Chennai Tribunal rules that “clean slate” under IBC does not affect carry forward of losses under ITA 1961

In the case of Orchid Pharma Ltd. ^[1] (Taxpayer), the issues before the Chennai Income Tax Appellate Tribunal (Tribunal) were in relation to a company that undergoes insolvency resolution proceedings under the Insolvency and Bankruptcy Code (IBC)  resulting in protection from any tax dues upto a specified effective date pursuant to the “clean slate theory”. The issues  were (i) whether such company claim protection from tax dues pertaining to period prior to the effective date (ii) if yes,  whether it also results in forfeiture of the right to carry forward business losses under Section (u/s) 79 of Income Tax Act, 1961 (ITA 1961) pertaining to a period prior to effective date.

In the facts of the case, the Taxpayer underwent insolvency resolution proceedings. The resolution plan approved by The National Company Law Tribunal (NCLT) vide its order dated 27 June 2019 provided for extinguishment of all claims and liabilities pertaining to the period up to the effective date (31 March 2020).

Certain creditors appealed against the NCLT order before the National Company Law Appellate Tribunal (NCLAT) and the matter reached upto the Supreme Court (SC) which upheld the NCLT decision vide a judgement dated 28 February 2020. 

For the relevant tax year under consideration (tax year 2014-15), the tax authority passed the assessment order on 18 February 2019 (i.e. prior to approval of the resolution plan), making various additions and raising tax demand.

Having regard to subsequent developments in relation to insolvency resolution, the Chennai Tribunal held that since the income-tax dues pertained to a period prior to the effective date and since such tax dues did not form part of the resolution plan, such tax dues stood extinguished.

In respect of the carry forward of business losses, the Chennai Tribunal relied on Bombay High Court (HC) ruling in the case of AMNS Gandhidham Ltd. [(2025) 180 taxmann.com 43] and held that the carry forward of losses cannot be denied to the Taxpayer. 

In the case of AMNS (supra), the Bombay HC held that where the tax authority fails to make any claim before the NCLT at any time before the resolution plan is approved despite a notice being granted to Principal Commissioner under S. 79(2)(c) of ITA 1961 then the benefit of carry forward of losses cannot be denied to the Taxpayer undergoing insolvency proceedings.

The reasoning behind the Bombay HC decision was that availability of losses is generally a key factor considered by the resolution applicant while submitting its proposal, and if the tax authority did not raise any objections during the insolvency process, it cannot subsequently seek to deny such benefit post approval of the resolution plan by relying on “clean slate” theory under IBC.

^[1] [2026] 186 taxmann.com 623