Deletion of Amount added u/s 68 of Income Tax Act in Consonance with NCLT order: Delhi HC sets aside Demand of Penalty [Read Order]

The  Delhi High Court set aside the demand for a penalty as the deletion of the amount added u/s 68 of the Income Tax Act, 1961 in consonance with the National Company Law Tribunal (NCLT) order.

The petitioner, i.e., Rishi Ganga Power Corporation Ltd. ["RGPCL"] challenged two sets of orders and notices. The first set concerns the order and the demand notice passed by the revenue for failure on the part of RGPCL to respond to the notices issued under Section 142(1) of the Income Tax Act, 1961 [ “1961 Act”]. This order was passed under Section 272A(1)(d) of the 1961 Act. Via the said order, RGPCL has been mulcted with a penalty of Rs.10,000/-. The demand notice dated 22.11.2019 seeks to recover the said amount.

RGPCL’s income was assessed at Rs.28,93,60,000/-against a loss declared by it amounting to Rs.3,13,43,192/. The aforesaid assessed income resulted from an addition of an equivalent amount under Section 68 of the 1961 Act vis-à-vis unexplained credits. The Assessing Officer (AO), via the same assessment order, also initiated penalty proceedings against RGPCL under Section 271AAC of the 1961 Act. A demand amounting to Rs.12,05,47,497/- was raised via notice dated 06.12.2019. RGPCL was granted 30 days to defray the tax demand.

In the interregnum, a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ["2016 Code"] was filed with the National Company Law Tribunal, Chandigarh Bench [NCLT] by Punjab National Bank; a financial creditor of RGPCL. This petition was admitted by the NCLT on 25.01.2018. While admitting the petition, NCLT, inter alia, issued directions for the appointment of an Interim Resolution Professional [IRP]. The said order also indicated that the moratorium had kicked in under Section 14 of the 2016 Code.

A notice dated 03.12.2019 was issued to RGPCL to show why Rs.28,93,60,000/- should not be added as unexplained credit in its books of accounts. This amount was received as share application money pending allotment. The AO sought to make the addition under Section 68 and imposed tax under Section 115BBE of the 1961 Act.

The aforesaid show cause notice resulted in the AO framing the impugned assessment order dated 06.12.2019 under Section 143(3) of the 1961 Act. A request was also made for the deletion of the additions made via the impugned assessment order having regard to the fact that the moratorium, as ordered by the NCLT, was in place. Since there was no response from the revenue, RGPCL took recourse to the instant writ action.

 While issuing notice, an interim direction was passed to the effect that the impugned income tax demand will not be enforced against RGPCL. Furthermore, the said order also indicated that RGPCL was at liberty to file an appeal, if necessary, by moving an application for condonation of delay. 

On the other hand, in rebuttal, Mr Sharma submitted that claims were not lodged with the Resolution Professional, under the public announcement publication dated 31.01.2018, as they had not fructified into demands on that date.

A perusal of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ["2016 Regulations"] require operational creditors to submit their claim with proof to the IRP, which are not necessarily claims that have been adjudicated

A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “Since the revenue failed to lodge its claims, the impugned demands raised by the revenue stand automatically extinguished.”

It was held that the submission made on behalf of the revenue that it should be allowed to enforce the impugned orders and notices is misconceived in law.”

To Read the full text of the Order CLICK HERE

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