No TDS Refund Set Off In Shri Jalaram Rice Industries Liquidation As No Claim Was Filed: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has dismissed an appeal filed by the Principal Commissioner of Income Tax-3, Ahmedabad. It held that in the liquidation of Shri Jalaram Rice Industries Pvt Ltd, the department could not adjust a TDS refund against an earlier tax demand because it had not filed any claim in the liquidation proceedings.

“Appellant having not filed any claim question of claiming set off does not arise,” the bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed.

The tribunal clarified that Regulation 29 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 permits set-off in liquidation proceedings involving mutual dealings. However, such set-off arises only in respect of claims filed in the liquidation process.

The appeal arose from an order of the Ahmedabad bench of the National Company Law Tribunal. The NCLT had allowed an application filed by Kiran Shah, liquidator of Shri Jalaram Rice Industries Pvt Ltd, and directed the Income Tax Department to refund the entire TDS amount.

CIRP against the corporate debtor commenced on April 12, 2019. The company was ordered into liquidation on September 19, 2019. During liquidation, the assets were sold through auction.

The successful auction purchaser deducted Rs 18,77,000 towards TDS for Assessment Year 2022–23 and deposited the amount with the department.

The liquidator filed the income tax return claiming a refund of Rs 18,64,640 along with interest of Rs 74,576, totalling Rs 19,39,039.

On November 4, 2022, the department issued an intimation under Section 143(1) of the Income Tax Act, 1961 informing the company that no refund would be issued.

Instead, it said the amount had been adjusted against an outstanding tax demand, along with interest under Section 220(2), for Assessment Year 2011–12.

The liquidator challenged this adjustment before the NCLT. The tribunal allowed the plea and directed the department to refund the amount.The department then approached the appellate tribunal.

Before the NCLAT, the department argued that the demand for AY 2011–12 was due from the corporate debtor and that it was entitled to set-off under Regulation 29. The liquidator contended that no claim had been filed in the liquidation of the corporate debtor and therefore there was no question of set-off.

Agreeing with the liquidator, the tribunal reiterated that while set-off is permissible in liquidation proceedings, it cannot be claimed where no claim has been filed. Finding no error in the NCLT's order, the appellate tribunal dismissed the appeal.