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Tax Publishers Claim of depreciation on windmills acquired through a slump sale without operational and slump sale completion. Issue of shares at a premium to parent company basing business projections in DCF method - sustainability of additions under section 56(2)(viib) *Facts:* Assessee had acquired windmills on a slump sale from Ansal Properties and Infrastructure Ltd. (APIL). On investigation it was found that APIL had claimed depreciation for the same windmills and the operational aspects of the power purchase agreement and assignment aspects of the operational aspects were not yet completed or remained pending for the said assessment year Assessee claimed depreciation on the windmills for acquisition of fixed assets/put to use for less than 180 days, which was disallowed by the AO and upheld by the CIT(A). Assessee had made business projections based on the slump sale acquisition and other business acquisitions and issued shares to its parent company at a premium based on DCF method. This premium was questioned under section 56(2)(viib) that the projections were exceptionally absurd and the acquisitions like the slump sale etc. did not really happen and additions were sustained. On appeal CIT(A) upheld the additions. On higher appeal on both the points to ITAT - Held against the assessee that the windmill acquisition was not complete and the plea of assessee that claim of depreciation by the seller does not prejudice the claim of depreciation by the buyer was not acceptable. Thus they were not eligible for the claim of depreciation. Held in favour of the assessee the DCF method though was erroneous in the projections etc. since the issue was only to its parent Section 56(2)(viib) was not attracted in this case. *Ed. Note:* On Section 56(2)(viib) a purposive reading was given by the ITAT. The reasoning that DCF projections were unrealistic in this case throws open an interesting question which has been held against the revenue in many cases that the AO cannot question the DCF assumptions in hindsight citing that the projected growth volumes of the DCF did not happen later on in reality. *Case:* Rugby Regency (P) Ltd. v. Addl. CIT 2024 TaxPub(DT) 453 (Del-Trib)

Tax Publishers

Claim of depreciation on windmills acquired through a slump sale without operational and slump sale completion.

Issue of shares at a premium to parent company basing business projections in DCF method - sustainability of additions under section 56(2)(viib)

Facts:

Assessee had acquired windmills on a slump sale from Ansal Properties and Infrastructure Ltd. (APIL). On investigation it was found that APIL had claimed depreciation for the same windmills and the operational aspects of the power purchase agreement and assignment aspects of the operational aspects were not yet completed or remained pending for the said assessment year Assessee claimed depreciation on the windmills for acquisition of fixed assets/put to use for less than 180 days, which was disallowed by the AO and upheld by the CIT(A).

Assessee had made business projections based on the slump sale acquisition and other business acquisitions and issued shares to its parent company at a premium based on DCF method. This premium was questioned under section 56(2)(viib) that the projections were exceptionally absurd and the acquisitions like the slump sale etc. did not really happen and additions were sustained. On appeal CIT(A) upheld the additions.

On higher appeal on both the points to ITAT -

Held against the assessee that the windmill acquisition was not complete and the plea of assessee that claim of depreciation by the seller does not prejudice the claim of depreciation by the buyer was not acceptable. Thus they were not eligible for the claim of depreciation.

Held in favour of the assessee the DCF method though was erroneous in the projections etc. since the issue was only to its parent Section 56(2)(viib) was not attracted in this case.

Ed. Note: On Section 56(2)(viib) a purposive reading was given by the ITAT. The reasoning that DCF projections were unrealistic in this case throws open an interesting question which has been held against the revenue in many cases that the AO cannot question the DCF assumptions in hindsight citing that the projected growth volumes of the DCF did not happen later on in reality.

Case: Rugby Regency (P) Ltd. v. Addl. CIT 2024 TaxPub(DT) 453 (Del-Trib)