Wind World (India) Limited through Ravi Sethia, RP Vs. Income Tax Department through Deputy Commissioner of Income Tax (NCLT Ahmedabad)
Summary: NCLT Ahmedabad held that the Income Tax Department could not invoke Section 245 of the Income-tax Act, 1961 to adjust or withhold income-tax refunds payable to Wind World (India) Limited against pre-CIRP tax demands while the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 was subsisting. The Corporate Debtor had entered CIRP on 20.02.2018. The Income Tax Department had filed a claim of ₹1,128,28,77,841, which was treated as a contingent debt and admitted at a notional value of ₹1 because appeals against the underlying assessments were pending. The Tribunal noted that CIRP continued pursuant to the NCLAT’s interim order dated 30.09.2022. Wind World (India) Ltd.
During CIRP, returns filed for various assessment years resulted in substantial refunds. The Department actually adjusted ₹9,23,54,555 for AY 2019-20 against pre-CIRP demands for AYs 2006-07 and 2007-08; ₹6,63,48,398 for AY 2021-22 against the pre-CIRP demand for AY 2015-16; and ₹9,66,26,795 for AY 2022-23 against the pre-CIRP demand for AY 2015-16. A further refund of ₹10,13,78,048 for AY 2023-24 was proposed to be adjusted/withheld against pre-CIRP demands. Thus, refunds actually adjusted aggregated to ₹25,53,29,748 and, after including the proposed/withheld refund, the total amount affected was ₹35,67,07,796, excluding statutory interest under Section 244A. The Department had, however, released the refund for AY 2024-25. Wind World (India) Ltd. v. Inco…
The Income Tax Department defended the adjustments by relying upon Section 245 of the Income-tax Act and contending that the assessee had failed to pay 20% of the disputed demand in terms of CBDT Instruction No. 1914 OM dated 29.02.2016. It also relied on the fact that its tax claim had been admitted in CIRP at a notional value of ₹1. The Resolution Professional contended that these considerations could not override the statutory moratorium and the overriding effect of Section 238 of the IBC. NCLT accepted the RP’s contention. It held that Section 245 is not an absolute power and remains subject to the overriding provisions of the IBC. Once CIRP is admitted and Section 14 moratorium operates, statutory powers must yield to the moratorium insofar as they result in recovery, enforcement or execution of pre-CIRP claims. The Tribunal further found that CBDT Instruction No. 1914 did not authorise a power exceeding Section 245 itself and therefore could not validate the adjustments. Wind World (India) Ltd.
The Tribunal relied upon Principal Commissioner of Income Tax Vs Monnet Ispat & Energy Ltd., (2018) 18 SCC 786 for the proposition that Section 238 of the IBC overrides inconsistent provisions of other enactments. It also relied upon Ghanshyam Mishra & Sons Pvt. Ltd. Vs Edelweiss Asset Reconstruction Company Ltd., (2021) 9 SCC 657, holding that statutory authorities are bound by the IBC framework and their claims must be dealt with through the mechanism contemplated by the Code. Sundaresh Bhatt, Liquidator of ABG Shipyard Vs Central Board of Indirect Taxes and Customs, (2023) 1 SCC 472 was considered for the principle that during moratorium a statutory authority may determine its dues but cannot proceed to recover them contrary to the IBC. Wind World (India) Ltd. v. Inco…
The Tribunal further relied upon Avil Menezes (Liquidator) Vs Principal Chief Commissioner of Income Tax, Mumbai, (2024) ibclaw.in 441 NCLAT and Mr. Devarajan Raman (Liquidator) Vs Principal Commissioner Income Tax and Ors., (2024) ibclaw.in 332 NCLAT. In Devarajan Raman, NCLAT had held that adjustment of a tax refund against outstanding tax demands during the moratorium violated Section 14 because assets of the Corporate Debtor, including tax refunds, could not be appropriated by a creditor during that period. Wind World (India) Ltd.
On the facts, NCLT found that the refunds arose from returns filed during CIRP and, once determined under Section 143(1) of the Income-tax Act, became crystallised receivables and therefore assets of the Corporate Debtor. Under Sections 18(1)(f) and 25(2)(a) of the IBC, such assets had to remain under the control and protection of the Resolution Professional for the insolvency resolution process. Unilateral adjustment depleted the Corporate Debtor’s assets and frustrated the objective of value maximisation. The Tribunal accordingly held that income-tax refunds determined during CIRP formed part of the insolvency estate. Wind World (India) Ltd.
NCLT consequently declared the Department’s adjustment of refunds for AYs 2019-20, 2021-22 and 2022-23, and its proposed adjustment/withholding of the refund for AY 2023-24, against pre-CIRP tax dues to be in violation of Sections 14 and 238 of the IBC. The Department was directed to refund ₹35,67,07,796 together with statutory interest under Section 244A of the Income-tax Act from the date each refund became due until actual payment. The amount was directed to be released within four weeks. The Department was further restrained from invoking Section 245 to adjust refunds during the subsistence of the Section 14 moratorium, though it remained free to pursue its tax claim strictly in accordance with the IBC. Wind World (India) Ltd. v. Inco…
Cases Discussed
- Mr. Devarajan Raman (Liquidator) Vs Principal Commissioner Income Tax and Ors., (2024) ibclaw.in 332 NCLAT — Relied upon. NCLAT held that adjustment of a tax refund against outstanding tax demands during the moratorium violated Section 14 of the IBC; assets of the Corporate Debtor, including tax refunds, could not be appropriated by a creditor during moratorium and the Income Tax Department was directed to return the amount.
- Avil Menezes (Liquidator) Vs Principal Chief Commissioner of Income Tax, Mumbai, (2024) ibclaw.in 441 NCLAT — Relied upon. Considered while examining the reach of the IBC moratorium and the impermissibility of set-off during CIRP.
- Skylark Highway Solutions Limited Vs M/S Topworth Infra Pvt. Ltd., IA No. 1365 of 2022 in Company Petition No. 2231/I&BP/2019, Order dated 31.07.2024 (NCLT Mumbai) — Relied upon by Applicant. Cited among authorities directing reversal/refund of amounts appropriated during moratorium.
- Bank of Baroda (Erstwhile Dena Bank) Vs RSAL Steel Private Limited, IA No. 3933 of 2023 in CP(IB)/2985/MB/C-II/2018, Order dated 09.01.2024 (NCLT Mumbai) — Relied upon by Applicant. Cited in support of the prohibition against unilateral debit, appropriation or set-off during moratorium.
- Krishna Mohan Gollamudi, Resolution Professional of Leo Meridian Infrastructure Projects & Hotels Ltd. Vs The Income Tax Department, IA 1777 of 2023 (NCLT Hyderabad) — Relied upon. The Income Tax Department had adjusted refunds against pre-CIRP income-tax dues during CIRP; NCLT Hyderabad directed the Department to refund the amount to the Corporate Debtor.
- Ram Ratan Kanoongo Vs Deputy Commissioner of Income Tax, IA 241 of 2022 (NCLT Mumbai) — Relied upon. NCLT directed refund of income-tax amounts adjusted against pre-CIRP tax dues during moratorium, following the NCLAT principle that a creditor cannot appropriate Corporate Debtor funds during Section 14 moratorium.
- Sundaresh Bhatt, Liquidator of ABG Shipyard Vs Central Board of Indirect Taxes and Customs, (2023) 1 SCC 472 (Supreme Court) — Relied upon. Held that once moratorium operates, Customs authorities have limited jurisdiction to assess or determine statutory dues but cannot initiate recovery contrary to the IBC.
- Ghanshyam Mishra & Sons Pvt. Ltd. Vs Edelweiss Asset Reconstruction Company Ltd., (2021) 9 SCC 657 (Supreme Court) — Relied upon. Held that statutory authorities are bound by the IBC framework and their claims must be dealt with strictly in accordance with the mechanism provided by the Code.
- Committee of Creditors of Essar Steel India Limited Vs Satish Kumar Gupta & Ors., Civil Appeal Nos. 8766-67 of 2019 (Supreme Court) — Relied upon. Applied for the treatment of disputed or contingent claims in CIRP and the principle that claims must be dealt with within the insolvency framework.
- Principal Commissioner of Income Tax Vs Monnet Ispat & Energy Ltd., (2018) 18 SCC 786 (Supreme Court) — Relied upon. Section 238 of the IBC gives the Code overriding effect over anything inconsistent in another enactment, including the Income-tax Act.
- Indian Overseas Bank Vs Mr. Dinkar T. Venkatsubramanian, Company Appeal (AT) (Insolvency) No. 267 of 2017 (NCLAT) — Relied upon through Ram Ratan Kanoongo. Held that after declaration of moratorium a creditor cannot recover or appropriate money from the Corporate Debtor’s account towards its own dues.
