2020 (7) TMI 436 - AT - Income Tax

Slump sale of windmills - capital gains as a slump sale u/s 50B (2) - windmill as separate undertaking - assessee is engaged in the business of aqua culture, export of frozen shrimp, sale of hatchery seed and wind power generation - Eligibility to deduction u/s 80IA - HELD THAT - In the instant case, there is no dispute that the assessee has sold the wind mills and claimed it as a separate undertaking. Separate undertaking is one which can be separated from the business unit and both the business units of the assessee should be run separately, independent of each and they should not be dependent on each other. The definition of undertaking is given in 2(42C) and section 2(19) wherein undertaking is defined as any part of an undertaking or unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting the business activity. From the definition of Income Tax Act, the windmills satisfy all the conditions for treating it as a separate undertaking as discussed by the Ld.CIT(A) in para No.6.3 of the order. Since the assessee has sold the windmills along with assets and all the liabilities, it also falls in the definition of slump sale u/s 2(42C) of the Act. 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. As argued assessee, the Hon ble Andhra Pradesh High Curt in the case of CIT Vs. Abhirami Cotton Mills (P) Ltd. 1995 (7) TMI 14 - ANDHRA PRADESH HIGH COURT held that non maintenance of separate books of accounts does not make the assessee disentitled for deduction u/s 80J(4). In the case of Ajanta (P) Ltd. 2016 (12) TMI 1557 - GUJARAT HIGH COURT held that the deduction u/s 80IA cannot be denied solely on the ground that separate Profit Loss account and balance sheet are not produced. As decided in M/S. SARGAM RETAILS PVT. LTD. 2017 (12) TMI 1257 - ITAT PUNE windmill is a separate undertaking. 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.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) on slump sale of windmills.
2. Classification of the windmills as a separate undertaking under the definition of slump sale.
3. Computation of capital gains under Section 50B of the Income Tax Act, 1961.

Detailed Analysis:

1. Deletion of Addition Made by the Assessing Officer (AO) on Slump Sale of Windmills:
The AO found that the assessee had sold three windmills and declared the transaction as a slump sale, offering the sum as long-term capital gains under Section 50B of the Income Tax Act, 1961. The AO, however, denied this claim, treating the gains as short-term capital gains under Section 50 of the Act. The AO’s reasoning was based on the fact that the assessee did not maintain separate books of accounts for each windmill and had not provided a balance sheet or profit and loss account specific to the windmill business activity.

2. Classification of the Windmills as a Separate Undertaking Under the Definition of Slump Sale:
The CIT(A) examined the slump sale agreements and found that the windmills were sold as a going concern, inclusive of all assets such as land and buildings, without separate valuation of each asset. The CIT(A) observed that the assessee had been claiming deductions under Section 80IA from 2009-10 onwards, which the AO had not disputed. The CIT(A) concluded that each windmill constituted a separate undertaking under the definition of slump sale, directing the AO to treat the sale as a slump sale and compute the gains accordingly.

During the appeal, the revenue argued that the windmills should be treated as part of the company's assets rather than separate undertakings, citing the lack of separate books of accounts and the definition of undertaking under the Companies Act. The assessee countered by stating that the Income Tax Act's definition of undertaking includes any part of an undertaking or unit, and that the windmills were separate undertakings despite being included in the block of assets.

3. Computation of Capital Gains Under Section 50B of the Income Tax Act, 1961:
The CIT(A) noted that Section 50B is a special provision for computing capital gains in case of slump sale, which does not require considering the indexed cost of acquisition or improvement. The net worth of the undertaking is considered as the cost of acquisition and 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 upheld the CIT(A)'s decision, agreeing that the windmills constituted a separate undertaking and that the sale should be treated as a slump sale under Section 50B. The Tribunal also referenced various judicial precedents supporting the view that non-maintenance of separate books of accounts does not disqualify the transaction from being treated as a slump sale.

Conclusion:
The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s decision to treat the sale of windmills as a slump sale, computing the capital gains under Section 50B. The assessee's cross objections were also dismissed as they became infructuous with the dismissal of the revenue's appeal. The order was pronounced in the open court on 19th June 2020.