Section 77 of the Income Tax Act, 2025 deals with the taxation of profits and gains arising from slump sale. Every assessee effecting a slump sale is required to furnish a report from an accountant in Form 28. Understanding the requirements is essential for businesses undertaking slump sales.
What is a Slump Sale?
Definition
"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.
Key Characteristics
Lump Sum Consideration: The consideration is a single lump sum amount
No Individual Valuation: Values are not assigned to individual assets and liabilities
Transfer of Undertaking: The transfer is of an undertaking or division
Form 28: Slump Sale Audit Report
What is Form 28?
Form 28 is the prescribed report of an accountant required to be furnished by every assessee in the case of a slump sale.
When to File
The report must be furnished before the specified date referred to in section 63.
Content of Form 28
The report must include:
- Computation of the net worth of the undertaking or division
- Certification that the net worth has been correctly arrived at as per the provisions of Section 77
Accountant Certification Requirements
Who Can Certify
The report must be from an accountant as defined in Section 515(3)(b) of the Act.
Certification Content
The accountant must certify that:
- The net worth has been correctly computed
- The computation is as per the provisions of Section 77
Verification
The report must be duly signed and verified by the accountant.
Computation of Net Worth
Definition
"Net worth" means the aggregate value of total assets of the undertaking or division, as reduced by the value of its liabilities as appearing in the books of account.
Adjustments
For computing net worth:
- Any change in the value of assets due to revaluation shall be ignored
Valuation of Assets
Depreciable Assets: Written down value of the block of assets determined under Section 41(1)(c)
Goodwill: Nil, if not acquired by purchase from a previous owner
Assets with Full Deduction: Nil, for capital assets for which the entire expenditure has been allowed or is allowable as a deduction under Section 46
Other Assets: Book value
Consequences of Non-Compliance
Disallowance
If the report is not furnished, the slump sale may not be recognised for tax purposes.
Penalty
Failure to furnish the report may attract penalty under the Act.
Best Judgment Assessment
In the absence of the report, the Assessing Officer may make a best judgment assessment.
Practical Considerations
Timely Filing
The report must be filed before the specified date referred to in section 63. Ensure timely filing to avoid penalties.
Accurate Computation
Ensure accurate computation of net worth to avoid disputes.
Proper Documentation
Maintain proper documentation supporting the computation.
Expert Legal Guidance
Understanding the slump sale audit report requirements is essential for businesses undertaking slump sales. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping businesses prepare Form 28 audit reports and ensure compliance with all requirements.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on your Direct Tax Code compliance or any other tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex Direct Tax Code framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive legal advisory services on Direct Tax Code compliance, including:
- Specified Business Deductions: Guidance on Sections 46, 138-144
- Books of Account and Audit: Compliance with Sections 62 and 63
- Slump Sale Advisory: Form 28 audit report and certification
- Representation: Before tax authorities and appellate bodies
Contact us for expert legal guidance on your Direct Tax Code compliance needs.