NCLT-Approved Resolution Plan Extinguishes Pre-Resolution Income Tax Demands: ITAT Chennai Rules in Favour of Orchid Pharma
Case Overview
Case Name: Orchid Pharma Ltd. Vs DCIT (ITAT Chennai)
Assessment Year: 2015-16
Forum: Income Tax Appellate Tribunal, Chennai
Order Date: 11th May, 2026
The Income Tax Appellate Tribunal (ITAT), Chennai, delivered a significant ruling in the cross-appeals filed by both the assessee and the Revenue against the order of the Commissioner of Income Tax (Appeals), Chennai-18, passed under Section 250 of the Income Tax Act, 1961, dated 28.10.2025, pertaining to Assessment Year 2015-16. The Tribunal held that all income tax demands and additions relating to periods prior to the effective date under an NCLT-approved resolution plan stand extinguished and cannot be enforced against the assessee.
Background of the Case
Return Filing and Search Proceedings
The assessee, a company, had originally filed its return of income for AY 2015-16 on 30.11.2015, declaring total income at Nil. Subsequently, a search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on 23.11.2015 in the case of M/s. Shri Rama Chandra University Trust Group. The Assessing Officer of the searched party issued a satisfaction notice under Section 153C of the Act on the ground that certain seized materials were found to belong to the assessee. Following the issuance of notice under Section 153C, the assessee once again filed a return declaring total income at Nil.
Transfer Pricing Reference and Assessment
Since the assessee was involved in international transactions, the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) for determination of the Arm's Length Price (ALP) of such transactions. The TPO proposed a transfer pricing adjustment amounting to Rs. 9,26,43,358/-. The Assessing Officer incorporated this adjustment in the draft assessment order and additionally made several other additions and disallowances. The final assessment order was passed on 18.02.2019 under Section 143(3) read with Section 144C read with Section 153C of the Act. The assessee subsequently filed an appeal before the CIT(A).
Insolvency Resolution Plan — A Critical Development
NCLT Order and Supreme Court Restoration
Before the CIT(A), the assessee brought to the authority's notice a crucial sequence of events relating to insolvency proceedings:
- The National Company Law Tribunal (NCLT) had initially passed an order in the assessee's case on 27.10.2017.
- Certain creditors challenged this order before the National Company Law Appellate Tribunal (NCLAT), which set aside the NCLT order vide its order dated 13.11.2019.
- The assessee challenged the NCLAT order before the Hon'ble Supreme Court, which restored the NCLT order on 28.02.2020, thereby reinstating the approved resolution plan.
Assessee's Contention Before CIT(A)
The assessee argued before the CIT(A) that by virtue of Section 238 of the Insolvency and Bankruptcy Code, 2016 (IBC), which carries an overriding effect over all other legislation, any demand arising out of proceedings prior to the NCLT order would be rendered Nil. However, the CIT(A) chose to adjudicate the appeal on merits, reasoning that its decision would neither enhance nor reduce the demand since only brought-forward losses were involved. On merits, the CIT(A) granted partial relief to the assessee. Both the assessee and the Revenue then filed appeals before the ITAT.