IT Dept. Liable to Pay Adjusted Amount to CD as It Violated Moratorium by Offsetting Tax Refund Against Demand | NCLAT

Case Details: Devarajan Raman Liquidator of Kotak Urja (P.) Ltd v. Principal Commissioner Income-tax - [2024] 163 taxmann.com 92 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Ashok Bhushan, Chairperson, Barun Mitra & Arun Baroka, Technical Member
  • Ms Anjali Sharma, Deepak Bashta & Ms Shila Taware, Advs. for the Appellant.
  • Sanjay Kumar, Ms Easha & Ms Hemlata Rawat, Advs. for the Respondent.

Facts of the Case

In the instant case, the CIRP against the corporate debtor was commenced and, the appellant was appointed as the Resolution Professional (RP). The Respondent (i.e. the Income Tax Department) filed its claim with the RP, which was admitted by the RP.

Subsequently, a moratorium was commenced, and, during the moratorium period, Rs. 90.42 lakhs received as a tax refund was adjusted by the respondent against outstanding tax demands.

The RP requested the respondent to refund the adjusted amount. Later, the RP filed an application before the NCLT seeking directions for the respondent to refund the amount adjusted against the corporate debtor’s tax liability during the moratorium.

The Respondent submitted that the maximum time period for the CIRP had already passed. The NCLT vide the impugned order, dismissed the liquidator’s application. Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT).

It was noted that the CIRP period had ended on 21.12.2020. However, the CIRP process continued until the liquidation order was passed on 03.10.2022. Further, even if the CIRP period was over with no resolution plan on an anvil and the NCLT was yet to pass a liquidation order, a creditor of the corporate debtor could not avail of the benefit of set-off during this interregnum by claiming that moratorium had ceased to exist.

NCLAT  Held

The NCLAT observed that the NCLT committed a grave error in holding that the moratorium had come to a halt during the period of vacuum from the expiry of the permitted CIRP period till the passing of the liquidation order and that the respondent was entitled to conduct set-off exercise to realise security interest in terms of section 52 of the IBC.

The NCLAT held that the refund from the Income Tax fell under the asset of the corporate debtor and would require to be added to liquidation assets. In view of the facts, adjustment of the said amount of Rs 90 lakhs towards tax demands prior to liquidation amounted to a sort of recovery by the respondent and was in violation of the moratorium. Thus, the instant Tribunal directed the respondent to refund the amount in question to the corporate debtor.

List of Cases Reviewed

• • Devarajan Raman v. Principal Commissioner of Income Tax [2024] 163 taxmann.com 91 (NCLT -Mum.) (para 22) reversed See Annex