impressed by this expedient. We are not impressed by this argument. The language of Section 446 must be argument. The language of Section 446 must be so construed as to eliminate such start so construed as tartling consequences as investing the winding up court consequences as i nvesting the winding up court ITA No. 5459 to 5461/MUM/2 to 5461/MUM/2024 24 Trend Electronics Limited with the powers of an Income Tax Officer with the powers of an Income Ta Officer conferred en him by the income Tax Act, conferred en him by the income Tax Act, conferred en him by the income Tax Act, because in our view the legislature could not because in our view the legislature could not because in our view the legislature could not have intended such a result. have intended such a result 8. The argument that the proceedings for 8. The argument that the proceedings for 8. The argument that the proceedings for assessment or re-assessment of a company assessment company which is being wound up can only be started of which is being wound up can o nly be started of continued with the leave of the liquidation court continued with the leave of the liquidation court continued with the leave of the liquidation court is also, on the scheme both of the Act and of the is also, on the scheme both of the Act and of the is also, on the scheme both of the Act and of the Income Tax Act, unacceptable. We have not Income Tax Act, unacceptable. We have not Income Tax Act, unacceptable. We have not been shown any principle on which the been shown any principle on which the been shown any principle on which the liquidation court should be vested with the liquidation court should be vested with the power to stop assessment proceedings for power to stop assessment proceedings for power to stop assessment proceedings for determining the amount of tax ermining the amount of tax payable by the y the company which is being wound up. The company which is ing wound up. The liquidation court would have full power to liquidation court would have full power t liquidation court would have full power t scrutinise the claim of the revenue after income scrutinise the claim of the revenue after income scrutinise the claim of the revenue after income tax has been determined and its payment tax has been d etermined and its payment demanded from the liquidator. It would be open demanded from the liquidator. It would be open demanded from the liquidator. It would be open to the liquidation court thee is decide how far to the liquidation court thee is decide how far to the liquidation court thee is decide how far under the law the amount of income tax under the law the amount of income ta under the law the amount of income ta determined by the Department should be determin ed by the Department should be accepted as a lawful liability on the funds of the cepted as a lawful liability on the funds of the cepted as a lawful liability on the funds of the compan ompany in ITA no. 78/MUM/2018 Doshion shion Veolia Water Solution P. Ltd. Veolia Water Solution P. Ltd. liquidation. At that stage the winding up court liquidation. At that stage the winding up court liquidation. At that stage the winding up court can fully safeguard the interests of the can fully safeguard the interests of the can fully safeguard the interests of the company and its creditors under the Act. company and its creditors under the Act. company and its creditors under the Act. Incidentally, it may be pointed out that at the Incidentally, it may be pointed out that at the Incidentally, it may be pointed out that at the Bar no English decision was brought to our Bar no English decision was brought to our notice under which the assessment proceedings notice under which the assessment proceedings notice under which the assessment proceedings were held to be controlled by the winding up were held to be control ed by the winding up court. On the view that we have taken, the court. On the view that we have taken, the court. On the view that we have taken, the decisions in the case of Seth Spinning Mills Ltd., decisions in the case of Seth Spinning Mills L decisions in the case of Seth Spinning Mills L (In Liquidation) (1962) 46 ITR 193 (P Liquidation) (1962) 46 ITR 193 (Punj) (Supra) Supra) and the Mysore Spun Silk Mills Lt nd the Mysore Spun Silk Mills Ltd., (In Liquidation) (1968) 68 ITR 295 (Mys) (supra) do Liquidation) (1968) 68 ITR 295 (Mys) (supra) do Liquidation) (1968) 68 ITR 295 (Mys) (supra) do not seem to lay down the correct rule of law not seem to lay down the correct rule of law not seem to lay down the correct rule of law that the Income Tax Officers must obtain leave that the come Tax Officers must obtain leave of the winding up court for commencing of of the winding up court for commencing of of the winding up court for commencing of ITA No. 5459 to 5461/MUM/2 to 5461/MUM/2024 25 Trend Electronics Limited continuing continuing assessment assessment or or re-assessment r ment proceedings." proceedings."
