Once Insolvency Plan Is Approved, Income Tax Proceedings Cannot Continue: ITAT:

Once Insolvency Plan Is Approved, Income Tax Proceedings Cannot Continue: ITAT The present appeal has been filed by ACIT, Central Circle, against M/s Tecpro System Ltd in the ITAT Delhi, challenging two separate appeals against the order of CIT(A), New Delhi, dated November 25, 2016, for AY 2011-12 and 2012-13. The main complaint of the revenue in both appeals was that the AO had added certain amounts to the company’s income by treating some expenses as bogus, but these additions were deleted by the CIT(A). For the assessment year 2012-13, the revenue also objected to the deletion of an addition relating to alleged undisclosed income.

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The Revenue then approached Tribunal, However, no one appeared on behalf of the assessee. Therefore, the Tribunal decided to proceed with the case ex parte. The DR was heard in detail, and the tribunal also carefully examined the case records. During the hearing, DR pointed out that the National Company Law Tribunal had passed an order on May 15, 2019, approving a Resolution Plan under section 31 of the Insolvency and Bankruptcy Code, 2016, in respect of Tecpro Systems. The Tribunal observed that once the NCLT approves a resolution plan under the Insolvency and Bankruptcy Code, no parallel proceedings under the Income-tax Act can continue against the same assessee. The Tribunal further supported its view by relying on earlier decisions, including a Mumbai Tribunal ruling and a Supreme Court judgment, which clearly held that the Insolvency and Bankruptcy Code has an overriding effect over the Income-tax Act. According to these decisions, once IBC proceedings are initiated, income-tax proceedings against the assessee must stop.

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As a result, the Tribunal dismissed all the grounds raised by the Revenue for both assessment years. However, the Tribunal clarified that the Revenue is free to apply for recall of this order in the future if the company comes out of the insolvency process and is no longer governed by the IBC. The Tribunal concluded that both appeals filed by the Revenue are dismissed.