Provision under IBC overrides Income Tax Act: Calcutta HC [Read Order]

In a recent case, the Calcutta High Court has held that the provision of the Insolvency and Bankruptcy Code (IBC), 2016, shall override the provision of the Income Tax Act.

Srei Equipment Finance Limited, the petitioner challenged the impugned orders in both the writ petitions are interim orders by which the respondent Income-tax Department was permitted to proceed further under the notices issued by the respondents under Section 148A(b) of the Income Tax Act, 1961 (the Act) dated 24th April 2023 for the two assessment years, namely 2016-17 and 2019-20. The Single Bench held that the action to be taken by the Department including passing of any order shall abide by the result of the writ petition.

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Since the facts are identical and the legal issue to be decided in both the appeals are common, we take up the facts in APOT 71/2025 which pertains to the assessment year 2016-17. The writ petition was filed challenging the order passed under Section 148A(d), dated 24th April, 2023 for both the assessment years. The appellant has also impugned the consequential notice issued under Secton 142(1) of the Act.

The first objection raised by the revenue was that the appellant/writ petitioner, being the corporate debtor, has no locus standi to file the writ petition because a resolution plan has been approved by the National Company Law Tribunal (NCLT) by order dated 11th August 2023. The Single Bench has recorded its objection in the impugned order.

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One of the contentions raised by the appellant was that though NCLT had approved the resolution plan on 17th April 2018 and NCLT had dismissed the appeal on 18th August 2018, only thereafter on 17th August 2018 re-assessment order came to be passed for the period 2012-13, which was challenged in the writ petition.

However, the same was dismissed on the ground that the resolution applicant therein, M/s. Vedanta Ltd., was the aggrieved person and a writ petition at the behest of the appellant before the Supreme Court, who was a corporate debtor, was not maintainable.

The resolution plan is in respect of corporate debtor and the successful resolution applicant only takes over the management of the corporate debtor in accordance with the resolution plan. The resolution applicant steps into the shoes of the corporate debtor. Such finding in this respect would also not be sustainable in law. Thus, the objection raised by the Department with regard to the locus standi of the appellant/writ petitioner has to necessarily fail and accordingly, the same stands rejected.

The next issue is whether the Department could have proceeded to pass the order under Section 148A(d) of the Act. It is not in dispute that NCLT admitted the application under Section 227 read with 239(2)(zk) of the Insolvency and Bankruptcy Code, 2016(IBC) on 8th October 2021 and public announcement thereof was given on 11th October 2022. It is not in dispute that the notice under Section 148A(b) of the Act was issued much after the public announcement, that is, on 30th March, 2023, for the assessment year 2016-17 and dated 24th March, 2023 for the assessment year 2019-20.

The petitioner challenged the said notices by filing writ petitions contending that the appellant/writ petitioner was under the moratorium period and no proceedings can be initiated or continued against the appellant/writ petitioner. In this regard, several decisions of the Supreme Court have been relied on as well as the decision of the Division Bench of this Court.

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Subsequently, the case was listed for clarification and the Court by order dated 27th July, 2023 made it clear that the Court has not gone into the issue of jurisdiction that has been raised by the petitioner and granted liberty to raise all points of law once the moratorium is lifted. Therefore, at the earliest point of time, the petitioner was prompt in challenging the proceedings initiated by the Department under Section 148A(d) of the Act by approaching this Court and the stand taken by the petitioner was accepted and taking note of the fact that the moratorium was in operation, the Court restrained the authorities from proceeding further with the matter.

The NCLT approved the resolution plan by order dated 11.8.2023 which was informed to the Income Tax Department by the appellant/writ petitioner on 1.10.2024. The department by communication dated 8.10.2024 stated that the department proposes to continue with the re-assessment proceeding. The petitioner filed an objection dated 28.10.2024 pointing out the legal position, referring to various decisions of the Supreme Court and requested the authorities to drop the proceeding.

The department sought clarification from the petitioner by communication dated 24.12.2024 calling for the copy of the order passed by the NCLT and also to indicate the relevant paragraphs. Despite the two objections given by the appellant/assessee the department proceeded to pass an order under section 148A(d) of the Act dated 24.4.2023.

 The manner in which the assessing officer has passed the order dated 24.4.2023 has to be necessarily deprecated. The purpose of issuing a show cause notice is to afford an opportunity to the assessee to explain and if the assessee has made an explanation, the assessing authority is duty bound to consider the explanation and deal with the points raised in the explanation and then proceed to record his conclusion.

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The Supreme Court held that once the resolution plan is duly approved by the adjudicating authority under sub- section (1) of section 131, the claims as directed in the resolution plan shall stand frozen and will be binding on the corporate debtor and it’s employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders.

It was further held that on the date of approval of the resolution plan by the adjudicating authority, all such claims, which are not a part of the resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim, which is not part of the resolution plan.

The Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) have held that a conjoint reading of both the above provisions will clearly show that the provision of IBC shall override the provision of the Income Tax Act. The court held that the proceeding initiated by the respondent/department commencing from the issuance of notice under section 148A(b) of the Act and culminating in the order passed under section 148A(d) of the Act and the consequential notice issued under section 142(1) of the Act should ex facie without jurisdiction and unsustainable in law.

To Read the full text of the Order CLICK HERE

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