NCLT Mumbai: Income Tax Dept. Cannot Adjust Pre-CIRP Dues Against Post-CIRP Tax Refunds Without Pre-Existing Contractual Set-Off
Pranav B Prem
The National Company Law Tribunal (NCLT), Mumbai Bench comprising Shri Prabhat Kumar (Technical Member) and Shri Sushil Mahadeorao Kochey (Judicial Member) has held that pre-CIRP tax dues cannot be adjusted against post-CIRP tax refunds determined during the CIRP, unless there exists a pre-existing contractual set-off. In the absence of such contractual arrangement, the adjustment made by the Income Tax Department was declared impermissible under the Insolvency and Bankruptcy Code, 2016 (IBC).
Background of the Case
The application was filed under Section 60(5) of the IBC by the Resolution Professional of Unijules Life Sciences Ltd. in the course of CIRP initiated on the basis of an application under Section 7 of the Code filed by Punjab National Bank. CIRP commenced on 08.03.2019.
The Income Tax Department had filed its claim before the Resolution Professional on 01.04.2019, which was admitted to the tune of ₹64.06 crore as operational debt. Despite this, the Department adjusted demands outstanding for Assessment Years 2006–07, 2007–08 and 2011–12 (pre-CIRP) against refunds determined in respect of returns filed during the CIRP period for AYs 2019–20, 2021–22, 2022–23 and 2023–24. The Resolution Professional challenged the adjustment and sought release of ₹25,90,790/- with interest.
Applicant’s Submissions
The Resolution Professional contended that once CIRP commences, pre-CIRP claims can only be dealt with in accordance with the resolution plan. It was submitted that adjustment of old tax dues against refunds generated post-commencement of CIRP was contrary to the provisions of the Code. Multiple communications were addressed to the Department requesting reversal of the adjustment, but no action was taken, leading to the present application.
Tribunal’s Observations
The Bench noted that the Supreme Court in Bharti Airtel Ltd. v. Vijaykumar V. Iyer (2024) had comprehensively dealt with the issue of set-off during insolvency proceedings. The Apex Court clarified that:
Statutory set-off under Order VIII Rule 6 CPC and insolvency set-off under Regulation 29 of the Liquidation Regulations do not apply to CIRP.
The only exceptions are:
Contractual set-off existing prior to commencement of CIRP. Such agreements remain binding though recovery is restricted by moratorium.
Equitable set-off where claims and counterclaims arise from the same transaction, are monetary, quantifiable, and clearly established in law and fact.
Applying this principle, the NCLT found that neither exception was applicable. There was no contractual arrangement providing for set-off between the corporate debtor and the Income Tax Department prior to CIRP, nor could equitable set-off apply since the pre-CIRP dues and post-CIRP refunds pertained to different assessment years and unrelated transactions.
The Bench also relied on para 41 of Bharti Airtel Ltd., where the Supreme Court ruled that provisions relating to insolvency set-off cannot be read into Chapter II, Part II of the IBC dealing with CIRP, and thus no scope exists for mutual set-off at that stage.
Holding that the adjustment made by the Income Tax Department was impermissible, the Tribunal directed the authority to release the refund amount of ₹25,90,790/- along with statutory interest at 6% under Section 244A of the Income Tax Act, 1961, to the corporate debtor. Accordingly, the application (IA 1811/2025) was allowed and disposed of with directions to the Income Tax Department to refund the amount.
Cause Title: Punjab National Bank V. Unijules Life Sciences Limited
Case No: IA(I.B.C)/1811( MB)2025 IN C.P. (IB)/3080(MB)2018
Coram: Shri Prabhat Kumar [Technical Member], Shri Sushil Mahadeorao Kochey [Judicial Member]
