Once Corporate Debtor is Sold as Going Concern, Only Claims Filed before Liquidator Survive: ITAT directs AO Re-examine Matter in Light of SC Ruling [Read Order]

The Hyderabad bench of Income Tax Appellate Tribunal ( ITAT ) has directed the Assessing Officer to re-examine the issue of outstanding tax claims of the income tax department against a corporate debtor sold as a going concern, in light of the principles laid down by the Supreme Court rulings.

The appellant, M/s. RVR Enterprises company had filed its return of income declaring a loss of over ₹100 crore for the year under consideration. However, following assessment proceedings under Section 143(3) of the Income-tax Act, 1961, the Assessing Officer determined positive income of ₹11.76 crore after making additions towards retention money written off, bank guarantee invocation, inter-corporate loans, and other payables.

On appeal, the CIT(A) partly allowed the assessee’s plea by deleting the addition relating to inter-corporate loans but sustained the other disallowances. Aggrieved by this, the Revenue carried the matter before the Tribunal.

During the course of hearing, the Departmental Representative argued that the CIT(A) erred in deleting the additions without the assessee furnishing sufficient evidence, particularly regarding cessation of liability. It was submitted that mere assertions about loans belonging to earlier years could not establish their genuineness.

On the other hand, counsel for the assessee submitted that the company had undergone corporate insolvency resolution process (CIRP) and was subsequently ordered into liquidation by the National Company Law Tribunal (NCLT), Hyderabad Bench, on 11.04.2022.

An official liquidator was appointed, who later sold the business of the company as a going concern to M/s RVR Enterprises for a consideration of ₹80 lakhs. A sale certificate was issued on 06.04.2023 in favour of the purchaser.

It was argued that since the Income Tax Department did not lodge any claim before the liquidator, the alleged outstanding liabilities stood extinguished. The assessee maintained that under the Insolvency and Bankruptcy Code (IBC), 2016, once a corporate debtor is sold as a going concern in liquidation proceedings, only those claims filed before the liquidator survive. Any past liabilities not claimed in the liquidation process, including income tax dues, cease to bind the new management.

The bench of Vijay Pal Rao and Manjunatha G. observed that while the assessee had produced an intimation issued by the liquidator and a claims chart showing no claim filed by the Income Tax Department, there was no clear reference in the NCLT’s order or the liquidator’s sale certificate to specific claims lodged by various stakeholders, including the tax authorities.

The tribunal, referring to the judgments of the Supreme Court in Ghanshyam Mishra & Sons Pvt. Ltd. and Essar Steel, held that once a company is sold as a going concern in liquidation proceedings, the buyer cannot be saddled with pre-existing liabilities not admitted in the liquidation process. The claims not made before the liquidator are deemed extinguished, and the resolution or liquidation plan, once approved, is binding on all stakeholders.

In the present case, since the disputed liability pertained to earlier years before the date of sale of the corporate debtor, the Tribunal held that the matter required fresh examination.

It directed the Assessing Officer to re-examine the issue in light of the NCLT’s liquidation order, the sale certificate issued, and the binding precedents of the Supreme Court. Accordingly, the order of the CIT(A) was set aside and the matter was restored to the AO for reconsideration.

Thus, the appeal of the revenue was allowed for statistical purposes.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates