Pre-existing tax claims not in resolution plan are extinguished; appeals cannot continue during IBC proceedings

Issue

Whether income tax appeals against assessment orders can proceed during the pendency of Corporate Insolvency Resolution Proceedings (CIRP) or after the approval of a Resolution Plan, and whether tax claims not included in such a plan are extinguished under the Insolvency and Bankruptcy Code (IBC).

Facts

Assessee: A company facing insolvency proceedings.
Assessment Years: The dispute relates to Assessment Years 2013-14 and 2017-18.
Nature of Appeal: The assessee had filed appeals against assessment orders passed under Section 143(3) read with Section 254 of the Income-tax Act.
Insolvency Trigger: During the pendency of these tax appeals, CIRP was initiated against the assessee-company.
Current Status: The insolvency matter is currently pending before the National Company Law Appellate Tribunal (NCLAT).
Conflict: The key conflict arose regarding the maintainability of the tax appeals in light of the moratorium and the “Clean Slate” provisions of the IBC.

Decision

Extinguishment of Past Claims: The Tribunal/Court held that upon the approval of a resolution plan by the Adjudicating Authority (NCLT), all claims that are not part of the resolution plan stand extinguished.
Clean Slate Doctrine: No authority or person is entitled to initiate or continue any proceedings in respect of a claim that is not part of the approved resolution plan.
Halt on Appeals: Since the Department did not contend that the tax claims in question were part of the resolution plan, the income tax appeals could not proceed during the continuance of the proceedings under the IBC.
Outcome: The appeals are effectively halted or dismissed subject to the outcome of the IBC proceedings, confirming the supremacy of the IBC timeline.

Key Takeaways

IBC Overrides Tax Proceedings: The provisions of the Insolvency and Bankruptcy Code, 2016 (specifically Sections 13, 14, and 31) take precedence over the Income-tax Act regarding the recovery of dues.
“Clean Slate” Theory: A successful resolution applicant takes over the corporate debtor on a “clean slate.” Undecided or un-submitted tax demands from the period prior to the plan’s approval are extinguished to prevent surprise liabilities.
Moratorium Impact: Once CIRP is initiated, a moratorium (Section 14) bars the institution or continuation of suits against the corporate debtor.
Duty of Department: It is incumbent upon the Income Tax Department to file their claims with the Resolution Professional during the CIRP. If they fail to do so, or if the claim is legally “haircut” in the plan, they cannot pursue it through separate tax appeals.

IN THE ITAT CHENNAI BENCH ‘D’

Aban Offshore Ltd.

Deputy Commissioner of Income-tax

Manu Kumar Giri, Judicial Member
and Inturi Rama Rao, Accountant Member

IT Appeal Nos.1380 and 1381 (Chny) of 2025
[Assessment years 2013-14 and 2017-18]

DECEMBER 16, 2025

Ms.Vinitha, Adv. for the Appellant. ARV Sreenivasan, CIT for the Respondent.

ORDER

1. These appeals filed by the assessee-company directed against the orders of the Assistant Commissioner of Income Tax, Corporate Circle-1(1), Chennai passed u/s 143(3) r.w.s. 254 of the Income Tax Act-1961 dated 30.03.2025 and 31.03.2025 for the assessment years 2013-14 and 2017-18 respectively.

2. Since the identical facts and common issues are involved in all the above captioned two appeals of the assessee, we proceed to dispose of the same by this common order.

3. For the sake of convenience and clarity, the facts relevant to the appeal in ITA No.1380/Chny/2025 for the assessment year 2013-14 are stated hereunder.

ITA No.1380/Chny/2025, A.Y. 2013-14:

4. At the outset, it is evident from the record that the Corporate Insolvency Resolution Proceedings (CIRP) are pending against the assessee and as of now, Hon’ble National Company Law Appellate Tribunal (NCLAT) is seized with the jurisdiction.

5. We have considered the issue in the light of the provisions of Insolvency and Bankruptcy Code, 2016 (“the Code”) and the decision of the Hon’ble Apex Court in the case of Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (SC). Under section 13 of the Code, the adjudicating authority after admission of the application under section 7 or 9 or 10 of the Code shall declare a moratorium which shall include the prohibition of the institution of suits or continuation of pending suits or proceedings against the corporate debtor in any court of law or tribunal. In Ghanashyam Mishra & Sons (P.) Ltd. (supra), it was held that, (i) That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan; (ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect; and (iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued.

6. A reading of the provisions under section 13 and 14 of the Code along with the decision in Ghanashyam Mishra & Sons (P.) Ltd. (supra), clearly shows that once the proceedings have commenced by institution of application under section 7 or 9 or 10 of the Code, the continuance of the pending proceedings is prohibited and when once they reach the logical conclusion with due approval of the resolution plan by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. At any rate, for the time being, this appeal cannot be proceeded with during the continuance of the proceedings under the Code. However, depending upon the result of such proceedings before the adjudicating authority in respect of the corporate debtor, appropriate steps if any, may be taken by the appellant/respondent. We, therefore, granting leave to the appellant in this appeal to seek the restoration of the appeal, if necessitated by the orders in the Corporate Insolvency Resolution Proceedings, dismiss the appeal in limine. We also derive support for the above proposition from the decision of the Jurisdictional Bombay High Court in the case of Murli Industries Ltd v. Asstt. CIT [2022] 441 ITR 8 (Bom). The Hon’ble Bombay High Court after referring to the judgement of the Hon’ble Supreme Court in the case of Ghanashyam Mishra & Sons (P.) Ltd. (supra) held that on the date of approval of the resolution plan by the Adjudicating Authority, all such claims which are not a part of the resolution plan, shall stand extinguished and no personnel shall be entitled to initiate or continue any proceedings in respect to a claim, which is not a part of the resolution plan by holding as under :-

“16. Ultimately, the Hon’ble Supreme Court has answered the questions framed in the following manner:

“102.1. That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;

102.2. 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;

102.3. Consequently, all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued. ”

17. A careful reading of the above findings, would show that even a claim in respect of dues arising under any law for the time being in force, including claims under the Income Tax Act, 1961 which is payable to the Central Government or the State Government, would come within the ambit of Operational Creditors. Further, the claim of operational creditors will also include a claim of statutory authority like Income Tax Department on account of money receivable pursuant to an imposition by a statute. The Hon ‘ble Supreme Court has also upheld the view taken by the Rajasthan High Court holding that the demand notices issued by the Central Goods and Service Tax Department, for a period prior to the date on which NCLT has granted its approval to the Resolution Plan, are not permissible in law. The concluding remarks of the Hon ‘ble Apex Court are that, on the date of approval of the Resolution Plan by the Adjudicating Authority, all such claims which are not a part of the Resolution Plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not a part of the Resolution Plan. The expression ‘that no person will be entitled to initiate any proceedings’ would include the proceedings in the nature of notice issued under Section 148 of the Income Tax Act, 1961.

18. As we understand from the above rulings, the aim and object of IBC is to revive the Corporate Debtor by putting quietus to the claims against it. Providing certainty to the Resolution Applicant of “no” claims in future against the Corporate Debtor appears to be the essence of the Resolution Plan. Such inference could further be substantiated on the ground that the provisions of the IBC (Section 238 of IBC) have an overriding effect, if there is any inconsistency with any of the provisions of the law for the time being in force, including the Income Tax Act, 1961. The Hon’ble Apex Court has also held that section 31 of the amended Act will have retrospective effect.

19. Having said so, it is now crystallized that the claims which were not a part of the Resolution Plan including recoverable statutory dues, shall stand extinguished upon approval of the Resolution Plan. “

7. In the present case also, it is not a case of the Department that the claims which are part of subject matter of appeal are not part of the resolution plan. Therefore, the ratio of the Jurisdictional Bombay High Court in the case of Murli Industries Ltd (supra) is also squarely applicable to the facts of the present case. Thus, the appeal filed by the assessee company stands dismissed as not maintainable.

8. In the result, the appeal of the assessee in ITA No.1380/Chny/2025 for A.Y. 2013-14 stands dismissed.

ITA Nos.1381/Chny/2025, A.Y. 2017-18, 2025:

9. Since the facts and issues involved in the present appeal of the assessee is identical, therefore, our decision in ITA No.1380/Chny/2025 for A.Y. 2013-14 shall apply mutatis mutandis to the present appeal of the assessee in ITA No.1381/Chny/2025 for A.Y. 2017-18 also. Accordingly, the appeal of the assessee in ITA Nos.1381/Chny/2025 for A.Y. 2017-18 stands dismissed.

10. To sum up, all the above captioned two appeals of the assessee stand dismissed.