VIMAL OIL AND FOODS LIMITED vs ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE, GANDHINAGAR
- Court
- Gujarat High Court
C/SCA/13194/2023 JUDGMENT DATED: 30/06/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 13194 of 2023
With
R/SPECIAL CIVIL APPLICATION NO. 9025 of 2024
With
R/SPECIAL CIVIL APPLICATION NO. 9080 of 2024
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
===================================================
Approved for Reporting Yes No
===================================================
VIMAL OIL AND FOODS LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE,
GANDHINAGAR
===================================================
Appearance:
MR TUSHAR HEMANI Senior Counsel assisted by MS VAIBHAVI K
PARIKH(3238) for the Petitioner(s) No. 1
MR AADITYA D BHATT(8580) for the Respondent(s) No. 1
===================================================
CORAM:HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
Date : 30/06/2026
COMMON ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)
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C/SCA/13194/2023 JUDGMENT DATED: 30/06/2026
1. Since the issue involved in these petitions are one and the
same, they are taken up for hearing together and are disposed of
by this common judgment. Special Civil Application No. 13194 of
2023 is ordered to be taken up as a lead matter.
2. By way of this writ-petition, the petitioner has challenged
the Notice dated 13.04.2023 issued under the provision of Section
148 of the Income Tax Act, 1961 (for short ‘the Act’) as well as
the order dated 13.04.2023 passed under Section 148A(d) of the
Act, seeking to reopen the income tax assessment of the
petitioner for the Assessment Year (for short ‘A.Y.’) 2019-20.
3. The reopening of the assessment is sought by issuance of
the Notice dated 01.03.2023 under clause (b) 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.9454.85 lakhs (Principal
Rs.8,102.05 lakhs + interest Rs.1,352.80 lakhs) at a cost of
Rs.5,050 lakhs. Thus, it was alleged that the total haircut in the
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C/SCA/13194/2023 JUDGMENT DATED: 30/06/2026
course of acquiring debts of the petitioner / corporate debtor
worked out to Rs.4405.85 lakhs (i.e. Rs.9,454.85 lakhs –
Rs.5050.00 lakhs). Ultimately, 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. 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 13.03.2023. 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, and
ultimately, vide order dated 19.12.2019 passed by the National
Company Law Tribunal (for short ‘NCLT’), Ahmedabad Bench, an
Interim Resolution Professional was appointed. Ultimately, the
NCLT vide order dated 19.12.2019 ordered liquidation of the
petitioner - Vimal Oil and Foods Limited. 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 Insolvency and Bankruptcy Code, 2016 (for short ‘the
Code, 2016’). The petitioner also pointed out that, thereafter, the
liquidator executed a sale agreement dated 03.03.2021 in favour
of Arrhum Tradelink Private Limited (for short ‘the ATPL’),
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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. Despite this
clarification and a request to drop the reassessment proceedings,
the respondent vide order dated 13.04.2023 under clause (d) 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 13.04.2023 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 a "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.
4.2. In support of his submission, 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).
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4.3. Further, it is pointed out that the petitioner never claimed
a deduction of interest in question, (i.e. Rs. 13.52 crore payable
to Andhra Bank [subsequently named as CFM ARC]) and the
liability of bankers had ceased to exist and even NOC / No Due
Certificate is issued in favour of the petitioner.
4.4. Finally, it is submitted that the reopening is premised on
conjectures and surmises, as the Assessing Officer has expressed
that the petitioner might have claimed deduction of interest on
such loan, which was never paid, though all the profit and loss
accounts could have been verified by the Assessing Officer before
reopening of the assessment.
4.5. Thus, it is urged that the reopening of the assessment for
A.Y. 2019-20 may be quashed and set aside.
5. Opposing the present petition and foregoing submissions,
learned Senior Standing Counsel Mr.Aaditya Bhatt 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 acquisition value and the intervening
period for two years, on analysis of the accounts has noticed
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that, the amount of haircut was no longer a liability to be
payable by Vimal Oil and Foods Limited to the respective banks,
as the haircut in the aforesaid NPA and the said NPA was
transferred to CFM ARC at a heavily discounted price.
5.1. It is submitted that, there is all probability that the Vimal
Oil and Foods Limited, i.e. the petitioner might have claimed a
deduction of interest on such loan, which has never been paid,
and now since the liability has ceased to exist, the Assessing
Officer requested the petitioner for relevant data to verify the
claim and since no satisfactory documentary evidence was
provided, it was noticed by the Assessing Officer that the
cessation of liability of interest may attract the provision of
Section 41(1) of the Act and waiver of loan may attract the
Explanation 1(b) to Section 115JB(2) of the Act, as the liability of
the petitioner - assessee to the tune of Rs.1352.80 lakhs has
ceased to be payable. 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.
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
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NCLT, Ahmedabad Bench. Ultimately, 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 and thereby ATPL
selling to the petitioner as a going concern.
8. Regulations-32(e) of The Insolvency and Bankruptcy Board of
India (Liquidation Process) Regulations, 2016 mentions that 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 provision of the Code, 2016.
9. The Revenue has sought to reopen the assessment of the
petitioner for A.Y. 2019-20, 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 01.04.2023 under Clause (b)
of Section 148A of the Act was issued to the petitioner by
alleging that on the acquisition of the petitioner by CFM ARC
and on examination of acquired debts as mentioned herein-above,
the amount of haircut( In financial terms, a "haircut" refers to
the percentage reduction applied to the market value of an asset
when it is used as collateral for a loan or trade or settle a debt)
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was no longer a liability payable by the petitioner to the
respective banks, as the petitioner company was bought as a
going concern by the new buyer and since there is complete
cessation of liability in the hands of the petitioner and new
buyer, as regards the principal amount of loan as well as
outstanding interest payable on such loans, the petitioner “might
have claimed” a deduction of interest on such loans, which were
never paid and now the liability has ceased to exist. Therefore,
cessation of liability of interest may attract 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.
10. The petitioner categorically explained the CIRP as well as its
acquisition by ATPL by the sale agreement dated 03.03.2021.
With regard to the interest of the loan as alleged of Rs.13.52
crores, it was clarified that the petitioner has never claimed a
deduction of such interest payable to Andhra Bank (subsequently
named as CFM ARC). The petitioner also asserted that the
liability of bankers has ceased to exist and even NOC / No Due
Certificate is issued in favour of the petitioner, since the Andhra
Bank has 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. Thus, after tendering such
explanation to the show cause notice, the petitioner urged that
there is no escapement of income as alleged, however, the
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respondent thereafter issued a Notice dated 13.04.2023 under
Section 148 of the Act, seeking to reopen the case of the
petitioner.
11. Keeping in mind of the undisputed facts as mentioned
herein-above, we may refer to the decision of this Court in the
case of KRBL Limited (supra), wherein this Court, while
examining the claims of the State Tax Department, in liquidation
proceedings and the provision of Section 53 read with Section 52
of the Code, 2016 and Regulation 31A of the Insolvency and
Bankruptcy (Liquidation Process) Regulations, 2016, has held
thus:
“5.18 Reading of the aforesaid paras would indicate that once
having relinquished its interest under Section 52, the State
cannot continue the insistence of maintaining the charge in the
revenue records and its claim will have to stand in priority.
5.19 The argument of the State that since the asset was sold
on a condition of “AS IS WHERE IS BASIS”, the charge of the
State was rightly recorded is misconceived as the deed already
records that the purchaser shall not be liable for payment of
any outstanding dues of the government. This too was, in the
opinion of the Court a clause that would relieve the petitioner
of the liability to pay tax dues. In light of the decision in the
case of Ghanshayam Mishra and Sons Private Limited (supra),
the petitioner was entitled to a clean slate.
5.20 Even otherwise as per Section 100 of the Transfer of
Property Act, a charge cannot be enforced against any
property in the hands of a person to whom such property has
been transferred for consideration and without notice of such
charge. The State moved in to get a charge registered on
15.12.2022 much later.”
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12. Thus, the Coordinate Bench, after placing reliance on the
settled legal position by the Supreme Court in the case of
Ghanshyam Mishra & Sons (Private) Limited vs. Edelweiss Asset
Reconstruction Company Limited, (2021) 126 taxmann.com 132,
has held that the action of the State of insistence of maintaining
the charge in the revenue record as illegal on the principles of
clean slate.
13. In the instant case, 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 now the liability has ceased to exist. The AO 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), and that the liability of bankers has ceased
to exist and even NOC / No Due Certificate is issued in favour of
the petitioner, since the Andhra Bank has 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. When the petitioner clarified this aspect and it was always
open for the Assessing Officer to verify this aspect from the
profit and loss account of the petitioner.
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14. Thus, in wake of the settled legal precedent and the
reopening premised on surmises and conjectures, the action of
reopening calls for interference, and hence, all the writ-petitions
stand allowed, accordingly, the impugned notices and orders in
each of the writ-petition is hereby quashed and set aside. Rule is
made absolute.
sd/-
(A. S. SUPEHIA, J)
sd/-
(VAIBHAVI D. NANAVATI,J)
Pradhyuman/6,7,8/
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