2025 (4) TMI 608 - AT - Income Tax

Deduction u/s 80IA(4)(iv) - assessee has generated power through its wind power generation unit situated at Maharashtra (undertaking) and power generated from the undertaking was distributed to Maharashtra State Electricity Distribution Company - HELD THAT -CIT(A) acknowledged that the transferee could be eligible for deduction provided the transfer had occurred by way of a slump sale. Notably the department has not filed an appeal before the ITAT challenging this specific finding of the CIT(A). Whether the transfer between JAL and Vision Finstock LLP qualifies as a slump sale ? - On merits it is submitted that the question of whether a transferee can claim deduction is now a settled legal position. Judicial precedents have recognized that the transaction between JAL and Vision Finstock LLP constitutes a slump sale. The transferee has offered the amount to tax in its computation and Form 3CEA was duly filed on the income tax portal as reflected in APB-40. JAL s certificate confirming the slump sale transaction and the offering of the transaction amount to tax is included as APB-42. DR referred to a coordinate bench decision of Armstrong Knitting Mills Private Limited 2013 (12) TMI 192 - ITAT CHENNAI . However that case is factually distinguishable. There the assessee had sold used windmills to a sister concern and leased them back and it was held that the windmills were not newly established disqualifying the deduction. In the present case the facts are different. The Ld. CIT(A) accepted that deduction u/s 80IA is permissible if the transfer is by way of a slump sale and the factual matrix supports the assessee s claim. Accordingly we find no merit in the order of the Ld. CIT(A) and hold that the assessee is eligible for deduction under Section 80IA(4) Disallowance of depreciation claim - We find that this depreciation was correctly computed based on the written down value and was duly claimed in the tax computation. The asset was received by the assessee as a gift from Vision Finstock LLP. As per Section 43(1) of the Act read with Explanation 2 in the case of an asset acquired by way of gift the actual cost to the assessee shall be the cost to the previous owner reduced by the depreciation actually allowed. Therefore the assessee has rightly computed depreciation on the actual cost as per the depreciation schedule of Vision Finstock LLP for A.Y. 2017 18. Hence the disallowance of depreciation is unwarranted.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the assessee is entitled to a deduction under Section 80IA(4)(iv) of the Income-tax Act, 1961, for the amount of Rs. 6,15,01,555/- for A.Y. 2018-19 and Rs. 9,76,30,261/- for A.Y. 2020-21.
The eligibility of the assessee to claim depreciation of Rs. 68,40,972/- on the windmill assets.
The validity of the transfer of the undertaking from Jaiprakash Associates Limited (JAL) to Vision Finstock LLP as a slump sale and its implications for the claimed deductions.
The interpretation of the legal framework regarding the transfer of tax benefits associated with undertakings.

ISSUE-WISE DETAILED ANALYSIS

1. Eligibility for Deduction under Section 80IA(4)(iv)

Legal Framework and Precedents: Section 80IA(4)(iv) of the Income-tax Act provides deductions for profits and gains from industrial undertakings engaged in infrastructure development, including power generation. The eligibility for such deductions depends on the formation of the undertaking and whether it is a new establishment or a reconstruction of an existing business.
Court's Interpretation and Reasoning: The Tribunal considered whether the undertaking was newly established or was a reconstruction of an existing business. The Tribunal emphasized that the deduction is available to the undertaking itself, not the specific assessee, provided the transfer is on a slump sale basis.
Key Evidence and Findings: The Tribunal examined the transfer documents, including the Annual Report of JAL, Form 3CEA, and a certificate from JAL confirming the slump sale. These documents were used to establish that the transfer was indeed a slump sale.
Application of Law to Facts: The Tribunal found that the transfer of the undertaking from JAL to Vision Finstock LLP was a slump sale, thus making the assessee eligible for the deduction under Section 80IA(4)(iv).
Treatment of Competing Arguments: The Tribunal rejected the revenue's argument that the deduction should not be transferred to the assessee, emphasizing that the deduction is linked to the undertaking, not the entity holding it.
Conclusions: The Tribunal concluded that the assessee is entitled to the deduction under Section 80IA(4)(iv) for the claimed amount.

2. Eligibility for Depreciation Claim

Legal Framework and Precedents: Section 32 of the Income-tax Act governs the depreciation of assets, with specific provisions for assets acquired by way of gift, as outlined in Section 43(1) and its explanations.
Court's Interpretation and Reasoning: The Tribunal focused on the proper calculation of depreciation based on the written down value of the asset as per the previous owner's records.
Key Evidence and Findings: The Tribunal reviewed the depreciation schedule of Vision Finstock LLP and found that the assessee had correctly calculated depreciation based on the written down value.
Application of Law to Facts: The Tribunal applied the provisions of Section 32 and determined that the depreciation was correctly claimed by the assessee.
Treatment of Competing Arguments: The Tribunal dismissed the revenue's contention that the depreciation was incorrectly computed, affirming that the assessee's method was in line with statutory requirements.
Conclusions: The Tribunal allowed the depreciation claim of Rs. 68,40,972/- as correctly calculated by the assessee.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The deduction is available qua the undertaking, not qua the assessee, relying on the CBDT Circular and various judicial precedents."
Core Principles Established: The Tribunal reinforced the principle that tax deductions under Section 80IA are associated with the undertaking itself and can be transferred if the undertaking is sold as a going concern through a slump sale.
Final Determinations on Each Issue: The Tribunal determined that the assessee is eligible for the deduction under Section 80IA(4)(iv) and correctly claimed depreciation, leading to the allowance of the appeal.

The Tribunal's decision in this case underscores the importance of understanding the nature of transactions involving industrial undertakings and the associated tax implications, particularly concerning deductions and depreciation claims. The judgment clarifies the conditions under which such benefits can be transferred and claimed by a new owner of an undertaking.

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