Case Law Details
PCIT Vs Subhlabh Steels Private Limited (Calcutta High Court)
Calcutta High Court has dismissed an appeal filed by the Income Tax Department against Subhlabh Steels Pvt. Ltd., citing the ongoing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016. The Revenue had challenged an order of the Income Tax Appellate Tribunal (ITAT), Kolkata, which had set aside a Section 263 order passed by the Principal Commissioner of Income Tax (PCIT). The case pertained to the Assessment Year 2013-14, where the PCIT had sought to revise the Assessing Officer’s (AO) order on the grounds that the books of accounts were rejected without applying a reasonable net profit (NP) rate.
The Court observed that an application for liquidation had been filed against Subhlabh Steels before the National Company Law Tribunal (NCLT), Kolkata, by Chaitanya Alloys Pvt. Ltd., an operational creditor. The NCLT, through its order dated December 9, 2021, had admitted the insolvency plea and imposed a moratorium under Section 14 of the IBC, effectively barring all legal proceedings, including tax appeals, against the corporate debtor. Given this statutory restriction, the Revenue’s appeal could not be entertained by the Court.
The Insolvency Resolution Professional (IRP), representing the company, argued that under Section 238 of the IBC, its provisions override other laws, including the Income Tax Act. The Calcutta High Court relied on the Supreme Court’s ruling in PCIT v. Monnet Ispat and Energy Ltd. (SLP No. 6483 of 2018, decided on August 10, 2018), where the Apex Court had upheld the precedence of IBC over tax recovery proceedings. The Supreme Court had clarified that once insolvency proceedings are initiated, all tax-related matters must be handled within the framework of the IBC.
The Court also noted that there was a 474-day delay in filing the appeal. While the delay was condoned, the appeal itself was dismissed on jurisdictional grounds. The substantial question of law raised by the Revenue was left open, meaning that the legal issue remains undecided but cannot be pursued until the insolvency process concludes.
Consequently, both the Income Tax appeal and the stay application were dismissed. The judgment reinforces the principle that IBC takes precedence over Income Tax proceedings, aligning with prior Supreme Court rulings and ensuring that tax claims are subject to insolvency resolution frameworks.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
The Court : We have heard Mr. Prithu Dudheria, learned standing counsel appearing for the appellant and Mr. Debasis Lahiri, learned advocate representing the Insolvency Resolution Professional appointed by NCLT in the matter of the respondent/assessee.
There is a delay of 474 days in filing the appeal. Since the NCLT has already passed an order and in the light of Section 14 of the Insolvency & Bankruptcy Code, 2016, the appeal cannot be pursued by the revenue, we are inclined to exercise discretion and condone the delay in filing the appeal.
Accordingly, the application for condonation of delay is allowed.
This appeal by the revenue filed under Section 260A of the Income Tax Act, 1961 is directed against the order dated 20th March, 2020 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Kolkata in ITA/2047/Kol/2018 for the assessment year 2013-14.
The revenue has raised the following substantial question of law :
I. Whether, on the facts and circumstances of the case and on law learned ITAT was justified in quashing the order u/s 263 passed by the Principal Commissioner of Income Tax without appreciating the facts of the case as the assessing officer completely ignored to compute business income of the assessee after applying reasonable NP rate on rejection of books of accounts?
As against the respondent company an application for liquidation has been filed before the National Company Law Tribunal, Kolkata Bench and by order dated 9th December, 2021 the application filed by Chaitanya Alloys Private Limited, the operational creditor under Section 9 of the Insolvency & Bankruptcy Code, 2016 has been admitted and a moratorium as provided under Section 14 of the Code has been ordered. There are other directions issued by the NCLT as well.
Thus, in the light of the statutory provision and in the light of the decision of the Hon’ble Supreme Court in PCIT- Vs. -Monnet Ispat and Energy Limited, a Special Leave to Appeal (C) No.6483 of 2018 dated 10th August, 2018 and also in the light of the overriding provisions of the Code in terms of Section 238 of the Act, the revenue cannot pursue the appeal.
For such reasons, the appeal is dismissed and the substantial question of law is left open.
Consequently, the stay application also stands dismissed.
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