Mumbai ITAT holds tax liability can be determined during Insolvency Proceedings even though recovery of tax dues is barred

 Recently, Mumbai ITAT ruling has reaffirmed that while recovery of tax dues is barred during the subsistence of an IBC moratorium of insolvency proceedings, appellate proceedings before the ITAT being in the nature of determination of tax liability, are not prohibited.

The Revenue had filed appeals before the ITAT, which were earlier dismissed as non-maintainable on account of failure to amend Form No. 36 to reflect the name of the Corporate Resolution Professional (CRP), despite repeated opportunities. The assessee company was undergoing insolvency proceedings under the IBC, and its affairs were being managed by the Resolution Professional. Subsequently, the Revenue filed Miscellaneous Applications seeking recall or rectification of the earlier ITAT order after filing a revised Form No. 36 to bring the CRP on record. The Assessee opposed the applications, contending that in view of the moratorium under Section 14 of the IBC, the continuation of appellate proceedings itself was barred.

The Revenue contended that the moratorium under Sections 14 and 33(5) of the IBC applies only to recovery proceedings and does not extend to assessment or appellate proceedings. It observed that appellate proceedings before the ITAT are confined to the determination of tax liability and do not amount to enforcement or recovery of dues. Accordingly, since the defect in Form No. 36 was cured by filing a revised form, the Revenue contended that no legal impediment to recalling the appeals and restoring them for adjudication on merits.

The ITAT agreed with the Revenue points and held that the moratorium under the IBC does not bar the determination of tax liability and is confined only to prohibiting recovery or enforcement of dues during the moratorium period. In reaching this conclusion, the ITAT relied on the Supreme Court’s decision in Sundaresh Bhatt, Liquidator of ABG Shipyard v. CBIC and the ITAT ruling in Doshion Veolia Water Solution Pvt. Ltd, which clarified that while statutory authorities are permitted to assess or determine tax dues during the moratorium, no steps for recovery can be undertaken and such claims must be lodged before the Resolution Professional or Liquidator. The ITAT further held that the Revenue, like any other creditor, is required to lodge its claim before the Resolution Professional or Liquidator for treatment under Section 53 of the IBC. Since the Revenue had subsequently filed a revised Form No. 36 bringing the Corporate Resolution Professional on record, the earlier dismissal of the appeals was recalled, the Miscellaneous Applications were allowed, and the appeals were restored to their original numbers for adjudication on merits.

The ruling provides important practical clarity on the interplay between the IBC and Income-tax appellate proceedings when the insolvency proceedings are ongoing, as it clarifies that the moratorium does not halt assessment or appellate proceedings aimed at determining tax liability.