NCLT(PB) New Delhi (24.05.2019) in Oriental Bank of Commerce vs. M/s. Allied Strips Ltd. & Ors.[Item No.111 (IB)-46(PB)/2018] set aside the Income Tax Department’s notice to the CD issued during moratorium, as being violative of Sec. 14(1)(a), IBC.
The factual matrix of the case, in brief, is that, an application u/s 7, IBC was filed against the CD & AA on 16th March 2018 allowed the application and moratorium U/s 14, IBC was thus imposed. Subsequently, a notice was sent by the Assistant Commissioner of Income Tax (ACIT) to the RP intimating the pendency of assessment proceedings against CD. A reply to the said notice was sent by the RP informing on the pendency of CIRP proceedings against CD, as also the moratorium imposed on CD by virtue of Sec. 14. The income-tax authorities, however, persisted with their proceedings and sent show-cause notices to the CD, replies whereof were sent by the RP pleading that such proceedings and notices are in clear violation of the moratorium. However the Income Tax Authorities went ahead and passed three penalty orders on 30.03.2019.
This resulted in RP filing an application before Hon’ble NCLT impugning the validity of IT notices issued to the CD and penalty orders, relying on Hon’ble SC judgments delivered in Pr. Commissioner of Income Tax vs. Monnet Ispat and Energy Ltd. and Alchemist Asset Reconstruction Company Ltd. vs. M/s Hotel Gaudavan (P) Ltd. concerning application of Sec. 14 and Sec. 238, IBC.
The NCLT (Principal Bench), while allowing an application (IB-46(PB)/2018) filed by the RP inter alia seeking stay of proceedings initiated against the CD (under Income Tax Act, 1961), has vide its order dated 24th May, 2019, upheld the settled position of law as regards application of Sec. 14 (r/w Sec. 238, IBC). The NCLT, thus concluded, that in the facts and circumstances of the case, issuance of Income Tax notice against the CD during the moratorium clearly contravenes the provisions of Sec 14(1)(a) as well as law declared by the Hon’ble SC in Hotel Gaudavan’s case (infra) and Monnet Ispat and Energy (infra). Upholding RP’s contentions, Hon’ble NCLT held as under;
Excerpts of the order;
“It is thus patent that no proceedings by any authority could have been continued or initiated after 16.03.2018 when the moratorium comes into effect. However, despite the intimation sent at various stages by the Resolution Professional bringing to the notice of the Assistant Commissioner- non applicant the operation of the moratorium under section 14(1)(a), the Assistant Commissioner continued proceedings which resulted in passing three penalty orders in respect of three separate assessment years under Section 271(1)(c) of the Income Tax Act on 30.03.2019. It is appropriate to mention that when the notices have been issued by the Assistant Commissioner on various dates from 17.10.2018 which as has already been notice in the preceding para. Thereafter , the Resolution Professional has been repeatedly intimating the Assistant Commissioner-non applicant about the moratorium. Despite repeated intimation the aforesaid orders have been passed which is wholly without jurisdiction and competence of the Assistant Commissioner. It clearly contravenes the provisions of Section 14(1)(a) and the law declared by Hon’ble The Supreme Court in Hotel Gaudavan’s case (supra) as well as in the case of Monnet Ispat and Energy (supra).
As a sequel to the above discussion the application is allowed. The three adverse orders passed against the corporate debtor on 30.03.2019 are hereby set aside as those orders were proceeded with and finally passed during the Corporate Insolvency Resolution Process period.”
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