Delhi High Court Admits Appeal on Slump Sale Valuation, Goodwill Depreciation & Non-Compete Expenditure

Background of the Dispute

The Delhi High Court has admitted a set of appeals filed under Section 260A of the Income Tax Act 1961 by BE Pharmaceuticals Private Limited Vs ACIT. The appeals challenge an order of the Income Tax Appellate Tribunal (ITAT), Delhi Bench “F”, dated 28.10.2025.

The controversy stems from a slump sale transaction in which the assessee acquired the business undertaking of Kilitch Drugs India Limited located at Village Nihalgarh, Tehsil Paonta Sahib, District Sirmaur, Himachal Pradesh. The acquisition was concluded through a registered sale deed dated 25.02.2012 (registered on 29.02.2012), for an overall consideration of ₹281,28,95,923.

According to the assessee’s allocation:

  • Tangible assets, including land and building, were taken at ₹137,19,82,389; and
  • The balance of ₹144,09,13,534 was treated as goodwill.

The central issue before the tax authorities and the Tribunal was:

  1. Whether depreciation on goodwill is allowable; and
  2. If allowable, on what quantum, given the break-up between tangible assets and goodwill in a slump sale.

The Commissioner of Income Tax (Appeals)-I, New Delhi [CIT(A)] had, through an order dated 17.07.2019, computed the goodwill component at ₹65.8 crore, significantly lower than what the assessee had claimed.

ITAT’s Findings and Directions

Tribunal’s View on Section 50C and Slump Sale

The ITAT accepted, in principle, that the assessee was entitled to depreciation on goodwill. However, it was not satisfied with the valuation adopted for the tangible assets and goodwill. In paragraph 18 of its order, the Tribunal recorded that:

  • Section 50C could not be applied to the assessee in this case because that provision deems a higher stamp duty valuation as sale consideration in the hands of a seller of capital assets.
  • The assessee, being a purchaser in a slump sale governed by Section 50B, could not be subjected to Section 50C directly.

The ITAT instead opined that, at best, Section 56(2)(vii)(b) could be relevant, since it applies to buyers where the acquisition price is lower than the stamp duty valuation for immovable property.

Invocation of Section 56(2)(vii)(b) for Valuation and Taxability

The Tribunal held that once Section 56(2)(vii)(b) is triggered, the acquisition price must be substituted by the value adopted by the stamp valuation authorities, with the difference taxable as income under that provision. It further noted that the proviso to Section 56(2)(vii)(b) contemplates:

  • A reference to a Departmental Valuation Officer (DVO) where there is a dispute between the assessee and the stamp valuation authority’s figure; and
  • The valuation would then be governed in accordance with Section 50C(2).

Since, in this case, the Assessing Officer (AO) had not referred the matter to the DVO, the Tribunal restored the valuation issue to the AO with detailed directions:

  1. Mandatory DVO Reference

    • The AO was directed to refer the valuation of the land and buildings acquired from Kilitch Drugs India Limited to the DVO to determine their fair market value as on the date of acquisition.

  2. Opportunity of Hearing Before DVO

    • The DVO was to give the assessee a proper opportunity to be heard before finalising the valuation.
    • The AO was to issue suitable instructions to the DVO ensuring adherence to principles of natural justice.

  3. Right to Object

    • The assessee was permitted to file objections before the DVO, which had to be duly considered.

  4. Adoption of DVO Valuation

    • If the DVO’s valuation exceeded the value shown by the assessee for land and building, the higher DVO value would be treated as the value of land and building.

  5. Residual Amount as Goodwill

    • The residual amount of the slump sale consideration, after attributing the DVO-determined value to land and building, would be treated as goodwill.
    • Depreciation on this goodwill was to be allowed, as the Tribunal had already accepted that a component of the consideration represented goodwill.

The Tribunal also clarified that the DVO must not adopt circle rates for valuation, noting that such rates had not been notified by the Himachal Pradesh Government for transactions up to 31.03.2012.

Thus, while the Tribunal recognised the assessee’s right to depreciation on goodwill, it remanded the matter for a fresh valuation exercise, effectively reopening the allocation between tangible assets and goodwill.