The Delhi High Court in the case Indo Enviro Integrated Solution Limited Versus ACIT, the bench comprising of Justice Manmohan and Justice Manmeet Pritam Singh observed and stayed an order of income tax assessment and consequential demand and notice of penalty, the order was assailed on the ground of being in contravention of the order of the National Company Law Tribunal (NCLT).
The Union of India, through Mininstry of Corporate Affairs filled an application under Sections 241 and 242 of the Companies Act before the NCLT based on recommendations of the Ministry of Finance, Department of Economic Affairs. It was alleged in the application that the operations of the IL & FS Group of Companies were being carried out in a manner prejudicial to the public interest. An application was made under Sections 241 and 242 of the Companies Act. However, Under the IBC, the Union of India could not file an application as in India there exists no concept of group level insolvency resolution and, at the relevant date and the financial services were outside the ambit of the IBC.
The Board of IL & FS Group were suspended by the NCLT and a new board was constituted. The request of the Union of India for a grant of moratorium similar to that under Section 14 of the IBC was rejected, against the subsequent order of NCLT dated 10.10.2018. A memorandum was granted against all the proceedings by any person by the NCLAT vide order dated 15.10.2018.
It was directed by the NCLAT that a resolution process similar to that of the IBC be adopted and a committee of creditors be formed. A public announcement was published by the CoC upon the creditors of IL & FS Group Entities to submit their claims with proof. Therefore, a resolution plan was formed and was submitted before the NCLT for approval, the resolution plan contemplated the extinguishment of all tax liabilities prior to 15.10.2018. The Union of India agreed the resolution plan and was approved by Justice (Retd.) D.K. Jain, appointed for supervision of the entire resolution process by NCLAT. The NCLT approved the resolution plan which, inter alia, contemplated the extinguishment of tax liabilities vide order dated February 2, 2021.
Indo Enviro Integrated Solution, the petitioner acquired 100% shares of IL & FS Environmental & Infrastructure Services Limited (part of the IL & FS Group) pursuant to its response to an open bid conducted and approval of the resolution plan by NCLT. the Income Tax Department initiated assessment for AY 2018-19, during the pendency of the Resolution Process and the moratorium period.
It was confirmed by the Income Tax Authorities the demand of Rs. 48.5 crores, despite the petitioner having brought to the attention of the authorities that pursuant to the NCLT order and all tax liabilities for the period in question have been extinguished, after the approval of the resolution plan.
The order was challenged by the petitioner and the consequential demand and penalty notice on grounds of being in contravention of the order of the NCLT and principles of natural justice.
It was stated by the petitioner that the order and the consequential notices of demand and penalty, raising a demand for income tax amounting to Rs. 48 crores, were in complete contravention of the order passed by the NCLT. It was claimed by the petitioner that once the resolution process was approved that all the claims and liabilities of the creditors (including the Central Government, local tax or the regulatory authorities) were extinguished existing prior to October 15.
It was submitted by the respondent/department that six weeks to be allowed to file counter-affidavits.
The issue raised before the court was whether the government debts can be extinguished under the Companies Act resolution process (which is not the same as the IBC process).
while listing the matter on September 27, 2022., the court listed the matter and stayed the order as well as consequential income tax notices of demand and penalty.