Income Tax appeals cannot be proceeded with during the proceedings under IBC

Income Tax appeals cannot be proceeded with during the continuance of the proceedings under IBC

ABCAUS Case Law Citation
ABCAUS 3611 (2022) (09) ITAT

Important Case Laws relied upon by parties
Ghanashyam Mishra And Sons vs Edelweiss Asset Reconstruction (2021) 126 taxmann.com 132 (SC)
Mahavir Roads & Infrastructure Pvt. Ltd., vs. DCIT

In the instant case, the assessee had challenged the order passed by the CIT(A).

The ITAT was informed that the Corporate Insolvency Resolution Proceedings (CIRP) are pending against the assessee in National Company Law Appellate Tribunal (NCLAT).

The Tribunal examined the issue in the light of the provisions of Insolvency and Bankruptcy Code, 2016 (the Code) and the decision of the Hon’ble Apex Court.

The Tribunal observed that under section 13 of the Code, the adjudicating authority after adjudication of the application under section 7 or 9 or 10 of the Code shall declare a moratorium which shall include the prohibition of the institution of suits or continuation of pending suits or proceedings against the corporate debtor in any court of law or tribunal.

The ITAT noted that the Hon’ble Supreme Court has held that

(i) That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;

(ii) 2019 amendment to Section 31  of the I&B

Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect; and (iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local  authority,  if  not  part  of  the  resolution  plan,  shall  stand extinguished and no proceedings in respect of such dues for the period  prior  to  the  date  on  which  the  Adjudicating  Authority grants its approval under Section 31 could be continued.

The Tribunal opined that reading of the provisions under section 13 and 14 of the Code along with the decision of Hon’ble Supreme Court shows that once the proceedings have commenced by institution of  application under section 7 or 9 or 10 of the Code, the continuance of the pending proceedings is prohibited and  when  once  they  reach  the  logical  conclusion  with  due approval  of  the  resolution  plan  by  the  Adjudicating  Authority under sub section (1) of Section 31, the claims as provided in the resolution  plan  shall  stand  frozen  and  will  be  binding  on  the Corporate  Debtor  and  its  employees,  members,  creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders.

The Tribunal opined that at any rate, for the time being, these appeals could not be proceeded with during the continuance of the proceedings under the IBC.

The Tribunal further stated that depending upon the result of IBC proceedings before the adjudicating authority in respect of the corporate debtor, appropriate steps if any, may be taken by the appellant/respondent.   

Therefore, granting leave to the appellant/respondent to seek the restoration of the appeals, if necessitated by the orders in the Corporate Insolvency Resolution Proceedings, the Tribunal dismissed the appeal in limine.

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