JSW Steel faces tax benefit reversal after Supreme Court scraps Bhushan Power takeover

JSW Steel is facing a possible reversal of tax benefits availed as part of the acquisition of Bhushan Power and Steel (BPSL), following its 2020 takeover of the bankrupt company being scrapped by the Supreme Court, said people aware of the matter.

Acquisitions under the Insolvency and Bankruptcy Code (IBC) allow offsetting of past losses of the insolvent company against profits.

Now, the Income Tax Department is planning to reopen Bhushan Power’s assessment, said people close to the matter.

Also Read: CCI nod only after CoC: Govt working on amendments to insolvency law

“Tax benefit is a very big consideration under IBC,” said Girish Vanvari, founder of advisory firm Transaction Square.

Losses of Rs 7,000 cr

“Several promoters have acquired companies for the purpose of availing of it,” said Vanvari.

JSW Steel had informed the Chief Commissioner at the time of the acquisition — undertaken by way of a Rs 19,350-crore resolution plan — that it would be availing of the benefit, said the people cited. BPSL’s losses amounted to around Rs 7,000 crore, they said.

Soon after the takeover, BPSL turned profitable. It offset earlier losses and unabsorbed depreciation over FY22, FY23 and FY24, according to account statements, when it posted profits of Rs 4,258 crore, Rs 160 crore and Rs 674 crore, respectively.

But on May 2, the Supreme Court rejected JSW Steel’s resolution plan and ordered BPSL’s liquidation, citing lack of compliance and other issues.

According to IBC norms, the corporate debtor — in this case, Bhushan Power — can avail of tax benefits if there is a change of shareholding pursuant to a resolution plan, said Vanvari of Transaction Square. “As an extension of that benefit, losses of the corporate debtor can be carried forward and set off against future tax liabilities,” he said.

Bhushan Power became a subsidiary of JSW Steel in FY22. While the tax benefits were claimed by the former, JSW benefitted indirectly as it held 83% in the company.

Notably, BPSL also incurred an expenditure of Rs 3,640 crore to increase steel-making capacity at its Odisha facility after the takeover, its financial statements show.