ACIT Vs Baxter Pharmaceuticals India Private Limited (Supreme Court of India)
The dispute arose from notices issued under Section 148 of the Income Tax Act, 1961, seeking to reopen completed assessments for Assessment Years 2015-16, 2016-17, and 2017-18. The reopening was initiated more than four years after completion of regular scrutiny assessments under Section 143(3).
For AY 2015-16, the assessee had filed its return declaring losses and paid tax under Section 115JB on book profits. During the original scrutiny assessment, the Assessing Officer had issued detailed notices under Section 142(1) and examined issues relating to amalgamation/demerger, goodwill, depreciation, additional depreciation, and tax audit reports. After considering detailed replies, the assessment was completed.
Read HC Judgment in this case: Seller’s Settlement Admissions Don’t Defeat Slump sale Buyer’s Depreciation Claim: Gujarat HC
Subsequently, notices for reopening were issued on three grounds:
(i) depreciation claimed on goodwill arising from a slump sale transaction,
(ii) alleged excess claim of additional depreciation on assets acquired after the slump sale, and
(iii) reliance on admissions made by the seller (holding company) before the Settlement Commission that it had availed accommodation entries for purchase of capital assets, leading to disallowance of depreciation in its own case.
The assessee objected to the reopening, contending that all material facts had been fully and truly disclosed during the original assessment, that the notices were barred by the proviso to Section 147 as they were issued beyond four years, and that the reopening was based on a mere change of opinion. On merits, it was argued that the injectable business was acquired as a going concern through a slump sale for a lump sum consideration, supported by an expert valuation and physical verification of assets, and that depreciation was rightly claimed on the consideration paid, including goodwill.
The High Court held that, since the notices were issued beyond four years, reopening could only be sustained if there was failure on the part of the assessee to disclose fully and truly all material facts. On the first two grounds—goodwill depreciation and additional depreciation—the Court found that these issues had been specifically examined during the original assessment, and reopening on these aspects amounted to a mere change of opinion, which was impermissible.
On the third ground, the Court examined the concept of “slump sale” under Section 2(42C). It held that in a slump sale, the purchaser acquires an undertaking for a lump sum consideration without assignment of values to individual assets and liabilities. Once the assessee acquired the business as a going concern for a fixed consideration, supported by valuation and physical verification, the cost or book entries in the seller’s accounts were irrelevant for the purchaser’s depreciation claim. Admissions made by the seller before the Settlement Commission regarding accommodation entries in its own books could not be used to deny depreciation to the purchaser who had independently acquired real, existing assets for consideration. The Court found no rational connection or live link between the information relied upon and the belief of income escapement in the purchaser’s case.
Accordingly, the Gujarat High Court quashed all the reopening notices as being without jurisdiction.
The Revenue carried the matter to the Supreme Court. The Supreme Court condoned the delay, heard counsel, and declined to interfere with the High Court’s judgment. The Special Leave Petitions were dismissed, thereby affirming the High Court’s ruling that the reopening notices were invalid.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
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