Presentation of proprtionate depreciation in ITR 6 in case of Slump Sale

In a slump sale, the assets and liabilities of an undertaking are transferred for a lump sum consideration without individual values assigned to them. Because the transaction is governed by Section 50B of the Income Tax Act, it is treated as a capital gains transaction rather than a routine business operation.

Depreciation Treatment in ITR-6

When you perform a slump sale, the "net worth" of the undertaking is calculated based on the book values (specifically, the Written Down Value for depreciable assets) as of the date of transfer. Regarding the bifurcation of depreciation for the period (e.g., 11 months) in ITR-6, please note the following:

• Section 50B overrides Section 32: Slump sale provisions under Section 50B are "special provisions" that override other sections. Once an undertaking is sold as a slump sale, it is removed from the block of assets.

• No Proportional Depreciation in the Block: In the ITR-6 utility, the "Schedule DEP" (Depreciation) is designed for the remaining block of assets. Because you have transferred the undertaking, those specific assets should ideally be removed from your books/block as of the transfer date.

• The "Proportional" Conflict: The ITR-6 utility typically calculates depreciation based on the opening balance and additions during the year. It does not natively support "proportional depreciation" for a partial-year transfer within the depreciation schedule because, for tax purposes, the profit/loss on the transfer is already captured under Capital Gains (Schedule CG), not as business income.

• How to Handle It:

  • Remove from Block: You should reduce the value of the assets transferred from the "Opening WDV" of your block of assets.

  • Capital Gains: The difference between the slump sale consideration and the net worth (as calculated under Section 50B) is disclosed in Schedule CG.

  • Depreciation Claim: You are generally entitled to claim depreciation on the assets for the period they were used by your company up to the date of transfer. Since the utility may not allow this manually in the automated depreciation schedule, professionals often adjust the WDV in the block of assets to reflect the usage or consult the specific utility's instruction manual for that assessment year regarding "Assets sold/discarded during the year."

Key Reminders

1. Section 50B Compliance: Ensure you have obtained and filed the Form 3CEA (report of an accountant) as required by Section 50B(3), which confirms the computation of net worth.

2. Accounting vs. Tax: Ensure your books of accounts are adjusted for the disposal of the division. The capital gain calculated for tax purposes must match the details provided in your tax audit report.

3. Consultation: Given that ITR utilities change frequently, if the current version does not allow for a manual override of the depreciation amount for the sold block, you may need to report the depreciation as a separate business expense adjustment or ensure that the block's closing WDV is correct after accounting for the reduction.

Summary: In a slump sale, assets are treated as transferred at their book/WDV value for capital gains calculation under Section 50B. The ITR-6 utility generally requires you to reduce the WDV of the block of assets by the value of the assets sold. Because depreciation is inherently linked to the block of assets held, you should ensure the block's opening balance and the "assets sold" column are correctly reflected. If the utility restricts manual input, focus on correctly reporting the Capital Gain in Schedule CG and ensuring your net worth calculation in Form 3CEA is accurate.