Therefore, this Court held that the authorities 44. Therefore, this Court held that the authorities can only take steps to determine the tax, interest, can only take steps to determine the tax, interest, fines or any penalty which is due. However, the fines or any penalty which is due. However, the authority cannot enforce a claim for recovery or authority cannot enforce a claim for recovery or levy of interest on the tax due during the period levy of interest on the tax of moratorium. We are of the opinion that the of moratorium. We are of the opinion that the above ratio squarely applies to the interplay above ratio squarely applies to the interplay between the IBC and the Customs Act in this between the IBC and the Customs Act in this context.
From the above discussion, we hold that the the above discussion, we hold that the respondent could only initiate assessment or re- respondent could only initiate assessment or r assessment of the duties and other levies. They assessment of the duties and o cannot transgress such boundary and proceed to cannot transgress such boundary and proceed to initiate recovery in violation of Sections 14 or initiate recovery in violation of Sections 14 or 33(5) 33(5) of of the the IBC. IBC. The The interim in Resolution Professional, Resolution Professional or the Professional, Resolution Professional o liquidator, as the case may be, has an obligation liquidator, as the cas to ensure that assessment is legal and he has nsure that assessment is legal and he has been provided with sufficient power to question been provided with sufficient power to question any assessment, if he finds the same to be any assessment, if he finds the same to be excessive.
On the basis of the above discussions On the basis of the above discussions following are our conclusions: following are our conclusions: i) Once moratorium is imposed in terms Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority case may be, the respondent authority only has a limited jurisdiction to only has a limited jurisdiction to assess/determine assess/determine the the quan quantum of customs duty and other levies. The customs duty and other levies. The respondent authority does not have the respondent authority does not have the power to initiate recovery of dues by power to initiate recovery of dues by means of sale/confiscation, as provided means of sale/confiscation, as provided under the Customs Act under the Customs Act ii) After such assessment, the respo er such assessment, the respondent authority authority has has to to submit submit its its claims (concerning customs dues operational debt) (concerning customs dues operational debt) in terms of the procedure laid down, in strict in terms of the procedure laid down, in strict to 5461/MUM/2 to 5461/MUM/2024 26 Trend Electronics Limited compliance of the time periods of the time periods 78/MUM 2018 2018 Doshion Doshion Veolia Veolia Water Water Solution P. L Solution P. Ltd. prescribed under the IBC, before the adjudicating authority. before the adjudicating authority. iii) In any ca In any case, the IRP/RP/liquidator can immediately immediately secure secure goods goods from from the the respondent authority to be dealt with respondent authority to be dealt with appropriately, in terms of the IBC appropriately, in terms of the IBC.”
Hon’ble Apex Court in Civil appeal no. 6432 ble Apex Court in Civil appeal no. 6432-6433 of 6433 of 2023, principal commissioner of custom V. Rajendra 2023, principal commissioner of custom V. Rajendra 2023, principal commissioner of custom V. Rajendra Prasad Tak and others, vide order dated 30.10.2023, has and others, vide order dated 30.10.2023, has and others, vide order dated 30.10.2023, has explicitly held that the dues of the central board of explicitly held that the dues of the central board of explicitly held that the dues of the central board of indirect taxes and custom department of revenue, are to indirect taxes and custom department of revenue, are to indirect taxes and custom department of revenue, are to be paid in accordance with the waterfall mechanism as be paid in accordance with the waterfall mechanism as be paid in accordance with the waterfall mechanism as provided u/s. 53 of the insolvency and bankrup s. 53 of the insolvency and bankruptcy code tcy code 2016. This dictum is equally applicable in respect of the 2016. This dictum is equally applicable in respect of the 2016. This dictum is equally applicable in respect of the dues of the central board of direct taxes, department of dues of the central board of direct taxes, department of dues of the central board of direct taxes, department of revenue.
