The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) quashed the revision order issued by the Principal Commissioner of Income Tax ( PCIT ) following the approval of the resolution plan under the Corporate Insolvency Resolution Process (CIRP).
Care Office Equipment Limited, appellant-assessee,was in the business of selling computer hardware and providing bar code stickers, equipment, and printers. For the Assessment Year 2018-19, the company filed a return showing a loss of Rs. 33,88,77,148. The return was processed, and notices were issued for scrutiny, but the assessee did not respond.
In February 2021, the Insolvency Resolution Professional (IRP) informed the Assessing Officer (AO) that the National Company Law Tribunal ( NCLT ) had started the CIRP in May 2019, asking the AO to stop the assessment.
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The AO ignored this and issued another notice to the IRP, continuing the assessment. The assessee claimed expenses of Rs. 59,20,48,980, but since no details were provided, the AO disallowed 25% of these expenses (Rs. 14,80,12,245) and calculated the loss as Rs. 19,08,64,903.
The PCIT reviewed the case and found the expenses unexplained. The PCIT believed the AO should have disallowed all the expenses, leading to an additional disallowance of Rs. 44,40,36,735. A show-cause notice was issued to the appellant.
The assessee argued that the company was under new management after the NCLT approved a resolution plan in December 2022. The appellant also claimed that the CIRP moratorium prevented the assessment.
However, the PCIT referred to a Madras High Court ruling that allowed the Income Tax Department to pass fresh orders despite the CIRP process. The PCIT then set aside the assessment order and directed the A.O. to review the expenses and issue a fresh order.
The two member bench comprising T.R.Senthil Kumar ( Judicial Member ) and Annapurna Gupta ( Accountant Member ) reviewed the case and found that during the assessment, the IRP informed the AO about the NCLT’s order from May 2019, starting the CIRP.
However, the AO did not raise any claims before the NCLT, while the VAT and GST departments did. In December 2022, the NCLT passed an order stating that once the resolution plan was approved, all liabilities, including those from the government, would be extinguished.
The appellate tribunal also referred to a Supreme Court ruling in Ghanashyam Mishra & Sons Pvt. Ltd., which stated that once a resolution plan is approved, all claims not included in the plan would be extinguished, and no proceedings could continue regarding those claims. Additionally, the Jurisdictional High Court in Jyoti Power Corporation Pvt. Ltd. ruled that revising assessments after the approval of a resolution plan was not allowed, and any related notices should be quashed.
Based on these legal provisions, the tribunal concluded that no claims from before the approval of the resolution plan could proceed. As a result, it quashed the revision order made by the PCIT in this case.
In short,the appeal filed by the assessee was allowed.
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