Vimal Oil And Foods Limited Vs ACIT (Gujarat High Court)
Summary: The Gujarat High Court quashed the notice dated 29.06.2025 issued under Section 148 of the Income Tax Act, 1961 and the order passed on the same date under Section 148A(3) for Assessment Year 2021-22. The reassessment originated from a search conducted on 08.12.2021 in the case of CFM Asset Reconstruction Private Limited and related entities. The Assessing Officer proceeded on the premise that the petitioner “might have claimed” deduction of interest of Rs.1,352.80 lakhs on loans which was never paid and whose liability had ceased, potentially attracting Section 41(1) and Explanation 1(b) to Section 115JB(2). The petitioner pointed out that it had undergone CIRP under the Insolvency and Bankruptcy Code, 2016, was ultimately liquidated and sold as a going concern to Arrhum Tradelink Private Limited on 03.03.2021 on a “clean slate”, extinguishing past liabilities and investigations. It also asserted that no deduction for the disputed interest had been claimed since financial year 2015-16 and that the same Rs.1,352.80 lakhs had already formed the basis of reassessment for Assessment Years 2017-18, 2019-20 and 2020-21, which the High Court had quashed by its common judgment dated 30.06.2026. The High Court held that the present controversy was squarely covered by that earlier judgment and the clean-slate principle recognised in KRBL Limited Vs. State of Gujarat, which relied on the Supreme Court ruling in Ghanshyam Mishra & Sons (Private) Limited vs. Edelweiss Asset Reconstruction Company Limited. It further held that the reopening rested on surmises and conjectures because the Assessing Officer merely presumed that the petitioner “might have claimed” the interest deduction without verifying its profit and loss account. The same amount could not repeatedly be brought to tax in different assessment years on an identical foundation. The Section 148A(3) order also failed to address the petitioner’s going-concern/clean-slate defence and binding precedents. The writ petition was accordingly allowed and the Section 148 notice and Section 148A(3) order were quashed.
Cases Discussed
- Vimal Oil And Foods Limited Vs The Assistant Commissioner of Income Tax, Circle, Gandhinagar, Special Civil Application No. 13194 of 2023 with Special Civil Application Nos. 9025 of 2024 and 9080 of 2024, Gujarat High Court, common oral judgment dated 30.06.2026 — followed in the petitioner’s own case; on the same facts and the same alleged cessation of interest liability of Rs.1,352.80 lakhs, reassessment for the earlier assessment years had been quashed.
- KRBL Limited Vs. State of Gujarat, (2023) 154 taxmann.com 489 (Gujarat High Court) — relied upon by the petitioner and followed through the earlier judgment for the clean-slate principle applicable to acquisition in liquidation proceedings.
- Ghanshyam Mishra & Sons (Private) Limited vs. Edelweiss Asset Reconstruction Company Limited, (2021) 126 taxmann.com 132 (Supreme Court) — relied upon for the settled principle that the purchaser of a corporate debtor is entitled to a “clean slate” and past liabilities cannot be foisted upon such purchaser.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Rule. Learned Senior Standing Counsel Mr. Aaditya D. Bhatt, waives service of notice of Rule on behalf of the respondent.
2. By way of this writ-petition under Article 226 of the Constitution of India, the petitioner has challenged the Notice dated 29.06.2025 issued under the provision of Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) as well as the order dated 29.06.2025 passed under sub-section (3) of Section 148A of the Act, seeking to reopen the income tax assessment of the petitioner for the Assessment Year (for short, ‘A.Y.’) 2021-22.
3. The reopening of the assessment is sought by issuance of the Notice dated 30.03.2025 under sub-section (1) of Section 148A of the Act calling upon the petitioner to show cause as to why Notice under Section 148 of the Act should not be issued. From the contents of the Notice, it is reflected that the same is premised on a search and seizure action carried out on 08.12.2021 in the case of CFM Asset Reconstruction Private Limited (for short ‘CFM ARC’) and related entities. The details of Non-Performing Assets (for short ‘NPA’) of the petitioner acquired by CFM ARC were tabulated, which mentions about the acquired debts aggregating to Rs.9,454.85 lakhs (Principal Rs.8,102.05 lakhs + interest Rs.1,352.80 lakhs) at a cost of Rs.5,050 lakhs. It is mentioned that the petitioner “might have claimed deduction of interest on such loans” which was never paid and now the liability has ceased to exist, and that such cessation of liability of interest may attract the provision of Section 41(1) of the Act and waiver of loan may attract Explanation 1(b) to Section 115JB(2) of the Act to the tune of Rs.1,352.80 lakhs. By assigning this reason, the Notice has been issued.
3.1 The petitioner furnished a detailed reply to the show cause notice vide letter dated 10.04.2025. The petitioner invited the attention of the respondent-Assessing Officer that the petitioner had undergone the Corporate Insolvency Resolution Process (for short ‘CIRP’) initiated vide order dated 19.12.2017 passed by the National Company Law Tribunal (for short ‘NCLT’), Ahmedabad Bench, in a petition filed by Bank of Baroda under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short ‘the Code, 2016’), whereupon the entire Board of Directors was suspended and an Interim Resolution Professional was appointed. Ultimately, the NCLT vide order dated 19.12.2019 ordered liquidation of the petitioner. The liquidator thereafter issued an invitation for Expression of Interest to sell the petitioner as a ‘going concern’ together with all the connected licenses, permissions, trademarks, patents, registrations, formulations and property rights in accordance with the provision of the Code, 2016. The liquidator thereafter executed a sale agreement dated 03.03.2021 in favour of Arrhum Tradelink Private Limited (for short ‘the ATPL’), thereby selling the petitioner to ATPL as a going concern. Thus, it was submitted that the petitioner has been taken over by ATPL on a “clean slate” with a clear understanding that all past liabilities / investigations shall stand extinguished.
3.2 The petitioner further pointed out that the very same amount of Rs.1,352.80 lakhs had already been made the subject matter of reopening against the petitioner for the earlier Assessment Years 2017-18, 2019-20 and 2020-21, which reopening had been challenged before this Court, and that the same income cannot be assessed more than once in different assessment years. Despite the aforesaid clarification and a request to drop the reassessment proceedings, the respondent vide order dated 29.06.2025 under sub-section (3) of Section 148A of the Act concluded that there is an escapement of income to the tune of Rs.13.52 crore, and accordingly, issued a Notice dated 29.06.2025 under Section 148 of the Act.
4. Learned Senior Counsel Mr. Tushar Hemani appearing for the petitioner has submitted that on the acquisition of the petitioner by ATPL as a going concern on the “clean slate” principle, the impugned notice and the impugned order seeking to reopen the case of the petitioner is not tenable in the eye of law.
4.1 He has referred to various clauses of the sale agreement dated 03.03.2021 in favour of ATPL and has submitted that all the past liabilities / investigations got extinguished, and hence, the reopening is not permissible. In support, he has placed reliance on the judgment of the Coordinate Bench of this Court in the case of KRBL Limited Vs. State of Gujarat, (2023) 154 taxmann.com 489 (Gujarat).
4.2 It is further pointed out that the petitioner never claimed a deduction of the interest in question (i.e. Rs.13.52 crore payable to Andhra Bank, subsequently named as CFM ARC); that the liability of the bankers had ceased to exist and even a NOC / No Due Certificate is issued in favour of the petitioner; that the said bank had become NPA since financial year 2015-16 and the petitioner had not claimed interest in the profit and loss account since financial year 2015-16; and that the reopening is premised on conjectures and surmises, inasmuch as the Assessing Officer has himself expressed that the petitioner “might have claimed” deduction of interest on such loan, though the profit and loss accounts could have been verified by the Assessing Officer before reopening of the assessment.
4.3 Learned Senior Counsel has, in particular, submitted that the controversy raised in the present petition is squarely covered by the common oral judgment dated 30.06.2026 rendered by a Division Bench of this Court in Special Civil Application No.13194 of 2023 (with Special Civil Application Nos. 9025 of 2024 and 9080 of 2024) in the petitioner’s own case, wherein this Court, on the very same set of facts and on the self-same alleged cessation of interest liability of Rs.1,352.80 lakhs, has quashed and set aside the reopening for the earlier assessment years. Thus, it is urged that the reopening of the assessment for A.Y. 2021-22 may be quashed and set aside.
5. Opposing the present petition and the foregoing submissions, learned Senior Standing Counsel for the Revenue has submitted that the reopening of the assessment may not be quashed and set aside, as it appears that the petitioner, while adopting the CIRP, has tried to evade the tax liability. It is submitted that the Assessing Officer, while examining the huge difference between the assignment value and the acquisition value of the NPA transferred to CFM ARC at a heavily discounted price, has noticed that the amount of haircut was no longer a liability to be payable by the petitioner to the respective banks; that in all probability the petitioner might have claimed a deduction of interest on such loan which was never paid; and that, the liability having ceased to exist, the cessation of liability of interest may attract Section 41(1) of the Act and the waiver of loan may attract Explanation 1(b) to Section 115JB(2) of the Act, to the tune of Rs.1,352.80 lakhs. Thus, it is urged that the writ-petition may not be entertained.
6. We have heard the learned advocates for the respective parties at length and have perused the material on record.
7. The established facts from the pleadings and the documents on record are that the petitioner company has undergone a CIRP, which was initiated vide order dated 19.12.2017 passed by the NCLT, Ahmedabad Bench. Since the resolution plan was not approved, the NCLT vide order dated 19.12.2019 ordered liquidation of the petitioner. These liquidation proceedings, initiated by the liquidator, culminated into the sale agreement executed on 03.03.2021 in favour of ATPL, thereby selling the petitioner as a going concern.
8. In terms of Regulation 32(e) of The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, the petitioner was acquired as a going concern by ATPL, and the petitioner has been taken over by ATPL on a ‘clean slate’ with a clear understanding that all the past liabilities / investigations shall stand extinguished, as per the sale agreement dated 03.03.2021 read with the provisions of the Code, 2016.
9. The Revenue has sought to reopen the assessment of the petitioner for A.Y. 2021-22, on the basis of a search and seizure action which was carried out on 08.12.2021 in the case of CFM ARC. The show cause notice dated 30.03.2025 under sub-section (1) of Section 148A of the Act was issued to the petitioner by alleging that, on the acquisition of the debts of the petitioner by CFM ARC at a heavily discounted price, the amount of haircut was no longer a liability payable by the petitioner to the respective banks, and that the petitioner might have claimed a deduction of interest on such loan which was never paid and the liability of which has now ceased to exist.
10. We find that the controversy arising in the present petition stands squarely covered by the common oral judgment dated 30.06.2026 rendered by a Division Bench of this Court in the petitioner’s own case in Special Civil Application No. 13194 of 2023 (with Special Civil Application Nos.9025 of 2024 and 9080 of 2024), whereby the reopening of the assessment of the petitioner for the earlier Assessment Years, premised on the very same alleged cessation of interest liability of Rs.1,352.80 lakhs and on the identical set of facts, came to be quashed and set aside. This Court, in the said judgment, after referring to the decision of the Coordinate Bench in the case of KRBL Limited (supra), which in turn placed reliance on the settled legal position enunciated by the Hon’ble Supreme Court in the case of Ghanshyam Mishra & Sons (Private) Limited vs. Edelweiss Asset Reconstruction Company Limited, (2021) 126 taxmann.com 132, held that the purchaser of a corporate debtor as a going concern is entitled to a “clean slate” and that the past liabilities cannot be foisted upon such purchaser.
11. In the instant case, as in the case of the earlier assessment years, the reopening is premised on surmises and conjectures expressed by the Assessing Officer. The reopening is premised on a presumption that the petitioner “might have claimed” deduction of interest on the loans, which was never paid, and that now the liability has ceased to exist. The Assessing Officer has ignored and failed to examine that the petitioner has never claimed a deduction of such interest payable to Andhra Bank (subsequently named as CFM ARC); that the liability of the bankers has ceased to exist and even a NOC / No Due Certificate is issued in favour of the petitioner; that the said bank has become NPA since financial year 2015-16; and that the petitioner had not claimed interest in the profit and loss account since financial year 2015-16. When the petitioner had clarified this aspect, it was always open for the Assessing Officer to verify the same from the profit and loss account of the petitioner before reopening the assessment.
12. We may further observe that the very same alleged cessation of interest liability of Rs.1,352.80 lakhs, arising out of the self-same transaction, has already been made the subject matter of reopening against the petitioner for the earlier Assessment Years 2017-18, 2019-20 and 2020-21, which reopening has been quashed by this Court by the aforesaid judgment dated 30.06.2026. One and the same amount cannot be brought to tax repeatedly in different assessment years, and the repeated invocation of Section 147 of the Act on the identical foundation is impermissible.
13. We may also notice that the impugned order under sub-section (3) of Section 148A of the Act does not even advert to, much less deal with, the “going concern / clean slate” defence and the binding precedents specifically relied upon by the petitioner in its reply, and instead proceeds to reject the reply on the untenable ground that the onus lay upon the petitioner to prove that it had not entered into the transactions. Such an approach, which reverses the settled position and disregards authentic and contemporaneous statutory records, cannot be sustained.
14. Thus, in the wake of the settled legal precedent and the judgment dated 30.06.2026 passed by this Court in the petitioner’s case and the reopening being premised on surmises and conjectures, the action of reopening calls for interference. Accordingly, the writ-petition stands allowed. The impugned notice dated 29.06.2025 issued under Section 148 of the Act and the impugned order dated 29.06.2025 passed under sub-section (3) of Section 148A of the Act, for the Assessment Year 2021-22, are hereby quashed and set aside. Rule is made absolute. There shall be no order as to costs.
