In slump sale acquisition, to claim depreciation, WDV in books of seller immaterial

In slump sale acquisition, purchaser to claim depreciation on lump sum consideration irrespective of WDV in the books of accounts of seller company.

In a recent judgment, Hon’ble Supreme Court had dismissed the SLP against the judgment of the Gujarat High Court holding that in a slump sale acquisition, the purchaser is only required to claim the depreciation on the consideration paid by it without considering the individual value of the assets and WDV in the books of accounts of seller company is immaterial.

ABCAUS Case Law Citation:
4805 (2025) (10) abcaus.in SC

Important Case Laws relied upon by Parties:
Yogendra Kumar Gupta Vs. Income Tax Officer
Peass Industrial Engineers (P.) Ltd. Vs. Deputy Commissioner of Income Tax
Hinjay Construction Company Private Limited Vs. Income Tax Officer
CIT Vs. Rajesh Jhaveri Stock Brokers (P.) Ltd.
Phul Chand Bajrang Lal Vs. ITO

During the relevant Assessment Year the respondent assessee had purchased a unit on Slump sale basis and claimed depreciation on the amount of the consideration paid to the seller.

During the assessment proceedings under section 143(3), the Assessing Officer (AO) conducted a detailed scrutiny by issuing notice under section 142(1) 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 was passed under Section 143 (3) of the Act.

However, the AO issued issued notice u/s 148 for reopening. The reasons recorded inter alia stated that the assessee company acquired one business from its holding company on Slump Sale basis and claimed depreciation on goodwill. It was also recorded that the assessee and claimed depreciation on non-existent assets acquired on slump sale. The assets were said to be not in existence in view of the order passed by the Settlement Commission under 245D(4) of the Act in case of holding company. The objections raised to the reopening were rejected by the Assessing Officer (AO).

The assessee filed Petition in the Hon’ble High Court and submitted that it had obtained the valuation report of the expert valuer for valuation of each of the assets, which has been transferred to the assessee and thereafter, worked out the excess of the consideration paid over the value of the net assets acquired and to be treated as goodwill.

It was further submitted that the assessee had acquired the entire unit as a going concern on Slump Sale basis after obtaining the valuation report from the expert valuer, who had physically verified each of the assets acquired by the assessee which was duly reflected in the Agreement for Slump Sale. It was therefore submitted that the cost of the assets in the books of the accounts of the seller had nothing to do with the assets acquired by the petitioner by making the payment on Slump Sale basis.

The Hon’ble High Court observed that as per the definition of Slump sale under section 2(42C) of the Act, 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 assessee had purchased the entire injectable unit on Slump Sale basis without values being assigned to individual assets and liabilities in such sale.

The Hon’ble High Court further noted that assessee had also obtained the valuation report from the expert valuer, who had physically verified each of the assets to derive the value and which were reflected in the Slump Sale Agreement executed by the assessee with its holding company. It was not in dispute that the Assessing Officer, either during the regular assessment proceedings or in the reasons recorded, had disputed the existence of such assets as well as while disposing off the objections of the filed by the assessee.

The Hon’ble High Court opined that when the assesse had already paid a lumpsum price to acquire the injectable unit as a going concern on Slump Sale basis, the assessee was 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 were duly reflected in the schedule to the Slump Sale Agreement as well as in the valuation report.

The Hon’ble High Court held that disallowance of depreciation on the basis of submission made by the holding Company before the Settlement Commission would be without any basis as the claim of depreciation made by the assessee had nothing to do with the WDV reflected in the books of accounts of holding company.

The Hon’ble High Court held that the assessee was 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 and the balance is treated as a goodwill upon which the depreciation was allowed by the Assessing Officer during the course of the regular assessment as per the provisions of the Act.

Accordingly, the Hon’ble High Court quashed the re-assessment notices.

Not satisfied with the judgment of the High Court, the Department challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition. However, the Apex Court dismissed the SLP with the following observations,

“We are not inclined to interfere with the impugned order in exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is, accordingly, dismissed and the accompanying interlocutory application(s), if any, stands disposed of.”

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