In a significant and clarifying judgment, the Income Tax Appellate Tribunal (ITAT), Chennai Bench, has ruled that long-term capital loss (LTCL) from the sale of shares can be validly set off against long-term capital gain (LTCG) arising from a slump sale, provided the transactions are genuine and properly documented. The ruling was delivered on 17 July 2025 in the case of ACIT, LTU v. Prudential Sugar Corporation Ltd and is expected to have far-reaching implications for corporate tax planning, especially for companies contemplating restructuring or divestment through slump sales.
The dispute arose when the Assessing Officer denied the set-off of capital losses, alleging the share sale transactions were not genuine. However, the Tribunal, after examining the full audit trail and commercial intent behind the transactions, upheld the assessee’s claim—reaffirming that slump sale gains, though computed under a special provision (Section 50B), are still eligible for capital loss adjustment under the broader capital gains head.
This blog post delves into the facts of the case, the Tribunal’s reasoning, and the key takeaways for taxpayers and professionals navigating complex capital transactions.
📄 Case Summary: ACIT, LTU v. Prudential Sugar Corporation Ltd
Tribunal: ITAT Chennai
Judges: S. S. Viswanethra Ravi (Judicial Member) & S. R. Raghunatha (Accountant Member)
Citation: [2025] 176 taxmann.com 832 (Chennai‑Trib.)
🔍 Facts
- Prudential Sugar Corporation Ltd (listed company) invested in preference shares of two unlisted companies.
- On eventual sale, the company incurred long‑term capital loss.
- Subsequently, it sold one of its undertakings via a slump sale, yielding a long‑term capital gain.
- The assessee set off the LTCL (loss) against the LTCG (gain) arising from the slump sale in its return.
- The Assessing Officer challenged the genuineness of the loss and disallowed the set-off. The CIT(A) deleted the disallowance, and the matter reached the Tribunal.
⚖ Tribunal’s Holding
- The Tribunal found the LTCL was genuine, well‑documented with audited financial records, banking trail, share certificates, valuation reports, etc.
- There was no element of shamming or artificial scheme; the loss arose from legitimate decline in investment prospects.
- Consequently, the Tribunal permitted the long‑term capital loss to be set off against the capital gain arising from the slump sale.
- It ruled this set‑off is valid even though slump sale gains fall under Section 50B, affirming that losses under the head “Capital Gains” can be cross‑set off.
📝 Key Takeaways for Your Blog
- Precedent-setting: ITAT Chennai confirms that an LTCL from share sale may be offset against a capital gain from slump sale.
- Documentation-critical: Strong audit trail, certificates, valuation reports, board approvals and clean banking essential to support genuineness.
- No disallowance even under slump sale regime: Section 50B applies to compute taxable gain, but does not negate loss‑set‑off under Section 74 or 111 (carry-forward provisions).
- Tax‑planning implications: Companies holding accumulated long‑term capital losses should consider whether sale of business via slump sale generates gains where such losses may be utilized.
🧾 Suggested Blog Structure
| Section | Content |
|---|---|
| Case Heading | ACIT, LTU v. Prudential Sugar Corporation Ltd – ITAT Chennai (17 July 2025) |
| Background | Brief on investments, loss recognition and slump sale transaction |
| Legal Issue | Can LTCL be set off against LTCG from slump sale? AO denied, assessee appealed |
| Tribunal’s Analysis | Documentation & genuine business decision; no sham; section applicability |
| Ratio / Outcome | Set-off allowed, marking significant clarification under ITA |
| Broader Implications | For tax‑planning, especially for businesses with carry forward losses and slump sale transactions |
📚 Additional Context (Related Developments)
- The Mumbai ITAT earlier held that transfer‑related expenses under Section 50B are deductible via Section 48—even in slump sales.
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Section 77 of the new Income‑Tax Bill, 2025 codifies special computation rules for slump sales, but does not limit loss set‑off across gains—a legal space now clarified by this ruling.