The Income Tax Appellate Tribunal, Delhi Bench, has delivered a significant ruling on the interplay between the Insolvency and Bankruptcy Code, 2016 and the Income Tax Act, 1961. The Tribunal held that the moratorium imposed under Section 238 of the IBC overrides all inconsistent provisions of other statutes, including tax proceedings, rendering pending appeals infructuous during insolvency resolution.
Background & Facts
The Dispute
The appeals arose from an assessment order for the assessment year 2017-18, where both the assessee, Raman Gupta, and the Revenue (Assistant Commissioner of Income Tax) filed cross-appeals before the ITAT. The assessee, however, failed to appear during proceedings, with their authorized representative withdrawing due to non-cooperation.
Insolvency Proceedings
A critical development occurred when insolvency proceedings were initiated against the assessee under the Insolvency and Bankruptcy Code, 2016. The National Company Law Tribunal, Principal Bench, New Delhi, imposed a moratorium on 13 May 2025 in National Asset Reconstruction Company Ltd. vs. Raman Gupta (CP(IB)-337(PB)2021). This moratorium, as per Section 238 of the IBC, bars the continuation or initiation of legal proceedings against the corporate debtor.
Procedural History
The case followed this trajectory:
- 2013: First Appellate Authority passed an order for AY 2017-18
- 2023: Cross-appeals filed by assessee and Revenue before ITAT
- 2025: NCLT imposed moratorium under IBC
- 2026: ITAT heard the matter and dismissed appeals as infructuous
The Legal Issue
The central question before the Tribunal was whether Section 238 of the Insolvency and Bankruptcy Code operates to override the Income Tax Act, 1961, thereby rendering pending tax appeals infructuous during the moratorium period.
Arguments Presented
For the Revenue
The Departmental Representative did not controvert the factual matrix regarding the moratorium. However, the Revenue's position, by default, relied on the general precedence of tax laws and the obligation to recover dues under the Income Tax Act.
The Court's Analysis
The Tribunal relied on the Supreme Court's decision in PCIT vs. Monnet Ispat and Energy Ltd. (SLP (C) No. 6483 of 2018), where the Court held:
"Given section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income Tax Act."
The Tribunal observed that Section 238 of the IBC explicitly provides that the Code's provisions override any inconsistent laws. This includes the Income Tax Act, 1961, meaning all claims, including tax demands, must be addressed through the insolvency resolution process under Section 53(1) of the IBC. The moratorium imposed by NCLT thus barred the continuation of tax appeals before the ITAT.
The Tribunal further noted that the appeals were not dismissed on merits but as infructuous, leaving open the possibility for reinstitution post-resolution of insolvency proceedings.
The Verdict
The ITAT dismissed both cross-appeals as infructuous, holding that the moratorium under Section 238 of the IBC overrides the Income Tax Act, 1961. The assessee and Revenue were granted liberty to approach the Tribunal for reinstitution of appeals after the conclusion of insolvency proceedings.
What This Means For Similar Cases
Moratorium Bars All Tax Proceedings
The judgment reinforces that insolvency proceedings take precedence over tax disputes. Practitioners must:
- Immediately check for insolvency proceedings when handling tax appeals
- Seek stay or dismissal of pending tax matters during moratorium
- Direct all claims, including tax demands, to the insolvency resolution process
Liberty to Reinstitute Post-Insolvency
The Tribunal's decision to dismiss appeals as infructuous, rather than on merits, preserves the right to reinstitute proceedings. This implies:
- Parties should track the insolvency resolution timeline
- Appeals can be revived post-resolution, subject to Tribunal's discretion
- Tax authorities must file claims before the Official Liquidator under Section 53(1) of the IBC
Overriding Effect of IBC
The ruling underscores the non-obstante clause in Section 238 of the IBC, which practitioners must invoke to:
- Challenge ongoing tax proceedings during insolvency
- Argue against recovery actions by tax authorities
- Seek protection under the moratorium for all statutory dues
