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Facts
The appeals concern the validity of interest charged on book profits and other additions/disallowances. A significant development is the approval of a resolution plan for the assessee company under the Insolvency and Bankruptcy Code (IBC), leading to a name change and amalgamation.
Held
The Tribunal held that the provisions of the IBC override the Income Tax Act. Since the resolution plan was approved, all prior claims and proceedings against the corporate debtor are extinguished. Therefore, the appeals could not be continued.
Key Issues
Whether the proceedings under the Income Tax Act can continue after the approval of a resolution plan under the IBC, which extinguishes all prior claims against the corporate debtor.
Sections Cited
234B, 234C, 115JB, 154, 801A, 92CA(3), 32(1)(iia), 271(1)(c), 92B, 80-IA(5), 31, 14, 238, 178(6)
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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: SHRI GEORGE MATHAN & SHRI RAKESH MISHRA
order : 28-May-2025 These four appeals filed by the assessee and the Revenue are against the separate orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AYs 2008- 09, 2010-11 and cross appeals for AY 2013-14. 2. The assessee has raised the following grounds of appeal before the Tribunal: I.
A.Y. 2008-09: “1. On the facts and in the circumstances of the case, the learned CIT(A)- Central I erred in confirming the action of the AO in charging of legally disputable interest u/s. 234B & 234C of the IT Act, 1961("the Act") on Book Profits u/s 115JB of the Act as a mistake apparent on record rectifiable u/s 154 of the Act.
On the facts and in the circumstances of the case, the CIT(A)- Central I erred in confirming the levy of interest u/s. 234B of the Act amounting to Rs.1,01,25,015 and u/s 234C of the Act amounting to Rs. 1,28,95804 totalling to Rs.2,30,20,819 on Book Profits u/s 115JB of the Act. 2.1. On the facts and in the circumstances of the case, the CIT(A) erred in not appreciating the fact that the decision of the Hon'ble Supreme Court in the case of Rolta India Ltd was pronounced much later i.e. on 07/01/2011 than after the financial year i.e. 2007-08 during which the advances taxes were to be paid. The settled law, by the Hon'ble Supreme Court, various High Courts and the ITAT, Kolkatta in the appellant's own case, during the relevant financial year was that no Interest u/s 234B & 234C was chargeable on Book Profits u/s 115JB. The relevant decisions are as under- a. Decision of the Supreme Court in the case of CIT vs. Kwality Biscuits Ltd (284 ITR 434)
■ It is therefore crystal clear that once a resolution plan is duly approved under section 31(1), the debts as provided for in the resolution plan alone shall remain payable and such position shall be binding on, among others, the Central Government and various authorities, including tax authorities. All dues which are not part of the resolution plan would stand extinguished and no person would be entitled to initiate or continue any proceedings in respect of any claim for any such due. No proceedings in respect of any dues relating to the period prior to the approval of the resolution plan can be continued or initiated. [Para 15] ■ In this clear view of the matter, there can be no manner of doubt that the Impugned Proceedings initiated by the revenue and sought to be defended as if they relate to liabilities that somehow emerge after the CIRP, are wholly misconceived and untenable. The resolution plan, upon its approval, brought a quietus to all claims pursued or capable of being pursued by the revenue against the petitioner for any operation prior to the CIRP. The stance of the revenue in the reply affidavit, namely, that if the tax claim amount had not been crystallised, would be future dues and not past dues, is totally untenable. Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited 2021 SCC OnLine SC 313 makes it clear that the continuation of existing proceedings and the initiation of new proceedings, as they relate to operations prior to the CIRP, are totally prohibited after the approval of the resolution plan. Consequently, nothing would survive insofar as the Impugned Proceedings relate to the petitioner. [Para 16] ■ The Ghanshyam Mishra and Sons Private Limited (supra) squarely applies to the facts of the instant case, and necessitates quashing the Impugned Proceedings. Evidently and admittedly, the tax proceedings against the VJ Group pre-date the CIRP and no matter when the liabilities are purported to get crystallised, even if they are allowed to get crystallised, they would relate to the period prior to the approval of the resolution plan of the petitioner, and therefore stand extinguished. This is why the Supreme Court has clearly ruled that initiation and continuation of proceedings relating to the period prior to the approval of the resolution plan cannot be indulged in. Upon completion of the CIRP, the petitioner has completely changed hands and has begun on a clean slate under new ownership and management. [Para 18] {emphasis supplied} 8. Further, the Coordinate Bench of the Tribunal in the ITAT KOLKATA BENCH 'C' in the case of Kohinoor Steel (P.) Ltd. v. Income- tax Officer [2024] 159 taxmann.com 571 (Kolkata - Trib.) have also held as under:
