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If the Income Tax Department has adjusted a corporate debtor’s refund against an outstanding demand during a Corporate Insolvency Resolution Process (CIRP), preserve the Section 245 intimation and adjustment records, then establish the dates and the status of the demand. The central question is whether the adjustment recovered a pre-CIRP claim outside the insolvency process—not simply which tax year the refund relates to. Ask the resolution professional (RP) and insolvency counsel to assess the records and the company’s current insolvency stage. The outcome depends on the facts; tribunal orders have reversed adjustments in particular cases but do not guarantee reversal in every case.
What should you do first?
Keep the tax dispute and the insolvency question distinct. A refund calculation or tax-credit error may need to be corrected through an income-tax procedure. Separately, an adjustment may raise an insolvency-law objection if it recovers a pre-CIRP liability outside the collective process.
- Confirm the insolvency stage. Obtain the NCLT admission order and note the insolvency commencement date. Establish whether CIRP is ongoing, a resolution plan has been approved, or the company is in liquidation.
- Save the tax portal records. Download the Section 245 written intimation, the demand details and portal status. Record the amount, the assessment years and whether the notice proposes a set-off or shows one already completed.
- Collect the refund and credit records. Keep the income-tax return, Section 143(1) processing record or other refund determination, refund computation, tax-credit ledger and bank statement. These help establish the refund amount and when it was determined or paid.
- Build one dated chronology. Include the assessments and demands, any appeal or stay, CIRP commencement, the department’s claim submission and treatment, refund determination, Section 245 notice, actual adjustment, and any plan-approval or liquidation order.
- Have the RP and advisers assess the route. Ask insolvency counsel to assess whether the adjustment conflicts with the moratorium or the approved plan, and ask a tax practitioner to review any computation or credit error. Keep copies of the complete records and communications.
Do not treat the assessment year as conclusive proof of when a refund asset arose. The return, processing record and other facts may matter to when the refund was determined or became payable.
What does Section 245 allow, and what does its notice mean?
Under the Income-tax Act, 1961, Section 245(1) permits an authorized officer to set off a refundable amount against a sum remaining payable under the Act after giving the taxpayer written intimation of the proposed action. The Department’s official text is identified as Year 2024 (No. 1); it notes that the current wording was substituted by the Finance Act, 2023, with effect from 1 April 2023.
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Section 245(2) separately addresses withholding a refund in specified circumstances when assessment or reassessment proceedings are pending. It requires the officer to form the stated opinion, record reasons and obtain prior approval. Read the notice carefully: an intimation of proposed adjustment and a record that money has already been set off are not the same procedural stage.
Section 245 supplies a tax-law set-off mechanism; it does not, by itself, settle whether a particular set-off during insolvency amounts to prohibited recovery or bypasses the claims process. Also check whether the demand is under appeal, whether recovery has been stayed, and what the company’s insolvency documents say.
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Why do the dates and the department’s claim matter?
The RP and advisers should compare the refund and demand records against the insolvency timeline. Relevant questions include:
- Did the tax demand arise before or after CIRP commenced, and what records support that date?
- When was the refund determined, and when was the proposed or completed set-off recorded?
- Did the department submit a claim in the insolvency process? If so, how was it verified and treated?
- Does an appeal, stay application or recovery order affect the demand or recovery?
- What does the approved resolution plan provide about the department’s claim, if a plan has been approved?
These are connected questions, not interchangeable tests. For example, a pre-CIRP demand, a refund determined after CIRP began, and an adjustment during the moratorium present a different timeline from an adjustment after liquidation has begun. Whether a claim was filed or provided for in a plan can also affect the analysis. Have counsel assess the full sequence rather than relying on the tax year alone.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Repair Windows errors before they cause bigger problemsFix Now →The Department’s text of Section 238(2) provides that, where a person cannot claim or receive a refund because of insolvency, liquidation or another specified cause, an applicable trustee or receiver, among others, may claim or receive it for that person or estate. That provision addresses who may claim or receive a refund; it does not itself decide whether the Department may set off a particular demand during CIRP.
