ACIT, Ludhiana V. M/s Oswal Woollen Mills Ltd., Ludhiana

ITA 1122/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95738 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 18-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSHIL KUMAR
• Assessee Lawyers: NAVDEEP SHARMA
• Keywords: Cost of acquisition; Capital receipt
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS.RANO JAIN, ACCOUNTANT MEMBER ITA NO. 1122/CHD/2014 ASSESSMENT YEAR: 2010-11 THE ACIT, VS M/S OSWAL WOOLLEN MILLS LTD. CIRCLE VII, G.T. ROAD, SHERPUR, LUDHIANA. LUDHIANA. PAN: AAACO1973F (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SUSHIL KUMAR RESPONDENT BY : SHRI NAVDEEP SHARMA DATE OF HEARING : 14.12.2015 DATE OF PRONOUNCEMENT : 16.12.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-II LUDHIANA DATED 29.10.2 014 FOR ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUND S : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF C ASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS. 1,21,16,909/-- ACCRUED ON ACCOUNT OF CARBON CREDITS ENTITLEMENT IGNORING THAT SUCH PROFITS ARE INCLUDED IN THE DEFINITION OF IN COME AS PER SECTION 2 (24) (XII) OF THE I.T. ACT, 1961 AND ALSO NOT NOTIC ING THE DECISION OF HON'BLE ITAT, CHENNAI IN THE CASE OF M/S SRIPATHY PAPER BOA RDS (P) VS. DCIT, CIRCLE-1(2), COIMBATORE IN ITA NO. 1452/MDS/2012 DA TED 29.11.2012 FOR THE ASSESSMENT YEAR 2009-10. 2 2. THE BRIEF FACTS ARE THAT ASSESSING OFFICER NOTED THAT ASSESSEE HAD SHOWN INCOME OF RS.1.21 CR UNDER THE HEAD CARBON CREDIT RECEIPTS. THIS INCOME WAS BASED UPON TOTAL CARBON EMISSION REDUCTION MADE BY COMPAN Y DURING THE YEAR. THE ASSESSEE HAD CLAIMED THESE RECEIPTS TO BE CAPITAL RECEIPTS. THE ASSESSING OFF ICER HELD THAT THESE RECEIPTS WERE REVENUE RECEIPTS AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE LD. CIT(APPEALS) WHICH I S QUOTED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE EXPLAINED THAT THE SAID CLAIM WAS MADE ON THE BASIS THAT CER UNDOUBTEDLY KNOWN AS CARBON CREDIT COMMODITY AND ARE QUOTED IN STOCK EXCHANGE LIKE MCX AND NCDE. THE GAIN FROM THE CARBON CREDITS REPRESE NTS THE RECEIPT TO COMPENSATE THE UNFORESEENABLE LOSS. THE VIEW OF THE ASSESSEE WAS ALSO FULLY SUBSCRIBED BY I TAT HYDERABAD BENCH IN THE CASE OF MY HOME POWER LTD. REPORTED IN 151 TTJ 616. THE ASSESSING OFFICER REJ ECTED THE CLAIM OF THE ASSESSEE BECAUSE THE VIEW OF THE TRIBUNAL IS NOT ACCEPTED BY THE REVENUE DEPARTMENT AND APPEAL IS PENDING BEFORE HIGH COURT. IT WAS ALSO SUBMITTED THAT ON IDENTICAL ISSUE, LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF NAHAR INDUSTRIAL ENTERPRISES LTD. COPY OF THE ORDER IS PLACED ON RECORD IN WHICH IT WAS HELD THAT CARBON CREDIT RECEIPT IS NOT REVENUE RECEIPT BUT CA PITAL RECEIPT. THE LD. CIT(APPEALS), FOLLOWING HIS ORDER IN ASSESSEE'S GROUP CASES OF M/S NAHAR INDUSTRIAL 3 ENTERPRISES LTD. DATED 19.02.2014 ALLOWED THE APPEA L OF THE ASSESSEE. 3. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY ORDER OF ITAT CHANDIGARH BENCH DATED 15.04.2015 IN ITA NO. 389/CHD/2013 FOR ASSESSMENT YEAR 2009-10 IN THE CASE OF DCIT VS KOTLA HYDRO POW ER PVT. LTD., COPY OF THE SAME IS PLACED ON RECORD IN WHICH IN PARA 7 TO 9, THE TRIBUNAL HELD AS UNDER : 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY HYDERABAD BENCH OF THE TRIBUNAL IN THE C ASE OF MY HOME POWER LTD VS. DCIT (SUPRA). IN THAT CASE I T WAS HELD AS UNDER:- HELD, THAT CARBON CREDIT WAS IN THE NATURE OF AN ENTITLEMENT RECEIVED TO IMPROVE WORLD ATMOSPHERE A ND ENVIRONMENT REDUCING CARBON, HEAT AND GAS EMISSIONS . IT WAS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVI RONMENTAL CONCERNS. NO ASSET WAS GENERATED IN THE COURSE OF B USINESS. CREDIT FOR REDUCING CARBON EMISSION OR GREENHOUSE E FFECT COULD BE TRANSFERRED TO ANOTHER PARTY IN NEED OF RE DUCTION OF CARBON EMISSION. IT DOES NOT INCREASE PROFITS IN AN Y MANNER AND DOES NOT NEED ANY EXPENSES. IT WAS IN THE NATUR E OF ENTITLEMENT TO REDUCE CARBON EMISSION, AND THERE WA S NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET THIS EN TITLEMENT. CARBON CREDIT WAS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. THE AMOUNT REALIZED ON TRANSFER OF CARBO N CREDIT WAS NOT TAXABLE. 8. THIS DECISION WAS CONFIRMED BY HON'BLE ANDHRA PRADESH HIGH COURT IN THE DECISION OF CIT VS. MY HO ME POWER LTD VS. DCIT 365 ITR 82(A.P.) AND IT WAS HELD AS UNDER:- HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF POWER GENERATION FOR THE ASSESSM ENT YEAR 2007-08. CARBON CREDIT WAS NOT AN OFFSHOOT OF BUSIN ESS OF THE ASSESSEE BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET WAS GENERATED IN THE COURSE OF BUSINESS BUT IT WAS GENERATED DUE TO ENVIRONMENTAL CONCERNS. THERE WAS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET ENTITLEMEN T FOR THE CARBON CREDITS. THEREFORE, THE INCOME FROM SALE OF CARBON CREDITS WAS TO BE CONSIDERED AS CAPITAL RECEIPT AND NOT LIABLE 4 TO TAX UNDER ANY HEAD OF INCOME UNDER THE INCOME-TA X ACT, 1961. 9. FURTHER, THIS DECISION HAS BEEN FOLLOWED BY CHEN NAI BENCH IN TWO CASES OF AMBIKA COTTON MILLS LTD V DCI T (SUPRA) AND SRI VELAYUDHASWAMY SPINNING MILLS P. LTD V DCIT (SUPRA). EVEN JAIPUR BEACH HAS FOLLOWED THIS DECISION IN THE CASE OF SHREE CEMENT LTD VS. ADDL CIT (SUPRA ). NO DOUBT THE DR HAS BEEN ABLE TO POINT OUT THE CONTRAR Y DECISION RENDERED BY COCHIN BENCH OF THE TRIBUNAL IN THE CAS E OF APOLLO TYRES LTD V ACIT (SUPRA). SINCE THE DECISIO N OF HYDERABAD TRIBUNAL BENCH HAS ALREADY BEEN CONFIRMED BY THE HON'BLE ANDHRA PRADESH HIGH COURT AND THERE IS NO C ONTRARY DECISION FROM ANY OTHER HIGH COURT, IN OUR OPINION, WE ARE BOUND TO FOLLOW THE DECISION OF HIGH COURT. THEREF ORE, FOLLOWING THIS DECISION WE DECIDE THIS ISSUE AGAINS T THE REVENUE. 4. CONSIDERING THE ABOVE, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF ITAT CHANDIGARH BENCH IN THE CASE OF KOTLA HYDRO POWER P VT. LTD. (SUPRA). THE DEPARTMENTAL APPEAL, THEREFORE, STANDS DISMISSED. 5. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- ( RANO JAIN) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16 TH DECEMBER, 2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD