DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1) VADODARA, VADODARA V. M/S. INOX WIND ENERGY LIMITED, VADODARA

ITA 654/AHD/2025

AI Insights

The case involves the Deputy Commissioner of Income Tax, Vadodara, as the appellant, and Inox Wind Energy Limited as the respondent. The dispute centered on the assessment year 2015-16, where the Assessing Officer made disallowances under section 14A read with Rule 8D for expenses related to earning exempt income, and under section 115JB for book profit adjustments. Additionally, depreciation claims on assets acquired through a slump sale were disallowed. The CIT(A) reversed these disallowances, leading to the Revenue's appeal to the Tribunal. The Tribunal upheld the CIT(A)'s decision, citing lack of exempt income and consistency in allowing depreciation on assets from the year of acquisition.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772653 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: misc
• Other Referred Cases: CIT v. Corrtech Energy (P) Ltd., CIT v. Era Infrastructure (India) Ltd., Bodal Chemicals Ltd. v. DCIT, Mugneeram Bangur & Co. v. R. Tex Manufacturing Co.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: BANDISH SOPARKAR
• Keywords: Depreciation; Fair market value; Valuation report; Earning of tax free income; Rule 8D
• Section: 143(3); 142(1); 14A; 115JB

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद Ɋायपीठ “ C”, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “ C ” BENCH, AHMEDABAD सुŵी सुिचũा काɾले, Ɋाियक सद˟ एवं ŵी मकरंद वसंत महादेवकर, लेखा सद˟ क े समƗ। ] ] BEFORE Ms SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.654/Ahd/2025 िनधाŊरण वषŊ /Assessment Year : 2015-16 The Deputy Commissioner of Income Tax, Circle-1(1)(1), Vadodara. बनाम/ v/s. M/s. Inox Wind Energy Limited, ABS Tower S. No.1837 and 1834, Op Road, Vadodara-390007. (Gujarat) ̾थायी लेखा सं./PAN: AAFC14628K अपीलाथŎ/ (Appellant) Ů̝ यथŎ/ (Respondent) Revenue by : Shri Rignesh Das, CIT-DR Assessee by : Shri Bandish Soparkar, AR सुनवाई की तारीख/Date of Hearing : 21/08/2025 घोषणा की तारीख /Date of Pronouncement: 26/08/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: ] ] This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-11, Ahmedabad [hereinafter referred to as “the CIT(A)”] dated 27.01.2025, arising out of the assessment order passed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], on 18.12.2017 for the Assessment Year 2015-16. Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 2 Facts of the Case 2. The assessee is a company engaged in the business of Generation and sale of wind energy, providing erection and commissioning services of windmills and operation and maintenance of wind farms. For the year under consideration, the assessee filed its return on 30.11.2015, declaring Nil income (loss of Rs. 13,94,95,365). The case was selected for scrutiny under CASS. Notice u/s 143(2) was issued on 08.04.2016. Thereafter notices u/s 142(1) were issued on multiple occasions. 3. During the course of the scrutiny assessment proceedings, the Assessing Officer examined the books of account, the investments made by the assessee in various companies, the expenditure claimed in the profit and loss account, and the claim of depreciation on assets acquired under slump sale. After considering the explanations furnished by the assessee, the Assessing Officer framed the assessment under section 143(3) and made two principal disallowances, namely – - A disallowance of Rs. 5,32,41,825/- under section 14A of the Act applying the formula prescribed under Rule 8D of the Income-tax Rules, 1962. The Assessing Officer also made addition of the said amount under section 115JB of the Act. - A disallowance of Rs. 36,24,015/- on account of depreciation on certain assets acquired in a slump sale transaction. 4. The assessee carried the matter in appeal before the CIT(A). The CIT(A) deleted the disallowance of Rs. 5,32,41,825 made by the Assessing Officer under section 14A read with Rule 8D, holding that Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 3 since the assessee had not earned any exempt income during the year, no disallowance was called for. Consequently, the related adjustment of the same amount while computing book profit under section 115JB was also directed to be deleted. Further, the CIT(A) deleted the disallowance of depreciation of Rs. 36,24,015, observing that in the assessee’s own case for A.Y. 2012–13 the ITAT, Ahmedabad had allowed depreciation on assets acquired under slump sale, and once depreciation is allowed in the initial year of acquisition, it cannot be disturbed in subsequent years in absence of any change in facts. 5. Aggrieved by the order of CIT(A), the Revenue is in appeal before us raising following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 5,32,41,825/- made under section 14A read with Rule 8D under the normal provisions, holding that the disallowance under section 14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the adjustment made on account of disallowance of Rs. 5,32,41,825/- under section 14A in computation of book profit under section 115JB of the Act, holding that the said addition under section 14A has been deleted under the normal provision. Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 4 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of depreciation of Rs. 36,24,015 without appreciating the findings of the AO that the slump purchase price, being the composite price for bundle of rights / assets, cannot be apportioned amongst individual assets for the purpose of depreciation. 4. The appellant craves leave to add, modify, amend, or alter any ground of appeal at the time of, or before, the hearing of the appeal. 6. The learned Departmental Representative (DR) strongly relied upon the assessment order and supported the additions made by the Assessing Officer. On the issue of depreciation of Rs. 36,24,015, the DR submitted that the Assessing Officer had categorically demonstrated from the Business Transfer Agreement and the facts on record that the assessee had purchased the entire wind energy business on slump sale basis for a lump sum consideration of Rs. 1 crore. In a slump sale, the consideration is paid for the undertaking as a whole and not for individual assets, and the “actual cost” of specific depreciable assets cannot be ascertained. In absence of itemized values, the apportionment made by the assessee on the basis of a valuer’s report was not acceptable. 7. The learned Authorised Representative (AR) for the assessee, on the other hand, submitted that the Assessing Officer was not justified in making the disallowance of Rs. 5.32 crores under section 14A read with Rule 8D, both under the normal provisions as well as while computing book profit under section 115JB. It was contended Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 5 that no exempt income was earned during the year under consideration, and therefore, the provisions of section 14A had no application. Reliance was placed on various judicial pronouncements including Keti Construction Ltd. [2024] 166 taxmann.com 607 (Gauhati), Williamson Financial Services Ltd. [2024] 166 taxmann.com 485 (Hyd. Trib.), and Era Infrastructure (India) Ltd. [2022] 448 ITR 674 (Delhi), wherein it has been held that in the absence of exempt income, no disallowance under section 14A is permissible. The AR also relied upon the amendment brought in by the Finance Act, 2022 in section 14A, submitting that the amendment is prospective and cannot be applied to the year under consideration. 8. On the issue of depreciation of Rs. 36.24 lakhs, the AR submitted that the assessee had purchased the wind energy division on slump sale basis on 30.03.2012. In the first year of acquisition, being A.Y. 2012-13, the claim of depreciation had already been allowed by the ITAT, Ahmedabad in assessee’s own case in ITA No. 1731/Ahd/2017. It was urged that once depreciation is allowed in the initial year, the same cannot be disturbed in the subsequent years without there being any change in facts or circumstances. Reliance was placed on the decision of Bodal Chemicals Ltd. [2019] 112 taxmann.com 217 (Ahmedabad - ITAT) and ITA No. 6605/Del/2014 (AY 2004-05) (Delhi ITAT) to support the proposition that depreciation once granted in the first year cannot be denied in later years. Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 6 9. We have carefully considered the rival submissions, perused the orders of the lower authorities, and examined the material placed on record. 10. The Assessing Officer invoked Rule 8D and made disallowance of Rs. 5,32,41,825 on the ground that the assessee had investments capable of yielding exempt income. The contention of the assessee was that no exempt income was earned during the year under consideration, and therefore, no disallowance under section 14A was warranted. The CIT(A) accepted the contention of the assessee and following the judgment of the Hon’ble Jurisdictional High Court and the coordinate benches of the Tribunal, deleted the disallowance both under the normal provisions as well as under section 115JB. It is by now a settled principle of law that in absence of any exempt income, there cannot be any disallowance under section 14A. The Hon’ble Gujarat High Court in CIT v. Corrtech Energy (P) Ltd. [2014] 45 taxmann.com 116 (Guj.) held that when no exempt income is earned by the assessee in a given year, no disallowance under section 14A is called for. Similar view has been taken by the Hon’ble Delhi High Court in CIT v. Era Infrastructure (India) Ltd. [TS-577-HC- 2022(DEL)] and by several benches of the Tribunal including Thermodyne Dynamics (P.) Ltd. [2025] 176 taxmann.com 485 (Hyd- Trib.) and Williamson Financial Services Ltd. [2024] 166 taxmann.com 485 (Hyd-Trib.). The legislative amendment brought in by Finance Act, 2022 to section 14A, providing that disallowance shall be made even if no exempt income is earned, has been held to be prospective and not retrospective. Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 7 11. In light of the settled judicial position, we find no infirmity in the order of the CIT(A) in deleting the disallowance of Rs. 5,32,41,825/- under section 14A. Consequently, the adjustment of the said disallowance to the book profit under section 115JB also does not survive, since the Special Bench of the Tribunal in ACIT v. Vireet Investment (P) Ltd. [2017] 165 ITD 27 (Del)(SB) has categorically held that disallowance computed under section 14A cannot be imported into the computation of book profit under section 115JB. We, therefore, uphold the decision of the CIT(A) on this issue and dismiss the Revenue’s ground. 12. The second issue relates to disallowance of depreciation of Rs. 36,24,015 claimed by the assessee on windmill assets acquired in slump sale. The Assessing Officer disallowed the depreciation on the reasoning that the assessee had purchased an entire business undertaking on slump sale basis for a consolidated consideration of Rs. 1 crore, and no item-wise value was assigned to individual assets in the purchase agreement. Relying on the judgments of the Hon’ble Supreme Court in Mugneeram Bangur & Co. 57 ITR 299 (SC) and R. Tex Manufacturing Co. 227 ITR 260 (SC), he held that the slump purchase price cannot be apportioned amongst individual assets for the purpose of claiming depreciation. 13. The CIT(A), however, noted that in the first year of acquisition, i.e. A.Y. 2012-13, depreciation on the very same assets had been allowed by the coordinate bench in assessee’s own case. It is a settled proposition of law that once depreciation is allowed in the initial year of acquisition, the same cannot be disturbed in the Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 8 subsequent years unless there is a change in facts or circumstances. In support of this principle, reliance can be placed on the decision of the Co-ordinate Bench in Bodal Chemicals Ltd. v. DCIT [2019] 112 taxmann.com 217 (Ahd-Trib.), wherein it was held that depreciation once granted cannot be withdrawn in later years. 14. We also note that in the earlier year’s decision of the Co- ordinate Bench (ITA No. 1731/Ahd/2017, A.Y. 2012-13) where the Bench did not go into the determination of the “actual cost” of the depreciable assets acquired under slump sale. The Bench had confined itself to the controversy whether the transfer had materialised in A.Y. 2012-13 or in A.Y. 2013-14 and, having held that the transfer was effective on 30.03.2012, directed that depreciation be allowed from that year onwards. Since in the present year the Department has specifically raised a ground that slump price being composite cannot be apportioned amongst assets, we considered it necessary to examine this aspect. Accordingly, during the course of hearing, the assessee was directed to place on record (i) a copy of the assessment order for A.Y. 2012-13, and (ii) a copy of Form 3CEA, the accountant’s certificate as required under section 50B of the Act in case of slump sale. The assessee has filed the same. From the certificate in Form 3CEA, it is evident that the net worth of the wind energy undertaking transferred by Gujarat Fluorochemicals Ltd. to the assessee was duly certified. The written down value of the depreciable assets transferred by way of slump sale, determined in accordance with section 43 of the Act on block- of-asset basis, has been certified at Rs. 20,07,15,780. This Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 9 certification provides an authenticated basis of “actual cost” for the purposes of section 32. 15. We have further perused the working placed on record by the assessee [which is also reproduced by the CIT(A) in his order on page 10] to substantiate its claim. As seen therefrom, the business undertaking acquired under slump sale consisted of various current assets, current liabilities, and fixed assets. The total consideration agreed under slump sale was Rs. 1 crore. For accounting purposes, the assessee recorded the current assets and current liabilities at their book values and determined the balancing figure as attributable to fixed assets. On this basis, the cost of fixed assets acquired was worked out at Rs. 19,05,66,470/-. The assessee has then apportioned the said figure of Rs. 19,05,66,470/- to specific fixed assets in proportion to their fair market value as per the valuation report of a government approved valuer. The details of apportionment show, inter alia, that the windmills acquired were valued at Rs. 18,87,50,788/-, which amount was capitalised in the books and depreciation claimed accordingly. The tabular working reproduced in the order of CIT(A) on the page no.10 of the order evidences the basis of this allocation. 16. It is pertinent to note that depreciation was first claimed in A.Y. 2012-13 at Rs. 7,55,00,315/- (being 40% of Rs. 18,87,50,788/-, as the assets were used for less than 182 days). This claim was initially disallowed by the AO but subsequently allowed by the Tribunal in assessee’s own case. In the later years, depreciation of Rs. 9,06,00,378/- in A.Y. 2013-14 and Rs. 1,81,20,076/- in A.Y. Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 10 2014-15 was also disallowed by the Department. For the year under appeal (A.Y. 2015-16), being the fourth year of succession, depreciation was claimed at Rs. 36,24,015/- on the opening WDV of Rs. 45,30,019/-. This working reconciles with the accountant’s certificate in Form 3CEA, which certified the block of depreciable assets transferred under slump sale at Rs. 20,07,15,780, and provides a consistent and verifiable basis for depreciation. In fact, the written down value adopted by the assessee is less than the one certified as per form 3CEA. The allocation to individual assets has been made with reference to fair market values and the claim has been consistently pressed from A.Y. 2012-13 onwards. 17. In view of these facts and applying the principle that depreciation once allowed in the initial year of acquisition cannot be disturbed in subsequent years unless there is change in facts or law, we are of the considered view that the assessee’s claim for depreciation of Rs. 36,24,015/- in the year under appeal is valid. The order of the CIT(A) deleting the disallowance is therefore confirmed. 18. In the result, the appeal filed by the Revenue stands dismissed. Order pronounced in the Open Court on 26th August, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V.MAHADEOKAR) ACCOUNTANT MEMBER (True Copy) Ahmedabad, Dated 26/08/2025 Manish, Sr. PS Printed from counselvise.com ITA No.654/Ahd/2025 DCIT Vs. Inox Wind Energy Limited Assessment Year 2015-16 11 आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ ) अपील ( / The CIT(Exemption)-Ahmedabad 5. िवभागीय Ůितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाडŊ फाईल /Guard file. आदेशानुसार/ BY ORDER, सȑािपत Ůित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad Printed from counselvise.com "