Adjustment of income tax refund of corporate debtor against old income tax dues upheld

Adjustment of income tax refund due to corporate debtor against old income tax dues shown in the balance sheet upheld

In a recent judgment, High Court upheld the adjustment of income tax refund due to corporate debtor against old income tax dues shown in the balance sheet and considered in the resolution process.

ABCAUS Case Law Citation:
5040 (2026) (02) abcaus.in HC

In the instant case, the Petitioner was a successful Resolution Applicant for the corporate debtor in terms of Corporate Insolvency Resolution Process (CIRP) approved by NCLT. The Petitioner was aggrieved by the action of the Income Tax Department in adjusting refund of income tax against old income tax dues of the corporate debtor.

The Petitioner relied upon the provision in section 31(1) in Insolvency and Bankruptcy Code, 2016 and the judgment of the Hon’ble Supreme Court, it was argued that once a resolution plan is duly approved by the adjudicating authority, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.

It was submitted that the refund was due to it and there was no tax dues placed for approval in the resolution process. That no notice of the adjustment to be made was given to The Resolution applicant. In the circumstances, it was urged that direction be given for disbursement of the refund on holding the adjustment made to be bad.

The Revenue submitted that the figure of statutory/other legal liabilities in the balance sheet contained provision for old income tax and the said amount was approved in the resolution process. It remains unpaid. In the circumstances, adjustment of the refund against old income tax dues was duly made. 

The Hon’ble High Court observed that ‘old income tax dues’ were considered in the resolution process. The process received approval by the National Company Law Tribunal (NCLT) in 2017.

The Hon’ble High Court further noted that the relevant assessment year was 2010-11, in respect of which there was refund of income tax i.e. the amount, revenue had adjusted. Old income tax dues, taken into consideration in the resolution process, thereby stood reduced by the refund amount.

The Hon’ble High Court opined that it was not necessary to go into working of manner of liquidation of the old dues approved in the resolution process. Adjustment of the refund pertaining to assessment year 2010-11, an assessment within the period giving rise to old tax dues in balance sheet of the corporate debtor, considered in the resolution process and approved, thus has effect of reducing said dues by the adjustment made.

The Hon’ble High Court further opined that even otherwise petitioner’s claim to have the refund can not be sustained because petitioner can only claim to step into and manage affairs of the corporate debtor from date of approval of the resolution plan. Petitioner cannot claim to have paid tax on assessment made for earlier assessment year. Refund in respect of that assessment year cannot be due to petitioners, who stepped into shoes of management of the corporate debtors much after and proceeded to revive it per the approved resolution plan.

Accordingly, the Petition was dismissed.

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