How does the answer change with the insolvency stage?
| Stage | What to examine | Why the distinction matters |
|---|---|---|
| Ongoing CIRP and moratorium | Whether the demand is a pre-CIRP claim, when the refund was determined, whether the Department filed a claim, and when the adjustment occurred. | The objection in the cited moratorium matters was that unilateral adjustment recovered earlier dues outside the collective insolvency process. The facts and applicable orders still need to be assessed. |
| After approval of a resolution plan | The plan’s treatment of the tax claim, its approval date, and whether the adjustment relates to a liability addressed by the plan. | The approved plan and timing are part of the record; do not assume that the analysis for an ongoing moratorium automatically answers a post-approval dispute. |
| Liquidation | The liquidation order, the Department’s status and entitlement as a claimant, and whether the set-off exceeded that entitlement. | The NCLAT remanded a liquidation dispute for determination of whether the refunds set off exceeded the Department’s entitlement as a liquidation claimant. That is a distinct inquiry from an adjustment during CIRP. |
What have tribunals decided—and what do those decisions establish?
The decisions below illustrate why the process stage and record matter. They are not a universal ruling that every tax adjustment is void or that every company is entitled to repayment.
| Decision | Reported facts and result | Limit to keep in mind |
|---|---|---|
| NCLT Mumbai Bench-I, I.A. 1424 of 2020 | The tribunal considered available refunds adjusted against earlier Income Tax Department demands. It stated: “Section 238 of the Code overrides other laws, accordingly the power of set off available u/s 245 of the Income Tax Act, 1961 is circumscribed by the provisions of the Code.” It directed refund of ₹1,41,41,86,628 with Section 244A interest. It also said a lower tax credit should be explained by a memo of differences so the applicant could pursue a Section 154 application. Read the NCLT Mumbai order. | The quoted reasoning and relief are from that case; they do not decide every company’s facts or guarantee the same interest outcome. |
| NCLT moratorium order | An order described ₹39,39,540 adjusted against pre-CIRP tax demands during the moratorium and directed the Department to refund the amount to the RP within four weeks. The extract identifies 13 March 2019 as the CIRP start date and refers to Sections 14 and 18(f) of the IBC. Read the NCLT order. | The amount and four-week direction are specific to that order, not a general benchmark or deadline for other cases. |
| NCLT Ahmedabad, Varun Anil Chopra v. Income Tax Department, IA/952(AHM)2026 | A LiveLaw Business report dated 14 September 2026 says CIRP began on 20 January 2026, a ₹56.07 lakh refund was determined on 12 February 2026, and ₹41.64 lakh was adjusted against pre-CIRP demand and interest. The report says the tribunal set aside the adjustment and directed reversal to the corporate debtor’s designated account under the RP’s control within two weeks. It also reports that the tribunal did not decide the validity or quantum of the tax demand and rejected alleged IRP consent as a waiver of the moratorium. Read the report. | This summary is secondary reporting, not the full order. The report says any Section 244A interest, if admissible, was for the competent tax authority to determine. Check the full order before relying on its precise reasoning. |
| NCLAT, Avil Menezes v. Principal Chief Commissioner of Income Tax, Company Appeal (AT) (Insolvency) No. 258 of 2024 | In its 12 July 2024 order, NCLAT addressed set-off during liquidation and remanded the matter so the adjudicating authority could determine whether the refunds set off exceeded the Department’s entitlement as a liquidation claimant. Read the NCLAT order. | The remand highlights a liquidation-specific question; it does not establish that the CIRP-moratorium analysis applies unchanged after liquidation begins. |
What if the refund or tax credit amount is wrong?
Challenge the amount through the applicable tax correction or appeal route as a separate issue from the insolvency objection to set-off. The Mumbai NCLT order’s direction to provide a memo of differences was tied to the credit discrepancy in that case and contemplated a Section 154 application. It should not be read as a universal procedure or as a substitute for checking the tax record and applicable deadlines.
Likewise, do not assume interest follows automatically from a successful insolvency objection. The Mumbai order directed Section 244A interest on the amount it ordered refunded; the Ahmedabad report says the competent tax authority would determine any interest if admissible. Check the operative order and applicable tax provisions for the company’s case.
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What relief should the RP or company assess?
Once the chronology, claim record, plan and tax computation are assembled, insolvency counsel can assess whether to seek directions from the NCLT or other appropriate relief. Depending on the facts, the issue may be reversal or payment of an amount already adjusted, processing of a refund, or a separate correction of a tax credit. The relief sought should match the actual problem: a challenge to recovery is not the same as a dispute about how much refund the tax record supports.
For a company in liquidation, counsel should account for the NCLAT’s direction in Avil Menezes to examine the Department’s entitlement in that distinct setting. Do not rely on a CIRP decision alone to resolve a liquidation set-off.
This is general information about Indian insolvency and income-tax issues, not a determination of a company’s rights. The complete tax file, current orders, insolvency stage and approved plan can change the result; the RP should coordinate with qualified insolvency counsel and a tax practitioner.
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