Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 4241 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 11 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-05-2019
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
Not Allotted
Assessment Year
2011-2012
Appeal Filed On
02-06-2016
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER 1. ./ I.T.A. NO.1462/AHD/2016 2. ./ I.T.A. NO.1463/AHD/2016 ( / ASSESSMENT YEARS: 2010-11 & 2011-12 RESPECTIVELY ) THE JT. CIT (OSD) GANDHINAGAR / VS. KALPATARU POWER TRANSMISSION LTD. 101, PART-III, GIDC ESTATE SECTOR NO.28 GANDHINAGAR-382 028 # ./ ./ PAN/GIR NO. : AAACK 8387 R ( #& / APPELLANT ) .. ( '#& / RESPONDENT ) #&( / APPELLANT BY : SHRI O.P.SHARMA, CIT-DR '#& )( / RESPONDENT BY : SHRI BHAVIN MARFATIYA, AR *+ ), / DATE OF HEARING 12/02/2019 -./0 ), / DATE OF PRONOUNCEMENT 10/ 05/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTA NCE OF THE REVENUE AGAINST THE COMMON ORDER OF THE COMMISSIONE R OF INCOME TAX(APPEALS)-12, AHMEDABAD [CIT(A) IN SHORT] DAT ED 21/02/2016 IN THE MATTER OF ASSESSMENT ORDER UNDER S.143(3) R.W.S . 153A(1)(B) OF THE ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 2 - INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT') DATED 30/03/2013 & 30/03/2014 RELEVANT TO ASSESSMENT YEA RS (AYS) 2010-11 & 2011-12 RESPECTIVELY. SINCE THE GROUNDS OF APPE AL INVOLVED IN BOTH THE APPEALS ARE COMMON, THESE WERE HEARD TOGETHER A ND ARE BEING DISPOSED OF BY WAY OF A COMMON ORDER. 2. FIRST, WE SHALL TAKE UP THE REVENUES APPEAL IN ITA NO.1462/AHD/2016 FOR AY 2010-11 AS A LEAD CASE. 3. THE GROUNDS OF APPEAL RAISED BY THE REVENUE RE AD AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.4,42,72,610/- MADE BY THE ASSESSING OFFICER O N ACCOUNT OF RECEIPTS FROM CARBON CREDITS TREATING IT AS REVENUE RECEIPT. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN L AW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.63,03,835/- U/S.14A R.W.R. 8D MADE BY A.O. 3.1. GROUND NO.1 OF REVENUES APPEAL CONCERNS ADDIT ION OF RS.4,42,72,610/- ON ACCOUNT OF CARBON CREDIT RECEIP TS AS REVENUE RECEIPT. THE ISSUE IS NO LONGER RES INTEGRA . IDENTICAL ISSUE CAME UP IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO.538/AHD/2013 ORD ER DATED 18/03/2016 WHEREIN COORDINATE BENCH ADJUDICATED THE ISSUE IN THE FOLLOWING TERMS: ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 3 - '9. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 10. WE ARE ALIVE TO LEARNED COUNSELS CORE CONTENTI ON THAT THE ISSUE ABOUT TAXABILITY OF CARBON CREDITS IS NO LONGER RES INTEG RA INASMUCH AS THERE ARE SEVERAL DECISIONS OF THIS TRIBUNAL, AND ONE OF WHICH HAS BE EN APPROVED BY HONBLE ANDHRA PRADESH HIGH COURT, WHICH HAVE HELD THAT THE CARBON CREDIT RECEIPTS ARE NOT TAXABLE. HOWEVER, FOR THE REASONS WE WILL SET OUT IN A SHORT WHILE, WE CONSIDER IT APPROPRIATE TO DEAL WITH THE MATTER IN A LITTLE DETAIL AND SET OUT OUR UNDERSTANDING ABOUT CERTAIN BASIC ASPECTS OF THIS CASE, RATHER THAN DISPOSING O F APPEAL, WITHOUT EXAMINING THE FACTS OF CASE, SUMMARILY AS A COVERED MATTER. 11. A CARBON CREDIT IS A FINANCIAL INSTRUMENT THAT REPRESENTS A TON OF CO2 (CARBON DIOXIDE) OR CO2E (CARBON DIOXIDE EQUIVALENT GASES) REMOVED OR REDUCED FROM THE ATMOSPHERE FROM AN EMISSION REDUCTION PROJECT. IT H AS BEEN USED INTERCHANGEABLY WITH THE CERS (I.E. CERTIFIED EMISSION REDUCTIONS) AND THAT IS THE APPROACH WE WILL HAVE HERE AS WELL. THE RELEVANCE OF CARBON CREDIT, SO FAR AS OUR PURPOSE IS CONCERNED, IS UNDER THE KYOTO PROTOCOL. KYOTO PROTOCOL, SIGNED IN JAPAN IN 1997 IN KYOTO, IS AN INTERNATIONAL AGREEMENT, BETWEEN VARIOUS DEVELOPED COUNTRIES, LINKED TO THE UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE (UNF CCC), WHICH COMMITS ITS SIGNATORIES BY SETTING INTERNATIONALLY BINDING EMIS SION REDUCTION TARGETS. THIS AGREEMENT IS SIGNED IN THE BACKDROP OF RECOGNITION THAT DEVELOPED COUNTRIES ARE PRINCIPALLY RESPONSIBLE FOR THE CURRENT HIGH LEVELS OF HARMFUL GAS EMISSIONS IN THE ATMOSPHERE, AS A RESULT OF MORE THAN ONE AND A HALF CENTURY OF INDUSTRIAL ACTIVITY. WHAT IT SEEKS TO ACHIEVE, IN MEASURABLE TERMS AND A S SET OUT IN ARTICLE 3, IS TO ENSURE THAT THEIR AGGREGATE ANTHROPOGENIC CARBON D IOXIDE EQUIVALENT EMISSIONS OF GREENHOUSE GASES LISTED ANNEXURE 1 (TO THE PROTOCOL ) DO NOT EXCEED THEIR ASSIGNED AMOUNTS...WITH A VIEW TO REDUCING THEIR OVERALL E MISSIONS OF SUCH GASES BY AT LEAST 5% BELOW 1990 LEVELS IN THE COMMITMENTS PERIO D 2008-2012 TO THEIR QUANTIFIED EMISSION LIMITATION AND REDUCTION COMMITMENTS INSCR IBED IN THE ANNEXURE. ARTICLE 2 OF KYOTO PROTOCOL COMMITS EACH SIGNATORY COUNTRY TO ACHIEVING ITS QUANTIFIED EMISSION LIMITATIONS AND REDUCTION COMMITMENTS AND SETS OUT THE VARIOUS MODES OF DOING SO. ARTICLE 6 OF THIS AGREEMENT, I.E. KYOTO P ROTOCOL, PROVIDES THAT FOR ACHIEVING THESE REDUCTION NORMS, THE PARTIES MAY ACQUIRE FRO M, ANY OTHER SUCH PARTY EMISSION REDUCTION UNITS RESULTING FROM PROJECTS AIMED AT RE DUCING ANTHROPOGENIC EMISSIONS BY SOURCES OR ENHANCING ANTHROPOGENIC REMOVALS BY SINK S OF GREENHOUSE GASES IN ANY SECTOR OF THE ECONOMY PROVIDED, INTER ALIA, ANY S UCH PROJECT HAS THE APPROVAL OF THE PARTIES INVOLVED AND ANY SUCH PROJECT PROVIDES A REDUCTION IN EMISSIONS BY SOURCES, OR AN ENHANCEMENT OF REMOVALS BY SINKS, TH AT IS ADDITIONAL TO ANY THAT WOULD ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 4 - OTHERWISE OCCUR. THE EMISSION REDUCTION UNITS, WHI CH IS WHAT CARBON CREDITS OR CERS (CERTIFIED EMISSION REDUCTIONS) IMPLY, CAN THU S BE ACQUIRED BY THE PARTIES AS WELL, AS LONG AS THE PROJECT, IN WHICH THESE REDUCT IONS ARE ACHIEVED, ARE APPROVED BY THE PARTIES TO THE PROTOCOL. OF COURSE, THIS METHO D OF REDUCTION OF HARMFUL GASES IS ONLY SUPPLEMENTAL METHOD INASMUCH AS THESE COUNTRIE S CANNOT RELY SOLELY, OR MAINLY, ON SO ACQUIRING CERS FROM HARMFUL EMISSION REDUCTIO NS, BUT THAT IS NOT REALLY MATERIAL IN THE PRESENT CONTEXT BECAUSE WHAT WE ARE DEALING WITH IS ONLY ACQUIRING THE CERS FROM INDIAN ENTITIES. IN EFFECT, EVEN IF T HE EMISSION FOR HARMFUL GAS IS REDUCED IN A DEVELOPING COUNTRY LIKE INDIA, AS LONG AS THE PROJECT IN WHICH THIS REDUCTION IS ACHIEVED IS APPROVED BY PARTIES TO THE PROTOCOL AND THESE EMISSION REDUCTION UNITS ARE TRANSFERRED BY THE INDIAN ENTIT Y SO REDUCING THE EMISSIONS TO THE ENTITIES IN THE PARTIES TO THE KYOTO PROTOCOL, SUCH EMISSION REDUCTIONS CAN BE TAKEN INTO ACCOUNT IN THEIR COMMITTED REDUCTIONS. THE RES PECTIVE PARTIES TO THE KYOTO PROTOCOL HAVE IN TURN PUT THE EMISSION OBLIGATIONS ON THE BUSINESS ENTITIES IN THEIR COUNTRIES, AND, TO FULFIL THE EMISSION OBLIGATIONS, THESE ENTITIES HAVE OBTAINED THE EMISSION REDUCTION CREDITS FROM ENTITIES IN OTHER P ARTS OF THE WORLD. THERE ARE ENTITIES WHICH TRADE IN AND FACILITATE TRANSFER OF THESE CRE DITS FROM ONE ENTITY TO ANOTHER. THERE ARE SPONSORSHIP ARRANGEMENTS, UNDER THE CLEAN DEVELOPMENT MECHANISM, WILL ALLOW THE CERS GENERATED BY INDIAN ENTITIES TO TRAN SFER THE CERS TO THE FOREIGN ENTITIES. IT IS THIS PECULIAR FEATURE OF MECHANISM OF FULFILLING THE COMMITMENTS THAT LEAD TO A UNIQUE BUSINESS MODEL IN TERMS OF THE CAR BON CREDITS. OF COURSE, THE CARBON CREDITS THROUGH WORK IN DEVELOPING COUNTRIES CAN EI THER BE THROUGH BUYING THE CREDITS STRAIGHT AWAY, THROUGH JOINT IMPLEMENTATIONS OR BY SPONSORING A PROJECT IN THE DEVELOPING WORLD WHERE COST OF REDUCING THE HARMFUL GAS EMISSION IS MUCH LOWER. THESE THREE MODES ARE TERMED AS IET (INTERNATIONAL EMISSION TRADING), JI (JOINT IMPLEMENTATION) AND CDM (CLEAN DEVELOPMENT MECHANIS M) RESPECTIVELY. WHATEVER BE THE MODE, THE COMMON THREAD IS THAT FOR ALL THIS EMISSION REDUCTION WORK IN THE DEVELOPING COUNTRIES, DEVELOPED COUNTRIES GET THE C REDITS AND VIRTUALLY A LEGITIMACY TO THEIR HIGHER EMISSION TO HARMFUL GAS EMISSIONS. THE FOLLOWING DIAGRAM COULD PERHAPS THROW SOME LIGHT ON HOW CARBON CREDITS GET CONVERTE D INTO CASH, OR, TO PUT IT BLUNTLY, HOW BUSINESS ENTITIES IN THE DEVELOPED COUNTRIES WA SH THEIR GUILT FOR GENERATING HARMFUL GASES BY DOLING OUT MONIES TO THOSE WHO SAV E EMISSION OF HARMFUL GASES: ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 5 - ( HTTP://WWW.DAILYTIMESGAZETTE.COM/CARBON-CREDIT-SCHE ME-BLAMED-FOR-THE-INCREASED- EMISSION-OF-GREENHOUSE-GASES-2/24240/ ) 12. THE QUESTION THAT WE ARE REALLY REQUIRED TO ADJ UDICATE UPON IS WHETHER THE MONIES RECEIVED BY A PERSON, ON TRANSFER OF CARBON CREDITS, IS TAXABLE UNDER THE INDIAN INCOME TAX ACT,1961. 13. LET US TAKE A PAUSE HERE AND UNDERSTAND THE TRU E NATURE OF THIS RECEIPT, IN THE HANDS OF THE PERSON TRANSFERRING THE CARBON CREDITS FROM INDIA. 14. THE PROXIMATE REASON FOR RECEIPT OF MONEY ON TR ANSFER OF CARBON CREDIT IS THAT SOMEONE IN THE DEVELOPED COUNTRIES IS GENERATING MO RE HARMFUL GAS EMISSION THAT HE WAS PERMITTED TO GENERATE, UNDER THE KYOTO PROTOCOL , AND INSTEAD OF REDUCING THE HARMFUL GAS EMISSION ON HIS OWN OR TO SUPPLEMENT HI S EFFORTS IN REDUCTION OF THESE HARMFUL EMISSIONS, HE IS BUYING CREDITS FOR THE RED UCTION IN HARMFUL GASES ACHIEVED BY SOMEONE ELSE IN THIS DEVELOPING COUNTRY. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 6 - 15. WHAT DOES A PERSON GET BY BUYING THESE CARBON C REDITS OR CERS. FOR EACH CARBON CREDIT THAT A PERSON IN THE DEVELOPED WORLD BUYS, HE GETS RIGHT TO EMIT ONE MORE TON OF CO2 (CARBON DIOXIDE) OR CO2E (CARBON DI OXIDE EQUIVALENT GASES). NOBODY WOULD NORMALLY BUY THESE CREDITS AS A TOKEN OF APPRECIATION OF THE WORK DONE IN THE DEVELOPING WORLD. THE PURCHASE OF THESE CRED ITS IS DRIVEN BY THE BUSINESS COMPULSIONS. THE BUSINESS COMPULSION IS TO MEET THE EMISSION NORMS. THESE EMISSION NORMS ARE MET BY REDUCTION IN EMISSION ON ITS OWN A ND ALSO PAYING MONEY TO SOMEONE IN THE DEVELOPING WORLD TO BUY CREDIT FOR W HAT ENVIRONMENTAL FRIENDLY WORK HAS BEEN DONE BY THAT ENTITY. ALL THIS IS IN NO WA Y REDUCING THE EMISSIONS BUT MERELY REDISTRIBUTING THE RIGHT TO EMIT GREENHOUSE GASES. THAT IS AN ACT TOO UNKIND TO THE GLOBAL CONCERNS, AND IT ENDS UP SUPPORTING THE GLOB AL WARMING RATHER THAN CONTROLLING IT. THERE IS NO POINT IN GLORIFYING TH ESE TRANSACTIONS OF CARBON CREDITS AS AN ACT OF BENEVOLENCE OR BY PUTTING THOSE BUYING AN D SELLING THESE CARBON CREDITS ON A HIGHER MORAL PEDESTAL. AS PROF ADAM SMITH SAID TH REE CENTURIES AGO, IT IS NOT FROM THE BENEVOLENCE OF THE BUTCHER, THE BREWER, OR THE BAKER THAT WE EXPECT OUR DINNER, BUT FROM THEIR REGARD TO THEIR OWN INTEREST. NOTHI NG EXEMPLIFIES IT BETTER THAN THE SITUATION BEFORE US. 16. UNDOUBTEDLY, GENERATION OF CARBON CREDIT DOES C ERTAINLY MEAN THAT THE ENTITY GETTING THE CARBON CREDITS HAS ACHIEVED REDUCTION I N HARMFUL GAS EMISSIONS, AND THAT IS AN ENVIRONMENTAL FRIENDLY ACHIEVEMENT. IT IS A T ESTIMONIAL OF THE GOOD WORK DONE BY THE ENTITY. THE CARBON CREDITS ARE NOT, HOWEVER, FO R BEING SHOWCASED. DOING GOOD FOR THE ENVIRONMENT IS ONE THING, GETTING IT CERTIFIED AND PRACTICALLY MONETIZING IT IS QUITE ANOTHER. IT IS NOT A STANDALONE ACTIVITY TO LOWER T HE HARMFUL EMISSIONS. WHAT IS PRACTICALLY BEING DONE IS USE OF ENVIRONMENT FRIEND LY MEASURES IN THE COURSE OF NORMAL BUSINESS ACTIVITY. THE EMISSION REDUCTION IS AN INTEGRAL PARTY OF THE CORE ACTIVITY CARRIED OUT BY THE BUSINESS. IT IS NOT SOM E PHILANTHROPIC ACT WHICH GETS THE ASSESSEE BEFORE US THESE CARBON CREDITS, IT IS THE MANNER IN WHICH THE BUSINESS ACTIVITIES ARE CARRIED OUT, WHEN FOUND TO BE ENVIRO NMENT FRIENDLY AND RESULTING IN LESSER EMISSION OF HARMFUL GASES, RESULT IN THESE C ARBON CREDITS. ALL THAT ONE GAINS FROM THESE CARBON CREDITS IN INDIA IS THE RIGHT TO TRANSFER IT. THESE CREDITS HAVE NO OTHER VALUE. WHEN THESE RIGHTS ARE TRANSFERRED TO S OMEONE IN THE DEVELOPED WORLD, IT DOES NOT DO ANY GOOD TO ANY NOBLE CAUSE- MUCH LESS TO THE ENVIRONMENTAL CONCERNS OF THIS PLANET. IF AT ALL IT DOES GOOD TO ANYTHING, IT IS TO SELLERS CASH REGISTER AND TO BUYERS INSENSITIVITY TO THE ENVIRONMENT. THE ACTIV IST CRITICISM THAT CARBON CREDIT SALE CONSIDERATION IS SOMETHING WHICH HAS GIVEN LEGITIMA CY TO THE DEVELOPED WORLDS CONTINUING APATHY TO THE ENVIRONMENTAL CONCERNS, MA Y PERHAPS BE TOO EXAGGERATED BUT NOT WHOLLY UNJUSTIFIED. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 7 - 17. IT IS IN THIS LIGHT OF FACTUAL SCENARIO THAT WE NEED TO ADDRESS OURSELVES TO THE TAXABILITY OF SALE CONSIDERATION FOR CARBON CREDITS . 18. AS WE DEAL WITH THIS ASPECT OF THE MATTER, WE M AY ACKNOWLEDGE THE FACT THAT THERE IS A SERIES OF DECISIONS OF THIS TRIBUNAL, ST ARTING WITH THE DECISION IN THE CASE OF MY HOME POWER LTD VS DCIT [(2013) 63 SOT 227 (HYD)] , ON THIS ISSUE AND ALL BUT ONE OF THESE DECISIONS ARE IN FAVOUR OF THE ASSESSE E. THE REASONING, WHICH PREVAILED UPON THE BENCH TO DECIDE THE MATTER IN FAVOUR OF TH E ASSESSEE, HAS BEEN SET OUT IN THE CASE OF MY HOME POWER LTD (SUPRA) AS FOLLOWS: . CARBON CREDIT IS IN THE NATURE OF 'AN ENTITLEMEN T' RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING CARBON, H EAT AND GAS EMISSIONS. THE ENTITLEMENT EARNED FOR CARBON CREDITS CAN, AT B EST, BE REGARDED AS A CAPITAL RECEIPT AND CANNOT BE TAXED AS A REVENUE RE CEIPT. IT IS NOT GENERATED OR CREATED DUE TO CARRYING ON BUSINESS BUT IT IS ACCRU ED DUE TO 'WORLD CONCERN'. IT HAS BEEN MADE AVAILABLE ASSUMING CHARACTER OF TR ANSFERABLE RIGHT OR ENTITLEMENT ONLY DUE TO WORLD CONCERN. THE SOURCE O F CARBON CREDIT IS WORLD CONCERN AND ENVIRONMENT. DUE TO THAT THE ASSESSEE G ETS A PRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, THE AMO UNT RECEIVED FOR CARBON CREDITS HAS NO ELEMENT OF PROFIT OR GAIN AND IT CAN NOT BE SUBJECTED TO TAX IN ANY MANNER UNDER ANY HEAD OF INCOME. IT IS NOT LIAB LE FOR TAX FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SEC TIONS 2(24), 28, 45 AND 56 OF THE INCOME-TAX ACT, 1961. CARBON CREDITS ARE MAD E AVAILABLE TO THE ASSESSEE ON ACCOUNT OF SAVING OF ENERGY CONSUMPTION AND NOT BECAUSE OF ITS BUSINESS. FURTHER, IN OUR OPINION, CARBON CREDITS C ANNOT BE CONSIDERED AS A BI-PRODUCT. IT IS A CREDIT GIVEN TO THE ASSESSEE UN DER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. THUS, THE A SSESSEES WHO HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE C ARBON CREDIT IS NOT A RESULT OR INCIDENCE OF ONE'S BUSINESS AND IT IS A C REDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CREDITS GET BENEFIT BY SE LLING THE SAME TO A PERSON WHO NEEDS CARBON CREDITS TO OVERCOME ONE'S NEGATIVE POINT CARBON CREDIT. THE AMOUNT RECEIVED IS NOT RECEIVED FOR PRODUCING AND/O R SELLING ANY PRODUCT, BI- PRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYING O N THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS ENTITLEMENT OR ACCRETION OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CREDITS IS CAPITAL RECEIPT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V. MAHESHWARI DEVI JUTE MILLS LTD. [1965] 57 ITR 36 WH EREIN HELD THAT TRANSFER OF SURPLUS LOOM HOURS TO OTHER MILL OUT OF THOSE AL LOTTED TO THE ASSESSEE UNDER AN AGREEMENT FOR CONTROL OF PRODUCTION WAS CAPITAL RECEIPT AND NOT INCOME. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 8 - BEING SO, THE CONSIDERATION RECEIVED BY THE ASSESSE E IS SIMILAR TO CONSIDERATION RECEIVED BY TRANSFERRING OF LOOM HOUR S. THE SUPREME COURT CONSIDERED THIS FACT AND OBSERVED THAT TAXABILITY O F PAYMENT RECEIVED FOR SALE OF LOOM HOURS BY THE ASSESSEE IS ON ACCOUNT OF EXPL OITATION OF CAPITAL ASSET AND IT IS CAPITAL RECEIPT AND NOT AN INCOME. SIMILA RLY, IN THE PRESENT CASE THE ASSESSEE TRANSFERRED THE CARBON CREDITS LIKE LOOM H OURS TO SOME OTHER CONCERNS FOR CERTAIN CONSIDERATION. THEREFORE, THE RECEIPT OF SUCH CONSIDERATION CANNOT BE CONSIDERED AS BUSINESS INCO ME AND IT IS A CAPITAL RECEIPT. ACCORDINGLY, WE ARE OF THE OPINION THAT TH E CONSIDERATION RECEIVED ON ACCOUNT OF CARBON CREDITS CANNOT BE CONSIDERED AS I NCOME AS TAXABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GENERATED IN THE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO E NVIRONMENTAL CONCERNS. CREDIT FOR REDUCING CARBON EMISSION OR GREENHOUSE E FFECT CAN BE TRANSFERRED TO ANOTHER PARTY IN NEED OF REDUCTION OF CARBON EMI SSION. IT DOES NOT INCREASE PROFIT IN ANY MANNER AND DOES NOT NEED ANY EXPENSES . IT IS A NATURE OF ENTITLEMENT TO REDUCE CARBON EMISSION, HOWEVER, THE RE IS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET THIS ENTIT LEMENT. CARBON CREDIT IS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. 19. IN ALL OTHER DECISIONS ON THE SAME LINES, AS CI TED BEFORE US, THERE IS A REFERENCE TO THE AFORESAID OBSERVATIONS OF THE TRIBUNAL AND T HERE IS HARDLY ANY INDEPENDENT ANALYSIS OF THE FACTUAL SITUATION. THE SAME REASON ING HAS BEEN ADOPTED BY THE COORDINATE BENCHES. . 20. WITH GREATEST RESPECT TO THE COORDINATE BENCHES , WE HAVE OUR SERIOUS RESERVATIONS ON THIS FACTUAL FINDING BY THE COORDIN ATE BENCHES. AS A MATTER OF FACT, THE FINDINGS ARE GIVEN IN ONLY ONE DECISION, I.E. MY HO ME POWER (SUPRA), AND OTHER DECISIONS SIMPLY, AND SOMEWHAT MECHANICALLY, FOLLOW THE SAME. THE FACTUAL FINDINGS IN THIS CASE ARE NOT THE SAME, AS ARRIVED BY THE CO ORDINATE BENCH IN THE CASE OF MY HOME POWER (SUPRA), AND WE ARE, THEREFORE, NOT INCL INED TO BE GUIDED BY THIS DECISION. HOWEVER, FOR THE REASONS WE WILL SET OUT IN A SHORT WHILE, IT IS NOT NECESSARY TO REFER THE MATTER TO A SPECIAL BENCH AT THIS STAG E. LET US FIRST SET OUT OUR REASONS OF EXPRESSING THIS VOICE OF DISSENT: I. AS IT WAS EVIDENT FROM THE RESPONSE TO THE QUESTION S POSED BY US DURING THE COURSE OF HEARING, THE GRANT OF CERS ARE INEXTRICABLY LINKED TO THE ACTUAL FUNCTIONING OF THE UNIT INASMUCH AS I T WAS REDUCTION OF EMISSION OF HARMFUL GASES, AS A RESULT OF THE CHANG E IN THE MANNER IN WHICH UNIT FUNCTIONED E.G. LESSER OR NO USE OF FOSS IL FUEL, WHICH ENTITLES ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 9 - THE ASSESSEE TO THE CER. TAKE, FOR EXAMPLE, A SITUA TION IN WHICH THE UNIT IS CLOSED AND DOES NOT FUNCTION AT ALL. LEARNE D COUNSEL FAIRLY ACCEPTS THAT THERE CANNOT BE ANY CERS IN SUCH A SIT UATION. IN SUCH A SITUATION, WE DONOT SUBSCRIBE TO THE VIEW THAT THE CER IS NOT GENERATED OR CREATED DUE TO CARRYING ON BUSINESS BUT IT IS ACCRUED DUE TO WORLD CONCERN. WE ARE OF THE VIEW THAT THE CE R IS GENERATED DUE TO CARRYING ON BUSINESS IN A MANNER FRIENDLY TO THE CAUSE OF REDUCTION OF HARMFUL GASES AND THUS PROTECT THE ENVIRONMENT. II. AS REGARDS THE FINDING THAT CARBON CREDITS ARE MAD E AVAILABLE TO THE ASSESSEE ON ACCOUNT OF SAVING OF ENERGY CONSUMPTION AND NOT BECAUSE OF ITS BUSINESS , WE ARE OF THE CONSIDERED VIEW THAT THE CERS ARE MADE AVAILABLE TO THE ASSESSEE BECAUSE OF ITS CARRYING O N THE BUSINESS IN AN ENVIRONMENT FRIENDLY MANNER, AND, AS WE HAVE EMPHAS IZED BEFORE, IF THERE IS NO CARRYING ON OF THE BUSINESS, THERE ARE NO CARBON CREDITS. THE QUESTION OF SAVINGS IN ENERGY CONSUMPTION ARISE S ONLY IN THE COURSE OF THE BUSINESS. THE CERS, IN OUR OPINION, A RE AN OFFSHOOT OF BUSINESS BEING CARRIED IN ENVIRONMENTALLY RESPONSIB LE MANNER. TAKE, FOR EXAMPLE, LOWERING OR ELIMINATING THE USE OF FOS SIL FUEL. WHEN A BUSINESS DOES SO, AND USES OTHER FUELS, E.G. RENEWA BLE ENERGY OR SOLAR ENERGY, IN THE PLACE OF FOSSIL FUELS, E.G. OIL, COA L OR NATURAL GAS, IT IS THE ACTIVITY OF CARRYING ON BUSINESS IN THIS MANNER WHI CH EARNS THE BUSINESS CERS. THE ACTIVITY OF BUSINESS AND ACTIVIT Y OF EARNING CARBON CREDITS CANNOT, THEREFORE, BE DIVORCED FROM EACH OT HER. THE CORE ACTIVITY IS BUSINESS AND BEING ENVIRONMENTALLY RESP ONSIBLE IS THE MANNER IN WHICH THIS CORE ACTIVITY IS CARRIED OUT. IT IS THUS INCORRECT TO SAY THAT CARBON CREDITS ARE MADE AVAILABLE TO THE A SSESSEE NOT BECAUSE OF ITS BUSINESS. III. THE ACTIVITY OF OBTAINING CERS IS A SYSTEMATIC ACTI VITY WHICH REQUIRES CAREFUL PLANNING AND A SERIES OF ACTIONS BEFORE THE CERS ARE OBTAINED. FOR EXAMPLE, A PROJECT IS TO BE FIRST APPROVED BY T HE APPROPRIATE AUTHORITIES WHICH GRANT THE CERS. THE FUNCTIONING O F THE BUSINESS AND THE REDUCTIONS IN EMISSIONS ARE TO BE MONITORED BY THE APPROPRIATE AUTHORITIES. THE CARBON CREDITS ARE NOT A WINDFALL WHICH APPEAR OUT OF THE BLUE. A SERIES OF CONSCIOUS DECISIONS ARE THUS REQUIRED TO BE TAKEN BY THE ASSESSEE IN ORDER TO GET THE CERS AND THE CO NSIDERATIONS OF CERS ESSENTIALLY THEREFORE HAVE A ROLE TO PLAY ON T HE MANNER IN WHICH BUSINESS IS CARRIED OUT. FOR EXAMPLE, WHEN RENEWAL ENERGY IS SUBSTITUTED FOR THE FOSSIL FUELS, THE EXPECTED GAIN S OF CARBON CREDITS ARE ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 10 - ALSO FACTORED. IT IS AN INTEGRAL PART OF THE BUSINE SS ACTIVITY, AND AN IMPORTANT CONSIDERATION ABOUT THE CHOICE OF COURSES AVAILABLE IN CARRYING ON THE BUSINESS, WHICH RESULTS IN CERS. TH E GENERATION OF CERS IS THUS ON ACCOUNT OF BUSINESS ACTIVITY. WE, T HEREFORE, FIND OURSELVES IN DISAGREEMENT WITH THE VIEWS OF THE COO RDINATE BENCH TO THE EFFECT THAT CARBON CREDIT IS NOT AN OFFSHOOT O F BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GEN ERATED IN THE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO ENVIR ONMENTAL CONCERNS. IV. THIS GAIN IS NOT IN TERMS OF MONEY, BUT IT IS A GAI N NEVERTHELESS. IT IS CLEARLY A BENEFIT IN THE SENSE IT ENTITLES THE ASSE SSEE TO TRANSFER A RIGHT TO PRODUCE MORE EMISSION- WHICH IS A VALUABLE ENTIT LEMENT, AND IT ARISES FROM CARRYING ON OF BUSINESS. THIS FACTUAL F INDING IS IMPORTANT IN THE CONTEXT OF SECTION 28(IV) WHICH PROVIDES FOR TAXABILITY OF THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERT IBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR EXERCISE OF PROFESSIO N AS A BUSINESS INCOME. ACCORDINGLY, WE ARE UNABLE TO SUBSCRIBE TO THE FINDING OF THE COORDINATE BENCH THAT IT IS NOT LIABLE FOR TAX FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 2(24), 28, 45 AND 56 OF THE INCOME-TAX ACT, 1961 V. AS INDIA DOES NOT HAVE ANY COMMITMENTS FOR REDUCTIO N OF EMISSION OF CO2 AND CO2E, UNDER THE KYOTO PROTOCOL, THE CONCEPT OF SURPLUS CERS FOR A RESIDENT ASSESSEE IS DEVOID OF LEGALLY SUSTAINABLE BASIS. EVERY CER THAT A RESIDENT ASSESSEE GETS IS AVAILABL E FOR TRANSFER, AS LONG AS THERE IS A WILLING BUYER, WHO WILL HAVE ECO NOMIC ADVANTAGE OR AT LEAST PHILANTHROPIC SATISFACTION- ASSUMING THAT HE WILL BUY IT ONLY TO CANCEL IT, FOR THE SAME. THE ASSESSEE DOES GET ANY ADVANTAGE IN THE CAPITAL FIELD FROM THE SAME. IT IS WHOLLY UNLIKE A CASE OF SOMEONE WITH A SURPLUS PRODUCTION CAPACITY OR ENTITLEMENT WHICH HE TRANSFERS FOR A CONSIDERATION. A CAPACITY ENTITLEMENT IS IN THE FIE LD OF CAPITAL INASMUCH AS IT GOVERNS THE PRODUCTION AN ASSESSEE C AN HAVE OVER A PERIOD. THAT IS NOT THE CASE HERE. IT IS IN THIS BA CKGROUND THAT WE ARE UNABLE TO CONCUR WITH THE OBSERVATIONS OF THE COORD INATE BENCH WHICH STATE THAT CARBON CREDIT IS ENTITLEMENT OR ACCRETI ON OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CREDITS IS CAP ITAL RECEIPT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V. MAHESHWARI DEVI JUTE MI LLS LTD. [1965] 57 ITR 36 WHEREIN HELD THAT TRANSFER OF SURPLUS LOOM H OURS TO OTHER MILL OUT OF THOSE ALLOTTED TO THE ASSESSEE UNDER AN AGRE EMENT FOR CONTROL OF ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 11 - PRODUCTION WAS CAPITAL RECEIPT AND NOT INCOME. BEIN G SO, THE CONSIDERATION RECEIVED BY THE ASSESSEE IS SIMILAR T O CONSIDERATION RECEIVED BY TRANSFERRING OF LOOM HOURS. THE SUPREME COURT CONSIDERED THIS FACT AND OBSERVED THAT TAXABILITY OF PAYMENT R ECEIVED FOR SALE OF LOOM HOURS BY THE ASSESSEE IS ON ACCOUNT OF EXPLOIT ATION OF CAPITAL ASSET AND IT IS CAPITAL RECEIPT AND NOT AN INCOME. THESE VIEWS DO NOT APPEAL TO US. BASED ON THE MATERIAL BEFORE US, WE A RE UNABLE TO SUBSCRIBE TO THE VIEW THAT THE CER RECEIPTS ARE CAP ITAL RECEIPTS IN NATURE. VI. AS REGARDS THE JUDICIAL PRECEDENTS IN RESPECT OF TA XABILITY OF SUBSIDIES RECEIVED BY THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT THESE JUDICIAL PRECEDENTS ARE NOT RELEVANT IN THE PRESENT CONTEXT. THE ASSESSEE HAS NOT RECEIVED ANY MONIES, AS A SUBSIDY, FROM ANY GOVERNMENT OR PUBLIC OR MULTILATERAL FORUM. WHAT HE HAS RECEIVED IS AN ADVANTAGE INCIDENTAL TO CARRYING ON BUSINESS IN AN ENVIRONMENTALLY RESPONSIBLE MANNER. IT IS AN OFFSHOOT OF BUSINESS. VII. AS WE HAVE NOTED EARLIER IN OUR ORDER, SALE OF CARB ON CREDIT DOES NOT DO ANY GOOD TO THE PROTECTION OF ENVIRONMENT OR ADD RESS GLOBAL CONCERNS ABOUT ENVIRONMENT. IRONICALLY, WHILE THESE CREDITS ARE GENERATED BY CONDUCTING BUSINESS IN AN ENVIRONMENTA LLY RESPONSIBLE MANNER, SALE OF THESE CREDITS ONLY RESULT IN HIGHER EMISSION OF HARMFUL GASES IN THE COUNTRIES SIGNATORY TO THE KYOTO PROTO COL. IN A WAY, THEREFORE, IT IS COMPENSATION FOR GIVING SOMEONE RI GHT TO GENERATE MORE HARMFUL EMISSIONS THAN HE IS PERMITTED TO OTHE RWISE EMIT. IT IS INAPPROPRIATE TO GLORIFY THIS INCOME AS OFFSHOOT OF ENVIRONMENTAL CONCERNS. VIII. THE QUESTION OF BINDING JUDICIAL PRECEDENTS ARISES ONLY IN THE CONTEXT OF WHAT IS ACTUALLY DECIDED AND ON THE LEGAL QUESTI ONS. THE FACTUAL ASPECTS WHICH HAVE NOT BEEN CONSIDERED OR DECIDED I N THE JUDICIAL PRECEDENTS CANNOT BE TREATED AS COVERED BY THESE PR ECEDENTS. IT IS OUR BOUNDEN DUTY TO EXAMINE THE FACTUAL ASPECTS IN SUFF ICIENT DETAIL SO AS TO COME TO A DEFINITE CONCLUSION. AS A FINAL FACT F INDING AUTHORITY, WE CANNOT WISH AWAY, OR DECLINE TO DEAL WITH, THE HARD FACTS STARING AT OUR FACE, JUST BECAUSE THE COORDINATE BENCHES HAD NO OC CASIONS TO TAKE NOTE OF THESE FACTS OR BECAUSE THESE FACTS HAVE NOT BEEN BROUGHT TO THE NOTICE OF THE BENCH. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 12 - IX. SINCE THESE CRUCIAL FACTS WERE NOT BROUGHT TO THE N OTICE OF THE COORDINATE BENCH, THE COORDINATE BENCH COULD NOT DE AL WITH THE PECULIARITIES OF DIFFERENT TYPES OF CARBON CREDITS, IDENTIFY THE KIND OF CARBON CREDIT THAT IS EXAMINED WITH RESPECT TO THE TAXABILITY ISSUES AND WAS THUS LEAD TO PROCEED ON CERTAIN ASSUMPTIONS WHI CH SEEM TO BE INCORRECT. 21. ON OUR PERUSAL OF THE MATERIAL ON RECORD, IT AP PEARS TO US THAT THE CASE BEFORE US IS NOT EVEN A CASE OF SALE OF CARBON CREDITS UND ER THE INTERNATIONAL EMISSION TRADING (IET). IT APPEARS TO BE A CASE FOR GENERATI ON OF CARBON CREDIT MECHANISM THROUGH THE CLEAN DEVELOPMENT MECHANISM (CDM) WHERE IN THE PROJECT GENERATING THE CARBON CREDITS IS SPONSORED BY AN ENTITY IN THE JUR ISDICTION WHICH HAS EMISSION REDUCTION COMMITMENTS UNDER THE KYOTO PROTOCOL. LEA RNED COMMISSIONER (APPEALS) HAS, WHILE REFERRING TO THE DECISION OF THE COORDIN ATE BENCH IN THE CASE OF MY HOME POWER LTD (SUPRA), HAS NOT EXAMINED THE NATURE OF T HESE CARBON CREDITS AND WHETHER THESE CARBON CREDITS, IF FOUND TO BE UNDER THE CDM, WILL BE AT PAR WITH THE CARBON CREDITS UNDER THE IET AS WAS APPARENTLY THE CASE IN THAT JUDICIAL PRECEDENT. IN ANY CASE, THERE IS NO CATEGORICAL FINDING ABOUT THE NAT URE OF CERS IN THE CASE OF MY HOME POWER (SUPRA) THOUGH IT HAS PROCEEDED THAT GEN ERATION OF CERS WAS NOT THE OFFSHOOT OF BUSINESS WHICH CANNOT BE THE CASE WHEN THE PROJECT ITSELF IS SET UP, UNDER CDM, UNDER THE SPONSORSHIP OF A FOREIGN ENTITY, SPE CIFICALLY FOR THE PURPOSE OF GENERATING THE CERS. WHEN THE VERY RAISON D'TRE FO R THE PROJECT BEING SET UP IS GENERATION OF CERS, IT CANNOT BE SAID THAT CERS ARE NOT OFFSHOOT OF BUSINESS. 22. CLEARLY, THEREFORE, THE MY HOME POWER DECISION WILL NOT HOLD GOOD IN THE CASE OF CERS UNDER THE CDM. 23. ONE OF THE GLARING PECULIARITY OF THE CARBON CR EDITS UNDER THE CDM IS THE SPONSORSHIP ARRANGEMENT BY THE FOREIGN ENTITY AND T HE FACT THAT VERY SETTING UP OF THE PROJECT IS PREDOMINANTLY FOR THE PURPOSE OF TRANSFE RRING RESULTANT CERS TO THE FOREIGN ENTITY. THE IMPACT OF THIS PECULIARITY ON THE NAT URE OF RECEIPT IS NOT AT ALL EXAMINED. THE COORDINATE BENCHES HAVE ALSO PROCEEDED ON THE B ASIS THAT ALL CARBON CREDITS ARE TO BE GIVEN UNIFORM TREATMENT BY TREATING THEM CAPI TAL RECEIPTS WHICH ARE NOT INCIDENTAL TO CARRYING ON THE BUSINESS. THIS ASSUMP TION CANNOT, IN ANY CASE, HOLD GOOD FOR CARBON CREDITS UNDER THE CDM SINCE IN THES E CASES THE UNIT GENERATING THESE CREDITS ARE SET UP FOR THE PREDOMINANT PURPOSE OF G ENERATING EMISSION REDUCTIONS THROUGH MAKING MODIFICATIONS IN THE WORKING MECHANI SM. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 13 - 24. AS A CO-ORDINATE BENCH OF EQUAL STRENGTH, AND I T IS NOT OPEN FOR US TO DISREGARD THE VIEWS OF THE COORDINATE BENCHES. WHI LE IT IS WELL SETTLED IN LAW THAT COORDINATE BENCHES CANNOT DISREGARD THE VIEW OF ANO THER COORDINATE BENCH, IT IS, HOWEVER, EQUALLY TRUE THAT IT IS VITAL TO THE ADMIN ISTRATION OF JUSTICE THAT THOSE EXERCISING JUDICIAL POWER MUST HAVE THE NECESSARY F REEDOM TO DOUBT THE CORRECTNESS OF AN EARLIER DECISION IF AND WHEN SUBSEQUENT PROCE EDINGS BRING TO LIGHT WHAT IS PERCEIVED BY THEM AS AN ERRONEOUS DECISION IN THE E ARLIER CASE. IN THE CASE OF UNION OF INDIA VS PARAS LAMINATES PVT LTD [(1990) 186 ITR 722 (SC)], HONBLE SUPREME COURT HAS, INTER ALIA, OBSERVED AS FOLLOWS: IT IS TRUE THAT A BENCH OF TWO MEMBERS MUST NOT LIG HTLY DISREGARD THE DECISION OF ANOTHER BENCH OF THE SAME TRIBUNAL ON AN IDENTIC AL QUESTION. ..THE RATIONALE OF THIS RULE IS THE NEED FOR CONTINUITY, CERTAINTY AND PREDICTABILITY IN THE ADMINISTRATION OF JUSTICE. PERSONS AFFECTED BY DECISIONS OF TRIBUNALS OR COURTS HAVE A RIGHT TO EXPECT THAT THOSE EXERCISING JUDICIAL FUNCTIONS WILL FOLLOW THE REASON OR GROUND OF THE JUDICIAL DECISIO N IN THE EARLIER CASE ON IDENTICAL MATTERS..IT IS, HOWEVER, EQUALLY TRUE THAT IT IS VITAL TO THE ADMINISTRATION OF JUSTICE THAT THOSE EXERCISING JUD ICIAL POWER MUST HAVE THE NECESSARY FREEDOM TO DOUBT THE CORRECTNESS OF AN EA RLIER DECISION IF AND WHEN SUBSEQUENT PROCEEDINGS BRING TO LIGHT WHAT IS PERCE IVED BY THEM AS AN ERRONEOUS DECISION IN THE EARLIER CASE 25. WHILE WE ARE ALIVE TO THE FACT THAT THE REMEDY TO A SUCH A SITUATION NORMALLY LIES, AS IS WELL SETTLED IN LAW, REFERRING THE MATT ER TO A LARGER BENCH, WE DO NOT THINK, FOR THE REASONS WE WILL SET OUT IN A SHORT WHILE- I N ADDITION TO THE REASON THAT THE MY HOME POWER DECISION (SUPRA) MAY NOT APPLY IN THE CA RBON CREDITS UNDER THE CDM AT ALL, THAT IT IS A FIT CASE FOR DOING SO AT THIS STA GE. 26. WE HAVE NOTED THAT THE ACTIVITY WHICH HAS TRIGG ERED THE TAXABILITY OF CARBON CREDITS IS ASSESSEES ENTITLEMENT TO THE CERS AND N OT THE ACTUAL SALE OF THE CERS. THIS ASPECT OF THE MATTER IS CLEAR FROM THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN PARAGRAPH 5.1 AND 5.2 OF THE ASSESSMENT ORDER WHICH HAVE BEEN REPRODUCED BELOW PARAGRAPH 4 AT PAGE 4 AND 5 OF THIS ORDER. THE FOU NDATION OF TAXABILITY ON THE ACCRUAL BASIS THUS RESTS ON THE FACTORS, AS SET OUT BY THE ASSESSING OFFICER ABOVE, THAT THE RELATED PLANTS WERE FUNCTIONAL IN THE RELEVANT PERIOD, THAT THESE WAS AN EMISSION REDUCTION IN THE RELATED PERIOD WHICH WAS DULY CERT IFIED, THAT THE ASSESSEE HAD ENTERED INTO THE CONTRACTS WITH SPONSORS, THAT THE ASSESSEE ITSELF HAD RECOGNIZED THE INCOME, THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING, THAT THERE WAS A REASONABLE CERTAINTY ABOUT ITS ULTIMATE REALIZATION . THE ASSESSING OFFICER WAS OF THE ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 14 - VIEW THAT SINCE THE RECEIPT OF THE CERS WAS REASON ABLY CERTAIN AS THE ASSESSEE- COMPANY HAS ALREADY COMPLETED THE FORMALITIES FOR G ETTING THE UNFCC CERTIFICATION, AS ITSELF STATED BY IT IN ITS SUBMISSION AND SINCE ONLY RESIDUAL -FORMALITIES WERE REQUIRED TO BE COMPLETED, THE CER INCOME, AS SHOWN IN THE PROFIT AND LOSS ACCOUNT, SHOULD BE BROUGHT TO TAX. LEARNED CIT(A) HAS NOT DE ALT WITH THIS ASPECT OF THE MATTER AS THE ADDITION WAS DELETED ON MERITS. 27. IN OUR CONSIDERED VIEW, HOWEVER, THAT IS NOT TH E CORRECT APPROACH. 28. THE EVENT TRIGGERING THE TAXATION IN RESPECT OF CARBON CREDITS IS THE SALE OF CARBON CREDITS. IT IS ONLY WHEN THE CARBON CREDITS ARE TRANSFERRED, AND TRANSFERRED FOR A VALUABLE CONSIDERATION, THAT AN INCOME ACCRUES. THE GRANT OF CARBON CREDITS IS NOT THE EVENT TRIGGERING THE TAXATION OF INCOME. THESE CARBON CREDITS ARE OF NO PRACTICAL USE, IN INDIAN PERSPECTIVE, UNLESS THESE ARE TRANSF ERRED BY THE ASSESSEE. THE PRINCIPLES OF CONSERVATISM, WHICH IS ONE OF THE MOS T FUNDAMENTAL PRINCIPLE IN DETERMINING OF COMMERCIAL PROFITS, DOES NOT PERMIT AN ANTICIPATED INCOME BEING ACCOUNTED FOR, EVEN THOUGH ALL ANTICIPATED LOSSES, AS SOON AS THESE CAN BE QUANTIFIED ON A REASONABLE BASIS, ARE INVARIABLY TAKEN INTO AC COUNT IN THIS PROCESS. TILL THE POINT OF TIME THESE CARBON CREDITS ARE ACTUALLY SOL D, THE INCOME EMBEDDED IN THESE CARBON CREDITS, EVEN WHEN ANY, DOES NOT CRYSTALLIZE AND CONTINUES TO REMAIN, AT BEST, AN ANTICIPATED INCOME. WHETHER THE CERS ARE GENERAT ED UNDER THE CDM OR FOR THE IEM OR EVEN UNDER JI, THE TAXABILITY OF THE INCOME FROM CERS WILL BE TAXABLE ONLY WHEN THE RIGHT TO RECEIVE CONSIDERATION FOR TRANSFE R OF THESE CERS IS QUANTIFIED AND CRYSTALLIZED. WE MAY ADD HERE THAT, WHILE THE GRO UND OF APPEAL RAISED BY THE ASSESSING OFFICER REFERS TO ADDITION OF RS 5,78,28 ,058 MADE ON ACCOUNT OF SALE OF CARBON CREDITS, IT IS NOT EVEN THE CASE OF THE ASS ESSING OFFICER THAT THE SALE WAS MADE IN THE RELEVANT PREVIOUS YEAR. THIS ASPECT OF THE MATTER IS CLEAR FROM THE OBSERVATIONS MADE BY THE ASSESSING OFFICER, WHICH H AVE BEEN REPRODUCED EARLIER IN THIS ORDER AFTER OUR PARAGRAPH 4, AND THIS IS WHAT HAS BEEN EMPHATICALLY STATED AT THE BAR, IN THE COURSE OF HEARING BEFORE US, BY THE LEA RNED COUNSEL. ONCE BOTH THE PARTIES ARE UNANIMOUS ON THE FACTUAL ASPECT THAT THE SALE I S NOT EFFECTED IN THE RELEVANT PREVIOUS YEAR, THERE CANNOT BE ANY GOOD REASONS TO BRING THE CER VALUE TO TAX IN THIS ASSESSMENT YEAR. 29. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSID ERED VIEW, THE GAINS ON SALE OF CERS, THOUGH TAXABLE IN NATURE, COULD ONLY HAVE BEE N TAXED AT THE POINT OF TIME WHEN THESE CERS WERE ACTUALLY TRANSFERRED TO THE FOREIGN ENTITY. ACCORDINGLY, THE VALUE OF CERS, EVEN THOUGH QUANTIFIABLE, CANNOT BE BROUGHT T O TAX BY THE REASON OF ACCRUAL SIMPLICTOR. THAT IS PRECISELY WHAT HAS BEEN DONE IN THIS CASE. IT IS FOR THIS REASON THAT WE CONFIRM THE RELIEF GRANTED BY THE CIT(A) AND DEC LINE TO INTERFERE IN THE MATTER. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 15 - 30. DURING THE COURSE OF HEARING, LEARNED DEPARTMEN TAL REPRESENTATIVE HAS SUBMITTED THAT IN THE EVENT OF OUR HOLDING THAT THE INCOME FROM CERS IS TAXABLE ONLY IN THE YEAR OF SALE, WE SHOULD ALSO GIVE SPECIFIC D IRECTIONS TO FACILITATE REOPENING OF THE MATTERS FOR THE ASSESSMENT YEARS IN WHICH THE C ERS ARE ACTUALLY SOLD. THAT WOULD, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIV E, MEET THE ENDS OF JUSTICE. WE ARE, HOWEVER, NOT PERSUADED BY THIS PLEA. WE DO NOT THINK ANY SUCH DIRECTIONS ARE AT ALL NEEDED. IN ADDITION TO OTHER COURSE OPEN TO THE ASSESSING OFFICER, EXPLANATION 2 TO SECTION 153(3) REASONABLY SAFEGUARD THE LEGITIMATE INTERESTS OF THE REVENUE. WE NEED NOT SUPPLEMENT THE SAME. 31. IT IS IN THIS BACKDROP AND BEING AWARE OF THE F ACT THAT OUR VIEWS ON WHETHER OR NOT THE CARBON CREDITS, PARTICULARLY UNDER THE CDM, ARE TAXABLE WILL HAVE LIMITED AND SOMEWHAT ACADEMIC SIGNIFICANCE AT THIS STAGE SINCE THE QUESTION OF TAXABILITY WILL NEED TO BE FINALLY ADJUDICATED BY US ONLY IN THE YE AR IN WHICH SALE PROCEEDS OF THE CARBON CREDIT ARE RECEIVED BY THE ASSESSEE, WE HAVE NOT REFERRED THE MATTER FOR CONSTITUTION OF A SPECIAL BENCH AT THIS STAGE. THAT OCCASION WILL ARISE ONLY IN THE YEAR AND IN THE CASE IN WHICH SALE PROCEEDS ARE RECEIVED BY THE ASSESSEE. WE ARE SURE THAT AS A FINAL FACT FINDING BODY, IN AN APPROPRIATE CAS E, ALL THESE ASPECTS OF THE NATURE AND TAXABILITY OF CARBON CREDITS, AS HAVE BEEN BRIE FLY TOUCHED UPON IN THIS ORDER, WILL BE EXAMINED IN A BEFITTING MANNER BY A SPECIAL BENC H OF THIS TRIBUNAL IN DUE COURSE. IN ANY CASE, THE CASE BEFORE US, AS WE HAVE NOTED A BOVE, IS WITH RESPECT TO CARBON CREDITS UNDER CDM MECHANISM, WHICH HAS ITS OWN PECU LIARITIES AND ON WHICH THERE ARE NO JUDICIAL PRECEDENTS AS YET. THE CALL ON WHET HER OR NOT THIS IS A CASE TO BE REFERRED TO SPECIAL BENCH WILL HAVE TO BE TAKEN BY THE BENCH WHICH IS IN SEISIN OF THE MATTER REGARDING TAXABILITY IN THE YEAR OF RECEIPT. 32. FOR THE DETAILED REASONS SET OUT ABOVE, AND SUB JECT TO OBSERVATIONS AS ABOVE, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE LEARNE D CIT(A) AND DECLINE TO INTERFERE IN THE MATTER SO FAR AS OUTCOME OF THE APPEAL BEFOR E THE CIT(A) IS CONCERNED. 33. GROUND NO. 1 IS THUS DISMISSED. 3.2. NOTICEABLY, THE AFORESAID ORDER OF THE TRIBUN AL WAS APPROVED BY THE HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO.73 OF 2017 JUDGEMENT DATED 02/03/2017. THIS APART, WE ALSO TAKE NOTE O F THE INSERTION OF SECTION 115BBG OF THE ACT INSERTED W.E.F. ASSESSMEN T YEAR 2018-19 ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 16 - WHEREBY THE LEGISLATURE HAS SOUGHT TO TAX INCOME BY WAY OF TRANSFER OF CARBON CREDITS AT A SPECIFIED PERCENTAGE. CLEARLY, THE CHARGE OF TAX OF TRANSFER OF CARBON CREDIT IS PROSPECTIVE W.E.F. AY 2018-19 ONWARDS. AS A COROLLARY, THE INCOME ARISING ON ACCOUNT OF CARBON CREDIT RECEIPTS IS NOT TAXABLE IN THE AYS 2010-11 AND 2011-12 IN QUESTION. THIS ASPECT HAS BEEN TAKEN NOTE OF BY THE COORDINATE BENCH IN GUJAR AT FLUOROCHEMICALS VS. DCIT IN ITA NO.805/AHD/2017 AND OTHERS ORDER DA TED 13/08/2018. THE COORDINATE BENCH AFTER TAKING JUDICIAL NOTICE O F VARIOUS DECISIONS OPERATING IN THIS REGARD AND ALSO PROSPECTIVE AMEND MENT IN THE LAW FROM AY 2018-19 HAS RENDERED A VIEW THAT RECEIPT ON ACC OUNT OF CARBON CREDITS ARE TO BE TREATED AS CAPITAL RECEIPT AND NO T SUSCEPTIBLE TO TAXATION. 3.3. THE RELEVANT OPERATIVE PARAS ON CHARGEABILITY OF SALE OF CARBON CREDITS IN THE CASE OF GUJARAT FLUOROCHEMICALS(SUPR A) IS REPRODUCED HEREUNDER FOR READY REFERENCE. 36. FACTS IN BOTH THE YEARS ARE COMMON. THE ASSES SEE HAS FILED A NOTE EXPLAINING THE ALLEGED CARBON CREDITS AND HOW IT HA S RECEIVED THE RECEIPTS. THE NOTE HAS BEEN REPRODUCED BY THE DRP IN BOTH THE ASSESSMENT YEARS IN ITS ORDER. THE NOTE AND THE DISCUSSION MADE BY THE DRP ON THIS ISSUE ARE AS UNDER: CLAIM OF DEDUCTION IN RESPECT OF INCOME FROM CARBO N CREDIT BEING CAPITAL RECEIPT - DURING THE YEAR, THE COMPANY HAS RECEIVED INCOME FR OM CARBON CREDIT OF RS. 441.69 CRORES. THE SAID REVENUE IS CREDITED TO PROFIT & LOSS ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 17 - ACCOUNT AND IS INCLUDED IN REVENUE FROM OPERATIONS. PLEASE REFER TO SCHEDULE 23 OF THE ANNUAL ACCOUNTS. WE ARE ENCLOSING HEREWITH A DETAIL NOTE ON THIS CAR BON CREDIT. IN THE SAID NOTE WE HAVE EXPLAINED AS UNDER: GFL'S CARBON CREDIT: GFL OPERATES A HCFC-22 PLANT AT VILLAGE RANJIT NAGAR, DISTRICT PANCHMAHALS, GUJARAT, INDIA. DURING THE PRODUCTION OF HCFC-22, WASTE GAS CALLED HFC-23 IS GENERATED. FOR EACH TON OF HCFC-22 PRODUCED, APPROXIMATEL Y 2.9% OF HFC- 23 IS GENERATED. HFC-23 IS A GREENHOUSE GAS (GHG) W HICH HAS GLOBAL WARMING POTENTIAL OF 11,700 OF CO2 PER TON OF HFC-2 3. GFL'S CDM PROJECT CONSISTS OF INCINERATING HFC- 23 INSTEAD OF ALLOWING IT TO BE VENTED INTO THE ATMOSPHERE, AND T HEREBY REDUCING GHG EMISSIONS CERS AWARDED = TONES OF GHG REDUCED *GWP OF GH G IN THE YEAR 2005-2006, GUJRAT FLUOROCHEMICALS LIMIT ED (GFL) HAS IMPLEMENTED A PROJECT FOR GREENHOUSE GAS EMISSION R EDUCTION BY THERMAL OXIDATION OF THE WASTE GAS HFC-23 IN INDIA UNDER CLEAN DEVELOPMENT MECHANISM OF KYOTO PROTOCOL. GFL HAS INSTALLED, AND OPERATES AND MAINTAINS A HFC -23 COLLECTION AND THERMAL OXIDATION SYSTEM (TO PLANT) TO INCINERA TE HFC-23. THE THERMAL OXIDATION SYSTEM ENABLED GFL TO AVOID HFC-2 3 EMISSIONS (GHG EMISSIONS), WHICH, IN THE ABSENCE OF THE PROJE CT ACTIVITY, WOULD HAVE BEEN VENTED INTO THE ATMOSPHERE. UPON VOLUNTARY INCINERATION OF HFC-23, EMISSION RED UCTION IS ACHIEVED AND CERS ARE ISSUED TO GFL AFTER COMPLYING WITH THE SPECIFIED MONITORING PLAN APPROVED BY THE UNFCCC. C ERS ARE ISSUED IN ELECTRONIC FORM. ONCE THE CERS ARE GENERA TED THROUGH THE PROJECT UNDERTAKEN, THEY ARE CREDITED TO GFL'S ACCO UNT IN THE CD REGISTRY. FROM THERE, THEY ARE TRANSFERRED TO BUYER S. THE SAME IS REPORTED AS SALES IN THE FINANCIAL ACCOUNTS UNDER T HE CHEMICAL SEGMENT. UNSOLD CERS ARE SHOWN AS INVENTORY AT COST . ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 18 - GFL HAS SOLD CERS MAINLY TO MULTILATERAL INSTITUTIO NS / INTERNATIONAL BUYERS AND TREATED THE SAME AS BUSINESS INCOME SINC E CERS ARE EARNED / GENERATED FROM HCFC-22 PLANT WHICH IS THE PRIMARY BUSINESS OF GFL AND ALSO OFFERED THE SAME FOR TAXAT ION AT THE NORMAL RATE OF TAX LIKE ANY OTHER SOURCES OF INCOME . ALL THE EXPENSES INCURRED AS STATED ABOVE ARE CLAIMED AS DEDUCTION ( INCLUDING TAX DEPRECIATION ON TO PLANT). IN THIS NOTE, WE HAVE GIVEN THE BACKGROUND OF THE C ARBON CREDITS AND HOW THE CARBON CREDITS ARE RECEIVED IN THE CASE OF OUR COMPANY. WE HAD ALSO EXPLAINED THE PROCEDURE OF GENERATION OF C ARBON CREDITS AND STEPS TAKEN AND INVOLVED IN RECEIPT OF SUCH CARBON CREDITS. THUS, THE CARBON CREDITS ARE ISSUED BY THE CDM EXECUTIVE BOAR D, WHICH OPERATES UNDER THE UNFCCC AND THOSE ARE SOLD TO INTERNATIONA L BUYERS FOR CASH. WE HAVE ALSO EXPLAINED THAT THE CERS ARE NOT RECEIV ED OR ALLOCATED BY GOVERNMENT. IT WILL ALSO BE OBSERVED THAT IN OUR CA SE CARBON CREDITS ARE NOT RECEIVED FOR USING ALTERNATIVE FUEL LIKE NON-FO SSIL FUEL WHICH MAY BE SPECIFIC TO WIND ENERGY BUSINESS OR OTHER FUEL SWIT CH OR ENERGY EFFICIENCY PROJECTS. THE CLAIM IS MADE THAT THE SAID REVENUE FROM CARBON CREDIT IS NOT TAXABLE AS INCOME BUT A CAPITAL RECEIPT NOT LIABLE TO TAX. HENCE, WHILE COMPUTING TOTAL INCOME, THE SAID RECEIPT, NET OF EX PENSES, MAY PLEASE BE EXCLUDED AS CAPITAL RECEIPT. THIS CLAIM IS BASED ON THE ITAT ORDER IN THE CASE OF MY HOME POWER LIMITED, HYDERABAD BENCH, WHI CH IS NOW CONFIRMED BY THE HON'BLE ANDHRA PRADESH HIGH COURT. WE MAY STATE THAT SUCH CLAIM, THAT CARBON CREDIT RE VENUE IS CAPITAL RECEIPT NOT LIABLE TO TAX, AND HENCE SHOULD BE EXCL UDED FROM TOTAL INCOME, WAS MADE DURING THE COURSE OF ASSESSMENT PR OCEEDINGS FOR A.Y. 2010-11 AND 2011-12 ALSO. IN THE ASSESSMENT ORDER, THE AO HAS NOT ACCEPTED THE SAID CLAIM. THE COMPANY, HAS FILED APP EALS FOR BOTH THE YEARS BEFORE CIT(A). ONE OF THE GROUNDS OF APPEAL I S REGARDING SUCH CLAIM. DURING THE COURSE OF APPELLATE PROCEEDINGS F OR A.Y. 2010-11, THE CIT(A) HAS CALLED FOR THE REMAND REPORT FROM ASSESS ING OFFICER ON THE ISSUE. A COPY OF THE SAID REMAND REPORT WAS PROVIDE D TO US AND WE WERE ASKED TO MAKE OUR SUBMISSIONS ON THE SAID REMAND RE PORT. WE HAVE ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 19 - MADE OUR DETAILED SUBMISSION DATED 02-01-2015 TO TH E CIT(A). THE COPY OF THE SAID SUBMISSION IS ENCLOSED FOR READY R EFERENCE IN WHICH WE HAVE PROVIDED OUR REPLIES TO THE AOS OBSERVATIONS I N THE REMAND REPORT AND THE ENTIRE ISSUE IS DISCUSSED IN DETAIL. WE REL Y ON THE SAME. THEREFORE, IN VIEW OF THE ABOVE IT IS REQUESTED THA T AT THE TIME OF ASSESSMENT, CARBON CREDIT REVENUE OF RS. 441.69 CRO RES CREDITED IN THE PROFIT AND LOSS ACCOUNT, NET OF EXPENSES, MAY PLEAS E BY EXCLUDED, BEING A CAPITAL RECEIPT AND NOT LIABLE TO TAX ON THE BASI S OF VARIOUS ITAT ORDERS AND HIGH COURT DECISION IN THE CASE OF MY HO ME POWER LIMITED. ENCLOSURES: 1. NOTE ON CARBON CREDIT. 2. COPY OF THE REMAND REPORT DATED 25.11.2014 FOR A.Y. 2010-11 3. COPY OF THE REPLY DATED 02.01.2015 SUBMITTED TO CIT(A) IN RESPONSE TO ABOVE REMAND REPORT DURING APPELLATE PROCEEDINGS FOR A.Y. 2010-11. 24. DISCUSSION AND DIRECTION OF DRP; : 24.1 IT IS SEEN FROM DRAFT ORDER THAT ISSUE IS NOT DISCUSSED IN THE DRAFT ASSESSMENT ORDER, SINCE THE CLAIM WAS MADE BY THE A SSESSEE DURING THE COURSE OF THE PROCEEDINGS ITSELF, AS PER LETTER DAT ED 28/01/2015. THE DRP HAS NOTED THAT THERE IS NO VARIATION OF INCOME ON THIS ISSUE IN THE DRAFT ASSESSMENT ORDER, WHICH IS PREJUDICIAL TO THE INTEREST OF REVENUE. THUS, IN STRICTLY LEGAL TERMS, THE SAID OBJECTION D OESN'T FALL UNDER THE PROVISIONS OF SECTION 144C OF THE I.T. ACT 1961. 24.2 ALSO IN THE CASE OF GOETZE (INDIA) LTD. (284 I TR 323), THE HON'BLE SUPREME COURT HAS HELD THAT THE ASSESSING OFFICER C ANNOT ENTERTAIN ANY CLAIM FOR ALLOWING DEDUCTION RESULTING IN A REDUCTI ON IN THE TOTAL INCOME RETURNED, WHICH IS NOT CLAIMED IN THE ORIGINAL RETU RN OR A REVISED RETURN. 24.3 ON MERITS, THE DRP HAS NOTED THE CIT (A)'S ORD ER OF EARLIER 2 YEARS AND CONCURS WITH THE FINDINGS OF THE CIT (A), THAT SUCH CARBON CREDIT RECEIPTS GFL ARE TAXABLE. THE RELEVANT EXCER PTS OF THE ORDER OF THE CIT(A) FOR A.Y. 2011.12 A.Y. 2010-11 ARE REPROD UCED HEREUNDER:- ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 20 - FROM CIT (A) ORDER FOR AY 2011-12; / '9. 1 THIS ISSUE HAS .BEEN DECIDED IN APPELLANT 'S OWN CASE FOR THE A Y 2010-1 1 VIDE ORDER DATED 30-10.2015 IN APPEAL NO. CAB- 11321201415. IN THIS ORDER THE REVENUE EARNED FROM THE SALE OF CARBON CREDITS, NET OF EXPENSES HAS BEEN HELD TO BE TAXABL E IN THE HANDS OF THE APPELLANT. MOREOVER, IT IS SEEN THAT IN THE CURRENT YEAR SUCH REVENUE ALSO INCLUDES PROFIT EARNED ON ACCOUNT OF TRADING O F SUCH CARBON CREDITS WHICH ARE REVENUE IN NATURE UNDER ALL CIRCUMSTANCES . HENCE, FOLLOWING THE DECISION OF THE EARLIER ORDER AND CONSIDERING T HE FACT THAT THE APPELLANT IS ALSO ENGAGED IN THE TRADING OF CARBON CREDITS, IT IS HELD THAT SUCH REVENUE IN THE CURRENT YEAR IS ALSO TAXABLE IN THE HANDS OF THE APPELLANT AS INCOME FROM BUSINESS. ALTERNATIVELY, T HIS IS ALSO TAXABLE AS SHORT TERM CAPITAL GAIN AS HAS BEEN HELD IN THE APP ELLATE ORDER OF AY 2010-11. HENCE, THIS GROUND OF APPEAL IS DISMISSED' FROM CIT(A)ORDER FOR AY2010-11 '11.1 IN THE PRESENT CASE TOO, THE APPELLANT HAD P ROFIT MOTIVE IN THE ESTABLISHMENT OF THE CDM PROJECT. HENCE IT IS HELD THAT IT IS CARRYING ON THE BUSINESS OF GENERATION OF CERS THROUGH THIS CDM PROJECT AND ACCORDINGLY, THE REVENUE ON ACCOUNT OF SALE OF SUCH CER. IS TAXABLE AS PROFITS AND GAINS OF BUSINESS BEING CARRIED ON BY T HE APPELLANT. 11.2 WITHOUT PREJUDICE TO THE FINDING GIVEN ABOVE THAT R EVENUE EARNED FROM SALE OF CARBON CREDITS IS TAXABLE AS INCOME FROM TH E BUSINESS HI THE HANDS OF THE APPELLANT, EVEN IF IT IS TREATED AS A CAPITAL RECEIPT THEN ALSO IT WILL BE TAXABLE IN THE HANDS OF THE APPELLANT AS INCOME FROM CAPITAL GAIN ON ACCOUNT OF TRANSFER OFCERS. THIS IS DUE TO THE FACT THAT IN THE CASE OF THE APPELLANT, THE COST OF ACQUISITION OF C ERS HAS ALREADY BEEN DETERMINED. THUS, EVEN IF THE APPELLANT'S CONTENTIO NS ARE ACCEPTED, IT IS TO BE HELD THAT THESE CERS ARE CAPITAL ASSETS IN TH E HANDS OF THE APPELLANT AND ARE HAVING DETERMINED COST. UNDER SUC H SITUATION, THE RECEIPT RECEIVED ON ACCOUNT OF TRANSFER OF SUCH CAP ITAL ASSETS WILL BE TAXABLE IN THE HANDS OF THE APPELLANT AS SHORT TERM OR LONG TERM CAPITAL GAIN. SINCE, IN THE CASE OF THE APPELLANT, ALL SUCH CERS HAVE BEEN TRANSFERRED WITHIN THREE YEARS OF DATE OF ACQUISITI ON OF FIRE SAME, HENCE ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 21 - THE ENTIRE SALE CONSIDERATION NET OF EXPENSES IS TA XABLE AS SHORT TERM CAPITAL GAIN. ACCORDINGLY THERE WILL BE NO DIFFEREN CE ON THE TAX TO BE LEVIED ON THE INCOME OF THE APPELLANT UNDER SUCH SI TUATION ALSO. THUS IN THE ALTERNATE SITUATION ALSO, THERE SHALL BE NO CHA NGE IN THE TOTAL INCOME OF THE APPELLANT. 11.3 ON THE BASIS OF THESE DISCUSSIONS, IT IS HELD THAT THE REVENUE EARNED BY THE APPELLANT COMPANY ON ACCOUNT OF SALE OF CERS IS ITS INCOME TAXABLE UNDER THE HEAD INCOME FROM BUSINESS. HENCE, THIS GROUND OF APPEAL IS DISMISSED.' 24.4 IN VIEW OF THE ABOVE THE CLAIM OF THE ASSES SEE THAT CARBON CREDIT RECEIPT ARE NOT LIABLE TO TAX IS REJECTED AND ACCOR DINGLY, NO DIRECTIONS ARE ISSUED TO THE AO ON THIS GROUND OF OBJECTION. 37. IN THE ASSESSMENT YEAR 2012-13, THIS CLAIM WAS OF RS.876.14 CRORES. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING ORD ERS OF THE REVENUE AUTHORITIES BELOW CONTENDED THAT THE ISSUE IN DISPU TE IS SQUARELY COVERED BY DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF ALEMBIC LTD. (SUPRA). HE PLACED ON RECORD COPY OF THE HONBLE GUJARAT HIG H COURT DECISION IN TAX APPEAL NOS.553 AND 554 OF 2017 DECIDED ON 28.8.2017 . HE ALSO POINTED OUT THAT THIS ISSUE HAS BEEN CONSIDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SUBHASH KABIL POWER CORPORATION LTD., (2016) 287 CTR(KAR) 147; (2016) 69 TAXMANN.COM 394 (KAR). THE HONBLE KARNATAKA HIGH COURT HAS ALSO RELIED UPON THE DECISION OF HON BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. MY HOME POWER LTD., (2 014) 46 TAXMANN.COM 314 (AP). APART FROM THE ABOVE, HE FURTHER CONTEND ED THAT W.E.F. 1-4-2018, A SPECIAL PROVISION HAS BEEN ENACTED IN THE SHAPE OF SECTION 115BBG WHICH PRESCRIBE LEVY OF TAX AT THE RATE OF 10% ON INCOME FROM TRANSFER OF CARBON CREDIT. HE TOOK US THROUGH EXPLANATORY STATEMENT O F FINANCE ACT, 2017. 38. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. ISSUE BEFORE US IS, WHETHER RECEIPTS RE CEIVED BY THE ASSESSEE ON SALE OF ALLEGED CARBON CREDIT IS REVENUE IN NATURE OR CA PITAL IN NATURE. AN IDENTICAL QUESTION WAS FORMULATED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ALEMBIC LTD. (SUPRA). THE QUESTION FRAMED IS A S UNDER: ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 22 - (4) WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ITAT ERRED IN TREATING THE IN COME FROM REALISATION OF CARBON CREDITS AS CAPITAL IN NATURE, DESPITE THE FACT THAT THE REALIZATION FROM CARBON CREDITS HAS BEEN TREATED BY THE ASSESSEE ITSELF AS REVENUE INCOME AND OFFERED TO TAX?' 39. THE QUESTION HAS BEEN REPLIED BY THE HONBLE HI GH COURT IS AS UNDER: 6. THE LAST SURVIVING QUESTION PERTAINS TO THE TRE ATMENT THAT THE ASSESSEES INCOME FROM TRADING OF CARBON CREDITS SH OULD BE GIVEN. THE TRIBUNAL HELD THAT RECEIPTS SHOULD IN THE NATURE OF CAPITAL RECEIPTS AND THEREFORE WOULD NOT INVITE TAX. THIS ISSUE HAS BEE N EXAMINED BY TWO HIGH COURTS. THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SUBHAS KABINI CORPORATION LTD., REPORTED IN (2016) 385 ITR 592 (KARN) AND ANDHRA PRADESH HIGH COURT IN THE CASE OF COMMISSION ER OF INCOME-TAX VS. MY HOME POWER LIMITED REPORTED IN (2014) 365 IT R 82(A) HAVE HELD THAT RECEIPTS OF CARBON CREDIT ARE IN THE NATU RE OF REVENUE RECEIPTS. FOLLOWING THE DECISIONS OF SAID TWO HIGH COURTS, TH IS QUESTION IS ALSO NOT CONSIDERED. IT IS TO BE NOTED HERE THAT THE HONBLE GUJARAT HIG H COURT HAS THEREAFTER ISSUED A CORRIGENDUM IN THE ABOVE ORDER IN OJMCA/1/2018 IN TAX APPEAL NO.553 OF 2017 WHEREIN THE APPLICANT POINTED OUT AN ADVERTENT MISTAKE IN PARAGRAPH-6. THE HONBLE COURT RECTIFIED THE TY POGRAPHIC/INADVERTENT MISTAKE VIDE ORDER DATED 9.3.2018. IT READS AS UND ER: THROUGH THIS APPLICATION, THE ASSESSEE POINTS OUT THAT IN OUR JUDGMENT DATED 28.08.2017, WHILE DISMISSING REVENUES TAX AP PEALS, WE HAD INADVERTENTLY RECORDED IN PARAGRAPH-6 THAT SEVERAL HIGH COURTS HAVE HELD THAT RECEIPTS OF CARBON CREDIT ARE IN THE NAT URE OF REVENUE RECEIPTS. THIS IS CLEARLY A TYPOGRAPHICAL/ INADVE RTENT ERROR. THE ABOVE QUOTED PORTION OF PARAGRAPH-6 WOULD, THEREFOR E, BE CORRECTED AND READ AS UNDER THAT RECEIPTS OF CARBON CREDIT ARE IN THE NATURE OF CAPITAL RECEIPTS. THE APPLICANT STANDS DISPOSED O F ACCORDINGLY. 40. IN VIEW OF THE ABOVE, IT IS TO OBSERVE THAT AT THE LEVEL OF TRIBUNAL, THE ORDER IN THE CASE OF SUBHASH KABINI POWER CORPORATI ON LTD. (SUPRA) WHICH ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 23 - HAS BEEN AFFIRMED BY THE HONBLE KARNATAKA HIGH COU RT (WAS ALSO AUTHORIZED BY THE JUDICIAL MEMBER WHILE POSTED AT BANGALORE). APART FROM THE ABOVE, WE WOULD LIKE TO MAKE REFERENCE TO THE EXPLANATORY STA TEMENT OF FINANCE ACT, 2017. IT READS AS UNDER: CARBON CREDITS IS AN INCENTIVE GIVEN TO AN INDUSTR IAL UNDERTAKING FOR REDUCTION OF THE EMISSION OF GHGS (GREEN HOUSE GASE S), INCLUDING CARBON DIOXIDE WHICH IS DONE THROUGH SEVERAL WAYS S UCH AS BY SWITCHING OVER TO WIND AND SOLAR ENERGY, FOREST REG ENERATION, INSTALLATION OF ENERGY-EFFICIENT MACHINERY, LANDFIL L METHANE CAPTURE, ETC. THE KYOTO PROTOCOL COMMITS CERTAIN DEVELOPED COUNTR IES TO REDUCE THEIR GHG EMISSIONS AND FOR THIS, THEY WILL BE GIVEN CARB ON CREDITS. A REDUCTION IN EMISSIONS ENTITLES THE ENTITY TO A CRE DIT IN THE FORM OF A CERTIFIED EMISSION REDUCTION (CER) CERTIFICATE. THE CER IS TRADABLE AND ITS HOLDER CAN TRANSFER IT TO AN ENTITY WHICH N EEDS CARBON CREDITS TO OVERCOME AN UNFAVORABLE POSITION ON CARBON CREDITS. INCOME-TAX DEPARTMENT HAS BEEN TREATING THE INCOME ON TRANSFER OF CARBON CREDITS AS BUSINESS INCOME WHICH IS SUBJECT TO TAX AT THE RATE OF 30%. HOWEVER, DIVERGENT DECISIONS HAVE BEEN GIVEN B Y THE COURTS ON THE ISSUE AS TO WHETHER THE INCOME RECEIVED OR RECEIVAB LE ON TRANSFER OF CARBON CREDIT IS A REVENUE RECEIPT OR CAPITAL RECEI PT. IN ORDER TO BRING CLARITY ON THE ISSUE OF TAXATION OF INCOME FROM TRANSFER OF CARBON CREDITS AND TO ENCOURAGE MEASURES TO PROT ECT THE ENVIRONMENT, IT IS PROPOSED TO INSERT A NEW SECTION 115BBG TO PROVIDE THAT WHERE THE TOTAL INCOME OF THE ASSESSEE INCLUDE S ANY INCOME FROM TRANSFER OF CARBON CREDIT, SUCH INCOME SHALL BE TAX ABLE AT THE CONCESSIONAL RATE OFTEN PER CENT (PLUS APPLICABLE S URCHARGE AND CESS) ON THE GROSS AMOUNT OF SUCH INCOME. NO EXPENDITURE OR ALLOWANCE IN RESPECT OF SUCH INCOME SHALL BE ALLOWED UNDER THE A CT. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 201 8 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2018-19 AND SUBSEQUENT YEARS. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 24 - 41. THUS, TAKING INTO CONSIDERATION RESOLUTION OF L ITIGATION ON THIS ISSUE BY THE LEGISLATURE ITSELF, WHICH HAD MADE PROVISION FO R TAXATION OF SUCH RECEIPTS AT THE RATE OF 10% FROM THE ASSESSMENT YEAR 2018-19 AS WELL AS AUTHORITATIVE PRONOUNCEMENTS OF HONBLE JURISDICTIONAL HIGH COURT , WE ARE OF THE VIEW THAT RECEIPTS RECEIVED BY THE ASSESSEE ON SALE OF CARBON CREDIT ARE TO BE TREATED AS CAPITAL RECEIPTS AND NOT LIABLE TO TAX. THE LD.DRP HAS ASSIGNED ONE MORE REASONS FOR NOT ENTERTAINING CLAIM OF THE ASSESSEE PARTICULARLY IN THE ASSESSMENT YEAR 2012-13 IS THAT SUCH CLAIM WAS NOT IN THE RETURN OF INCOME, RATHER IT WAS MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ON THE STRENGTH OF HONBLE SUPREME COURT JUDGMENT IN THE C ASE OF GOETEZ INDIA LTD.(SUPRA), WE ARE OF THE VIEW THAT THE AO CANNOT ENTERTAIN ANY CLAIM FOR ALLOWING DEDUCTION RESULTING IN A REDUCTION OF TOTA L INCOME RETURNED, WHICH IS NOT CLAIMED IN THE ORIGINAL RETURN OR A REVISED RET URN. TO THIS REASONING OF THE DRP, WE ARE OF THE VIEW THAT WE HAVE CONSIDERED THI S ASPECT WHILE DEALING WITH THE ISSUE REGARDED ENHANCEMENT CLAIM MADE UNDER SEC TION 80IA OF THE ACT. WE HAVE MADE REFERENCE TO THE DECISION OF THE ITAT, MU MBAI AND BANGALORE BENCHES AS WELL AS HONBLE HIGH GUJARAT HIGH COURT IN THE CASE OF MITESH IMPEX (SUPRA) AND HELD THAT IF A PARTICULAR ITEM IS GOING TO AFFECT TAXABILITY OF ASSESSEE, THEN A FRESH CLAIM CAN BE ENTERTAINED BY THE FIRST APPELLATE AUTHORITY OR BY THE DRP. THUS, WE OVERRULE THIS REASONING OF THE DRP AND DIRECT THE AO TO TREAT THESE RECEIPTS IN BOTH ASSESSMENT YEARS AS CAPITAL RECEIPT. 3.4. THE CO-ORDINATE BENCH HAS DECIDED THE CONTROVE RSY IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN VIEW OF T HE AFORESAID DISCUSSION, WE DO NOT SEE ANY REASON TO INTERFERE W ITH THE ORDER OF THE LD.CIT(A) IN THIS REGARD. HENCE, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 4. GROUND NO.2 CONCERNS DISALLOWANCE OF RS.63,03,83 5/- UNDER S.14A READ WITH RULE 8D OF INCOME TAX RULES, 1962. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 25 - 4.1. IDENTICAL ISSUE AROSE IN AY 2009-10 IN ASSESSE ES OWN CASE IN ITA NO.538/AHD/2013(SUPRA). THE RELEVANT OPERATIVE PAR AS CONCERNING AY 2009-10 IS REPRODUCED HEREUNDER:- ISSUE II: DISALLOWANCE UNDER SECTION 14A 34. SO FAR AS THIS DISALLOWANCE OF RS 68,15,142 IS CONCERNED, WHICH STANDS DELETED BY THE CIT(A), ONLY A FEW MATERIAL FACTS NE ED TO BE TAKEN NOTE OF. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED A DIVIDEND INCOME OF RS 3,32,19,012. IT WAS ALSO NOTED THAT THE ASSESSEE HAS OFFERED A DISALLOWANCE OF RS 30,000 UNDER SECTI ON 14A, BUT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN SUPPORT OF THIS AMOUNT. IT WAS IN THIS BACKDROP THAT THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY DISAL LOWANCE NOT BE MADE UNDER SECTION 14A READ WITH RULE 8D. THE ASSESSEE EXPLAIN ED THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS, THE NEXUS OF THESE INVESTMENTS WITH THE INTEREST FREE FUNDS WAS DEMONSTRATED, IT WAS ALSO EXPLAINED THAT SIMILAR DISALLOWANCES HAVE BEEN ACCEPTED IN THE PAST AS WELL. THE ASSESSING OFFICER ACCEPTED THE ASSESSEES EXPLANATION THAT NO INTEREST BEARING FUNDS ARE USED IN THESE INVESTMENTS, BUT PROCEEDED WITH MAKING A DISALLOWANCE IN RESPECT OF 0.5% OF THE AVERAGE INVESTMENTS, WHICH WORKED OUT TO RS 68,45,112, UNDER RULE 8D R.W .S. 14A. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO REVERSED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS FOLLOWS: 6.2 IT WAS INTIMATED BY APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT INVESTMENTS WERE MADE IN EARLIER YEARS IN SHAR ES OF SUBSIDY COMPANIES AND OTHER COMPANIES. NONE OF THESE SHARES WERE LIQU IDATED IN THE PAST 3 YEARS. IN SUCH A SITUATION, AO IS NOT JUSTIFIED TO CONCLUDE THAT THE DIRECTORS OF THE APPELLANT COMPANY WERE INVOLVED IN INVESTMENT D ECISIONS AND PART OF THEIR REMUNERATION NEEDS TO BE DISALLOWED. BEFORE INVOKIN G THE PROVISIONS OF RULE 8D, AO HAS TO GIVE A FINDING THAT CLAIM MADE BY THE APPELLANT IN THE RETURN OF INCOME IS NOT CORRECT. IN THIS CASE AO HAS NOT GIVE N ANY SUCH FINDING . IT IS ONLY PRESUMPTION OF AO THAT DIRECTORS OF THE COMPAN Y MIGHT HAVE BEEN INVOLVED IN DECISION MAKING RELATING TO LIQUIDATION OF OLD INVESTMENTS AND INVESTMENT IN NEW AREAS. NO FACTS HAVE BEEN BROUGHT ON RECORD BY AO WHICH INDICATE THAT THERE WERE LOT OF MOVEMENTS IN THE IN VESTMENT ACTIVITY REQUIRING INVOLVEMENT OF SENIOR MANAGEMENT PERSONNEL. I THERE FORE, HOLD THAT THERE IS ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 26 - NO JUSTIFICATION FOR DISALLOWANCE OF RS.68,15,142/- AND THE SAME IS DIRECTED TO BE DELETED. GROUND NO.2 OF THE APPEAL IS ALLOWED. 35. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN AP PEAL BEFORE US. 36. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 37. THE BASIC THRUST OF LEARNED COUNSELS SUBMISSIO N IS THAT UNLESS THE ASSESSEE POINTS OUT ANY SPECIFIC EXPENDITURE FOR EARNING OF TAX EXEMPT INCOME, DISALLOWANCE UNDER RULE 8D FOR 0.5% OF AVERAGE INVESTMENTS CANNO T BE MADE. HE ALSO SUBMITS THAT THE ASSESSING OFFICER HAS HIMSELF ACCEPTED THAT NO DIRECT EXPENSES ARE INCURRED IN EARNING THE DIVIDEND INCOME. IT IS ALSO CONTENDED T HAT THE PROVISIONS OF SECTION 14A(2) AND 14A(3) ARE NOT SATISFIED ON THE FACTS OF THE PRESENT CASE, AND, AS SUCH, RULE 8D CANNOT BE INVOKED. 38. LEARNED COUNSELS SUBMISSIONS, AS ALSO THE BASI S ON WHICH THE LEARNED CIT(A) HAS GRANTED THE RELIEF, ARE FACTUALLY INCORRECT. WE HAVE NOTED THAT THE ASSESSING OFFICER HAS SPECIFICALLY REJECTED THE ASSESSEES OF FER OF DISALLOWANCE OF RS 30,000 BY OBSERVING AS FOLLOWS: 12.6 THE CONTENTIONS OF THE ASSESSEE HAVE BEEN PER USED. THE ONLY CONTENTION RAISED BY THE ASSESSEE IS THAT IT HAS SU RPLUS FUNDS AND THE INVESTMENTS HAVE BEEN MADE OUT OF DIVIDEND INCOME A CCRUED TO THE COMPANY AND FUNDS MADE AVAILABLE TO THE COMPANY ON MATURITY OF MUTUAL FUNDS IN WHICH THE SURPLUS FUNDS RAISED FROM THE QUALIFIED I NSTITUTIONAL PLACEMENTS (QIPS) WERE INVESTED. THE ASSESSEE HAS DEMONSTRATED ONE TO ONE NEXUS BETWEEN THE MATURITY OF THE MUTUAL FUNDS AND THE IN VESTMENTS MADE DURING THE RELEVANT PERIOD. 12.7 HOWEVER, THE ASSESSEE HAS FAILED TO PROVIDE T HE BASIS ON WHICH DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS BEEN WORKED OUT. AS ALREADY DISCUSSED ABOVE THAT THE ASSESSEE HAS HUGE INVESTME NT PORTFOLIO, HOLDING INVESTMENTS OF MORE THAN 120 CRORES, HAS EARNED SUB STANTIAL EXEMPT INCOME OF RS.3.32 CRORES. MOREOVER, THERE HAS BEEN SIGNIFICAN T ACTIVITY IN THE INVESTMENT PORTFOLIO WHERE OLD INVESTMENTS ARE LIQUIDATED AND NEW INVESTMENTS ARE MADE. MAKING, MANAGING AND DISPOSING OFF THE INVESTMENTS REQUIRE DECISION MAKING, ITS ACCOUNTING, TRACKING OF THE CHANGES ETC. MOREOV ER, AS PER THE ANNUAL REPORT OF THE COMPANY THE DIRECTORS OF THE COMPANY ARE BEING PAID SALARY, COMMISSION ON PROFITS AND OTHER PERQUISITES AGGREGA TING TO RS.750 LACS ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 27 - (APROX.). AS THE DECISIONS WITH REGARD TO INVESTME NTS MADE BY THE COMPANY ARE IMPORTANT DECISIONS THE SAME ARE TAKEN BY THE D IRECTORS OF THE COMPANY AND A PART OF THEIR REMUNERATION IS RELATABLE TO TH ESE INVESTMENTS AND THE INCOME DERIVED THEREFROM. 12.8 IN VIEW OF THE DISCUSSION HELD ABOVE IT IS CL EAR CERTAIN ADMINISTRATIVE, SALARY AND OTHER GENERAL EXPENSES HAVE BEEN INCURRE D IN RELATION TO THE INVESTMENTS THAT RESULT IN INCOME THAT DOES NOT FOR M PART OF TOTAL INCOME. MOREOVER, THE ASSESSEE HAS NOT MADE DISALLOWANCE UN DER SECTION 14A ON ANY RATIONAL, LOGICAL OR ACTUAL BASIS, BUT, THE SAME HA S BEEN DISALLOWED ON ADHOC BASIS. 39. WE HAVE NOTED THAT SECTION 14A(2) CATEGORICALLY PROVIDES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE I NCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFIC ER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT .[EMPHASIS SUPPLIED BY US]. HERE IS A CASE IN WHIC H THE ASSESSING OFFICER HAS TAKEN NOTE OF THE HUGE EXPEND ITURE, A PART OF WHICH IS ALSO ATTRIBUTABLE TO THE TAX EXEMPT INCOME, AND FINDS TH AT THE SMALL DISALLOWANCE OF RS 30,000 MADE BY THE ASSESSEE IS NOT ON ANY RATIONAL, LOGICAL OR ACTUAL BASIS, AND, IT IS FOR THIS REASON THAT THE ASSESSING OFFICER HAS INVO KED DISALLOWANCE UNDER RULE 8D. WE SEE NO INFIRMITY IN THE STAND SO TAKEN BY THE AS SESSING OFFICER. THE CONDITIONS OF SECTION 14A (2) ARE CLEARLY FULFILLED. THE CIT(A) H AS GRANTED THE IMPUGNED RELIEF ON THE BASIS THAT THE AO HAS NOT GIVEN ANY FINDING ABO UT INCORRECTNESS OF THE DISALLOWANCE OFFERED BY THE ASSESSEE, BUT THIS IS, AS WE CAN SEE FROM THE EXTRACTS FROM THE ASSESSMENT ORDER, FACTUALLY INCORRECT. AS REGAR DS LEARNED COUNSELS RELIANCE ON PRIYA EXHIBITORS PVT LTD VS DCIT [(2012) 54 SOT 356 (DEL)], WE FIND THAT THE COORDINATE BENCH HAD SPECIFICALLY STATED THAT .. THEIR LORDSHIPS HAS HELD THAT THE ASSESSING OFFICER MUST IN THE FIRST INSTANCE DETERM INE WHETHER THE CLAIM OF THE ASSESSEE IS CORRECT AND DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE LEGISLATURE DIRECTS HIM TO FOLLOW RULE 8D ONLY WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF ASSESSEE . IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT FULFILLED HIS ONUS OF RECORDING HIS FINDINGS. THE FACTS IN THE PRESENT CASE ARE DIAMETRICALLY OPPOSED TO THE SAID FACTUAL POSITION. IT IS A CASE, AS EVIDENT FROM THE REPRODUCTIONS SET OUR EARLIER IN THIS ORDE R, IN WHICH THE ASSESSING OFFICER HAS RECORDED SPECIFIC DISSATISFACTION WITH THE CLAI M OF THE ASSESSEE. AS A MATTER OF FACT, THIS PRECEDENT SUPPORTS THE CASE OF THE REVEN UE. WE MAY NOW REFER TO THE OBSERVATIONS OF THE CIT(A) TO THE EFFECT THAT IT I S ONLY PRESUMPTION OF AO THAT ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 28 - DIRECTORS OF THE COMPANY MIGHT HAVE BEEN INVOLVED I N DECISION MAKING RELATING TO LIQUIDATION OF OLD INVESTMENTS AND INVESTMENT IN NE W AREAS. NO FACTS HAVE BEEN BROUGHT ON RECORD BY AO WHICH INDICATE THAT THERE W ERE LOT OF MOVEMENTS IN THE INVESTMENT ACTIVITY REQUIRING INVOLVEMENT OF SENIOR MANAGEMENT PERSONNEL. WE FIND THAT ITS NOT EVEN IN DISPUTE THAT A PART OF EXPENSE S ATTRIBUTABLE TO THE WORK IN CONNECTION WITH THE INVESTMENT ARE TO BE DISALLOWED , AS THE ASSESSEE HAS ON ITS OWN OFFERED RS 30,000 FOR DISALLOWANCE IN THIS REGARD. THE DISPUTE IS CONFINED TO THE QUANTUM OF DISALLOWANCE AND THE BASIS ON WHICH IT I S TO BE QUANTIFIED. IN THE ABSENCE OF ANY REASONABLE BASIS OF DISALLOWANCE OFFERED BY THE ASSESSEE, AND IN THE ABSENCE OF THE ASSESSEE EVEN DISCLOSING THE BASIS ON WHICH DIS ALLOWANCE IS MADE, THE ASSESSING OFFICER HAD INVOKED THE RULE 8D. WE SEE NO INFIRMIT Y IN THIS ACTION. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF TH E CASE, WE VACATE THE RELIEF GRANTED BY THE CIT(A) AND RESTORE THE DISALLOWANCE OF RS 68 ,45,142 MADE BY THE ASSESSING OFFICER. 40. GROUND NO. 2 IS THUS ALLOWED. 4.3. THE ISSUE HAS THUS BEEN DECIDED IN FAVOUR OF T HE REVENUE AND AGAINST THE ASSESSEE BY THE CO-ORDINATE BENCH. IN THE LIGHT OF THE VIEW TAKEN BY THE COORDINATE BENCH, WE SET ASIDE THE ORD ER OF THE CIT(A) ON THIS SCORE AND UPHOLD THE ACTION OF THE ASSESSING O FFICER. HENCE, THIS GROUND OF REVENUES APPEAL FOR AY 2010-11 IS PARTLY ALLOWED. 4.4. IN THE RESULT, REVENUES APPEAL IN ITA NO.1462 /AHD/2016 FOR AY 2010-11 IS PARTLY ALLOWED. REVENUES APPEAL IN ITA NO.1463/AHD/2016 FOR AY 201 1-12 5. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN I TA NO.1463/AHD/2016 FOR AY 2011-12 AS UNDER:- ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 29 - I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.4,26,95,758/- M ADE BY THE AO ON ACCOUNT OF RECEIPTS FROM CARBON CREDITS TREATING IT AS REVENUE RECEIPT. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE DISALLOWANCE OF RS.1,16,12,352/- U/S.14A R.W.R. 8D MADE BY A.O. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE DISALLOWANCE OF RS.7,91,852/- ON ACCOUNT OF ADD ITIONAL DEPRECIATION. 6. GROUND NO.1 OF THE CAPITIONED REVENUES APPEAL IS DISMISSED IN CONSONANCE WITH VIEW TAKEN IN GROUND NO.1 OF REVENU ES APPEAL CONCERNING AY 2010-11 IN ITA NO.1462/AHD/2016(SUPRA ). 7. GROUND NO.2 OF REVENUES APPEAL IS ALLOWED IN PA RITY WITH GROUND NO.2 OF REVENUES APPEAL CONCERNING AY 2010- 11 IN ITA NO.1462/AHD/2016(SUPRA). 8. GROUND NO.3 OF REVENUES APPEAL CONCERNS ELIGIBI LITY OF ADDITIONAL DEPRECIATION AMOUNTING TO RS.7,91,852/- . THE CIT(A) HAS DEALT WITH THE ISSUE AS UNDER: 7. NEXT SET OF GROUNDS OF APPEAL IS REGARDING REJECTION OF CLAIM OF ADDITIONAL DEPRECIATION OF RS. 7,91,852/- U/S 32(L)(IIA). THE APPELLANT HAD ACQUIRED AND INSTALLED NEW PLANT & MACHINERY IN FY 2009-10. SINCE THE PLANT ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 30 - & MACHINERY WERE USED FOR LESS THAN 182 DAYS, THE C LAIM OF ADDITIONAL DEPRECIATION DURING AY 2010-11 WAS RESTRICTED TO 50 %. DURING THE ASSESSMENT PROCEEDINGS FOR THE CURRENT ASSESSMENT YEAR, THE APPELLANT DURING THE COURSE OF ASSESSMENT MADE AN ADDITIONAL CLAIM BEFORE THE AO FOR ALLOWING THE BALANCE ADDITIONAL DEPRECIATION U/S. 32(L)(IIA) VIDE LETTER NO. 933 DATED 17-3-2014. DETAILED SUBMISSIONS WE RE MADE BEFORE THE AO DURING THE COURSE OF ASSESSMENT, HOWEVER, THE AO WA S NOT CONVINCED WITH THE SUBMISSIONS MADE BY THE APPELLANT AND THEREFORE DID NOT ENTERTAIN THE CLAIM OF BALANCE ADDITIONAL DEPRECIATION. THE AO WAS OF TH E VIEW THAT ADDITIONAL DEPRECIATION CAN BE ALLOWED ONLY IN THE YEAR IN WHI CH THE ASSETS ARE ACQUIRED AND INSTALLED AND NOT IN THE SUBSEQUENT YEAR. THE AO HAS STATED THAT THE LAW DOES NOT CONTAIN ANY PROVISION ENABLING THE TAX PAY ER TO CLAIM THE BALANCE HALF ENTITLEMENT IN THE SUBSEQUENT YEARS AS THERE IS NO EXPLICIT PROVISION ENTITLING THE ASSESSEE TO CLAIM THE BALANCE OF THE ADDITIONAL DEPRECIATION IN SUBSEQUENT YEAR. THE PROVISO TO SECTION 32(1)(II) HAS TO BE CO NSTRUED IN A RESTRICTIVE WAY AND LIBERAL INTERPRETATION OF THE SAME CANNOT BE MA DE. 7.2 BEFORE ME, THE APPELLANT SUBMITTED THAT SINCE N O ADDITIONAL DEPRECIATION WAS CLAIMED IN THE RETURN OF INCOME, THE AO COULD N OT HAVE ADDED THE SUM TO THE TOTAL INCOME WHILE PASSING THE ASSESSMENT ORDER . IN VIEW OF THE SAME THE VERY ACTION OF THE AO IN FIRSTLY MAKING THE ADDITION WITHOUT THERE BEING ANY CLAIM IN THE RETURN OF INCOME, AND SECONDLY, NOT AL LOWING THE LEGALLY VALID CLAIM MADE BY WAY OF A COMMUNICATION DATED 17/3/201 4 IS ERRONEOUS. THE APPELLANT HAS MADE WRITTEN SUBMISSIONS AND CHALLENG ED THE ADDITION/DISALLOWANCE MADE ON ACCOUNT OF DEPRECIATI ON CLAIMED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDING TOWARDS ADDITIONAL DEPRECIATION U/S 32(L)(IIA) ON THE ASSETS INSTALLED DURING THE P RECEDING ASSESSMENT YEAR USED FOR A PERIOD LESS OF THAN 182 DAYS DURING THE PRECE DING ASSESSMENT YEAR. THE APPELLANT HAS CLAIMED THE ADDITIONAL DEPRECIATION O F RS.7,91,852/- U/S 32(L)(IIA) OF THE INCOME TAX ACT, 1961 DURING THE ASSESSMENT PROCEEDING OF ASST. TEAR 2011-12, ON THE ASSETS WHI CH WERE PUT TO USE DURING THE ASSESSMENT YEAR 2010-11 FOR A PERIOD LESS THAN 182 DAYS AND THEREFORE ADDITIONAL DEPRECIATION WAS CALCULATED AT 50% OF TH E APPLICABLE RATE DURING THE ASSESSMENT YEAR 2010-11. THE BALANCE AMOUNT OF ADDITIONAL DEPRECIATION WAS NOT CLAIMED BY THE APPELLANT AT THE TIME OF FIL ING THE RETURN OF INCOME AND THEREFORE SUCH ADDITIONAL DEPRECIATION WAS CLAIMED BY SUBMITTING THE LETTER NO 933 DATED 17.03.2014 CLARIFYING THE REASON THEREOF. HOWEVER, THE ASSESSING ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 31 - OFFICER NOT ONLY REJECTS THE CLAIM BUT ADDITION OF THE SAME AMOUNT OF RS. 7,91,852/- WAS MADE WHILE CALCULATING THE TOTAL INC OME WITHOUT CONSIDERING THE FACTS THAT THE SAID AMOUNT OF RS. 7,91,852/- ON ACCOUNT OF ADDITIONAL DEPRECIATION WAS NOT CLAIMED AT THE TIME OF FILING THE RETURN OF INCOME. ACCORDINGLY, THE AO HAS ERRED IN COMPUTATION OF TOTAL INCOME BY NOT ALLOWING THE DEDUCTION OF ADDITIONAL DEPRECI ATION BUT ALSO ERRED WHILE CALCULATING THE ASSESSED TAXABLE INCOME U/S 143(3) OF THE ACT BY WAY OF ADDITION ON ACCOUNT OF ADDITIONAL DEPRECIATION WHIC H WAS NOT AT ALL CLAIMED ORIGINALLY AT THE TIME OF CALCULATION OF TAXABLE IN COME AT THE TIME OF FILING RETURN OF INCOME. 7.3 THE APPELLANT FURTHER SUBMITTED THAT WITH RE GARD TO ADDITIONAL DEPRECIATION U/S 32(L)(IIA), 50% OF WHICH HAS NOT B EEN CLAIMED IN PRECEDING ASSESSMENT YEAR 2010-11 (DUE TO RESTRICTION OF CLAI MING ONLY 50% DEPRECIATION ON ACCOUNT OF USE OF THE SAME FOR LESS THAN 182 DAY S), IS CLEARLY ALLOWABLE DURING THE CURRENT ASSESSMENT YEAR 2011-12. THE ASS ESSING OFFICER HAS ERRED IN REJECTING THE LEGALLY VALID CLAIM OF THE APPELLA NT MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT RELIED ON THE FOLLOWING AUTHORITIES WHEREIN HALF UNCLAIMED PORTION OF THE ADDITIONAL DE PRECIATION HAS BEEN HELD ALLOWABLE IN SUCCEEDING ASSESSMENT YEAR: APOLLO TYRES LTD. V. ASSTT CIT 45 TAXMANN.COM 3 37 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE SECOND PROVISO TO SECTION 32(L)(II) OF THE ACT, WHICH READS AS FOLLOWS: 'PROVIDED FURTHER THAT WHERE AN ASSET REFERRED TO C LAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE, IS ACQUIR ED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSE OF BUSINESS OR ; PROFESSION FOR A PERIOD OF LESS THAN ONE HUNDRE D AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SE CTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLA USE (I) OR CLAUSE (III) OR CLAUSE (IIA) AS THE CASE MAY BE. ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 32 - 11. A BARE READING OF THIS SECTION 32(L)(IIA) CLEAR LY SAYS THAT IN CASE A NEW MACHINERY OR PLANT WAS ACQUIRED AND INSTALLED AFTER 31-03-2005 BY AN ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF MANUFAC TURE OR PRODUCE OF ARTICLE OR THING, THE, A SUM EQUAL TO 20% OF THE ACTUAL COS T OF THE MACHINERY AND PLANT SHALL BE ALLOWED AS A DEDUCTION. IT IS NOT IN DISPU TE THAT THE ASSESSEE HAS ACQUIRED AND INSTALLED THE MACHINERY AFTER 31-03-20 5. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF ARTICLE OR THING. THEREFORE THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATIO N WHICH IS EQUIVALENT TO 20% OF THE ACTUAL COST OF SUCH MACHINERY. THE DISPUTE I S THE YEAR IN WHICH THE DEPRECIATION HAS TO BE ALLOWED. THE ASSESSEE HAS AL READY CLAIMED 10% OF THE DEPRECIATION IN THE EARLIER ASSESSMENT YEAR SINCE T HE MACHINERY WAS USED FOR LESS THAN 180 DAYS AND CLAIMING THE BALANCE 10% IN THE YEAR UNDER CONSIDERATION. SECTION 32(L)(IIA) DOES NOT SAY THAT THE YEAR IN WHICH THE ADDITIONAL DEPRECIATION HAS TO BE ALLOWED. IT SIMPLY SAYS THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION EQUAL TO 20% OF THE COST OF THE MACHINERY PROVIDED THE MACHINERY OR PLANT IS ACQUIRED BY THE MACHINERY O R PLANT IS ACQUIRED AND INSTALLED AFTER 31-03-2005. PROVISO TO SECTION 32(L)(IIA) SAYS HAST IF THE MACHINERY WAS ACQUIRED BY THE ASSESSING DURING THE PREVIOUS YEAR AND HAS PUT TO USE FOR THE PURPOSE OF BUSINESS LESS THAN 180 DA YS, THE DEDUCTION SHALL BE RESTRICTED TO 50% OF THE AMOUNT CALCULATED AT TH E PRESCRIBED RATE. THEREFORE, IF THE MACHINERY IS PUT TO USE IN ANY PA RTICULAR YEAR, THE ASSESSEE IS ENTITLED FOR 50% OF THE PRESCRIBED RATE OF ADDITIONAL DEPRECIATION. THE INCOME-TAX ACT IS SILENT ABOUT THE ALLOWANCE OF THE BALANCE 10% ADDITIONAL DEPRECIATION IN THE SUBSEQUENT YEAR. TAK ING ADVANTAGE OF THIS POSITION, THE ASSESSEE NOW CLAIMS THAT THE YEAR IN WHICH THE MACHINERY WAS PUT TO USE THE ASSESSEE IS ENTITLED FOR 50% ADDITIONAL DEPRECIATION SINCE THE MACHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS AND THE BALANCE 50% SHALL BE ALLOWED IN THE NEXT YEAR SINCE THE ELIGIBILITY OF THE ASSESSEE FOR CLAIMING 20% OF THE ADDITIONAL DEPRECIATION CANNOT BE D ENIED BY INVOKING SECOND PROVISO TO SECTION 32(L)(II)OF THE ACT. DCIT V. COSMO FILMS LTD. 139 ITD 628 [2012 . O THUS, THE INTENTION WAS NOT TO DENY THE BENEFIT T O THE ASSESSEE WHO HAVE ACQUIRED OR INSTALLED NEW MACHINERY OR PLANT. THE S ECOND PROVISO TO SECTION 32(L)(IIA) RESTRICTS THE ALLOWANCES ONLY TO 50% WHE RE THE ASSTS HAVE BEEN ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 33 - ACQUIRED AND PUT TO USE FOR A PERIOD LESS THAN 180 DAYS IN THE YEAR OF ACQUISITION. THIS RESTRICTION IS ONLY ON THE BASIS OF PERIOD OF USE. THERE IS NO RESTRICTION THAT BALANCE OF ONE RIME INCENTIVE IN T HE FORM OF ADDITIONAL SUM OF DEPRECIATION SHALL NOT BE AVAILABLE IN THE SUBSEQUE NT YEAR. SECTION 32(2) PROVIDE FOR A CARRY FORWARD SET UP OF UNABSORBED DE PRECIATION. THIS ADDITIONAL BENEFIT IN THE FORM OF ADDITIONAL ALLOWANCE U/S. 32 (L)(IIA) IS ONETIME BENEFIT TO ENCOURAGE THE INDUSTRIALIZATION AND IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BAJAJ TEMP LTD. (SUPRA), THE P ROVISIONS RELATED TO IT HAVE TO BE CONSTRUED REASONABLY LIBERALLY AND PURPOSIVE TO MAKE THE PROVISION MEANINGFUL WHILE GRANTING THE ADDITIONAL ALLOWANCE. THIS ADDITIONAL BENEFIT IS TO GIVE IMPETUS TO INDUSTRIALIZATION AND THE BASIC INTENTION AND PURPOSE OF THESE PROVISIONS CAN BE REASONABLY AND LIBERALLY HE LD THAT THE ASSESSEE DESERVES TO GET THE BENEFIT IN FULL WHEN THERE IS N O RESTRICTION IN THE STATUTE TO DENY THE BENEFIT OF BALANCE OF 50% WHEN THE NEW MAC HINERY AND PLANT WERE ACQUIRED AND USED FOR LESS THAN 1 80 I DAYS. ONETIM E BENEFIT EXTENDED TO ASSESSEE HAS BEEN EARNED IN THE YEAR OF ACQUISITION OF NE MACHINERY AND PLANT. IT HAS BEEN CALCULATED @ 15% BUT RESTRICTED TO 50% ONLY ON ACCOUNT OF USAGE OF THESE PLANT AND MACHINERY IN THE YEAR OF ACQUISI TION. IN SECTION 32(1)(IIA), THE EXPRESSION USED IS 'SHALL BE ALLOWED. THUS, THE ASSESSEE HAD EARNED THE BENEFIT AS SOON AS HE HAD PURCHASED THE NEW MACHINE RY AND PLANT IN FULL BUT IT IS RESTRICTED TO 50% IN THAT PARTICULAR YEAR ON ACC OUNT OF PERIOD USAGES. SUCH RESTRICTIONS CANNOT DIVEST THE STATUTORY RIGHT. LAW DOES NOT PROHIBIT THAT BALANCE 50% WILL NOT BE ALLOWED IN SUCCEEDING YEAR. THE EXTRA DEPRECIATION ALLOWABLE U/S. 32(L)(IIA) IN AN EXTRA INCENTIVE WHI CH HAS BEEN EARNED AND CALCULATED IN THE YEAR OF ACQUISITION BUT RESTRICTE D FOR THAT YEAR TO 50% ON ACCOUNT OF USAGE. THE SO EARNED INCENTIVE MUST BE MADE AVAILABLE IN THE SUBSEQUENT YEAR. THE OVERALL DEDUCTION OF DEPRECIAT ION U/S 32 SHALL DEFINITELY NOT EXCEED THE TOTAL COST OF MACHINERY AND PLANT. I N VIEW OF THIS MATTER, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIREC T TO EXTEND THE BENEFIT. WE ALLOW GROUND NO.2 OF THE ASSESSEE'S APPEAL. SINCE W E HAVE DECIDED GROUND NO.2 IN FAVOUR OF ASSESSEE, THERE IS NO NEED TO DECIDE THE ALTERNATIVE CLAIM RAISED IN GROUND NO.3. THE SAME IS DISMISSED.' ASSTT. CIT V. SIL INVESTMENT LTD. 26 TAXMANN.C OM 78 (DELHI) O 40. THERE IS NOTHING ON RECORD TO SHOW THAT T HE DIRECTIONS GIVEN BY ID. CIT(A) ARE NOT PROPER. THE ELIGIBILITY FOR DEDUCTIO N OF ADDITIONAL DEPRECIATION STANDS ADMITTED, SINCE 50% THEREOF HAD ALREADY BEEN ALLOWED BY THE AO IN THE ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 34 - ASSESSMENT YEAR 2005-06, I.E., THE IMMEDIATELY PREC EDING ASSESSMENT YEAR. THEREFORE, OBVIOUSLY, THE BALANCE 50% OF THE DEDUCT ION IS TO BE ALLOWED IN THE CURRENT YEAR, LE. ASSESSMENT YEAR 2006-07. THE ID C FT(A) HAS MERELY DIRECTED THE VERIFICATION OF THE CONTENTIONS OF THE ASSESSEE AND TO ALLOW THE BALANCE ADDITIONAL DEPRECIATION AFTER SUCH FACTUAL VERIFICA TION. ACCORDINGLY, FINDING NO MERIT THEREIN, GROUND NO. 3 RAISED BY THE DEPARTMEN T IS REJECTED. BIRLA CORPORATION LTD. V. DCIT 55 TAXMANN.COM 33 15. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS ARE ADMITTED A ND THERE IS NO DISPUTE ON THE FACTS. ONLY ISSUE FOR ADJUDICATION IS WHETHER THE A SSESSEE IS ENTITLED FOR THE BALANCE 50% ADDITIONAL DEPRECIATION IN VIEW OF SEC. 32(L)(IIA) OF THE ACT IN THE NEXT ASSESSMENT YEAR FOR REMAINING UNUTILIZED ADDIT IONAL DEPRECIATION. WE HAVE GONE THROUGH THE RELEVANT PROVISIONS OF SECOND PROVISO TO SECTION 32(L)(II) AND 32(L)(IIA) OF THE ACT. IN THE PRESENT CASE BEFO RE US, THE ASSESSEE HAS PURCHASED AND INSTALLED NEW PLANT AND MACHINERY FOR ITS MANUFACTURING UNIT AND PUT TO USE FOR A PERIOD OF LESS THAN I.E. 180 D AYS, DURING THE FY 2005-06 RELEVANT TO AY 2006-07 AND CLAIMED 50% ADDITIONAL D EPRECIATION U/S. 32(L)(IIA) OF THE ACT IN VIEW OF THE SECOND PROVISO TO SECTION 32(L)(II) OF THE ACT. FURTHER, THE BALANCE 50% OF ADDITIONAL DEPRECIATION ON SUCH PLANT AND MACHINERY HAS BEEN CLAIMED BY THE ASSESSEE COMPANY DURING THE YEA R UNDER CONSIDERATION I.E. THE FY 2006-07 RELEVANT TO THIS ASSESSMENT YEAR 200 7-08. A BARE READING OF CLAUSE (IIA) OF SECTION 32(1) OF THE ACT W.E.F. THE AY 2006-07, PROVIDES FOR ALLOWANCE OF ADDITIONAL DEPRECIATION EQUAL TO 20% O F ACTUAL COST OF NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED AFTER MARCH, 3 1 ST 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCT ION OF ANY ARTICLE OR THING. SUCH ADDITIONAL DEPRECIATION IS TO BE ALLOWED AS DE DUCTION U/S. 32(L)(IIA) OF THE ACT BUT SECOND PROVISO TO SECTION 32(L)(II) RESTRIC TS THE ALLOWANCE OF DEPRECIATION AT 50%, IF THE PLANT AND MACHINERY IS ACQUIRED DURING THE PREVIOUS YEAR IS PUT TO USE FOR A PERIOD OF LESS TH AN 180 DAYS IN THAT PREVIOUS YEAR. THE SECOND PROVISO SPECIFICALLY MAKES A REFER ENCE TO AN ASSET REFERRED TO IN CLAUSE (IIA) OF THE SAID SECTION 32(1) OF THE AC T. AND IT IS BECAUSE OF THE SECOND PROVISO ASSESSEE CLAIMED ONLY 50%; ADDITIONA L DEPRECIATION FOR AY 2006-07 AND ACCORDINGLY, CLAIMED THE BALANCE A MOUNT OF ADDITIONAL DEPRECIATION IN THE IMMEDIATELY SUBSEQUENT YEAR I.E. THE YEAR UNDER CONSIDERATION AY 2007-08. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF SHRI ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 35 - J. P. KHAITAN, SENIOR ADVOCATE THAT A BARE READING OF SECTION 32(L)(HA) CLEARLY SHOWS THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION IN CASE THE NEW MACHINERY AND PLANT WAS ACQUIRED AND INSTALLED AFTE R 31-03-2005. THERE IS NO RESTRICTIVE CONDITION IN THE CLAUSE FOR THE ELIGIBI LITY OF THE ASSESSEE TO CLAIM ADDITIONAL DEPRECIATION. WHEN THE ASSESSEE IS ELIGI BLE FOR DEPRECIATION @ 20%, IN THE ABSENCE OF ANY SPECIFIC PROVISION, THE AO CA NNOT CUT DOWN THE SCOPE OF DEDUCTION BY REFERRING TO SECOND PROVISO TO SECTION 32(L)(II) OF THE ACT. HE ALSO POINTED OUT THAT EVEN IF THERE IS ANY CONTRADICTION BETWEEN SECTIONS 32(L)(IIA) AND SECOND PROVISO TO SECTION 32(L)(II), IT HAS TO BE RECONCILED SO AS TO GIVE HARMONIOUS EFFECT TO THE LEGISLATIVE INTENT. THE BE NEFITS CONFERRED ON THE ASSESSEE BY WAY OF INCENTIVE PROVISION CANNOT BE TA KEN AWAY BY ADOPTING AN IMPLIED MEANING TO SECOND I PROVISO TO SECTION 32(L )(II) OF THE ACT. SINCE THE SECOND PROVISO TO SECTION 32(L)(II) DOES NOT EX PRESSLY PROHIBIT, THE ALLOWANCE OF THE BALANCE 50% DEPRECIATION IN THE SUBSEQUENT YEAR, SECOND PROVISO TO SECTION 32(L)(II) SHALL NOT BE INTER PRETED TO MEAN THAT IT IMPLIEDLY RESTRICT THE ADDITIONAL DEPRECIATIO N TO BE ALLOWED IN THE SUBSEQUENT ASSESSMENT YEAR. WE ARE OF THE VIEW THA T THE ASSESSEE NOW IS ENTITLED FOR 50 B /O ADDITIONAL DEPRECIATION, BECAUSE IN THE YEAR I N WHICH THE MACHINERY WAS FIRST PUT TO USE THE ASSESSEE CLAIMED ONLY 50% OF ADDITIONAL DEPRECIATION FOR THE REASON THAT THE SAME WAS PUT T O USE FOR LESS THAN 180 DAYS, IN THIS ASSESSMENT YEAR FOR THE BALANCE OF DEPRECIA TION. 7.4 I HAVE CONSIDERED THE FACTS AND CIRCUMSTA NCES OF THE CASE. I FIND THAT THE CONTROVERSY IS INDEED SQUARELY COVERED BY VARIO US DECISIONS OF THE TRIBUNAL AND HIGH COURTS IN FAVOUR OF THE APPELLANT. THE APP ELLANT HAS REFERRED TO VARIOUS DECISIONS IN ITS WRITTEN SUBMISSIONS. FURTH ER, THE JURISDICTIONAL ITAT, AHMEDABAD DECIDING THE SIMILAR ISSUE IN CASE OF INCOME TAX OFFICER, WARD 2(2), SURAT V. M/S. ASWANI INDUSTRIES, SURAT IN ITA NO. 140/AHD/2013 FOR AY 2008-09, HAS HELD IN FAVOUR OF THE ASSESSEE AS UNDER: '4. THE SECOND ISSUE RELATES TO ADDITIONAL DEPRECIA TION OF RS. 4,98,859/- . ASSESSING OFFICER HAS DISALLOWED THE BALANCE ADDI TIONAL DEPRECIATION CLAIMED BY ASSESSEE ON THE MACHINERY INSTALLED IN T HE SECOND HALF OF THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2007-08. THE ASS ESSEE'S CONTENTION WAS THAT HE WAS ELIGIBLE FOR ADDITIONAL DEPRECIATIO N @ 20 % ON THE PLANT AND MACHINERY PURCHASED IN THE SECOND HALF OF THE FINANCIAL YEAR 2006-07 BUT BEING USED LESS THAN 180 DAYS, ONLY 10 % DEPRECIATION WAS ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 36 - ALLOWED BY A.O. THE BALANCE 10 % ADDITIONAL DEPRECI ATION WAS CARRIED FORWARD IN THE YEAR UNDER APPEAL AND CLAIMED IN THE COMPUTATION OF INCOME WHICH WAS DISALLOWED BY A.O. ON THE GROUND T HAT CARRIED FORWARD OF SUCH ADDITIONAL DEPRECIATION IS INADMISS IBLE AS PER PROVISIONS OF SECTION 32(L)(IIA). THE LD. CIT(A) HA S GIVEN RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF ITAT, DELHI I N THE CASE OF DCIT VS. COSMO FILMS LTD (124 TAXMAN.COM 189) WHEREIN IT HAS BEEN HELD THAT THE ADDITIONAL DEPRECIATION CANNOT BE RESTRICT ED TO 50 % AND IT HAS TO BE ALLOWED IN SUCCEEDING YEARS IF IT IS NOT ALLO WED FULL IN THE RELEVANT YEAR. FOR THE SAKE OF CONVENIENCE THE RELEVANT PORT ION OF THE ORDER IS AS UNDER: '17. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. SECTION 32(1)(IIA) INSERTED BY FINANCE (NO. 2) WITH EFFECT FROM 1. 4.2003. IN SPEECH OF FINANCE MINISTER THIS CLAUSE WAS INSERTED TO PROVID E INCENTIVE FOR FRESH INVESTMENT IN INDUSTRIAL SECTOR. THIS CLAUSE WAS IN TENDED TO GIVE IMPETUS TO NEW INVESTMENT IN SETTING UP A NEW INDUSTRIAL UN IT OR FOR EXPANDING THE INSTALLED CAPACITY OF EXISTING UNITS BY AT LEAS T 25 % THEREAFTER THESE PROVISIONS WERE AMENDED BY THE FINANCE (NO.2) ACT OF 2004 W.E.F. 1.4.2005 AND PROVIDED THAT IN THE CASE OF ANY MACHI NERY OR PLANT WHICH HAS BEEN ACQUIRED AFTER THE 31ST DAY OF MARCH, 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OF PRODUCTIO N OF ANY ARTICLE OR THING A FURTHER SUM EQUAL 15 % OF ACTUAL COST OF SU CH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (I I) OF SECTION 32(1). THIS ADDITIONAL ALLOWANCE U/S 32(1) (IIA) IS MADE A VAILABLE AS CERTAIN PERCENTAGE OF ACTUAL COST OF NEW MACHINERY AND PLAN T ACQUIRED AND INSTALLED. THIS PROVISION HAS BEEN DIRECTED TO THE SETTING UP NEW INDUSTRIAL UNDERTAKING MAKING OR FOR EXPANSI ON OF THE INDUSTRIAL UNDERTAKING BY WAY OF MAKING MORE INVESTMENT IN CAP ITAL GOODS. THUS, THESE ARE INCENTIVES AIMED TO BOOST NEW INVESTMENTS IN SETTING UP AND EXPANDING THE UNITS. THE PROVISO TO SECTIO N 32(L)(IIA) RESTRICTS THE BENEFITS IN RESPECT OF FOLLOWING- 'PROVIDED THA T NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF_ (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATION BY THE ASSESSES WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INS TALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDIN G ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE OR (C) ANY OFFICE AP PLIANCES OR ROAD ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 37 - TRANSPORT VEHICLE, OR (D) ANY MACHINERY OR PLANT, T HE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHE THER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCO ME CHARGEABLE UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PRO FESSION OF ANY PREVIOUS YEAR.' THUS, THIS INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATION IS NOT AVAILABLE TO ANY PLANT OR MACHINERY WHICH BEEN USED EITHER WITHIN INDIA OR OUTSIDE INDIA BY ANY OTHER PERSON OR SUCH MACHIN ERY AND PLANT ARE INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST HO USE OR ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES, OR ANY MACHI NERY OR PLANT THE WHOLE OF ACTUAL COST OF WHICH IS ALLOWABLE AS DEDUC TION (WHERE BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE TOTA L INCOME UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION' O F ANY ONE PREVISION YEAR. THUS, THE INTENSION WAS NOT TO DENY THE BENEF IT TO THE ASSETS WHO HAVE ACQUIRED OR INSTATED NEW MACHINERY OR PLANT. T HE SECOND PROVISO TO SECTION 32(L)(II) RESTRICTS THE ALLOWANCES ONLY TO 50% WHERE THE ASSETS HAVE BEEN ACQUIRED AND PART TO USE FOR A PERIOD LES S THAN 160 DAYS IN THE YEAR OF ACQUISITION. THIS RESTRICTION IS ONLY ON THE BASIS OF PERIOD OF USE. THERE IS NO RESTRICTION, THAT BALANCE OF ONE TIME INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATION SHALL NOT BE AVAILABLE IN THE SUBSEQUENT YEAR. SECTION 32(2) PROVIDES FOR A CARRY FORWARD SET UP O F UNABSORBED DEPRECIATION. THIS ADDITIONAL BENEFIT IN THE FORM O F ADDITIONAL ALLOWANCE U/S 32(L)(IIA) IS ONE TIME BENEFIT TO ENCOURAGE THE INDUSTRIALIZATION AND IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO VS. CIT,; CITED SUPRA, THE PROVISIONS RELATED TO IT HAVE TO BE CONSTRUCTED REASONABLY, LIBERALLY AND PURPOSIVE TO MAKE THE PROVISION MEANINGFUL WHILE GRANTING THE ADDITIONAL ALLOWANCE. THIS ADDITIONAL BENEFIT IS TO GIVE IMPETUS TO INDUSTRIALIZATION AND THE BASIC INTENTION AND PURPOSE OF THESE PROVISIONS CAN BE REASONABLY AND L IBERALLY HELD THAT THE ASSESSEE DESERVES TO GET THE BENEFIT IN FULL WH EN THERE IS NO RESTRICTION IN THE STATUTE LO DENY THE BENEFIT OF B ALANCE OF 50% WHEN THE NEW PLANT AND MACHINERY WERE ACQUIRED AND USE FOR L ESS THAN 180 DAYS. ONE TIME BENEFIT EXTENDED TO ASSESSEE HAS BEEN EARN ED IN THE YEAR OF ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 38 - ACQUISITION OF NEW PLANT AND MACHINERY. IT HAS BEEN CALCULATED @ 15% BUT RESTRICTED TO 50% ONLY ON ACCOUNT OF USAGE OF T HESE PLANT & MACHINERY IN THE YEAR OF ACQUISITION. IN SECTION 32 (1 (IIA) THE EXPRESSION USED IS 'SHALL BE ALLOWED'. THUS THE ASSESSEE HAD E ARNED THE BENEFIT AS SOON AS HE HAD PURCHASED THE NEW PLANT AND MACHINER Y IN FULL BUT IT IS RESTRICTED TO 50% IN THAT PARTICULAR YEAR ON ACCOUN T OF PERIOD ! OF USAGES. SUCH RESTRICTIONS CANNOT DIVEST THE STATUTO RY RIGHT. LAW DOES NOT PROHIBIT THAT BALANCE 50% WILL NOT BE ALLOWED IN SU CCEEDING YEAR. THE EXTRA DEPRECIATION ALLOWABLE U/S 32(L)(IIA) IN AN E XTRA INCENTIVE WHICH HAS BEEN EARNED AND CALCULATED IN THE YEAR OF ACQUI SITION BUT RESTRICTED FOR THAT YEAR TO 50% ON ACCOUNT OF USAGE. THE SO EA RNED INCENTIVE MUST BE MADE AVAILABLE IN THE SUBSEQUENT YEAR. THE OVERA LL DEDUCTION OF DEPRECIATION U/S 32 SHALL DEFINITELY NOT EXCEED THE TOTAL COST OF PLANT MACHINERY. IN VIEW OF THIS MATTER, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT TO EXTEND THE BENEFIT. ' IN VIEW OF THE ABOVE, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) IN RESPECT OF DELETION OF DISALLOWANC E ON ACCOUNT OF ADDITIONAL DEPRECIATION OF RS. 4,98,859/- ALSO AND THE ORDER PASSED BY LD. CIT(A) IS HEREBY UPHELD.' 6.5 CONSIDERING THE SERIES OF AUTHORITIES RELIED UP ON BY THE APPELLANT AND AS EXTRACTED ABOVE, IT IS IMPERATIVE TO HOLD THAT THE PROVISIONS OF SECTION 32(L)(IIA) OF THE ACT BENEFICIAL TO ASSESSEE AND THEREFORE HAV E TO BE INTERPRETED LIBERALLY SO AS TO BENEFIT THE ASSESSEE. IT IS ALSO FOUND THA T THE INTENTION OF THE LEGISLATION IS TO ALLOW ADDITIONAL BENEFIT. THE KARNATAKA HIGH COURT OPINED THAT THE PROVISO WOULD NOT RESTRAIN THE ASSESSEE FROM CLAIMI NG 1 THE BALANCE OF THE BENEFIT OF ADDITIONAL DEPRECIATION IN THE SUBSEQUEN T ASSESSMENT YEAR. SIMILAR VIEW IS HELD BY THE ITAT, AHMEDABAD IN THE CASE OF M/S. ASWANI INDUSTRIES (SUPRA). IN VIEW OF THE ABOVE, THE CLAIM MADE BY THE APPELLANT OF RS. 7,91,852 BEING BALANCE ADDITIONAL DEPRECIATION FOR NEW ASSET S ACQUIRED AND INSTALLED IN AY 2010-11 IS ALLOWED IN THE CURRENT ASSESSMENT YEA R. IT IS ALSO NOTED THAT AS PER EXPLANATION 5 TO SECTION 32(1) IT IS COMPULSORY FOR THE AO TO ALLOW DEPRECIATION WHETHER CLAIMED OR NOT IN THE COMPUTAT ION OF TOTAL INCOME. IN VIEW OF THE STATUTORY PROVISIONS THE AO WAS NOT COR RECT IN NOT ALLOWING THE ADDITIONAL DEPRECIATION CLAIM MADE DURING THE COURS E OF ASSESSMENT. I THEREFORE DELETE THE ADDITION MADE, AND ADDITIONALL Y, ALLOW THE CLAIM OF ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 39 - ADDITIONAL DEPRECIATION OF RS. 7,91,852/-. THIS GR OUND OF APPEAL IS THUS ALLOWED. 8.1. WE FIND THAT THE CIT(A) HAS APPRECIATED THE F ACTS AND LOAN IN PERSPECTIVE AND HAS RIGHTFULLY CAME TO A CONCLUSION THAT ASSESSEE WAS ENTITLED TO REMAINING PART OF 50% OF THE CLAIM OF THE ADDITIONAL DEPRECIATION ELIGIBLE UNDER S.32(1)(IIA) OF THE ACT IN THE SUBSEQUENT ASSESSMENT YEAR ADOPTING PURPOSIVE APPROACH TO THE ISSUE. WE THUS FIND NO INFIRMITY IN THE VIEW TAKEN BY THE CIT(A) AND TH EREFORE DECLINE TO INTERFERE. GROUND NO.3 OF REVENUES APPEAL IS AC CORDINGLY DISMISSED. 8.2. IN THE RESULT, REVENUES APPEAL IN ITA NO.146 3/AHD/2016 FOR AY 2011-12 IS PARTLY ALLOWED. 9. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 10/ 05/2019 ( ) ( ) ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 10/ 05 /2019 4..*,.*../ T.C. NAIR, SR. PS ITA NOS.1462 & 1463/AHD/2016 JT. CIT (OSD) VS. KALPATARU POWER TRANSMISSION LTD. ASST.YEARS 2010-11 & 2011-12 - 40 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 567, 8, / CONCERNED CIT 4. 8, ( ) / THE CIT(A)-12, AHMEDABAD 5. 9:;,*67 , 67 0 , 5 / DR, ITAT, AHMEDABAD 6. ;<+ / GUARD FILE. / BY ORDER, '9,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..10.5.19 (DICTATION-PAD 13- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 10.5.19 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER
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