Introduction
This is a comprehensive analysis of the case involving Gayatri Projects Ltd. and the Principal Chief Commissioner of Income-tax, Hyderabad. In the realm of taxation and regulatory changes, this case sets the stage for an examination of the intriguing legal aspects and implications that unfold within the intricate tapestry of taxation laws.

Controversy in Question
The case revolves around the issue of income tax refunds and the powers of the assessing officer in the context of the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC). The key events leading to the dispute are as follows:
- The CIRP of the Corporate Debtor (CD), Gayatri Projects Ltd., commenced, and a public announcement was made on 19/11/2022. The Income Tax Department was informed about the commencement of the CIRP and the applicability of the moratorium under Section 14 of the IBC.
- During the examination of the books of accounts and other records of the CD, it was noticed that the CD was eligible for an Income Tax Refund of Rs. 56,54,62,472/- for the Assessment Year (AY) 2021-22. However, this amount was adjusted by the Income Tax Department against their demands for AY 2016-17 and AY 2018-19. The adjustment was made both before and after the commencement of the CIRP.
- The applicant requested the Assessing Officer to reverse the post-CIRP adjustment of Rs. 11,81,93,690/- made by the department, arguing that it violated the moratorium under Section 14 of the IBC. The applicant also requested the immediate refund of the Income Tax refund of Rs. 71,30,66,160/- for AY 2022-23.
- Despite several attempts to communicate with the Income Tax Department, including personal visits and online grievances, the applicant did not receive any satisfactory response or confirmation about the refund.
- The applicant argued that the actions of the Income Tax Department, including the adjustment of the Income Tax Refund of Rs. 11.81.93,690/- (A.Y. 2021-22) and the proposed adjustment of the Income Tax Refund of Rs. 71,30,66,160/- (A.Y. 2022-23) against past demands, were invalid and in breach of the moratorium declared by the NCLT under Section 14 of the IBC.
Prayer of the Applicant
The applicant, in this case, has made the following requests:
- The applicant seeks the intervention of the Tribunal to direct the Income Tax Department to release the Income Tax refunds of A.Y. 2021-22 and 2022-23.
- The applicant has specifically requested for the release of the assessed Income Tax Refunds due and payable to the Corporate Debtor as under:
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- An amount of Rs.11,81,93,690 which was adjusted against the past demand post CIRP on 19/01/2023 for A.Y 2021-2022.
- The proposed adjustment of Rs. 71,30,66,160 for A.Y 2022-2023 to be adjusted against the past demand post CIRP.
- The applicant has also requested the Assessing Officer not to make any adjustment of the past demands against the Income Tax refund of Rs. 71,30,66,160/- in respect of A.Y 2022-23 and immediately refund the same in the account of the CD in view of the ongoing CIRP and moratorium u/s 14 of the Code.
Legal Issues Involved
The case presents several legal issues that revolve around the powers of the Assessing Officer and the applicability of the Insolvency and Bankruptcy Code (IBC), particularly Section 14, which deals with the moratorium period during the Corporate Insolvency Resolution Process (CIRP). The key legal issues involved are:
- Adjustment of Income Tax Refunds Against Past Demands: The Assessing Officer adjusted the Income Tax refund of Rs. 11,81,93,690/- for the Assessment Year (AY) 2021-22 against past demands for AY 2016-17 and AY 2018-19. The officer also proposed to adjust the Income Tax refund of Rs. 71,30,66,160/- for AY 2022-23 against past demands. The legal issue here is whether such adjustments are permissible under the law, particularly during the CIRP and the moratorium period under Section 14 of the IBC.
- Applicability of the Moratorium Under Section 14 of the IBC: Section 14 of the IBC imposes a moratorium that prohibits certain actions, including the recovery of any property or enforcement of any security interest, from the date of commencement of the CIRP. The legal issue here is whether the actions of the Assessing Officer, particularly the adjustment of the Income Tax refunds against past demands, violate the moratorium under Section 14 of the IBC.
- Obligations of the Income Tax Department During the CIRP: The applicant argues that the Income Tax Department is obligated to refund the Income Tax refunds to the Corporate Debtor (CD) during the CIRP, given the financial crisis faced by the CD and the need to keep the infrastructure projects alive. The legal issue here is whether the Income Tax Department has such obligations under the law, particularly in the context of the CIRP and the moratorium under Section 14 of the IBC.
Arguments Made by Advocate for the Applicant
The advocate for the applicant made several arguments, primarily focusing on the violation of the moratorium under Section 14 of the IBC by the Income Tax Department. The key arguments are as follows:
- The advocate argued that the Income Tax Department’s adjustment of the Income Tax refund of Rs. 11,81,93,690/- for AY 2021-22 against past demands post the commencement of the CIRP was in violation of the moratorium under Section 14 of the IBC. The advocate requested the Assessing Officer to reverse this adjustment and refund the amount to the CD’s account.
- The advocate also objected to the proposed adjustment of the Income Tax refund of Rs. 71,30,66,160/- for AY 2022-23 against past demands. The advocate filed an online objection against this proposed adjustment, arguing that such an action of recovery of any past dues from the CD is not permissible during the existence of the moratorium under Section 14 of the IBC.
- The advocate further requested the Assessing Officer not to make any adjustment of the past demands against the Income Tax refund of Rs. 71,30,66,160/- for AY 2022-23 and to immediately refund the same in the account of the CD in view of the ongoing CIRP and the moratorium under Section 14 of the IBC.
- The advocate submitted that the CD is one of the largest infrastructure companies with various government projects of national importance and more than a thousand employees and workmen. The CD is in acute financial crisis, and funds are urgently required to keep the infrastructure projects alive and to meet various ongoing expenses. Therefore, the advocate sought the intervention of the Tribunal to direct the Income Tax Department to release the Income Tax refunds of AY 2021-22 and 2022-23.
Important Observations of the Court
The court made several important observations during the course of the hearing. Here are the key observations
“It is submitted that, subsequently, on 2nd May, 2023, the CD received two separate emails from the Income Tax Department in respect of Income Tax Return of AY 2022-23 towards: a. Assessment of IT return u/s 143(1) of the Income-tax Act; and b. Intimation u/s 245 of the Income Tax Act giving opportunity to the assessee to put forward its objections prior to proposed adjustment of the income tax refund of Rs. 71,30,66,160/- against past demands by the income tax department.” [Page 4, Para 2(v)]
“Despite notice and opportunity given, respondent failed to file any counter/contest in this petition. We have heard learned RP and peruse the record. At the outset, it is to be stated that this Tribunal vide order in C.P. (IB) No 308/7/HDB/2022 dated 15.11.2022 had ordered initiation of CIRP against CD, imposed moratorium under Section 14 IBC and has also appointed IRP. It is relevant to extract Section 14(1) of IBC which is as follows: “14. Moratorium. – (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: – (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority.” [Page 7, Para 4]
“According to RP, IT department had adjusted an amount of Rs. 11,81,93,690/- against the IT demand for A.Y 2016-2017 and A.Y 2018-2019 and proposed the action of adjusting income tax refund of Rs. 71,30,66,160/- in AY 2022-23 against the past demands, despite the order of moratorium passed by this Hon’ble tribunal. RP further submits that these amounts brought into account of CD which is in acute financial crises for purposes of keeping infrastructure projects alive and to meet various going concern expenses. As already stated that despite notice and opportunity respondents had not offered its explanations to this petition.” [Page 8, Para 6]
Important Provisions of Law
The following provisions of law were mentioned in the case:
1. Section 60(5) of the Insolvency and Bankruptcy Code, 2016: This section provides the National Company Law Tribunal with the jurisdiction to entertain or dispose of any application or proceeding by or against the corporate debtor.
2. Rule 11 of National Company Law Tribunal Rules, 2016: This rule provides the Tribunal with the inherent powers to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.
3. Section 14 of the Insolvency and Bankruptcy Code, 2016: This section imposes a moratorium prohibiting a range of actions against the corporate debtor, including the institution or continuation of legal proceedings, execution of judgments, and the enforcement of security interests.
4. Section 143(1) of the Income-tax Act: This section pertains to the assessment of income tax returns.
5. Section 245 of the Income Tax Act: This section provides the Income Tax Department with the power to adjust any refund due to an assessee against any amount owed by the assessee to the department.
6. Section 238 of the Insolvency and Bankruptcy Code, 2016: This section establishes the overriding effect of the Code over other laws, stating that the provisions of the Code will override anything inconsistent in any other enactment, including the Income-Tax Act.
7. Section 53 of the Insolvency and Bankruptcy Code, 2016: This section lays down the order of priority for the distribution of the assets of the corporate debtor in the event of liquidation.
8. Section 5(20) of the Insolvency and Bankruptcy Code, 2016: This section defines “operational creditors” to include statutory authorities, who must file their claims with the Resolution Professional for recovery of their dues.
9. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002): This Act allows banks and other financial institutions to auction residential or commercial properties to recover loans. The Act is mentioned in the context of actions prohibited during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016.
Conclusion
The court, after considering the arguments and the legal issues involved, concluded that the actions of the Income Tax Department were in violation of the moratorium under Section 14 of the IBC. The court made the following orders:
- The respondent (Income Tax Department) is directed to refund Rs.56,54,62,472/- to the CD’s account within seven days from the date of the order and shall file compliance.
- The respondent is at liberty to file its claim with the Resolution Professional (RP) as per the provisions of the IBC.
- The claim for interest as made by the RP is disallowed.
The court, therefore, allowed the application to the extent indicated above and disposed of the case.