M/s VRL logistics Ltd, Hubli V. Assistant Commissioner of Income tax, Circle-3(1), Hubli

ITA 2783/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2392 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 20-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V K GURUNATHAN
• Keywords: Business income; Question of law; Capital receipt
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, B ENGALURU BEFORE S HRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER I TA NO. 2783 / BANG/2 0 1 7 (ASSESSMENT YEAR: 2013 - 14 ) M/S. VRL LOGISTICS LTD., VARUR, POST: CHABBI, HUBBALLI TALUKA - 581207. PAN: AABCV 3609 C VS. ASSISTANT COMMISSIONER OF INCOME - TAX, APPELLANT CIRCLE 3(1), BENGALURU. RESPONDENT APPELLANT BY : SHRI V.K.GURUNATHAN, ADVOCATE. RESPONDENT BY : MS. NEERA MALHOTRA, CIT(DR) DATE OF HEARING : 08/08 /2018 DATE OF PRONOUNCEMENT : 05/09/2018 O R D E R PER JASON P BOAZ , AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS), HUBLI [CIT(A)], DATED 28/07/2018 FOR ASSESSMENT YEAR 2013 - 14. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UNDER: - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN TRANSPORTATION OF GOODS, COURIER SERVICE S , PASSENGER TRAVELS AND GENERATION OF ELECTRICITY THROUGH WIND POWER, FILED ITS RETURN OF INCOME FOR ASSESSME NT YEAR 2003 - 14 ON 27/09/2013 DECLARING TOTAL INCOME OF RS.29,38,69,510/ - , AFTER CLAIMING DEDUCTION OF RS.25,08,38,266/ - U/S 80 - IA OF THE INCOME - TAX ACT, 1961 [IN SHORT THE ACT ]. BOOK PROFITS U/S 115JB OF THE ACT WERE COMPUTED AT RS.64,01,75,345/ - . T HE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 31/03/2016, WHEREIN THE ASSESSEE S INCOME UNDER NORMAL PROVISIONS WAS COMPUTED AT RS.35,48,83,604, INTER ITA NO . 2783 /BANG/20 17 PA GE 2 OF 7 ALIA, ON ACCOUNT OF THE ASSESSEE S CLAIM FOR DEDUCTION U/S 80 - IA OF THE ACT BEING RESTRICTED TO RS.19,04,73,314/ - BY HOLDING THAT CARBON C REDITS OF RS.6,04,64,952/ - TO BE REVENUE RECEIPTS NOT ENTITLED TO DEDUCTION U/S 80 - IA OF THE ACT. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 31/03/2016 FOR ASSESSMENT YEAR 2013 - 14, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), HUBLI . THE LD.CIT(A) DISMISSED THE ASSESSEE S APPEAL VIDE ORDER DATED 28/07/2018 AND THEREBY UPHELD THE AO S ACTION IN (I) RESTRICTING THE ASSESSMENT S CLAIM FOR DEDUCTION U/ S 80 - IA OF THE ACT TO RS.19,04,73,314/ - BY EXCLUDING THERE - FROM THE CARBON CREDITS AMOUNTING TO RS.6,04,64,952/ - AS REVENUE RECEIPT S AND THEREFORE EXIGIBLE TO TAX AS BUSINESS INCOME. 3. THE ASSESSEE, BEING AGGRIEVED BY THE ORDER OF THE CIT(A), HUBLI, DATED 28/07/2018, HAS PREFERRED THE FOLLOWING GROUNDS: - 4. GROUNDS 1 AND 6 BEING GENERAL IN NATURE AND SINCE NO ADJUDICATION IS CALLED FOR THEREON, THESE GROUNDS ARE DISMISSED AS INFRUCTUOUS. ITA NO . 