A tax reassessment cannot rest on “might have claimed”
Vimal Oil and Foods Limited v Assistant Commissioner of Income Tax | Gujarat High Court | 22 September 2026 | SCA 12844 of 2026
The issue
Can the Income Tax Department reopen an assessment because a company might have claimed an interest deduction, without checking whether it actually did? The Gujarat High Court answered that question in the context of a business acquired as a going concern after liquidation.
What happened
The department relied on a search involving an asset reconstruction company and the assignment of Vimal Oil’s debts at a discount. It suggested that about ₹13.52 crore of interest liability may have ceased and that the company might earlier have deducted that interest. It issued a notice under section 148A and then a reassessment notice under section 148 for assessment year 2022–23. Vimal Oil replied that it had not claimed the interest deduction and pointed to its insolvency and subsequent going concern sale.
What the court decided
The court quashed the section 148A(3) order and section 148 notice. The officer had not verified the profit and loss accounts before relying on the speculative assertion that interest “might have” been deducted. Worse, the order itself said that the liability had not ceased, undermining its stated basis under section 41(1). It introduced an unrelated allegation of bogus purchases that had never appeared in the show cause notice. The court also considered its earlier ruling on the same company and amount, and the clean slate treatment following the going concern sale.
Why it matters
A reassessment proposal must connect information to an actual possible escapement of income. A notice cannot be expanded into an order on a fresh, unrelated allegation without giving the taxpayer a chance to answer it. Where an officer relies on a past deduction, the underlying accounts are an obvious starting point.
Practical takeaway
When responding to a section 148A notice, identify the exact deduction or entry alleged, attach the relevant accounts and prior orders, and flag any new ground appearing for the first time in the final order. This judgment turns on its record, including the earlier decision concerning the same amount; it does not create a blanket exemption for every buyer in insolvency proceedings.
Judgment
Published for general information on 28 September 2026. Read the full judgment and the applicable assessment year before relying on the ruling in a specific matter.
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