Shri Bajrang Power and Ispat Ltd, RAIPUR (CG) V. A.C.I.T. 1(2), RAIPUR (CG)

CO 135/BIL/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1549 (ITAT-RAIPUR)
• Duration Of Justice: 1 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 06-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Principle of natural justice; Earning of tax free income; Wholly owned subsidiary; Capital receipt
• Section: 143(3); 14A

Judgement Text

1 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 IN TH E INCOME TAX APPELLATE TRIBUNAL: RAI PUR BENCH: RAI PUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO .44 /BLPR/2011 & 57/BLPR/2012 ASSESSMENT YEARS: 2008 - 09 AND 2009 - 10 THE ASST. COMMISSIONER OF INCO ME TAX - 1(2), CENTRAL REVENUE BUILDING, RAIPUR (C.G.) VS BAJRANG POWER & ISPAT LTD., 522 - C, URLA INDUSTRIAL AREA, RAIPUR , PAN: AACCB2944D (APPELLANT) (RESPONDENT) C. O. NO.12/BLPR/2011 & 135/BLPR/2015 (IN I.T.A.NO.44 /BLPR/2011 & 57/BLPR/2012 - FOR AY : 2008 - 09 & 2009 - 10) BAJRANG POWER & ISPAT LTD., 522 - C, URLA INDUSTRIAL AREA, RAIPUR, PAN:AACCB2944D VS THE ASST. COMMISSIONER OF INCOME TAX - 1(2), CENTRAL REVENUE BUILDING, RAIPUR (C.G.) ( CROSS OBJECTOR ) (RESPONDENT) REVENUE BY SHRI RAJIV VARSHNA Y (CIT) ASSESSEE BY SHRI P. C. M ALOO DATE OF HEARING: 1 3 - 10 - 2015 DATE OF PRONOUNCEMENT: 30 - 11 - 2015 O R D E R PER MUKUL K. SHRAWAT, J.M. BOTH THE APPEALS FOR ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 RESPECTIVELY, HAVE BEEN FILED BY THE REVENUE AN D THE ASSESSEE IS IN CROSS OBJECTION. THE LEAD YEAR IS ASSESSMENT YEAR 2008 - 09 WHICH SHALL BE DISCUSSED FOR DECIDING THE ISSUE 2 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 INVOLVED IN BOTH THE ASSESSMENT YEARS. THE REVENUE HAS RAISED INITIALLY A GROUND OF APPEAL AS PER APPEAL MEMO FOR ASSESSMENT YEA R 2008 - 09 AS UNDER: - 1. WHETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE AND ADDITION OF RS.1,66,68,207/ - MADE BY THE AO OUT OF THE CLAIM OF ASSESSEE U/S 80IA OF THE IT ACT. 2 . LATER ON, ADD ITIONAL GROUND HAS ALSO BEEN RAISED BY THE REVENUE AS UNDER: - WHETHER IN THE LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80IA OF THE IT ACT, 1961 AMOUNTING TO RS.7,82,87,701/ - HOLDING THE SALE OF CARBON CREDIT IS INCOME DERIVED FROM BUSINESS OF GENERATION OF POWER. 3. IT IS WORTH TO CLUB THE ADDITIONAL GROUND RAISED BY THE CROSS OBJECTOR AS UNDER: - ADDITIONAL GROUND OF CROSS - OBJECTION 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, GAIN ON ACCOUNT OF CARBON CREDIT IS A CAPITAL RECEIPT IN VIEW OF JUDGMENT OF HONBLE ANDHRA PRADESH HIGH COURT IN CASE OF CIT VS MY HOME POWER LTD. (2014) 365 ITR 82 (AP) AND THEREFORE NOT LIABLE TO TAX. THE LD. A. O. HAS ERRED IN HOLDING IT AND THEREBY TAXING IT AS REVENUE RECEIPT. 4 . ON THE ISSUE OF ADMISSION OF ADDITIONAL GROUND, WE HAVE HEARD BOTH THE SIDES. FROM THE SIDE OF THE REVENUE MR. RAJIV VARSHNAY (CIT) APPEARED AND PLEADED THAT THE FACTS RELATED TO THE ADDITIONAL GROUND WERE ALREADY ON RECORD AS W ELL AS DISCUSSED BY THE REVENUE AUTHORITIES. HE HAS, THEREFORE, ARGUED THAT ON THE BASIS OF THOSE VERY FACTS THIS ADDITIONAL GROUND HAS NOW BEEN RAISED WHICH IS LEGAL IN NATURE. ON THE QUESTION OF ADMISSION OF ADDITIONAL GROUND, THE LEARNED DR REFERRED TO RULE 11 OF THE APPELLATE TRIBUNAL RULES, 1963. THE LEARNED DR HAS ALSO REFERRED TO THE DECISION OF MARUTI UDYOG LTD., 244 ITR 303 AND THE DECISION OF PRUTHVI BROKERS & SHAREHOLDERS, 349 ITR 336 (BOM). FROM THE SIDE 3 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 OF THE CROSS OBJECTOR, NO SER IOUS OBJEC TION HAS BEEN RAISED, RATHER PLEADED ON THE SAME LINES IN SUPPORT OF THE ADDITIONAL GROUND FILED AS A CROSS - OBJECTION. 5. HAVING CONSIDERED THE ARGUMENTS AND THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ADDITIONAL GROUND RAISED BY THE REVENUE DEPART MENT GOES TO THE ROOT OF THE MATTER AND A LEGAL POINT HAS BEEN RAISED WHICH DO NOT INVOLVE FURTHER INVESTIGATION IN RESPECT OF THE FACTS OF THE CASE. THEREFORE, THE SAME IS HEREBY ADMITTED FOR REQUISITE ADJUDICATION. 6. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S 143(3) OF THE IT ACT DATED 05 - 05 - 2010 WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING SPONGE IRON AND GENERATION OF POWER. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80 IA (4) (IV) OF THE IT ACT. I T HAS ALSO BEEN NOTED BY THE AO THAT BETTER GROSS PROFIT FROM 19.67% OF THE PAST YEAR TO 26.86% IN THE YEAR UNDER CONSIDERATION AS WELL AS NET PROFIT FROM 11.93% TO 18.19% WAS DISCLOSED AS PER THE ACCOUNTS OF THE ASSESSEE. THERE ARE TWO DIVISIONS NAMELY (I ) STEEL DIVISION AND (II) POWER DIVISION RESPECTIVELY ENGAGED IN MANUFACTURE OF SPONGE IRON AND FERRO A LLOYS ETC. AND THE POWER DIVISION IS IN THE BUSINESS OF GENERATION OF ELECTRICITY. THE YEAR UNDER CONSIDERATION WAS THE FIRST YEAR OF CLAIM OF DEDUCTION IN RESPECT OF GENERATION AND DISTRIBUTION OF POWER. ON THE ISSUE OF CLAIM OF DEDUCTION U/S 80 IA (4) (IV) OF THE ACT A QUERY WAS RAISED THAT WHETHER GENERATION AND DISTRIBUTION OF POWER IS AN ELIGIBLE BUSINESS ACTIVITY FOR CLAIM OF SAID DEDUCTION. THE ASSE SSEE WAS ASKED TO PROVIDE THE BIFURCATION OF SALE OF POWER DIVISION. AS PER THE DETAILS SUBMITTED, IT WAS FOUND THAT THERE WAS A SALE OF CARBON CREDIT OF RS.7,82,87,701/ - . THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80 IA OF THE IT ACT ON THE ENTIRE PROFIT OF THE POWER DIVISION. HENCE, THE ISSUE OF INCLUSION OF PROFIT ON SALE OF CARBON CREDIT WAS EXAMINED BY THE AO TO ASCERTAIN WHETHER SALE OF CARBON CREDIT IS AN ELIGIBLE BUSINESS FOR 4 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 SUCH DEDUCTION. PRIMA - FACIE, THE OBSERVATION OF THE AO WAS THAT THE PR OFIT EARNED ON SALE OF CARBON CREDIT WAS NOT DERIVED FROM GENERATION AND DISTRIBUTION OF POWER, THEREFORE, NOT ELIGIBLE FOR DEDUCTION. THE SALE OF CARBON CREDIT HAD NO DIRECT NEXUS WITH GENERATION OF POWER. ACCORDING TO THE AO, AT BEST, IT CAN BE INCIDENTA L TO GENERATION/DISTRIBUTION OF POWER. ON THE QUESTION OF ELIGIBILITY OF PROFIT FROM SALE OF CARBON CREDIT, REPLY OF THE ASSESSEE WAS AS UNDER: - POWER GENERATION PROCESS: 2.1 THE ASSESSEE COMPANY HAS A POWER DIVISION WHEREIN POWER IS GENERATED FROM FLUE GAS PRODUCED DURING THE MANUFACTURING OF SPONGE IRON. THE GENERATION OF ELECTRICAL POWER TAKE PLACE THROUGH THE INSTALLATION OF WASTE HEAT RECOVERY BOILER (WHRB) AND TURBINE GENERATORS. IN SPONGE IRON DIVISION, COAL AND IRON ARE PROCESSED THROUGH A ROTARY KILN AT TEMPERATURE ABOVE 1000 DEGREE C TO REDUCE THE IRON - ORE TO PRODUCE SPONGE IRON. THE REDUCTION PROCESS YIELDS CARBON DIOXIDE AND CARBON MONOXIDE. THESE GASES LEAVE THE KILN AT HIGH TEMPERATURE ABOUT 950 DEGREE C AND BEING UTILIZED TO GENERATE POWER. AFTER LEAVING KILN, THE HOT GASES ARE PASSED THROUGH AND AFTER BURNING CHAMBER WHERE FURTHER OXIDATION OF GASES OCCURS I.E. CARBON MONOXIDE TO CARBON DIOXIDE. THE GASES ARE THEN FED TO WASTE HEAT RECOVERY BOILER (WHRB) AND THE RESULTANT STEAM BEING UTILIZ ED TO GENERATE ELECTRICAL POWER. THIS TECHNOLOGY CONTRIBUTES TO SUSTAINABLE DEVELOPMENT BECAUSE OF MAINLY SUBSTITUTION OF FOSSIL FUEL BASED POWER WHICH CURRENTLY DOMINATES. THEREFORE THE INFRASTRUCTURE ON SUCH WASTE HEAT RECOVERY GENERAL SCHEME IS POSITIVE STEP TOWARDS REDUCING DEPENDENCE ON FOSSIL FUELS. 2.1.1 THE TECHNOLOGY FOR GENERATION OF POWER FROM WHRB IS SO DESIGNED THAT IN THE PROCESS OF GENERATION OF POWER, THE GREENHOUSE GASES EMISSION IS CONTROLLED FOR WHICH SOME VALUE IS ASSIGNED AND PAID TO THE UNDERTAKING THE VALUE IS CALLED CARBON CREDIT WHICH IS SUBJECT MATTER OF PRESENT ISSUE UNDER CONSIDERATION. ..... THUS THE FINANCIAL VALUE ASSIGNED TO REDUCTION OF GREENHOUSE GASES EMISSION IS THE RESULT OF TECHNOLOGY EMPLOYED FOR GENERATION OF POWER A ND THEREFORE IT HAS DIRECT NEXUS WITH THE GENERATION OF POWER. THE FINANCIAL VALUE ASSIGNED TO SUCH REDUCTION IN GREENHOUSE GASES IS ALSO MEASURED IN TERMS OF UNIT OF POWER GENERATED. FOR BETTER UNDERSTANDING THE MEANING OF CARBON CREDIT AND ITS BACKGROUND IS NARRATED IN BRIEF AS UNDER: 5 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 MEANING OF CARBON CREDIT: 2.2 A CARBON CREDIT IS A GENERIC TERM MEANING THAT A VALUE HAS BEEN ASSIGNED TO A REDUCTION OR OFFSET OF GREENHOUSE GAS EMISSIONS. CARBON CREDITS AND MARKETS ARE KEY COMPONENTS OF NATIONAL AND IN TERNATIONAL ATTEMPTS TO MITIGATE THE GROWTH IN CONCENTRATIONS OF GENERATING GASES (GHGS). ONE CARBON CREDIT IS EQUAL TO ONE TON OF CARBON DIOXIDE OR IN SOME MARKETS, CARBON DIOXIDE EQUIVALENT GASES .... THE CONCEPT OF CARBON CREDITS CAME INTO EXISTENCE AS A RESULT OF INCREASING AWARENESS OF THE NEED FOR CONTROLLING EMISSIONS. .... THE MECHANISM OF CARBON CREDIT WAS FORMALIZED IN THE KYOTO PROTOCOL, AN INTERNATIONAL AGREEMENT BETWEEN MORE THAN 170 COUNTRIES, AND THE MARKET MECHANISMS WERE AGREED. .... OPERAT ORS THAT HAVE NOT USED UP THEIR QUOTAS CAN SELL THEIR UNUSED ALLOWANCES AS CARBON CREDITS, WHILE BUSINESSES THAT ARE ABOUT TO EXCEED THEIR QUOTAS CAN BUY THE EXTRA ALLOWANCE AS CREDITS, PRIVATELY OR ON THE OPEN MARKET. THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS: - (I) ACIT VS MAX C ARE LABORATORIES LTD. , 92 ITD 11 (CUTTACK) (II) JOY CO INDIA ( P ) LTD. VS ITO, 122 TTJ 940 (DEL.) (III) CIT VS BHANSALI ENGINEERING POLYMERS LTD., 306 ITR 194 (BOM.) THE AO WAS NOT CONVINCED AND HELD THAT THE EXPRESSION DERIVE D FROM HAS A NARROW MEANING AND DIFFERENT FROM THE TERM ATTRIBUTABLE TO AS LAID DOWN IN THE CASE OF CAMBAY ELECTRIC SUP PLY CO. 113 ITR 84 (SC) AND STE RLING FOODS, 237 ITR 579 (SC). FEW OTHER DECISIONS HAVE ALSO BEEN CITED, HOWEVER, KEEPING BREVITY IN MI ND; NEED NOT TO BE DISCUSSED AT LENGTH. FINALLY, THE AO HAS HELD THAT THE SALE OF CARBON CREDIT HAD NO DIRECT NEXUS WITH POWER GENERATION. GENERATION OF CARBON CREDIT WAS STATED TO BE AS PER KYOTO PROTOCOL. THERE WAS A CONFERENCE UNDER UNITED NATIONS FRAME WORK CONVENTION ON CLIMATE CHANGE (UNFCCC). THEREIN KYOTO PROTOCOL WAS ADOPTED. THE PROTOCOL REQUIRES THE DEVELOPED COUNTRIES TO LIMIT THEIR GREENHOUSE GAS EMISSION WHICH COULD RESULT INTO AN AVERAGE REDUCTION OF 5.2% IN GREENHOUSE GAS EMISSION. IT WAS ADV ISED TO ADOPT A 6 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 MECHANISM TERMS AS CLEAN DEVELOPMENT MECHANISM WHICH HAS ALSO PROVIDED A COOPERATION BETWEEN THE DEVELOPED COUNTRIES AND DEVELOPING COUNTRIES. THE ADMINISTERING BODY I.E. CLEAN DEVELOPMENT MECHANISM, EXECUTIVE BOARD, CERTIFY THE REDUCTION I N EMISSION OF GREENHOUSE GASES. THE C ERTIFIED EMISSIO N REDUCTION (CER) COULD BE TRAD ED IN A SPECIALIZED MARKET WHERE THE BUYERS ARE FROM DEVELOPED COUNTRIES. THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF SALE OF POWER GENERATION, AS WELL AS SALE OF CARBON CREDIT. THE AO HAS HELD THAT SALE OF CER WAS NOT THE PROFIT AND GAIN DERIVED FROM: GENERATION OF POWER. THE ASSESSEE HAD SOLD CER OF RS.7,82,87,701/ - WHICH WAS SHOWN IN THE PROFIT OF POWER DIVISION. HOWEVER, THAT WAS REDUCED BY THE AO FROM THE PRO FIT AND THE BALANCE WAS CONSIDERED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION. BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 7. AFTER DETAILED DISCUSSION AND CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF SEVERAL CASE L AWS, THE LEARNED CIT (A) HAS HELD THAT THE PROFIT WAS EARNED ON SALE OF CARBON CREDIT ONLY WHEN POWER WAS GENERATED AND NO T OTHERWISE. HE HAS HELD THAT PROFIT EARNED ON SALE OF CARBON CREDIT WAS THE GAIN DERIVED FROM THE B USINESS OF GENERATION OF POWER, CO NSEQUENTLY, ELIGIBLE FOR CLAIMING DEDUCTION U/S 80IA (4) OF THE IT ACT. BEING AGGRIEVED, NOW, THE REVENUE IS IN APPEAL BEFORE US. 8. FROM THE SIDE OF THE REVENUE , THE LEARNED DR, RAJIV VARSHNAY AT THE THRESHOLD PLACED ON RECORD CERTAIN ARTICLES PERTAINING TO THE CONCEPT OF INCOME GENERATION ON SALE OF CARBON CREDIT AND ITS TAX IMPLICATION. THE GIST OF THE ARTICLES IS REPRODUCED BELOW: CARBON CREDIT AND ITS TAXABILITY THE KYOTO PROTOCOL - 7 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 THE KYOTO PROTOCOL IS AN INTERNATIONAL AND LEGALLY BINDING AGREEMEN T TO REDUCE GREENHOUSE GAS EMISSIONS WORLDWIDE AND IS AN ADDITION TO THE UNFCCC TREATY. THE KYOTO PROTOCOL WAS ACCEPTED IN KYOTO, JAPAN, ON 11 DECEMBER 1997 AND ENTERED INTO FORCE ON 16 FEBRUARY 2005. 185 PARTIES OF THE UNFCCC HAVE RATIFIED THE PROTOCOL. T HE MAJOR FEATURE OF THE KYOTO PROTOCOL IS THAT IT ASSIGNS MANDATORY TARGETS FOR 37 INDUSTRIALIZED NATIONS AND THE EUROPEAN COMMUNITY TO REDUCE THEIR EMISSION OF THE SPECIFIED 6 GREENHOUSE GASES (GHGS). T HIS AMOUNT S TO AN AVERAGE OF FIVE PER CENT AGAINST 19 90 LEVELS OVER THE FIVE - YEAR PERIOD 2008 - 2012. ..... THE CENTRAL FEATURE OF THE KYOTO PROTOCOL IS ITS REQUIREMENT THAT COUNTRIES LIMIT OR REDUCE THEIR GREENHOUSE GAS EMISSIONS. A COUNTRY HAS TWO WAYS TO REDUCE EMISSIONS. ONE, IT CAN REDUCE THE GHG (GREE NHOUSE GASES) BY ADOPTING NEW TECHNOLOGY OR IMPROVING UPON THE EXISTING TECHNOLOGY TO ATTAIN THE NEW NORMS FOR EMISSION OF GASES. OR IT CAN TIE UP WITH DEVELOPING NATIONS AND HELP THEM SET UP NEW TECHNOLOGY THAT IS ECO - FRIENDLY, THEREBY HELP ING DEVELOPING COUNTRY OR ITS COMPANIES EARN CREDITS. A DETAILED NOTE HAS ALSO BEEN SUBMITTED BY THE LEARNED DR TO EMPHASIZE THAT THE EARNING ON SALE OF CARBON CREDIT WAS NOT CONNECTED OR AT ALL DERIVED FROM GENERATION OF POWER. THE SCHEME, AS SUCH, IS AN INDEPENDENT SCHEME HAVING NO NEXUS WITH THE MANUFACTURING OF ANY ARTICLES. WHETHER AN ARTICLE MANUFACTURER IS ELIGIBLE FOR CLAIMING DEDUCTION HAS NO CONNECTION WITH EARNING FROM SALE OF CARBON CREDIT. IN SUPPORT OF HIS SUBMISSIONS, THE LEARNED DR HAS PLACED RELIANCE I N THE DECISION OF APOLLO TYRES VS CIT, 47 TAXMAN.COM 416 (COACH TRIB.) WHEREIN A VIEW HAS BEEN EXPRESSED THAT EVEN THOUGH INCOME ON SALE OF 8 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 CERTIFIED EMISSION REDUCTION / CARBON CREDIT WOULD FORM PART OF PROFITS OR GAINS OR BUSINESS, YET, IT CANNOT BE TREATED AS PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING, THEREFORE, NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IA OF THE ACT. THE LEARNED DR HAS SPECIFIED THAT THE RESPECTED BENCH HAS DULY CONSIDERED SEVERAL DECISIONS AS WELL AS THE DECISION OF MY H OME POWER LTD. VS DCIT, 27 TAXMAN.COM 27. THE LEARNED DR HAS SUGGESTED THAT IN A SITUATION WHEN THERE ARE TWO VIEWS EXPRESSED BY THE TRIBUNAL, HENCE, THE MATTER CAN BE REFERRE D TO A LARGER BENCH. IN OTHER WORDS, HIS MAIN POINT OF ARGUMENTS WAS THAT THE PROFIT EARNE D ON SALE OF CARBON CREDIT WAS NOT DERIVED FROM ELIGIBLE INDUSTRIAL ACTIVITY, HENCE, RIGHTLY DISALLOWED BY THE AO. CASE LAWS CITED ARE STERLING FOODS, 237 ITR 579 ETC. 9 . ON THE OTHER HAND, FROM THE SIDE OF THE RESPONDEN T ASSESSEE, THE LEARNED AR, MR. P. C. MALOO APPEARED AND AT THE OUTSET, VEHEMENTLY OBJECTED THE SUGGESTION OF THE LEARNED DR TO REFER THE ISSUE TO A LARGER BENCH OF THE TRIBUNAL ON THE GROUND THAT IN A SITUATION WHEN THE HONBLE HIGH COURT HAS GIVEN VERDICTS ON THE LEGALITY OF CLAIM OF DEDU CTION ON SALE OF CARBON CREDIT, THEN, NO PURPOSE SHALL BE SERVED FOR THE CONSTITUTION OF LARGER BENCH. A DECISION OF A HIGH COURT SHOULD ALWAYS PREVAIL OVER ANY DECISION OF THE RESPECTED TRIBUNAL EITHER DECIDED BY DIVISION BENCH OR EVEN BY LARGER BENCH. AT THE THRESHOLD HE PLACE RELIANCE ON THE DECISION OF MY HOPE POWER LTD. 21 ITR 186 (HYD.)/ 151 TTJ 616 (SUPRA). THE ISSUE OF TAXABILITY OF SALE PROCEEDS OF CARBON CREDIT WAS DISCUSSED IN THIS DECISION. THE RESPECTED BENCH HAS HELD THAT CARBON CREDIT IS ACCR EDITATION OF CAPITAL, HENCE, INCOME EARNED ON SALE OF CARBON CREDIT IS CAPITAL RECEIPT IN VIEW OF THE DECISION OF MAHESWARIDEVI JUTE MILLS, 57 ITR 36. THEREAFTER, HE HAS EMPHASIZED THAT THE SAID DECISION OF THE TRIBUNAL WAS CONTESTED BEFORE THE HONBLE AND HRA PRADESH HIGH COURT CITED AS CIT VS MY 9 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 HOME POWER LTD., 365 ITR 82 (A.P.), ORDER DATED 19 - 02 - 2014. THE HONBLE HIGH COURT HAS HELD THAT THE ITAT HAD CORRECTLY HELD IT AS CAPITAL RECEIPT AND CANNOT BE TREATED AS BUSINESS RECEIPT OF THE ASSESSEE. HE HAS, THEREFORE, EMPHASIZED THAT THE ISSUE IS NOW STOOD SQUARELY COVERED BY THE DECISION OF HONBLE HIGH COURT. HENCE, THE ADDITIONAL GROUND RAISED BY THE REVENUE DEPARTMENT DESERVES TO BE DISMISSED. HE HAS REFERRED TO A LATEST DECISION OF ITAT F BENCH, MUMBAI PRONOUNCED IN THE CASE OF M/S. ULTRATECH CEMENT LTD., AY 2007 - 08 WHEREIN CROSS APPEALS HAVE BEEN FILED BEARING ITA NO.7502 AND 8143/MUM/2010 AND OTHERS ORDER DATED 20 - 02 - 2014 WHEREIN THE BELATED GROUND OF APPEAL WAS ADMITTED AND THEREAFTER, AFTER REFERRIN G THE FOLLOWING DECISIONS IT WAS HELD THAT PROCEEDS REALIZED FROM SALE OF CERS GENERATED OUT OF PROJECTS REGISTERED WITH UNFCCC IS CAPITAL RECEIPT. THE LEARNED AR HAS ALSO PLACED ON RECORD A DECISION OF ITAT A BENCH, CHENNAI PRONOUNCED IN THE CASE OF M /S. VEDHA SPINNING MILLS VS DCIT, ASSESSMENT YEAR 2009 - 10 BEARING ITAT NO.630/MDS/2013, ORDER DATED 18 - 08 - 2014 WHEREIN THE ISSUE OF CARBON CREDIT WAS DECIDED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF M/S. MY HOPE POWER LTD. (SUPRA), ALTHOUGH, THE DECISION OF APOLLO TIRES LTD. (SUPRA) WAS AS WELL ALSO CITED FROM THE SIDE OF THE REVENUE. THE LEARNED AR HAS PLEADED THAT IN THE LIGHT OF THE DECISION OF CIT VS SMT. GODAVARIDEVI SARAFF, 113 ITR 589, WHEREIN IT WAS HELD THAT THE LAW DECLARED BY A HIGH CO URT IN A STATE IS BINDING ON TRIBUNAL IN ANOTHER STATE. HENCE, THE DECISION OF THE HONBLE A. P. HIGH COURT PRONOUNCED IN THE CASE OF MY HOPE POWER LTD. (SUPRA) HAS TO BE FOLLOWED BY THIS RESPECTED TRIBUNAL AS IT HAS ALREADY BEEN FOLLOWED BY SEVERAL OTHER TRIBUNALS, DECISIONS CITED (SUPRA). THE LEARNED AR HAS ALSO MADE A STATEMENT AT THE BAR THAT SO FAR THERE IS NO OTHER CONTRARY VIEW EXPRESSED BY ANY OTHER HIGH COURT AND THAT THERE IS ONLY ONE 10 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 DECISION OF A HIGH COURT AND THE SAME REQUIRES TO BE FOLLOWED A S HELD IN THE CASE OF SIFT COMMUNICATION LTD. VS DCIT , ITAT B BENCH, CHENNAI [ITA NO.851/MDS/2013 AY 2008 - 09], ORDER DATED 04 - 10 - 2013. 10 . HAVING HEARD SUBMISSIONS OF BOTH THE SIDES AT LENGTH, WE ARE OF THE CONSIDERED VIEW THAT THE MERITS OF THIS ISSUE, WHETHER PROFIT EARNED ON SALE OF CARBON CREDIT IS CAPITAL RECEIPT OR NOT, HAS ALREADY BEEN JUDICIOUSLY CONSIDERED BY SEVERAL HONBLE COURTS. HENCE, IN OUR HUMBLE OPINION, IT STOOD COVERED IN FAVOUR OF THE TAX PAYER. SO FAR AS THE FACTS OF THE CASE IS CONC ERNED, THE ADMITTED FACTUAL POSITION WAS THAT THE ASSESSEE HAD SOLD CER FOR A CONSIDERATION OF RS.7,82,87,701/ - AND THE AMOUNT WAS INCLUDED I N THE TOTAL SALES OF THE POWER DIVISION FOR THE PURPOSE OF CLAIM OF DEDUCTION U/S 80IA OF THE IT ACT. THE REVENUE D EPARTMENT HAS CHALLENGED THE RELIEF GRANTED BY THE LEARNED CIT (A) BY RAISING A LEGAL GROUND THAT THE SALE OF CARBON CREDIT IS NOT INCOME DERIVED FROM THE BUSINESS OF GENERATION OF POWER. ON THIS ISSUE, THE LEARNED CIT (A) HAS EXPRESSED HIS OPINION THAT PR OFIT ON SALE OF CARBON CREDIT IS DERIVED IN THE COURSE OF BUSINESS OF GENERATION OF POWER. AT THAT POINT OF TIME WHEN THE APPEAL WAS HEARD BY THE FIRST APPELLATE AUTHORITY, THE LARGER ISSUE WHETHER THE RECEIPT ON SALE OF CARBON CREDIT IS A CAPITAL RECEIPT OR NOT, WAS NOT ADJUDICATED UPON. NOW, THE SITUATION IS THAT AS SOON AS THE REVENUE DEPARTMENT HAS RAISED THE SAID ADDITIONAL GROUND, THE RESPONDENT ASSESSEE HAS RAISED AN ADDITIONAL CROSS OBJECTION IN ADDITION TO THE CROSS OBJECTION ALREADY RAISED. THE AD DITIONAL GROUND OF THE CROSS OBJECTION OF THE RESPONDENT ASSESSEE IS THAT THE PROFIT EARNED ON ACCOUNT OF SALE OF CARBON CREDIT IS TO BE HELD AS CAPITAL RECEIPT IN VIEW OF THE JUDGMENT OF THE HONBLE ANDHRA PRADESH HIGH COURT PRONOUNCED IN THE CASE OF MY H OME POWER LTD., 365 ITR 82 (A.P.). IN THE INTEREST OF NATURAL JUSTICE, WE HAVE, THEREFORE, CONSOLIDATED BOTH THE ISSUES AND THOUGHT IT PROPER TO TAKE A 11 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 HOLISTIC VIEW IN RESPECT OF THE PROFIT EARNED ON SALE OF CARBON CREDIT. RATHER, AT THIS JUNCTURE, IT IS WORTH TO MENTION T HAT THIS VERY COMBINATION WHE R E BOTH OF US ARE PARTIES, HAVE HEARD A CASE OF ACIT VS NAKODA ISPAT LTD., RAIPUR WHILE CAMPING AT ITAT RAIPUR BENCH, RAIPUR AND IN ITA NO.109/BLPR/2011 AND ITA NO.71/BLPR/2012 ALONG WITH C. O. NOS. 136 AND 13 7/BLPR/2015 FOR ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 AS WELL AS OF ACIT VS VANDANA ISPAT LTD., ITA NO.216/BLPR/2011 AND CO NO.139/BLPR/2015 CONSOLI DATED ORDER DATED 30 - 10 - 2015 ARRIVED AT THE CONCLUSION AS UNDER. - 13. NOW WE FIND THAT THE HONBLE HIGH COUR T HAS HELD THAT THE RECEIPT ON ACCOUNT OF CARBON CREDIT SALE IS A CAPITAL RECEIPT ON THE FACTS AND CIRCUMSTANCES OF THE SAID CASE. THE FACTS LEADING TO THE EMERGENCE OF CARBON CREDIT IN THE CASES WE ARE ADJUDICATING ARE ALSO THE SAME. THERE IS NO DISPUTE T HAT THE PROCESS BY WHICH CARBON CREDIT IS GENERATED BY THE ASSESSEE IN THIS CASE IS DIFFERENT FROM THE ONE DEALT WITH IN THE CASE OF THE ASSESSEE MY HOPE POWER LTD. NOW WE HAVE A SITUATION WHERE ON SIMILAR FACTS THERE IS HONBLE HIGH COURT DECISION HOLDI NG THAT IN THESE FACTS, THE CARBON CREDIT SALES ARE CAPITAL RECEIPTS. THERE ARE SEVERAL TRIBUNAL DECISIONS WHICH HAVE FOLLOWE D THIS DECISION. LEARNED D. R. H AS ONLY BEEN ABLE TO POINT OUT BEFORE US THE DECISION OF ITAT, COCHIN BENCH IN THE CASE OF APOLLO T YRES LTD. VS ACIT (SUPRA) WHEREIN IT HAS BEEN HELD THAT CARBON CREDIT SALE IS A REVENUE RECEIPT. NOW IT IS SETTLED LAW IN THE ORDER OF JUDICIAL PRECEDENCE THAT THE DECISION OF HONBLE HIGH COURT TAKES PRECEDENCE OVER INFERIOR COURT/TRIBUNALS DECISION. IT I S ALSO SETTLED LAW THAT WHATSOEVER AMOUNT OF WISDOM IS DISPLAYED BY INFERIOR TRIBUNALS AND COURT THE SAME CANNOT OVERRIDE THE DECISION OF HONBLE HIGH COURT. EXACTLY SIMILAR VIEWS WERE ALSO HELD BY SEVERAL OTHER ITAT DECISIONS QUOTED BY THE LEARNED COUNSEL OF THE ASSESSEE REPRODUCED HEREIN ABOVE. IN THESE CIRCUMSTANCES WE HOLD THAT THE CARBON CREDIT SALE EMANATING TO THE ASSESSEE IS A CAPITAL RECEIPT NOT EXCIGIBLE TO TAX. ACCORDINGLY THIS CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED AND WE HOLD THAT THE ASSESSEE IS NOT LIABLE TO PAY ANY TAX ON THE CARBON CREDIT SALE RECEIPT. 14. BEFORE PARTING WE WOULD LIKE TO MENTION THAT CARBON CREDIT AS MENTIONED ABOVE IS GENERATED UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. BRIEFLY IN THE PRE SENT CASE THE FLUE GAS FLOW FROM SPONGE IRON ROTARY KILN IS PASSED THROUGH BURNING CHAMBER AND 12 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 WASTE HEAT RECOVERY BOILER TO PRODUCE STEAM. THE STEAM SO GENERATED OPERATES THE TURBINE TO GENERATE ELECTRICITY. THIS TECHNOLOGY OF GENERATION OF ELECTRICITY RE SULTS INTO REDUCTION OF GREEN HOUSE GASES. FOR THIS THE PRODUCERS ARE GRANTED CARBON CREDIT. TH E PRODUCERS OF SUCH CARBON CREDIT CAN SELL THEM TO OTHER ASSESSEES WHO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. THUS THE CARBON CREDIT CAN ALSO BE SAID TO BE A GRANT AS INTERNATIONAL AGENCY GRANTS THE SAME. CARBON CREDIT HENCE EMANATES OUT OF SUCH TECHNOLOGY AND PLANT AND MACHINERY WHICH CONTRIBUTE TO REDUCTION OF GREEN HOUSE GASES. THUS THESE CARBON CREDITS ARE ALSO MEANT TO PROMOTE SUCH INVESTME NTS WHICH ARE ADMITTEDLY CAPITAL IN NATURE. HENCE SEEN FROM THIS ANGLE ALSO THE CARBON CREDIT IS A CAPITAL RECEIPT. 15. IN THE RESULT, THE CROSS OBJECTION IS ALLOWED. 16. NOW THE ISSUE RAISED IN REVENUES APPEAL WAS THAT WHETHER THE LEARNED CIT ( APPEALS) IS CORRECT OR NOT IN DELETING THE DISALLOWANCE OF CLAIM U/S 80IA WITH RESPECT TO THE RECEIPT ON ACCOUNT OF CARBON CREDIT SALE. WE FIND THAT AS WE HAVE ALREADY HELD THAT THE RECEIPT ON ACCOUNT OF CARBON CREDIT SALE IS A CAPITAL RECEIPT AND HENCE THE SAME I S NOT LIABLE TO TAX. THE ADJUDICATION OF ISSUE RAISED BY THE REVENUE IS ONLY OF ACADEMIC INTEREST. ACCORDINGLY WE ARE NOT ENGAGING UNDER THE SAME. HENCE THIS GROUND RAISED BY THE REVENUE IS DISMISSED AS INFRUCTUOUS. WE, THEREFORE, CONCLUDE THAT THE LEGAL ISSUE RAISED BY THE REVENUE DEPARTMENT AS PER THE ADDITIONAL GROUND STOOD MERGED WITH THE ADDITIONAL CROSS OBJECTION RAISED FROM THE SIDE OF THE RESPONDENT ASSESSEE/ CROSS OBJECTOR IN THE LIGHT OF THE PRECEDENCE CITED ABOVE AS WELL AS THE VIEW ALREADY EXP RESSED BY US AS REPRODUCED HEREIN ABOVE (SUPRA). THEREFORE, THE GROUNDS RAISED BY THE REVENUE DEPARTMENT ARE HEREBY DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 11 . THE REVENUE HAS RAISED ONE MORE GROUND AS REPRODUCED BELOW: WHETHER IN L AW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE AND ADDITION OF RS.1,66,68,207/ - MADE BY THE AO OUT OF THE CLAIM OF ASSESSEE U/S 80IA OF THE IT ACT. 13 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 12 . THE OBSERVATION OF THE AO WAS THAT THE ASSESSEE HA D TRANSFERRED ELECTRICITY TO ITS STEEL DIVISION @ RS. 3.01 PER UNIT. THE AO HAS COMPARED THE RATE OF SUPPLY OF ELECTRICITY WITH THE RATE OF CSEB WHICH WAS STATED TO BE RS.2.80 PER UNIT. THEREFORE, THE ALLEGATION OF THE AO WAS THAT THE ELECTRICITY WAS TRANSFE RRED AT HIGHER RATE TO ONE OF THE DIVISION WHICH WAS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE IT ACT. BY THIS METHOD, THE ASSESSEE HAD REDUCED THE PROFIT OF THE STEEL DIVISION WHICH WAS SUBJECT TO TAX AT NORMAL RATE OF INCOME TAX. THE RELEVANT PORTION OF T HE OBSERVATION OF THE AO IS AS UNDER: - 18. INTER UNIT SALE OF ELECTRICITY: 18.1 AS STATED EARLIER, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF SPONGE IRON, FERRO ALLOYS, STEEL BILLET ETC. AND ELECTRICITY. THE FIRST THREE ITEMS ARE INCLUDED IN THE STEEL DIVISION. THE FURNACE AND THE KILN OF THE STEEL DIVISION RUN ON ELECTRICITY PRODUCED BY ITS OWN POWER PLANT. AFTER TRANSFERRING THE ELECTRICITY PRODUCED IN THE POWER PLANT TO THE STEEL DIVISION, THE REMAINING ELECTRICITY IS SOLD B Y THE ASSESSEE. DETAILS OF PO WER SALES WERE REQUISITIONED. IN THE DIVISION WISE ACCOUNTS, TOTAL REVENUE ON ACCOUNT OF THE STEEL DIVISION MANUFACTURING AND TRADING IS RS.3203083786/ - AND RS.11534632/ - RESPECTIVELY AND THAT ON ACCOUNT OF SALE OF POWER IS RS. 23119424/ - AN SALE OF CARBON CREDIT IS RS.78287701/ - THE ASSESSEE COMPANY HAS TRANSFERRED THE ELECTRICITY TO ITS THREE DIVISIONS NAMELY SPONGE IRON DIVISION, SMS DIVISION AND FERRO DIVISION. DURING THE YEAR UNDER CONSIDERATION TOTAL OF 7,98,65,740 UNITS OF ELECTRICITY HAS BEEN TRANSFERRED TO ALL THE THREE DIVISIONS WHICH HAS BEEN BILLED AT THE PRICE AT WHICH THE STEEL INDUSTRIES PROCURES THE POWER FROM CHHATTISGARH STATE ELECTRICITY BOARD (CSEB). IN TERMS OF MONEY IT COMES TO RS.24,02,92,279/ - I. E. AT THE RATE OF RS.3.01 PER UNIT. THE AO HAS CONCLUDED THAT THE SUPPLY OF POWER WAS MADE TO A CAPTIVE UNIT @RS.3.01 PER UNIT WITH THE PURPOSE TO REDUCE THE PROFIT OF STEEL DIVISION, ALTHOUGH, THE ASSESSEE HAD SUPPLIED ELECTRICITY TO CSEB @ RS.2.80 PER UNIT. AS A RESULT, RE - CALCULATION WAS MADE BY THE AO AND THE DISALLOWANCE WAS MADE TO 14 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 REDUCE THE CLAIM OF DEDUCTION U/S 80IA (4) OF THE ACT BY RS.1,66,68,207/ - . BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 13. AFTER CONSIDERING THE S UBMISSIONS OF BOTH THE SIDES, THE LEARNED CIT(A) HAS PLACED RELIANCE ON THE DECISION OF M/S. JINDAL STEELS & POWER LTD., 16 SOT 509 (DEL.) AS WELL AS THE DECISION OF DALMIA CEMENT (BHARAT) LTD. 32 SOT 164 (DEL.). SINCE, THE RELIEF WAS GRANTED, THE REVENUE IS IN APPEAL BEFORE US. 14. ON THIS ISSUE, WE HAVE HEARD BOTH THE SIDES. ON THE ISSUE WHETHER THE TARIFF DETERMINED BY STATE ELECTRICITY BOARD REPRESENTS MARKET VALUE OR NOT, A DETAILED VERDICT HAS ALREADY BEEN PRONOUNCED BY THE HONBLE JURISDICTIONAL HIG H COURT. IN THE CASE OF CIT VS M/S. GODAW ARI POWER & ISPAT LTD. THE HONBLE HIGH COURT OF CHHATTISGARH AT BILAS PUR IN TAX CASE NO.31/2012 VIDE JUDGMENT DATED 02 ND AUGUST, 2013 HAS OPINED AS UNDER: - 28. THE CHHATTISGARH - COMPANY IS A COMPANY WHICH IS GENERA TING POWER. IT IS NEITHER CONSUMER OF THE ELECTRICITY, NOT IT IS SUPPLYING POWER TO A CONSUMER. IT ALSO CANNOT SELL POWER TO ANY CONSUMER DIRECTLY. IT HAS TO COMPULSORILY SELL IT TO THE BOARD. 29. THE POWER SOLD BY THE CHHATTISGARH - COMPANY TO THE BOARD IS A SALE TO A COMPANY WHICH ITSELF SUPPLIES POWER TO THE CONSUMERS. IT IS NOT SALE OF POWER TO THE CONSUMER. 30. THE STEEL - DIVISION OF THE ASSESSEE IS A CONSUMER. THE CPP OF THE ASSESSEE SUPPLIES ELECTRICITY TO THE STEEL - DIVISION. HAD THE STEEL - DIVISION NO T TAKEN POWER FROM THE CPP THEN IT HAD TO PURCHASE POWER FROM THE BOARD. THE CPP HAS CHARGED THE SAME RATE FROM THE STEEL - DIVISION THAT THE STEEL - DIVISION HAD TO PAY TO THE BOARD IF THE POWER WAS PURCHASED FROM THE BOARD. 31. THE MARKET VALUE OF THE POWER SUPPLIED TO THE STEEL - DIVISION SHOULD BE COMPUTED CONSIDERING THE RATE OF POWER TO A CONSUMER IN THE OPEN MARKET AND IT SHOULD NOT BE COMPARED WITH THE RATE OF POWER WHEN IT IS SOLD TO A SUPPLIER AS THIS IS NOT THE RATE FOR WHICH A CONSUMER OR THE STEEL - D IVISION COULD HAVE PURCHASED POWER IN THE OPEN MARKET. THE RATE 15 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 OF POWER TO A SUPPLIER IS NOT THE MARKET RATE TO A CONSUMER IN THE OPEN MARKET. 32. IN OUR OPINION, THE AO COMMITTED AN ILLEGALITY IN COMPUTING THE MARKET VALUE BY TAKING INTO ACCOUNT THE RAT E CHARGED TO A SUPPLIER; IT SHOULD HAVE BEEN COMPARED WITH THE MARKET VALUE OF POWER SUPPLIED TO A CONSUMER. 33. IT IS ADMITTED BY THE DEPARTMENT THAT IN CHHATTISGARH THE POWER WAS SUPPLIED TO THE INDUSTRIAL CONSUMERS AT THE RATE OF RS.3.20/ - PER UNIT FOR THE AY 2004 - 05 AND RS.3.75 PER UNIT FOR THE AYS 2005 - 06 AND 2006 - 07. IT WAS THIS RATE THAT WAS TO BE CONSIDERED WHILE COMPUTING THE MARKET VALUE OF THE POWER. 34. THE CIT - A AND THE TRIBUNAL HAD RIGHTLY COMPUTED THE MARKET VALUE OF THE POWER AFTER CONSIDE RING IT WITH THE RATE OF POWER AVAILABLE IN THE OPEN MARKET NAMELY THE PRICE CHARGED BY THE BOARD. THERE IS NO ILLEGALITY IN THEIR ORDERS. 35. IN VIEW OF THE ABOVE, THE QUESTION IS DECIDED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE. THE TAX APPE ALS HAVE NO MERIT. THEY ARE DISMISSED. 15. RESPECTFULLY FOLLOWING THE ABOVE, DECISION WE FIND NO FALLACY IN THE VIEW EXPRESSED BY THE LEARNED CIT (A). HENCE, THE SAME IS HEREBY CONFIRMED. GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 16. THE ASSESSEE HAS FILED CROSS OBJECTION CHALLENGING THE DISALLOWANCE U/S 14A OF THE ACT. THE SAME IS REPRODUCED BELOW: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S 14A OF INCOME TAX ACT OF RS.6,67, 653/ - . THE DISALLOWANCE MADE BY THE A. O. AND CONFIRMED BY CIT (A) IS UNJUSTIFIED, UNWARRANTED AND UNCALLED FOR. 17. IT WAS NOTICE D BY THE AO THAT THE ASSESSEE HAS SHOWN INVESTMENT IN EQUITY SHARES OF INDIAN COMPANIES. THE AO HAS GIVEN A FINDING THAT THE A SSESSEE HAD NOT EARNED DIVIDEND INCOME AND THE INVESTMENT WAS STATED TO BE TO THE TUNE OF RS.26,65,61,300/ - . FURTHER, THE ASSESSEE HAD INVESTED SHARE APPLICATION MONEY 16 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 FOR ALLOTMENT AMOUNTING TO RS.7,90,66,970/ - . THE OBJECTION OF THE AO WAS THAT IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE IT ACT, NO DEDUCTION WAS TO BE ALLOWED IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME. THE AO HAD REFERRED TO RULE 8D FOR THE REASONS THAT THE PROVISIONS OF SECT ION 14A (3) OF THE IT ACT ALSO APPLY IN RELATION TO THE CASE WHERE THE ASSESSEE DO NOT CLAIM ANY EXPENDITURE. AS PER THE AO, THE ASSESSEE HAD TAKEN LOAN AND CASH CREDIT FACILITIES FROM BANK ON WHICH THE ASSESSEE WAS PAYING HEAVY INTEREST AND FINANCIAL CHAR GES. THEREFORE, THE OBJECTION OF THE AO WAS THAT HAD THE ASSESSEE NOT INVESTED IN EQUITY SHARES, THEN, THE FINDS WOULD HAVE BEEN EMPLOYED IN THE BUSINESS TO GENERATE PROFIT WITHOUT INCURRING EXPENDITURE ON INTEREST. BY APPLYING THE FORMULA, THE AMOUNT COUL D HAVE REDUCED TO ONE AND A HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, THE AO HAD MADE THE DISALLOWANCE AT RS.6,67,653/ - . WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, THE LEARNED CIT (A) HAS UPHELD THE DISALLOWANCE. 18. FROM THE SIDE OF THE CROSS OBJECTOR, THE LEARNED AR, MR. P. C. MALOO HAS PLEADED THAT THE ASSESSEE HAD MADE INVESTMENT IN THE WHOLLY OWNED SUBSIDIARY COMPANIES WHICH ARE ALSO ENGAGED IN STEEL BUSINESS. THE ASSESSEE HAD NOT EARNED ANY DIVIDEND OUT OF THE SA ID INVESTMENT. THERE WAS NO EXPENDITURE INCURRED BECAUSE THERE WAS NO EARNING OF DIVIDEND OUT OF THE SAID INVESTMENT. SINCE, THE ASSESSEE HAD NOT EARNED ANY EXEMPT INCOME, THEREFORE, THE PROVISIONS OF SECTION 14A OF THE IT ACT HAS BEEN WRONGLY INVOKED. IT HAS ALSO BEEN PLEADED BY THE LEARNED AR THAT THE ASSESSEE HAS SUFFICIENT SELF GENERATED FUNDS FOR MAKING INVESTMENT. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: - 1. CIT VS HERO CYCLE LTD., 323 ITR 518 (P & H) 2. CIT VS WINSOME TEXTILE INDUSTRIES LTD. , 319 ITR 204 (P&H) 3. CIT - IV VS HOLCIM INDIA (P) LTD. (2014) 90 CCH 081(DEL.) 17 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 4. CIT VS CORRETEC ENERGY PVT. LTD. (2014) 223 TAXMAN 130(GUJ) 5. CIT VS SHIVAM MOTORS (P) LTD (2014) 89 CCH 059 (ALL) 19. ON THIS ISSUE, WE HAVE HEARD BOTH THE SIDES. IN OU R CONSIDERED OPINION, THE FORMULA OF RULE 8D IS TO BE APPLIED ONLY AFTER CONSIDERING THE APPLICABILITY OF THE MAIN PROVISIONS OF SECTION 14A OF THE ACT. DUE TO THIS REASON IT IS WORTH TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO FIRST OF ALL, DETERM INE WHETHER THE ASSESSEE HAS EARNED ANY DIVIDEND OR EXEMPTED INCOME FROM THE ALLEGED INVESTMENT. IF, NO DIVIDEND IS EARNED, THEN, NEXT QUESTION IS THAT WHETHER ANY EXPENDITURE HAS BEEN INCURRED TO EARN IN CONNECTION WITH THE INVESTMENT MADE. IF, EXPENDITUR E IS IN THE SHAPE OF INTEREST, THEN, WHETHER THE ASSESSEE HAD SUFFICIENT SELF GENERATED FUNDS. FOR THIS REASON, THE ASSESSEE IS DIRECTED TO PLACE ON RECORD THAT THE INVESTMENT HAS BEEN MADE OUT OF THE SELF GENERATED INCOME TO CREATE INTEREST - FREE FUNDS. TH E CASE LAWS CITED SUPRA, ARE ALSO REVOLVING AROUND THIS BASIC FACT. HENCE, WE DEEM IT PROPER AS WELL AS JUSTIFIABLE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO EXAMINE THE FACTS AFRESH AND THEN ONLY APPLY THE PROVISIONS OF SECTION 14A OF THE IT ACT AS PER LAW. RESULTANTLY, THIS CROSS OBJECTION MAY BE TREATED AS ALLOWED BUT, FOR STATISTICAL PURPOSES ONLY. 20 . IN THE APPEAL FOR ASSESSMENT YEAR 2009 - 10, THE REVENUE HAS RAISED THE GROUND IN RESPECT OF DISALLOWANCE MADE U/S 80IA OF THE IT ACT, WHICH HAS ALREADY BEEN DEALT BY US IN THE FOREGOING PARAGRAPHS, HENCE, ON THE SAME LINES, THE SAME IS DISMISSED. 21 . ONE MORE GROUND HAS BEEN RAISED BY THE REVENUE PERTAINING TO ADDITION MADE BY THE AO OF RS.25,00,000/ - , SUBSIDY RECEIVED BY THE ASSESSEE. THE OBSE RVATIONS OF THE AO, IN SHORT, IS DISCUSSED IN THE CORRESPONDING ASSESSMENT ORDER PASSED U/S 143(3) FOR ASSESSMENT YEAR 2009 - 10 DATED 27 - 09 - 2011, WERE THAT THE ASSESSEE HAS RECEIVED A SUBSIDY OF RS.25,00,000/ - WHICH WAS IN THE 18 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 NATURE OF SALES TAX SUBSIDY. T HE ASSESSEE HAS RECEIVED THE SALES TAX SUBSIDY BY WAY OF SET OFF AGAINST THE LIABILITY OF PAYMENT OF TAX. THE SUBSIDY WAS LINKED WITH 25% OF THE ASSETS PURCHASED. THE STATE GOVERNMENT HAD GRANTED SUBSIDY WHICH WAS APPLICABLE AFTER COMMENCEMENT OF PRODUCTIO N. THE OBSERVATION OF THE AO WAS THAT THE SUBSIDY WAS RELATED WITH PRODUCTION; THEREFORE, IT WAS IN THE NATURE OF ADDITIONAL SUBSIDY, HENCE, TO BE TAXED AS REVENUE RECEIPT. THE AMOUNT OF RS.25,00,000/ - WAS THE SALES TAX SUBSIDY WHICH WAS, THEREFORE, HELD A S REVENUE RECEIPT AND TAXED IN THE HANDS OF THE ASSESSEE. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, THE LEARNED CIT (A) HAS FOLLOWED THE DECISION IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. & ORS. VS. CIT, 228 ITR 253 (SC) AND CIT VS PONNI SUGARS & CHEMICALS LTD. & ORS. (2008) 306 ITR 392 (SC) AND HELD THAT THE SUBSIDY WAS CAPITAL IN NATURE, THEREFORE, DIRECTED TO DELETE THE ADDITION. 2 2 . HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT THIS ISSUE HAS BEE N DECIDED BY THE HON BLE COURT IN THE CASE OF DCIT VS RELIANCE INDUSTRIES LTD. (2004) 82 TTJ (MUMBAI) (SB) 765. RESPECTFULLY FOLLOWING THIS PRECEDENCE, WE HEREBY CONFIRM THE FINDINGS OF THE LEARNED CIT (A) AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 23 . SO FAR AS, THE CROSS OBJECTION [C.O. NO.135/BLPR/2015 IN ITA NO.57/BLPR/2012 FOR ASSESSMENT YEAR 2009 - 10] IS CONCERNED, A VIEW HAS ALREADY BEEN EXPRESSED IN THE ABOVE PARAGRAPHS. ON THE SAME LINE, THE CROSS OBJECTION FILED BY THE ASSESSEE IS HEREBY A LLOWED. 24 . IN THE RESULT, BOTH THE APPEALS FILE D BY THE REVENUE FOR ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 ARE DISMISSED, CROSS OBJECTION FILED BY THE ASSESSEE FOR 19 ITA NO .44 /BLPR /2011 ITA NO.57 /BLPR /2012 C.O.NO.12/BLPR /2011 C.O. NO.135/BLPR /2015 ASSESSMENT YEAR 2008 - 09 IS PARTLY ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOV., 2015. SD/ - SD/ - (SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 24 TH NOV., 2015. LAKSHMIKANT DEKA/SR. PS COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T., CONCERNED 4. CIT ( APPEALS) - I, NAGPUR. 5. D.R., ITAT , NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 19.11.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 24 .11.2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER