IBC Overrides Income Tax Demands: ITAT Rules NCLT-Approved Plan Nullifies Past Dues, Dismisses Appeal

ITAT held that once an NCLT-approved resolution plan sets government dues to zero, tax authorities cannot recover past demands. Thus, even on merits, the appeal became irrelevant, and the company’s appeal was dismissed as non-impactful.

The ITAT Bangalore bench has passed its judgement on an appeal filed by M/s. Metrik InfraProjects Private Limited against an order dated November 26, 2024, passed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The case concerns the Assessement Year 2017-18.

The company had filed an income tax return (ITR) showing a loss. However, while assessing the ITR, the assessing officer (AO) had disallowed certain expenditure and increased the taxable income. Being aggrieved by the additions, the company filed an appeal before the CIT(A). However, the company did not appear before the CIT(A) during the personal hearing. Hence, the appeal was dismissed by the CIT(A) on the grounds of non-prosecution.

The company underwent an insolvency process under the Insolvency and Bankruptcy Code (IBC). Subsequently, a resolution plan was approved by the National Company Law Tribunal (NCLT) Bengaluru Bench in September 2023. An important point to note is that government departments, including the Income Tax Department, did not make any claims during the insolvency process despite being informed.

Hence, the resolution plan approved by the NCLT provided that all government dues, including taxes, would be zero. This is because, according to the Tribunal, once the resolution plan is approved, no claims can be made. Hence, the Income Tax Department cannot recover the outstanding demand. Therefore, the judgement passed by the Tribunal is relevant. Hence, the Tribunal held that even if it passed judgement on the merits of the case, the tax demand cannot be recovered. Therefore, the appeal filed by the company is not relevant. Hence, the Tribunal dismissed the appeal filed by the company.