The Calcutta High Court has held that the Income Tax Department’s adjustment of Ultra Tech Cement’s refund for Assessment Year 2019-2020 against outstanding demand for Assessment Year 2011-2012, both relating to the pre-CIRP period, was illegal and unsustainable. The Court clarified that once a Resolution Plan is approved under Section 31(1) of the IBC, all claims stand frozen and are binding on every stakeholder, including the Central Government, State Government, and local authorities, regardless of whether such stakeholder was a party to the CIRP proceedings.
The Court said that all claims not forming part of the approved Resolution Plan stand extinguished, and no person is entitled to initiate or continue any proceedings in respect of such claims, including the Income Tax Department, and the Income Tax Authorities have no right to adjust refunds pertaining to a period which stood frozen upon approval of the Resolution Plan, nor can they initiate any fresh proceedings in respect of demands raised prior to the transfer date.
The High Court emphasised that Section 238 of the IBC gives the Code overriding effect over any inconsistent provisions of any other law for the time being in force, including Section 245 of the Income Tax Act. Further, income tax dues, being ‘crown debts’, have no priority over secured creditors and stand extinguished upon approval of the Resolution Plan if not included therein. Hence, the Income Tax Authorities are expected to forthwith withdraw all demands pertaining to the pre-transfer period.
A Single Judge Bench of Justice Smita Das De observed that the approved Resolution Plan specifically provided that all assets of the Corporate Debtor shall be free from all encumbrances, claims (whether known or unknown), and that all litigations initiated, arisen, or pending before the transfer date shall stand withdrawn and extinguished. The Court placed strong reliance on the Supreme Court’s decision in Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Company Ltd. [(2021) 9 SCC 657], which hold that once a Resolution Plan is approved under Section 31(1) of the IBC, all claims stand frozen and are binding on the corporate debtor, its employees, members, creditors, the Central Government, State Government, local authorities, guarantors, and other stakeholders, and that all claims not forming part of the Resolution Plan stand extinguished.
The Court further relied on JSW Steel Ltd. v. Pratistha Thakur Haritwal [2025 SCC Online Supreme Court 672], where the Supreme Court held that continuation of proceedings after Ghanashyam Mishra is ‘contemptuous in nature’ and quashed the demand notices. Reliance was also placed on Vaibhab Goyal v. DCIT [2025 SCC Online SC 592] read with Committee of Creditors of ESSAR Steel Ltd. v. Satish Kumar Gupta [(2019) 16 SCC 1478], where the Supreme Court observed that a successful resolution applicant cannot be faced with undecided claims like ‘Hydra Heads Popping up’ and that business must recommence on a clean slate.
The Court noted that the Income Tax Department’s argument that adjustment was carried out under Section 245 of the Income Tax Act, could not override the IBC’s overriding effect under Section 238, and that income tax dues being ‘crown debts’ have no priority over secured creditors and stand extinguished upon approval of the Resolution Plan if not included therein.
Briefly, Ultra Tech Cement Limited, a wholly owned subsidiary of Ultratech Cement Limited and a successful resolution applicant for Binani Cement Limited under the Insolvency and Bankruptcy Code, 2016 (IBC), approached the Calcutta High Court challenging the Income Tax Department’s attempt to recover pre-CIRP tax dues after the Resolution Plan had been approved. The Corporate Insolvency Resolution Process (CIRP) against Binani Cement Limited commenced on 25 July 2017 pursuant to Bank of Baroda’s Section 7 application, with a public announcement issued on 29 July 2017.
Ultratech’s Resolution Plan was unanimously approved by the Committee of Creditors and sanctioned by the National Company Law Appellate Tribunal (NCLAT) on 14 November 2018, which was affirmed by the Supreme Court on 26 July 2019, with the effective takeover date recorded as 20 November 2018. The petitioner challenged the Income Tax Department’s orders, along with notices, which sought adjustment of Rs. 1.43 crores, Rs. 67.69 lakhs, and Rs. 1.12 crores, being the refund for Assessment Year 2019-2020 adjusted against outstanding demand for Assessment Year 2011-2012, all relating to the pre-transfer period from A.Y. 2007-2008 to 2015-16.
Despite an interim order dated 8 July 2021 by Justice Md. Nizamuddin restraining the respondents, the Centralized Processing Centre (CPC) went ahead and adjusted the refunds against pre-transfer demands. Notably, the Income Tax Department had itself submitted a proof of debt in Form ‘B’ claiming Rs. 24.06 crores, which was rejected by the Resolution Professional after collation.