2783 /BANG/20 17 PA GE 3 OF 7 5. GROUND 2 AND 4 - CARBON CREDITS CAPITAL OR REVENUE GROUNDS 3 AND 5 DEDUCTION U/S 80 - IA OF THE ACT 5.1 IN GROUNDS 2 AND 4, THE ASSESSEE CONTENDS THAT THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT CARBON CREDITS ARE CAPITAL RECEIPTS AND HENCE NOT EXIGIBLE TO TAX. IN THIS CONTEX T, THE LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION S OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SUBASH KABINI POWER CORPORATION LTD. (2016) 385 ITR 592 (KAR) AND OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. M /S.AMBUTHIRTHA POWER P.LTD. ; ITA NOS.855 & 537/BANG/2018 DATED 06/07/2018, WHEREIN IT HAS BE EN HELD THAT CARBON CREDIT IS GENERATED OUT OF ENVIRONMENTAL C ONCERNS AND THEREFORE NOT HAVING THE CHARACTER OF TRADING ACTIVITY ARISING OUT OF BUSINESS, IT IS A CA PITAL RECEIPT AND HENCE NOT LIABLE TO TAX. 5.1.2 ALTERNATELY, IN GROUNDS 3 AND 5, THE ASSESSEE CONTENDS THAT THE AUTHORITIES BELOW, HAVING HELD THAT CARBON CREDITS ARE REVENUE RECEIPTS, THEY SHOULD HAVE BEEN INCLUDED FOR COMPUTING THE DEDUCTION U/S 80 - IA OF THE ACT. 5.2 THE LD. DR FOR REVENUE WAS HEARD IN THE MATTER AND ALSO FILED THE FOLLOWING WRITTEN SUBMISSIONS: - ITA NO . 2783 /BANG/20 17 PA GE 4 OF 7 5.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE SUBMISSIONS PUT FORTH ON BOT H SIDES AND THE JUDICIAL PRONOUNCEMENTS. WE DO NOT FIND ANY MERIT IN THE WRITTEN SUBMISSIONS OF THE LD. DR FOR REVENUE (EXTRACTED SUPRA) AS THEY DO NOT ADDRESS ARGUMENTS ON THE M ERITS OF THE ISSUES IN GROUNDS RAISED IN THIS APPEAL. FROM A PERUSAL OF THE GROUNDS RAISED (SUPRA), THE ISSUES BEFORE US ARE (I) WHETHER INCOME FROM SALE OF CARBON CREDIT ARE CAPITAL OR REVENUE IN NATURE; AND (II) ALTERNATELY WHETHER CARBON CREDITS ARE ELIGIBLE FOR BEING INCLUDED AS BUSINESS INCOME WHILE COMPUTING DEDUCTION U/S 80 - IA OF THE ACT. 5.4.1 FIRSTLY, WE COME TO THE ISSUE OF WHETHER INCOME FROM SALE OF CARBON CREDITS ARE REVENUE IN NATURE ; AS HELD BY THE ITA NO . 2783 /BANG/20 17 PA GE 5 OF 7 AUTHORITIES BELOW OR CAPITAL IN NATURE AS CANVASSED BY THE ASSESSEE. WE FIND THAT THIS ISSUE HAS BEEN CONSIDER ED BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SUBASH KABINI POWER CORPORATION LTD. (2016) 385 ITR 592, ARISING OUT OF SUBSTANTIAL QUESTION OF LAW 2. AT PARA 12 OF ITS ORDER, THE HON BLE COURT UPHELD THE TRIBUNAL S VIEW THAT INCOME FROM SA LE OF CARBON CREDIT IS CAPITAL IN NATURE, AS UNDER: - 12. CONSIDERING THE ABOVE, WE FIND THAT WHEN THE CARBON CREDIT IS GENERATED OUT OF ENVIRONMENTAL CONCERNS, AND IT IS NOT HAVING THE CHARACTER OF TRADING ACTIVITY, THE TRIBUNAL HAS RIGHTLY HELD THAT I T IS CAPITAL RECEIPT AND IT IS NOT INCOME OUT OF BUSINESS AND HENCE, NOT LIABLE TO PAY INCOME - TAX. 5.4.2 SUBSEQUENTLY, A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. M/S.AMBUTHIRTHA POWER P.LTD. IN ITA NOS.537 & 855/BANG/2018 DATED 0 6/07/2018, WHILE CONSIDERING THE VERY SAME ISSUE, FOLLOWED THE DECISION OF THIS TRIBUNAL IN THAT ASSESSEE S CASE IN THE EARLIER ASSESSMENT YEAR AND HELD THAT SALE OF CARBON CREDITS ARE CAPITAL RECEIPTS AS UNDER AT PARAS. 2 AND 3 THEREOF: - 02. GROUND NO.2 OF AY 2013 - 14 PERTAINS TO THE DELETION OF THE ADDITION OF RS.6,35,04,451/ - IN RESPECT OF SALE OF CARBON CREDITS BY TREATING IT AS CAPITAL RECEIPT. FOR THAT PURPOSES, THE LD. DR RELIES UPON THE ORDER OF ASSESSEE OFFICER. 03. ON THE OTHER HAND THE ASSESSE E RELIES UPON THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ITA.243/BANG/2016, DT.07.07.2017, IN ASSESSEE S OWN CASE FOR THE AY 2012 - 13, WHEREIN THE TRIBUNAL IN PARA 6 HELD AS UNDER : 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FOR THE SA KE OF READY REFERENCE, WE REPRODUCE PARA 5.4.2 & 6 OF THE TRIBUNAL ORDER RENDERED IN ASSESSEE S OWN CASE FOR A.Y. 2009 - 10. THE SAME READ AS UNDER: 5.4.2. FOLLOWING THE AFORESAID DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. AMBIKA C OTTON MILLS LTD V. DCIT, WE HOLD THAT THE SALE OF CARBON CREDITS IS TO BE CONSIDERED AS CAPITAL RECEIPT AND THAT THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO, HOLDING THAT THE CONSIDERATION RECEIVED ON SALE OF THE CARBON CREDITS ITA NO . 2783 /BANG/20 17 PA GE 6 OF 7 AMOUNTIN G TO RS.4,87,32,342/ - BY THE ASSESSEE GIVES RISE TO REVENUE RECEIPT. CONSEQUENTLY, WE ALLOW THE ASSESSEE S GROUND RAISED AT SL.NO.3. 6. IN VIEW OF THE ASSESSEE S GRIEVANCE, IN RESPECT OF THE EXIGIBILITY TO TAX OF THE RECEIPTS ON SALE OF CARBON CREDITS AM OUNTING TO RS.4,87,32,342/ - BEING ADDRESSED IN VIEW OF OUR FINDING THAT THE SAME IS TO BE CONSIDERED AS CAPITAL RECEIPT, THERE IS NO REQUIREMENT FOR US TO ADJUDICATE ON THE GROUND RAISED AT SL.NO.2 REGARDING THE ASSESSEE S CLAIM FOR DEDUCTION OF THE SAME U /S.80IA OF THE IT ACT, 1961. SINCE NO DIFFERENCE IN FACTS OR IN LAW COULD BE POINTED OUT BY THE LD. DR OF THE REVENUE IN THE PRESENT YEAR, WE FIND NO REASON TO TAKE A CONTRARY VIEW IN THE PRESENT YEAR AND THEREFORE, BY RESPECTFULLY FOLLOWING THIS TRIBUN AL ORDER, WE DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. SINCE IS NO DIFFERENCE IN FACTS OR IN LAW COULD BE POINTED OUT BY THE LD. DR IN THE PRESENT YEAR, WE HAVE NO REASON TO TAKE A CONTRARY VIEW FOLLOWING THE DECISION OF THE COO RDINATE BENCH (SUPRA). WE DISMISS THIS GROUND OF THE REVENUE FOR AY.2013 - 14. 5.4.3 RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SUBASH KABINI POWER CORPORATION LTD. (2016) 385 ITR 592 AND OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.AMBUTHIRTHA POWER P. LTD. (SUPRA) , WE REVERSE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE AO TO TREAT THE RECEIPTS FROM SALE OF CARBON CREDITS AMOUNTING TO RS.6,04,64,952/ - AS CAPITAL IN NATURE AND THEREFORE NOT EXIGIBLE TO TAX AS REVENUE RECEIPTS. CONSEQUENTLY, GROUNDS 2 AND 4 OF THE ASSESSEE S APPEAL ARE ALLOWED. 5.5 IN VIEW OF OUR FINDING RENDERED ABOVE, THAT RECEIPTS FROM SALE OF CARBON CREDITS ARE CAPITAL IN NATURE AND THEREFORE NOT EXIGIBLE TO TAX, WE FIND NO MERIT IN THE ALTERNATE GROUNDS 3 AND 5 RAISED BY THE ASSESSEE TO THE EFFECT THAT IF CARBON CREDITS ARE REVENUE IN NATURE, THEN THEY BE INCLUDED FOR COMPUTING THE DEDUCTION CLAIMED BY ASSESSEE U/S 80 - IA OF THE ACT. ITA NO . 2783 /BANG/20 17 PA GE 7 OF 7 CONSEQUENTLY, WE DISMISS GROUNDS 3 AND 5 RAISED BY THE ASSESSEE. 6. IN THE RESULT, THE ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2011 - 12 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH SEPTEMBER, 201 8. S D/ - SD/ - ( SUNIL KUMAR YADAV ) ( JASON P BO AZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BENGALURU. D A T E D : 05/ 0 9 /201 8 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE