JSW Steel May Lose BPSL Tax Gains as Supreme Court Scraps Deal

Sajjan Jindal-led JSW Steel may have to reverse the tax benefits availed from its acquisition of Bhushan Power and Steel (BPSL) after the Supreme Court scrapped the bid. Citing sources, The Economic Times (ET) reported that the Income Tax Department is planning to reopen Bhushan Power’s tax assessment.

On May 2, the Supreme Court ordered the liquidation of bankrupt BPSL, cancelling JSW Steel’s acquisition plan, which had received approval over five years ago but was never completed. The court condemned the deal as an "ill-motivated plan" that went against the interests of creditors. It also noted that the delays in the takeover appeared to align conveniently with favourable shifts in the steel market.

Acquisitions under the Insolvency and Bankruptcy Code (IBC) permit the offsetting of an insolvent company's past losses against future profits. According to ET, JSW Steel had informed the Chief Commissioner during its Rs 19,350-crore acquisition of BPSL that it intended to claim this benefit. BPSL had accumulated losses of around Rs 7,000 crore.

After the acquisition, the company returned to profitability, using its past losses and unabsorbed depreciation to offset tax liabilities in FY22, FY23, and FY24, when it posted profits of Rs 4,258 crore, Rs 160 crore, and Rs 674 crore, respectively.

IBC provisions allow the corporate debtor—Bhushan Power in this case—to carry forward losses and set them off against future income, even when there is a change in shareholding under a resolution plan, an expert told the publication. BPSL became a subsidiary of JSW Steel in FY22, with JSW holding an 83% stake. While the tax benefits were technically claimed by BPSL, JSW benefitted indirectly through its majority ownership.

Additionally, BPSL invested Rs 3,640 crore post-acquisition to expand its steel-making capacity at its Odisha plant, according to its financial statements.

Why Was the BPSL Acquisition Scrapped?

The Supreme Court struck down JSW Steel’s acquisition of Bhushan Power and Steel due to serious legal and procedural violations in the IBC process. It flagged missed deadlines, unjustified prioritisation of financial creditors over operational ones, and the inclusion of Bhushan Power’s financials in JSW’s records despite incomplete payments to creditors.

The court criticised the delay in equity infusion and suggested that JSW may have stalled the process to benefit from rising steel prices.

It found no valid extension for the plan’s implementation and said that JSW, the Committee of Creditors (CoC), and the resolution professional had ignored key IBC rules. The acquisition, the court said, was marred by bad faith, misrepresentation, and misuse of legal processes.