SC Upholds Quashing of Reassessment on Slump Sale Depreciation.

Issue

Can the tax department reopen a completed assessment after four years to disallow depreciation on goodwill and assets acquired in a slump sale, by alleging either a “change of opinion” on previously examined facts or by relying on new information about the seller that is irrelevant to the assessee’s (buyer’s) valuation?

Facts

The assessee-company acquired an “injectable business” from its holding company on a slump sale basis for the assessment years 2015-16 to 2017-18.
It claimed depreciation on the acquired assets and the goodwill arising from the transaction, based on a valuation report from an expert valuer who had physically verified the assets.
The depreciation claim was examined and allowed in the original scrutiny assessment under Section 143(3).
After four years, the Assessing Officer (AO) issued a reopening notice under Section 148 on two main grounds:
1. That the depreciation on goodwill was wrongly allowed as the slump sale agreement was not on record (as per one proceeding).
2. That “information” was received that the seller (the holding company) had admitted to the Settlement Commission that the assets involved accommodation entries.
The assessee challenged this, proving that all documents, including the slump sale agreement and valuation report, were fully disclosed and examined during the original assessment. They also argued that the seller’s WDV or alleged accommodation entries were irrelevant to the buyer’s cost of acquisition, which was based on a valid valuation report.

Decision

The High Court quashed and set aside the reassessment proceedings. The Supreme Court, finding no reason to interfere, dismissed the Revenue’s Special Leave Petition (SLP), thereby confirming the High Court’s order.
The High Court’s decision was based on two key findings:
1. Procedural Bar (No Failure to Disclose): Since the reopening was initiated after four years, it was mandatory for the AO to prove that the assessee had failed to disclose all material facts. As the assessee had submitted all documents (slump sale agreement, valuation report) during the original assessment, there was no failure to disclose. The reopening was therefore an invalid “change of opinion” on facts already on record.
2. Merits (Irrelevant Information): The “information” from the Settlement Commission regarding the seller was irrelevant. The assessee (buyer) is entitled to depreciation based on the actual cost of the assets as determined by the expert valuer in the slump sale agreement, not the WDV in the seller’s books. The AO never disputed the existence of the assets.

Key Takeaways

Reopening After 4 Years: A completed assessment cannot be reopened after four years unless the AO can establish a failure on the part of the assessee to disclose all material facts fully and truly.
“Change of Opinion” is Not a Valid Ground: An AO cannot reopen an assessment simply to re-examine the same set of facts and documents that were already considered during the original scrutiny.
Depreciation in Slump Sale: For the buyer in a slump sale, the cost of acquisition for the purpose of claiming depreciation is based on the consideration paid, as allocated to various assets by a valuation expert. The WDV in the seller’s books is irrelevant.
Invalid “Information”: Information about a third party’s (even the seller’s) alleged wrongdoing cannot be the sole basis for reopening an assessment to disallow depreciation on assets that physically exist, are owned, and are used by the assessee.

SUPREME COURT OF INDIA

Assistant Commissioner of Income-tax

Baxter Pharmaceuticals India (P.) Ltd.

PAMIDIGHANTAM SRI NARASIMHA and ATUL S. CHANDURKAR, JJ.

SLP (CIVIL) Diary No(s). 41589 of 2025

OCTOBER 13, 2025

S. Dwarakanath, A.S.G., Rajat Vaishnaw, S. Vijay Adithya, Mudit Bansal, Amit Sharma V., Piyush Beriwal, B.K. Satija, Advs. and Ms. Madhulika Upadhyay, AOR for the Petitioner. Kamal Sawhney, Arun Bhaduria, Nikhil Agarwal, Nishank Vashishta, Puru Medhira, Advs. and Deepak Thackur, AOR for the Respondent.

ORDER

1. Delay condoned.

2. We are not inclined to interfere with the impugned order in exercise of our jurisdiction under Article 136 of the Constitution of India.

3. The Special Leave Petition is, accordingly, dismissed and the accompanying interlocutory application(s), if any, stands disposed of.

B S Soparkar for the Petitioner. Varun K. Patel and Mrs. Kalpana K Raval for the Respondent.

ORDER

Bhargav D. Karia, J. – Heard learned Senior Advocate Mr.S.N.Soparkar with learned advocate Mr.B.S.Soparkar for the petitioner and learned Senior Standing Counsel Mr.V.K.Patel for the respondent on advance copy.

2. Rule returnable forthwith. Learned Senior Standing Counsel Mr.V.K.Patel waives service of notice of Rule for the respondent State.

3. Having regard to the controversy involved which is in narrow compass arising in these petitions, with the consent of the learned advocates appearing for the respective parties, the same are taken for hearing.

4. By these petitions, the petitioner has challenged the notices dtd.21.03.2021 and 26.03.2021 issued under Section 148 of the Income-tax Act, 1961 (For short ‘The Act’) for the Assessment Years 2015-16, 2016-17 and 2017-18. As the facts of all the three petitions are identical, the same are heard analogously and are being disposed of by this common order. The facts of the Special Civil Application No.3821 of 2022 where the notice for reopening for Assessment Year 2015-16 is under challenge, is treated as a lead matter.

5. Brief facts of the case of the petitioner for Assessment Year 2015-16 is as under :-

The petitioner filed return of income on 27.11.2015 for Assessment Year 2015-16 declaring total loss of Rs.33,86,25,522/-. The petitioner paid tax under Section 115JB of the Act as Minimum Alternate Tax (MAT) on the Book Profit of Rs.43,28,88,179/- amounting to Rs.80,084,313/-.

6. The respondent Assessing Officer conducted a detailed scrutiny by issuing notice under section 142(1) dated 18.8.2017 calling for various details relating to amalgamation/demerger, intangible assets, additional depreciation, tax audit report etc. The petitioner filed detailed replies from time to time and after considering the same, the Assessment Order dated 22.12.2017 was passed under Section 143(3) of the Act.

7. The respondent Assessing Officer thereafter issued impugned notice for reopening on 26.3.2021. The petitioner filed its return of income in compliance to the notice under Section 148 on 20.04.2021, which was similar to the original return file and sought reasons recorded for opening of the file, which were provided on 12.5.2021.

8. The reasons recorded by the Assessing Officer are mainly on the three counts which can be summarized as under :-

(I)

The petitioner company (M/s. Claris Injectable Limited, which is now known as Baxter Pharmaceuticals India Pvt. Ltd. acquired injectable business from its holding company M/s. Claris Lifescience Limited on Slump Sale basis for value of Rs.554,00,00,000/- on 01.11.2014 and claimed depreciation on the amount of goodwill of Rs.5.23 CR. According to the Assessing Officer, as the copy of Slump Sale is not available on record, the depreciation claimed at the rate of 25% on Rs.5.23 CR amounting to Rs.1.30 CR was sought to be disallowed.

(II)

The other issue was with regard to claim of additional depreciation on the assets acquired after 1.11.2014 by the petitioner on the ground that the petitioner claimed excess depreciation of Rs.3,74,76,831/-.

(III)

The third ground/reason for reopening was provided was that M/s. Claris Lifesciences Ltd., in the application filed before the Settlement Commission and the as per the order passed under Section 245D(4) of the Act, it was submitted that accommodation entries of capital assets purchased have been taken by it and resultant depreciation on such purchases was disallowed. It was therefore deduced by the respondent – Assessing Officer that as the petitioner has purchased the injectable business from M/s. Claris Lifesciences Pvt. Ltd. on Slump Sale basis as a going concern, the resultant capital gains was claimed exempt and the transfer of asset included WDV of Rs.99.95 crore and CWIP of Rs.96.94 crore along with other assets. In absence of any real assets, the petitioner would not be entitled to the depreciation of Rs.29.53 crore and deduction of Rs.22.49 crore under Section 32AC of the Act.

