ACIT, Central Circle 2(3), Chennai V. SBQ Steels Ltd, Chennai

ITA 303/CHNY/2018

AI Insights

The case involves six appeals by the Revenue against SBQ Steels Ltd. concerning various assessment years. The appeals were based on assessments made under sections 143(3) read with section 153A of the Income Tax Act, 1961. However, the primary legal development was the dissolution of SBQ Steels Ltd. by the NCLT under the Insolvency and Bankruptcy Code, 2016, following a complete liquidation of the company's assets. The Tribunal considered the implications of this dissolution on the pending appeals and the legal principle that proceedings cannot continue against a dissolved entity.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 128467 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-11-2022
• Assessment Year: misc
• Appeal Filed On: 22-12-2022
• Other Referred Cases: Gaurav V. Shah v. ACIT, Mr. Radhey Mohan Sharma v. DCIT, M/s. Lovely Exports (P) Ltd.
• Laws Referred To: Income Tax Act, 1961, Insolvency and Bankruptcy Code, 2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Liquidation
• Section: 54

Judgement Text

आयकर अपीलȣय अͬधकरण,‘बी’ Ûयायपीठ,चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ एवं ᮰ी मनोज कुमार अᮕवाल, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.: 300, 301, 302, 303, 578 & 579/CHNY/2018 िनधाᭅरण वषᭅ/Assessment Years: 2008-09,2009-10,2010-11,2011-12, 2012-13 & 2013-14 The ACIT, Central Circle - 2(3), Chennai. Vs. SBQ Steels Ltd., No.6/13, North Avenue, Kesavaperumalpuram, Chennai – 600 028. PAN : AAKCS 8867Q (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri B. Ramakrishnan, FCA ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri Guru Bashyam, CIT स ु नवाई कȧ तारȣख/Date of Hearing : 15.11.2022 घोषणा कȧ तारȣख/Date of Pronouncement : 25.11.2022 आदेश /O R D E R6 PER MAHAVIR SINGH, VICE PRESIDENT: These six appeals by the Revenue are arising out of three different orders of the Commissioner of Income Tax (Appeals)-18, Chennai in ITA Nos.1013 & 1014/15-16 dated 05.10.2017, 91 & 92/16-17 dated 13.10.2017 and 1042 & 1043/15-16 dated 22.11.2017. The - 2 - ITA Nos.300 to 303, 578 & 579/Chny/2018 assessments were framed by the ACIT, Central Circle 2(3), Chennai for the assessment years 2008-09 to 2013-14 u/s.143(3) r.w.s. 153A of the Income Tax Act, 1961, (hereinafter ‘the Act’) vide orders dated 31.03.2015 & 31.03.2016. 2. At the outset, the ld.AR for the assessee filed copy of order of National Company Law Tribunal, Chennai in MA/5/2021 in CP/665/IB/2017 filed under Section 54 of the Insolvency and Bankruptcy Code, 2016 read with Regulation 47A in the matter of SBQ Steels Limited, order dated 11 th February, 2022, wherein NCLT has passed an order dissolving the company and the relevant order from para’s 9 to 11 read as under:- 9. Heard the submissions made by the Learned Counsel for the Applicant. Section 54 of the IBC, 2016 provides as follows: - Section 54 "(1) Where the assets of the corporate debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor. (2) The Adjudicating Authority shall on application filed by the liquidator under sub-section (1) order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly. (3) A copy of an order under sub-section (2) shall within seven days from the date of such order, be forwarded to the authority with which the corporate debtor is registered." 10. From the averments made in the Application along with the perusal of the final report and the Compliance Certificate filed in Form-H by the - 3 - ITA Nos.300 to 303, 578 & 579/Chny/2018 Applicant, it is seen that the Corporate Debtor has been completely liquidated and in the said circumstances as averred and as prayed for by the Applicant that an order for dissolution is required to be passed by this Adjudicating Authority under Section 54 of the IBC, 2016. 11. Accordingly, we hereby order for the dissolution of the Corporate Debtor viz., M/s. SBQ Steels Limited and the Liquidator is directed to forward a copy of this Order to the RoC concerned and also to the IBBI for its records within a period of 7 days from the date of this Order. Accordingly, MA/5(CHE)/2021 stands Allowed. 2.1 The ld.AR for the assessee referred to note on IBC proceedings and stated that once the company is dissolved by NCLT, the proceedings of any type cannot survive. Hence, he requested that the appeals filed by the Revenue in these six years have become infructuous and hence, deserves to be dismissed at the threshold. The ld.AR for the assessee referred to note filed by assessee on IBC proceedings in assessee’s case, which read as under:- M/s.Union Bank of India Limited, Financial Creditor, had filed an application under the Insolvency and Bankruptcy Code, 2016 (‘IBC' or the Code') against M/s.SBQ Steels Limited (Corporate Debtor' or the Company') and Corporate Insolvency Resolution Process ('CIRP') was initiated & Mr.Vasudevan was appointed as Interim Resolution Professional (IRP') vide National Company Law Tribunal ('NCLT') Order dated 29.12.2017 in CP/665/IB/2017. Thereafter, the Committee of Creditors (‘CoC') had filed an application in terms of section 22(4) of the Code proposing the appointment of Resolution Professional ('RP’) who was not the IRP and thereby the NCLT had appointed Mr.Ashish Arjunkumar Rathi as the RP vide Order dated 03.04.2018. The Resolution Professional, based upon the resolution passed by CoC on 12.11.2018 proposing the liquidation of Corporate Debtor, had filed an application u/s 33(1) of the Code seeking for the liquidation of the Corporate Debtor as no resolution plan was approved by the CoC within the CIRP period. - 4 - ITA Nos.300 to 303, 578 & 579/Chny/2018 Considering the facts and circumstances of the case, the NCLT had ordered for the liquidation of the corporate debtor and appointed the RP as the liquidator of the company vide Order dated 15.02.2019. Pursuant to the Order of NCLT, the Liquidator had made a Public Announcement in Schedule Il - Fom B on 22.02.2019 that the NCLT had ordered for commencement of liquidation of the company and the stakeholders of the company were called upon to file their claims with proof before 20.03.2019. The Liquidator had filed the Asset Memorandum listing all the available assets for sale under the Liquidation Process on 02.05.2019. Subsequently, several auctions were conducted for the sale of the corporate debtor as a going concern. In the 4 th auction conducted on 07.08.2020, M/s.Liberty Group Pte Ltd was declared the highest bidder and on 11.08.2020, Liberty also had confirmed the mode of purchase as 'set of assets collectively' and for completing the transaction they had incorporated a special purpose vehicle knows as Liberty Steel SBQ Limited. Thereafter, on 10.12.2020, the Liquidator had issued the sale certificate and handed over the possession of all the assets to Liberty SPV after the receipt of total sale consideration. The consideration received from Liberty SPV was distributed to the stakeholders as per section 53 of the Code. Consequently, the Liquidator had filed an application u/s 54 of the Code and the NCLT vide Order dated 11.02.2022 had ordered for dissolution of the corporate debtor. The extract of section 54 of the IBC is reproduced as under: 'Section 54: Dissolution of corporate debtor. 54. (1) Where the assets of the corporate debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor. (2) The Adjudicating Authority shall on application filed by the liquidator under sub-section (1) order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly. (3) A copy of an order under sub-section (2) shall within seven days from the date of such order, be forwarded to the authority with which the corporate debtor is registered. - 5 - ITA Nos.300 to 303, 578 & 579/Chny/2018 In the present case, since the company is dissolved and there is no successor for M/s.SBQ Steels Ltd., it is submitted that no proceedings shall continue against the company which is non-existent as on today. However, the Department can recover the outstanding demand of the dissolved company (the respondent' or 'M/s.SBQ Steels Limited') is by invoking the provisions of section 179 of the Act to the extent applicable. For the sake of brevity, the provisions of section 179 are reproduced which reads as under: Liability of directors of private company 44[***]. 179. (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during Which Such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. (2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962. Explanation.-For the purposes of this section, the expression "tax due" includes penalty, interest 45 [.fees] or any other sum payable under the Act. From the plain reading of the above section, it is evident that the provisions of section are applicable only with respect to the liability of the Private Limited Company which can be recovered from the director of the private limited company subject to satisfying the conditions mentioned therein. However, in the present case, M/s.SBQ Steels Limited having CIN:U27310TN2007PLC062823 was incorporated on 22.03.2007 as a - 6 - ITA Nos.300 to 303, 578 & 579/Chny/2018 Public Company limited by shares and the company was never converted as a Private Company. This principle of the section 179 was forfeited by the Hon'ble Gujarat High Court in the case of Gaurav V. Shah v. ACIT (2014] 44 taxmann.com 65 (Gujarat) wherein the Hon'ble Court has held that where assessee was a director of a company against which tax demand for assessment year 1996- 97 remained unpaid, provisions of section 179 could not be made applicable since said company was converted into public company from 5-12-1994. Further, in a similar case the Hon'ble High Court of Gujarat in the case of Mr.Radhey Mohan Sharma v. DCIT [2014] 44 taxmann.com 66 (Gujarat) had held that where company became public limited company vide certificate of incorporation dated 25-5-1992, notice under section 221 for recovery of dues of company for years 1995-96 to 1996-97 to assessee director of said company could not be sustained. Thus, the provisions of section 179 of the Act would not be applicable to the directors of the M/s. SBQ Steels Limited.” 3. When these facts were put to the ld.CIT-DR, he only requested that in view of the decision of Hon’ble Supreme Court in the case of M/s.Lovely Exports (P) Ltd., 216 ITR 195, the addition in the hands of investing company can be considered as unexplained investment. The ld.CIT-DR drew our attention to Revenue’s paper-book, volume- 1, page Nos.1 to 35, wherein the AO’s report vide F.No.ACIT/CC- 2(3)/2021-22 dt. 19.03.2022 enclosed, can be considered. Apart from that, on the issue of dissolving of the company by NLCT, the ld.CIT-DR could not adduce anything. - 7 - ITA Nos.300 to 303, 578 & 579/Chny/2018 4. We have heard rival contentions and gone through the fact that the assessee company stands dissolved by NLCT vide order dated 11.02.2022. In the present case before us, the admitted facts are that the assessee company is dissolved and there is no successor for assessee company, SBQ Steels Ltd., in our view, no proceedings shall be continued against the assessee company because it is non- existent as on date. In term of the above, we dismiss these appeals of Revenue as infructuous. 5. In the result, the appeals of the Revenue in ITA Nos.300, 301, 302, 303, 578 & 579/CHNY/2018 are dismissed. Order pronounced in the open court on 25 th November, 2022 at Chennai. Sd/- Sd/- (मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सद᭭य/ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 25 th November, 2022 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ )अपील(/CIT(A) 4. आयकर आयुᲦ /CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF.