IBC Has Overriding Effect on All the Acts Including Income Tax Act, 1961

Posted On - 28 February, 2023 • By - King Stubb & Kasiva

In a recent decision, as per Section 178(6) of the Income Tax Act, 1961 the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has concluded that the Insolvency and Bankruptcy Code (IBC) has an overriding effect on all acts, including the Income Tax Act, effective November 1, 2016. The bench has noted that no legal action, including those brought before the Tribunal, tax audits, demand recovery actions, or actions to give effect to any orders, may be taken against a corporate debtor.

The Commissioner of Income-tax (Appeal) (CIT(A))’s order which removed the increase made by the Assessing Officer (AO)., was contested by the department. Further, it argued that a financial creditor had petitioned the National Company Law Tribunal (NCLT) under Section 7 of the Insolvency and Bankruptcy Code 2016 seeking a judgement against the assessed, and the NCLT has allowed the petition. The provisions of the moratorium were implemented as a result of the NCLT’s admission of the application made in accordance with Section 14 of the IBC Code.

The Tribunal stated that no meaningful purpose would be served by continuing the proceedings in light of the NCLT’s declaration of a moratorium, which prevents all court of law, tribunal, etc. When the moratorium period expires, the NCLT order is changed, the assessee company is revived, or it is necessary in the interest of justice, the ITAT awarded the assessee and Revenue the power to pursue corrective actions in line with the law.