Avil Menezes vs Principal Chief Commissioner Of Income ...

In the matter of: Avil Menezes Liquidator of Sunil Hitech and Engineers Limited Having office at: 106, 1st Floor, Kanakia Atrium 2, Cross Road A, Behind Courtyard Marriott, Chakala, Andheri East, Mumbai City, Maharashtra - 400 093. ...Appellant

Versus

Principal Chief Commissioner of Income Tax, Mumbai Having office at: M.K. Road, New Marine Lines Mumbai, Maharashtra - 400 020. ...Respondent

Present :

For Appellant : Mr. J. Rajesh, Mr. Dhrupad Vaghani, Mr. Jaitegan Singh Khurana, Mr. Aniket Mukherjee and Mr. Arslaan, Advocates.

For Respondent : Mr. Abhishek R. Mishra, Advocate. JUDGMENT

(Hybrid Mode)

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

22.11.2023 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in

I.A. No. 2968/(MB)/2022 in CP (IB) 2295/NCLT/MB/2018. By the impugned

order, the Adjudicating Authority has dismissed I.A. 2968 of 2022 filed by the

Appellant-Liquidator seeking return of Income Tax refund amount of two

previous assessment years to the liquidation estate of the Corporate Debtor-

Sunil Hitech and Engineers Ltd.

2. The Learned Counsel for the Appellant, Shri J. Rajesh making his

submissions submitted that the Corporate Debtor was admitted into Corporate

Insolvency Resolution Proceedings ('CIRP' in short) on 10.09.2018. Later, the

Corporate Debtor was admitted into liquidation by the Adjudicating Authority

on 25.06.2019 and the Appellant was appointed as the Liquidator of the

Corporate Debtor. Following the appointment as Liquidator, a public

announcement was made on 01.07.2019 inviting claims from the creditors in

the liquidation process in terms of Regulation 12 of the Insolvency and

Bankruptcy Board of India (Liquidation Process) Regulations, 2016

('Liquidation Regulations' in short).

3. Submission was made that on vetting the Annual Information Statement

('AIS' in short) of the Corporate Debtor, it came to the notice of the Liquidator

Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 2 of 17 that the Corporate Debtor was entitled to receive Income Tax Refund ('ITR' in

short) for the A.Y. 2021-2022 for an amount of Rs.5.84 cr. and interest thereon

amounting Rs.11.46 lakhs. It was also noticed by the Liquidator that the above

ITR amount was adjusted on 12.11.2021 by the Respondent against Income Tax

demand for A.Y. 2010-2011 for Rs.2.98 cr. and for A.Y. 2011-2012 amounting

Rs.2.85 cr. It has also been contended by the Appellant - Liquidator that the

Corporate Debtor was also entitled to receive ITR of Rs.60.79 lakhs for A.Y. 2020-

2021 and that the said amount had also been adjusted by the Respondent

against pre-CIRP Income Tax dues.

4. The Learned Counsel for the Appellant pointed out that the ITR amount

could not have been adjusted by the Respondent towards Income Tax dues and

that the said amount should have formed part of the liquidation estate of the

Corporate Debtor. It was asserted that in terms of Section 36(3)(b) of the IBC,

assets which may or may not be in possession of the Corporate Debtor also

constitute part of the liquidation estate and hence the ITR amount available with

the Respondent did not belong as such to the Respondent but belonged to the

stakeholders and therefore should form part of the liquidation estate. Hence, the

Liquidator had rightly requested the Respondent to return the refund amount

so that the same could be distributed amongst the stakeholders in terms of

Section 53 of IBC. In support of their contention, the Learned Counsel for the

Appellant has relied on the judgment of this Tribunal in Devarajan Raman vs

Principal Commissioner Income Tax, (Mumbai-1) in Company Appeal (AT)

(Insolvency) No. 977 of 2023 that the Income Tax Department did not have the

right to adjust past income tax demands with tax refunds since the ITR amount

fell under the asset of the Corporate Debtor.

Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 3 of 17

5. It has also been contended by the Appellant that Section 33(5) of the IBC

provides that once a liquidation order has been passed, no suit or other legal

proceedings shall be instituted by or against the Corporate Debtor. In the

present case, since the liquidation order had already been passed by the

Adjudicating Authority, recovery of income tax dues by invoking Section 245 of

the Income Tax Act was illegal and improper.

6. It was also emphatically asserted that in view of the non obstante clause

and over-riding provision of the IBC as contained in Section 238, the right of set-

off of the Respondent - Income Tax Department was subject to the manner of

set-off as prescribed under Regulation 29 of the Liquidation Regulations. In

support of their contention, reliance was placed upon the judgment of Hon'ble

Supreme Court in the case of Principal Commissioner of Income Tax Vs

Monnet Ispat and Energy Ltd. (2018) 18 SCC 786 which held that Section

238 of IBC over-rides anything inconsistent contained in any other enactment

including Income Tax Act, 1961.

7. Further contending that the Respondent-Income Tax Department is an

Operational Creditor, it was argued by the Learned Counsel for the Appellant

that the Respondent was required to file their claim with the Liquidator in Form

D in accordance with Regulation 18 of Liquidation Regulations for recovery of

dues in the requisite form and could not have suo-moto adjusted or set-off the

ITR amount against past dues. The Respondent was bound to inform the

Liquidator regarding any adjustment/set-off being made by them against

purported dues. Emphasis was laid on the fact that the Respondent had erred

in not filing any claim with the Liquidator despite the Liquidator having invited

claim from all stakeholders through public announcement. Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 4 of 17

8. It is also the contention of the Appellant that for the Respondent to make

adjustment of the ITR, it should have followed the due process as laid down

under the IBC. In support of their contention, the Learned Counsel for the

Appellant relied on the judgment of the Hon'ble Supreme Court in the matter of

Sundaresh Bhatt, Liquidator of ABG Shipyard Vs Central Board of Indirect

Taxes and Customs in CA No. 7667 of 2021 wherein it was held that once

moratorium is imposed in terms of Section 33(5) of the IBC, the Customs

Department enjoyed limited jurisdiction to assess and determine the quantum

of tax dues but did not have the power to initiate recovery of those dues.

9. It was further pointed out that merely having a right to set-off does not

automatically lead to having a charge over the property. Section 245 of the

Income Tax Act does not expressly create a charge or a security interest. The

language of Section 245 of the Income Tax Act does not indicate any such charge

to have been created. It is also their contention that the finding of the

Adjudicating Authority that the right to set-off under Section 245 of the Income

Tax Act creates a charge is perverse as it is opposed to the scheme of IBC which

recognises set-off and security interest as separate and distinct concept.

10. Refuting the contentions raised by the Appellant, the Learned Counsel for

the Respondent, Shri Abhishek R. Mishra submitted that the dues of the Income

Tax come under the ambit of security interest. It was also contended that the

definition of secured creditor in IBC does not exclude government or

governmental authority and hence the act of the Respondent for set-off was

lawful. It was pointed that Section 3(30) of the IBC defines secured creditor to

mean a creditor in favour of whom security interest is created and such security

interest can be created by operation of law. The Respondent has relied upon the Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 5 of 17 judgment of this Tribunal in Principal Commissioner of Income Tax and

other Vs M/s Assam Company India Ltd in CA(AT)(Ins) No. 241 of 2022 to

hold that the dues of the Income Tax Department are government dues and

hence the Income Tax Department is a secured creditor. It is also been

contended that since the dues of the Income Tax Department - Respondent are

secured dues and have been availed by invoking Section 245(1) of the Income

Tax Act wherein the Respondent has security interest, the provision of Section

238 of IBC would not apply. It was also pointed out that as required under

Section 245(1) of the Income Tax Act, a notice for set-off was issued to the

Corporate Debtor and to that extent there has been no breach of the procedure

prescribed for set-off under the Income Tax Act. It was also stated that the set-

off was rightly done by the Respondent in accordance with Regulation 37 of

Liquidation Regulations.

11. We have duly considered the arguments advanced by the Learned Counsel

for both the parties and perused the records carefully.

12. From the facts of the present case, it is clear that the Income Tax

Department - Respondent appropriated the ITR amount on 12.11.2021 by

adjusting/setting-off the same against pre-CIRP income tax dues. This act of

appropriation by way of set-off/adjustment was clearly undertaken after

commencement of liquidation proceedings on 25.07.2019. The first question for

our consideration is therefore whether such continuation of pending proceedings

is permissible after liquidation orders have been passed.

13. To analyse this issue, we may begin with perusing the relevant statutory

provisions of moratorium as contained in the IBC during CIRP and during

liquidation.

Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 6 of 17

14. The relevant excerpts of moratorium on institution or continuation of

pending suits or proceedings during CIRP as contained in Section 14 of the IBC

which appears in Chapter II of Part II thereof is as follows:

14. Moratorium.

(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:--

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

Explanation.--For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;

(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.

Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 7 of 17

15. The provision of moratorium in respect of suits and legal proceedings

during liquidation process as contained in Section 33(5) of IBC which appears

in Chapter III of Part II of IBC is as extracted hereunder:

33. Initiation of liquidation.

(4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub- clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:

Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.

16. From a reading of the above statutory provisions, it becomes clear that

liquidation process comes into effect upon the failure to come up with a

resolution plan or on a resolution plan not being approved by the Adjudicating

Authority consequent upon which the Adjudicating Authority further passes the

liquidation order under Section 33(4) of the IBC. The proviso to Section 14(4) of

IBC also clarifies that moratorium ceases to have effect on receipt of approval of

resolution plan or on passing of an order of liquidation. In the present facts of

the case, on the order of liquidation having been passed, the moratorium placed

under Section 14 came to an end. Instead, a fresh moratorium in terms of

Section 33(5) of IBC came into place.

17. Thus, while moratorium under Section 14 applies to CIRP, Section 33

applies to moratorium in a liquidation process. A close examination of these two

statutory provisions would reveal that both these sections are however entirely

distinct in their sweep and application. In terms of the language employed in

Sections 14 and 33 of IBC, while Section 14 prohibits both institution and Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 8 of 17 continuation of pending suits or proceedings against the Corporate Debtor,

Section 33(5) of IBC is only a bar on the institution of new suits during the

liquidation process though the proviso to Section 33(5) further provides that if a

fresh suit or legal proceeding is to be instituted, the Liquidator is required to

obtain specific permission and prior approval of the Adjudicating Authority.

There is however clearly no mention of any bar or embargo on continuation of

pending suits or proceedings during the process of liquidation. In terms of

Section 33(5) of the IBC, the moment liquidation proceedings commence, there

would be a bar only in respect of fresh suits/proceedings while pending

suits/proceedings can continue. The Liquidator can therefore continue to

pursue or defend any already existing proceeding without having to seek any

permission from the Adjudicating Authority in terms of Section 35(1)(k) of IBC.

In other words, though Section 33 contains provisions similar to Section 14

contemplating stay on suits/proceedings during liquidation, however, the reach

and gamut of stay under Section 33 differs from Section 14 in that there is no

moratorium on continuation of suits/proceedings already instituted earlier.

18. To answer the question delineated at para 12 above, we hold that the

words 'continuation of pending suits or proceedings' is consciously omitted in

Section 33(5) of IBC in contrast to Section 14 of IBC where it is explicitly stated

that moratorium applies both to the institution of suits or proceedings or the

continuation of pending law suits or proceedings against the Corporate Debtor.

Thus, to our minds, there is no bar in a suit or a legal proceeding continuing

along with liquidation proceedings as pending suits or legal proceeding have not

been included within the scope of moratorium under Section 33(5) of IBC.

Having come to the above conclusion, we can safely conclude that the Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 9 of 17 Respondent was legally entitled to continue with the Income Tax assessment

proceedings during the liquidation process.

19. This brings before us the second set of issues for consideration as to

whether the Respondent is a secured creditor having security interest under

Section 245 (1) of the Income Tax Act, 1961 and whether there was any infirmity

in the suo-motu action of the Respondent in appropriation of the ITR amount

and in setting-off the said amount against the tax arrears of pre-CIRP period

determined during the liquidation proceedings. As both these issues are closely

intertwined, we will endeavour to deal with them together.

20. When we come to the impugned order, we find that the Adjudicating

Authority after adverting attention to Regulation 37 of Liquidation Regulations,

Section 3(31) of IBC and Section 245 of the Income Tax Act, 1961 held that the

Income Tax Department acquires a statutory right to set off the ITR amount

against taxes in arrears under any proceedings. Basis this finding, Adjudicating

Authority did not find any infirmity in the action of the Income Tax Department

in appropriation of refunds determined during the liquidation proceedings

against the tax arrears of pre-CIRP period. The relevant extracts of the impugned

order are as placed hereunder:

"4. We have heard the Counsel and perused the material available on records.

4.1. We find that the Income Tax Department has appropriated the refunds on 12.11.2021, and the Liquidation proceedings commenced in the case of Corporate Debtor on 25.07.2019, which implies that the refunds were appropriated towards income tax demand due from the Corporate Debtor after commencement of liquidation proceedings.

4.2. Regulation 37 of the IBBl (Liquidation Process) Regulations 2016 provides that "A secured creditor who seeks to realize its security interest

Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 10 of 17 under section 52 shall intimate the liquidator of the price at which he proposes to realize its secured asset".

4.3. The security interest is defined in Section 3(31) of the Code as "security interest" means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person."

4.4. Section 245 of the Income Tax Act, 1961 provides that - ''(1) Where under any of the provisions of this Act, a refund becomes due or is found to be due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner; as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this sub-section.

(2) Where a part of the refund is set off under the provisions of sub- section (1), or where no such amount is set off,' and refund becomes due to a person, and the Assessing Officer, having regard to the fact that proceedings for assessment or reassessment are pending in the case of such person, is of the opinion that the grant of refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner; as the case may be, withhold the refund up to the date on which such assessment or reassessment is made."

4.5. From the provisions of Section 245 of the Income Tax Act 1961, find that the Income Tax Department acquires a statutory right to set off the refunds determined in relation to any proceedings against the taxes in arrears under any proceedings. Accordingly, we are of considered view that the Income Tax Department acquires security interest in terms of section 245(1) of lncome Tax Act, 1961, on determination of refund in liquidation proceedings, in terms of section 3(31) of the Code, as section 3(31) also includes charge as well as encumbrances.

Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 11 of 17 4.6. We further find that the Section 245(1) of the Income Tax Act, 1961 mandates prior notice, which is issued by the Income Tax Department on the log in account of each assessee. Accordingly, we do not find any infirmity in the action of the Respondent in appropriation of refunds determined during the liquidation proceedings against the tax arrears of pre-CIRP period, as such set-off has taken place during the Liquidation proceedings, wherein the right of set-off is available to the Creditors."

21. Assailing the impugned order, it is the case of the Appellant that the action

taken by the Respondent to make recovery of Income Tax demand by way of

adjustment/set-off of ITR amount by invoking Section 245 (1) of the Income Tax

Act, 1961 was beyond the provision of law and hence legally improper. Section

245 could not have been applied in the present case since Section 238 of the

IBC endows the IBC with over-riding powers. It is also the case of the Appellant

that the recovery of income tax dues, if any, of the Respondent had to abide by

the procedure laid down by the IBC in the Liquidation Regulations which the

Respondent clearly failed to comply with. The Respondent not having followed

the mandatory procedure prescribed by the IBC acted unlawfully in adjusting

the ITR amount without having filed any claim before the Liquidator though the

Liquidator had published the public announcement inviting claims from the

stakeholders of the Corporate Debtor. It is also canvassed that the ITR amount

was part of the liquidation estate of the Corporate Debtor and by wrongful

adjustment of the ITR against pre-CIRP income tax dues, the rights of other

stakeholders of the Corporate Debtor stood violated.

