NCLT Bars Income Tax Department From Adjusting Refunds Against Pre-CIRP Dues

NCLT Bars Income Tax Department From Adjusting Refunds Against Pre-CIRP Dues

Wind World (India) Limited entered the Corporate Insolvency Resolution Process (CIRP) after the National Company Law Tribunal, Ahmedabad Bench, admitted the insolvency petition on 20 February 2018. As a result, a moratorium under Insolvency and Bankruptcy Code, 2016 came into force. During the CIRP, the Resolution Professional filed income-tax returns for AY 2019-20 to AY 2024-25. These filings resulted in tax refunds of about Rs. 35.67 crore along with interest.

The Income Tax Department acknowledged the refunds through intimations issued under Income Tax Act, 1961, it went ahead and adjusted part of the refund against old tax demands relating to earlier years, including AY 2006-07. The department also proposed to set off the refund for AY 2023-24 against other past dues. The Resolution Professional challenged this action, arguing that such adjustments were not permissible once the moratorium under the IBC was in force.

Issue Raised: Whether the Income Tax Department can adjust tax refunds arising during the CIRP period against tax demands from the pre-CIRP period despite the moratorium under Insolvency and Bankruptcy Code, 2016.

Tribunal Decided: The NCLT, Ahmedabad Bench, ruled in favour of the Resolution Professional. It observed that once CIRP is admitted and the moratorium under Section 14 comes into effect, creditors and authorities cannot recover or set off dues from the corporate debtor during that period.

The Tribunal held that adjusting tax refunds against earlier tax demands amounted to recovery of debt and therefore violated the moratorium. It directed the Income Tax Department to release the refund of Rs. 35.67 crore along with interest payable under Section 244A of the Income Tax Act, 1961 to the account of the corporate debtor managed by the Resolution Professional. The department was also instructed not to issue further notices seeking to adjust these refunds against past dues.

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