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2020 (7) TMI 153 - AT - Income TaxSlump sale of windmills - Short term capital gains - definition of undertaking is given in 2(42C) and section 2(19) - AO denied the claim of the assessee treating the gains of the windmill as long term capital gains u/s 50B of the Act and treated the same as gains on depreciable assets u/s 50 - whether the windmill constitutes separate undertaking or not? - HELD THAT - Though the assessee has not separately maintained the books of accounts, separate ledger accounts are maintained and claiming deduction u/s 80IA separately for the income generated from the individual units each year. As per the Profit Loss account, we observe that the assessee is computing profits separately, from wind mills and in a position to ascertain the income and expenditure separately for the windmills as well as for the assessee's business. Coordinate Bench of ITAT, Pune in its order in the case of M/s Sargam Retails (P.) Ltd. 2017 (12) TMI 1257 - ITAT PUNE held that windmill is a separate undertaking. Therefore, we hold that wind mills constitute separate undertaking and the Ld. CIT(A) has rightly directed the AO to compute the capital gains as a slump sale u/s 50B (2) and no interference is called for. Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the appeal of the revenue.
Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) on slump sale of windmills. 2. Whether the windmills constitute a separate undertaking under section 2(42C) of the Income-tax Act, 1961. 3. Computation of capital gains under section 50B of the Income-tax Act, 1961. Detailed Analysis: 1. Deletion of Addition Made by the AO on Slump Sale of Windmills: The AO observed that the assessee sold three windmills and declared the transaction as a slump sale, offering the sum as long-term capital gains under section 50B. The AO, however, denied this treatment, arguing that the windmills should be treated as assets of the company and not as a separate undertaking. Consequently, the AO taxed the sale consideration under short-term capital gains. The CIT(A) overturned this decision, directing the AO to treat the sale as a slump sale and compute long-term capital gains accordingly. 2. Whether the Windmills Constitute a Separate Undertaking: The CIT(A) examined the slump sale agreements and observed that the windmills were sold as a going concern, inclusive of all assets such as land and buildings, for a lump sum without separate valuation of each asset. The CIT(A) noted that the assessee had been claiming deductions under section 80IA for the windmill business as a separate business unit, which the AO had not disputed. The CIT(A) concluded that each windmill is a unit of undertaking covered under the definition of slump sale. The Tribunal upheld this view, stating that the windmills satisfy the definition of an "undertaking" under section 2(19AA) and the definition of "slump sale" under section 2(42C). The Tribunal noted that the assessee had been maintaining separate ledger accounts for the windmills and claiming deductions under section 80IA, which supports the classification of the windmills as a separate undertaking. 3. Computation of Capital Gains under Section 50B: The CIT(A) observed that section 50B is a special provision for the computation of capital gains in the case of a slump sale, which does not require consideration of indexed cost of acquisition or improvement. The CIT(A) directed the AO to compute the long-term capital gains as the difference between the lump sum consideration and the net worth of the undertaking. The Tribunal agreed with this approach, noting that the net worth was not in dispute and that the sale consideration was correctly computed. The Tribunal emphasized that the definition of "undertaking" and "slump sale" in the Income-tax Act supports the treatment of the windmills as a separate undertaking, thus justifying the computation of capital gains under section 50B. Conclusion: The Tribunal upheld the CIT(A)'s decision to treat the sale of windmills as a slump sale and compute long-term capital gains under section 50B. The Tribunal dismissed the revenue's appeal and the assessee's cross objections, confirming that the windmills constitute a separate undertaking and that the computation of capital gains was correctly done under the special provisions of section 50B.
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