Case Number: ITA 937/DEL/2021
Appellant: Asian Colour Coated Ispat Ltd., Gurgaon
Respondent: DCIT, Central Circle II, Faridabad
Assessment Year: 2011-12
Result: 2011-12
Case Filed on: 2021-08-04
Order Type: Final Tribunal Order
Date of Order: 2022-09-30
Pronounced on: 2022-09-30
Tribunal: IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH ‘A’, NEW DELHI
Before: SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER and SH. NARENDER KUMAR CHOUDHARY, JUDICIAL MEMBER
Introduction
This appeal by the assessee, Asian Colour Coated Ispat Ltd., pertains to the assessment year 2011-12 and is directed against the order of the Deputy Commissioner of Income Tax (DCIT), Central Circle II, Faridabad. The primary issue revolves around the disallowance of interest on account of alleged non-business purposes.
Background
The appellant, Asian Colour Coated Ispat Ltd., located at NTH Complex, 4th Floor, A-2, Shaheed Jeet Singh Marg, Qutub Institutional Area, New Delhi, filed an appeal against the disallowance of interest amounting to Rs. 21,15,60,072 under Section 36(1)(iii) of the Income Tax Act, 1961. The disallowance was made by the DCIT, Central Circle II, Faridabad, in the assessment order dated 28.03.2013. Aggrieved by this decision, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], Gurgaon, which was dismissed on 10.03.2021. The appellant then appealed to the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘A’.
Hearing and Decision
The appeal was heard on 22nd September 2022, and the decision was pronounced on 30th September 2022. The appellant was represented by Shri Aman Garg, C.A., and the respondent was represented by Shri R. K. Gupta, CIT -D.R.
Tribunal’s Observations
The Tribunal noted that the assessee’s premises were subjected to search and seizure operations on 28.01.2011. Consequently, a notice under Section 153A of the Income Tax Act was issued. The case was scrutinized, and an addition was made on account of disallowance of interest under Section 36(1)(iii) of the Act, amounting to Rs. 21,15,60,072. The CIT(A) dismissed the appeal on the grounds that the interest was not incurred for business purposes.
Appellant’s Arguments
The appellant argued that the Corporate Insolvency Resolution Plan filed by JSW Steel Coated Products Ltd. was approved by the Hon’ble National Company Law Tribunal (NCLT) on 26th October 2020 under Section 31(1) of the Insolvency and Bankruptcy Code (IBC), 2016. The appellant contended that by virtue of the NCLT order, all tax dues prior to the approval date of the resolution plan were extinguished, and no consequential proceedings could be initiated or tax/penalty levied for the said period. The appellant submitted relevant documents, including the NCLT order and extracts from the resolution plan.
Tribunal’s Conclusion
The Tribunal referred to the Hon’ble Supreme Court’s judgment in the case of Ghanashyam Mishra and Sons Pvt. Ltd. (Civil Appeal No. 8129 of 2019), which held that once a resolution plan is approved by the Adjudicating Authority, all claims provided in the resolution plan are binding and any claims not included are extinguished. The Tribunal noted that this ruling, along with the 2019 amendment to Section 31 of the IBC, which has retrospective effect, supported the appellant’s case.
The Tribunal concluded that in view of the NCLT order approving the resolution plan, all liabilities of the assessee, including the disallowance of interest, stood extinguished. Consequently, the grounds of appeal filed by the assessee were dismissed.
Order
In the result, the appeal of the assessee is dismissed. The decision was pronounced in the open court on 30th September 2022.
Final Judgment
Order pronounced in the open court on 30.09.2022
Signed:
[NARENDER KUMAR CHOUDHARY]
JUDICIAL MEMBER
[ANIL CHATURVEDI]
ACCOUNTANT MEMBER
Dated: 30.09.2022
Copy forwarded to:
Assistant Registrar
ITAT, New Delhi
Relevant Legal Provisions and Precedents
The Income Tax Act, 1961, under Section 36(1)(iii), deals with deductions for interest on borrowed capital used for business purposes. In this case, the disallowance was made on the grounds that the interest was not incurred for business purposes. However, the resolution plan approved by the NCLT under the IBC, 2016, played a crucial role in extinguishing the liability.
The Hon’ble Supreme Court’s judgment in Ghanashyam Mishra and Sons Pvt. Ltd. clarified that once a resolution plan is approved, all claims not included in the plan are extinguished. This judgment, along with the retrospective effect of the 2019 amendment to Section 31 of the IBC, was instrumental in the Tribunal’s decision.
Impact of the NCLT Order
The approval of the resolution plan by the NCLT has significant implications for the appellant. It not only extinguishes past liabilities but also prevents the initiation of any proceedings related to claims not included in the resolution plan. This case underscores the importance of the resolution plan in insolvency proceedings and its binding nature on all stakeholders, including government authorities.
Key Takeaways
This case highlights the impact of insolvency proceedings on tax liabilities and the binding nature of resolution plans approved by the NCLT. The Tribunal’s decision underscores the importance of including all relevant claims in the resolution plan to ensure they are addressed and extinguished. The retrospective effect of the 2019 amendment to Section 31 of the IBC further strengthens the position of companies undergoing insolvency resolution, providing them with a clean slate post-approval of the resolution plan.
The ruling serves as a significant precedent for similar cases and emphasizes the need for thorough documentation and inclusion of all liabilities in the resolution plan to avoid future disputes and litigation.
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