SEJAL GLASS LIMITED,MUMBAI vs. DCIT CIRCLE 13(2)(2), AAYAKAR BHAWAN

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 20/01/2026 passed by the Ld. Commissioner of Income-tax (Appeals)- National Faceless Appeal Centre, Delhi [in short the Ld. CIT(A)] for Assessment Year 2015-16, raising following grounds:

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Ground No.1 Invalid appellate order passed u/s 250 during the moratorium period under the Insolvency and Bankruptcy Code, 2016.

The impugned order passed by the learned Commissioner of Income Tax (Appeals) under Section 250 of the Income-tax Act, 1961 is bad in law and without jurisdiction. The appellant company had already been admitted into the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 pursuant to the order of the National Company Law Tribunal ("NCLT") dated 26.03.2021. The Resolution Plan as approved by NCLT had already dealt with the dues of the Income Tax Department. Accordingly, all the assessment, appeal and related proceedings become infructuous and are liable to be quashed. Accordingly, the appellate order passed u/s 250 after approval of the resolution plan is without jurisdiction.

Ground No.2 Erroneous determination of year of taxability of capital gains

The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in holding that the transfer of the property took place in A.Y. 2015-16 merely on the basis of execution of the sale deed, without appreciating that the actual possession of the property was transferred only during A.Y. 2017-18. Consideration of the said transfer was also paid in AY 2017-18. Therefore, the impugned finding treating A.Y. 2015-16 as the year of taxability is erroneous and liable to be set aside.

Ground No. 3: Wrongful invocation of Section 50C

The learned CIT(A) has erred in law and on facts in upholding the application of Section 50C of the Income-tax Act, 1961 without appreciating that the property was sold for consideration less than the stamp duty value due the genuine circumstances as on the date of sale. 2. At the outset, Learned Counsel for the assessee submitted that the Ld. CIT(A) dismissed the appeal solely on account of non- compliance with the notices issued during the appellate proceedings. It was submitted that non compliance was

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occasioned by the fact that the affairs of the company then stood under the Company Insolvency Resolution process(CIRP). It was further submitted that the management of the company has since been taken over by the successful resolution applicant, who is desirous of prosecuting the present appeal on merits, notwithstanding that no recovery of tax dues, if any, would in any event be permissible against the assessee in view of the approved Resolution Plan.

4.1 The Coordinate Bench of the Tribunal in Doshion Veolia Water Solutions Pvt. Ltd. v. ACIT (ITA No. 78/Mum/2018, order dated 09.02.2024), after considering the judgment of the Hon'ble Supreme Court in Sundaresh Bhatt, Liquidator of ABG Shipyard Ltd. v. Central Board of Indirect Taxes & Customs (Civil Appeal No. 7667 of 2021, judgment dated 26.08.2022), held that the moratorium under the Insolvency and Bankruptcy Code

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(IBC), 2016 does not prohibit the continuation of assessment or appellate proceedings, which are confined to determination of the tax liability. The embargo under sections 14 and 33(5) of the IBC operates only against coercive recovery or enforcement of the tax demand during the subsistence of the moratorium. The Tribunal further noticed that, once the tax liability is determined, the Revenue is required to lodge its claim before the Resolution Professional/Liquidator in accordance with the mechanism prescribed under the IBC and cannot independently pursue recovery. The relevant finding of the Tribunal is reproduced as under:-

“13. It appears that since no resolution plan was approved by the committee of creditors of corporate debtor within the corporate insolvency resolution process. On the direction of the committee of creditors, the Resolution Professional moved an application for initiating liquidation process of corporate debtor, which was allowed by adjudicating authority as above. We take further guidance from the judgment dated 26.08.2022 passed by another three judges bench of Hon'ble Supreme Court in Civil Appeal No. 7667 of 2021, Sundaresh Bhatt, Liquidator of ABC Shipyard V. Central Board of Indirect Taxes and Customs, wherein Hon’ble Apex Court, vide paras 43,44,45 & 54, has held as under”: "43, In the above context, the judgment of this Court in S.V. Kondaskar v. V.M. Deshpande, AIR 1972 SC 878, is extremely relevant. In that case, this Court, while expounding the interplay of Section 446 of the Companies Act 1956 (bankruptcy provision) with the Income Tax Act, 1961, held as follows: "7 Looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of Section 446, read as a whole, it appears

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to us that the expression "other legal proceeding" in sub-section (1) and the expression "legal proceeding" in sub-section (2) convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding up court. The Income Tax Act is, in our opinion, a complete code and in is particularly so with respect to the assessment and re- assessment of income tax with which alone we are concerned in the present case. The fact that after the amount of tax payable by an assessee has been determined or quantified its realization from a company in liquidation is governed by the Act because the income tax payable also being a debt has to ITA no 78/MUM/2018 Doshion Veolia Water Solution P. Ltd. rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under Section 446 of the Act. The liquidation court, in our opinion, cannot perform the functions of Income Tax Officers while assessing the amount of tax payable by the assessees even if the assessees be the company which is being wound up by the Court. The orders made by the Income Tax Officer in the course of assessment or reassessment proceedings are subject to appeal to the higher hierarchy under the Income Tax Act. There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then there are provisions for revision by the Commissioner of Income Tax. It would lead to anomalous consequences if the winding up court were to be held empowered to transfer the assessment proceedings to itself and assess the company as income tax. The argument on behalf of the appellant by Shri Desai is that the winding up court is empowered in its discretion to decline to transfer the assessment proceedings in a given case but the power on the plain language of

