Facts of the Case

The Revenue filed appeals against separate orders passed by the CIT(A), NFAC, Delhi under Section 250 of the Income-tax Act for Assessment Years 2013-14 and 2014-15. The assessments were originally framed under Section 143(3) by making disallowances of business expenditure and additions under the head “Income from Other Sources” on the ground that the assessee had not commenced its hotel business. The CIT(A) granted relief to the assessee by allowing adjustment of expenditure against interest income earned on fixed deposits made out of borrowed funds. Aggrieved, the Revenue preferred appeals before the Tribunal. During pendency of the appeals, corporate insolvency resolution process was initiated against the assessee under Section 7 of the Insolvency and Bankruptcy Code, 2016, and subsequently a resolution plan was approved by the National Company Law Tribunal, Kolkata Bench.

Issues Involved

Whether income-tax appeals can continue after commencement of CIRP and approval of a resolution plan under the Insolvency and Bankruptcy Code, whether statutory dues not forming part of the approved resolution plan can be enforced through pending income-tax proceedings, and whether Revenue appeals become infructuous in view of Sections 14, 31 and 238 of the IBC.

Petitioner’s Arguments

The Revenue contended that the CIT(A) erred in deleting disallowances of business expenditure and in allowing adjustment of capital expenditure against interest income when the assessee’s hotel project had not commenced operations. It was submitted that the additions made by the Assessing Officer were justified on merits.

Respondent’s Arguments

It was brought to the notice of the Tribunal that the assessee was undergoing CIRP and that the resolution plan submitted by the successful resolution applicant had been approved by the NCLT under Section 31 of the IBC. It was submitted that statutory dues were settled in accordance with the resolution plan and that, in view of the moratorium and approval of the plan, continuation of income-tax proceedings was barred. Reliance was placed on judicial precedents holding that, upon approval of a resolution plan, all prior claims not forming part of the plan stand extinguished.

Court Order / Findings

The ITAT Kolkata held that once the CIRP is initiated and a resolution plan is approved under Section 31 of the Insolvency and Bankruptcy Code, all proceedings against the corporate debtor for claims arising prior to the approval of the resolution plan stand discontinued. The Tribunal observed that Sections 14, 31 and 238 of the IBC override the provisions of the Income-tax Act and that statutory dues not forming part of the approved resolution plan cannot be enforced thereafter. Relying on the decisions of the Supreme Court in Ghanashyam Mishra & Sons (P.) Ltd. and the coordinate bench decision in Kohinoor Steel (P.) Ltd., the Tribunal held that the Revenue appeals could not survive and had become infructuous.

Important Clarification

The Tribunal clarified that the Insolvency and Bankruptcy Code is a complete code and has overriding effect over other laws. Once a resolution plan is approved, the corporate debtor is entitled to start with a clean slate, and all claims including tax claims not included in the resolution plan stand extinguished. Pending income-tax appeals cannot be continued during or after completion of the CIRP, subject to liberty to revive proceedings if the resolution plan is set aside.

Final Outcome

Both appeals filed by the Revenue for Assessment Years 2013-14 and 2014-15 were dismissed as infructuous. Liberty was granted to the Revenue to seek revival of the appeals in accordance with law if the approved resolution plan is rejected or set aside at any stage.

Source Link- https://itat.gov.in/public/files/upload/1767256918-8kmRtG-1-TO.pdf

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