The Dy. CIT, Gandhinagar Circle, Gandhinagar V. M/s.Kalpataru Power Transmission Ltd., Gandhinagar

ITA 279/AHD/2020

AI Insights

The case involves a series of appeals by Kalpataru Power Transmission Ltd. against the Deputy Commissioner of Income Tax concerning the assessment years 2014-15 and 2015-16. The primary issues revolved around transfer pricing adjustments related to notional interest on short-term advances to overseas subsidiaries, disallowances under Section 14A r.w.r. 8D, and the treatment of income from the sale of carbon credits. The Income Tax Appellate Tribunal, Ahmedabad, examined these issues in light of previous judgments and the specific facts of the case, ultimately dismissing the appeals by both parties.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125694 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-10-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 26-05-2020
• Other Referred Cases: Soma Textiles Industries vs. Addl.CIT, Perot Systems TSI vs. DCIT, Micro Inks Ltd. vs. ACIT, Maxopp Investments Ltd. vs. CIT, Alembic Ltd. vs. CIT, My Home Power Ltd. vs. CIT, Ambika Cotton Mills Ltd. vs. DCIT, Gulbrandsen Chemicals (P.) Ltd. vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REDUCING EXPENDITURE INCURRED
• Keywords: Business income; Transfer pricing; International transaction; Earning of tax free income; Notional interest; Capital receipt; Commercial expediency; TDS; Rule 8D; Set aside
• Section: 92C; 143(3); 234B; 14A; 205; 144C; 13; 22; 101; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER& Ms. MADHUMITA ROY, JUDICIAL MEMBER I .T .A . N o . 2 4 4/ A h d /2 0 2 0 ( A s s e s s me nt Y ea r s : 2 0 14 -1 5) Ka l pa ta r u P ow er Tr an s m i ss io n Ltd ., 10 1 , Pa rt - I I I , G I D C Es ta te , S ec to r - 28, G a n dh in a g ar , G uj a r a t- 38 20 2 8 Vs . D e put y Co m m i s s io n er o f I n c o m e Ta x, G a nd h in ag ar C ir c le , G a nd h in ag ar [ P AN N o. A A A C K 83 87 R ] (Appellant) .. (Respondent) I .T .A . N o . 2 7 0/ A h d /2 0 2 0 ( A s se ss m e nt Y e a r : 20 14- 15 ) De pu t y C o m mi s s io ne r o f I nc o me Tax , Ga nd hin a g a r C ir c le , Ga nd hin a g a r Vs . K a l pa ta r u P o w e r Tr a ns mi s s io n Lt d . , 1 0 1, Pa r t - I I I , G I D C E s ta te , S ec to r - 28 , G a n d h in ag a r , G uj a r at - 3 8 2 02 8 [ P AN N o. A A A C K 83 87 R ] (Appellant) .. (Respondent) I .T .A . N o . 2 4 5/ A h d /2 0 2 0 ( A s se ss m e nt Y e a r : 20 15- 1 6 ) Ka l pa ta r u P ow er Tr an s m i ss io n Ltd ., 10 1 , Pa rt - I I I , G I D C Es ta te , S ec to r - 28, G a n dh in a g ar , G uj a r a t- 38 20 2 8 Vs . D e put y Co m m i s s io n er o f I n c o m e Ta x, G a nd h in ag ar C ir c le , G a nd h in ag ar [ P AN N o. A A A C K 83 87 R ] (Appellant) .. (Respondent) I .T .A . N o . 2 7 9/ A h d /2 0 2 0 ( A s se ss m e nt Y e a r : 20 15- 16 ) De pu t y C o m mi s s io ne r o f I nc o me Tax , Ga nd hin a g a r C ir c le , Ga nd hin a g a r Vs . K a l pa ta r u P o w e r Tr a ns mi s s io n Lt d . , 1 0 1, Pa r t - I I I , G I D C E s ta te , S ec to r - 28 , G a n d h in ag a r , G uj a r at - 3 8 2 02 8 [ P AN N o. A A A C K 83 87 R ] (Appellant) .. (Respondent) ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 2 - Appellant by : Shri Milin Mehta, A.R. Respondent by : Dr. Darsi Suman Ratnam, CIT DR D a t e of H ea r i ng 05.10.2023 D a t e of P r o no u n ce me nt 11.10.2023 O R D E R PER MADHUMITA ROY, JM: The bunch of appeals preferred by the assessee and the Revenue are directed against the separate orders dated 20.01.2020 passed by the Ld. CIT(Appeals)-13, Ahmedabad arising out of the orders passed by the DCIT, Gandhinagar Circle, Gandhinagar dated 29.12.2017 under Section 143(3) & 143(3) r.w.s 144C of the Income Tax Act, 1961(hereinafter referred to as “the Act”) for A.Ys. 2014-15 & 2015-16 respectively. ITA No. 244/Ahd/2020 (A.Y. 2014-15)(Assessee’s Appeal) is taken as a lead case 2. The Grounds of appeal raised by the assessee are as under: “Transfer Pricing Adjustment 1. The learned CIT(A) has erred in confirming addition made by the learned AO and the learned TPO to the value of the International transactions with Associated Enterprises (“AE”) and consequently to the total income of the appellant u/s 92C of Rs. 10,99,989. 2. The learned CIT(A) has erred in confirming the order of the learned AO and the learned TPO in making addition of Rs. 10,99,989 by charging notional interest on short term advance made to its overseas subsidiaries being Kalpataru Power Transmission (Mauritius) Ltd and Kalpatary Power Transmission (Nigeria) Ltd. 3. The learned CIT(A), the learned AO and the learned TPO erred in fact and in law in making the addition of Rs.10,99,989 by rejecting the explanation given by the Appellant for making advances as well as the benefits received by the appellant from the same. ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 3 - 4. Without prejudice to Grounds No. 1 to 3 above, the learned CIT(A) erred in fact and in law in confirming the action of the learned AO and the learned TPO in computing the notional interest chargeable to the tax at Rs.10,99,989. Disallowance u/s 14A r.w. Rule 8D Invocation of Section 14A: 5. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in invoking section 14A of the Act without satisfying the mandatory conditions of section 14A(2) of the Act. 6. The learned CIT(A) has erred in law and in facts to the extent of confirming the disallowance made by the learned AO by restoring to provisions of Rule 8D r.w.s. 14A without satisfying mandatory requisite conditions as provided under Rule 8D r.w.s. 14A for invocation thereof. Without prejudice Computation of Disallomance U/s. 14A: 7. The learned CIT(A) erred in fact and in law in firming the action of the learned AO in considering average value of investments of Rs. 283,04,05,000 being investments made for strategic purpose for computing disallowances 14A rwr 8D. 8. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in considering average value of investments of Rs. 28,50,50,000 being investments domestic companies and mutual funds from which no income exempt from tax was earned for the purpose of computing disallowance u/s 14A rwr 8D 9. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in considering average value of investment made in respect of Gestamp Kalpataru Solar Steel Structures Pvt. Ltd of Rs. 15,00,50,000 instead of Rs 12,96,50,000 being the average value of such investment as per books of account after considering the deduction made for provision of diminution in value of investment as per audited books of account while computing disallowance under Rule 8D r.w.s. 14A Incorrect Levy of interest u/s 234D 10. The learned CIT(A) has erred in facts and in law by upholding levy of interest as 234D made by learned AO by holding that the same is mandatory and consequential in nature which is without appreciating the fact that the provision of section 234D shall not be invoked in case of the Appellant since no refund as claimed in the return of income is received till the date of passing of the assessment order. Accordingly, much levy of interest of Rs. 19,01,873 is prayed to be deleted. Incorrect computation of interest u/s 234C 11. The learned CIT(A) has erred in facts and in law by upholding levy of interest of Rs.39,58,529 u/s 234C made by learned AO by holding that the same is ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 4 - mandatory and consequential in nature which is without appreciating the fact that the interest u/s 234C shall not be invoked in the case of the Appellant as the Appellant has already paid necessary amount of advance tax installments within due date to make payment of its tax liability on returned income. Accordingly, such levy of excessive interest prayed to be deleted. Your appellant prays for leave to add, alter and/or to amend any of the grounds before the final hearing of the appeal” 3. Ground No.1:- This ground relates to TP Adjustment on notional interest on advances. 4. The short fact is this that the company had given short term advances of Rs. 3.18 crores to Kalpataru Power Transmission (Mauritius) Ltd. and Rs. 1.68 lakhs to Kalpataru Power Transmission (Nigeria) Ltd. for meeting their requirements. The advances were in nature of quasi equity capital and therefore, no interest was charged by the company. The Transfer Pricing Officer (in short “TPO”) followed the decision on the identical issue for A.Y. 2012-13 and made upward adjustment on account of notional interest, which was further confirmed by the Ld. CIT(A) relying on the decision of Soma Textiles Industries (in ITA No. 262/Ahd/2012). Further, in assessee’s own case for A.Y. 2012-13 the addition was confirmed by the Assessing Officer / Transfer Pricing Officer. 5. At the time of hearing of the instant appeal the Ld. Counsel fairly submitted before us that the issue has already been decided against the assessee for A.Y. 2012-13 holding that advances were not in the nature of quasi capital. Hence, a copy of the order passed by the Tribunal has ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 5 - also been filed before us. It appears that while dealing with the issue the Coordinate Bench was pleased to observe as follows:- “4. Ground no. 1 and 1.1 relate to the same issue of transfer pricing adjustment made on account of short term advances made by the assessee to its associated enterprises, levying notional interest of Rs. 2,52,319/- thereon. The said grounds read as under: 1 The learned CIT(A) has erred in confirming the addition made by the learned Assessing Officer and the learned Transfer Pricing Officer to the total income of the appellant u/s 92C to the extent of Rs.2,52,319. 1.1 The learned CIT(A) has erred in confirming the order of the AO and TPO levying notional interest of Rs. 2,52,319 on short term advance made to its overseas subsidiaries being Kalpataru Power Transmission (Mauritius) Ltd and Kalpataru Power Transmission (Nigeria) Ltd. It is submitted that the learned CIT(A), AO and TPO failed to appreciate the reasons for making advance as well as the benefits received by the appellant from the same. It be so held now. 5. Taking us through the fact of the case, ld. Counsel for the assessee pointed out that in the order passed u/s. 92CA(3) of the Income Tax Act 1961,the Transfer Pricing Officer (TPO) had proposed an adjustment of Rs. 2,52,319/- on account of the international transaction of short term advances given by the assessee to two of its associated enterprises(AE) as under: Name of associated enterprise Amount of Rs. (i) Kalpataru power transmission (Mauritius Ltd.) Rs. 14,70,994/- (ii) Kalpataru Power transmission (Nigeria Ltd.) Rs. 37,46,789/-. 6. The TPO noted that no interest was charged on these advances given by the assessee to the AEs. Accordingly show cause notice was issued to the assessee proposing to make adjustment on account of interest on the loans using LIBOR rate of 4.16% in respect of the Mauritius loan and 4.03% in respect of the Nigeria loan. Ld.Counsel pointed out that the assessee had pleaded no such adjustment to be made on the ground that they were not in reality loans but were quasi capital in nature and were given interest free out of commercial expediency since the AEs were subsidiaries of the assessee floated to explore various business opportunities for the assessee only. That notional interest could not be assessed in the context of transfer pricing. The A.O. however rejected all the contentions of the assessee relying on the decision of the ITAT Delhi Bench in the case of Perot Systems TSI vs. DCIT (ITAT Delhi) and bench marked the transmission for interest to be charged thereon @ 4.16% in respect of the Mauritius loan and 4.03% in respect of the Nigeria loan accordingly proposing an adjustment of Rs. 2,52,390/- (Rs. 87,279 + Rs. 1,65,040) respectively for the two loans. The proposed adjustment was made by the A.O. in his order passed u/s. 143(3) of the Act. ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 6 - 7. The matter was carried before the Ld. CIT(A) who upheld the adjustment relying on the decision of the ITAT Ahmedabad Bench in the case of Soma Textile Industries vs. Addl.CIT in ITA No. 262/Ahd/2012 pertaining to A.Y. 2007-08 holding at Para 7.2 of his order as under: 7.2 I have considered the facts of the case, assessment order and submission made by the appellant. The facts of the case are squarely covered by the Hon'ble Ahmedabad ITAT's decision in Soma Textile Industries V/s. Addl. CIT - ITA No. 262/Ahd/20i2 pertaining to A.Y. 2007-08. The relevant portion of the findings of the Hon'ble ITAT in para 11 of the order is reproduced hereunder:- "11. We are unable to see any merits in his line of reasoning. As the learned counsel himself accepts, on a conceptual note, several types of debts, particularly long term unsecured debts, and revenue participation investments could be termed as 'quasi capital1. So far as arm's length price of such transactions are concerned, this cannot be 'nil' because, under the comparable uncontrolled price method, such other transactions between the independent enterprises cannot be at 'nil' consideration either. Nobody would advance loan, in arm's length situation, at a nil rate of interest. The comparable uncontrolled price of quasi capital loan, unless it is only for a transitory period and the de facto reward for this value of money is the opportunity for capital investment or such other benefit, cannot be nil. As for the intent of the assessee to treat this loan as investment, nothing turns on it either. Whether assessee wanted to treat this loan as an investment or not does not matter so far as determination of arm's length price of this loan is concerned; what really matters is whether such a loan transaction would have taken place, in an arm's length situation, without any interest being charged in respect of the same. As for the contention regarding crucial role being played by, or visualized for, this AE, there is no material on record to demonstrate the same or to justify that even in an arm's length situation, a zero interest rate loan would have been justified to such an entity. A lot of emphasis has also been placed on the fact that the loan was out of the GDR funds, and, for this reason, the interest free loan was justified. We are unable to see any logic in this explanation either. Even when the loan is given out of the GDR funds held abroad, the arm's length price of the loan is to be ascertained. The source of funds is immaterial in the present context. We have also noted that the assessee has not offered any assistance on the quantum of ALP adjustment in respect of this loan transaction, and that in the subsequent assessment years, the assessee himself has accepted ALP adjustment by adopting the LIBOR + 2% interest rate. In this view of the matter, no interference is warranted on the quantum of the ALP adjustment either. In view of these discussions, we confirm the stand of the authorities below on this issue and decline to interfere in the matter." ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 7 - The facts of the appellant's case being identical, addition of Rs.2,52,391/- made on short term advance to its overseas subsidiaries is held justified and is hereby confirmed. Relevant ground of appeal is rejected. 8. Before us, the Ld. Counsel for the assessee reiterated the contentions made before the lower authorities that the impugned advances were in the nature of quasi equity capital since they were given to the subsidiaries which were floated to explore business opportunities in their respective regions; the advances had no repayment schedule and was granted without any condition for repayment and further that the loans were given for commercial purposes and was not a simplicitor loan or advance given to the wholly own subsidiary. Heavy reliance was placed on the decision of the ITAT Ahmedabad Bench in the case of Micro Inks Ltd. vs. ACIT (2013) 144 ITD 610. Our attention was drawn to the contents of the said decision which was placed before us at Paper Book page no. 400 to 436. Taking us to Para 14 & 15 of the said decision, it was pointed out that in the case of Perot System TSI (India) Ltd vs Dy. CIT (2010) 37 SOT 358 (Delhi) identical issue was discussed and it was pointed out that the argument of loan being quasi capital in nature was rejected on facts since there was no material on record to establish so. From Para 15 of the order, it was pointed out that the Bench noted that in the facts of the case before it,(Micro Inks) ,it had been demonstrated that the loan was given in place of capital contribution which required the RBI permission. When the RBI permission was ultimately obtained the loan was converted into shares effective from the date when the loan was given. It was also noted by the Bench that the entity which received the interest free advance was not only wholly owned subsidiary of the assessee but also played a significant role in its sales and distribution chain. That in this backdrop the Bench noted that lending of money could not be considered in isolation with these business considerations, and the relationship between the assessee and its AE was not simply that of a lender or borrower. Going forward the Bench thereafter dealt with the applicability of the LIBOR rate for the ALP of interest to be charged on such transaction in the backdrop of these facts and held that even in terms of Rule 10(B)(i) for the computation of ALP under the CUP method, the price is to be adjusted to account for difference between the International Transaction and the CUP method and considering the differences between the circumstances in which LIBOR is applied and the nature of the transaction before the Bench, it was held that the application of LIBOR rate would not be appropriate. 9. Submissions in brief on the issue were filed before us as under: Appellant' Proposition • Advance is in nature of quasi-equity capital since • Appellant floated these subsidiaries to explore business opportunities in respective regions • Short term interest free advance granted to easily repatriate money back to India once the entities start earning revenue • Advance has no repayment schedule and granted without any condition for repayment • Refer Page 204 to 205 of Paper Book & Page No 701 to 702 of Paper Book ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 8 - • Reliance placed on decision of ITAT Ahmedabad in case of Micro Inks Ltd. v. Asstt. CIT [2013] 144 ITD 610 (Refer Page No 702 to 704 of Paper Book) • Decision of Perot Systems TSI (India) Ltd vs DCIT 37 SOT 358 2010 not applicable (Refer Page No. 702 of Paper Book) • Argument of quasi-equity capital rejected on the basis of facts • Core legal issue i.e. whether ALP adjustments will also be warranted in case of interest free loans given as quasi capital, was left open • There was no material on record to establish that the loans were in reality not loans but were quasi-capital • Without prejudice to above, application of LIBOR + rate for arm's length price determination in case of short-term advance is not permitted. Reliance is placed on decision of ITAT Ahmedabad in case of Micro Inks Ltd. v. Asstt. CIT [2013] 144 ITD 61 • LIBOR is an inter-bank offer rate and is applicable between 2 banks • Such rate charged between banks cannot be made a basis to determine ALP of short-term advance • In any case, if LIBOR is to be applied, appropriate adjustments must be allowed as per Rule 10B(3)(ii) • If differences mentioned in Rule 10B(2) are not removed by way of adjustments under Rule 10B(3), then such ALP determined is bad in law • Reliance placed on CLSA India (P.) Ltd. vs. DCIT [2019] 101 taxmann.com 388 wherein it is held that ALP would be on adhoc basis and void if appropriate adjustments not made for removing the differences. • Reliance is placed also on Gulbrandsen Chemicals (P.) Ltd. vs. DCIT [2019] 104 taxmann.com 253 (Ahmedabad) 10. At this juncture, Ld. Counsel for the assessee was asked at bar to demonstrate with evidence as to how the loan given in the present case would qualify as quasi capital and or given for commercial expediency of the assessee as were the facts in the case of Micro Inks Ltd. (supra) referred to by the ld. Counsel for the assessee before us. Ld. Counsel was unable to convincingly demonstrate the same except for reiterating his contention before the A.O, that the advances were given to its wholly owned subsidiary newly formed for the purpose of procuring work/business of the assessee in the respective countries where they were set up i.e. Mauritius and Nigeria respectively. 11. In view of the above, the main argument of the assessee against the transfer pricing adjustment made on account of the short term advances given to its subsidiaries in Mauritius and Nigeria, fails. The assessee being unable to demonstrate that the advances were not in the nature of loan/advance but were quasi capital in nature and for commercially expedient purposes of the assessee and hence the LIBOR rate could not be applied to them for the purposes of making ALP adjustment on the interest to be charged, the decision of the Ahmedabad Bench in the case of Micro Inks Ltd. is not applicable to the assessee . The assessee being unable to establish with evidence the parity of facts as noted by the ITAT in the said case, of the advance being in the nature of quasi capital given to safeguards the business interest of the assessee, the said decision is of no assistance to the assessee. The ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 9 - advances therefore we hold are in the nature of loans and since no interest has been charged by the assessee on the same, the transfer pricing adjustment made by charging interest applying LIBOR is, we hold, justified. 12. In view of the above, we see no reason to interfere in the order passed of the Ld. CIT(A) upholding the transfer pricing adjustment of Rs. 2,52,319/- on account of determination of Arms Length Price (ALP) of interest to be charged on short term advances given to the AE of the assessee. 13. Ground of appeal No. 1 & 1.1 is accordingly dismissed.” 6. Keeping in view of the entire aspect of the matter we do not find any reason to deviate from the stand taken by the Coordinate Bench and respectfully relying upon the same in assessee’s own case for A.Y. 2012- 13 we reject this ground of appeal preferred by the assessee. 7. In the result, Ground No. 1 of the assessee’s appeal is dismissed. 8. Ground No.2:- This ground relates to disallowance under Section 14A r.w.r. 8D of the Act. 9. The brief facts of the case is this that the company has earned exempt income of Rs. 2,37,41,870/- and has disallowed Rs. 70,000/- under Section 14A of the Act. During the course of assessment proceedings the assessee claimed that the investments made by the company were held for business purposes and the same was made out of the own funds which was strategic in nature. The Assessing Officer made disallowance at Rs. 1,80,67,598/- under Section 14A as per Rule 8D of the Act. However, the assessee itself disallowed an amount of Rs. 70,000/- in its return of income. Thus, an amount of Rs. 1,79,97,598/- is ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 10 - hereby disallowed by the Assessing Officer under Section 14A of the Act and added to the total income of the assessee. 10. Ld. CIT(A) placing reliance on the decision of the Ahmedabad Tribunal in ITA No. 2471&2853/Ahd/2017 & 2472/Ahd/2017 for A.Y. 2012-13 and 2013-14 in assessee’s own case and the order of Hon’ble High Court of Gujarat in the case of Suzlon Energy Ltd., reported in 33 taxmann.com 151 for the purpose of computing disallowance excluded investment in foreign subsidiary. 11. We have heard the rival submission made by the respective parties, and perused the relevant materials available on record. 12. At the time of hearing of the instant appeal the Ld. Counsel fairly submitted that in assessee’s case the disallowance under Section 14A of the Act for A.Y. 2014-15 in respect of strategic investment made in SPV and on which the dividend income is not earned by the assessee during the year under consideration has been upheld. A copy of the order passed by the Tribunal has also been filed before us. It appears that while dealing with the issue the Coordinate Bench was pleased to observe as follows:- “22. Considering the above, we are of the view that the Ld. CIT(A) has rightly held that the A.O. has duly recorded his reasons for not being satisfied with the explanation of the assessee for making suo moto disallowance of expenses and has therefore rightly proceeded to apply Rule 8D for working out the same. As is evident from a bare perusal of the assessment order and as pointed out to the ld. Counsel for the assessee during the course of hearing before us, the assessee was unable to give plausible explanation to the A.O. for making suo moto disallowance of Rs.60,000/-. It may be pointed out that for invoking Rule 8D for working out the disallowance, it is the A.O. who has to record his satisfaction for doing so. Therefore what is relevant is ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 11 - the explanation of the assessee before the A.O. for the disallowances made by it. Any explanation given to the CIT(A) is of no relevance and as noted above since the assessee had given no plausible explanation for making a suo moto disallowance of Rs. 60,000/- and considering the huge investments made by the assessee averaging Rs. 40 crores and huge dividend income earned by the assessee during the year of approximately 8 crores and also noting the substantial activity in the investments made, moving from Rs.39 crores to Rs.40 crores from the beginning to the end of the year, the A.O. had rightly recorded his non satisfaction with the reply of the assessee. Therefore even considering the decision of the Hon’ble Apex Court in the case of Godrej & Boyce Manufacturing Co.Ltd. (supra), pointed out by the Ld. Counsel for the assessee before us, we hold that there was valid satisfaction of the A.O. for rejecting the explanation of the assesee . The argument of the Ld. Counsel for the assessee therefore that the A.O. had recorded no satisfaction before proceeding to apply Rule 8D for calculating the disallowance to be made u/s. 14A, is therefore dismissed. 23. The next contention raised by the Ld. Counsel for the assessee before us was that the investment in SPVs and those investments which did not earn any dividend income during the year should not be considered for the purpose of applying Rule 8D. Reliance was placed on the following decisions in this regard: Ground No 2.4 & 2.5 - Disallowance as per Rule 8D should be revised • Investments in SPVs (Jhajjar KT Transco Pvt Ltd) should be excluded while applying Rule 8D since the investment was mandatory requirement for executing the EPC contract awarded. • Hence, the investment in SPV should be excluded from the value of total investments while computing disallowance under Rule 8D • Reliance is placed on decision of • ACIT, Circle 13(1) vs M/s Oriental Structural Engineers (P) Limited ITA No.4245/Del/2011 • CIT vs Oriental Structural Engineers (P.) Ltd 216 Taxman 92 (Delhi HC) [2013] • Ram Infrastructure Limited vs JCIT ITA No. 746/PN/2013 • L & T Infrastructure Development Projects Ltd vs ITO [2015] 58 taxmann.com 165 • Only those investments on which dividend income is earned during the year should be considered for applying Rule 8D • ACIT vs Vireet Investments (P.) Ltd [2017] 82 taxmann.com 415 (Special Bench Delhi) • Adani Enterprise Ltd. Vs ACIT [2019] 111 taxmann.com 196 (ITAT Ahmedabad) • Aditya Medisales Ltd vs DCIT [2019] 105 taxmann.com 209 (ITAT Ahmedabad) ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 12 - 24. Ld. D.R. countered by stating that the issue of investment in SPVs already stood decided against the assessee by the Hon’ble Apex Court in the case of Maxopp Investments. Ltd. vs Commissioner of Income Tax (2018) 406 ITR 0640(SC). 25. Having considered the arguments of both the parties, we find no merit in the contention raised by the Ld.Counsel for the assessee for reducing Strategic Investments made while computing disallowance as per Rule 8D of the Rules. As rightly pointed out by the Ld.DR the Hon’ble apex court in the case of Maxopp (supra) has in very clear terms upheld the theory of apportionment of expenses between taxable and exempt income, categorically rejecting the dominant purpose theory ,as per which the dominant purpose of the investment made would determine the applicability of section 14A of the Act . Meaning thereby that whether investments have been made for trading purpose or controlling purposes (strategic investment), it would make no difference to the applicability of section 14A as long as such investments earn exempt dividend income. The theory of apportionment would come into play in such cases and expenses incurred in relation to earning exempt income needs to be disallowed. The relevant findings of the Hon’ble apex court in this regard at para 34-35 of the order is as under: “34.Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word ‘in relation to the income' that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act. This is so held in Walfort Share and Stock Brokers P Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom. “The next phrase is, “in relation to income which does not form part of total income under the Act”. It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A.. xxx xxx xxx The theory of apportionment of expenditure between taxable and nontaxable has, in principle, been now widened under section 14 A.” ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 13 - 35. The Delhi High Court, therefore, correctly observed that prior to introduction of Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both taxable and non-taxable income, the entire expenditure in respect of said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. The principle of apportionment was made available only where the business was divisible. It is to find a cure to the aforesaid problem that the Legislature has not only inserted Section 14A by the Finance (Amendment) Act, 2001 but also made it retrospective, i.e., 1962 when the Income Tax Act itself came into force. The aforesaid intent was expressed loudly and clearly in the Memorandum explaining the provisions of the Finance Bill, 2001. We, thus, agree with the view taken by the Delhi High Court, and are not inclined to accept the opinion of Punjab & Haryana High Court which went by dominant purpose theory. The aforesaid reasoning would be applicable in cases where shares are held as investment in the investee company, may be for the purpose of having controlling interest therein. On that reasoning, appeals of Maxopp Investment Limited as well as similar cases where shares were purchased by the assessees to have controlling interest in the investee companies have to fail and are, therefore, dismissed.” 26. In view of the same the argument of the Ld.Counsel for the assessee seeking exclusion of strategic investments while computing disallowance as per Rule 8D of the Rules is dismissed.” 13. Keeping in view of the entire aspect of the matter we do not find any reason to deviate from the stand taken by the Coordinate Bench and respectfully relying upon the same in assessee’s own case for A.Y. 2012- 13 we reject this ground of appeal preferred by the assessee. 14. In the result, Ground No. 2 of the assessee’s appeal is dismissed. 15. Ground No. 3:- Since this ground is consequential in nature, hence, no order needs to be passed separately. 16. In the result, the appeal preferred by the assessee in ITA No. 244/Ahd/2020 for A.Y. 2014-15 is dismissed. ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 14 - Now we shall take up Revenue’s appeal in ITA No. 270/Ahd/2020 for A.Y. 2014-15 17. The Revenue has taken the following grounds of appeal:- “1. Whether on the facts and circumstances of the case and in law, the ld.CIT(A) is right in deleting he upward adjustment made u/s.92CA of Rs.1,02,24,208/-. 2. Whether the ld.CIT(A) has erred in law and on facts in deleting the addition made on profit on sale of carbon credit treating it as Capital Receipt instead of Revenue receipt. 3. Whether the ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s.14A applying Rule 8D amounting to Rs. 1,79,97,598/-. 4. It is, therefore prayed that the order of the Ld. Commissioner of Income tax(Appeals) may be set aside and that of the Assessing Officer be restored. 5. The appellant prays for leave, to amend or alter any ground or add a new ground which may be necessary.” 18. Ground No. 1:- This ground is relates to TP Adjustment on Liason Support Services. 19. The brief facts of the case is this that the company has paid liason fees to AE Kalpataru Power Transmission Inc. USA at the rate of 3% of order value. The company has benchmarked the transaction by applying CUP as MAM using US Census Bureau annual data relating to commission on sales made by agents, wherein the rate determined was at 4.1%. Further, the TPO made downward adjustment by applying rate of 2% instead of 3% following the order for A.Y. 2012-13. 20. During the course of appellate proceedings the appellant had contended that the Assessing Officer made addition to value of international transaction entered into by the assessee company with AE being Kalpatary Power Transmission Inc. USA without satisfying the ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 15 - requirements of Section 92C(3) of the Act and the TPO and the AO made downward adjustment in value of liaison support service charges paid by appellant company to KPT USA of Rs. 1,02,24,208/- by applying 2% at arm’s length rate of fees payable instead of 3%. The Ld. CIT(A) relying on the order for A.Y. 2012-13 deleted the adjustment on account of liaison fees. 21. At the time of hearing the Counsel submitted before us that the issue is decided in favour of the assessee in A.Y. 2012-13 wherein it is held that the assessee has applied appropriate comparables for determining the ALP and benchmarking the transaction. He further noted that the TPO has selected the comparables which are functionally different from the assessee. We find that the Coordinate Bench on the identical issue disposed of the ground by dismissing the same on the following observation:- “31. The issue relates to the deletion of Arm’s Length Price adjustment made to the Success fees paid by the assessee to its subsidiary Kalpataru Power Transmission, USA, for its services in identifying projects in the US market. 32. The assessee had reported international transaction of Liaison Service Fee of Rs. 2,57,27,549/- paid to its associate enterprise Kalapatru Power Transmission USA Inc. and had bench marked it using CUP method in its report filed in Form No.3CEB. The TPO in his order passed u/s.92CA(3) rejected the bench marking adopted by the assessee and adopted the bench marking of Liaison support Service Fee @ 2% in the case of Cadila Health care Ltd. approved by the ITAT Ahmedabad Bench. Accordingly the difference amounting to Rs. 1,04,85,761/- was proposed to be adjusted by way of reduction in the liaison fees so paid by the assessee. The same was accordingly adjusted by the A.O. in his order passed u/s. 143(3). 33. Ld. CIT(A) however, it was pointed out, deleted the same noting that the liaison fees paid to Pharmaceutical Company i.e. Cadila could not be said to be comparable for the assessee which was engaged in the business of designing High end ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 16 - transmission lines towers and providing turnkey solutions. The relevant findings of the CIT(A) at para 6.2 of his order is as under: 6.2 I have considered the facts of the case, assessment order and submission filed by the appellant. The Appellant Company has set up an AE in USA for identifying projects in. America, to collect project data and technical specifications and transmitting the same to India for further, analysis. In respect of these services the AE charges a monthly sum of USD 15000 plus 3% success fee on the net invoice. During the year under consideration the AE was successful in generating business for the Appellant and a success fee of 3% was paid for securing the order from Isoluv Ingenieria, SA. The Appellant has benchmarked the above transaction applying comparable uncontrolled price method. In all the submissions before the TPO the appellant has submitted that 3% success fee is nothing but the commission paid to its foreign AE, This transaction is being benchmarked using the US Census Bureau published annual data relating to sales .made by agents on behalf of and commission earned by such agents as part of annual economic census. As per the said data agents derived 4.1% commission on sales generated by them. Against this 4.1% the AE has charged a success fee of 3% which is approximately 30% lower. However, the TPO has summarily rejected the above benchmarking process and held that the aforesaid data encompasses commission of electronics market broker which may not involve same or similar products. Accordingly he rejected CUP as the most appropriate method. The TPO thereafter proceeded to apply the ratio laid down by the Hoh'ble Ahmedabad ITAT in the case of Cadila Healthcare Ltd. Wherein a 2% liaison fee was found acceptable ALP by Hon'ble UAT. I have also perused the decision of Cadila Healthcare extensively relied/upon by the TPO. In the case of Cadila Healthcare it had set up an AE in foreign jurisdiction so as to register product with Competent Authorities in difference jurisdictions. For providing these services, the AE charged a cost plus mark-up of 6 to 10% over the actual expenses. The said contract does not have any element of success fee involved therein. In the facts of the case, although the appellant has grouped the expenses under liaison support services, after having gone through the' relevant facts, I am of the opinion that as the expenses paid to AE is a success fee it has to be benchmarked with "the commission paid to third parties and the appellant has rightly used the US Census Bureau data published to benchmark the success fee. TPO on one hand has stated that the figures of the US Census Bureau is not applicable since the nature of service/product dealt by the appellant is totally different. Thereafter, he goes on to compare the appellant with a pharmaceutical company and benchmark the entire transactions at 2%. The data compiled by the US Census Bureau in respect of electronics market, commission agents etc. has also been compiled vide Annexure-G of the Paper-book. The data collection methodology has been elaborately described and jt is seen that it is not merely an estimate but it is actual collection of data from various organizations in different fields of activities. At this juncture, it is relevant to refer to Rule 10D(3) which gives a statutory ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 17 - support to use a Government publication in/the benchmarking process. Clause (a) of Rule 10D(3) categorically specifies that the assessee can use official publications, reports, studies, database from the Government of the country of residence of the AE. The TPO has simply rejected the CUP method and has compared the Appellant Company engaged in the business of designing high-end transmission lines, towers and providing turnkey solutions with a pharmaceutical company which does not seem to be appropriate at all. Accordingly, the addition made by the TPO simply relying on the decision: of Cadila Healthcare is held not justified and is hereby directed to be deleted. .Relevant grounds of appeal are therefore, allowed. 34. Ld. D.R. relied on the order of the A.O. while the Ld. Counsel for the CIT(A). 35. We have gone through the order of the Ld. CIT(A). We find that the Ld.CIT(A) considered all the facts before him relating to the issue and thereafter gave a well reasoned and detailed finding that the comparable selected by the assessee for determining the ALP of the transaction was correct while that by the Revenue was not appropriate. The Ld.CIT(A) noted the nature of activities conducted by the AE for the assessee as being identifying projects ,collecting project data and technical specification and transmitting the same to India for analysis. He noted that a success fee of 3% was agreed to be paid to the AE for securing orders and during the impugned year had paid the fee for securing order from Isoluv Ingenieria, SA. He noted that the assessee had benchmarked the transaction using US Census Bureau published annual data relating to sales made by agents on behalf of others and commission earned by such agents as part of annual economic census. He noted that as per the data such agents derived 4.1 % commission while the AE had charged only 3%. He found the benchmarking done by the assessee to be correct noting that the Census report relied upon by the assessee was relating to electronics market commission agents and contained actual data and not estimates. He further noted that the comparable selected by the TPO was functionally different from the assessee, being a pharmaceutical company while the assessee was in the business of establishing transmission network. That the CUP method did not approve such functionally distinct comparable to be used for bench marking. Accordingly the Ld. CIT(A) has rejected the bench marking of the A.O. and held that of the assessee to be justified. 36. Ld.DR was unable to point out any infirmity in the findings of the Ld.CIT(A) nor do we find any. 37. We therefore uphold the order of the Ld. CIT(A) deleting the adjustment made to the liaison fee on account of Arm’s Length Price adjustment made u/s. 92CA(3) of the Act.” 22. Keeping in view of the entire aspect of the matter we do not find any reason to deviate from the stand taken by the Coordinate Bench and ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 18 - respectfully relying upon the same for A.Y. 2012-13 we reject this ground of appeal preferred by the Revenue. 23. In the result, Ground No.1 of the Revenue’s appeal is dismissed. 24. Ground No. 2:- This ground relates to profit on sale of carbon credit. 25. The short point is that the company has earned income from sale of carbon credits which was not offered to tax by treating it as capital receipt. 26. During the course of assessment proceedings it is found that the assessee has earned income from sale of carbon credits (in short “CERs”). The assessee has credited to its profit and loss account an amount of Rs. 1,13,58,727/- on account of CERs. During the course of assessment proceedings the assessee submitted the details with regard to the sale of CERs which is similar to earlier year and there is no change in facts of CER receipts. Thus, during the course of assessment proceedings the assessee explained the income of Rs. 1,36,04,211/- derived from sale of CERs and the income was added to the total income of the assessee. 27. In the appellate proceedings, Ld. CIT(A) relied on the decision of ITAT Ahmedabad in assessee’s own case for A.Y. 2010-11 and 2011-12 and relying on the judgment of Jurisdictional High Court in the case of CIT vs. Alembic Ltd. where it was specifically held that income from ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 19 - sale of CERs is capital receipt and not chargeable to tax and deleted the addition. 28. At the time of hearing the Counsel submitted before us that the issue is decided in favour of the assessee in A.Y. 2012-13 & 2013-14. We find that the Coordinate Bench on the identical issue disposed of the ground by dismissing the same on the following observation:- “40. The issue relates to taxability of Carbon Credit i.e. CER certificate (Carbon Credits) issued to the assessee for saving emission of carbon. The assessee had two biomass based power generation plant using agricultural waste as fuel at Padampur and Tonk in Rajasthan State. The assessee had earned the following income/incurred expenditure in relation to the CER Certificates earned in the impugned year. Particulars Padampur Tonk Total CERs 94,64,058 4,15,34,675 5,09,98,733 Exchange Gain on CERs 20,63,672 57,07,462 77,71,134 Expenditure -18,59,929 -43,68,862 -62,28791 Net Income 96,67,801 4,28,73,275 5,25,41,076 Actual receipt on sale of CERs approved by UNFCC Nil Nil Nil 41. While filing the return of income the assessee had excluded the income pertaining to CER and added back the expenditure incurred for earning such income in its total income on the ground that CER is a Capital receipt. The A.O. held that CER was akin to import entitlement and was a taxable business receipt and referring to section 2(13) of the Act concluded that profit arising from sale of Carbon Credits was business profit u/s. 28 of the Act. Accordingly the income earned from the sale of the Carbon Credits amounting to Rs. 5,25,41,076/- was added to the business income of the assessee being taxable business receipt. 42. The Ld. CIT(A) deleted the addition agreeing with the assessee’s contention that it was a capital receipt ,noting his own order in the case of the assessee for A.Y. 2010-11 & 2011-12 in first appeal and further following the decision of the ITAT Ahmedabad Bench in the case of Alembic Ltd. In ITA NO. 1912/Ahd/2012. The order of the Ld. CIT(A) in this regard at para 8.3.4 to 8.3.6 is as under: 8.3.4 On careful consideration of entire facts, it is observed that similar issue was decided by CIT (Appeals)- Ill in case of Appellant in its favour for A.Y. 2009-10 vide order dated 10th December, 2012 and even same order is followed by CIT (Appeals) - 12'in case of Appellant for A.Y. 201-011 and ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 20 - 2011-12 vide order dated 21st February, 2016. The said order has been submitted by Appellant during the course of Appellate proceedings and on careful consideration of such order it is observed that CERs received by Appellant including sale proceeds are capital receipt. The jurisdictional Hon'ble AHMEDABAD ITAT in the case of ALEMBIC LIMITED in TTA No. 1912/Ahd/2012, relied by Appellant, dealt with the issue in the factual matrix of the case where the appellant itself had treated the income from sale of CERs as the revenue income in profit & loss account but the judicial authorities held it to be in the nature of the capital income. The relevant extracts of the judgment are as follows: "19, Adverting to the additional ground No.l in respect of income from realization-of carbon credits, which is taxed as Revenue receipt. The ld. Counsel for the appellant, at the outset, contends that the Hon'ble Karnataka High Court in the case of CIT vs. SubhashKabini Power Corporation Ltd, [2016] 69 taxmann.com 394 (Karnataka).dealt with the issue at length and relied on various judicial pronouncements, holding income received from realization of carbon credits as capital in nature. The Hon'ble Karnataka High Court in paragraph 6 of its order (supra) has dealt with the issue at length and square held that the carbon credits are generated out of environmental concerns which does not have any character of trading activity; therefore, any receipt from an activity which is not a trading activity is capital in nature by following observation:- 19.1 The Hon'ble High Court further relied on the judgment of Hon'ble Andhra Pradesh High Court in the case of CIT vs. My Home Power Ltd [2014] 46 taxmann.com 314/365 ITR 82 and the judgment of Hon'ble Karnataka High Court in the case of CIT vs. D.G. Gopala Gowda, [2013] 354 ITR 501, which have taken the same view on realization of carbon credits as capital receipt. There is no contrary judgment and the two Hon'ble High Courts, i.e. Andhra Pradesh High Court and Karnataka High Court, having taken a concurrent view on this matter, are to be followed in judicial discipline 19.2The Id. Departmental Representative, on the other hand, contends that the realization from carbon credits has been treated by the appellant itself as revenue income and offered to tax and in fact in actualities they are revenue receipt. However, no adverse judgment on this has been cited. 20. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. The additional ground stands already admitted. The duty of the ITAT is to ensure that fair, just and proper assessment is made. Merely because the appellant was of the opinion' that the- receipt was Revenue in nature cannot act as an estoppels against it when the law as interpreted by Hon'ble High Courts takes a view at variance with the Appellant. The law is settled that the Revenue cannot standbenefited from a tax-which is not leviable in right earnest. We find ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 21 - merit in the contentions of the Id. Counsel for the appellant that the Hon'ble Karnataka High Court in the case of SubhashKabini Power Corporation Ltd (supra) and the Hon'ble Andhra Pradesh High Court in the case of My Home Power Ltd (supra), have taken a view that the carbon credit realization is capital in nature. No contrary judgment is cited. Therefore, respectfully following these judgments, this additional ground of the appellant in respect of realization of carbon credit as capital receipt is allowed. Thus, this additional ground is accordingly allowed." It is further observed from the above finding given, by the Hon'ble Tribunal later on was confirmed by the Hon'ble Gujarat High Court in Tax Appeal No. 553 of 2017 dated 28/08/2017 wherein it was held as under: "6. The last surviving question pertains to the treatment that the appellant's income from trading of carbon credits should be given. The Tribunal held that receipts should be in the nature of capital receipts and therefore, would not invite tax. This issue has been examined by two High Courts. The Karnataka High Court in case of CIT v. SubhashKabini Power Corporation Ltd. reported in (2016) 385 ITR 592 (Karn) and Andhra Pradesh High Court in case of Commissioner of Income tax v. My Home Power Limited reported in (2014) 365 ITR 82 (AP) have held that receipts of carbon credit are in 'nature of revenue receipts. Following the decision of said two High Courts, this question is also not considered." It is observed that entire legal issue involved.in present case has been decided in favour of Assessee by Hon'ble Ahmedabad ITAT and Gujarat High Court. '8.3.5 It is further observed that while passing Assessment Order for