2022 (2) TMI 838 - AT - Insolvency and Bankruptcy

Claim of refund for the assessment year 2019-2020 from Income Tax Department - rejection of refund holding that it is not within the jurisdiction to direct Income Tax Department to give refund - waterfall mechanism as per Section 53 of the IBC - HELD THAT - There is no illegality committed by the Ld. Adjudicating Authority while passing the impugned order in view of provisions of Section 245 of the Income Tax Act 1961. Therefore we do not need to interfere in the impugned order. The impugned order passed by the Ld. Adjudicating Authority (National Company Law Tribunal) Indore Bench at Ahmedabad Court 1 is hereby affirmed. There is no merit in the Appeal. The Appeal is hereby dismissed and the Appellant is further directed to move before the Income Tax Department who are competent to adjudicate the matter.

Summary

Issues:
1. Jurisdiction of National Company Law Tribunal to direct Income Tax Department to give refund.
2. Adjustment of refund by Income Tax Department against outstanding tax demands in the case of liquidation.

Analysis:
1. Jurisdiction of National Company Law Tribunal:
The Appellant sought a refund of amounts from the Income Tax Department for the assessment years 2017-2018 and 2019-2020. The Ld. Adjudicating Authority rejected the application, stating that it was not within their jurisdiction to direct the Income Tax Department to provide the refund. The Appellant argued that the Respondent, being an Operational Creditor, could adjust its debt with the refund, bypassing the queue under Section 53 of the Insolvency and Bankruptcy Code (IBC). The Appellant contended that the Respondent's debt was an Operational Debt as per the IBC. However, the Respondent maintained that the adjustment of the refund against outstanding tax demands did not violate the IBC's waterfall mechanism under Section 53, as no liquidation assets were sold, and the refund was not proceeds of sale.

2. Adjustment of refund in liquidation scenario:
The Appellant claimed that the refund due to the Corporate Debtor was an asset of the Liquidation Estate, covering monetary assets held by the Income Tax Department. The Appellant argued that the adjustment of the refund was in preference to other stakeholders. The Respondent, on the other hand, asserted that the operation of Section 245 of the Income Tax Act allowed for the adjustment of refunds against outstanding tax demands, even if the refund was part of the liquidation asset. The Respondent contended that the adjustment did not contravene the IBC's provisions and was in accordance with the law. The Tribunal, after considering the arguments, found no illegality in the Ld. Adjudicating Authority's decision. The Tribunal affirmed the order, dismissing the Appeal and directing the Appellant to approach the Income Tax Department for adjudication.

In conclusion, the Tribunal upheld the decision of the Ld. Adjudicating Authority, emphasizing the legality of the Income Tax Department's adjustment of refunds against outstanding tax demands in the context of liquidation proceedings.