NCLT Order setting aside assessment and penalty orders during the moratorium period under the Insolvency and Bankruptcy Code (IBC) and Observation by Bombay High Court

Here is an interesting case delivered by the Bombay High Court in Writ Petition (Lodging) No. 18790 of 2024 involving the Principal Commissioner of Income Tax-6, Mumbai and the National Company Law Tribunal (NCLT).

Let us have a short overview of the case:

The petition challenges an order from the NCLT dated February 22, 2023, which set aside assessment and penalty orders against Swiber Offshore (India) Pvt. Ltd. during the moratorium period under the Insolvency and Bankruptcy Code (IBC).

NCLT’s Order:
The NCLT ruled that the assessment and penalty orders were invalid as they were issued during the moratorium period. It directed the release of eligible income tax refunds for the assessment years 2014-15 and 2015-16 to the corporate debtor.

Assessment Details:

For AY 2014-15, Swiber Offshore filed a return declaring a loss and claimed a refund, which was processed.

For AY 2015-16, the company declared a loss but faced a penalty of ₹3,66,95,945 for non-compliance.

For AY 2016-17, the company did not file a return, leading to a significant tax demand raised by the income tax department under section 147 r.w.s 144.
Legal Arguments:

The petitioner argued that the NCLT overstepped its authority by invalidating tax assessments and that the tax authority should not be barred from enforcing tax laws during insolvency proceedings.

The respondent contended that the tax refunds should not be adjusted against any pending demands after the moratorium commenced.

Court’s Findings:
The High Court quashed the NCLT’s order and directed the income tax department to release the refund for AY 2014-15.
However, it ruled that the corporate debtor was not entitled to refunds for AYs 2015-16 and 2016-17, as the TDS had been paid before the admission of the company petition under the IBC.

This case highlights the intersection of tax law and insolvency proceedings, clarifying the rights of tax authorities during the moratorium period under the IBC. It underscores the importance of adhering to statutory timelines and the limitations on claims during insolvency.

The copy of the order is as under:

1731431910071