22. Per contra, in affirmation of the impugned order, it has been the case of

the Respondent that in terms of Section 52 of IBC, a secured creditor is allowed

realization of security interest in liquidation proceedings. It has also been

contended that the Income Tax Department being a Governmental authority is Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 12 of 17 a secured creditor and in support this contention, reliance has been placed on

the judgement of this Tribunal in Principal Commissioner of Income Tax Vs

Assam Company India Ltd in CA(AT)(Ins) No. 241 of 2022 ('Assam

Company' in short).

23. We find that in this judgment, reliance was placed on the judgement of

the Hon'ble Supreme Court in State Tax Officer vs. Rainbow Papers Limited-

Civil Appeal No. 1661 of 2020 to claim that the Income Tax Department being

a Government authority is a secured creditor and entitled to realise security

interest. However, we are of the view that this judgement does not assist the

Respondent in view of a subsequent judgment of the Hon'ble Supreme Court in

Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd. & Ors.

in C.A. No. 7976 of 2019, wherein it has been held that the ratio of the Rainbow

Papers supra has to be confined to the facts of that case. In the Rainbow Papers

case, the Operational Creditor was held to be a secured creditor on the basis of

relevant statutory provisions of Gujarat Value Added Tax, 2003. However, in

terms of the provisions of the Income Tax Act including Section 245 thereof,

there is no such basis to claim in the case of the Income Tax Department to be

a secured Operational Creditor. Further the language of Section 245 (1) of the

Income Tax Act does not create any charge or security interest in favour of the

Respondent. The creation of a charge by operation of law must be apparent from

the express words of the statute. Hence, the Assam Company judgement supra

judgment does not come to the aid of the Respondent in the present case. It also

flows therefrom that the Adjudicating Authority had erred in holding that the

Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 13 of 17 Respondent - Income Tax Department had acquired security interest in terms of

Section 245 (1) of the Income Tax Act, 1961.

24. We now proceed to answer the adjunct issue as to whether there was any

infirmity in the action of the Respondent in appropriation of the ITR amount and

in setting-off the said amount against the tax arrears of pre-CIRP period

determined during the liquidation proceedings. We have already indicated in the

preceding paragraphs that there is no bar in a suit or a legal proceeding

continuing along with liquidation proceedings as pending suits or legal

proceeding have not been included within the scope of moratorium under

Section 33(5) of IBC. The question that arises next is that if the Respondent was

legally entitled to continue with the Income Tax assessment proceedings during

the liquidation process, does the principle of set-off and the associated

accounting principle of netting-of become applicable on the ITR amount

determined during the liquidation proceedings.

25. We find that there is no restriction, prohibition or embargo placed by the

IBC on the principle of set-off during liquidation proceedings. In fact, the right

of set-off is available to the Respondent as maybe noticed at Regulation 29 of

Liquidation Regulations, which is as reproduced below:

"29. Mutual credits and set-off. Where there are mutual dealings between the corporate debtor and another party, the sums due from one party shall be set off against the sums due from the other to arrive at the net amount payable to the corporate debtor or to the other party.

Illustration: X owes Rs. 100 to the corporate debtor. The corporate debtor owes Rs. 70 to X. After set off, Rs. 30 is payable by X to the corporate debtor."

Clearly therefore, the concept of set-off in the liquidation process stands on the

premise of mutual credits and dealings undertaken the between the parties. In Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 14 of 17 this context, we must add here that there is a clear distinction between the facts

of the case of Raman judgement supra and the facts of the present case. In

the Raman judgement, set off was claimed while Corporate Debtor was

undergoing CIRP and for reasons of set-off being claimed prior to passing of

liquidation order, it was held to be contrary to law. However, in the present case,

the set-off has been claimed after passing of the liquidation order which is legally

permissible under Chapter III Part II of IBC. Hence the Raman judgement does

not come to the aid of the Appellant in asserting that set-off was not permissible

and the entire ITR amount should have become part of the liquidation asset of

the Corporate Debtor.

26. However, what is under contention is whether on completion of

assessment proceedings during liquidation, the Respondent-Income Tax

Department could avail of the set-off automatically, on its own, by adjusting

against pre-CIRP dues. In this regard we may refer to the Sundaresh Bhatt

judgment supra wherein the Hon'ble Apex Court has held that while statutory

authorities can take steps to determine the tax, interest, fines or any penalty

which is due, it cannot enforce a claim for recovery of the tax due during the

period of moratorium. Extending the ratio of this judgement, we hold that the

Income Tax authority enjoys limited jurisdiction of continuing with assessment

proceedings and in determining the quantum of Income Tax dues but does not

enjoy the jurisdiction and power to suo motu initiate recovery of dues or execute

their claim unilaterally by adjusting the ITR amount with past tax dues.

27. Furthermore, a set-off is a concept which entails setting-of monetary

cross-claims between parties which results in producing a certain balance sum.

The precept of set-off in liquidation proceeding would therefore mean adjusting Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 15 of 17 a smaller claim owed to the Respondent against a still larger claim payable to

the Respondent. However, while applying the principle of set-off, it must be

kept in mind that no creditor ends up getting share disproportional to their dues.

28. All claimants in the liquidation process are required to stake claims for

distribution of proceeds of sale in consonance with Section 53 of IBC. Filing of

claims for set-off is also mandated by Liquidation Regulations and cannot be

bypassed. Thus, in the present case, for recovery of the tax amount as

determined in the assessment proceedings by set-off against ITR, it was also

required of the Respondent to submit their claims in terms of the laid down

procedure. They are required to file their claim with the Liquidator for recovery

of the dues in the requisite form. The Income Tax Department by unilaterally

adjusting the ITR amount cannot put itself in a better footing than what is

permissible as their claim in the distribution matrix.

29. Thus, while the Adjudicating Authority has been partially correct in

allowing the principle of set-off in the liquidation proceedings but partially

incorrect in allowing the suo-motu set-off without the claims having been filed

by the Respondent before the Appellant-Liquidator in terms of the Liquidation

Regulations. Thus, to answer the question raised in para 18 above, we are of the

considered view that there has been a clear infirmity on the part of the

Respondent in unilaterally and suo-motu appropriating the ITR amount by

setting-off the said amount against the tax arrears of pre-CIRP period

determined during the liquidation proceedings.

30. We take notice that there is no material on record to show that the

Adjudicating Authority while passing the impugned order has considered what

amount was due to the Respondent in the context of Income Tax pre-CIRP dues Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 16 of 17 for adjustment/set-off of ITR as against what was due to them as their claim

under the liquidation proceedings. In the given circumstances, we feel it

appropriate to remand the matter back to the Adjudicating Authority to examine

afresh the quantum of set-off of ITR against pre-CIRP tax dues which has been

allowed to the Respondent as against their claim entitlement in the liquidation

proceedings. On revisiting the matter, in the event it is found by the

Adjudicating Authority that the ITR amount set off by the Respondent - Income

Tax Department exceeds their claim entitlement in the liquidation proceedings,

the Respondent may be directed to refund the excess amount so adjusted, within

a reasonable period to be decided by the Adjudicating Authority, which sum,

may thereafter be added to the liquidation estate of the Corporate Debtor. If,

however, the ITR amount adjusted by the Respondent is found to be less than

their claim entitlement, the ITR adjustment so made will hold ground and remain

undisturbed with the caveat that balance if any shall stand extinguished since

the Respondent did not file their claims before the Liquidator in the liquidation

proceedings. The appeal is disposed of in the above terms. Parties shall bear

their own costs.

[Justice Ashok Bhushan] Chairperson

[Mr. Barun Mitra] Member (Technical)

[Mr. Arun Baroka] Member (Technical) Place: New Delhi Date: 12.07.2024 Ashok Kumar Company Appeal (AT) (Insolvency) No. 258 of 2024 Page 17 of 17