Reassessment on mere conjecture fails when no deduction was claimed and liquidation sale proceeds on a clean slate basis.

Reassessment under the Income-tax Act based on an alleged cessation of liability was held unsustainable where the assessee had not claimed the disputed interest deduction and the reopening rested on conjecture. The court noted that the undertaking had been sold as a going concern in liquidation on a clean slate basis, with past liabilities treated as extinguished. Because the revenue did not verify the accounts and proceeded on an assumption that a deduction might have been claimed, the notice under Section 148 and the order under Section 148A(d) were quashed. The ruling reinforces that reassessment cannot proceed on mere surmise of income escapement.

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Issues: Whether reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961, based on an alleged cessation of liability after sale of the company as a going concern in liquidation, were sustainable when the assessee contended that no deduction of the relevant interest had ever been claimed and the reopening rested on mere surmises.

Analysis: The assessee had undergone CIRP and liquidation, and its undertaking was sold as a going concern under the liquidation framework with the understanding that past liabilities and investigations stood extinguished. The revenue sought reopening on the premise that a haircut on the assigned debt and cessation of interest liability may have resulted in escapement of income under Section 41(1) and Explanation 1(b) to Section 115JB(2). The assessee consistently explained that no deduction of the alleged interest had been claimed in its profit and loss account and that a no-dues certificate had been issued. The reopening was founded on an assumption that the assessee might have claimed such deduction, without verifying the accounts, and was therefore based on conjecture rather than a tangible basis. In the light of the clean slate principle applicable to a going concern sale in liquidation and the settled position relied upon by the Court, the reassessment action could not be sustained.

Conclusion: The reassessment notice and the order under Section 148A(d) were unsustainable and were quashed; the writ petitions succeeded.

Final Conclusion: The Court held that reopening of the assessment could not rest on a speculative assumption of income escapement where the assessee had not claimed the alleged deduction and the acquisition of the undertaking was under a clean slate liquidation sale.

Ratio Decidendi: Reassessment cannot be initiated on mere conjecture of escapement of income when the assessee's accounts do not disclose the alleged claim and the business has been acquired as a going concern in liquidation on a clean slate basis extinguishing past liabilities.

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