IBC Moratorium Shields Corporate Debtor's Income Tax Refund from Pre-CIRP Demand Adjustment: NCLT Ahmedabad

Overview of the Dispute

A significant ruling from the National Company Law Tribunal (NCLT), Ahmedabad Bench, in Varun Anil Chopra Vs Income Tax Department has reinforced the primacy of the Insolvency and Bankruptcy Code, 2016 over competing provisions of the Income-tax Act, 1961 when a Corporate Insolvency Resolution Process (CIRP) is underway. The central question before the Tribunal was whether the Income Tax Department could invoke Section 245 of the Income-tax Act, 1961 to appropriate an income-tax refund — determined after commencement of CIRP — towards pre-CIRP tax dues of the corporate debtor, while the statutory moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 remained operative.

The Tribunal ruled decisively in favour of the Resolution Professional, holding that such adjustment was impermissible and directing the full reversal of the appropriated amount.

Background and Factual Matrix

Admission of CIRP and Commencement of Moratorium

Demac Technologies Private Limited was admitted into CIRP pursuant to a petition filed by Sarens Heavy Lift India Private Limited under Section 9 of the Insolvency and Bankruptcy Code, 2016. The admission order was passed on 20.01.2026, upon which the moratorium under Section 14 of the Code came into immediate operation. Mr. Chintan Shroff was appointed as the Interim Resolution Professional (IRP). A public announcement under Section 15 of the Code was issued on 23.01.2026 inviting claims from creditors, with 03.02.2026 as the last date for submission.

The Income Tax Refund and Outstanding Demand

Demac Technologies Private Limited had filed its return of income for Assessment Year 2025-26 on 10.12.2025 — prior to the commencement of CIRP. The return was subsequently processed under Section 143(1) of the Income-tax Act, 1961, and an income-tax refund of ₹56,07,920/- was determined on 12.02.2026, which was after the insolvency commencement date.

Separately, a tax demand of ₹35,11,100/- had been raised against the corporate debtor through an order under Section 143(1a) of the Income-tax Act, 1961 dated 30.04.2024, relating to Assessment Year 2023-24. This demand predated the CIRP commencement and was a pre-CIRP liability. The Income Tax Department submitted its claim in Form B for this amount on 16.02.2026 — thereby formally entering the insolvency mechanism as a creditor.

The Contested Adjustment

On 13.02.2026, the Centralised Processing Centre of the Income Tax Department issued a notice under Section 245 of the Income-tax Act proposing to set off the refund against the outstanding pre-CIRP demand. The Department stated that the corporate debtor was afforded 21 days to respond and that no reply was received within that period.

Thereafter, relying also upon a communication dated 02.03.2026 purportedly conveying the IRP's consent or no-objection to the adjustment, the Department proceeded to record the following appropriations:

As a consequence, out of the total determined refund of ₹56,07,920/-, only ₹14,43,192/- was credited to the corporate debtor, with ₹41,64,728/- withheld and appropriated towards the pre-CIRP liability.

Objections by the IRP/RP and Filing of the Application

By communications dated 13.03.2026, 18.03.2026, and 19.03.2026, the IRP admitted the Department's claim of ₹35,11,100/- but simultaneously objected to the adjustment and demanded reversal of ₹41,64,728/-. Further reminders were issued on 16.04.2026 and 22.04.2026. The issue was considered at the 4th meeting of the Committee of Creditors on 28.04.2026, where authorisation was granted to initiate proceedings before the Adjudicating Authority.

Mr. Varun Anil Chopra was subsequently appointed as the Resolution Professional in place of the IRP vide order dated 08.05.2026. On 14.05.2026, the newly appointed RP communicated his appointment to the Department and again requested release of the appropriated amount with applicable interest. The present application — I.A. No. 952(AHM) of 2026 — was filed on 17.06.2026 under Section 60(5)(c) read with Section 14 of the Insolvency and Bankruptcy Code, 2016 and Rule 11 of the National Company Law Tribunal Rules, 2016.

The Core Legal Issue

The Tribunal framed the principal question for determination as follows: