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Facts
The assessee's appeal arises from an order for AY 2007-08. The National Company Law Tribunal (NCLT) admitted the assessee as a corporate debtor, issuing directions under Section 14 of the IBC, including a moratorium. The Department's (DR) contention is that tax demands cannot be enforced without the Revenue being included as a secured creditor.
Held
The Tribunal referred to Section 14 of the IBC, which prohibits suits and proceedings against a corporate debtor during a moratorium. Considering the newly inserted Section 156A of the Income Tax Act, the Tribunal found it necessary to remand the appeal to the Assessing Officer (AO).
Key Issues
Whether tax demands can be enforced against a corporate debtor undergoing CIRP when the Revenue is not included as a secured creditor, and the applicability of Section 156A of the Income Tax Act in such circumstances.
Sections Cited
Section 14 of IBC, Section 178(6) of the Income Tax Act, Section 156A of the Income Tax Act, Section 31(1) of the IBC, Section 33 of the IBC
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SMT. BEENA PILLAI & SMT. RENU JAUHRI
Asstt. Year: 2007-08 Manz Retail Pvt. Ltd., Vs. DCIT, (Now amalgamated with Future Range-10(2)(2), Corporate Resources Pvt. Ltd.), Mumbai-400020 Knowledge House, Shyam Nagar, Off Jogeshwari – Vikhroli Link Road, Jogeshwari , Mumbai-400060 APPELLANT RESPONDENT PAN NO : AAACM1978J Assessee represented by None Department represented by Shri Paresh Deshpande, Sr. DR Date of hearing 10-10-2024 Date of pronouncement 18-10-2024 O R D E R PER BEENA PILLAI, JM:
Present appeal filed by the assessee arises out of order dated 25.09.2019 passed by the Ld. CIT(A)-17, Mumbai for Assessment Year 2007-08.
At the outset, it has been informed by the Ld. DR that, the National Company Law Tribunal, Mumbai Bench-VI (in short “NCLT”) vide order dated 24.09.2024 in CP(IB) No. 1111/MB/2022 has admitted the assessee to be the corporate debtor. It is submitted “1. We prohibit: a) the institution of suits or continuation of pending suits or proceedings against the CD including the execution of any judgment, decree, or order in any court of law, tribunal, arbitration panel, or other authority; b) transferring, encumbering, alienating, or disposing of by the CD any of its assets or any legal right or beneficial interest therein; c) any action to foreclose, recover, or enforce any security interest created by the CD in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and; d) the recovery of any property by an owner or lessor where such property is occupied by or in possession of the CD. II. That the supply of essential goods or services to the CD, if continuing, shall not be terminated or suspended or interrupted during the moratorium period. III. That the order of moratorium shall have effect from the date of this order till the completion of the CIRP or until this Tribunal approves the resolution plan under Section 31(1) of the IBC or passes an order for the liquidation of the Corporate Debtor under Section 33 thereof, as the case may be. IV. That the public announcement of the CIRP shall be made in immediately as specified under Section 13 of the Code read with Regulation 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. V. That this Bench hereby appoints Mr. Avil Jerome Menezes, a registered Insolvency Professional having Registration Number IBBI/IPA-001/IP- P00017/-2017/10041 and e-mail address avil@caavil.com having valid Authorisation for Assignment up to 27.11.2024 as the IRP to carry out the functions under the IBC. VI. That the fee payable to IRP/RP shall be in accordance with such Regulations/Circulars/ Directions as may be issued by the IBBI.
Manz Retails Pvt. Ltd. VII. That during the CIRP Period, the management of the CD shall vest in the IRP or, as the case may be, the RP in terms of Section 17 or Section 25, as the case may be, of IBC. The officers and managers of the CD are directed to provide effective assistance to the IRP as and when he takes charge of the assets and management of the CD. The officers and managers of the CD shall provide all documents in their possession and furnish every information in their knowledge to the IRP/RP within a period of one week from the date of receipt of this Order and shall not commit any offence punishable under Chapter VII of Part II of the IBC, Coercive steps will follow against them under the provisions of the IBC read with Rule 11 of the NCLT Rules for any violation of law. VIII. That the IRP/IP shall submit to this Tribunal periodical reports with regard to the progress of the CIRP in respect of the CD. IX. In exercise of the powers under Rule 11 of the NCLT Rules, 2016, the FC is directed to deposit a sum of Rs.5,00,000/- (Five Lakh Rupees) with the IRP to meet the initial CIRP cost arising out of issuing public notice and inviting claims, etc. The amount so deposited shall be interim finance and paid back to the FC on priority upon the funds becoming available with IRP/RP from the Committee of Creditors (CoC). The expenses incurred by IRP out of this fund are subject to approval by the CoC.”
It is submitted by the Ld. DR under such circumstances unless Revenue is included as one of the secured creditor the demand issued u/s 156 of the Act cannot be enforced upon the assessee. The Ld. DR also referred to the provisions of Section 178(6) which is notwithstanding clause in respect of any other law for time being enforce, with an exception to the provisions of Insolvency and Bankruptcy Code, 2016. He has also referred to Section 156A of the Act, which is newly inserted Section w.e.f. 01.04.2022, wherein Sub-Section (1) & (2) reads as under:
“(1) Where any tax, interest, penalty, fine or any other sum in respect of which a notice of demand has been issued under section 156, is reduced as a result of an order of the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Manz Retails Pvt. Ltd. Bankruptcy Code, 2016 (31 of 2016), the Assessing Officer shall modify the demand payable in conformity with such order and shall thereafter serve on the assessee a notice of demand specifying the sum payable, if any, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall accordingly, apply in relation to such notice. (2) Where the order referred to in sub-section (1) is modified by the National Company Law Appellate Tribunal or the Supreme Court, as the case may be, the modified notice of demand as referred to in sub-section (1), issued by the Assessing Officer shall be revised accordingly.]”
The Ld. DR thus submitted that the appeal cannot be decided on this juncture on merits and the Assessing Officer has to take necessary steps to include itself as secured creditor before the Hon’ble NCLT against the tax liability arising in the present case. 5.1 We have perused the submissions advanced by both sides in the light of relevant provision under the Act as well as IBC Code. Section 14 of IBC Code is very clear on the aspect that once moratorium is drawn and the insolvency commencement date is declared any institution of suits or definition of pending suits or proceedings against the creditor, debtor (in the present facts of the case of assessee before us) including the execution of any judgment, decree, or order in any Court of law, Tribunal, Arbitration Panel or other authority is to be prohibited. Admittedly, a registered Insolvency Professional is appointed by Hon’ble NCLT and the assessee no longer could be represented by the representative to whom the authority was provided. Even otherwise, none appeared on behalf of the assessee before us today. At this juncture, we refer to the decision of Hon’ble Supreme Court in the case of Ghanshyam Manz Retails Pvt. Ltd. Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd. reported in (2021) 126 Taxmann.com 132 wherein the Hon’ble Supreme Court has considered a situation wherein, the resolution plan was approved by the adjudicating authority u/s 31(1) of the IBC Code. Hon’ble Supreme Court observed that, once the resolution plan was drawn, the claim as provided in the resolution plan stood frozen, and will be binding on the corporate debtor, its employee, its members, creditors, Central Government and any State Government or legal authority, guarantor and other stakeholders. 5.2 We note that in the present facts of the case, the resolution plan is yet to be finalized. When we read the newly inserted provisions of Section 156A of the Act, it is necessary to remand the appeal to the Ld. AO to take necessary steps/action before Hon’ble NCLT .
Hence, in the above circumstances, we deem it fit and proper to remand this appeal back to the Ld. AO to take necessary steps as per Section 156A of the Act. Accordingly, we partly allowed the appeal filed by the assessee. Order pronounced in the open court on 18/10/2024. Sd/- Sd/- (RENU JAUHRI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 18th October, 2024 *Subodh Kumar, Sr. PS*