DCIT Corporate Circle 6(2), CHENNAI V. Soundararaja Mills Ltd., Dindigul

ITA 2732/CHNY/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3186 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 13-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Difference of opinion

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH : CHENNAI . , !' # $! # % . &' , ) + , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO.2732/CHNY/2017 / ASSESSMENT YEAR : 2008-2009. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2) CHENNAI 600 034. VS. M/S. SOUNDARARAJA MILLS LTD, SOUNDARARAJA BUILDINGS, GTN SALAI, NGO COLONY, DINDIGUL 642 005. [PAN AAACS 8799R] ( -. / APPELLANT) ( /0-. /RESPONDENT) / APPELLANT BY : MRS. RUBY GEORGE, IRS, CIT. /RESPONDENT BY : SHRI. R. KUMAR, ADVOCATE /DATE OF HEARING : 16-08-2018 ! /DATE OF PRONOUNCEMENT : 21-08-2018 1 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER GROUNDS TAKEN BY THE REVENUE IN THIS APPEAL ARE REPRODUCED HEREUNDER:- 1.THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. ITA NO. 2732 /2017 :- 2 -: 2)THE CIT(A) ERRED IN DIRECTING THE AO TO VERIFY TH E ASSESSEE'S SUBMISSION AND TO DELETE THE ADDITION OF EMPLOYEE'S CONTRIBUTION .TO PF & ESI RS.15,50,051/- U/S 36(1) (VA) R.W.S 2(24) (X) 2.1 )THE CIT(A) OUGHT TO HAVE APPRECIATED THAT AS P ER SECTION 251(1)(A) OF THE ACT, THE 'POWER TO SET ASI DE' OR 'EXAMINING THE ISSUE AFRESH' HAS BEEN OMITTED .WITH EFFECT FROM 1.06.2001 AS PER FINANCE ACT, 2001. 2.2 THE LD CIT(A) OUGHT TO HAVE APPRECIATED THAT TH ERE IS A DIFFERENCE OF OPINION BETWEEN HCS ON THIS ISSUE. T HE MATTERS NEEDS TO BE KEPT ALIVE TILL THE OUTCOME OF THE FINAL DECISION BY THE SUPREME COURT. 2.3 THE LD 'CIT(A) ERRED IN DIRECTING THE AO TO DEL ETE THE ADDITION OF CARBON CREDIT FOR B 17.86 CRORES 2.4 THE LD CIT(A) FAILED TO APPRECIATE THAT THE ASS ESSEE ITSELF HAS RECOGNIZED THE CARBON CREDIT RECEIPTS TO THE EXTENT OF RS.6.25 CRORES AS REVENUE RECEIPT IN THE EARLIER AY 2007- 08. SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING, BY QUANTIFYING THE AMOUNT OF CARBON CRE DIT INCOME IT ITS ACCOUNTS, IT AMPLY CLEAR THAT THE INC OME HAS ALREADY ACCRUED. 2.5 THE LD CIT(A) FAILED TO APPRECIATE THAT CDM REC EIPTS ARE TO BE CONSIDERED AS REVENUE RECEIPTS. THE PROCE DURE OF ALLOTMENT OF CERS GIVES AMPLE EVIDENCE THAT CDM REC EIPTS ARE REVENUE IN NATURE. 2.6) THE LD CIT(A) FAILED TO APPRECIATE THAT THE CO MPANY HAS ESTABLISHED THE RIGHT TO RECEIVE THE CARBON CRE DIT INCOME IN THE ACCOUNTS BY QUANTIFYING THE AMOUNT. FOR THE REASON THAT THE APPLICATION HAS NOT BEEN TAKEN UP FOR PROC ESSING DOES NOT PREVENT THE INCOME FROM BEING RECOGNIZED. AS THE INCOME HAS ALREADY ACCRUED AND THE SAME IS QUANTIFI ED. HENCE, THE AMOUNT OF RS.17.86 CRORE OF CARBON CREDI T INCOME SHOULD BE BROUGHT TO TAX. 3)FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. ITA NO. 2732 /2017 :- 3 -: 2. EFFECTIVE GROUND NOS.2 TO 2.1, ASSAILS DIRECTIONS O F THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO THE LD. ASS ESSING OFFICER TO VERIFY WHETHER ASSESSEE HAD REMITTED EMPLOYEES CON TRIBUTION TO PF/ESTI BEFORE THE DUE DATE OF THE FILING OF THE RE TURN, AND IF SO TO ALLOW SUCH CLAIM. LD. COMMISSIONER OF INCOME TAX ( APPEALS) HAD RELIED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF CIT VS. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PV T LTD. (TCS NO.585 & 586 OF 2015, DATED 24.07.2015) AND REMITTED THE QUESTION OF DISALLOWANCE FOR EMPLOYEES CONTRIBUTION TO PF/ESI B ACK TO THE LD. ASSESSING OFFICER. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD DIRECTED THE LD. ASSESSING OFFICER TO VERIFY WHETHE R THE AMOUNTS WERE REMITTED BY THE ASSESSEE BEFORE THE DUE DATE OF FIL ING THE RETURN. LD. COMMISSIONER OF INCOME TAX (APPEALS)S DIRECTION IN OUR OPINION COULD NOT BE FAULTED. GROUNDS 2 AND 2.1 STAND DISMISSED. 3. LD. COUNSEL FOR THE REVENUE IN SUPPORT OF EFFECTIVE GROUNDS 2.2 TO 2.6 SUBMITTED THAT ASSESSEE HAD OMITTED TO CONSIDER CARBON CREDIT AS INCOME OF THE IMPUGNED ASSESSMENT YEAR, T HOUGH IT HAD MADE PROPER QUANTIFICATION OF THE AMOUNT. AS PER TH E LD. DEPARTMENTAL REPRESENTATIVE, IN THE PRECEDING YEAR, ASSESSEE HAD ITA NO. 2732 /2017 :- 4 -: RECOGNIZED CARBON CREDIT TO THE EXTENT OF B6.25 CRO RES. CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE WAS THAT ASSE SSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE CARBO N CREDIT HAD TO BE ACCOUNTED AS INCOME IN THE YEAR IN WHICH IT WAS QUA NTIFIED. 4. PER CONTRA, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT GUIDANCE NOTE OF CHARTERED ACCOUNTANTS OF INDIA ON SELF GENERATED EMISSION REDUCTION CLEARLY SPECIFIED THAT IT COULD BE RECOGNIZED IN BOOKS ONLY WHEN IT WAS UNCONDITIONALLY AVAILABLE. AS PER THE LD. AUTHORISED REPRESENTATIVE, UNLESS A NODAL AGENCY R ECOGNIZED BY UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHAN GE (UNFCCC) APPROVED ASSESSEES APPLICATION FOR CARBON EMISSION REDUCTION, INCOME COULD NOT BE RECOGNIZED. RELYING ON THE AUDITED PRO FIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE PREVIOUS YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR, LD. AUTHORISED REPRESENTATIVE SUBM ITTED THAT THERE WERE NO CARBON CREDIT RECOGNIZED AS INCOME. AS PER THE LD. AUTHORISED REPRESENTATIVE, IN THE PRECEDING YEAR, A SUM OF B6. 25 CRORES WAS RECOGNIZED AS INCOME IN THE ACCOUNTS AND FOR THAT R EASON THE SAID AMOUNT WAS TAXED IN THAT YEAR. 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. SCHEDULE 14 WHICH GIVES BREAK UP OF O THER INCOME OF THE ITA NO. 2732 /2017 :- 5 -: ASSESSEE AS IT APPEARS IN ITS AUDITED FINAL ACCOUNT S IS REPRODUCED HEREUNDER:- SCHEDULE 14: OTHER INCOME 31 ST MARCH, 2008 31 ST MARCH, 2007 INTEREST RECEIPTS ON FD (TDS B4.26 LACS) 29.97 14.51 NON TRADE INVESTMENTS RENT (TDS B8.57 LACS) 35.22 31.70 PROFIT ON SALE OF ASSETS (SURPLUS LAND VALUE B2408.48 LACS CONVERTED AS STOCK IN TRADE) 2437.51 401.66 CONVERSION CHARGES (1.52) 0.00 DIVIDEND RECEIPTS 0.06 0.00 MISCELLANEOUS INCOME 131.66 40.96 INSURANCE CLAIM 1.52 0.00 WIND MILL CARBON CREDIT RECEIPTS (REFER NOTE NO.7) 0.00 625.00 2,634.42 1,113.83 NOTE NO. 7, WHICH IS REFERRED IN THE ABOVE SCHEDU LE IS REPRODUCED HEREUNDER:- DURING 20.06-07 A SUM OF 625.DO.LACS WAS TAKEN A S INCOME FROM WIND MILL CARBON CREDIT IN RESPECT OF 16 WIND MILLS WHICH WERE INSTALLED UPTO MARCH 2005. HOWEVER THE PROCEDU RE AND FORMALITIES IN RESPECT OF GETTING THE CARBON CREDIT THROUGH ITA NO. 2732 /2017 :- 6 -: CERTIFIED EMISSION ROUTE ( CER) IS TIME CONSUMING, AS ADVISED BY THE NODAL AGENCY THE COMPANY IS GOING THROUGH VERIFIED EMISSION ROUT E (VER) WHICH WILL BE MORE FLEXIBLE AND FASTER REALISATION. IN VIEW OF THESE UNCERTAINTIES THE COMPANY IS NOT TAKING CREDI T OF RS.1786.DD LACS CARBON CREDIT INCOME WHICH THE COMP ANY IS ENTITLED TO IN RESPECT OF 16 NOS. 1.25 MW SUZLON WI ND MILLS INSTALLED DURING 20.0.5-0.6 AS A PRUDENT MEASURE. B ECAUSE, THE COMPANY'S APPLICATION HAS NOT YET BEEN TAKEN UP FO R PROCESSING BY THE NODAL AGENCY. WHAT WE FIND FROM THE ABOVE IS THAT ASSESSEE HAD AC COUNTED B6.25 CRORES AS CARBON CREDIT RECEIPTS FOR PREVIOUS YEAR ENDING 31.03.2007 RELEVANT TO ASSESSMENT YEAR 2007-2008. HOWEVER, TH ERE WAS NO SUCH CREDIT FOR PREVIOUS YEAR RELEVANT TO IMPUGNED ASSES SMENT YEAR. WHAT IS MENTIONED IN THE NOTE IS THAT PROCEDURE AND FOR MALITIES FOR GETTING CARBON CREDIT THROUGH CERTIFIED EMISSION ROUTE WA S STILL TO BE COMPLETED AND HENCE IT WAS NOT TAKING ANY CREDIT F OR THIS. SINCE ASSESSEE HAD NOT ACCOUNTED CARBON CREDIT RECEIPT, T HERE IS NO QUESTION OF TAXING ANY AMOUNT. IT MAY BE TRUE THAT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM BUT MERCANTILE SYSTEM DOES NOT O BLIGATE THE ASSESSEE TO SHOW AS INCOME WHAT WAS NOT A CRYSTALLI ZED INCOME. WE ARE THEREFORE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION MA DE BY THE LD. ASSESSING OFFICER FOR CARBON CREDIT. WE DO NOT FIN D ANY REASON TO ITA NO. 2732 /2017 :- 7 -: INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). GROUNDS 2.3 TO 2.6 OF THE REVENUE STAND DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DI SMISSED. ORDER PRONOUNCED ON TUESDAY, THE 21ST DAY OF AUGUS T, 2018, AT CHENNAI. SD/- SD/- ( # $! # % . &' ) ( DUVVURU RL REDDY ) ) / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:21ST AUGUST, 2018. KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF