Case Law Details
Orchid Pharma Ltd. Vs DCIT (ITAT Chennai)
ITAT Deletes Income Tax Additions Because NCLT Resolution Plan Extinguished Prior Claims; Tax Demands Prior to Insolvency Resolution Date Cannot Survive; Income Tax Additions Cannot Continue After Approved Insolvency Resolution Plan; ITAT Chennai Rejects Revenue Stand on Carry Forward Losses After Insolvency Resolution Approval.
The Income Tax Appellate Tribunal (ITAT), Chennai, decided cross appeals filed by the assessee and the Revenue against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2015-16.
The assessee had filed its return declaring nil income. A search and seizure operation under Section 132 of the Income Tax Act was conducted in the case of another group, following which proceedings under Section 153C were initiated against the assessee on the basis that certain seized materials belonged to it. The assessee again filed a return declaring nil income. Since the assessee had international transactions, the matter was referred to the Transfer Pricing Officer, who proposed a transfer pricing adjustment of Rs.9.26 crore. The Assessing Officer also made various additions and disallowances while completing assessment proceedings.
Before the CIT(A), the assessee pointed out that the National Company Law Tribunal (NCLT) had approved a resolution plan on 27.06.2019. Though the order was initially set aside by the National Company Law Appellate Tribunal, the Supreme Court later restored the NCLT order on 28.02.2020. The assessee argued that under Section 238 of the Insolvency and Bankruptcy Code, all demands arising prior to the effective date under the resolution plan stood extinguished. However, the CIT(A) proceeded to decide the appeal on merits and granted partial relief.
Before the Tribunal, the assessee contended that all claims, liabilities, assessments, demands, and dues relating to the period up to the effective date of 31.03.2020 stood irrevocably settled and extinguished under the approved resolution plan. The assessee relied on the specific clause in the resolution plan providing that all pending claims or demands relating to periods before the effective date would stand discharged in perpetuity.
The assessee also relied on an earlier coordinate bench decision in its own case for Assessment Years 2013-14 and 2014-15, where penalties under Section 271(1)(c) were deleted after considering the approved resolution plan and the Supreme Court order restoring the NCLT-approved plan.
The Tribunal noted that the final assessment order had been passed on 18.02.2019, prior to approval of the resolution plan on 27.06.2019. It observed that the NCLT order clearly provided that all pending claims not forming part of the resolution plan and pertaining to periods on or before 31.03.2020 stood settled and extinguished permanently. The Tribunal further recorded that no income tax demand or claim had been placed before the NCLT and that such claims were not part of the approved resolution plan.
Accordingly, the Tribunal accepted the assessee’s contention that no tax demand arising from additions sustained by the CIT(A) could survive since those additions related to periods before the effective date under the resolution plan.
The Revenue argued that if the assessee was granted a “clean slate” under the NCLT order, then brought forward losses should also not be allowed to be carried forward. The Tribunal referred to the Bombay High Court decision in Amns Gandhidham Ltd. vs. ACIT, which held that denial of carry forward of losses was not permissible where the Revenue had not raised objections before the NCLT during approval of the resolution plan.
The Tribunal observed that, similarly, the Revenue had not made submissions before the NCLT in the assessee’s case. It therefore rejected the Revenue’s contention and held that the “clean slate” principle could not be applied to deny brought forward losses. The Tribunal concluded that the additions made by the Assessing Officer did not survive. As a result, the remaining grounds in both the assessee’s appeal and the Revenue’s appeal became academic. The assessee’s appeal was partly allowed and the Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These cross appeals by the assessee and the Revenue are against the order of the Commissioner of Income Tax (Appeals), Chennai-18 (in short “CIT(A)”) passed u/s. 250 of the Income Tax Act, 1961 (in short “the Act”) dated 28.10.2025 for Assessment Year (AY) 2015-16.
2. The assessee is a company and filed the return of income for AY 2015-16 on 30.11.2015 admitting total income at Nil. There was a search and seizure operation u/s. 132 of the Act carried in the case of M/s. Shri Rama Chandra University Trust Group on 23.11.2015. The A.0 of the searched party has sent satisfaction notice u/s. 153C of the Act stating that certain seized materials belongs to the assessee and accordingly the A.O after recording satisfaction issued a notice u/s. 153C of the Act. The assessee in response filed the return declaring total income at Nil. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to complete the Arm’s Length Price (ALP) of the international transactions. The TPO proposed a transfer pricing adjustment to the tune of Rs.9,26,43,358/-. The A.O passed the draft assessment order incorporating the TP adjustment. The A.O also made various additions/disallowances. Since the assessee preferred further remedy through CIT(A), the A.O passed the final assessment order against which the assessee filed an appeal before the CIT(A). Before the CIT(A), the assessee brought to notice that the National Company Law Tribunal (NCLT) has passed an order in assessee’s case on 27.10.2017 which was agitated by some creditors before the National Company Law Appellate Tribunal (NCALT) which set aside vide order dated 13.11.2019 the order of the NCLT. The assessee further brought to the attention of the CIT(A) that the NCALT order was challenged before the Hon’ble Supreme Court and the Supreme Court vide order dated 28.02.2020 restored the order of the NCLT. The assessee accordingly submitted that as per the provisions of Section 238 of the IB Code 2018 which has an overriding effect on all other laws and therefore any demand arising out of any proceedings prior to the order of the NCLT would become Nil. The CIT(A) however proceeded to adjudicate the issues on merits stating that the adjudication of the appeal before him is not going to result in any enhancement or reduction of demand since only loses claimed are brought forward will be adjusted. The CIT(A) on merits gave partial relief to the assessee. Both the assessee and the Revenue are in appeal against the order of the CIT(A).
3. The Ld. Authorized Representative (AR) of the assessee submitted that Ground No.5 in assessee’s appeal pertains to the legal contention that all claims, demands and statutory dues of the revenue prior to 31.03.2020 i.e. effective date stands extinguished and nullified. The ld AR further submitted that if the said ground is considered and allowed, the rest of the grounds of the assessee and also the grounds of the revenue would become academic. Accordingly we will first consider Ground No.5 in assessee’s appeal.
4. The ld AR reiterated the facts as submitted before the lower authorities. The Ld. AR submitted that the NCLT order approving the resolution plan was passed don 27.06.2019 whereas the final assessment order u/s. 143(3) r.w.s. 144C r.w.s 153C of the Act for the impugned year was passed on 18.02.2019 i.e., prior to the date of approval of resolution plan. The Ld. AR drew our attention to the approved resolution plan whereby any claims pertaining to the period up to the effective date i.e., 31.03.2020 would get extinguished. The relevant part of the resolution plan is extracted hereunder:
“8.2. All claims, liabilities, damages, penalties, cause of actions, deficiencies, assessments, demands or losses of any nature whatsoever (whether admitted/verified/submitted or not, due or contingent, asserted or unasserted, crystallised or uncrystallised, known or unknown, disputed or undisputed, present or future or whether or not set out in the balance sheet or profit & loss account of the Corporate Debtor or the list of the creditors) shall be dealt with only as envisaged in this Resolution Plan and all other claims (including whether pending before any court or authority, arbitrator or otherwise) or demands made by or liabilities or obligations owed or payable to any Person (including any demand for any losses or damages, principal, interest, compound interest, penal interest, notional or crystallized mark to market losses on derivatives and other charges already accrued/accruing or in connection with any third-party claims) to which the Corporate Debtor is or may be subject to and which pertains to the period on or before the Effective Date, shall stand irrevocably and unconditionally settled, discharged and extinguished in perpetuity.”
5. The Ld. AR also drew our attention to the decision of the Coordinate Bench of the Tribunal in assessee’s own case for AY 2013-14 & 2014-15 with regard to levy of penalty where the Coordinate Bench has deleted the penalty considering the resolution plan of the NCLT. The relevant observations of the Coordinate Bench in this regard are extracted below:
“14. Having heard both the parties and on perusal of the sequence of events as filed by the Id. AR vide letter dated 28.08.2024, which is not disputed by the Id. DR, we find from the decision dated 28.02.2020 passed by the Hon’ble Supreme Court in the case filed by the State Bank of India against one of the “Resolution Applicants” M/s. Accord Life Spec Private Limited by setting aside the order of the NCLAT, confirmed the order of the NCLT approving the “Resolution Plan approved by the CoC in compliance of section 30(2) of the Code settling the operational creditors including the income-tax at NIL value. Therefore, in our opinion, the penalty imposed under section 271(1)(c) of the Act does not survive and it is deleted. Thus, the grounds raised in the both the appeals are allowed.”
6. The Ld. AR without prejudice submitted that the addition sustained by the CIT(A) with regard to the TP adjustment towards management fee is not arisen out of incriminating material found during the course of search. The Ld. AR submitted that the year under consideration is an unabated assessment and therefore the A.0 cannot make any addition without any incriminating material. The Ld. AR in this regard relied on the decision of the Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell (P.) Ltd. reported in 149 com 399 (SC). With regard to the additions deleted by the CIT(A), The Ld. AR submitted that the issues were covered by the decision of the Coordinate Bench in assessee’s own case and the CIT(A) has correctly followed the binding precedence to allow the issues in favour of the assessee.
7. The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the TPO/A.O.
8. We have heard the parties, and perused the material available on record. The final assessment order u/s. 143(3) r.w.s.144C r.w.s.153C in assessee’s case is passed on 18.02.2019 and the NCLT order approving the resolution plan is passed on 27.06.2019. From the perusal of the order of NCLT we notice that all pending claims that are not part of the resolution plan which pertain to the period on or before the Effective Date i.e. 31.03.2020, shall stand irrevocably and unconditionally settled, discharged and extinguished in perpetuity. During the course of hearing it is submitted before us that no demand or claim towards income tax dues have been placed before the NCLT and that the same is not part of the approved resolution plan. Therefore we see merit in the contention of the ld AR that the any demand towards the additions sustained by the CIT(A) can be raised against the assessee since the same pertain to period prior to the effective date.
9. The ld DR raised a contention that if the assessee’s contention of being provided with a “clean slate” by the order of the NCLT is to be accepted then the unabsorbed losses of the assessee cannot also be allowed to be carried forward. The ld DR argued that if the losses are allowed to be carried forward then the same would amount to allowing double benefit of no demand against the assessee as well as losses being allowed to be set off against future profit. In this regard we notice that the Hon’ble Bombay High Court while considering an identical issue in the case of Amns Gandhidham Ltd. vs. ACIT [(2025) 180 com 43 (Bombay)] has held that —
14. As regards to the Revenue’s contention that allowability of losses can be examined by the Respondents, we find that this would not be permissible in the facts of the present case because notice to the Principal Commissioner under Section 79 (2) (c) of the I. T. Act was served on the Principal Commissioner on 28th June 2022 and the Principal Commissioner did not make any submissions at the time when the Resolution Plan was approved by the NCLT or any time prior thereto. Once this is the case, denial of carry forward of losses cannot be denied to the Petitioner. We say this also because we find merits in the Petitioner’s contention that availability of such losses would be one of the factors that would have been taken into account by the Resolution Applicant when submitting its proposal to take over the Corporate Debtor (namely, the Petitioner).
10. The ld AR during the course of hearing submitted that in assessee’s case also the revenue has not made any submission before the NCLT and this fact is not controverted by the ld DR during the course of hearing. Accordingly we are unable to appreciate the contention the “clean slate” provided by the order of the NCLT is to be applied to the brought forward losses of the assessee company. In view of these discussions we hold that additions made by the AO do not survive. Accordingly the grounds in assessee’s appeal on merits and the grounds in revenue’s appeal have become academic.
11. In result the appeal of the assessee is partly allowed and the revenue’s appeal is dismissed.
Order pronounced on 11th day of May, 2026 at Chennai.
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