Proceedings under the Income-tax Act cannot be continued during the moratorium period declared under the Insolvency and Bankruptcy Code, 2016

21. [2020] 78 ITR(T) 214 (Del.)(Trib.) Shamken Multifab Ltd. vs. DCIT ITA (SS) Nos. 149, 150, 3549, 3550 &
3551 (Delhi) of 2007 A.Y.: 2003-04 Date of order: 22^nd October,
2019

Proceedings
under the Income-tax Act cannot be continued during the moratorium period
declared under the Insolvency and Bankruptcy Code, 2016

FACTS

A petition
to initiate Corporate Insolvency Resolution Process (CIRP) in accordance with
provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) against the
assessee was admitted by the National Company Law Tribunal and the CIRP had
commenced w.e.f. 29^th May, 2018; accordingly, a moratorium period
was declared.

The
assessee contended that the appeals filed by the Income-tax Department against
the company cannot continue in view of the provisions of section 14 of the IBC.

Revenue
argued that the expression ‘proceeding’ envisaged in section 14 of the IBC will
not include Income-tax proceedings and hence it can be continued even during
the moratorium period. Citing Rule 26 of the Income-tax Appellate Tribunal
Rules, 1963 it was contended that the proceedings before the ITAT can continue
even after the declaration of insolvency.

The
question before the Tribunal was whether Income-tax proceedings can be
continued during the moratorium period declared under the IBC.

HELD

Considering
section 14 of the IBC, the Tribunal held that the institution of suits or
continuation of pending suits or proceedings against the corporate debtor
(i.e., the assessee), including execution of any judgment or decree or order in
any court of law, tribunal, arbitration panel or other authority,is prohibited
during the moratorium period.

Reliance
was placed on the decision of the Supreme Court in the case of Alchemist Asset Reconstruction Co. Ltd. vs. Hotel Gaudavan (P)
Ltd. [2017] 88
taxmann.com 202 wherein it was held that even
arbitration proceedings cannot be initiated after imposition of the moratorium
period.

The
Tribunal held that the Apex Court in the case of Pr.
CIT vs. Monnet Ispat & Energy Ltd. [SLP (C) No. 6487 of 2018, dated 10^th
August, 2018] had upheld the overriding nature
and supremacy of the provisions of the IBC over any other enactment in case of
conflicting provisions, by virtue of a non-obstante
clause contained in section 238 of the IBC; and hence even proceedings under
the Income-tax Act cannot be continued during the period of moratorium.

Reference
was also made to a recent amendment in the IBC according to which any
resolution plan or liquidation order as decided by the competent authority will
be binding on all stakeholders, including the Government. This amendment
prevents even the Direct & Indirect Tax Departments from questioning the
Resolution Plan or liquidation order as well as the jurisdiction of Tribunals
with regard to IBC. Accordingly, all the appeals filed by the Revenue were
dismissed by the Tribunal.

It was
also held that even appeals filed by the assessee cannot be sustained as the
assessee did not furnish any permission from the National Company Law Tribunal
in this regard. [Reliance was placed on the decision of the Madras High Court
in the case of Mrs. Jai Rajkumar vs. Standic Bank Ghana
Ltd. [2019] 101
taxmann.com 329 (Mad.).].

Accordingly,
all the appeals of the Revenue as well as of the assessee were dismissed.