Clean-slate acquisition of a corporate debtor bars reassessment for its extinguished past liabilities.

The petitioner challenged the notice dated 29 June 2025 issued under Section 148 of the Income Tax Act, 1961, and the consequential order under Section 148A(3), seeking to reopen its assessment for A.Y. 2021–22.

The proposed reopening arose from a search concerning CFM Asset Reconstruction Private Limited, which had acquired the petitioner’s non-performing assets at a discounted value.

The Revenue alleged that the petitioner might have claimed deduction of unpaid interest of ₹1,352.80 lakhs, that the liability had subsequently ceased, and that the amount could therefore attract Section 41(1) and Explanation 1(b) to Section 115JB(2) of the Act.

The petitioner had undergone CIRP, was ordered to be liquidated, and was subsequently sold as a going concern to Arrhum Tradelink Private Limited under a sale agreement dated 3 March 2021.

It contended that the acquisition was on a “clean slate” basis and that all past liabilities and investigations stood extinguished.

It also submitted that it had never claimed deduction of the disputed interest, that the interest had not been reflected in its profit and loss account since financial year 2015–16, and that the same alleged cessation of liability had already been relied upon to reopen assessments for A.Ys. 2017–18, 2019–20 and 2020–21.

The Revenue opposed the petition, alleging that the CIRP process had been used to evade tax liability.

1. Whether the notice under Section 148 and the order under Section 148A(3) were sustainable when the alleged escapement of income was based on the presumption that the petitioner “might have claimed” deduction of unpaid interest.

2. Whether the “clean slate” principle applicable to the acquisition of a corporate debtor as a going concern during liquidation barred the Revenue from pursuing the impugned reopening proceedings in respect of past liabilities and investigations.

3. Whether the Revenue could repeatedly invoke reassessment proceedings in different assessment years in respect of the same alleged cessation of interest liability arising from the same transaction.

4. Whether the order under Section 148A(3) was vitiated by failure to consider the petitioner’s specific defence, supporting documents and binding judicial precedents.

The Court applied Sections 148 and 148A of the Income Tax Act, 1961, which require a legally sustainable basis and due consideration of the assessee’s response before reopening an assessment; Section 41(1), concerning remission or cessation of a trading liability, and Explanation 1(b) to Section 115JB(2), concerning amounts credited in the context of computation of book profit.

The Court relied on Regulation 32(e) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, and the “clean slate” principle under the Insolvency and Bankruptcy Code, 2016, under which a purchaser acquiring a corporate debtor as a going concern is not to be burdened with past liabilities contrary to the terms of the insolvency sale.

The Court followed KRBL Limited v. State of Gujarat, (2023) 154 taxmann.com 489 (Gujarat), and the Supreme Court’s decision in Ghanshyam Mishra & Sons (Private) Limited v. Edelweiss Asset Reconstruction Company Limited, (2021) 126 taxmann.com 132, holding that an approved resolution-plan or insolvency-process purchaser is entitled to acquire the corporate debtor on a clean-slate basis.

It also applied the principle that reassessment cannot be founded on mere conjectures and that the same income or alleged liability cannot be repeatedly assessed in different assessment years on an identical factual foundation.

The Court found that the reopening was founded only on the Assessing Officer’s presumption that the petitioner “might have claimed” deduction of the disputed interest, rather than on verification of the petitioner’s accounts or other tangible material.

The petitioner had specifically stated that it had not claimed the interest as a deduction, had not recognised it in its profit and loss account since financial year 2015–16, and had obtained a NOC/No Due Certificate from the concerned bank; these matters could have been verified before initiating reassessment.

The Court further held that the sale of the petitioner as a going concern during liquidation attracted the clean-slate principle, and that past liabilities or investigations could not be revived contrary to the insolvency framework and the sale terms.

Since the same alleged cessation of liability of ₹1,352.80 lakhs had already formed the basis of reopening proceedings for earlier assessment years, its repeated invocation for A.Y. 2021–22 was impermissible.

The Section 148A(3) order was also defective because it failed to address the clean-slate defence and the authorities cited by the petitioner, and improperly placed the burden on the petitioner to disprove transactions rather than requiring the Assessing Officer to establish a sustainable basis for reopening.

It held that the reopening for A.Y. 2021–22 was based on surmises and conjectures, disregarded the clean-slate protection arising from the insolvency sale, and improperly sought to revisit the same alleged liability already used for reopening other assessment years.

The writ petition was allowed; the notice dated 29 June 2025 issued under Section 148 and the order dated 29 June 2025 passed under Section 148A(3) were quashed and set aside.

Rule was made absolute, with no order as to costs.