ITAT: IBC Has Overriding Effect on all Acts Including Income Tax Act
The New Delhi bench of Income Tax Appellate Tribunal (ITAT), by its division-member bench comprising of Yogesh Kumar U.S. (Judicial Member) and Pradip Kumar Kedia (Accountant Member) ruled that Insolvency and Bankruptcy Code (IBC) has an overriding effect on all acts, including the Income Tax Act, under Section 178(6) of the Income Tax Act, as amended with effective from 1st November, 2016.
The appeals were filed by the Revenue Department against the assessee- ABW Infrastructure Ltd. challenging the order passed by the ld. Commissioner of Income Tax (Appeals) (CIT[A]) which deleted the addition made by the Assessing Officer (AO) dated 26 December, 2017 and 23 February, 2018.
The department contended that a financial creditor had filed an application under Section 7 of the Insolvency and Bankruptcy Code 2016 against the assessee before the National Company Law Tribunal (NCLT), and judgment had been passed by the NCLT by allowing the application.
The NCLT had admitted the Application filed under Section 7 of IBC Code, in terms of Section 14 of the IBC Code and consequent to the same the moratorium terms of Section 14(a),(b), (c) & (d), the following prohibition were imposed:
a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
b) Transferring, encumbering, alienating, or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
d) The recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the corporate debtor.
The ITAT reasoned that in view of the above directions, no proceedings could be initiated against the corporate debtor, i.e., assessee company including the present proceedings before this Tribunal, or the income tax proceedings and recovery of demand or giving effect of any order.
The bench observed, "it is well settled now that, IBC has overriding effect on all the acts including Income Tax Act which has been specifically provided under Section 178(6) of the Income Tax Act as amended with effect from 1 November, 2016."
Thus, the ITAT held that in view of moratorium declared by NCLT, all the proceedings in the Court of Law, Tribunal etc. cannot continue in view of Amendment to Section 178(6) of the Act, therefore, no useful purpose is going to be served in continuing the present proceedings.
The ITAT granted the assessee and Revenue the right to seek remedial measures in accordance with the law when the moratorium period expires the NCLT order is modified, the assessee company is revived, or where it is necessary for the interest of justice.
Accordingly, the appeal filed by the Revenue and the Appeal filed by the assessee were dismissed in limine.