Once CIRP initiated, IT dept cannot initiate fresh proceedings: Calcutta HC

MSP Metallics Limited Vs ACIT (Calcutta High Court)

Sub- Whether when Corporate Insolvency Resolution Plan(CIRP) is initiated against an entity, the income tax department can initiate fresh proceeding either civil or criminal  and the pending proceeding is required to be stayed in view of Section 238 of the IBC.

The Calcutta high court in this case was dealing with a case where the petitioner while being subjected to CIRP under the IBC law was issued order u/s 148A(d) and subsequent proceedings were continued. However, the Ld Single Bench noting the legal position as laid down under Section 238 of IBC Law quashed the order u/s 148A(d) and all subsequent proceedings in view of the law that once CIRP is initiated, no fresh proceedings either civil or criminal can be initiated.

The pending proceeding is required to be stayed in view of Section 238 of the IBC, the provisions of IBC has overriding effect upon all other laws inconsistent therewith.

This judgement will be helpful in all cases where the department is going against the provisions of Section 238 of IBC Law even though the issue is settled in the case of Ghanshyam Mishra and other cases.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

Affidavit of service and supplementary affidavit be taken on record.

The petitioner is an income tax assessee.

By a letter dated 29^th June, 2022 and 30^th June, 2022, the petitioner informed the respondent no.1 that the Central Bank of India filed a petition on 27.01.2022 against the petitioner under Section 7 of the Insolvency and Bankruptcy Code, (IBC) seeking Initiation of Corporate Insolvency Resolution Process (CIRP).

The prayer for CIRP was admitted by the NCLT and one Meena Sureka was appointed as a Resolution Professional. It is the case of the petitioner that once a Corporate Insolvency Resolution Process is admitted, no fresh proceeding either civil or criminal be initiated against the petitioner and the pending proceeding is required to be stayed in view of Section 238 of the IBC, the provisions of IBC has overriding effect upon all other laws inconsistent therewith. The petitioner also raised a dispute regarding receipt of an amount of Rs.3,00,00,000/- (rupees three crores) from such entities stated in paragraph 4 ii.

Thus, the cause of action to file the instant writ petition arose when by an order dated 30^th July, 2022 under Section 148(A)(d) of the IT Act, the respondent no.1 held that the reply/submission of your petitioner was not tenable and not satisfactory and notice was issued under Section 148 of the Income Tax Act.

In view of the aforesaid factual and legal position, the impugned proceeding including the aforesaid impugned order and subsequent proceedings including the order dated 1 5^th May, 2023 is not sustainable in law and is liable to be quashed.

Accordingly, the impugned proceeding is quashed.

The instant writ petition is accordingly, disposed of.

Urgent photostat certified copy of this order, if applied for, be given to the parties on usual undertakings.