In view of aforesaid discussion and law laid down by 15. In view of aforesaid discussion and law laid down by 15. In view of aforesaid discussion and law laid down by Apex Court in Sundaresh Bhatt (Supra), we hold that the Apex Court in Sundaresh Bhatt (Supra), we hold that the Apex Court in Sundaresh Bhatt (Supra), we hold that the provisions of IBC 2016 would prevail over the Income Tax of IBC 2016 would prevail over the Income Tax of IBC 2016 would prevail over the Income Tax Act. However, Income Tax authorities have limited However, Income Tax authorities have limited However, Income Tax authorities have limited jurisdiction to assess/determine the quantum of jurisdiction to assess/determine the quantum of jurisdiction to assess/determine the quantum of Income Tax dues but have no authority to initiate Income Tax dues but have no authority to initiate Income Tax dues but have no authority to initiate recovery of such does at its own during the period recovery of such does at its own during the period recovery of such does at its own during the period of moratorium in violation of Section 14 or 33(5) of ium in violation of Section 14 or 33(5) of ium in violation of Section 14 or 33(5) of the IBC as the case may be the IBC as the case may be. The Income Tax Authorities . The Income Tax Authorities are like any other creditor, may stake their claim before are like any other creditor, may stake their claim before are like any other creditor, may stake their claim before liquidator in the statutory limitation period provided liquidator in the statutory limitation period provided liquidator in the statutory limitation period provided under the IBC. Such claims can be considered under the IBC. Such claims can be considered under the IBC. Such claims can be considered in accordance with the waterfall mechanism provided u accordance with the waterfall mechanism provided u accordance with the waterfall mechanism provided u/s. 53 of IBC. As in the case of civil 53 of IBC. As in the case of civil litigation, an appeal is gation, an appeal is treated as the continuation of a suit, the outcome of these treated as the continuation of a suit, the outcome of these treated as the continuation of a suit, the outcome of these appeals would also result in the determination of appeals would also result in the determination of appeals would also result in the determination of revenue's tax dues only. revenue's tax dues only. There is thus no legal There is thus no legal impediment Doshion Veolia Water nt Doshion Veolia Water nt Doshion Veolia Water Solution P. Ltd. Solution P. Ltd. in deciding these appeals, which would , which would amount to determination of tax dues only. In the light of amount to determination of tax dues only. In the light of amount to determination of tax dues only. In the light of what has been held by us what has been held by us hereinabove. We now proceed hereinabove. We now proceed to decide the instant matter on merit. instant matter on merit.
to 5461/MUM/2 to 5461/MUM/2024 27 Trend Electronics Limited 4.5 In the present case, therefore, the CIT(A) erred in law in In the present case, therefore, the CIT(A) erred in law in In the present case, therefore, the CIT(A) erred in law in declining to adjudicate the grounds of appeal on merits and in declining to adjudicate the grounds of appeal on merits and in declining to adjudicate the grounds of appeal on merits and in allowing the appeal solely on the basis of the completion of allowing the appeal solely on the basis of the completion of allowing the appeal solely on the basis of the completion of insolvency proceedings. insolvency proceedings.
4.6 In view of the In view of the foregoing, and respectfully following the , and respectfully following the binding decision of the Coordinate Bench in binding decision of the Coordinate Bench in binding decision of the Coordinate Bench in Doshion Veolia Water Solutions Pvt. Ltd., we set aside the impugned orders of , we set aside the impugned orders of Water Solutions Pvt. Ltd. the CIT(A) and restore the matters to his file for the CIT(A) and restore the matters to his file for the CIT(A) and restore the matters to his file for fresh adjudication on merits adjudication on merits, in accordance with law, after affording ce with law, after affording reasonable opportunity of hearing to the assessee. reasonable opportunity of hearing to the assessee. reasonable opportunity of hearing to the assessee.
The facts and facts and circumstances in the other two appeals are circumstances in the other two appeals are also identical and therefore those two appeals are also set aside also identical and therefore those two appeals are also set aside also identical and therefore those two appeals are also set aside and restored to the file of the to the file of the Ld. CIT (A) for deciding afresh. deciding afresh.
In the result, all result, all the three appeals are allowed for three appeals are allowed for statistical purpose statistical purpose.