M/s Agri Gold Projects Ltd., Vijayawada V. THE Addl.CIT, , RANGE-2, Vijayawada

ITA 138/VIZ/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76481 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 04-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Business income; Capital receipt; Revenue expenditure
• Section: 56

Judgement Text

ITA NOS.138, 139, 210, 211 & 212/VIZAG/2013 M/S. AGRI GOLD PROJECTS LTD., VIJAYAWADA IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS.138&139/VIZAG/2013 ASSESSMENT YEARS : 2008-09 & 2009-10 RESPECTIVELY M/S. AGRI GOLD PROJECTS LTD. VIJAYAWADA VS. ADDL. CIT RANGE-2 VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AADCS 5206A ITA NOS.210 TO 212/VIZAG/2013 ASSESSMENT YEARS : 2008-09 & 2010-11 RESPECTIVELY DCIT CIRCLE-2(1) VIJAYAWADA VS. M/S. AGRI GOLD PROJECTS LTD. VIJAYAWADA (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI G.V.N. HARI, ADVOCATE REVENUE BY: SHRI K.V.N. CHARYA, CIT(DR) DATE OF HEARING : 28.02.2014 DATE OF PRONOUNCEMENT : 06.03.2014 ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER:- THESE ARE BUNCH OF FIVE APPEALS, THREE BY THE DEPA RTMENT AND TWO BY THE ASSESSEE. WHILE THERE ARE CROSS APPEALS FOR AS SESSMENT YEAR 2008-09 AND 2009-10, APPEAL FOR THE ASSESSMENT YEAR 2010-11 IS BY THE DEPARTMENT. SINCE COMMON ISSUES ARE INVOLVED AND APPEALS RELATE TO THE SAME ASSESSEE THEY ARE CLUBBED TOGETHER AND DISPOSED OF IN THIS C OMBINED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.210/VIZAG/2013: (BY THE DEPARTMENT) 2. THE FIRST ISSUE AS RAISED IN GROUND NOS.2 TO 5, WHICH IS A COMMON ISSUE IN ALL THE APPEALS OF THE DEPARTMENT IS WITH REGARD TO THE DELETION OF ADDITION MADE ON ACCOUNT OF TREATING THE AMOUNT RECEIVED TOW ARDS SALE OF CARBON EMISSION REDUCTIONS (CER) AS REVENUE INCOME. ITA NOS.138, 139, 210, 211 & 212/VIZAG/2013 M/S. AGRI GOLD PROJECTS LTD., VIJAYAWADA 2 3. BRIEFLY THE FACTS AS TAKEN FROM THE ASSESSMENT Y EAR 2008-09 ARE THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF GENERATION OF ELECTRICITY. FOR THE ASSESSMENT YEAR UNDER DISP UTE IT FILED A RETURN OF INCOME ON 20.11.2008 DECLARING TOTAL INCOME OF RS.4 7,62,615/- BEFORE CLAIMING DEDUCTION U/S 80IA OF THE INCOME-TAX ACT. THE ASSESSEE ALSO DECLARED PROFITS UNDER THE MAT PROVISION. IN COURS E OF THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER WHILE EXAMINING T HE PROFIT & LOSS ACCOUNT OF THE ASSESSEE, NOTICED THAT THE ASSESSEE HAS CREDITE D RS.2,56,42,812/- TOWARDS SALE OF CARBON EMISSION REDUCTION (CER) AGA INST WHICH THE ASSESSEE CLAIMED EXPENDITURE OF RS.27,90,321/- WHICH ACCORDI NG TO THE ASSESSING OFFICER IMPLIED THAT THE PROFIT FROM CER IS RS.2,28 ,52,491/-. THE ASSESSEE CLAIMED DEDUCTION U/S 80IA OF THE ACT ON THIS AMOUN T BY TREATING IT AS INCOME FROM BUSINESS OF POWER GENERATION AND DISTRIBUTION. THE ASSESSING OFFICER HOWEVER CONCLUDED THAT THE