ACIT, CC-II, Ludhiana V. M/s Aqua Power (P) Ltd., Mohali

ITA 1364/CHANDI/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3100 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-11-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 05-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND SUDARSHAN SR DR
• Keywords: Capital asset; Business income; Cost of acquisition; Capital receipt
• Section: 80IA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH A, CHANDIGARH .., !' '# $, % &' BEFORE: SHRI. N.K.SAINI, VP & SHRI , SANJAY GARG, J M ITA NO. 1364/CHD/2018 ASSESSMENT YEAR : 2009-10 THE ACIT CC-II, LUDHIANA M/S AQUA POWER PVT. LTD. H.NO. 2587,PH-XI, MOHALI PAN NO: AADCA7773Q APPELLANT RESPONDENT !' ASSESSEE BY : SHRI SUDHIR SEHGAL, ADVOCATE #!' REVENUE BY : SHRI ARVIND SUDARSHAN, SR. DR $ %! & DATE OF HEARING : 21/11/2019 '()*! & DATE OF PRONOUNCEMENT : 21/11/2019 &(/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DT. 13/08/2018 OF LD. CIT(A)-5, LUDHIANA. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT (A) HAS ERRED IN HOLDING THAT THE INCOME OF RS. 2,87,09,980/- ACCRUE D TO THE ASSESSEE ON ACCOUNT OF INCOME FROM SALES OF (CERTIFIED EMISSIONS REDUCTION S) CERS IS ELIGIBLE INCOME FOR DEDUCTION U/S 80IA OF THE I.T ACT, 1961 WHILE THE AO TREATED IT AS INCOME FROM OTHER SOURCES. 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT (A) HAS ERRED IN TREATING THE RECEIPT OF RS. 2,87,09,980/- FROM SALE S OF CERTIFIED EMISSIONS REDUCTIONS (CERS) AS CAPITAL IN NATURE AND NOT LIABLE TO TAX UNDER AN Y HEAD OF INCOME UNDER THE I.T ACT, 1961. 3. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROU NDS OF APPEAL ON OR BEFORE IS HEARD AND DISPOSED OFF. 2 3. FROM THE AFORESAID GROUNDS IT IS GATHERED THAT ONLY G RIEVANCE OF THE DEPARTMENT RELATES TO THE DEDUCTION UNDER SECTION 80IA OF THE INC OME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) AMOUNTING TO RS. 2,87,09,980/-. 4. DURING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT VIDE ORDER DT. 15/04/2015 PASSED BY THIS BENCH OF ITAT IN ITA NO. 389/CHD/2013 AND 390/CHD/ 2013 FOR THE A.Y. 2009-10 IN T HE CASE OF M/S KOTLA HYDRO POWER PRIVATE LTD. AND M/S PUNJAB HYDRO POWER PRIVAT E LTD. RESPECTIVELY I.E; THE APPEALS FILED BY THE DEPARTMENT, COPY OF THE SAID ORD ER WAS FURNISHED WHICH IS PLACED ON RECORD. 5. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPOR TED THE ORDER OF THE A.O. BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. C OUNSEL FOR THE ASSESSEE. 6. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIE S AND THE MATERIAL AVAILABLE ON THE RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVI NG SIMILAR FACTS HAS ALREADY BEEN DECIDED BY THIS BENCH OF THE ITAT IN THE AFORESAID REFER RED TO ORDER DATED 15/04/2015 IN ITA NO. 389/CHD/2013 AND 390/CHD/2013 FOR THE ASSESSME NT YEAR UNDER CONSIDERATION I.E; 2009-10 AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 3 TO 9 WHICH READ AS UNDER: 3. GROUND NOS. 1 TO 3 : AFTER HEARING BOTH THE PART IES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSE SSEE HAS SHOWN IN PROFIT AND LOSS ACCOUNT A SUM OF RS. 2,43,40,143/- FROM SALE OF CAR BON EMISSION REDUCTION UNITS (IN SHORT CER). IN RESPONSE TO QUERIES, THE ASSESSEE FILED DETAILED REPLY. IT WAS POINTED OUT THAT BECAUSE OF THE INCREASING ACCUMULATION OF GREEN HOU SE GASES IN THE ATMOSPHERE LEADING TO POLLUTION, UNITED NATIONS FRAMEWORK CONVENTION O N CLIMATE CHANGE WAS CONDUCTED AND AN AGREEMENT WAS SIGNED BY VARIOUS NATIONS IN K YOTO (IN JAPAN). THE SAME IS KNOWN A KYOTO PROTOCOL AND IS EFFECTIVE FROM 2005. UNDER TH IS AGREEMENT VARIOUS COUNTRIES UNDERTOOK TO REDUCE EMISSION OF GREEN HOUSE GASES. IT WAS ALSO AGREED THAT IF SOME INDUSTRIES WERE SET UP WHICH LEAD TO EMISSION OF LE SSER GREEN HOUSE GASES THAN THE STANDARD PRESCRIBED, THEN THEY WOULD BE CREDITED WI TH CARBON CREDIT UNITS. THESE CARBON CREDIT UNITS WERE TRADABLE AND WHOSOEVER WAS ENABLE TO GENERATE SUCH CERS COULD SELL THEM IN THE INTERNATIONAL MARKET. THE SALE OF SUCH CER WAS IN THE NATURE OF BUSINESS INCOME WHICH WAS DIRECTLY RELATED TO THE BUSINESS O F THE ASSESSEE THROUGH WHICH ASSESSEE HAS PUT UP A ELECTRIC GENERATION PROJECT WHICH PROD UCES LESSER AMOUNT OF GREEN HOUSE GASES AND ASSESSEE BECAME ENTITLED TO CREDIT OF CAR BON UNITS. THE ASSESSING OFFICER EXAMINED THE ISSUE IN DETAIL AND WAS OF THE OPINION THAT GENERATION OF SUCH CER HAS NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE AND IT WAS BECAUSE OF ENVIRONMENT PROTOCOL, THEREFORE, DEDUCTION U/S 80IA WAS DENIED OF THIS AMOUNT. 3 4. ON APPEAL, THE ASSESSEE RAISED GROUND THAT ASSES SEE WAS ENTITLED TO DEDUCTION U/S 80IA ON SUCH SALES. IN ADDITION AN ADDITIONAL GROUND WAS ALSO RAISED THROUGH WHICH IT WAS CONTENDED THAT CONSIDERATION RECEIVED ON SALE OF CE RS IS IN FACT ON ACCOUNT OF SALE OF CAPITAL ASSET AND, THEREFORE, THE SAME WAS NOT TAXA BLE AT ALL AND IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF HYDERABAD BENCH OF TR IBUNAL IN MY HOME POWER LTD VS. DCIT 21 ITR (TRIB) 186 (HYDERABAD). THE LD. CIT(A) FOLLOWING THE DECISION OF MY HOME POWER LTD VS. DCIT (SUPRA) HELD THAT SALE OF CER IS A CAP ITAL RECEIPT AND NOT INCLUDIBLE IN TAXABLE INCOME. 5. BEFORE US LD. DR SUBMITTED THAT CARBON CREDIT IS AN INCENTIVE GIVEN BECAUSE OF THE KYOTO PROTOCOL WHERE AN INTERNATIONAL AGREEMENT WAS REACHED BETWEEN SEVERAL COUNTRIES TO REDUCE THE EMISSION OF GREEN HOUSE GASES, THEREF ORE, THE AMOUNT WHICH WAS RECEIVED ON SALE OF SUCH CERS HAS NO RELATION WITH NORMAL B USINESS IN RESPECT OF GENERATION OF POWER. ALTERNATIVELY, THE SALE OF SUCH CER SHOULD B E TREATED AS AN INCENTIVE GIVEN BY GOVERNMENT BECAUSE OF AN INTERNATIONAL SCHEME AND A CCORDINGLY THE SAME WAS NOT ENTITLED TO DEDUCTION U/S 80IA. HE FURTHER SUBMITTE D THAT THIS VIEW HAS ALREADY BEEN CONFIRMED BY THE COCHIN BENCH OF THE TRIBUNAL IN TH E CASE OF APOLLO TYRES LTD V ACIT IN 31 ITR (TRIB) 477 (COCHIN). 6. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT ISSUE IS SQUARELY COVERED BY THE DECISION OF HYDERABAD BENCH DECISION IN THE CASE OF MY HOME POWER LTD VS. DCIT (SUPRA). HE FURTHER POINTED OUT THAT THIS DECISION HAS BEEN CONFIRMED BY HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V MY HOME POW ER LTD AT 365 ITR 82(A.P). HE ALSO POINTED OUT THAT THIS DECISION HAS BEEN FOLLOWED BY CHENNAI BENCH IN THE CASE OF AMBIKA COTTON MILLS LTD V DCIT 27 ITR (TRIB) 44 (CHENNAI) AND SRI VELAYUDHASWAMY SPINNING MILLS P. LTD V DCIT 27 ITR (TRIB) 106 AND JAIPUR BENCH OF TH E TRIBUNAL IN THE CASE OF SHREE CEMENT LTD VS. ADDL CIT 31 ITR (TRIB) 513. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF MY HOME POWER LTD VS. DCIT (SUPRA). IN THAT CASE IT WA S HELD AS UNDER:- HELD, THAT CARBON CREDIT WAS IN THE NATURE OF AN ENTITLEMENT RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING CARBON, HEAT AN D GAS EMISSIONS. IT WAS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENT AL CONCERNS. NO ASSET WAS GENERATED IN THE COURSE OF BUSINESS. CREDIT FOR REDUCING CARBON EMISSION OR GREENHOUSE EFFECT COULD BE TRANSFERRED TO ANOTHER PARTY IN NEED OF REDUCTION O F CARBON EMISSION. IT DOES NOT INCREASE PROFITS IN ANY MANNER AND DOES NOT NEED ANY EXPENSE S. IT WAS IN THE NATURE OF ENTITLEMENT TO REDUCE CARBON EMISSION, AND THERE WAS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET THIS ENTITLEMENT. CARBON CREDIT WAS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. THE AMOUNT REALIZED ON TRANSFER OF CARBON C REDIT WAS NOT TAXABLE. 8. THIS DECISION WAS CONFIRMED BY HON'BLE ANDHRA PR ADESH HIGH COURT IN THE DECISION OF CIT VS. MY HOME 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 ASSESSMENT YEAR 2007-08. CARBON CREDIT WAS NOT AN OFFSHOOT OF BUSINESS OF THE ASSESSEE BUT AN OFFSHOOT OF ENVIRONMENTAL CO NCERNS. NO ASSET WAS GENERATED IN THE COURSE OF BUSINESS BUT IT WAS GENERATED DUE TO ENVI RONMENTAL CONCERNS. THERE WAS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET ENTITLE MENT FOR THE CARBON CREDITS. THEREFORE, THE INCOME FROM SALE OF CARBON CREDITS WAS TO BE CONSID ERED AS CAPITAL RECEIPT AND NOT LIABLE 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 DCIT (SUPRA) AND SRI VELAYUDHASW AMY 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 CONTRARY DECISION RENDERED BY COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF APOLLO TYRES LTD V ACIT (SUPRA). SINCE THE 4 DECISION OF HYDERABAD TRIBUNAL BENCH HAS ALREADY BE EN CONFIRMED BY THE HON'BLE ANDHRA PRADESH HIGH COURT AND THERE IS NO CONTRARY DECISIO N FROM ANY OTHER HIGH COURT, IN OUR OPINION, WE ARE BOUND TO FOLLOW THE DECISION OF HIG H COURT. THEREFORE, FOLLOWING THIS DECISION WE DECIDE THIS ISSUE AGAINST THE REVENUE. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DT. 15/04/2015, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT AND AFFIR MED THE VIEW TAKEN BY THE LD. CIT(A) IN HOLDING THAT THE INCOME EARNED BY THE ASSESSEE FROM SALES OF CERTIFIED EMISSIONS REDUCTIONS (CERS) WAS ELIGIBLE FOR DEDUCTIO N UNDER SECTION 80IA OF THE ACT. 7. IN THE RESULT APPEAL OF THE DEPARTMENT IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 21/11/2019) SD/- SD/- '# $ .., (SANJAY GARG ) ( N.K. SAI NI) % &'/ JUDICIAL MEMBER / VICE PRESIDENT AG DATE: 21/11/2019 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE (+ $ BY ORDER, ; # ASSISTANT REGISTRAR