THE DY. COMMR. OF INCOME TAX, GANDHIDHAM CIRCLE, GANDHIDHAM V. .M/S VIJAY TIMBER INDUSTRIES PVT. LTD., GANDHIDHAM

ITA 159/RJT/2016

AI Insights

The case involves M/s Vijay Timber Industries Pvt. Ltd., which faced an appeal from the Deputy Commissioner of Income-tax, Gandhidham Circle, against the order of the Learned Commissioner of Income Tax (Appeals)-2, Rajkot. The appeal pertained to the assessment year 2011-12 and challenged the CIT(A)'s decision to restrict the estimation of sales and the disallowance of salary expenses. The Tribunal also considered the implications of the company's liquidation under the Insolvency and Bankruptcy Code, 2016, and the subsequent resolution plan approved by the National Company Law Tribunal (NCLT). The Income-tax Department, being a party to the resolution plan, would receive a proportionate amount for the tax dues, but sought to prosecute the directors of the company for negligence. The Tribunal dismissed the Revenue's appeal, emphasizing the legal separation between the company and its directors post-liquidation and the overriding effect of the IBC over the Income-tax Act.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470495 (ITAT-RAJKOT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Other Referred Cases: Pratibha Industries Ltd. vs. DCIT [2022] 142 taxmann.com 295 (Mumbai \\u2013 Trib.), Committee of Creditors of Esar Steel India Limited though Authorised Signatory vs. Satish Kumar Gupta & Ors., Pr. CIT v. Monnet Ispat & Energy Ltd. [2019] 107 ttaxmann.com 481
• Laws Referred To: Income-tax Act, 1961, Insolvency and Bankruptcy Code, 2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJAY PUNGLIA
• Assessee Lawyers: KALPESH DOSHI
• Keywords: Set aside; Liquidation
• Section: 250

Judgement Text

"ITA No.159/Rjt/2016 (AY-11-12) M/s Vijay Timber Inds. Pvt. Ltd. 1 आयकरअपीलीयअिधकरण,राजकोटɊायपीठ,राजकोट। IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBERAND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकरअपीलसं/.ITA No.159/RJT/2016 िनधाŊरणवषŊ / Assessment Year: (2011-12) Deputy Commissioner of Income-tax, Gandhidham Circle, Gandhidham-Kutch बनाम Vs. M/s Vijay Timber Industries Pvt. Ltd., Gandhidham- Kutch, E-17, GIDC, Gandhidham Öथायीलेखासं /. जीआइआरसं /. PAN/GIR No.AAACV7089B (अपीलाथȸ/Appellant) .. (Ĥ×यथȸ/Respondent) Ǔनधा[ǐरतीकȧओरसे/Assessee by : Shri Kalpesh Doshi, AR राजèवकȧओरसे/Revenue by : Shri SanjayPunglia, CIT-DR सुनवाईकȧतारȣख /Date of Hearing : 25/09/2024 घोषणाकȧतारȣख /Date of Pronouncement : 23/12/2024 आदेश/Order Per Dr. Arjun Lal Saini, A.M Captioned appeal filed by the Revenue, pertaining to assessment year (AY) 2011-12, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-2, Rajkot[in short ‘Ld.CIT(A)], under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 25.02.2016, which in turn arises out of an assessment order passed by the Assessing Officer u/s143(3) of the Act dated 28.03.2014. 2. Grounds of appeal raised by the Revenue, are as follows: ITA No.159/Rjt/2016 (AY-11-12) M/s Vijay Timber Inds. Pvt. Ltd. 2 “(1) The Ld. CIT(A) has erred in law and on facts in restricting the estimation of sales from Rs.11,03,59,785/- to Rs.3,86,09,730/- without appreciating the fact that the assessee had not produced the books of a/c, stock register, purchase and sales bills and details of cash sales during the assessment proceedings and thereby the AO had rightly rejected book results invoking the provisions of Section145(3) of the Act. (2) The Ld. CIT(A) has erred in law and on facts in restricting the disallowance of salary expenses from Rs.1,13,27,405/- to Rs.22,11,632/- ignoring the fact that during the assessment proceedings the assessee failed to justify the reasons for abnormal increase from 3% of material consumption in AY 2010-11 to 17% of material consumption in the year under consideration. It is therefore prayed that the order of Ld.CIT(A) be set aside and that of AO be restored to the above extent.” 3. At the outset, Ld. CIT-DR for the Revenue submitted that although assessee-company has referred to National Company Law Tribunal (‘NCLT’ for short) and Income-tax Department is a party to the resolution plan, therefore, will get proportionate amount from the resolution plan, of the asset of the assessee-company. However, Ld.CIT-DR also submitted that the Department wants to prosecute the Director of the assessee- company, as they were negligent in their approach. TheLd DR pointed out that Tribunal may adjudicate the issue and dismiss the appeal of Revenue. However, it should be open for the Income-Tax Department to proceed against the Director of the assessee-company. 4. On the other hand, Ld. AR for the assesseesubmitted that NCLT framed a final order, dated 31.12.2020 and Income-tax Department were also party to the resolution plan and will get the amount proportionately for their Income-tax dues, as per the judgment of the Hon’ble NCLT. The Ld.AR for the assessee also submitted that there is no prejudice to the ITA No.159/Rjt/2016 (AY-11-12) M/s Vijay Timber Inds. Pvt. Ltd. 3 interest of revenue, therefore the appeal of the Revenue may be dismissed. 5. The Ld. Counsel for the assessee also submitted that Directors of the assessee-company should not be prosecuted, as the Directors of the assessee-company, are separate entity and assessee-company is also separate entity.After the assessee-company went into liquidation and the decision was delivered by the Hon’ble NCLT, as per the provisions of Insolvency and Bankruptcy Code. Therefore, the Directors are not liable to prosecute, when the company went into liquidation and the liquidatorwas appointed and Directors of the company do not have any connection with said company. Therefore, Directors of the company cannot be prosecuted and for that Ld. Counsel for the assessee, relied on the decision of Co-ordinate Bench, in the case of Pratibha Industries Ltd. vs. DCIT [2022] 142 taxmann.com 295 (Mumbai – Trib.), wherein it was held as follows: “3. The assessee company is engaged in the business of construction and development of infrastructureprojects. During the course of the appellate proceedings, the Ld.AR representing the assessee company 4iad submitted details with regard to the proceedings before the Hon'ble National Company Law Tribunal under various provisions of Insolvency and Bankruptcy Code-2016 initiated by Bank of Baroda as one of the lender of the assessee company. It was further stated that Hon'ble NCLT vide its order dated 01/02/2019 had appointed Mr. Sunilkumar Choudhary as Interim Resolution Professional & subsequently one Mr. Anil Mehta was appointed as Resolution Professional. As the Resolution Plan was rejected, for the purpose of liquidation, it is seen that the RP Mr. Anil Mehta having Registration No. 1BBI/IPA-001/IP-P00749.2017-2018/11282 has been appointed as the Liquidator of the Corporate Debtor. It was submitted by the assessee company vide its letter dated 06/06/2022 that as per provisions of section 33(5) of the Insolvency & Bankruptcy Code-2016, no proceeding can be initiated or continued till the completion of liquidation proceedings. During the course of hearing the Ld.AR citing the above reasons, had sought for long adjournments and the Ld. DR on the other hand, did not produce any material to controvert assessee's submission. 4. Having heard both the Ld. representatives and perused the materials placed on record, we observe that the liquidation proceedings has commenced as per the order of the ITA No.159/Rjt/2016 (AY-11-12) M/s Vijay Timber Inds. Pvt. Ltd. 4 Hon'ble NCLT, Mumbai, in assessee's case thereby appointing Official Liquidator. We are aware that from the time of appointment of Official Liquidator, the assessee company became defunct and the Official Liquidator steps into the shoes of the assessee. In the present case, it is seen that the Official Liquidator has not appeared before us so far to present the case of the assessee. Even during the moratorium period specified under section 14(1)(a) of the IBC Code, the Ld.representative for the AR made no representation on several hearings and the case was adjourned on various hearings. This being so, upon considering the provisions of section 33(5) of the IBC Code, which is reproduced hereinbelow:— 33. (1) Where the Adjudicating Authority, — (a) (b)(i) to (iii)** ** ** (2) to (4) ** ** ** (5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor: 5. Therefore, we are of the considered opinion that no suit or other legal proceedings shall be initiated by section 33(5) also provides prior approval of the Adjudicating Authority to be obtained by the Official Liquidator. 6. Pertinently, it is also to be observed that in case of parallel proceedings under Income- tax Act, 1961 and IBC, 2016, the IBC has an overriding effect over the provisions of the Income-tax Act which has been decided by Hon'ble Apex Court in Pr. CIT v. Monnet Ispat & Energy Ltd. [2019] 107 ttaxmann.com 481wherein the Hon'ble Apex Court had observed that as per section 238 of IBC, the IBC Code will override anything inconsistent contained in any other enactment, including the Income-tax Act. It is also trite to peruse section 178 of the Income-tax Act, 1961 which has been amended for the purpose of preventing any conflict with provisions of IBC Code which is reproduced as under:— \"178. (1) Every person— (a) who is the liquidator of any company which is being wound up whether under the orders of a court or otherwise ; or (b) who has been appointed the receiver of any assets of a company; (hereinafter referred to as the liquidator) shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Income-tax Officer who is entitled to assess the income of the company. (2) The Income-tax Officer shall, after making such enquiries of calling for such information as he may deem fit, notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator the amount which, in the opinion of the Income-tax Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company. (3) The liquidator— (a) shall not, without the leave of the Commissioner, part with any of the assets of the company or the properties in his hands until he has been notified by the Income-tax Officer under sub-section (2); and (b) on being so notified, shall set aside an amount, equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands : ITA No.159/Rjt/2016 (AY-11-12) M/s Vijay Timber Inds. Pvt. Ltd. 5 Provided that nothing contained in this sub-section shall debar the liquidator from parting with such assets or properties for the purpose of the payment of the tax payable by the company or for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation or for meeting such cost and expenses of the winding up of the company as are in the opinion of the Commissioner reasonable. (4) If the liquidator fails to give the notice in accordance with sub-section (1) or fails to set aside the amount as required by sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub- section, he shall be personally liable for the payment of the tax which the company would be liable to pay: Provided that if the amount of any tax payable by the company is notified under sub- section (2), the personal liability of the liquidator under this sub-section shall be to the extent of such amount.] (5) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally. (6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force(except the provisions of the Insolvency & Bankruptcy Code, 2016).\" 7. From the above observation and also by the decisions of co-ordinate bench of this Tribunal, we hereby dismiss the cross appeals filed by the Revenue and the Assessee with the liberty to the appellants/Official Liquidator to recall the present order when the occasion warrants. The issue of limitation in filing fresh appeal, if need be, has already been dealt with in the judgment of Hon'ble Supreme Court in New Delhi Municipal Council vs. Minosha India Ltd. [2022] 138 taxmann.com 73. 8. In the result, appeals filed by the Revenue and Assessee are dismissed.” 6.Therefore, Ld. Counsel for the assessee submitted that Directors are not responsible and they cannot be prosecuted. 7.We have heard both the parties and perused the materials available on record. We have also deliberated the case law relied on by both the parties. We note that Hon’ble NCLT in its order dated 31.12.2020, in assesee’s own case has observed as follows: “Advocate, Mr. Atul Sharma appeared on behalf of the Appellant. The instant application is fled under section 3391) & 34(1) of the IB Code. 1) On perusal of the records, it is fund that Suspended Management has already appeared in the matter. Though they were allowed time to file reply on 12.11.2020, within two weeks, but has failed to file reply. Hower, the Suspended Management, being promoter, was always present in the COC meetings and never raised any objection. ITA No.159/Rjt/2016 (AY-11-12) M/s Vijay Timber Inds. Pvt. Ltd. 6 2) It is a matter of record that there is only one member in the Committee of Creditors i.e., Punjab National Bank, who has passed the resolution for liquidation with 100% voting as NPV of Rs.461.15 lakhs, proposed by the Resolution Applicant, was less than the liquidation value of the assets of the Corporate Debtor. The said fact is reflected in the Minutes of 6th meeting held on 14.10.2020 at page no.124-152. 3) In view of the above situation, it is also pertinent to mentionherein that recently the Hon’ble Supreme Court of India in its judgment passed in Civil Appeal No.8766-67 of 2019- Committee of Creditors of Esar Steel India Limited though Authorised Signatory vs. Satish Kumar Gupta & Ors. Observed as follows: The commercial wisdom of the Committee of Creditors cannot be interfered into by the Adjudicating Authority. The Hon’ble Supreme Court affirmed K. Sashidhar’s judgement that neither the Adjudicating Authority nor the Appellate Authority has been endowed with the jurisdiction to reverse the commercial wisdom of the CoC. 4) Under the facts and circumstances as narrated above, we pass the following orders: a) The moratorium declared under Section 14 of the IB Code shall cease to have effect from the date of the order of liquidation. b) The liquidator is further directed to issue public announcement stating that the Corporate Debtor is in liquidation. c) The liquidator is required to send certified copy of this order to the authority with which the Corporate Debtor is registered. d) Subject to Section 52 of the IB Code, no suit or other legal proceedings shall be instituted by/or against the Corporate Debtor. However, a suit and other legal proceedings may be instituted by the Liquidator, on behalf of the Corporate Debtor, with the prior approval of this Authority. e) This Authority makes it clear that para (d) hereinabove shall not apply to legal proceedings in relation to such transactions as notified by the Central Government in consultation with any financial sector regulator. f) The Order shall be deemed to be a notice of discharge to the officers, employees and workmen of the Corporate Debtors, except when the business of the Corporate Debtor is continued during the liquidation process by the Liquidator. g) All the powers of the Board of Directors, Key Managerial Personnel and the Partners of the Corporate Debtor, as the case may be, shall cease to have effect and shall be vested with the Company Liquidator. In addition to this, the Company Liquidator shall exercise the powers and duties as enumerated in Sections 35 to 50, 52 to 54 of the IB Code, 2016, read with Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. h) The personnel of the Corporate Debtor shall extend all assistance and co- operation to the Liquidator as may be required by him in managing the affairs of the Corporate Debtor. i) The Company Liquidator shall be entitled to charge such fee for the conduct of the liquidation proceedings in such a proportion to the value of the liquidation estate assets as may be specified by the Board. j) The Registry is directed to communicate this order with immediate effect to the concerned Registrar of Companies, registered office of the Corporate Debtor and Company Liquidator for information and compliance. ITA No.159/Rjt/2016 (AY-11-12) M/s Vijay Timber Inds. Pvt. Ltd. 7 5) Hence, the application so filed by the RP is allowed and in the circumstances, the Adjudicating Authority passes an order for liquidation of the Corporate Debtor under Section 33 of the IB Code, 2016. The RP appointed for the CIRP, shall act as the Liquidator for the purpose of liquidation of the Corporate Debtors. Accordingly, the instant is stands disposed of with the above observations.” 8. We note that in case of parallel proceedings under Income-tax Act, 1961 and IBC, 2016, the IBC has an overriding effect over the provisions of the Income-tax Act which has been decided by Hon'ble Apex Court in Pr. CIT v. Monnet Ispat & Energy Ltd. [2019] 107 ttaxmann.com 481 wherein the Hon'ble Apex Court had observed that as per section 238 of IBC, the IBC Code will override anything inconsistent contained in any other enactment, including the Income-tax Act. We further note that the directors of the company, who went into liquidation, are not liable for prosecution. Therefore, we dismiss the appeal of Revenue. 9. In the result, the appeal of the Revenue is dismissed. Order is pronounced in the open court on 23/12/2024 Sd/- Sd/- (DINESH MOHAN SINHA) (DR.ARJUNLALSAINI) Æयाियक सदÖय/JUDICIAL MEMBER लेखा सदÖय/ACCOUNTANT MEMBER राजकोट /Rajkot िदनांक/ Date:23/12/2024 DKP Outsourcing Sr. P. S. आदेश कì ÿितिलिप अúेिषत/ Copy of the order forwarded to :  अपीलाथê/ The Appellant  ÿÂयथê/ The Respondent  आयकर आयुĉ/ CIT  आयकर आयुĉ(अपील)/ The CIT(A)  िवभागीय ÿितिनिध, आयकर अपीलीय आिधकरण, राजकोट/ DR, ITAT, RAJKOT  गाडªफाईल/ Guard File  ITA No.159/Rjt/2016 (AY-11-12) M/s Vijay Timber Inds. Pvt. Ltd. 8 By order/आदेशसे, सहायकपंजीकार आयकरअपीलीयअिधकरण ,राजकोट Date Initial 1. Draft dictated on 24/09/24 Sr.PS 2. Draft placed before author 24/09/24 (dictation pad has been enclosed along with original file) Sr.PS 3. Draft proposed & placed before the second member /09/24 JM 4. Draft discussed/approved by Second Member. /09/24 JM 5. Approved Draft comes to the Sr.PS/PS /09/24 Sr.PS/ PS 6. Kept for pronouncement on /09/2024 Sr.PS 7. File sent to the Bench Clerk /09/24 Sr.PS 8. Date on which file goes to the H.C. 9. Date on which file goes to the SPS 10. Date of dispatch of Order. "