INCOME FROM CER CANNOT C ONSTITUTE PROFIT & GAIN DERIVED FROM THE ASSESSEES BUSINESS ON GENERATION OF POWER AND ACCORDINGLY HELD THAT INCOME FROM CER CANNOT BE INCLUDED IN THE PROFIT OF THE ASSESSEE FOR COMPUTING DEDUCTION U/S 80IA OF THE ACT. THE A MOUNT OF RS.2,28,52,491/- WAS THEREFORE ADDED TO THE INCOME OF THE ASSESSEE AS INCOME FROM OTHER SOURCES. THE ASSESSEE CHALLENGED SUCH ADDITION BEFORE THE CIT(A). IN COURSE OF HEARING BEFORE THE CIT(A) , IT WAS PLEADED BY THE ASSESSEE THAT THE RECEIPT FROM SALE OF CER CANNOT B E MADE EXIGIBLE TO TAX UNDER THE PROVISIONS OF SECTION 2(24), SECTION 28, SECTION 45 AND SECTION 56 OF THE ACT. IT WAS FURTHER CONTENDED THAT THE RECEIPT F ROM SALE OF CER CANNOT BE TREATED AS A REVENUE RECEIPT AND SUBJECTED TO INCOM E-TAX. IT WAS CONTENDED THAT THE REVENUE FROM SALE OF CER IS ON CAPITAL ACC OUNT TO WHICH THE COMPUTATION PROVISIONS CANNOT BE MADE APPLICABLE. IN SUPPORT OF SUCH CONTENTION, THE ASSESSED RELIED UPON A DECISION OF THE ITAT HYDERABAD BENCH IN CASE OF MY HOME POWER LTD. VS. DCIT (CENTRAL CIR CLE), HYDERABAD (2012) 27 TAXMAN.COM PAGE 27. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF THE DECISION OF THE HYDERABAD BENCH IN CAS E OF MY HOME POWER LTD. VS. DCIT (SUPRA), THE CIT(A) HELD THAT THE REVENUE FROM SALE OF CARBON CREDITS CANNOT BE SUBJECTED TO TAX AS SAME IS IN TH E NATURE OF CAPITAL RECEIPT. APPEALS RELATING TO THE OTHER YEARS WERE ALSO ALLOW ED ON SIMILAR BASIS. ITA NOS.138, 139, 210, 211 & 212/VIZAG/2013 M/S. AGRI GOLD PROJECTS LTD., VIJAYAWADA 3 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD. THE LD. D.R. FAIRLY SUBMITTED BEFORE US THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ITAT HYDERABAD BENCH IN CASE OF MY HOME POWER LTD. VS. DCIT (SUPRA). CONSIDERING SUCH SUBMISSIONS OF THE LD. DR AND PERUSING THE DECISION OF THE COORDINATE BENCH IN CASE OF MY HOME POWER LTD. VS. DCIT (SUPRA), WE UPHOLD THE ORDER OF THE CIT(A) AND DISM ISS THE GROUNDS RAISED. 5. THE NEXT ISSUE AS RAISED BY THE DEPARTMENT IN TH IS APPEAL IS WITH REGARD TO THE DELETION OF AN AMOUNT OF RS.82,203/- REPRESENTING EXPENDITURE TOWARDS DONATION FOR CHILDREN UNIFORM. DURING THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED RS.82,203/- TOWARDS DONATION WHICH HAS NOT BEEN ADDED BACK TO T AXABLE INCOME IN THE COMPUTATION OF INCOME. WHEN THIS WAS POINTED OUT T O THE ASSESSEE, ASSESSEE SUBMITTED THAT DONATIONS WERE MADE TOWARDS CHARITAB LE PURPOSE OF PROVIDING UNIFORM TO SCHOOL CHILDREN. IT WAS CONTENDED BY THE ASSESSEE THAT THE EXPENDITURE MADE TOWARDS CONTRIBUTION TO UNIFORM FO R SCHOOL CHILDREN IS IN THE NATURE OF DISCHARGING OF SOCIAL OBLIGATION ON THE P ART OF ASSESSEE, WHICH HELP IN MAINTAINING GOOD RELATIONS AND GOOD WILL WITH TH E WORKERS UNIT. THEREFORE, THE EXPENDITURE SHOULD BE CONSIDERED AS FOR THE PUR POSE OF BUSINESS. THE ASSESSING OFFICER, HOWEVER, REJECTING