IBC Overrides Income Tax Act, But Dept. Can Determine Dues During Liquidation Proceedings: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that while the provisions of the Insolvency and Bankruptcy Code (IBC), 2016 override the Income Tax Act, the tax department is not completely barred from undertaking assessment proceedings during liquidation. The bench of Sunil Kumar Singh (Judicial Member) and Om Prakash Kant (Accountant Member) has clarified that the Income Tax Department can determine the quantum of tax dues, but cannot independently initiate recovery proceedings during the moratorium or liquidation period under the IBC. The dispute originated after Varun Resources Limited ceased to exist following a corporate restructuring. The company had demerged a part of its business into another entity and the remaining business was amalgamated. Consequently, it did not file an income tax return for AY 2012–13. Subsequently, the department issued a reassessment notice under Section 148 and initiated proceedings based on information gathered from Form 26AS and the Income Tax Department's systems. The Assessing Officer ultimately assessed income at approximately ₹39.86 crore and also initiated penalty proceedings for concealment of income, non-compliance with notices and non-filing of return. Aggrieved by the assessment order, the assessee approached the Commissioner of Income Tax (Appeals). The CIT(A) deleted the additions made by the Assessing Officer on the ground that the company was already under liquidation proceedings under Section 33(5) of the IBC and therefore such additions were not sustainable. The Revenue challenged the CIT(A)'s decision before the Tribunal. It argued that the moratorium under Section 14 of the IBC applies to institution or continuation of suits and recovery proceedings, and does not prevent the Income Tax Department from conducting assessment proceedings for determination of taxable income. The Revenue also relied on judicial precedents and contended that IBC provisions should not be interpreted in a manner that dilutes the rights of the tax department. On the other hand, the assessee contended that once the National Company Law Tribunal (NCLT) had ordered liquidation and appointed an official liquidator on December 4, 2018, no proceedings could continue against the corporate debtor without appropriate permission. The assessee relied on judicial precedents concerning companies under liquidation to support its argument. The Tribunal examined the interplay between the Income Tax Act and the IBC. It specifically considered Section 238 of the IBC, which contains an overriding provision stating that the Code would prevail over any inconsistent law. The Tribunal also noted that Section 178(6) of the Income Tax Act had been amended to specifically carve out an exception for the IBC. The Bench relied substantially on the Supreme Court decision in Sundaresh Bhatt, Liquidator of ABC Shipyard v. Central Board of Indirect Taxes and Customs, where the Supreme Court had clarified that authorities may assess or reassess liabilities during moratorium periods but cannot proceed with recovery actions independently. The Tribunal held that Income Tax authorities possess only limited powers during liquidation. According to the Tribunal, the authorities can determine tax dues because such determination is necessary for filing a claim before the liquidator under the IBC process. However, the department cannot proceed to enforce recovery separately and must instead pursue its claims through the statutory mechanism under the IBC, including the waterfall distribution process under Section 53. The Tribunal further observed that the CIT(A) committed an error by refusing to examine the dispute on merits merely because liquidation proceedings were pending. The Bench pointed out that the liquidator himself had participated in the appellate proceedings, and therefore adjudication of tax liability on merits ought to have been undertaken. The ITAT set aside the order of the CIT(A) and restored the matter for fresh adjudication on merits. The Tribunal clarified that it had not expressed any opinion on the substantive tax issues involved and directed that the matter be reconsidered after giving the corporate debtor, through its liquidator, an opportunity of hearing. Case Details Case Title: Asst. Commissioner of Income–Tax, Circle Versus Varun Resources Limited Citation: JURISHOUR-1395-ITA-2026(MUM) Case No.: ITA No. 2012/MUM/2024 Date: 05/07/2024 Counsel For Appellant: Haridas Bhatt Counsel For Respondent: Ankush Kapoor CIT, DR Click Here To Read Order Read More: Validity of R. 39(1)(a) and Retrospective Application of IGST Amendment Questioned: Andhra Pradesh High Court Stays GST Recovery Proceedings

IBC Overrides Income Tax Act, But Dept. Can Determine Dues During Liquidation Proceedings: ITAT

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