ACIT Vs Varun Resources Ltd
Whether as per settled precedent, provisions of IBC 2016 prevail over provisions of Income Tax Act – YES: ITAT
Whether I-T authorities have limited jurisdiction to assess quantum of Income Tax dues but have no authority to initiate recovery of such dues at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC – YES: ITAT
Whether the I-T Department can stake its claim before the official liquidator or adjudicatory authority, within the statutory limitation period provided under the IBC – YES: ITAT
– Case remanded: MUMBAI ITAT
THE assessee was a limited company engaged in the business of ship operation and ceased to exist on 01.04.2011 by demerging part of its business in M/s. Valun Global Ltd (VGL) and with remaining business got amalgamated with M/s. Varun Resources Ltd (VRL). Appellant did not file its return of income for the A.Y. 2012-13 as it was not in existence due to aforesaid demerging/amalgamation. The notice u/s. 148 of the Act was issued. Subsequently assessing officer, gathered information from 26AS. Notice u/s. 142(1) of the act was issued by AO asking certain informations from the assessee but for no avail. Assessing Officer, then proceeded on the basis of information available in ITS on ITD system and assessed income for A.Y. 2012-13 as Rs. 39,86,34,333/- vide assessment order dated 29.12.2019 passed u/s. 143(3) r.w.s 147 of the Act. Penalty proceedings u/s. 271(1)(C) of the Act for concealing the particulars of Income, penalty proceedings u/s. 271(1)(b) of the Act for non-compliance of notice u/s. 142(1) of the Act and penalty proceedings u/s. 271F of the Act for non filing of return of income, were also initiated. Aggrieved with the assessment order, assessee preferred an appeal before CIT (A), who deleted the addition made by assessing officer as not sustainable in view of section 33(5) of IBC 2016 as the assessee company was under liquidation process without adjudicating the case on merit.
In writ, the Tribunal held that,
Whether as per settled precedent, provisions of IBC 2016 prevail over provisions of Income Tax Act – YES: ITAT
Whether I-T authorities have limited jurisdiction to assess quantum of Income Tax dues but have no authority to initiate recovery of such dues at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC – YES: ITAT
Whether the I-T Department can stake its claim before the official liquidator or adjudicatory authority, within the statutory limitation period provided under the IBC – YES: ITAT
++ Above referred Sub Section 6 of Section 178 of the Act was amended by Section 247 r/w 3rd schedule of IBC with effect from 01.11.2016. This provision makes it clear that IBC code will override the provisions of Income Tax Act 1961. The three judges bench of Supreme Court in Civil Appeal No. 7667 of 2021, Sundaresh Bhatt, Liquidator of ABC Shipyard V. Central Board of Indirect Taxes and Customs, vide order dated 26.08.2022, has held that the respondent could only initiate assessment or re-assessment of the duties and other levies, once a moratorium is imposed in terms of Section 14 or 33(5) of the IBC as the case may be, the Department authority, only has limited jurisdiction to assess/determine the quantum of the customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues. Liquidator has an obligation to ensure that assessment is legal and he has been provided with sufficient power to question any assessment if he finds the same to be excessive;
++ based on this binding precedent, we hold that the provisions of IBC 2016 would prevail over the Income Tax Act. However, Income Tax authorities have limited jurisdiction to assess/determine the quantum of Income Tax dues but have no authority to initiate recovery of such dues at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC. The Income Tax Authorities are like any other creditor, may stake their claim before liquidator or adjudicatory authority as the case may be, within the statutory limitation period provided under the IBC for substantiating its claim under the waterfall mechanism related to the order of priority as provided u/s. 53 of IBC 2016. The first point is accordingly determined in positive except to the extent that the Income Tax Authorities are not barred from determining the tax dues, which is “sine qua non” for staking its claim as creditor before the liquidator or the adjudicatory authority as the case may be, under the provisions of IBC;
++ Secondly, in view of the findings given at point no.1 referred as above, it is easily concluded that CIT (A) has erred is not adjudicating the matter on merit, which was with respect to the determination of tax dues only, more so, when the liquidator, himself, was pursuing the matter before the first appellate authority. The second point is accordingly determined in positive. In view of our findings given at point no. 1 & 2 above, the case deserves to be restored back to the file of CIT (A) for the disposal of the case on merits in accordance with law. It is clarified that we have not made any observations in respect of the merits of the case. In the result, the appeal is allowed for statistical purposes. The impugned order dated 19.02.2024, is set aside. The case is restored back to the file of CIT (A) for passing an order afresh on merit in accordance with law after affording an opportunity of hearing to the appellant/corporate debtor through liquidator.
2024-TIOL-994-ITAT-MUM
Whether income tax dept can do recovery when the case is in Insolvency ? ITAT says.. IBC is superior. See case. Clarity.
All the grounds raised by the Revenue are dismissed as being without merit.