SUCH CONTENTI ON OF THE ASSESSEE ADDED THE AMOUNT OF RS.82,203/- TO THE INCOME OF THE ASSE SSEE. THE CIT(A) DELETED SUCH ADDITION BY HOLDING AS UNDER: PARA 58. SECOND ISSUE RELATES TO DISALLOWANCE OF EXPENDI TURE INCURRED FOR SUPPLY OF SCHOOL UNIFORM TO THE POOR CHILDREN IN THE SCHOO L. IT IS NOTICED FROM THE RECORDS THAT THE APPELLANT HAS SPENT AN AMOUNT OF RS.82.203 / TOWARDS DONATION OF SCHOOL CHILDREN UNIFORMS AND CLAIMED EXPENDITURE TREATING THE SAME AS INCURRED AS CORPORATE SOCIAL OBLIGATION (CSO) IT HAS BEEN SUBMI TTED BY THE APPELLANT THAT EXPENDITURE INCURRED IN THE DISCHARGE OF CSO HAS BE EN HELD AS ALLOWABLE AND RELIED ON THE DECISIONS OF HON'BLE MADRAS HIGH COURT IN CI J VS. MADRAS REFINERIES LTD, (2004) 266 ITR17Q AND HON'BLE KARNATAKA HIGH COURT IN (2010) 192 TAXMAN 287 IN THE CIRCUMSTANCES, CONSIDERABLE FORCE IS FOUND I N THE ARGUMENTS OF THE APPELLANT. EXPENDITURE INCURRED TOWARDS CORPORATE S OCIAL OBLIGATION (CSO) WAS TO BE CONSIDERED AS INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT AND ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. ITA NOS.138, 139, 210, 211 & 212/VIZAG/2013 M/S. AGRI GOLD PROJECTS LTD., VIJAYAWADA 4 6. WE HAVE HEARD THE CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE AFORESAID ADDITION. AS IT APPEARS, THE ASSESSING OFFICER HAS NOT DISPUTED THE FACT THAT THE AMOUNT OF RS.82,203/- WA S EXPENDED TOWARDS SCHOOL UNIFORM OF THE CHILDREN. THEREFORE, SUCH CH ARITABLE ACTIVITY UNDERTAKEN BY THE ASSESSEE CAN BE CONSIDERED TO BE FOR DISCHAR GING ITS SOCIAL OBLIGATION FOR MAINTAINING THE CORDIAL RELATIONSHIP WITH THE E MPLOYEES WHICH IS ALSO IN THE BUSINESS INTEREST OF THE ASSESSEE. WE THEREFOR E DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS AC CORDINGLY UPHELD. ITA NO.211/VIZAG/2013: (BY THE DEPARTMENT) 7. THE FIRST ISSUE IS WITH REGARD TO THE DELETION O F ADDITION MADE ON ACCOUNT OF TREATING THE AMOUNT RECEIVED TOWARDS SAL E OF CARBON EMISSION REDUCTION (CER) AS REVENUE INCOME. THIS ISSUE HAS BEEN DECIDED BY US AGAINST THE DEPARTMENT WHILE DEALING WITH SIMILAR G ROUNDS IN ITA NO.210/VIZAG/2013 (SUPRA). FOLLOWING OUR DECISION THEREIN, WE DISMISS THE GROUND RAISED BY THE DEPARTMENT. 8. THE NEXT ISSUE AS RAISED IN THE APPEAL FOR THE A SSESSMENT YEAR 2009- 10 BY THE DEPARTMENT IS RELATING TO CIT(A) DELETING AN ADDITION OF RS.58,742/- TOWARDS MAINTENANCE OF TEMPLE. AS CAN BE SEEN FROM THE ASSESSMENT ORDER, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.58,742/-TOWARDS TEMPLE MAINTENANCE UNDER THE ADM INISTRATIVE EXPENSES. WHEN ASKED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT THE AMOUNT WAS SPENT ON MAKING THE IDOLS AND UTENSILS FOR THE TEMPLE CON STRUCTED INSIDE THE PLANT PREMISES. IT WAS SUBMITTED BY THE ASSESSEE THAT TH E MAINTENANCE OF THE TEMPLE INSIDE THE PREMISES OF THE FACTORY IS MEANT FOR WORKERS AND THE EXPENDITURE INCURRED IS FOR THE PURPOSE OF BUSINESS . THE ASSESSING OFFICER HOWEVER REJECTING THE CONTENTION OF THE ASSESSEE AD DED THE AMOUNT OF RS.58,742/-. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE CIT(A). THE CIT(A) FOLLOWING HIS OWN ORDER IN ASSESSEES CASE F OR THE ASSESSMENT YEAR 2008-09 ALLOWED THE EXPENDITURE CLAIMED TOWARDS TEM PLE MAINTENANCE. ITA NOS.138, 139, 210, 211 & 212/VIZAG/2013 M/S. AGRI GOLD PROJECTS LTD., VIJAYAWADA 5 9. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. AS CAN BE SEEN SIMILAR EXPENDITURE WA S ALLOWED BY THE CIT(A) IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 AND THE DEPARTMENT HAS NOT CHALLENGED SUCH RELIEF GRANTED BY THE CIT(A ) IN THE APPEAL FILED BEFORE ITAT. THEREFORE THE ORDER OF THE CIT(A) ON THIS ISSUE DESERVES TO BE UPHELD. THE GROUND RAISED IS DISMISSED. ITA NO.212/VIZAG/2013: (BY THE DEPARTMENT) 10. THE ONLY ISSUE IN THIS APPEAL IS WITH REGARD TO THE DELETION OF ADDITION MADE ON ACCOUNT OF TREATING THE AMOUNT RECEIVED TOW ARDS SALE OF CARBON EMISSION REDUCTION (CER) AS REVENUE INCOME. THIS I SSUE HAS BEEN DECIDED BY US AGAINST THE DEPARTMENT WHILE DEALING WITH SIM ILAR GROUNDS IN ITA NO.210/VIZAG/2013. FOLLOWING OUR DECISION THEREIN, WE DISMISS THE GROUND RAISED BY THE DEPARTMENT. ITA NOS.138&139/VIZAG/2013: (BY THE ASSESSEE) 11. THE ONLY COMMON ISSUE IN THE ASSESSEES APPEAL RELATES TO THE ISSUE OF DISALLOWANCE OF CERTAIN EXPENDITURE CLAIMED FOR NON -DEDUCTION OF TAX AT SOURCE BY APPLYING THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT. DURING THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS DEBITED EXPENDITURE CLAIMED UNDER VARIOUS HEADS TO THE PROFIT AND LOSS ACCOUNT. HOWEVER, HE NOTED THAT THOUGH THE ASSESSE E HAS CLAIMED THE AMOUNTS PAID AS EXPENDITURE BY DEBITING TO THE PROF IT & LOSS ACCOUNT, BUT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON SUCH PAY MENTS. HE THEREFORE APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DISALLOWED SUCH EXPENDITURE. THE ASSESSEE CHALLENGED THE DISALLOWA NCE BEFORE THE CIT(A). BEFORE THE CIT(A), IT WAS CONTENDED BY THE ASSESSEE THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOULD BE APPLICABLE WH ERE THE EXPENDITURE IS PAYABLE AND NOT WHERE THE SAME ARE PAID BEFORE THE END OF THE RELEVANT FINANCIAL YEAR. IN THIS CONTEXT THE ASSESSEE RELIED UPON A DECISION OF THE ITAT SUB BENCH VISAKHAPATNAM IN CASE OF MERILYN SHIPPING AND TRANSPORT VS. ACIT ITA NOS.138, 139, 210, 211 & 212/VIZAG/2013 M/S. AGRI GOLD PROJECTS LTD., VIJAYAWADA 6 IN ITA NO.477/VIZAG/2008. THE CIT(A) HOWEVER DIREC TED THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE AS TO WHETHER T HE TDS HAS BEEN PAID BEFORE THE DUE DATE OF SUBMISSION OF THE RETURN U/S 139(1) OF THE ACT AND THEN TAKE A DECISION REGARDING ALLOWABILITY OF THE SAME IN TERMS OF SECTION 40(A)(IA) OF THE ACT. 12. THE LD. A.R. SUBMITTED BEFORE US THAT THE DISAL LOWANCE OF EXPENDITURE BY APPLYING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IN EFFECT ENHANCED THE BUSINESS INCOME OF THE ASSESSEE, THEREFORE THE ASSE SSEE WOULD BE ELIGIBLE TO CLAIM DEDUCTION U/S 80IA OF THE ACT ON SUCH ENHANCE D PROFIT DUE TO DISALLOWANCE OF EXPENDITURE. IN SUPPORT OF SUCH CON TENTION, THE LD. A.R. RELIED UPON THE FOLLOWING TWO DECISIONS: 1. SRI VELAYUDHASWAMY SPINNING MILLS PVT. LTD. VS. CIT (2011) 12 ITR (TRIB) 353 (CHENNAI) 2. HONBLE ITAT ORDER DT.27.6.2013 IN THE CASE OF M/S. SEVEN HILLS BUSINESS SOLUTIONS LIMITED ITA NO.119 OF 201 3. 13. THE LD. D.R. ON THE OTHER HAND SUPPORTED SUCH D ISALLOWANCE. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES PERUSED THE MATERIALS ON RECORD AS WELL AS THE DECISIONS CITED BEFORE US. SO FAR AS DISALLOWANCE OF EXPENDITURE BY INVOKING THE PROVISI ONS U/S 40(A)(IA) OF THE ACT IS CONCERNED, IT HAS TO BE NOTED THAT THE ASSES SEE HAS MAINLY RELIED UPON THE DECISION OF THE ITAT VIZAG BENCH IN CASE OF MER ILYN SHIPPING AND TRANSPORT VS. ACIT IN ITA NO.477/VIZAG/2008 TO CONT END THAT THE SAID EXPENDITURE IS ALLOWABLE AS IT HAS BEEN PAID BEFORE THE END OF THE FINANCIAL YEAR. HOWEVER, CONSIDERING THE FACT THAT THE AFORE SAID DECISION OF THE ITAT SPECIAL BENCH HAS BEEN SUSPENDED BY THE HONBLE JUR ISDICTIONAL HIGH COURT, WE CANNOT GIVE A CONCLUSIVE FINDING BY FOLLOWING TH E DECISION OF THE ITAT SPECIAL BENCH (SUPRA). FURTHERMORE, IT HAS TO BE N OTED THAT THE EXPENDITURE DISALLOWED BY THE ASSESSING OFFICER IN BOTH THE ASS ESSMENT YEARS ALSO INCLUDE EXPENDITURE DEBITED TOWARDS SERVICE CHARGES AND SUC CESSION FEES FOR CARBON CREDIT. SINCE THE RECEIPTS FROM CARBON CREDITS ARE IN THE NATURE OF CAPITAL RECEIPT, THE EXPENDITURE LINKED TO EARNING OF SUCH INCOME CANNOT BE TREATED AS A REVENUE EXPENDITURE. HOWEVER, IT IS A FACT ON RECORD THAT DISALLOWANCE ITA NOS.138, 139, 210, 211 & 212/VIZAG/2013 M/S. AGRI GOLD PROJECTS LTD., VIJAYAWADA 7 OF THE EXPENDITURE HAS RESULTED IN ENHANCEMENT OF T HE BUSINESS PROFIT OF THE ASSESSEE. THEREFORE, CONSIDERED IN THE LIGHT OF THE DECISIONS RELIED UPON BY THE ASSESSEE, IN OUR VIEW THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF THE PROFIT ENHANCED AS A R ESULT OF DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. TO THAT EXTENT, ASSESSEE S CLAIM HAS TO BE ALLOWED. THE GROUNDS RAISED ARE PARTLY ALLOWED. 15. IN THE RESULT, DEPARTMENTS APPEALS ARE DISMISSED AND ASSESSEES APPEALS ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 6 TH MAR14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 6 TH MARCH, 2014 COPY TO 1 M/S. AGRI GOLD PROJECTS LTD., AGRI GOLD HOUSE, D. NO.40-06-03, NIMMAGADDA, SOMASANKARAO STREET, OLD REVENUE COLONY , LABBIPET, VIJAYAWADA 2 ADDL. CIT, RANGE-2, VISAKHAPATNAM 3 THE CIT, VIJAYAWADA 4 THE CIT(A), VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM