Baxter Pharmaceuticals India Private Limited Vs ACIT (Gujarat High Court)
The Gujarat High Court dealt with a batch of writ petitions challenging notices issued under Section 148 of the Income Tax Act, 1961 for Assessment Years 2015–16, 2016–17, and 2017–18. As the factual matrix and issues were identical, the petitions were heard together, with the notice for AY 2015–16 treated as the lead matter.
For AY 2015–16, the assessee had filed its return declaring a loss and paid tax under Section 115JB on book profits. A detailed scrutiny assessment was conducted under Section 143(3), during which the Assessing Officer (AO) called for extensive information relating to amalgamation/demerger, intangible assets, depreciation claims, and audit reports. After considering the replies, an assessment order was passed in December 2017.
Read SC Judgment in this case: Slump Sale Depreciation Depends on Consideration Paid, Not Seller’s Book Values: SC
Subsequently, in March 2021, the AO issued notices under Section 148 seeking to reopen the assessments. The reopening was based on three principal grounds: (i) depreciation claimed on goodwill arising from acquisition of an injectable business on a slump sale basis; (ii) alleged excess claim of additional depreciation on assets acquired after a specified date; and (iii) information arising from settlement proceedings of the assessee’s holding company, where accommodation entries relating to capital asset purchases were admitted, leading the AO to infer that assets transferred under the slump sale were non-existent and depreciation and deductions claimed thereon were inadmissible.
The assessee objected to the reopening, contending that the notices were issued beyond four years from the end of the relevant assessment years and that there was no failure to disclose fully and truly all material facts. It was argued that all issues relating to goodwill depreciation and additional depreciation had already been examined during the original scrutiny assessment. With respect to the third ground, the assessee submitted that it had acquired the business as a going concern through a slump sale for a lump-sum consideration, supported by a valuation report based on physical verification of assets, and that the cost or accounting treatment in the seller’s books was irrelevant to its depreciation claim.
The AO rejected the objections, reiterating the recorded reasons. The assessee thereafter approached the High Court.
The Court noted that the impugned notices were admittedly issued beyond four years. Therefore, under the proviso to Section 147, reopening was permissible only if there was failure on the part of the assessee to disclose fully and truly all material facts. On examination, the Court found that the first two grounds—depreciation on goodwill and additional depreciation—had been specifically examined during the original scrutiny assessment. Reopening on these issues amounted to a mere change of opinion and was impermissible.
The Court then examined the third ground relating to alleged non-existence of assets based on settlement proceedings of the holding company. It observed that the assessee had acquired the entire undertaking as a going concern through a slump sale, as defined under Section 2(42C), for a lump-sum consideration without assigning individual values to assets and liabilities. The assessee’s depreciation claim was based on the consideration paid and supported by an independent valuation report. The Court held that admissions made by the seller in settlement proceedings regarding accommodation entries in its own books could not form a valid basis to deny depreciation to the purchaser, who had acquired a going concern for a lump sum. The AO had neither disputed the existence of the assets nor the slump sale transaction itself.
The Court concluded that the reasons recorded lacked a rational connection or live link with the formation of belief that income had escaped assessment. Consequently, the AO had no jurisdiction to reopen the assessments. All impugned notices were quashed and set aside, and the petitions were allowed without costs.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
