Ravinder Kumar Goel, Liquidator Vs. Deputy Commissioner of Income Tax, Punjab
IA No.317/2021
Facts:
1.CIRP was initiated on the application by Financial Creditor-Allahabad Bank under Section 7 of IBC, 2016 by order dated 29.09.2017 against Supreme Tex Mart Limited. No plan was received and liquidation order was passed.
2.Respondent filed a claim with the erstwhile liquidator and it was admitted to the extent of Rs.7,36,59,888. After liquidation order respondent initiated scrutiny proceedings by notice dated 22.09.2019 under Income Tax Act, 1961 for the A.Y. 2018-19. The respondent passed an assessment order dated 13.05.2021 for the Assessment Year 2018-19 by adding an income of Rs. 33,24,40,712/- of the corporate debtor.
3.SCN was also issued under section 274 read with Section 270A of the Income Tax, 1961. Applicant is challenging the same.
Issue: whether the Income Tax Department’s action of initiating proceedings under the Income Tax Act and raising demands after the initiation of liquidation is in conformity with the provisions of IBC, 2016?
Arguments:
For applicant:
1.Applicant contends that demands and initiation of penalty proceedings by the Respondent-Income Tax Department is violative of the Code. The respondent cannot initiate any proceedings without the approval of this Bench after passing of the liquidation order. Section 33(5) of the Code expressly prohibits the institution of any legal proceedings against the Corporate Debtor on the passing of the liquidation order
2.Respondent has no right under the Code to initiate fresh assessment/demand/recovery proceedings against the corporate debtor and cannot claim any amount outside the waterfall mechanism as prescribed under Section 53 of the Code
3.Section 238 of IBC, 2016 provides for an overriding effect of the Code over all existing laws and the aforesaid amendment in Section 178(6) of the Income Tax Act, 1961, was carried out to give effect to the overriding nature of IBC Code 2016 over other prevailing laws, especially the Income Tax Act, 1961, pertaining to the Companies undergoing Liquidation
For respondent:
1.Respondent contend that assessment proceedings and penalty proceedings are initiated by the Income Tax Department under Income Tax Act, 1961, and have to be completed within a statutory time limit provided under the provisions of the Income Tax Act, 1961.
2.It is averred that Section 33(5) of the Code does not probate assessment proceeding/penalty under Income Tax Act, 1961 and the assessment do not fall under the scope of the term “other legal proceedings” as mentioned in Section 33(5) of the Code.
3.The Assessing Officer has determined the quantum of tax and penalty against the Corporate Debtor, and after determining the same, the ITD will be an “Operational Creditor”, and the same will be filed for recovery of dues in
accordance with the provisions of IBC 2016
Decision: The Income Tax Department’s action of initiating proceedings under the Income Tax Act and raising demands after the initiation of liquidation is in violation with the provisions of IBC, 2016
Rationale:
1.Tribunal noted that the assessment proceeding for assessment year 2018-19 and the penalty proceedings in assessment year 2018-19 and 2019-20 have been initiated after the order for liquidation.
2.It also noted that decision of Tika Ram and sons Private Limited relied upon by the Income Tax Department does not advance their case. Notice under Section 274 read with Section 271 AAC(1) of the Income Tax Act, 1961 dated 29.09.2021 for A.Y. 2019-20 have been initiated in the teeth of provisions of Section 33(5) of IBC and hence is violative of the Code.
Order Copy:
