IBC Moratorium No Shield: ITAT Says Tax Assessment Can Continue

Trend Electronics Limited, a Videocon group company, filed loss returns for AYs 2017-18 and 2018-19. Assessments were completed under Section 143(3), and penalty proceedings were initiated for AY 2018-19.

The assessee informed that it had undergone insolvency proceedings under the IBC and was later liquidated as a going concern and sold to auction purchasers on a “clean slate” basis. Relying on Ghanshyam Mishra & Sons (P.) Ltd., the CIT(A) allowed the appeals without examining the merits, holding that all tax dues stood extinguished. The Revenue appealed to the Tribunal.

Issue Before Tribunal: Whether income-tax assessment and appellate proceedings can continue to determine tax liability after the assessee has undergone insolvency/liquidation and been acquired on a clean slate basis under the IBC.

ITAT’s Decision: The ITAT allowed the Revenue’s appeals and set aside the orders of the CIT(A). The Tribunal held that assessment and appellate proceedings under the Income-tax Act are meant only to determine or quantify tax liability and do not amount to recovery of dues. As such, they are not barred by Sections 14 or 33(5) of the IBC.

The Tribunal clarified that the “clean slate” principle applies at the stage of enforcement or recovery of dues against the successful resolution applicant or auction purchaser. Thus, the matters were restored to the CIT(A) for adjudication on merits in accordance with law.

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