ACIT, Trichy V. M/s. Prem Textile International, Karur

ITA 149/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86277 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-12-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 16-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Keywords: Business income; Depreciation; Source of fund; Capital receipt; Unabsorbed depreciation

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 149/MDS/2014 ( / ASSESSMENT YEAR: 2010-11) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-II, 4, WILLIAMS ROAD, TRICHY-620 001. VS M/S. PREM TEXTILE INTERNATIONAL 32, RAMAKRISHNAPURAM, KARUR-639 001. PAN: AAAFP4219I ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.DAS GUPTA, JCIT /RESPONDENT BY : NONE /DATE OF HEARING : 24 TH DECEMBER, 2014 /DATE OF PRONOUNCEMENT : 30 TH JANUARY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS) TIRUCHIRAP ALLI DATED 22.10.2013 FOR THE ASSESSMENT YEAR 2010-11. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE AND SINCE THE ISSUES INVOLVED IN THIS APPEAL OF THE REVENUE ARE SQUARELY COVERED, WE PROCEED TO DISPOSE OFF THIS APPEAL, AFTER HEARING THE DEPARTMENTAL REPRESENTATIVE. 2 ITA NO.149/MDS/2014 3. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE TAKEN INTO CONSIDERATION THAT LOSSES FROM WINDMILL BUSINESS FOR THE ASSESSMENT YEARS 2006-07 & 207-08 HAVE TO BE SET OFF ONLY AGAINST PROFIT FROM WINDMILL BUSINESS OF T HE ASSESSMENT YEAR 2010-11. 4. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON T HE ORDER OF THE ASSESSING OFFICER. 5. AFTER HEARING THE DEPARTMENTAL REPRESENTATIVE, W E FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE COMMISSI ONER OF INCOME TAX (APPEALS) AND FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. VELAY UDHASAMY SPINNING MILLS P.LTD. VS. ACIT (340 ITR 477) ALLOWE D THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER:- 5.THE MAJOR ISSUE INVOLVED IS THE RESTRICTION OF C LAIM OF THE APPELLANT U/S.80IA BY THE ASSESSING OFFICER BY REWORKING THE UNABSORBED DEPRECIATION ON WINDMILL. THE APPELLANT IS AN EXPORTER OF HOME TEXTILE PRODUCTS A ND ALSO GENERATES ELECTRICITY FROM ITS WINDMILLS. THE APPE LLANT COMPANY DERIVED INCOME FROM GENERATION OF POWER TO THE TUNE OF ` 92,19,129/- AND CLAIMED WHOLE AMOUNT AS DEDUCTION U/S.80IA. A SUM OF ` 18,94,196/- HAS BEEN CREDITED TO THE WINDMILL DIVISION PROFITS INCLUDED IN THE ABOVE SUM OF ` 92,19,129/- BEING REALIZATION FROM SALE OF CARBON CREDITS THE ASSESSING OFFICER HAD HELD THAT SALE PROCEEDS OF CARBON CREDITS HAS NO DIRECT NEXUS TO GENERATION OF WIND POWER. HOWEVER, ASSESSING OFFICE R HIMSELF HAS ACCEPTED IN HER ORDER THAT THERE IS A D IRECT NEXUS BETWEEN GENERATION OF ELECTRICITY AND THE CA RBON 3 ITA NO.149/MDS/2014 CREDITS BY SAYING THE WINDMILLS WILL BE GIVEN/AWA RDED UNITS CALLED CARBON CREDITS PROPORTIONATELY TO THE ELECTRICITY GENERATED, BY THE WINDMILLS AND THIS FA CTOR CLEARLY SHOWS THAT THE CARBON CREDIT INCOME IS INCI DENTAL TO THE MAIN INCOME. IF GENERATION OF ELECTRICITY I S NOT EXISTING, THEN THE QUESTION OF GETTING THE BENEFIT OF CARBON CREDITS WILL NOT ARISE AT ALL IN THE INSTANT CASE . HOWEVER, THE ASSESSING OFFICER HAS DENIED DEDUCTION U/S.80IA AND TREATED THE SALE OF CARBON CREDITS AS NOT FORMING PART OF PROFITS FROM THE INDUSTRIAL UNDERTAKINGS GENERATING POWER. THE AR OF THE APPELLANT PLACED HIS RELIANCE ON THE RATIO HELD IN M/S. VELAYUTHASWAMY SPINNING MILLS (P) LTD. VS. ACIT 340 ITR 477 WHERE THE JURISDICTIONAL HIGH COU RT HELD THAT DEPRECIATION ALREADY ABSORBED OUT OF THE INCOME IN OTHER SOURCES OF INCOME CANNOT BE RESURRE CTED AND READJUSTED IN ARRIVING AT THE PROFITS FROM ELIG IBLE BUSINESS AND REQUESTED FOR GRANTING THE DEDUCTION CLAIMED BY THE APPELLANT. THE ASSESSING OFFICER CONSIDERING THE WINDMILL INCOME AS THE ONLY SOURCE DENIED DEDUCTION CLAIMED BY THE APPELLANT U/S.80IA AND ADDED THE ENTIRE AMOUNT OF ` 92,19,129/- WHICH INCLUDES CARBON CREDIT FOR ` 18,94,196/-. EVEN THOUGH DEPARTMENT HAS FILED SLP BEFORE SUPREME COURT IN THE CASE OF M /S. VELAYUTHASWAMY SPINNING MILLS (P) LTD., AS ON THE D ATE DECISION OF HONBLE MADRAS HIGH COURT IS BINDING ON THE DEPARTMENT, HENCE ASSESSING OFFICER IS DIRECTED TO ALLOW THE DEDUCTION CLAIMED BY THE ASSESSEE U/S.80IA TO T HE TUNE OF ` 73,24,933/- OUT OF THE TOTAL AMOUNT CLAIMED OF ` 92,19,129/-. 6. ON GOING THROUGH THE ABOVE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS) WE DO NOT FIND ANY GOOD REA SON TO INTERFERE WITH THE FINDINGS AND THUS WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 7. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS T HAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONSI DERING SALE OF CARBON CREDIT AS CAPITAL IN NATURE. 4 ITA NO.149/MDS/2014 8. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTS TH E ORDER OF THE ASSESSING OFFICER IN DENYING DEDUCTION UNDER SECTION 80IA OF THE ACT ON THE INCOME FROM SALE OF CARBON CREDITS. 9. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 80IA OF THE ACT ON THE INCOME FROM SALE OF CARBON CREDITS OBSERVING AS UNDER:- 3.19 IN THE INSTANT CASE OF OUR ASSESSEE, THE FACT S RELATED TO THE CONCEPT/NATURE OF INCOME RELATABLE T O CARBON CREDITS RECEIVED BY THE WINDMILL (OWNED BY T HE ASSESSEE FIRM) ARE ALMOST SIMILAR TO THE FACTS MENTIONED IN THE ABOVE DECISIONS. THE INCOME WHICH THE ASSESSEE FIRM GETS BY SALE OF THE CARBON CREDI TS IS ONLY INCIDENTAL TO THE BUSINESS OF THE FIRM AND NOT DIRECT INCOME AS THE MAIN BUSINESS OF THE WINDMILLS IS EVIDENTLY GENERATION OF ELECTRICITY. SINCE IT IS E LIGIBLE TO GET THE BENEFIT OF THE CARBON CREDITS, DUE TO THE F ACT THAT THERE IS A SPECIAL SCHEME DEVELOPED BY THE UNI TED NATIONAL FRAMEWORK CONVENTION ON CLIMATE CHANGE (UNFCCC) HAVING LIAISON WITH VARIOUS COUNTRIES INCLUDING INDIA FOR WORKING OUT THE FORMULA TO WOR K OUT THE UNIT/CARBON CREDITS TO BE AWARDED TO THE WIND MILL FOR THE PURPOSE OF REDUCTION OF CARBON EMISSION. TH E WINDMILLS WILL BE GIVEN AWARDED UNITS CALLED CARBON CREDIT PROPORTIONATELY TO THE ELECTRICITY GENERATED BY THE WINDMILL AND THIS FACTOR CLEARLY SHOWS THAT THE CAR BON CREDITS INCOME IS INCIDENTAL TO THE MAIN INCOME, IF GENERATION OF ELECTRICITY IS NOT EXISTING (IN WIND MILLS CASE) THEN THE QUESTION OF GETTING THE BENEFIT OF CARBON CREDITS WILL NOT ARISE AT ALL IN THE INSTA NT CASE. THIS ALSO SHOWS THAT THE CARBON CREDITS INCOME AS SUCH IS NOT IMMEDIATE SOURCE OF INCOME. 3.20 IN VIEW OF THE CLEAR VERDICT GIVEN BY HONBLE SUPREME COURT OF INDIA AS ABOVE AND ALSO THE OTHER DECISION REFERRED AS ABOVE OF THE HON. COURT AND AL SO IN VIEW OF THE SIMILARITY OF THE ISSUE IN QUESTION BEFORE 5 ITA NO.149/MDS/2014 ME, THE RATIO OF THE ABOVE DECISION CLEARLY APPLIES TO THE FACTS ONLY OF THE INSTANT CASE.INCOME ARISING O UT OF CARBON CREDIT SELLING IS TO BE HELD AS ATTRIBUTABLE TO BUSINESS OF ASSESSEE FIRM AND NOT TO BE CONSIDERED AS DERIVED FROM THE BUSINESS OF THE ASSESSEE FIRM. FURTHER, CARBON CREDITS CONSTITUTE INDEPENDENT SOUR CE OF INCOME BEYOND THE FIRST DEGREE NEXUS, BETWEEN PROFITS AND THE INDUSTRIAL UNDERTAKING WHICH IS IN THIS CASE WINDMILLS. HENCE, IT IS TO BE HELD STRONGLY TH AT THE INCOME FROM SELLING OF CARBON CREDITS IS NOT DERIV ED FROM BUSINESS OF THE ASSESSEE FIRM BUT IS ONLY ATTRIBUTABLE TO BUSINESS AND IS ALSO INDEPENDENT SOURCE OF INCOME BEYOND THE FIRST DEGREE AND NOT T O BE INCLUDED WITH THE PROFIT AND GAIN DERIVED FROM INDUSTRIAL UNDERTAKING ENGAGED IN INFRASTRUCTURE DEVELOPMENT (I.E. WINDMILLS IN THIS CASE) FOR THE PURPOSE OF SECTION 80IA. 10. AS COULD BE SEEN FROM THE ABOVE PARAS THE ASSE SSING OFFICER WHILE COMPLETING THE ASSESSMENT TREATED THE INCOME FROM SALE OF CARBON CREDIT AS INCOME ATTRIBUTABLE T O BUSINESS AND NOT BUSINESS INCOME OF THE ASSESSEE AND DISAL LOWED THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80IA ON SUCH INCOME. THE ASSESSEE PREFERRED APPEAL BEFOR E THE COMMISSIONER OF INCOME TAX (APPEALS) CONTENDING THA T THE INCOME FROM SALE OF CARBON CREDIT IS INEXTRICABLY L INKED TO THE WINDMILL AND IS INCOME DERIVED FROM THE WINDMILL FO R THE PURPOSE OF DEDUCTION UNDER SECTION 80IA OF THE ACT. IN THE ALTERNATIVE, IT WAS CONTENDED THAT SALE OF CARBON C REDITS IS A CAPITAL RECEIPT AND IT IS NOT TAXABLE PLACING RELIA NCE ON THE DECISION OF THE ITAT., HYDERABAD BENCH IN THE CASE OF MY HOME POWER LTD. VS. DCIT ( 151 TTJ 616) . THE 6 ITA NO.149/MDS/2014 COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE AMOUNT RECEIVED FROM SALE OF CARBON CREDITS HAS NO ELEMENT OF PROFIT OR GAIN AND IT CANNOT BE SUBJECTED TO TAX. HE FURTH ER HELD THAT CARBON CREDIT IS ENTITLEMENT ON ACCRETION OF CAPITA L AND HENCE INCOME EARNED ON SALE OF CARBON CREDITS IS CAPITAL RECEIPT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAHESHWARI DEVI JUTE MILLS LTD. (57 ITR 36)(SC). THUS THE COMMISSIONER OF INCOME TAX (APPEA LS) ACCEPTED THE ALTERNATIVE CLAIM OF THE ASSESSEE THA T SALE OF CARBON CREDITS IS CAPITAL RECEIPT AND REJECTED THE CLAIM OF THE ASSESSEE THAT SUCH INCOME IS PROFITS DERIVED FROM W INDMILL FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80I A OF THE ACT. 11. AFTER HEARING THE DEPARTMENTAL REPRESENTATIVE A ND ON A PERUSAL OF THE ORDERS OF LOWER AUTHORITIES, WE FI ND THAT THE ISSUE AS TO WHETHER INCOME FROM SALE OF CARBON CRED ITS IS CAPITAL RECEIPT OR REVENUE RECEIPT HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. PRABHU SPINNING MILLS LTD. & M/S. SIVARAJ SPINNING MILLS LTD. IN ITA NOS.651 & 652/MDS/2013 DATED 31.07.2014 FOLL OWING THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT I N THE 7 ITA NO.149/MDS/2014 CASE OF CIT VS. MY HOME POWER LTD.(SUPRA) OBSERVIN G AS UNDER:- 5. HEARD BOTH SIDES. ON GOING THROUGH THE ORDERS OF LOWER AUTHORITIES AND THE DECISION OF THE HONBLE A NDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. MY HOME POWER LTD.(SUPRA), WE FIND THAT THE ISSUE IN THESE TWO APPEALS IS SQUARELY COVERED BY THE ABOVE DECISION. THE REVENUE COULD NOT POINT OUT ANY CONTRARY DECISION T O THE ABOVE CITED DECISION. THE HONBLE ANDHRA PRADESH H IGH COURT IN THE CASE OF MY HOME POWER LTD. (SUPRA) WH ILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HELD A S UNDER:- THIS APPEAL IS SOUGHT TO BE REFERRED AND ADMITTED AGAINST THE JUDGMENT AND ORDER OF THE LEARNED TNBUNAL, DATED NOVEMBER 2, 2012 (MY HOME POWER LTD. V. DEPUTY ERR [2013] 21 ITR (TRIB) 186 (HYD)), ON THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW: 1. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INCOME- TAX APPELLATE TRIBUNAL IS CORRECT IN HOLDING THAT T HE SALE OF CARBON CREDITS IS TO BE CONSIDERED AS CAPITAL RECEIPT AND NOT LIABLE FOR TAX UNDER ANY HEAD OF INCOME UNDER INCOME-TAX ACT, 1961 ? 2. WHETHER, IN THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE INCOME-TAX APPELLATE TRIBUNAL IS CORRECT IN HOLDING THAT THERE IS NO COS T OF ACQUISITION OR COST OF PRODUCTION TO GET ENTITLEMENT FOR THE CARBON CREDITS, WITHOUT APPRECIATING THAT GENERATION OF CARBON CREDITS IS INTRICATELY LINKED TO THE MACHINERY AND PROCESSES EMPLOYED IN THE PRODUCTION PROCESS BY THE ASSESSEE ? SRI J.V. PRASAD, LEARNED COUNSEL APPEARING FOR THE APPELLANT-REVENUE, SUBMITS THAT THE CONSIDERATION RECEIVED ON ACCOUNT OF SALE OF CARBON CREDITS SHOULD BE TREATED TO BE BUSINESS INCOME AS THE SALE HAS BEEN MADE IN CONNECTION WITH THE BUSINESS. WE HAVE CONSIDERED THE AFORESAID SUBMISSION AND WE ARE UNABLE TO ACCEPT THE SAME, AS THE LEARNED TRIBUNAL HAS FACTUALLY FOUND THAT '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 8 ITA NO.149/MDS/2014 IS GENERATED DUE TO ENVIRONMENTAL CONCERNS'. WE AGREE WITH THIS FACTUAL ANALYSIS AS THE ASSESSEE IS CARRYING ON THE BUSINESS OF POWER GENERATION. THE CARBON CREDIT IS NOT EVEN DIRECTLY LINKED WITH POWE R GENERATION. ON THE SALE OF EXCESS CARBON CREDITS THE INCOME WAS RECEIVED AND HENCE AS CORRECTLY HELD BY THE TRIBUNAL IT IS CAPITAL RECEIPT AND IT CANNOT BE BUSINESS RECEIPT OR INCOME. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY ELEMENT OF LAW IN THIS APPEAL. 6. RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOL D THAT AMOUNT RECEIVED ON SALE OF CARBON CREDIT IS CA PITAL IN NATURE AND THEREFORE WE REVERSE THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND THE ASSESSING OFFICER ON THIS ISSUE. 12. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E CO- ORDINATE BENCH OF THIS TRIBUNAL CITED ABOVE AND TH E JUDGEMENT OF HONBLE ANDHRA PRADESH HIGH COURT IN T HE CASE OF MY HOME POWER LTD. (SUPRA), WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THA T THE INCOME FROM SALE OF CARBON CREDIT IS CAPITAL RECEIP T. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY, THE 30 TH DAY OF JANUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 30 TH JANUARY, 2015 SOMU 9 ITA NO.149/MDS/2014 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .