2025 (2) TMI 306 - HC - Income Tax

Reopening of assessment u/s 147 - Slump Sale - reopening beyond four years - HELD THAT - 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. 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 accounts 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 dehors 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. 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 accounts 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 AO at the rate of 25% during the course of the regular assessment as per the provisions of the Act. Therefore we are of the opinion that the AO 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. All the impugned notices are quashed and set aside.

Summary

The Court considered several core legal issues in this judgment related to the reopening of assessments under the Income Tax Act, 1961. The primary issues revolved around the validity of the notices issued under Section 148 for the assessment years 2015-16, 2016-17, and 2017-18, and whether the Assessing Officer had the jurisdiction to issue such notices based on the reasons provided.

Issue 1: Validity of Reopening Assessments Beyond Four Years

The Court examined whether the Assessing Officer had the jurisdiction to reopen assessments beyond a four-year period under Section 147 of the Income Tax Act. The petitioner argued that there was no failure on their part to disclose fully and truly all material facts necessary for assessment, which is a prerequisite for reopening assessments after four years.

Legal Framework and Precedents:

The relevant legal framework includes Section 147 of the Income Tax Act, which allows reopening of assessments if there is reason to believe that income has escaped assessment. However, the proviso to Section 147 restricts reopening beyond four years unless there is a failure to disclose material facts. Precedents emphasize that mere change of opinion is not sufficient for reopening.

Court's Interpretation and Reasoning:

The Court noted that the petitioner had disclosed all material facts during the original assessment. The reasons for reopening, particularly regarding depreciation on goodwill and additional depreciation, were already considered during the original assessment. Thus, reopening on these grounds constituted a mere change of opinion, which is impermissible.

Issue 2: Depreciation on Goodwill and Additional Depreciation

The petitioner challenged the reopening notices on the grounds of depreciation claimed on goodwill and additional depreciation on assets acquired after a slump sale. The petitioner argued that these issues were thoroughly examined during the original assessment, and there was no new material to justify reopening.

Relevant Legal Framework and Precedents:

The legal framework involves Section 32 of the Income Tax Act, which deals with depreciation. Precedents establish that depreciation claims, if scrutinized during original assessments, cannot be grounds for reopening unless new, tangible information surfaces.

Court's Interpretation and Reasoning:

The Court found that the Assessing Officer had already examined the depreciation claims during the original assessment. The petitioner had provided detailed documentation, including valuation reports, to support their claims. The Court emphasized that the Assessing Officer's attempt to reopen based on the same facts was unjustified.

Issue 3: Alleged Non-Existence of Assets Based on Settlement Commission's Order

The reopening notices were also based on information from the Settlement Commission, which suggested that the petitioner's holding company had availed accommodation entries for capital asset purchases. The Assessing Officer argued that this information justified the disallowance of depreciation claims.

Relevant Legal Framework and Precedents:

The legal framework includes Section 245D of the Income Tax Act, which pertains to the Settlement Commission's orders. Precedents highlight that information from such orders can be grounds for reopening if it leads to a reasonable belief of income escapement.

Court's Interpretation and Reasoning:

The Court acknowledged the information from the Settlement Commission but emphasized that the petitioner had acquired the assets through a slump sale, paying a lump sum consideration. The valuation was conducted by an expert valuer, and the assets were physically verified. The Court held that the petitioner was not concerned with the cost of assets in the seller's books and was entitled to claim depreciation based on the consideration paid.

Significant Holdings:

The Court concluded that the Assessing Officer lacked jurisdiction to issue the reopening notices. The reasons provided were either considered during the original assessment or were based on a misunderstanding of the slump sale transaction. The Court quashed the impugned notices, emphasizing that the petitioner had disclosed all material facts and that the reopening was based on a mere change of opinion.

Core Principles Established:

The judgment reinforces the principle that reopening assessments beyond four years requires a failure to disclose material facts. Mere change of opinion or reliance on previously considered information is insufficient. Additionally, the judgment clarifies the treatment of slump sale transactions, emphasizing that depreciation claims should be based on the consideration paid, not the seller's book values.

Final Determinations:

The Court quashed the reopening notices for all three assessment years, ruling in favor of the petitioner. The decision underscores the importance of adhering to statutory requirements for reopening assessments and provides clarity on the treatment of depreciation claims in slump sale transactions.