Parallel Proceedings under Income Tax not Permissible when NCLT approves Resolution Plan: ITAT [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Delhi, held that once a Resolution Plan is approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC), parallel proceedings under the Income Tax Act cannot continue.

The Revenue filed appeals against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], dated 25 November 2016, relating to Assessment Years 2011-12 and 2012-13. The appeals challenged the deletion of additions made by the AO on account of alleged bogus expenses and undisclosed income for the same year.

None appeared on behalf of the assessee, M/s Tecpro Systems Ltd., and the Tribunal proceeded ex parte after hearing the Departmental Representative and examining the records.

The Departmental Representative argued that both appeals concern the deletion of additions made by the AO on account of bogus expenses claimed by the assessee company. And also they brought to the notice of the Tribunal that the NCLT, by order dated 15 May 2019, had approved a Resolution Plan under Section 31 of the IBC in respect of the assessee company.

After considering the submissions and material they had, the Tribunal observed that once a Resolution Plan is approved by the NCLT, it has a binding effect. The Tribunal held that in such circumstances, no parallel proceedings under the Income Tax Act can be undertaken against the corporate debtor.

The Bench Shri Yogesh Kumar U.S (Judicial Member), Shri Naveen Chandra (Accountant) looked at the decision of the Mumbai Bench of the ITAT in Pratibha Industries Ltd. v. DCIT, which followed the Supreme Court’s ruling in Pr. CIT v. Monnet Ispat & Energy Ltd., wherein it was held that the provisions of the IBC have an overriding effect over the Income Tax Act.

Applying the above principles, the Tribunal concluded that since insolvency proceedings had been initiated and the Resolution Plan had been approved, the Revenue’s appeals could not survive and the income tax proceedings could no longer continue.

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