High Court of Calcutta (10.05.2022) in SREI Equipment Finance Ltd. Vs. Additional/ Joint/ Deputy/ Assistant Commissioner of Income Tax and Others [A.P.O.T No. 77 of 2022 IA No. GA/1/2022 Arising out of W.P. No. 1839 of 2022] held that;
Section 14(1)(a) expressly interdicts institution or continuation of pending suits or proceedings against corporate debtors.
This legal principle should have been borne in mind by the assessing officer before he proceeded to pass the assessment order.
Therefore, we are of the clear view that the assessment order dated 30th March, 2022 has to be set aside and the matter has to be restored to the file of the assessing officer and the matter shall be kept in abeyance till the completion of the insolvency resolution proceedings.
Excerpts of the order;
We have heard Mr. J. P. Khaitan, learned senior counsel appearing with Mr. Somak Basu, learned Advocate for the appellant/assessee and Mr. Tilak Mitra, learned standing counsel for the respondent.
# 2. The order impugned is dated 13th April, 2022 passed in WPO/1839/2022. The appellant had filed the writ petition challenging the notice dated 23rd March, 2022 which is an opportunity granted to the assessee to show cause as to why the proposal made in the notice by way of giving effect to the order passed by the PCIT, Kolkata-II under Section 263 of the Income Tax Act, 1961 should not be made against the appellant/assessee. The assessee had submitted their reply dated 26th March, 2022 in which the first contention raised by the assessee was that the proceedings are liable to be stayed since the assessee has been admitted for Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) and presently the assessee is under moratorium by orders of the National Company Law Tribunal (NCLT). In this regard, the assessee referred to Section 14 of the Code and also extracted the relevant portion of the order passed by the NCLT. In support of such contention, reliance was placed on the decision of the Hon’ble Supreme Court in Alchemist Asset Reconstruction Company vs. Hotel Gaudavan (P) Ltd. & Ors. reported in (2017) 88 taxmann.com 202 (SC) and the decision in the case of Mr. Rajendra K. Bhutta vs. Maharashtra Housing and Area Development Authority & Anr. (Civil Appeal No.12248 of 2018 dated 19.02.2020) and the other decisions of the Income Tax Appellate Tribunal, Delhi Bench and also the Securities Appellate Tribunal. Further, the assessee contended that in terms of Section 238 of the Code, the provisions of the Code shall override the provisions of the Income Tax Act and reference was also made to Section 178 of the Income Tax Act, which also provides that the Section shall override all other laws for the time being in force except the Insolvency and Bankruptcy Code (IBC). In support of such contention, reliance was placed on the decision of the Hon’ble Supreme Court in PCIT vs. Monnet Ispat and Energy Ltd. reported in (2018) SCC Online SC 984. Therefore, the assessee requested the assessing officer to keep the proceedings in abeyance till the completion of the CIRP. Without prejudice to such submission, the assessee also dealt with the merits of the proposed assessment. In the penultimate paragraph of the explanation, the assessee requested for grant of opportunity of personal hearing in view of Clause (VI) to (IX) of Section 144B(7) of the Income Tax Act, 1961.
# 5. On going through the impugned order we find that the issue as to whether the proceedings had to be kept in abeyance by the assessing officer in the light of the insolvency proceedings which were pending and the effect of Section 14 of the Code have not been dealt with though that was the core issue which was canvassed in the writ petition. The learned writ Court was of the opinion that the case of the assessee cannot be a case of violation of principles of the natural justice as the assessee had participated in the assessment proceedings and they wanted to challenge the assessment order before the writ Court. In our considered view there is a slight mistake on facts because the assessee had impugned the assessment order dated 30th March, 2022 by way of a supplementary affidavit since this assessment order was passed during the pendency of the writ petition. In the writ petition, what was impugned was the show cause notice dated 23rd March, 2022. As pointed out earlier, in response to the show cause notice, the assessee had specifically raised the legal issue with regard to the effect of the provisions of the IBC and without prejudice to the said submission, the assessee also submitted their reply on the merits on the proposed assessment which the assessing officer proposed to pass. More importantly, the assessing officer also pointed out that in the assessee’s own case, the PCIT-II had acceded to a similar request and kept the proceedings in abeyance by an order dated 26th March, 2022 in view of the order passed by the NCLT dated 8th October, 2021. This is precisely the request which the assessee made with the assessing officer who appears to have brushed aside such request.
# 6. On going through the assessment order dated 23rd March, 2022, which, in fact, is an ex parte assessment order, it appears that the assessing officer discussed the effect of Section 14 of the IBC and rendered certain opinion on the effect of certain provisions of the IBC. We observe that the assessment order is an ex parte assessment order because the request made by the assessee for personal hearing was not granted but the personal hearing appears to have been conducted by way of exchange of chat messages. It is not clear as to how such an opportunity can be said to be an effective opportunity to the assessee. The assessing officer failed to understand that opportunity of personal hearing should be meaningful and it is not an empty formality. These basic legal tenets have not been noted by the assessing officer. In any event, the assessing officer was required to take note of the judicial pronouncements which were referred to and relied upon by the assessee in their reply dated 26th March, 2022. We find that there is no reference or discussion on those aspects. Therefore, we are of the clear view that the assessing officer committed grave error in proceeding to complete the assessment and pass the order dated 30th March, 2022 and refused to stay the proceedings till the completion of the Insolvency Resolution Process.
# 7. At this juncture, it would be important to note the decision the Hon’ble Supreme Court in the case of Alchemist Asset Reconstruction Company (supra), wherein the Hon’ble Supreme Court had pointed out that the mandate of the new insolvency Code is that the moment an insolvency petition is admitted, the moratorium that comes into effect under Section 14(1)(a) expressly interdicts institution or continuation of pending suits or proceedings against corporate debtors. This legal principle should have been borne in mind by the assessing officer before he proceeded to pass the assessment order. Therefore, we are of the clear view that the assessment order dated 30th March, 2022 has to be set aside and the matter has to be restored to the file of the assessing officer and the matter shall be kept in abeyance till the completion of the insolvency resolution proceedings.
# 14. In the result, the appeal is allowed. The assessment order dated 30th March, 2022 is set aside and the matter is restored to the file of the assessing officer and the matter shall be kept in abeyance till the completion of the insolvency resolution proceedings. Soon after the proceedings are completed, the assessee shall inform, in writing, to the assessing officer in that regard. In the light of the observations made by us and taking note of the judgment of the Hon’ble Supreme Court in the Neeraj Garg (supra) the adverse observations and comments made against the learned Advocate for the appellant/assessee stand expunged in its entirety and the imposition of costs stands vacated. The application for stay being IA No.GA/1/2022 stands closed. No costs.
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