■ It was observed that the operational creditor of assessee has filed the petition before the NCLT and as per the assessee's own case for its CRIP as per rule 4 of Insolvency & Bankruptcy Code (IBC), 2016 no proceedings can continue against the corporate debtor i.e. the assessee after the order of the NCLT. In view of this and drawing further force from the order of co-ordinate bench of Tribunal in the case of Palogix Infrastructure (P.) Ltd. v. Asstt. CIT [2022] 135 taxmann.com 73/193 ITD 329 (Kol. - Trib.) 2021 (10) TMI 1255-ITAT - KOLKATA, dated 27-10-2021 all the appeals before the Tribunal filed by the assessee is to be dismissed as infructuous. [Para 9] ■ It is pertinent to note that as per the provisions of section 14 of the IBC Code institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority shall be prohibited during the moratorium period. [Para 9.1] ■ Further, it is found that section 31 of the IBC relates to approval of the resolution plan and in terms of section 31(1) of the IBC on approval, the resolution plan becomes binding on corporate debtor and its employees, members, creditors including the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under any law for the time being in force. The Supreme Court in the matter of Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweis Asset Reconstruction Co. Ltd. [2021] 126 taxmann.com 132/166 SCL 237 (SC) [2021] 9 SCC 657 has considered the scope of section 31 (1) of the IBC and has held that once the resolution plan is sanctioned under section 31(1) of the IBC, the claims provided in the plan will stand frozen and all such claims which are not part of the plan will stand extinguished. [Para 9.2] ■ The law is well settled that on the approval of the resolution plan in terms of section 31 of the IBC, the dues including the statutory dues of the Government or local authority, if not part of the resolution plan, gets extinguished and no proceedings in respect thereof for a period prior to the date of approval under section 31 would continue. The decision of the Calcutta High Court in West Bengal State Electricity Distribution Company Ltd. v. Sri Vasavi Industries Ltd. [2022] 143 taxmann.com 96/174 SCL 199 2022 (7) TMI 580 - CALCUTTA HIGH COURT makes it clear that any claim not made during the course of CIRP and before approval of resolution plan shall automatically be extinguished and the corporate debtor is deemed to start its operations with a clean slate after the resolution plan is approved. [Para 9.5] ■ The provisions of section 238 of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. It has been consistently held by the Supreme Court that the IBC is a complete Code in itself and in view of the provisions of section 238 of the IBC, the provisions of the IBC would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force. [Para 9.7] ■ As per section 31 of the Code, resolution plan as and when approved by the Adjudicating Authority shall be binding on the corporate debtor and its employees, members, creditors, guarantors, and other stakeholders involved in the resolution plan. Thus, this will prevent State authorities and Regulatory bodies including Direct & Indirect Tax Departments from questioning the resolution plan. Thus, in view of the above, no proceedings can be initiated against the corporate debtor, that is, assessee-company including income tax proceedings and recovery of demand or giving effect of any order. It is well settled now that IBC has an overriding effect on all the acts including Income- tax Act which has been specifically provided under section 178(6) as amended with effect from 1-11-2016. [Para 9.8] ■ A reading of the provisions under sections 13 and 14 of the Code along with the decision in Ghanashyam Mishra & Sons (supra), clearly shows that once the proceedings have commenced by institution of application under section 7 or 9 or 10 of the Code, the continuance of the pending proceedings is prohibited and when once they reach the logical conclusion with due approval of the resolution plan by the Adjudicating Authority under sub-section (1) of section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. At any rate, for the time being, this appeal cannot be proceeded with during the continuation of the proceedings under the Code. [Para 9.9] ■ However, depending upon the result of such proceedings before the adjudicating authority in respect of the corporate debtor, appropriate steps if any, may be taken by the assessee. Therefore, the leave is to be granted to the assessee to seek the restoration of the appeal, if necessitated by the orders in the CIRP. [Para 9.10] ■ The issue of limitation in filing fresh appeal, if need be, has already been dealt with by the Supreme Court in NDMC v. Minosha (India) Ltd. [2022] 138 taxmann.com 73/172 SCL 675/8 SCC 384 wherein on consideration of section 60(6) of the Insolvency and Bankruptcy Code, 2016, it was held that the entire moratorium period will be excluded in computing limitation in respect of proceedings at the hand of a corporate debtor. However, the Assessing Officer is at liberty to make an application for re-institution of the instant appeal if resolution process ends in IBC, 2016. Accordingly, the appeal of the assessee is to be dismissed as infructuous. [Para 9.11] {emphasis supplied}