Late Tax Claims Rejected: Key Insights from the Income Tax Department vs. JBF Petrochemical Case

 

Background of the Case:

JBF Petrochemical Ltd. entered into the Corporate Insolvency Resolution Process (CIRP) on January 28, 2022. This happened because IDBI Bank, a financial creditor, initiated insolvency proceedings to recover its dues.

As part of the CIRP, the Resolution Professional (RP) was appointed to manage the process. The RP is responsible for overseeing the insolvency, collecting claims from creditors, and ensuring the company’s financial restructuring.

• On February 4, 2022, the RP made a public announcement inviting creditors (like banks, suppliers, tax authorities, etc.) to submit their claims.

• Creditors had 90 days from the announcement (i.e., until April 28, 2022) to file their claims against JBF Petrochemical Ltd.

The Income Tax Department (Appellant), however, missed this deadline. They only filed their claim on May 13, 2022—two weeks late. Their claim was for ₹10.14 crore, which they said was due in unpaid taxes (specifically TDS - Tax Deducted at Source) for the financial years 2017-18 to 2020-21.

Why was the claim rejected?

The Resolution Professional (RP) rejected the claim because:

• It was filed late: The 90-day period had already expired when the Income Tax Department submitted its claim.

• Insufficient documentation: Even when the department submitted its claim, it didn’t provide enough documents to back it up.

Despite multiple updates and notices posted by the RP regarding the status of creditors’ claims on JBF’s website and other platforms, the Income Tax Department did not raise any objections or challenge the rejection during the CIRP process.

Only after the resolution plan was approved did the Income Tax Department file an appeal, claiming their tax dues should be considered.

Key Arguments of the Case:

1. Arguments from the Income Tax Department (Appellant):

• The Income Tax Department (IT Department) argued that its claim for ₹10.14 crore in unpaid taxes (TDS) should still be accepted, even though they missed the deadline to file it.

• They justified the delay by saying that they submitted their claim before the final approval of the resolution plan for JBF Petrochemical Ltd. (in May 2022).

• They believed that the documents they submitted with the claim were sufficient to prove their case. When the Resolution Professional (RP) later asked for more documents in June 2022, they claimed they had already provided everything necessary. Additionally, they thought their claim was accepted because they hadn’t been explicitly told it was rejected until later.

2. Arguments from the Resolution Professional (RP):

• The RP countered that the Income Tax Department missed the deadline to submit its claim. The 90-day deadline was clearly stated, and the IT Department filed their claim only on May 13, 2022, well after the deadline expired on April 28, 2022.

• The RP also pointed out that the IT Department did not provide complete documentation when they filed the claim. When asked for additional documents, the IT Department did not properly follow up within the given time.

• Furthermore, the RP said the list of creditors (which included whether claims were accepted or rejected) was regularly updated online. The IT Department could have easily checked this and known about the rejection. However, they failed to challenge the rejection during the process. Even when the RP filed for the approval of the resolution plan in November 2022, and the IT Department was present in hearings, they didn’t raise any objections about their claim being rejected.

Legal Basis:

• The RP cited that Insolvency and Bankruptcy Code (IBC) rules require claims to be submitted on time, and once the resolution plan is approved, new claims cannot be added. The IT Department’s claim, being late and incomplete, couldn’t be considered.

Tribunal's Findings:

1. Failure to Submit on Time:

• The Income Tax Department was clearly informed about the insolvency process and the deadline for submitting claims. The deadline was April 28, 2022, but they filed their claim on May 13, 2022, which was two weeks late.

• Even though they filed the claim late, the documents they provided were incomplete, and they did not follow up properly when asked for more supporting documents. This showed a lack of diligence from their side.

2. Rejection of the Claim:

• The Tribunal found that the Resolution Professional (RP) acted correctly in rejecting the Income Tax Department’s claim. Since the claim was filed late and did not have the required documents, it was fair for the RP to reject it.

• The Income Tax Department also did not raise any objections or try to contest the rejection during the process, which further weakened their case.

3. Legal Precedent:

• The Tribunal referred to a Supreme Court ruling from the Ghanshyam Mishra case, which set a legal precedent. According to this ruling, once a resolution plan is approved, new claims cannot be added.

• All creditors, including government authorities like the Income Tax Department, must submit their claims before the resolution plan is finalized. Once the plan is approved, it is binding on everyone, and no additional claims can be accepted.

4. Income Tax Department’s Position as a Secured             Creditor:

• The Income Tax Department argued that they should be considered a secured creditor, which would give them priority in recovering their dues. However, the Tribunal dismissed this claim.

• The reason is that the Income Tax Act does not grant the status of a secured creditor to the Income Tax Department. This means they are treated like any other operational creditor, and their claim doesn’t take priority.

Conclusion of the Case:

The Tribunal concluded that the Income Tax Department’s claim of ₹10.14 crore in unpaid taxes was rightfully rejected because:

• They filed their claim late—after the 90-day deadline set during the Corporate Insolvency Resolution Process (CIRP).

• They didn’t submit complete documents to support their claim, and even after being asked for more information, they didn’t follow up properly.

• The Resolution Professional (RP) acted according to the law in rejecting the claim, and the Income Tax Department did not raise any objections during the process.

The court emphasized that once the resolution plan was approved, it could not be reopened for new or late claims. The Income Tax Department’s attempt to challenge this was dismissed.

Additionally, the court rejected the argument that the Income Tax Department should be treated as a secured creditor, stating that the Income Tax Act does not grant such status. Therefore, the department couldn’t claim priority in recovering its dues.