REAL STRIPS LTD.,,AHMEDABAD vs. THE DCIT-CIRCLE-3(1)(2), AHMEDABAD

This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-9, Ahmedabad in Appeal no. CIT(A)-9/10288/DCIT Cir-3(1)(2)/17-18 vide order dated 22/04/2019 passed for the assessment year 2015-16.

At the time of hearing, the Ld. counsel for the assessee submitted that National Company Law Tribunal (NCLT), Ahmedabad has passed order 30(6) r.w.s. u/s 31 of the Insolvency and Bankruptcy Code, 2016 in IA 518 (AHM) 2021 in CP (IB) No. 307 of 2020, on 4th January 2022, in terms of which all liabilities of the assessee shall stand extinguished. A copy of the said order is also placed on record before us, the relevant position of which reads as under:-

Accordingly, IA 518 of 2021 is allowed with the above said observations and directions and stands disposed of.

Urgent certified copy of this order, if applied for, to be issued to all concerned parties upon compliance with all requisite formalities.

The counsel for the assessee during the course of hearing has confirmed that all dues to the creditors have been paid by the assessee. We note that in the case of Palogix Infrastructure (P.) Ltd. v. ACIT [2022] 135 taxmann.com 73 (Kolkata - Trib.), the Kolkata Bench of this Tribunal held that Order passed by National Company Law Tribunal under section 31 of Insolvency and Bankruptcy Code, 2016 has overriding effect over anything inconsistent contained in Income-tax Act and it shall be binding on all respective entities including other stakeholders, which include Central Government, State Government and other local bodies. While allowing the assessee’s appeal, the ITAT made the following observations:

The provisions of the Insolvency and Bankruptcy Code, 2016 thus are given overriding effect and as held by the Hon'ble Supreme Court while disposing in the case of Pr. CIT v. Monnet Ispat & Energy Ltd. [Petition for Special Leave to Appeal (C) No(s). 6483 of 2018, dated 10-8-2018], it is obvious that the Insolvency and Bankruptcy Code, 2016 going by section 238 will override anything inconsistent contained in any other enactment, including the Income-tax Act, 1961. A reference in this regard was made by the Hon'ble Supreme Court to their Lordships earlier decision in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. 2000 taxmann.com 2145, wherein it was clarified that Income-tax dues, being in the nature of crown debts, do not take precedence over secured creditors, who are private persons.

In the case of Swiss Ribbons (P.) Ltd. v. Union of India [2019] 101 taxmann.com 389/152 SCL 365, Hon'ble Supreme Court held that the core objective of the Code is to readapt the corporate debtor monetarily and for that purpose to protect the corporate debtor's assets from further dilution. But to fully accomplish the said purpose, the creditors must be barred from bringing up belated claims against a successful resolution applicant striving to resurrect the corporate debtor. Elaborating further, their Lordships observed that if the Government Departments are just going to bring up their claims after the Page No. 6 Real Strips Ltd. vs. DCIT company is transferred over to a successful resolution applicant, then intent with which the Code was incorporated will never be achieved.

In the case of Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [2021] 126 taxmann.com 132/166 SCL 237, it was held by the Hon'ble Supreme Court that a bare reading of section 31(1) of the Code is enough to establish that once the resolution plan receives the assent of adjudicating authority, it shall be binding on all the respective entities, including corporate debtor and its employees, members, creditors, guarantors and other stakeholders. The said section 31 was subsequently amended in 2019 to clarify that the term "other stakeholders" include Central Government, State Government, and other local bodies, and this amendment has been held by the Courts as having retrospective effect being clarificatory and declaratory in nature.

Keeping in view the legal position emanating from the discussion made above in the light of judicial pronouncements of the Hon'ble Supreme Court, it is thus clear that the order passed by the National Company Law Tribunal under section 31 of the Insolvency and Bankruptcy Code, 2016 has overriding effect over anything inconsistent contained in the Income-tax Act and it shall be binding on all the respective entities including other stakeholders, which include Central Government, State Government and other Local Bodies. As per the said order delivered in the case of the assessee-company affirming the Resolution Plan, all dues under the provisions of the Income-tax Act including taxes, duty, penalties, interest, fines, cesses, unpaid tax deducted at source/tax collected at source, whether admitted or not, due or contingent, whether part of above claim of incometax authorities or not, whether part of tax due diligence finding or not, asserted or unasserted, crystallized or uncrystallized, known or known, secured or unsecured, disputed or undisputed, present or future, in relation to any period prior to the acquisition of control by the resolution applicant over the company pursuant to this plan shall extinguished by virtue of the order of the adjudicating authority and the company should not be liable to Page No. 7 Real Strips Ltd. vs. DCIT pay any amount against such demand. Further, all assessments or other proceedings pending in case of the company, on the date of the order of the adjudicating authority relating to the period prior to that date, shall stand terminated and all consequential liabilities, if any, should be deleted and should be considered to be not payable by the company by virtue of the order of the adjudicating authority. Furthermore, all notices proposing to initiate any proceedings against the company in relation to the period prior to the date of adjudicating authority order and pending on that date, shall be considered deleted and should not be proceeded against. Post the order of the adjudicating authority, no reassessment/revision or any other proceedings under the provisions of the Income-tax Act should be initiated on the company in relation to period prior to acquisition of control by the resolution applicant over the Company pursuant to this plan shall stand extinguished by virtue of order of the National Company Law Tribunal and the assessee-company should not be liable to pay against such demand.

Since the present appeal involving AY 2010-11 relates to the period prior to the acquisition of control by the Resolution Applicant over the company pursuant to this plan, all dues under the provisions of the Income-tax Act, 1961 including taxes, duty, penalties, interest fines, cesses, etc. shall stand extinguished by virtue of the order of the National Company Law Tribunal and all proceedings including the appellate proceedings pending on the date of the order of the National Company Law Tribunal including the present proceedings relating to the prior period to the date of order shall stand extinguished and all consequential liabilities, if any, should be deleted and should be considered to be not payable by the Company. In the light of the order of the National Company Law Tribunal (NCLT) dated 12-2-2018 passed in assessee's case, we deem it fit to restore the case for the assessment year under consideration before us to Assessing Officer for taking necessary action in accordance with law.

In the result, the appeal of the assessee is treated as allowed for statistical purposes as indicated above.

Having regard to the facts of the case before us and keeping in view the decision of Co-ordinate Bench of this Tribunal at Kolkata in the case of Palogix Infrastructure (P.) Ltd. v. ACIT [2022] 135 taxmann.com 73 (Kolkata - Trib.), we deem it fit to restore the case for the assessment year under consideration before us to the Assessing Officer for taking necessary action in accordance with law.

In the result, the appeal filed by the assessee is allowed for statistical purposes.