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Section 446 of the Act must be held to vest in that court to be exercised only if considered expedient. We are not impressed by this argument. The language of Section 446 must be so construed as to eliminate such startling consequences as investing the winding up court with the powers of an Income Tax Officer conferred en him by the income Tax Act, because in our view the legislature could not have intended such a result. 8. The argument that the proceedings for assessment or re-assessment of a company which is being wound up can only be started of continued with the leave of the liquidation court is also, on the scheme both of the Act and of the Income Tax Act, unacceptable. We have not been shown any principle on which the liquidation court should be vested with the power to stop assessment proceedings for determining the amount of tax payable by the company which is being wound up. The liquidation court would have full power to scrutinise the claim of the revenue after income tax has been determined and its payment demanded from the liquidator. It would be open to the liquidation court thee is decide how far under the law the amount of income tax determined by the Department should be accepted as a lawful liability on the funds of the company in ITA no. 78/MUM/2018 Doshion Veolia Water Solution P. Ltd. liquidation. At that stage the winding up court can fully safeguard the interests of the company and its creditors under the Act. Incidentally, it may be pointed out that at the Bar no English decision was brought to our notice under which the assessment proceedings were held to be controlled by the winding up court. On the view that we have taken, the decisions in the case of Seth Spinning Mills Ltd., (In Liquidation) (1962) 46 ITR 193 (Punj) (Supra) and the Mysore Spun Silk Mills Ltd., (In Liquidation) (1968) 68 ITR 295 (Mys) (supra) do not seem to lay

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down the correct rule of law that the Income Tax Officers must obtain leave of the winding up court for commencing of continuing assessment or re- assessment proceedings." 44. Therefore, this Court held that the authorities can only take steps to determine the tax, interest, fines or any penalty which is due. However, the authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium. We are of the opinion that the above ratio squarely applies to the interplay between the IBC and the Customs Act in this context. 45. From the above discussion, we hold that the respondent could only initiate assessment or re- assessment of the duties and other levies. They cannot transgress such boundary and proceed to initiate recovery in violation of Sections 14 or 33(5) of the IBC. The interim Resolution Professional, Resolution Professional or the liquidator, as the case may be, has an obligation to ensure that assessment is legal and he has been provided with sufficient power to question any assessment, if he finds the same to be excessive. 54. On the basis of the above discussions following are our conclusions: i) Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act ii) After such assessment, the respondent authority has to submit its claims (concerning customs dues operational debt) in terms of the procedure laid down, in strict compliance of the

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time periods ITA no. 78/MUM 2018 Doshion Veolia Water Solution P. Ltd. prescribed under the IBC, before the adjudicating authority. iii) In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt with appropriately, in terms of the IBC.” 14. Hon’ble Apex Court in Civil appeal no. 6432-6433 of 2023, principal commissioner of custom V. Rajendra Prasad Tak and others, vide order dated 30.10.2023, has explicitly held that the dues of the central board of indirect taxes and custom department of revenue, are to be paid in accordance with the waterfall mechanism as provided u/s. 53 of the insolvency and bankruptcy code 2016. This dictum is equally applicable in respect of the dues of the central board of direct taxes, department of revenue. 15. In view of aforesaid discussion and law laid down by Apex Court in Sundaresh Bhatt (Supra), we hold that the provisions of IBC 2016 would prevail over the Income Tax Act. However, Income Tax authorities have limited jurisdiction to assess/determine the quantum of Income Tax dues but have no authority to initiate recovery of such does at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC as the case may be. The Income Tax Authorities are like any other creditor, may stake their claim before liquidator in the statutory limitation period provided under the IBC. Such claims can be considered in accordance with the waterfall mechanism provided u/s. 53 of IBC. As in the case of civil litigation, an appeal is treated as the continuation of a suit, the outcome of these appeals would also result in the determination of revenue's tax dues only. There is thus no legal impediment ITA no. 78/MJM/2018 Doshion Veolia Water Solution P. Ltd. in deciding these appeals, which would amount to determination of tax dues only. In the light of what has been held by us hereinabove. We now proceed to decide the instant matter on merit.”

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4.2 The aforesaid principle squarely governs the issue before us. Consequently, the mere pendency of the insolvency proceedings or approval of the Resolution Plan could not, by itself, prevent continuation of the appellate proceedings under the Income-tax Act. Therefore, the assessee's challenge to the jurisdiction of the learned CIT(A) on this ground is rejected.

4.3 We, however, find merit in the grievance of the assessee that the appeal came to be dismissed solely for want of compliance. The Ld. CIT(A) has dismissed the appeal on merits in a summary manner, essentially for want of prosecution, recording that neither written submissions nor an adjournment application were filed on behalf of the assessee, and proceeding to sustain the addition of Rs. 1,28,23,448/- made by the Assessing Officer under the head "short-term capital gains" under Section 45 read with Section 2(47) of the Act, on the footing that the transfer stood completed on execution of the registered sale deed dated 30.05.2014

4.4 Before us, the learned counsel submitted that the non- compliance before the learned CIT(A) was occasioned by the fact that the assessee-company was undergoing CIRP under the IBC and its affairs were under the control of the Resolution Professional. It was further submitted that the management has since changed pursuant to the approved Resolution Plan and the present

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management is desirous of prosecuting the appeal on merits. Considering the peculiar facts and circumstances of the case, we are of the view that the assessee deserves one effective opportunity to substantiate its case before the first appellate authority.

4.5 In the interest of substantial justice, we accordingly set aside the impugned appellate order and restore the matter to the file of the learned CIT(A) for fresh adjudication on merits, in accordance with law, after affording the assessee an adequate and effective opportunity of being heard. We clarify that we have expressed no opinion on the merits of the additions challenged before us, and all contentions of both parties are left open.

Order pronounced in the open Court on 30/07/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/07/2026 Z.U., P.S.

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Copy of the Order forwarded to :

BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai