NCLT Ahmedabad Bars Income Tax Department From Adjusting Refund Against Pre-CIRP Dues During Moratorium

The Ahmedabad bench of the National Company Law Tribunal (NCLT) has ruled that the Income Tax Department cannot adjust an income-tax refund determined after commencement of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor's pre-CIRP tax dues during the moratorium.

The bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma held that once the refund was determined after CIRP began, it became an asset of the Corporate Debtor and could not be appropriated towards an earlier tax claim outside the insolvency process.

The bench observed, “The fact that the refund related to a return filed for an assessment year preceding the commencement of CIRP does not alter the character of the receivable which crystallised only after commencement of CIRP. What is material for the present controversy is that the refund became payable/determined after the insolvency commencement date and was appropriated during the moratorium towards a pre-CIRP liability.”

Demac Technologies Private Limited was admitted into CIRP on January 20, 2026.

The Income Tax Department had a pre-CIRP tax claim of ₹35.11 lakh. Meanwhile, the Corporate Debtor's return for Assessment Year 2025-26 was processed under Section 143(1) of the Income-tax Act, resulting in a refund of ₹56.07 lakh on February 12, 2026, after CIRP had commenced.

On 13 February, the Department issued an intimation under Section 245 proposing to adjust the refund against the outstanding pre-CIRP demand. It subsequently adjusted ₹35.11 lakh towards the tax demand and Rs 6.53 lakh towards interest, totalling Rs 41.64 lakh, and released the remaining Rs 14.43 lakh.

The Department relied on a 2 March communication from the then IRP, which it contended conveyed consent or no objection to the adjustment. The IRP later objected and sought reversal of the adjustment.

The Resolution Professional argued that the tax demand was a pre-CIRP claim, while the refund became a receivable only after CIRP commenced. The adjustment, therefore, amounted, in substance, to recovery of a pre-CIRP claim from an asset of the Corporate Debtor during the moratorium.

The bench clarified that it was not deciding the validity or quantum of the underlying tax demand. The issue was whether the Department could recover the pre-CIRP dues by appropriating the refund during the moratorium.

It held that Section 245 of the Income Tax Act could not override the IBC where the two were inconsistent. Section 238 gives the IBC overriding effect over other laws. The bench distinguished between determining a statutory liability and recovering it, holding that while the former may continue, recovery during the moratorium must comply with the IBC.

The bench rejected the alleged IRP consent, holding that a statutory moratorium cannot be waived or contracted out of. It also found that the adjustment placed the Department in a position superior to other similarly situated creditors by allowing recovery outside the collective insolvency process.

The NCLT accordingly set aside the ₹41.64 lakh adjustment and directed the Income Tax Department to reverse it and release the amount to the Corporate Debtor's designated bank account under the RP's control within two weeks.

The bench also held that statutory interest under Section 244A of the Income-tax Act, if otherwise admissible, would be determined by the competent tax authority.