Armstrong Knitting Mills P Ltd., CHENNAI V. DCIT, Tiruppur

ITA 1725/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8247 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 16-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Business income; Cost of acquisition; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ , % ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS.747 & 1725/MDS/2014 ( / ASSESSMENT YEARS: 2009-10 & 2010-11) M/S. ARMSTRONG KNITTING MILLS PVT.LTD., 61-C, SAMINATHAPURAM, 2 ND STREET, ANUPPARPALAYAM POST TIRUPUR-641 652 VS ASSISTANT / DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR. PAN:AA3CA3667Q ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.1698/MDS/2014 ( / ASSESSMENT YEAR: 2010-11) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, TIRUPUR. VS M/S. ARMSTRONG KNITTING MILLS PVT.LTD., 61-C, SAMINATHAPURAM, 2 ND STREET, ANUPPARPALAYAM POST TIRUPUR-641 652 PAN:AA3CA3667Q ( /APPELLANT) ( /RESPONDENT) ASSESSEE BY : DR. ANITA SUMANTH, ADVOCATE REVENUE BY : MR. A.B.KOLI, JCIT /DATE OF HEARING : 30 TH DECEMBER, 2015 /DATE OF PRONOUNCEMENT : 6 TH JANUARY, 2016 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE THREE APPEALS ARE FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDERS OF COMMISSIONER OF INCOM E TAX (APPEALS)-II, COIMBATORE FOR THE ASSESSMENT YEARS 2 009-10 AND 2010-11. 2. THE APPEAL OF THE ASSESSEE IN ITA NO.747/MDS/201 4 IS BARRED BY LIMITATION OF FOUR DAYS. THE ASSESSEE FI LED A 2 ITA NOS.747, 1725 & 1698/MDS/2014 PETITION EXPLAINING THE REASON FOR DELAY IN FILING OF APPEAL THAT THE ORIGINAL APPEAL PAPERS FORWARDED TO THE COUNSEL THROUGH THE MESSENGER, WHO FELL ILL AND THUS COULD NOT FI LE THE APPEAL WITHIN THE TIME AND THERE IS A SHORT DELAY OF FOUR DAYS IN FILING OF THE APPEAL. THEREFORE THE DELAY IS NOT DELIBERAT E OR WANTON AND PRAYS FOR CONDONATION OF DELAY. WE HAVE PERUSED THE REASONS AND ARE SATISFIED THAT THERE IS A REASONABL E CAUSE FOR THE DELAY IN FILING OF THE APPEAL. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY IN FILING OF THE APPEAL AND ADMIT TED FOR DISPOSAL. 3. THE FIRST COMMON ISSUE IN THE APPEALS OF THE ASS ESSEE FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 IS THA T COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ORDER OF ASSESSMENT HOLDING THAT CONDITIONS PRE SCRIBED UNDER SECTION 80IA(3)OF THE ACT ARE NOT SATISFIED. 4. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDES THAT TH IS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE FOR THE ASSES SMENT YEAR 2007-08. THE COUNSEL FOR THE ASSESSEE ALSO RE FERS TO PARA 6.1.1 OF THE ORDER OF THE COMMISSIONER OF INCO ME TAX (APPEALS) AND SUBMITS THAT THIS ISSUE HAS BEEN DECI DED 3 ITA NOS.747, 1725 & 1698/MDS/2014 AGAINST THE ASSESSEE. THUS, THE GROUNDS OF APPEAL 1 TO 4 RAISED BY THE ASSESSEE IN BOTH THE ASSESSMENT YEAR S ARE DISMISSED BY CONFIRMING THE ORDERS OF THE COMMISSIO NER OF INCOME TAX (APPEALS) ON THIS ISSUE. 5. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10 IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLD ING THAT THE AMOUNT RECEIVED FROM SALE OF CDM AS REVENUE REC EIPT. 6. COUNSEL FURTHER SUBMITS THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE HONBLE ANDHRA PRADESH HIGH COU RT IN THE CASE OF CIT VS. MY HOME POWER LTD.(365 ITR 82) HOLDING THAT INCOME EARNED ON SALE OF CARBON CREDIT IS CAPITAL IN NATURE BY AFFIRMING THE ORDER OF THE HYDERABAD B ENCH OF THIS TRIBUNAL IN THE CASE OF MY HOME POWER LTD. (15 1 TTJ 616). 7. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON T HE ORDERS OF LOWER AUTHORITIES. 8. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THIS ISSUE HAS BEEN D ECIDED IN 4 ITA NOS.747, 1725 & 1698/MDS/2014 FAVOUR OF THE ASSESSEE BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.651 & 652/MDS/2013 DATED 31.07.2 014 FOLLOWING THE DECISION OF HONBLE ANDHRA PRADESH HI GH COURT IN THE CASE OF CIT VS. MY HOME POWER LTD.(SUPRA) O BSERVING 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 LEAR NED TNBUNAL, DATED NOVEMBER 2, 2012 (MY HOME POWER LTD. V. DEPUTY ERR [2013] 21 ITR (TRIB) 186 (HYD)), ON THE FOLLOWI NG 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 THE SALE OF CARBON CREDITS IS TO BE CO NSIDERED AS CAPITAL RECEIPT AND NOT LIABLE FOR TAX UNDER ANY HE AD OF INCOME UNDER INCOME-TAX ACT, 1961 ? 2. WHETHER, IN THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, THE INCOME-TAX APPELLATE TRIBUNAL IS CORRECT IN HOLDING THAT THERE IS NO COST OF ACQUISITION OR COS T OF PRODUCTION TO GET ENTITLEMENT FOR THE CARBON CREDITS, WITHOUT APPRECIATING THAT GENERATION OF CARBON CREDITS IS INTRICATELY LI NKED 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 R ECEIVED ON ACCOUNT OF SALE OF CARBON CREDITS SHOULD BE TREATED TO BE BUSINESS INCOME AS THE SALE HAS BEEN MADE IN CONNEC TION WITH THE BUSINESS. WE HAVE CONSIDERED THE AFORESAID SUBMISSION AND WE ARE UNABLE TO ACCEPT THE SAME, AS THE LEARNED TRIBU NAL HAS 5 ITA NOS.747, 1725 & 1698/MDS/2014 FACTUALLY FOUND THAT 'CARBON CREDIT IS NOT AN OFFSH OOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GENERATED IN THE COURSE OF BUSINESS BUT IT IS GE NERATED DUE TO ENVIRONMENTAL CONCERNS'. WE AGREE WITH THIS FACT UAL ANALYSIS AS THE ASSESSEE IS CARRYING ON THE BUSINES S OF POWER GENERATION. THE CARBON CREDIT IS NOT EVEN DIRECTLY LINKED WITH POWER GENERATION. ON THE SALE OF EXCESS CARBON CRED ITS THE INCOME WAS RECEIVED AND HENCE AS CORRECTLY HELD BY THE TRIBUNAL IT IS CAPITAL RECEIPT AND IT CANNOT BE BUS INESS 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. 9. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE 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 HOLD THAT AMOUNT RECEIVED ON SALE OF CARBON CREDIT IS CAPITAL IN NATURE AND T HEREFORE WE REVERSE THE ORDER OF COMMISSIONER OF INCOME TAX (AP PEALS) ON THIS ISSUE ALLOW THE GROUNDS RAISED BY THE ASSES SEE. ITA NO.1698/MDS/2014: 10. THE ONLY ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80 IA OF THE ACT. 6 ITA NOS.747, 1725 & 1698/MDS/2014 11. AT THE TIME OF HEARING, COUNSEL FOR THE ASSESSE E SUBMITS THAT THIS ISSUE IS COVERED BY THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF SRI VELAYU DHASWAMY SPINNING MILLS P.LTD. VS. (340 ITR 477) . HE ALSO SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE SAID DECISION OF THE HIGH COURT ALLOWED THE CLAIM O F DEDUCTION OF THE ASSESSEE UNDER SECTION 80IA. 12. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 13. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SRI VELAYUDHASWAMY SPINNING MILLS P.LTD. (SUPRA).THE HONBLE HIGH COURT IN THE CASE OF SRI VELAYUDHASWAMY SPINNING MILLS PVT.LTD. VS. ACIT (SU PRA) HELD THAT FOR THE PURPOSE OF COMPUTING DEDUCTION UN DER SECTION 80IA, INITIAL ASSESSMENT YEAR MEANS THE YE AR IN WHICH THE ASSESSEE BEGINS TO CLAIM DEDUCTION UNDER SECTION 80IA OF THE ACT. WHILE HOLDING SO, THE HONBLE HIG H COURT OBSERVED AS UNDER:- 7 ITA NOS.747, 1725 & 1698/MDS/2014 FROM READING OF SUB-S. (1) OF S. 80-IA, IT IS CLEA R THAT IT PROVIDES THAT WHERE THE GROSS TOTAL INCOME OF AN AS SESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERT AKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB- S. (4) I.E. REFERRED TO AS THE ELIGIBLE BUSINESS, THERE SH ALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH E SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO 100 PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. DEDUCTION IS GIVEN TO ELIGIBLE BUSINESS AND THE SAME IS DEFINED IN SUB-SO (4). SUB-S.(2) PROVIDES OPTION TO THE ASSESSEE TO CHOOSE 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS. OPTIO N HAS TO BE EXERCISED. IF IT IS NOT EXERCISED, THE ASSESS EE WILL NOT BE GETTING THE BENEFIT. FIFTEEN YEARS IS OUTER LIMI T AND THE SAME IS BEGINNING FROM THE YEAR IN WHICH THE UNDERT AKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE AN Y INFRASTRUCTURE ACTIVITY ETC. SUB-S. (5) DEALS WITH QUANTUM OF DEDUCTION FOR AN ELIGIBLE BUSINESS. THE WORDS 'INITIAL ASSESSMENT YEAR' ARE USED IN SUB-S.( 5) AND THE SAME IS NOT DEFINED UNDER THE PROVISIONS. IT IS TO BE NOTED THAT 'INITIAL ASSESSMENT YEAR' EMPLOYED IN SU B-S. (5) IS DIFFERENT FROM THE WORDS 'BEGINNING FROM THE YEA R' REFERRED TO IN SUB-S. (2). IMPORTANT FACTORS ARE TO BE NOTED IN SUB-S. (5) AND THEY ARE AS UNDER: '(1) IT STARTS WITH NON OBSTANTE CLAUSE WHICH MEANS IT OVERRIDES ALL THE PR OVISIONS OF THE ACT AND OTHER PROVISIONS ARE TO BE IGNORED; (2) IT IS FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDUC TION; (3) FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR; (4) IT IS A DEEMING PROVIS ION; (5) FICTION CREATED THAT THE ELIGIBLE BUSINESS IS THE O NLY SOURCE OF INCOME; AND (6) DURING THE PREVIOUS YEAR RELEVAN T TO THE INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESS MENT YEAR.' FROM READING OF THE ABOVE, IT IS CLEAR THAT THE ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME, DURING THE PREVIOUS YEAR RELEVANT TO INITIAL ASSESSMENT YEAR A ND EVERY SUBSEQUENT ASSESSMENT YEARS. WHEN THE ASSESSEE EXERCISES THE OPTION, THE ONLY LOSSES OF THE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR-ALONE ARE TO BE BROUGHT FORWARD AND NOT LOSSES OF EARLIER YEARS WHI CH WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. LOOKING FORWARD TO A PERIOD OF TEN YEARS FROM THE I NITIAL ASSESSMENT IS CONTEMPLATED. IT DOES NOT ALLOW THE REVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS A NY LOSS OF EARLIER YEARS AND BRING FORWARD NOTIONALLY EVEN THOUGH THE SAME WERE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE AND THE SET OFF AGAINST THE CURRENT INCOME OF THE ELIGIBLE BUSINESS. ONCE THE SET OFF IS TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESSEE, THE REVENUE CANNOT REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. FICTION CREATED IN SUB-S. (5) DOES NOT CONTEMPLATES TO BRING SET OFF AMOUNT NOTIONALLY. FI CTION IS 8 ITA NOS.747, 1725 & 1698/MDS/2014 CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME C ANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREA TED. 14. THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWE D THE CLAIM OF THE ASSESSEE FOLLOWING THE JURISDICTIO NAL HIGH COURT DECISION IN THE CASE OF VELAYUDHASWAMY SPINNI NG MILLS LTD. VS. ACIT(SUPRA). RESPECTFULLY FOLLOWING THE SA ID DECISION, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND REJECT THE GROUNDS OF A PPEAL RAISED BY THE REVENUE. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.747/MDS/2014 IS PARTLY ALLOWED AND THAT OF ITA NO.1725/MDS/2014 IS DISMISSED. THE APPEAL OF THE RE VENUE IN ITA NO.1698/MDS/2014 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2016. SD/- SD/- ( ! ) ( $ '! ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) ) / ACCOUNTANT MEMBER ' ) / JUDICIAL MEMBER ' /CHENNAI, + /DATED 6 TH JANUARY, 2016 SOMU -. /. /COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. 0 () /CIT(A) 4. 0 /CIT 5. . 4 /DR 6. /GF .