Income-tax department cannot adjust refunds against pre-resolution-plan demands, Calcutta High Court rules

The petitioner was the successful resolution applicant for Binani Cement Ltd., whose Corporate Insolvency Resolution Process commenced on 25 July 2017. The resolution plan submitted by the petitioner was approved by the Committee of Creditors, approved by the NCLAT on 14 November 2018, and affirmed by the Supreme Court on 26 July 2019. The petitioner took over management on 20 November 2018, identified as the “Transfer Date”.

The Income Tax Department issued orders and notices dated 24 December 2019, 31 December 2019, 3 January 2020, 20 January 2020 and 23 January 2020 concerning pre-Transfer Date tax demands. It also adjusted refunds of Rs. 1,43,46,686/-, Rs. 67,69,380/- and Rs. 1,12,73,866/- against outstanding demands, including a demand for Assessment Year 2011–12.

The petitioner contended that the Income Tax Department had submitted claims during the insolvency process, but those claims were rejected by the Resolution Professional. Under the approved resolution plan, pre-Transfer Date claims and liabilities not included in the plan were to stand extinguished.

The Income Tax Department defended the adjustment under Section 245 of the Income Tax Act, 1961, asserting that the Centralised Processing Centre had issued the requisite intimation before adjusting the refund for Assessment Year 2019–20 against the outstanding demand for Assessment Year 2011–12.

Whether the Income Tax Authorities could raise or continue demands relating to the pre-CIRP period after approval of the resolution plan?

Whether reassessment or adjustment of refunds after 20 November 2018, in respect of pre-Transfer Date liabilities, was legally permissible?

Whether such demands and adjustments violated the approved resolution plan and Sections 31 and 238 of the Insolvency and Bankruptcy Code, 2016?

The Court applied Section 31(1) of the Insolvency and Bankruptcy Code, 2016, under which an approved resolution plan binds the corporate debtor and all stakeholders, including governmental authorities.

Relying principally on Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, the Court held that claims not forming part of an approved resolution plan stand extinguished and no proceedings may be initiated or continued in respect of such claims.

Section 238 of the IBC gives the Code overriding effect over inconsistent provisions of other laws.

The Court also relied upon Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2019) 16 SCC 147, and Vaibhav Goyal v. Deputy Commissioner of Income Tax, 2025 SCC OnLine SC 592, for the principle that a successful resolution applicant must take over the business on a clean slate and cannot be confronted with belated or undecided claims.

JSW Steel Ltd. v. Pratistha Thakur Haritwal, 2025 SCC OnLine SC 672, and PCIT-3, Kolkata v. M/s. Srishtri Hotel Pvt. Ltd., were relied upon for holding that post-resolution-plan proceedings concerning extinguished governmental claims are illegal.

Although Section 245 of the Income Tax Act permits adjustment of a refund against an outstanding tax demand after due intimation, that power cannot be exercised inconsistently with an approved resolution plan and the overriding provisions of the IBC.

The Court found that the Income Tax Department’s claims related to periods preceding the Transfer Date and were not included in the approved resolution plan. Since the Department had participated in the insolvency process by submitting its proof of debt, but the claim was rejected by the Resolution Professional, the Department could not subsequently revive the same liabilities through assessment proceedings or adjustment under Section 245.

Applying Ghanashyam Mishra, the Court held that all claims stood frozen upon approval of the resolution plan and that claims not forming part of the plan could not survive.

The statutory power to adjust refunds under Section 245 was therefore subordinate to the binding effect of the resolution plan and Section 238 of the IBC.

The Court consequently treated the impugned notices, demands, reassessment-related proceedings and refund adjustments concerning the pre-Transfer Date period as arbitrary and legally unsustainable.

The impugned notices, consequential orders and proceedings were quashed and set aside.

The Income Tax Authorities were directed to permit the petitioner to carry forward unabsorbed depreciation and accumulated losses reflected in returns filed before the Transfer Date and utilise them against future tax obligations in accordance with law.

The Income Tax Authorities were directed to refund amounts wrongfully adjusted against pre-Transfer Date demands, together with applicable interest.

The Income Tax Authorities were directed to accept the relevant returns and refrain from initiating reassessment or other proceedings for the pre-Transfer Date period.

The Income Tax Authorities were directed to complete the refunds preferably within four weeks, and amounts already adjusted within six weeks from the date of the order.