Income Tax Department cannot initiate Legal Proceedings upon Commencement of CIRP: NCLT

Income Tax Department cannot initiate Legal Proceedings upon Commencement of CIRP: NCLT

The National Company Law Tribunal (NCLT) Hyderabad ruled that the income tax department cannot initiate legal proceedings against the corporate debtor once the Corporate Insolvency Resolution Process (CIRP) has started.

The ten assessment orders passed by the department for the assessment years 2014-15 to 2020-21 raised a demand of Rs 32.35 crore towards outstanding income tax dues.

The applicant, Maligi Madhusudhana Reddy, the Resolution Professional of Naoline Infrastructure, filed an application challenging these assessment orders. He argued that the department had violated section 14 of the Insolvency and Bankruptcy
Code, 2016, while passing an order and raising a demand during CIRP.

The tribunal agreed with the contentions of the applicant, saying that carrying out assessments is prohibited during the moratorium period under Section 14 of the IBC. 

The Tribunal further held that assessment orders and the demand raised during the moratorium period are non-enforceable against the corporate debtor.