Facts of the Case

The assessee, Jaiprakash Associates Ltd., filed its return of income declaring nil income on 30.11.2016 and reported a book loss under Section 115JB. The case was selected for scrutiny and the assessment under Section 143(3) was completed by the Assessing Officer.

Subsequently, the Principal Commissioner of Income Tax (PCIT) invoked revisionary jurisdiction under Section 263 of the Income Tax Act. The PCIT held that the Assessing Officer had failed to properly examine the computation of income arising from transfer of a commercial plot of land in Noida and directed the Assessing Officer to recompute the income in accordance with law.

The assessee challenged this revision order before the Income Tax Appellate Tribunal (ITAT).

During the pendency of the appeal, Corporate Insolvency Resolution Process (CIRP) proceedings were initiated against the assessee under the Insolvency and Bankruptcy Code, 2016, pursuant to an order of the National Company Law Tribunal, Allahabad. A moratorium was imposed and an appeal against the order was also filed before the National Company Law Appellate Tribunal.

Issues Involved

  1. Whether the revisionary order passed under Section 263 by the PCIT was valid in law.
  2. Whether the Assessing Officer had failed to conduct proper inquiries regarding transfer of the commercial plot of land.
  3. Whether Section 43CA was applicable to the transfer of leasehold rights in the commercial plot.
  4. Whether the initiation of CIRP and moratorium under the Insolvency and Bankruptcy Code affects pending income tax appellate proceedings. 

Petitioner’s Arguments (Assessee)

  • The order passed by the Assessing Officer under Section 143(3) was neither erroneous nor prejudicial to the interests of the revenue; hence invocation of Section 263 was without jurisdiction.
  • The PCIT relied on external reports instead of the assessment record, making the revision proceedings unsustainable.
  • The commercial plot transaction had already been recognized and assessed in Assessment Year 2013-14 under the Percentage of Completion Method (POCM).
  • Section 43CA was not applicable as the transaction pertained to transfer of leasehold rights, and the sale consideration was supported by an independent registered valuer’s report.
  • Since CIRP had been initiated and a moratorium imposed, the tax proceedings should not continue in view of the overriding provisions of the Insolvency and Bankruptcy Code. 

Respondent’s Arguments (Revenue)

  • The Assessing Officer failed to examine the computation of income arising from transfer of the commercial plot.
  • The order passed by the Assessing Officer lacked adequate inquiry and verification, making it erroneous and prejudicial to the interests of the revenue, thus justifying action under Section 263.
  • Therefore, the PCIT was justified in remanding the matter to the Assessing Officer for recomputation of income. 

Court Findings / Tribunal Order

The Tribunal observed that Corporate Insolvency Resolution Process (CIRP) had been initiated against the assessee and a moratorium order was in force under the Insolvency and Bankruptcy Code.

The Tribunal relied on the decision of the Supreme Court in PCIT vs. Monnet Ispat and Energy Ltd., wherein it was held that Section 238 of the Insolvency and Bankruptcy Code gives the Code an overriding effect over all other laws, including the Income Tax Act.

  • The IBC provisions override the Income Tax Act in case of inconsistency.
  • All claims, including those of the Income Tax Department, are to be dealt with under the framework of the Insolvency Code.

In view of the CIRP proceedings and the moratorium in force, the appeal filed by the assessee was treated as infructuous and dismissed for statistical purposes.

However, the Tribunal granted liberty to the assessee to approach the Tribunal for reinstitution of the appeal if circumstances so require.

Important Clarification

  • Due to the overriding effect of Section 238 of the Insolvency and Bankruptcy Code, tax proceedings may not proceed independently once insolvency proceedings are underway.
  • The assessee retains the right to seek restoration of the appeal before the Tribunal at a later stage, subject to legal provisions.

Sections Involved

  • Section 263 – Revision of orders prejudicial to revenue
  • Section 143(3) – Scrutiny assessment
  • Section 43CA – Special provision for full value of consideration for transfer of assets
  • Section 115JB – Minimum Alternate Tax (MAT)
  • Section 238 of the Insolvency and Bankruptcy Code, 2016 – Overriding effect of the Code
  • Section 53(1) of IBC – Distribution of assets in liquidation.

Link to download the order -  https://itat.gov.in/public/files/upload/1735632766-d4rUXS-1-TO.pdf

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