The validity of notice U/s 226 of The Income Tax Act, 1961 cannot be challenged during the liquidation proceedings because as per the provisions of Section 33(5), any proceeding initiated prior to passing of liquidation order can be continued during the liquidation process but no new proceedings can be instituted against the Corporate Debtor – Supriyo Kumar Chaudhuri, Liquidator Vs. Assistant Commissioner of the Income Tax – NCLT Allahabad Bench
January 26, 2022
The notice U/s 226 of The Income Tax Act, 1961 was issued during the operation of moratorium u/s 14 of the Code, 2016, however, IRP/ RP did not challenge such notice and subsequent action of Respondent No. 2. On passing of order of liquidation, such moratorium has to come an end from the date of initiation of liquidation proceedings. Thus, as on date, the validity of such notice cannot be challenged during the liquidation proceedings because as per the provisions of Section 33(5), any proceeding initiated prior to passing of liquidation order can be continued during the liquidation process but no new proceedings can be instituted against the Corporate Debtor. Be that as it may, we further note that in the said notice the Income Tax Department has not directed Respondent No. 2 to freeze current and cash credit account standing in the name of the Corporate Debtor. It is not in dispute that the account so freezed, is the current account standing in the name of the Corporate Debtor. Hence, in our considered view, the Bank is not required to freeze the same and that should remain operative.