9. The petitioner filed the objections to the impugned notice and the reasons for reopening on 10^th June, 2021 contending inter alia that the during the course of regular assessment, there is no failure on the part of the petitioner to disclose fully and truly all material facts for the assessment and as the impugned notice is issued beyond the period of 4 years, as per the proviso to Section 147 of the Act, the Assessing Officer would not have jurisdiction to issue the notice for reopening.

10. The petitioner also submitted on merits that during the course of regular scrutiny assessment, the Assessing Officer has called for the relevant details pertaining to the depreciation claimed by the petitioner on goodwill as well as additional depreciation claimed on the assets acquired after 1.11.2014. With regard to the issue of claiming depreciation on the assets transferred to the petitioner by M/s. Claris Lifesciences Ltd. in respect of WDV of Rs.99.95 crore and CWIP of Rs.96.94 crore as per the information received with regard to the admission of the said Company to the effect that the said amount pertains to accommodation entries of capital asset purchases and therefore, the resultant depreciation would not be allowable to the petitioner, it was submitted that the petitioner purchased the injectable unit of the M/s. Claris Lifesciences Private Limited as a going concern for Slump Sale price of Rs.554 crore after obtaining the valuation report of a renowned valuer, who has physically verified each assets for the valuation purpose, which is duly reflected in the Agreement for Slump Sale, which contains the detailed schedule of the plant and machinery transferred to the petitioner in the Slump Sale. It was contended that the purchase of business undertaking assets acquired by the petitioner while purchasing the business undertaking are genuinely in existence and the same were certified and valued by the expert valuer and therefore, the allegation contained in the reasons recorded to that effect that WDV of the assets and deduction claimed in respect of depreciation allowance and deduction under Section 32AC, which were earlier owned by the M/s. Claris Lifesciences Pvt. Ltd. is not real and incorrect and would be incorrect as the petitioner has acquired the only assets, which have physical existence and claimed depreciation on the amount of Slump Sale price paid by the petitioner only.

11. The respondent Assessing Officer, however by order dated 22.11.2021, disposed off the objections filed by the petitioner reiterating the reasons recorded and in view of the settled legal position with regard to reopening by the Hon’ble Apex Court as well as this Court.

12. With regard to other two Assessment Years being Assessment Years 2016-17 and 2017-18, the notice for reopening is issued on the claim of the depreciation on the assets, which are alleged to have been not in existence in view of the Settlement Commissioner’s order passed in case of M/s. Claris Lifesciences Pvt. Limited holding company of the petitioner who transferred the injectable unit to the petitioner on Slump Sale basis for value of Rs.554 crore on 01.11.2014.

13. Being aggrieved, the petitioner has challenged all the three notices by referring these petitions.

14. Learned Senior Advocate Mr.S.N.Soparkar for the petitioner has submitted that the petitioner has purchased the injectable unit from its holding company on Slump Sale basis, which is defined under Section 2 (42) of the Act and claimed depreciation on the amount of consideration paid by the petitioner to the seller. It was submitted that the petitioner had obtained the valuation report of the expert valuer for valuation of each of the assets, which has been transferred to the petitioner by M/s. Claris Lifesciences Pvt. Limited and thereafter, worked out the excess of the consideration paid over the value of the net assets acquired and to be treated as goodwill amounting to Rs.5.23 CR. It was submitted that the said details were provided during the course of the regular assessment and after considering the same, the Assessing Officer passed the Assessment Order under Section 143(3) of the Act and hence, there is no failure on the part of the petitioner to disclose truly and fully all the material facts for the purpose of assessment and as such, the respondent Assessing Officer would not have any jurisdiction to issue the notice for reopening on the said reason.

15. With regard to the claim of additional depreciation, it was submitted that learned Senior Advocate Mr.S.N.Soparkar for the petitioner invited the attention of the Court to the page 36 of the paper book to point out that the additional depreciation was claimed by the petitioner on additions made between 1.10.2014 to 31.3.2015 amounting to Rs.1,499,371,846/- and as such assets were purchased by the assessee after acquiring the injectable unit and after 30^th September 2014, additional depreciation though allowable at 20% has claimed only 10% of the amount of addition amounting to Rs.149,937,185/-. The reference was also made to the detailed working of such claim made by the petitioner in the reply filed in the objection raised at page 196 of the Paper Book to point out that the Assessing Officer has mixed up the issue of regular depreciation at the rate of 7.5%, which was claimed by the assessee on the amount of cost of machineries acquired on Slump Sale basis and the additional depreciation at the rate of 10% on cost of eligible machineries after acquiring the business on Slump Sale basis.

16. With regard to the reasons for reopening in relation to the assets, which are said to be not in existence in view of the order passed by the Settlement Commission under section 245D(4) of the Act in case of M/s. Claris Lifesciences Pvt. Ltd., it was submitted that the petitioner has acquired this entire injectable unit from the said Company as a going concern on Slump Sale basis after obtaining the valuation report from the expert valuer, who has physically verified each of the assets acquired by the assessee which is duly reflected in the Agreement for Slump Sale. It was therefore submitted that the cost of the assets in the books of the account of the seller has nothing to do with the assets acquired by the petitioner by making the payment on Slump Sale basis. It was further submitted that the petitioner has replied to the notice in detail in the objections filed before the Assessing Officer contending that the WDV of the assets in deduction claim in respect of the depreciation allowance made by the petitioner on the assets earlier owned by M/s. Claris Lifesciences Pvt. Ltd. is not in dispute as the assessee has claimed such depreciation on the amount of consideration paid for Slump Sale of the entire injectable table unit as a going concern and therefore, the admission made by M/s. Claris Lifesciences Pvt.Ltd. before the Settlement Commissioner about the accommodation entries for purchase of the capital assets would not make any difference in the case of the petitioner.

17. It was therefore submitted that none of the reasons recorded by the respondent Assessing Officer for the purpose of reopening would be relevant as the respondent Assessing Officer could not have formed a reasonable belief on any of the reasons recorded to arrive at the prima facie conclusion that there is escapement of the income.

18. It was further submitted that irrespective of the reasons recorded as the total amount of escaped income estimated by the Assessing Officer is about Rs. 57 crores and the total loss carried forward by the petitioner as computed by the Assessing Officer in original assessment order is Rs.33.04 Crores whereas the book profit under Section 115JB is Rs.43.29 crores and considering the Quantum of escapement of Rs.57 crores, the assessee would be liable to pay the tax on the basis of the MAT only. Reliance was placed on the decision of Aadeshwara Cement Co. (P.) Ltd. v. Asstt. CIT (Gujarat) rendered on 23^rd July, 2024 in the Special Civil Application No. 3474 of 2022 to submit that even if the addition as proposed in the impugned notice is made as per the reasons recorded being the income escaped from the assessment is the income which is taxed under Section 115JB is concerned, there would not be any taxable income after proposed addition. It was therefore submitted that the Assessing Officer therefore could not have assumed the jurisdiction to issue the impugned notices.

19. It was further submitted that so far as the depreciation on goodwill and additional depreciation on the assets acquired after 1.11.2014 are concerned, both the issues are considered by the Assessing Officer during the regular course of assessment and therefore, there is a mere change of opinion while issuing the impugned notice for reopening. So far as the contention of the respondent Assessing Officer for the issue of claiming depreciation and additional depreciation on the assets which were alleged to be not non-existence, it was submitted that the Assessing Officer, in absence of any material available on record from which the requisite belief could be formed having rational connection or live link with the formation of such belief, could not have assumed the jurisdiction.

20. It was therefore submitted that the impugned notices are liable to be quashed and and set aside in the facts of the case. Per-contra, learned Senior Standing Counsel Mr.Varun K.Patel submitted that the reason recorded by the Assessing Officer are to be considered as a whole and even if any one of the reasons is valid reason, then the impugned notice is required to be sustained. It was submitted that after completion of the regular assessment proceedings, the respondent Assessing Officer has received the information to the effect that M/s. Claris Lifesciences Pvt. Ltd. was subjected to search proceedings under Section 132 of the Act on 04.08.2015 and in an application filed by the said Company before the Settlement Commission, an order under Section 245D(4) of the Act was passed wherein it was submitted that accommodation entries of capital assets purchases have been taken by the said Company and accordingly, resultant depreciation on such purchases was disallowed. It was therefore submitted that there is non-existence of the assets transferred to the petitioner by the said Company in a Slump Sale as defined under Section 2(42)(C) of the Act and the resultant capital gains which was claimed as exempt as per the provision of Section 50B read with Section 47 (vi) of the Act would not be available to the said Company. It was submitted that the Assessing Officer, on basis of such information, has reason to believe that the income depreciation claimed by the petitioner on the amount of WDV of Rs.99.95 crore and CWIP of Rs.96.94 crore forming part of the assets transferred in a Slump Sale would also not be available amounting to Rs.29.53 crore and deduction of Rs.22.49 crore under Section 32AC of the Act would not be available to the petitioner. It was therefore submitted that in view of such information received by the Assessing Officer subsequent to the Assessment Order passed under Section 143(3) would be valid information so as to form a reason to believe that the income to the extent of the depreciation claimed by the assessee petitioner on such non-existent assets would result into escape income.

21. In support of his submission, reliance was placed on the decision of this Court in case of Yogendra & Kumar Gupta v. ITO ITR 186 (Gujarat) as well as the decision in case of Hemjay Construction Co. (P.) Ltd. v. ITO ITR 39 (Gujarat) and the decision in case of Peass Industrial Engineers (P.) Ltd. v. Dy. CIT (Gujarat). Referring to the above decisions of this Court, wherein the reliance was placed on the decision of the Hon’ble Apex Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. ITR 500 (SC) and Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) and Phool Chand Bajrang Lal v. ITO ITR 456 (SC) and other similar decisions, it was submitted that once the Assessing Officer has specific and reliable information having reasonable belief, it would not be open to go into the sufficiency of the reasons for forming the belief. It was further submitted that the Court may look at the view taken by the Assessing Officer and can examine whether the material available on record from which the requisite belief has been formed having rational connection or live link with the formation of such belief. It was therefore submitted in the facts of the case that when the Assessing Officer is having information that the seller M/s. Claris Lifesciences Pvt. Limited had submitted before the Settlement Commission of availing accommodation entries for the purchases of the capital assets for which the depreciation was disallowed, the petitioner could not have received such assets in the Slump Sale and therefore, the depreciation claimed by the petitioner to the extent of such WDV 99.06 crore would be disallowed resulting into escapement of the income.

22. It was therefore submitted that no interference may be made in the impugned notices for reopening as the assessee would have sufficient opportunity to make the submissions during the course of the assessment proceedings and the Assessing Officer shall consider the same.

23. Having heard the learned advocates for the respective parties and taking into consideration the material on record as well as the facts of the case, it is apparent that it is not in dispute that the impugned notices are issued beyond a period of 4 (four) years and therefore, there is no failure on the part of petitioner to disclose truly and fully all material facts for the assessment and therefore, as per the proviso to Section 147 which existed at the relevant point of time, the Assessing Officer would have no jurisdiction to issue the impugned notices on the material, which is already considered during the course of the regular assessment. Therefore, so far as the first two reasons recorded by the Assessing Officer regarding depreciation on the goodwill and the claim of the assessee on the additional depreciation which is duly considered during the course of the regular assessment, the Assessing Officer would not have any jurisdiction to reopen the assessment on those two reasons. Therefore, learned Senior Standing Counsel Mr.V.K.Patel has rightly concentrated on the third reason recorded for reopening by the Assessing Officer on the basis of the information received after the Assessment Order was passed in relation to search proceedings carried out in the case of M/s. Claris Lifesciences Pvt. Limited on 04.08.2015 and the application filed by the said Company before the Settlement Commission accepting that there were accommodation entries for purchase of the capital assets and the depreciation claimed on such assets was disallowed.

24. It is also not in dispute that the petitioner has purchased the injectable unit from its holding company M/s. Claris Lifesciences Pvt. Limited as a going concern in a Slump Sale basis.

25. Section 2(42C) of the ACT defines ‘Slump Sale’ as under :-

“(42C)”slump sale” means the transfer of one or more [undertaking, by any means,] for a lump sum consideration without values being assigned to the individual assets and liabilities in such [transfer].

Explanation 1.—For the purposes of this clause, “undertaking” shall have the meaning assigned to it in Explanation 1 to clause (19AA).

Explanation 2.—For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities.

[Explanation 3.—For the purposes of this clause, “transfer” shall have the meaning assigned to it in clause (47);]”

26. From the above definition, it is clear that the Slump Sale means transfer of one or more undertaking for a lumpsum consideration without values being assigned to the individual assets and liabilities. Therefore, the petitioner has purchased the entire injectable unit on Slump Sale basis for Rs.55 crore without values being assigned to individual assets and liabilities in such sale. Petitioner has also obtained the valuation report from the expert valuer, who has physically verified each of the assets to derive the value and which were reflected in the Slump Sale Agreement executed by the petitioner with its holding company. On perusal of the valuation report as well as the Agreement for Slump Sale placed on record by the petitioner, it is not in dispute that the respondent Assessing Officer, either during the regular assessment proceedings or in the reasons recorded, has disputed the existence of such assets as well as while disposing off the objections of the filed by the petitioner. The only grievance of the respondent Assessing Officer seems to be on the basis of the information received in the 2018 to the effect that the holding Company of the petitioner, in the application filed before the Settlement Commission submitted that the accommodation entries for purchase of capital assets were obtained by it. However, when the petitioner has already paid a lumpsum price of Rs. 554 crore to acquire the injectable unit as a going concern on Slump Sale basis, the petitioner is not at all concerned with the amount of cost of such assets being reflected in the books of account of the seller and the petitioner is only required to claim the depreciation on the amount of consideration paid by it to acquire the going concern on Slump Sale basis without considering the individual value of the assets, which are duly reflected in the schedule to the Slump Sale Agreement as well as in the valuation report. Therefore, the entire basis on which the reasons recorded is de hors the basic concept of Slump Sale which the petitioner and the acquisition of the injectable unit by the petitioner from its holding Company as a going concern for Rs. 554 crore. In such circumstances, the reasons recorded pertaining to the submission made by the holding Company of the petitioner before the Settlement Commission so as to disallow the depreciation claimed by the petitioner on such submission of accommodation entry for purchase of the capital assets on the WDV of such capital assets, it would be without any basis as the claim of depreciation made by the petitioner has nothing to do with the WDV reflected in the books of account of M/s. Claris Lifesciences Pvt. Ltd. as the petitioner is entitled to depreciation on the basis of the valuation made by the expert valuer of each of the assets forming part of the sale consideration of the Rs. 55 crore and the balance is treated as a goodwill upon which the depreciation was allowed by the Assessing Officer at the rate of 25% during the course of the regular assessment as per the provisions of the Act.

27. Therefore, taking into consideration the above analysis of the reasons recorded, we are of the opinion that the Assessing Officer could not have assumed the jurisdiction on such to form a reason to believe that income has escaped the assessment. The decisions relied upon by on behalf of the respondent are either pertaining to the transaction of bogus purchase or transaction of bogus loan obtained by the respective assessee in the facts of the said cases, which would not be applicable in the facts of this case as there is no dispute with regard to the petitioner entering into transaction of Slump Sale to acquire the injectable unit as a going concern from its holding Company. In view of the foregoing reasons, all the impugned notices are quashed and set aside. Rule is made absolute to the above extent. No order as to costs.