A.Y. 2009- 10 in case of Appellant, AO has taxed CERs on accrual basis even though there was no sale of such CERs. The said addition was deleted by CIT (Appeals) and Hon'ble Ahmedabad ITAT confirmed he order of CIT(A) deleting the addition,however, on a different ground that no income on account of CERs accrued during the relevant year. As regards characterization of CERs as capital or revenue receipts, the Hon'ble ITAT made certain observations. However, upon appeal filed by the Appellant, Hon'ble Gujarat High Court (TAXAP/73/2017) has quashed the observations made by TTAT in respect of taxability" of the CERs and observed as under: [5.0] Having heard learned Counsel appearing on behalf of the respective parties and considering the impugned judgment and order passed by the learned Tribunal, we are of the opinion that as such the learned Tribunal has materially erred in proceeding further to examine the taxability of the income from sale of CERs in future year. It is not in dispute that so far.as the year under consideration for which the appeal was before the learned Tribunal, the-learned Tribunal has confirmed, the order passed by the learned CIT(A) deleting the addition of Rs.5,78,28,058.by observing that no ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 22 - such income has been received by the assessee in the year under consideration as there was neither any sale nor transfer of the carbon receipts in favour of any foreign companies during the year under consideration. Therefore, as such the issue before the learned Tribunal was as such academic. Therefore, keeping the said question open to be considered in accordance with law in the year in which the income is derived from sale of CERs, the learned Tribunal ought to have disposed of the appeal. At this stage it is required to be noted that even the learned Tribunal has in the impugned order has specifically observed that the learned tribunal is making observations on the aforesaid issue to show their understanding on the issue and that they have briefly touched the issue. In any case the learned Tribunal ought not to have decided the issue which as such was academic before it. Therefore, while quashing and setting aside the observations made by the learned Tribunal with respect to the income derived from carbon receipts and/or on sale of CERs, we hold the question in favour of the assessee and against the Revenue by keeping the said question open to be considered in accordance with law in the year in which the income from safe of CERs is received, tinder the circumstances, we hereby set aside the observations made by the learned Tribunal with respect to the income from sale of CERs, made in the Impugned judgment and order, however keeping the said question open to be considered in accordance with law and in the year in which the income from sale of CERs is accrued / received. Thus, Hon'ble Gujarat High Court has held that the taxability of CERs is a question open to be considered in accordance with the law in the year in which the income from sale of CERs is received. It is observed that Hon'ble Ahmedabad TTAT in the case of Alembic Limited referred supra, has on identical facts has held that income from sale of CERs is capital receipt and said decision is upheld by Hon'ble Gujarat High Court referred supra, which has settled entire controversy as discussed herein above. 8.3.6 During the course of Appellate proceedings Appellant has also relied upon following decisions which are also in favour of Assessee: (i) Decision of Hon'ble Andhra Pradesh High court in the case of CIT v. My Home Power Ltd 1720141 365 ITR 82]: Section 28(1) of the Income-tax Act, 1961 - Business income -Chargeable as (Carbon credits) - Assessment year 2007-08 - Appellant-company was 'engaged in business of power generation through biomass power generation unit – It received carbon credits, namely, carbon Emission Reduction Certificates for its project activity of switching off fossil fuel from naptha and diesel to biomass – It transferred said carbon credits and offered receipt from said transfer : as capital receipt - However/ Assessing Officer treated said receipt as business income and brought same to tax - Tribunal held that carbon credit not being .an offshoot: of business but an offshoot of environmental concern, amount received on their transfer had no element of profit or gain - Whether since carbon .credit was not even linked with power ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 23 - generation, Tribunal was justified in its decision-Held, yes [Para 2] [In favour of appellant] (ii) Decision of Hon'ble ITAT Chennai in case of Sri Velayudhaswamv Spinning Mills (P.) Ltd. Vs. DCIT T20131 [40 taxmann.com 141]: Section 4 of the Income-tax Act, 1961 - Income - Chargeable, as [Carbon credits] Assessment year 2009-10 - Appellant was engaged in business of manufacturing of yarn and electricity generation through windmills - Appellant treated clean development mechanism (COM) receipts, on account of sale of carbon credits as capital receipts, whereas Assessing Officer held same to be revenue receipts - Whether following decision in Ambika Cotton Mills Ltd. v. ,Dy. CIT [2013] 27 ITR (Trib.) 44 (Chennai), sale of carbon credits was to be considered as capital receipt-Held, yes [Para 7] [In favour of appellant] (iii) Decision of Hon'ble ITAT Hyderabad DCIT Vs. Sree Rayataseema Green Energy Ltd. [2015] [58 taxmann.com 62]: Section 28(1) of the Income-tax Act, 1961 - Business income -Chargeable as (Carbon credits) - Assessment year 2010-11 - Appellant, engaged in business of generation of power and sale of transformers, credited income from sale of carbon credits-to its sister concern instead of crediting amount in profit and loss account - It claimed said amount as deduction under section SO-IA from generation of power -Assessing Officer brought income from sale of carbon credits to tax as business income but excluded it from profits considered for deduction under section 80-IA - Whether income received on sale of carbon credits was a capital receipt and not a business receipts - Held, yes [Para 11],[In favour of appellant]. (iv) Decision of Hon'ble Karnataka High court in the case of CIT vs SubhashKabini Power Corporation Ltd [69 taxmann. com 394]: Section 28(1), read with section 263, of the Income-tax Act 1961 – Business income - Chargeable as (Carbon credit) - Assessment year 2009-10-Whether since carbon credit was generated out of environmental concerns and it was not having character of trading activity, receipt from sale of carbon credit was capital receipt and not business income - Held, yes [Para 12] [In favour of appellant]. Considering the facts discussed Herein above it is held that income from sale of CERs is capital receipt and AO is not justified in treating such income as revenue receipt. It is also held that AO is not justified in reducing deduction under Section 80-IA claimed by Appellant by reducing expenditure incurred for sale of CERs from profit derived from industrial undertaking. Thus, both the grounds of appeal are allowed. 43. We have gone through the order of the ld. CIT(A) and we have noted that the Ld. CIT(A) relied on a plethora of decisions both of the ITAT and the Hon’ble High Courts of Karnataka and Andhra Pradesh holding CER receipts as capital in nature and income earned there from also being capital receipt. The Ld. D.R. unable to distinguish the case laws. ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 24 - 44. In view of the above, we see no reason to interfere in the order passed by the L.d CIT(A) deleting the addition made on profit of sale of Carbon Credits of Rs. 5,25,41,076/-.” 29. Keeping in view of the entire aspect of the matter we do not find any reason to deviate from the stand taken by the Coordinate Bench and respectfully relying upon the same for A.Y. 2012-13 we reject this ground of appeal preferred by the Revenue. 30. In the result, this ground of appeal preferred by the Revenue is dismissed. 31. Ground No. 3:- Disallowance under Section 14A r.w.r. 8D of the Act. 32. The brief facts of the case is that the company has earned exempt income of Rs. 2,37,41,870/- and has disallowed Rs. 70,000/- under Section 14A of the Act. During the course of assessment proceedings the assessee claimed that the investments made by the company were held for business purposes and the same was made out of the own funds which was strategic in nature. The Assessing Officer made disallowance at Rs. 1,80,67,598/- under Section 14A as per Rule 8D of the Act. However, the assessee itself disallowed an amount of Rs. 70,000/- in its return of income. Thus, an amount of Rs. 1,79,97,598/- is hereby disallowed by the Assessing Officer under Section 14A of the Act and added to the total income of the assessee. ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 25 - 33. During the appellate proceedings Ld. CIT(A) placed reliance on the decision of the Ahmedabad Tribunal in ITA No. 2471&2853/Ahd/2017 & 2472/Ahd/2017 for A.Y. 2012-13 and 2013-14 in assessee’s own case and the order of Hon’ble High Court of Gujarat in the case of Suzlon Energy Ltd., reported in 33 taxmann.com 151 for the purpose of computing disallowance excluded investment in foreign subsidiary. 34. At the time of hearing of the instant appeal the Ld. Counsel fairly submitted that the case has already been upheld by the ITAT in A.Y. 2012-13 and the disallowance pertaining to foreign investments is deleted by CIT(A). A copy of the order passed by the Tribunal has also been filed before us. It appears that while dealing with the issue the Coordinate Bench was pleased to observe as follows:- “50. Ground no. 4 reads as under: 4. Whether on the facts & circumstances of the case, the Ld CIT(A) was justified in deleting the disallowance made u/s 14A rws Rule 8D of Rs.2,05,15,540/- 51. The issue relates to disallowance of expenses pertaining to exempt income earned as per the provisions of Section 14 A of the Act and the revenue is aggrieved by the order of the Ld. CIT(A) deleting the disallowance of expenses pertaining to foreign investment made by the assessee . The ld. CIT(A) had directed exclusion of foreign investment made for the purpose of computation of disallowance u/s. 14A as per Rule 8D of the Income Tax Rules 1962 holding that the dividend earned from the said foreign investment was not exempt from tax. 52. The ld. D.R. was unable to controvert the above findings of the ld. CIT(A). 53. In view of the above, we see no reason to interfere in the order passed by the Ld. CIT(A) deleting the disallowance made u/s. 14A read with Rule 8D of the Rules with respect to foreign investment made by the assessee.” ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 26 - 35. Keeping in view of the entire aspect of the matter we do not find any reason to deviate from the stand taken by the Coordinate Bench and respectfully relying upon the same for A.Y. 2012-13 we reject this ground of appeal preferred by the Revenue. 36. In the result, this ground of appeal preferred by the Revenue is dismissed. ITA No. 245/Ahd/2020(A.Y. 2015-16)(Assessee’s Appeal):- 37. The assessee has raised the following grounds of appeal:- “Disallowance u/s 14A r.w. Rule 8D Invocation of Section 14A: 1. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in invoking section 14A of the Act without satisfying the mandatory conditions of section 14A(2) of the Act. 2. The learned CIT(A) has erred in law and in facts to the extent of confirming the disallowance made by the learned AO by resorting to provisions of Rule 8Dr.w.s. 14A without satisfying mandatory requisite conditions as provided under Rule 8D r.ws.14A for invocation thereof. Without prejudice-Computation of Disallowance U/s. 14A: 3. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in considering average value of investments of Rs. 287,32,23,500 being investments made for strategic purpose for computing disallowance u/s 14A rwr 8D 4. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in considering average value of investments of Rs. 31.98,68,500 being investments in domestic companies and mutual funds from which no income exempt from tax was earned for the purpose of computing disallowance u/s 14A rwr 8D. 5. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in considering average value of investment made in respect of Gestamp Kalpataru Solar Steel Structures Pvt. Ltd of Rs. 20,52,68,500 instead of Rs. ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 27 - 16,44,68,500 being the average value of such investment as per books of account after considering the deduction made for provision of diminution in value of investment as per audited books of account while computing disallowance under Rule 8D r.w.s. 14A. Incorrect computation of interest u/s 234B 6. The learned CIT(A) has erred in facts and in law by upholding levy of interest of Rs. 1,39,15.010 u/s 234B of the Act by holding that the same is mandatory and consequential in nature which is without appreciating the fact that the appellant has paid advance tax of Rs. 44,50,00,000 as against the assessed tax of Rs. 44,42,65,844 (net of TDS, relief u/s 90/91 of the Act) and thereby no interest u/s 234C is leviable. Such interest levied by the learned AO is beyond the authority of law. Accordingly, such interest prayed to be deleted. Incorrect computation of interest u/s 234C 7. The learned CIT(A) has erred in facts and in law by upholding levy of interest of Rs.18,19,145 as against of Rs.3,94,615 as computed by the Appellate u/s 234C made by learned AO by holding that the same is mandatory and consequential in nature which is without appreciating the fact that the interest u/s 234C as computed by the learned AO is not in accordance with provision of section 234C of the Act. Accordingly, such levy of excessive interest prayed to be deleted. Your appellant prays for leave to add, alter and/or to amend any of the grounds before the final hearing of the appeal.” 38. Ground No.1:- Disallowance under Section 14A r.w.r. 8D of the Act. 39. This ground has already been dealt with by us in ITA No. 244/Ahd/2020 for A.Y. 2014-15 and in the absence of any changed circumstances the same shall apply mutatis mutandis. Hence, this ground preferred by the assessee is dismissed. 40. In the result, this ground of appeal preferred by the assessee in ITA No. 245/Ahd/2020 for A.Y. 2015-16 is dismissed. ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 28 - 41. Ground No. 2:- Since this ground is consequential in nature hence, no order needs to be passed separately. ITA No. 279/Ahd/2020 (A.Y. 2015-16)(Revenue’s Appeal):- 42. The Revenue has taken the following grounds of appeal:- “1. Whether the ld.CIT(A) has erred in law and on facts in deleting the addition on receipt of CER amounting to Rs.5,94,18,494/- and treating it as Capital Receipt instead of Revenue Receipt. 2. Whether the ld.CIT(A) has erred in law and on facts in deleting the disallowance made u/s.14A rws Rule 8D of Rs.52,50,100/-. 3. It is, therefore prayed that the order of the Ld. Commissioner of Income-tax (Appeals) may be set aside that of the Assessing Officer be restored. 4. The appellant prays for leave, to amend or alter any ground or add a new ground which may be necessary.” Ground No. 1:- Profit on sale of carbon credit 43. This ground has already been dealt with by us in ITA No. 270/Ahd/2020 for A.Y. 2014-15 and in the absence of any changed circumstances the same shall apply mutatis mutandis. Hence, this ground preferred by the Revenue is dismissed. 44. In the result, Ground No. 1 of the Revenue’s appeal is dismissed. Ground No.2:- Disallowance under Section 14A r.w.r. 8D of the Act 45. This ground has already been dealt with by us in ITA No. 270/Ahd/2020 for A.Y. 2014-15 and in the absence of any changed circumstances the same shall apply mutatis mutandis. Hence, this ground preferred by the Revenue is dismissed. ITA No.244/Ahd/2020, 270/Ahd/2020, 245/Ahd/2020 & 279/Ahd/2020 Kalpataru Power Transmission Ltd. vs. DCIT & DCIT vs. Kalpataru Power Transmission Ltd. Asst.Years – 2014-15 & 2015-16 - 29 - 46. In the result, Ground No. 2 of the Revenue’s appeal is dismissed. 47. In the combined result, the appeals preferred by the assessee and the Revenue both are dismissed. This Order pronounced in Open Court on 11/10/2023 Sd/- Sd/- (WASEEM AHMED) (Ms. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 11/10/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 06.10.2023 2. Date on which the typed draft is placed before the Dictating Member 09.10.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 11.10.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .10.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 11 .10.2023 7. Date on which the file goes to the Bench Clerk 11.10.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................