S.P. Spinning Mills (P) Ltd., Salem V. ACIT, Salem

ITA 2845/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7432 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 03-10-2016
• Court: TRIBUNAL
• Department Lawyers: ANDARU RAVINDER JT
• Assessee Lawyers: G BASKAR; SUSHMA HARINI S
• Keywords: Capital asset; Business income; Depreciation; Capital receipt; Onus to prove
• Section: 143(3); 14A; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C, CHENNAI , . , ! ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ITA NO.2845/MDS/2016 ! # $# / ASSESSMENT YEAR : 2011-12 S.P.SPINNING MILLS PVT. LTD., 1/147/104, CUDDALORE MAIN ROAD, KARIAPATTI, SALEM 636 106. [PAN: AACCS 9500J] VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), SALEM. ( /APPELLANT ) ( / RESPONDENT ) %& ( ) / APPELLANT BY : SHRI G.BASKAR & MS. SUSHMA HARINI, ADVOCATES *+%& ( ) / RESPONDENT BY : SHRI ANDARU RAVINDER, JT. CIT ( , / DATE OF HEARING : 27.12.2016 -$ ( , / DATE OF PRONOUNCEMENT : 24.03.2017 /O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS), SALEM (CIT(A ) FOR SHORT) DATED 29.07.2016, DISMISSING THE ASSESSEES APPEAL CONTES TING ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREI NAFTER) DATED 10.03.2014 FOR ASSESSMENT YEAR (AY) 2011-12. 2 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT 2. THE APPEAL RAISES THREE ISSUES, WHICH WE SHALL T AKE UP IN SERIATIM. THE FIRST ISSUE IS THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III), MADE IN THE SUM OF RS. 5,73,224/-, ON PROPORTIONATE BASIS, I.E., ON AC COUNT OF DIVERSION OF BORROWED FUNDS (CASH CREDIT ADVANCES FROM TWO BANKS) FOR NON -BUSINESS PURPOSES. THE SAME FOUND CONFIRMATION IN APPEAL BY THE FIRST APPE LLATE AUTHORITY FOLLOWING THE DECISION BY THE TRIBUNAL IN SURYAVANSHI HOLDINGS LTD. VS. DY. CIT (IN ITA NO.1175/HYD/2009), REPRODUCING THE OPERATIVE PART T HEREOF IN HIS ORDER. IN FURTHER APPEAL BEFORE US, THE ASSESSEE RELIES ON TH E DECISION IN CIT V. S.A. BUILDERS LTD. 288 ITR 1 (SC). 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE LAW IN THE MATTER IS WELL-SETTLED, AND IF THE BORROWED CAP ITAL IS, TO ANY EXTENT, EMPLOYED FOR NON-BUSINESS PURPOSES, PROPORTIONATE DISALLOWAN CE OF INTEREST SHALL FOLLOW. THE CASE LAW IN THE MATTER IS LEGION, AND FOR WHICH WE MAY, IF ONLY FOR THE SAKE OF COMPLETENESS OF THIS ORDER, REFER TO THE DECISIO N BY THE HONBLE JURISDICTIONAL HIGH COURT, THOUGH RENDERED IN A DIFFERENT SET OF F ACTS, IN K . SOMASUNDARAM & BROS. V. CIT [1999] 238 ITR 939 (MAD). AGAIN, AS IS WELL-SETTLE D, THE BURDEN OF PROOF TO ESTABLISH ITS CLAIM OF NON-DIVERSION OF B ORROWED CAPITAL, SO THAT IT STANDS EMPLOYED WHOLLY, THROUGHOUT THE RELEVANT PRE VIOUS YEAR, FOR BUSINESS PURPOSES, IS ON THE ASSESSEE IN-AS-MUCH AS THE ONUS TO PROVE ITS RETURN, AND THE CLAIMS PREFERRED THEREBY, IS ONLY THEREON ( CIT V. CALCUTTA AGENCY LTD . [1951] 19 ITR 191 (SC); CIT V. R. VENAKATASWAMY NAIDU [1956] 29 ITR 529 (SC)). THE BUSINESS OF THE ASSESSEE-COMPANY, AND THAT OF ITS SUBSIDIARY/ ASSOCIATE COMPANIES, HAS NOT BEEN CLARIFIED, NOR IS IT THE CA SE OF IT BEING IN THE BUSINESS OF PROMOTION OF OTHER COMPANIES; THE ASSESSEE AND ITS ASSOCIATE/ SUBSIDIARY COMPANIES BEING SEPARATE LEGAL PERSONS AS WELL AS D IFFERENT PERSONS AND, THUS, ASSESSEES, UNDER THE ACT. THERE IS NO WHISPER OF CO MMERCIAL EXPEDIENCY, MUCH LESS SUBSTANTIATING IT. RATHER, THE INVESTMENT IS C LAIMED AS STRATEGIC (REFER GD. 3, WHICH IS ALSO QUA INVESTMENT IN SUCH COMPANIES). THE SAME HAS BEEN H ELD AS 3 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT INADMISSIBLE IN CIT V. AMRITABEN R. SHAH [1999] 238 ITR 777 (BOM). RELIANCE ON THE DECISION IN THE CASE OF S.A.BUILDERS LTD. (SUPRA), WITHOUT SHOWING AS TO HOW IT IS APPLICABLE IN THE FACTS OF THE CASE, WOUL D THUS BE OF NO CONSEQUENCE. THE MATTER IS, IN OTHER WORDS, FACTUAL, WITH NONE B EING LED AT ANY STAGE IN THE PRESENT CASE. AGAIN, HOWEVER, THE DISALLOWANCE HAS BEEN MADE @ 12% P.A., WITHOUT A CORRESPONDING FINDING OF IT BEING THE RAT E AT WHICH THE INTEREST HAS BEEN ACTUALLY SUFFERED. ALSO, THE BORROWINGS ARE IN THE FORM OF CASH CREDITS FROM BANKS, AND THERE IS NO FINDING OF THE TERMS AND CON DITIONS THEREOF BEING NOT COMPLIED WITH, SO AS TO VALIDLY DRAW AN INFERENCE A S TO DIVERSION OF CAPITAL FOR NON-BUSINESS PURPOSES. FOR EXAMPLE, IN THE CASE OF BORROWING AGAINST HYPOTHECATION OF STOCKS, IF THE ASSESSEE HAS MAINTA INED ADEQUATE STOCKS, I.E., INCLUSIVE OF MARGIN, DURING THE YEAR, NO DIVERSION OF THE RELEVANT BORROWED CAPITAL, TO ANY EXTENT, CAN BE IMPUTED. THE RELEVAN T FACTS BEING NOT ON RECORD, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSES SING OFFICER (AO) TO ALLOW THE ASSESSEE AN OPPORTUNITY TO STATE ITS CASE. THE AO SHALL DECIDE ON MERITS, ISSUING DEFINITE FINDINGS OF FACT. NEEDLESS TO ADD, IN THE EVENT OF THE ASSESSEEE NOT LEADING THE FACTS, THE AO SHALL DRAW ALL REASONABLE INFERENCES ON THE BASIS OF THE MATERIAL ON RECORD, AND DECIDE ACCORDINGLY. WE DECI DE ACCORDINGLY. 4. THE SECOND ISSUE IN APPEAL (PER GDS. 3.1 THRO 3 .4) IS THE DISALLOWANCE UNDER SECTION 14A, EFFECTED AT RS. 17,25,894/-, APP LYING RULE 8D. THIS IS AS THE AO OBSERVED THE ASSESSEE TO HAVE INVESTED IN EQUITY CAPITAL (OF SUBSIDIARY COMPANIES) AT RS. 928.40 LACS AS AT THE YEAR-END AN D, FURTHER, HAD NOT MADE ANY SUO MOTU DISALLOWANCE OF ANY EXPENDITURE U/S.14A. THE LD. C IT(A), IN APPEAL, QUOTING THE PROVISION, CONFIRMED THE DISALLOWANCE, SO THAT, AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 4 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT 5. BEFORE US, THE ASSESSEE RELIED ON THE DECISION I N THE CASE OF RANE HOLDINGS LTD. V. ASST. CIT (IN ITA NO.115/MDS/2015 DATED 06/1/2016/COPY ON RE CORD), AND THE DECISION IN CHEMINVEST LTD. V. CIT [2015] 378 ITR 33 (DEL). 6. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE DECISIONS RELIED UPON CLARIFY THAT THE AO MAY P ROCEED TO MAKE DISALLOWANCE UNDER SECTION 14A ONLY UPON BEING NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM WITH REGARD TO EXPENDITURE, IF ANY, INCURRED IN RELATION TO INCOME NOT FORMING PART OF THE TOTAL INCOME UNDER THE ACT. THE LAW IN THE MATTER IS UNAMBIGUOUSLY CLEAR, AND FOR W HICH WE MAY REPRODUCE THE SECTION ITSELF, AS UNDER: EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN TOTAL INCOME . 14A. (1) FOR THE PURPOSES OF COMPUTING THE TOTAL IN COME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTA L INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSES SING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOW ER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORD ER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE L IABILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001. THE ASSESSEES CASE, WHICH COULD THUS INCLUDE A STA TEMENT THAT IT HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO INCOME NOT FORMING PART OF THE TOTAL INCOME UNDER THE ACT, HAS TO BE WITH REFERENCE TO I TS ACCOUNTS AND NOT DE HORS THE SAME. EVEN AS SUBMITTED BY THE LD. DEPARTMENTAL REPRESENTATIVE (DR) DURING HEARING, THE ASSESSEE STATING OF NO EXPENDIT URE HAVING BEEN INCURRED IN RELATION TO INCOME NOT FORMING PART OF THE TOTAL IN COME, WITHOUT REFERENCE TO ITS ACCOUNTS, WHICH REFLECT EXPENDITURE ON INTEREST ON BORROWED CAPITAL (AT RS.91.95 5 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT LACS), AS WELL AS INVESTMENT IN SHARES DURING THE Y EAR, IS OF NO CONSEQUENCE IN LAW. IT IS ONLY WHERE THE ASSESSEES CLAIM IS MADE WITH REFERENCE TO ITS ACCOUNTS, WHICH THUS FORMS THE BASIS THEREOF, THAT THE AO IS OBLIGED TO MEET THE SAME AND, AGAIN, ONLY WITH REFERENCE TO THE ASSESSE ES ACCOUNTS, CLEARLY STATING AS TO WHY HE DOUBTS THE CORRECTNESS OF THE ASSESSEE S CLAIM/S. IT IS ONLY IN THAT CIRCUMSTANCE, IT MAY BE APPRECIATED, THAT AN APPELL ATE AUTHORITY CAN DECIDE ON THE VALIDITY OR APPROPRIATENESS OF THE COUNTERCLAIM S. REFERENCE IN THIS REGARD MAY BE MADE TO THE DECISIONS IN THE CASE OF AFL P . LTD. V. ASST. CIT [2013] 28 ITR (TRIB) 263 (MUM) THE AOS DISSATISFACTION IN TH E PRESENT CASE, WHICH IS UNEQUIVOCALLY EXPRESSED, IS ON A SOUND BASIS, WHICH HAS BEEN IN FACT NOT BEEN DISPUTED, I.E., ON MERITS, AT ANY STAGE. THE SECOND ASPECT OF THE ASSESSEES ARGUMENT, I.E., QUA THE LEGAL ISSUE, IS THAT THE INVESTMENT IS IN GROUP COMPANIES, SO THAT S.14A WOULD NOT APPLY TO THE EXPENDITURE INCURRED IN RELATION THERETO. THIS ASPE CT STANDS CONSIDERED RECENTLY BY THE TRIBUNAL IN VOLTECH ENGINEERS P. LTD. V. DY. CIT (IN ITA NOS. 1765 & 1801/MDS/2016 DTD. 20/2/2017) WITH REFERENCE TO THE DECISIONS BY THE HIGHER COURTS OF LAW AS WELL AS BY THE TRIBUNAL, INCLUDING BY THE LARGER BENCHES THEREOF. IT STANDS CLARIFIED THAT THE NATURE OR THE CHARACTE R OF THE SHAREHOLDING IS NOT RELEVANT, AND WHAT IS OF RELEVANCE IS THE INCOME TAXABLE OR TAX-EXEMPT, THAT ARISES OR MAY ARISE THERE-FROM (INASMUCH AS INCOME NORMALLY ARISES ONLY SUBSEQUENT TO THE EXPENDITURE). WHERE, AS IN THE PR ESENT CASE, IT IS ON A LONG TERM BASIS, SO THAT IT WOULD RESULT IN LONG-TERM CA PITAL GAIN (ON THE SALE OF SHARES) AND DIVIDEND INCOME (DURING THE CURRENCY OF THE INVESTMENT), BOTH TAX- EXEMPT, IT MATTERS LITTLE WHETHER THE INVESTMENT IS IN SHARES OF A GROUP OR AN OUTSIDE COMPANY. NO BUSINESS PURPOSE OF THE IMPUG NED INVESTMENT, AS ALSO NOTED IN THE CONTEXT OF DISALLOWANCE U/S. 36(1)(III ), HAS BEEN ADVANCED BY THE ASSESSEE AT ANY STAGE, CLAIMING, RATHER, THE INVEST MENT TO BE STRATEGIC (REFER PARA 3 OF THIS ORDER). WHY, WHERE FOR A BUSINESS PU RPOSE, THE EXPENDITURE 6 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT DISALLOWED, WHICH IS ON INTEREST AS WELL AS INDIREC T, ADMINISTRATIVE EXPENDITURE, WOULD STAND TO BE ALLOWED U/S.36(1)(III) OR, AS THE CASE MAY BE, SEC.37(1) ITSELF, SO THAT THE QUESTION OF DISALLOWANCE UNDER SECTION 14A DOES NOT ARISE. IN OTHER WORDS, THE DISALLOWANCE COULD, EQUALLY VALIDLY, BE EFFECTED U/SS. 36(1)(III) AND 37(1); THE IMPUGNED EXPENDITURE BEING NOT ATTRIBUTA BLE TO BUSINESS INCOME, OR INCOME FORMING PART OF THE TOTAL INCOME UNDER THE A CT . SECTION 14A, IT MAY BE NOTED, AS CLARIFIED IN GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM), WITH REFERENCE TO THE DECISION IN CIT V. WALFORT SHARE & STOCK BROKERS (P.) LTD . 326 ITR 1 (SC), IS ONLY TOWARD DETERMINING THE TO TAL INCOME (REFER S. 14A(1)) AND, FURTHER, WIDENS THE THEORY O F APPORTIONMENT (OF EXPENDITURE). THE SAME (S.14A) WOULD THOUGH IMPACT, I.E., DIFFERENTLY, WHERE THE SAME BUSINESS/ACTIVITY YIELDS BOTH - INCOME FOR MING AS WELL AS NOT FORMING PART OF THE TOTAL INCOME, IN WHICH CASE IT WAS, AS EXPLAINED, PRIOR TO THE INTRODUCTION OF SECTION 14A, IMPERMISSIBLE FOR THE REVENUE TO APPORTION THE COMMON EXPENDITURE BETWEEN THE TWO. THIS IS NOT THE CASE IN THE INSTANT CASE. THE ASSESSEES RELIANCE ON THE CITED DECISIONS WOUL D THUS BE OF LITTLE ASSISTANCE THERETO IN THE FACTS AND CIRCUMSTANCES OF THE CASE. WE, THEREFORE, FIND NO MERIT IN THE ASSESSEES CASE AND, ACCORDINGLY, CONFIRM THE IMPUGNED DISALLOWANCE. IN WORKING THE D ISALLOWANCE OF INTEREST EXPENDITURE, HOWEVER, ONLY THE EXPENDITURE NET OF T HAT DISALLOWED U/S. 36(1)(III) WOULD BE TAKEN INTO ACCOUNT, ELSE IT WOULD AMOUNT T O A DOUBLE DISALLOWANCE, ALSO TAKING CARE TO EXCLUDE SO AS TO MAINTAIN PRO PER BASIS, THE CORRESPONDING ASSETS. THAT IS, THE ENTIRE INTEREST CONSIDERED FOR ALLOWANCE OR, AS THE CASE MAY BE, DISALLOWANCE U/S. 36(1)(III), WOULD STAND EXCLU DED IN RECKONING THE INDIRECT INTEREST DISALLOWABLE U/S. 14A INASMUCH AS THE APPL ICATION OF BORROWED CAPITAL, TO THAT EXTENT, STANDS RESOLVED, AND IT IS ONLY THE BALANCE BORROWED CAPITAL, ENTERING THE GENERAL POOL OF FUNDS, WHICH SHALL SUR VIVE FOR BEING CONSIDERED. 7 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT NEEDLESS TO ADD, CORRESPONDING ADJUSTMENT FOR ASSET S, BOTH IN THE NUMERATOR AND DENOMINATOR, SHALL ALSO BE MADE. WE DECIDE ACCORDIN GLY. 7. THE THIRD ISSUE, RAISED PER GROUNDS 4.1 TO 4.3, IS IN RESPECT OF MAINTAINABILITY OF DEDUCTION U/S. 80-IA OF THE ACT ON CLEAN DEVELOPMENT MECHANISM (CDM) RECEIPT BY THE ASSESSEE IN RESPECT OF ITS TWO POWER GENERATING UNITS. CDM OR CARBON CREDIT, AS IT IS POPULARLY REFERRED TO, IS RECEIVED UNDER A MARKET MECHANISM FOR GENERATING PO WER THROUGH NON CONVENTIONAL SOURCES, INVOLVING NON-EMISSION OF CAR BON. THE SOURCE OF THE RECEIPT BEING A SCHEME FOR INCENTIVIZING THE SA ME, THE AO, FOLLOWING LIBERTY INDIA V. CIT [2009] 317 ITR 218 AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC), WAS OF THE VIEW THAT THE RELATIONSHIP BETWEEN THE ACTIVITY OF POWER GENERATION AND CARBON CREDIT IS NOT DIRECT OR IMMEDIATE, SO AS TO BE REGARDED AS DERIVED FROM THE SAME. THE LD. CIT(A), IN APPEAL, FOLLOWING THE DECISION BY THE CHENNAI BENCH OF THE TRIBUNAL IN AMBIKA COTTON MILLS LTD. V. DY. CIT (IN ITA NO.1836/MDS/2012 DATED 16.04.2013/COPY ON RECORD), OPINED THE SAME TO BE A CAPITAL RECEIPT, SO THAT THERE IS NO QUESTION OF IT QUALIFYING FOR DEDUCTION U/S. 80-IA. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. AT THE VERY OUTSET WE OBSERVE THE DICHOTOMY ATTENDI NG THE IMPUGNED ORDER QUA THIS ISSUE, SOUGHT TO BE PROJECTED BY THE ASSESSEE PER ITS GROUND 4.1, IN-AS-MUCH AS A CAPITAL RECEIPT WOULD STAND TO BE E XCLUDED IN DETERMINING TOTAL INCOME, RENDERING SUPERFLUOUS THE CLAIM FOR DEDUCTI ON UNDER SECTION 80-IA. THE SAME, HOWEVER, WOULD ASSUME RELEVANCE ONLY WHERE WE UPHOLD THE IMPUGNED ORDER ON THAT SCORE. THE ORDER BY THE FIRST APPELLA TE AUTHORITY IS NOT BINDING ON US, EVEN AS THE REVENUE CAN, IN VIEW OF RULE 27 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES, 1963 (THE RULES HEREINAFTER), SU PPORT THE IMPUGNED ORDER ON ANY ASPECT DECIDED AGAINST IT. EVEN OTHERWISE, IT I S THE CORRECT LEGAL POSITION THAT 8 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT IS RELEVANT, AND NOT THE VIEW THAT THE PARTIES MAY TAKE OF THEIR RIGHTS IN THE MATTER ( CIT V. C. PARAKH & CO. (INDIA) LTD . [1956] 29 ITR 661 (SC); KEDARNATH JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 (SC); ALSO SEE R.11 OF THE RULES). THE PURVIEW OF THE TRIBUNAL, AS AN APPE LLATE AUTHORITY, IS TO DETERMINE THE ASSESSEES CORRECT TAX LIABILITY, EVEN AS CLARI FIED BY THE HIGHER COURTS OF LAW TIME AND AGAIN, AND FOR WHICH REFERENCE, IF ONLY FO R THE SAKE OF COMPLETENESS OF THIS ORDER, BE MADE TO DECISIONS IN HUKUMCHAND MILLS LTD V. CIT [1967] 63 ITR 232 (SC); KAPURCHAND SHRIMAL V. CIT [1981] 131 ITR 451, (460, 461) (SC); CIT V. ASSAM TRAVELS SHIPPING SERVICE [1993] 199 ITR 1 (SC); CIT V. C.C.C. HOLDINGS [2003] 260 ITR 433 (MAD); AHMEDABAD ELECTRICITY CO. LTD. V. CIT [1993] 199 ITR 351 (BOM-FB); CIT VS. RAMNATH GOENKA (DECD.) & OTHRS .[2001] 252 ITR 653, 654 (MAD); CIT V. INDIAN EXPRESS (MADURAI) PVT. LTD. [1983] 140 ITR 705 (MAD), TO QUOTE SOME. THE TRIBUNAL IS IN FACT DUTY BOUND TO ADDRESS THE ANOMALY AND DECIDE ON THE CORRECT POSITION IN LAW, CONSISTENT W ITH ITS FINDINGS ON FACTS. THIS OBJECTION BY THE ASSESSEE WOULD THUS BE OF NO MOMEN T. THE RECEIPT UNDER REFERENCE ARISES AS A CONSEQUENCE OF UNDERTAKING THE BUSINESS OF GENERATION OF POWER ADOPTING A PREFERRE D TECHNOLOGY. THE ONLY QUESTION IS IF THE NEXUS IS OF FIRST DEGREE, AS THE WORDS DERIVED FROM OCCURRING IN, AMONG OTHERS, S. 80-IA, HAVE BEEN EXPLAINED BY THE HON'BLE APEX COURT IN SEVERAL DECISIONS (VIZ. BACHA F. GUZDAR V. CIT [1955] 27 ITR 1 (SC); CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [1978] 113 ITR 84 (SC); CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) ET. AL.), OR IS SECONDARY. THE RECEIPT IS ON ACCOUNT OF AN INTERNATIONAL ARRANGEMENT, CALLED KYOTO PROTOCOL (TO WHICH INDIA IS A SIGNATORY), WHEREBY PROCESSES INVOLVING LOW (WITH REFERENCE TO THE EXISTING EMISSION LEVELS IN THE RELEVANT SECTOR) OR NON-EMISSION OF CARBON, WHICH HAS AN ADVERSE IMPACT ON THE ENVIRONMENT, IS SOUGHT TO BE PROMOTED BY GRANTING WHAT IS CALLED CARBON CREDIT. THE UNITS EMITTING CARBON ARE, CORRESPONDINGLY, REQUIRED TO PURCHASE, AT A COST, CARBON CREDITS, TO COMPENSATE FOR THE CARBON 9 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT EMITTED, POLLUTING THE ENVIRONMENT. THIS MECHANISM, BY THUS ACCORDING PREFERENCE TO CLEAN FORMS OF GENERATING POWER (OR G ENERALLY DOING BUSINESS), ENSURES THAT THE OVERALL CARBON CONTENT IN THE ENVI RONMENT DOES NOT INCREASE, IF NOT ACTUALLY DECREASE. THE ACQUISITION OF CARBON CR EDIT BY SUCH CARBON EMITTING UNITS IS CERTAINLY A COST TO THEIR BUSINESSES, WHIL E THE RECEIPT, BEING INCIDENTAL TO THEIR BUSINESS FOR THE NON EMITTING UNITS, ASSUMES THE CHARACTER OF INCOME. THE RELATIONSHIP OF FIRST DEGREE, THOUGH, IS WITH THE A RRANGEMENT (PROTOCOL) FOR ENCOURAGING EMPLOYMENT OF TECHNOLOGIES THAT INVOLVE LOW OR NON-EMISSION OF CARBON. REFERENCE IN THIS REGARD BE MADE TO THE DEC ISION IN LIBERTY INDIA (SUPRA), WHERE THE RECEIPT UNDER REFERENCE WAS AGAI N AN INCENTIVE BY WAY OF DEPB/DUTY DRAW BACK THE SOURCE OF WHICH WAS TRACED NOT TO THE MANUFACTURE BUT THE SCHEME FRAMED BY THE GOVERNMENT OR FROM S. 75 OF THE CUSTOMS ACT, 1962. SIMILARLY, IN PANDIAN CHEMICALS LTD . (SUPRA), WHERE THE RECEIPT UNDER REFERENCE WAS INTEREST ON DEPOSITS WITH THE ELECTRI CITY BOARD, GIVEN FOR SECURING POWER CONNECTION FOR THE PLANT, AND WHICH WAS, BEIN G QUA DEPOSITS, CONSIDERED AS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRI AL UNDERTAKING. THE RELIANCE IS THEREFORE APPOSITE, AND THE AO IS IN OUR VIEW FU LLY JUSTIFIED IN COMING TO THE VIEW HE DOES. AS REGARDS THE VIEW BY THE LD. CIT(A), A CAPITAL RE CEIPT IS ONLY IN LIEU OF A CAPITAL ASSET OR A SOURCE OF INCOME, RATHER THAN TH E INCOME ITSELF. THE LD. AR WAS DURING HEARING UNABLE TO STATE WHAT THAT CAPITAL AS SET OR SOURCE OF INCOME OF THE ASSESSEE IS, I.E., IN LIEU OF WHICH CARBON CREDIT STANDS RECEIVED, SO AS TO QUALIFY AS A CAPITAL RECEIPT. A CAPITAL RECEIPT BEING IN LI EU OF AN EXISTING ASSET (OF THE ASSESSEE), THERE IS, THEREFORE, NO INCOME, WHICH BY DEFINITION IS ONLY ACCRETION TO CAPITAL. THE ARRANGEMENT, IT MAY BE NOTED, IS AKIN TO THAT PRESENT IN THE CASE OF EMPIRE JUTE CO. LTD. V. CIT [1980] 124 ITR 1 (SC), WHEREIN THE DEDUCTIBILITY O F PAYMENT FOR ACQUIRING LOOM-HOURS WAS IN QUESTION. T HE COST OF LOOM-HOURS, PURCHASED BY THE DEFICIT UNITS, AS THE APPELLANT IN THAT CASE, FROM THE SURPLUS 10 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT UNITS, BEING RATIONED BY AN AGREEMENT BETWEEN THE M EMBERS OF THE INDUSTRY FOR REGULATING PRODUCTION, WAS HELD AS LIABLE FOR DEDUC TION. THE ACQUISITION OF LOOM- HOURS, IT EXPLAINED, DID NOT ADD TO THE FIXED CAPIT AL OR PERMANENT STRUCTURE - OF WHICH THE INCOME WAS THE PRODUCT OR FRUIT. THAT IS, IS ESSENTIALLY RELATED TO THE OPERATION OR WORKING OF THE LOOMS, WITHOUT ADDING T O THE SOURCE. CLEARLY, LIKE- WISE, THE SALE OF LOOM-HOURS ONLY AMOUNTS TO A RE CEIPT FOR NON-WORKING OF LOOMS, AKIN TO RENTING OF SURPLUS OR IDLE CAPACITY. SURELY, IT WOULD FORM INCOME ARISING OUT OF TRADE. SEC. 28(VA), WHICH SEEKS TO I NCLUDE, AMONG OTHERS, NON- COMPETE FEE WITHIN THE AMBIT OF INCOME FROM BUSINES S/PROFESSION, PROVIDES IN THIS RESPECT BY WAY OF A STATUTORY MANDATE, EVEN AS INCOME IS A TERM OF WIDE AMPLITUDE, WHICH WOULD INCLUDE ANYTHING THAT CORRES PONDS WITH THE NOTION OF INCOME, AS CLARIFIED BY THE APEX COURT TIME AND AGA IN (REFER: EMIL WEBBER V. CIT [1993] 200 ITR 483 (SC) AND CIT V. G.R.KARTHIKEYAN [1993] 201 ITR 866 (SC)). ACCRETION TO (THE EXISTING STOCK OF) CAPITAL , IS, AS AFORE-NOTED, INCOME, BY DEFINITION. IT IS ONLY WHERE IT IS TO COMPENSATE FO R THE DEPLETION OR EXHAUSTION OF A CAPITAL ASSET THAT THE RECEIPT SHALL HAVE OR BE I MBUED WITH THE CHARACTER OF A CAPITAL RECEIPT. WHY, DEPRECIATION, GRANTED BY WAY OF A STATUTORY ALLOWANCE, IS AGAIN ONLY TO COMPENSATE A BUSINESS IN RESPECT OF S UCH EROSION IN VALUE OF A CAPITAL ASSET ON ACCOUNT OF ITS USER AND/OR OBSOLE SCENCE, SO THAT THE BUSINESS RECEIPT CANNOT, TO THAT EXTENT, BE TERMED AS INCOME . WE MAY NEXT ADVERT TO THE DECISION IN AMBICA COTTON MILLS LTD. V. CIT (IN ITA NO.1836/MDS/2012 DATED 16.04.2013), RELIED UPON BY THE ASSESSEE. THE SAME STANDS RENDERED FOLLOWING THE DECISION IN MY HOME POWER LTD. V. DY. CIT [2012] 27 TAXMANN.COM 27 (TRIB-HYD.), THE OPERATIVE PART (PARAS 24,25) OF WHICH STANDS EXTRACTED BY THE TRIBUNAL AT PARA 9 OF ITS ORDER, BEFORE CONCLUDING (AT PARA 26, ALSO REPRODUCED) OF THE CARBON CREDIT BEING A CAPITAL RECEIPT, WHERE- AFTER IT RECORDS ITS FINDING AS UNDER: TAKING CUE FROM THE SAME, WE ALSO HOLD THAT THE CIT (A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER HOLDING HEREIN THAT 11 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT THE REALIZATION OF CARBON CREDIT IN QUESTION BY THE ASSESSEE GIVES RISE TO A REVENUE RECEIPT. THEREFORE, THE ADDITION STANDS DEL ETED . TO BEGIN WITH, THE ASSESSEES RELIANCE IS MISCONCEI VED, EVEN AS ON MERITS WE HAVE ALREADY EXPLAINED THE RECEIPT TO BE NOT A CAPI TAL RECEIPT, AS HELD THEREIN, BUT ONLY A REVENUE RECEIPT OF THE ASSSESSEES BUSIN ESS . WE SAY SO AS IT IS CONTRADICTORY OF ITS CLAIM OF THE RECEIPT BEING NO T ONLY A BUSINESS INCOME, I.E., A REVENUE RECEIPT OF ITS BUSINESS, BUT ALSO QUALIFIE S FOR DEDUCTION U/S. 80-IA IN-AS- MUCH AS IT HAS A DIRECT NEXUS WITH THE GENERATION O F ELECTRICITY (REFER GD. 4.2 OF THE ASSESSEE), FURTHER RELYING ON BOARD CIRCULAR NO . 39/2016 DATED 29/12/2016 FOR THE PURPOSE. HOW COULD THEN, WE WONDER, IT RELY ON A DECISION WH ICH HOLDS TO THE CONTRARY, I.E., STATES THE CDM RECEIPT TO BE A CAPITAL RECEIPT ? THE SAME IS NOT, WE MAY CLARIFY, A WITHOUT PREJUDICE CLAIM, BUT A CONTRARY ONE. EXAMPLE OF THE FORMER WOULD BE WHERE AN ASSESSSEE CONTESTS A D ISALLOWANCE ON PRINCIPLE (EITHER ON LAW OR ON FACTS OR BOTH) AND, IN ADDITIO N AND WITHOUT PREJUDICE, ALSO DISPUTES ITS QUANTUM, CLAIMING IT AS EXCESSIVE. THE SAID ORDER BEING BY A COORDINATE BENCH, WE SHALL NEVERTHELESS DISCUSS THE SAME. WE HAVE CAREFULLY PERUSED THE SAID ORDER. THE TRIBUNAL, AS APPARENT, DOES NOT ISSUE ANY FINDING OF ITS OWN, AND HAS ONLY FOLLOWED THE ORDER IN MY HOME POWER LTD. (SUPRA), WHICH IS THUS THE LEAD ORDER. THE TRIBUNAL IN THAT CASE I N FACT ITSELF HOLDS THE CARBON CREDITS OR ENTITLEMENT TO BE AN ACCRETION TO CAPITA L, WHICH, AS AFORE-STATED, IS INCOME BY DEFINITION (PARA 24). INTERESTINGLY, IT , AFTER REFERRING TO THE KYOTO PROTOCOL , ALSO DRAWS COMPARISON WITH LOOM-HOURS ALLOTTED TO AN AS SESSEE UNDER AN ARRANGEMENT TO CONTROL PRODUCTION. SALE OF SURPL US LOOM-HOURS, IT NOTES, STANDS HELD AS A CAPITAL RECEIPT AND NOT INCOME I N CIT V. MAHESWARI DEVI JUTE MILLS LTD. [1965] 57 ITR 36 (SC). WE HAVE ALREADY, WITH REFERENCE TO A LATER, LARGER BENCH DECISION BY THE HON'BLE APEX COURT IN EMPIRE JUTE CO. LTD. (SUPRA), EXPLAINED THE ACQUISITION AND TRANSFER OF LOOM-HOURS, AS COST AND INCOME OF THE TRADE, SO THAT ITS SALE PROCEEDS REP RESENT ONLY A TRADE RECEIPT AND, 12 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT THUS, BUSINESS INCOME. THE TRIBUNALS REFERENCE TO LOOM-HOURS IN MY HOME POWER LTD . (SUPRA), THUS, VALIDATES BOTH OUR REFERENCE TO LOOM-HOURS, AS WELL AS OUR DECISION, RENDERED, RELYING ON THE LATER DEC ISION BY THE LARGER BENCH OF THE HON'BLE APEX COURT, WHEREIN IT EXPLAINS AND DISTING UISHES ITS EARLIER DECISION IN MAHESWARI DEVI JUTE MILLS LTD. (SUPRA). AGAIN, THE TRIBUNAL HOLDS THAT THE TRANSFERABLE CARBON CREDIT IS NOT AN INCIDENT OF TH E BUSINESS, BUT A CREDIT FOR REDUCING EMISSIONS. IN-AS-MUCH AS THE SAID CREDIT A RISES TO THE ASSESSEES BUSINESS ON ACCOUNT OF UNDERTAKING IT IN A PARTICUL AR MANNER, THE NEXUS WITH THE BUSINESS OR BUSINESS CONDUCT CANNOT BE DENIED. HOW THEN, WE WONDER, WITH RESPECT, THE TRIBUNAL RECORDS IT AS NOT A PART OF T HE RECEIPT OF THE BUSINESS BUT A CAPITAL RECEIPT, FURTHER STATING THAT THE ASSET GEN ERATED IS NOT OF THE BUSINESS BUT DUE TO ENVIRONMENTAL CONCERNS. INDEED, THE PROTOCOL ARISES ONLY TO ADDRESS THE ENVIRONMENTAL CONCERNS, AS IT WAS TO REGULATE THE O VERALL PRODUCTION IN THE CASE OF LOOM-HOURS, BUT THE CREDIT TO THE ASSESSEE ARISE S ONLY ON ACCOUNT OF ITS BUSINESS. WHY, IN THE SUBSEQUENT PARA (# 25), TRIBU NAL REFERS TO THE GUIDANCE NOTE ON ACCOUNTING FOR SELF-GENERATED CERTIFIED EM ISSION REDUCTIONS (CERS) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WHICH CLARIFIES THE CERS TO BE INVENTORIES OF THE GENERATING ENTITIES, HELD FOR THE PURPOSE OF THEIR SALE IN THE ORDINARY COURSE AND, FURTHER, EVEN THOU GH INTANGIBLE ASSETS, ARE TO BE VALUED AS PER AS-2 (VALUATION OF INVENTORIES), I.E. , AT COST OR MARKET PRICE, WHICHEVER IS LOWER. FURTHER, AS THE CERS ARE RECOGN IZED AS INVENTORIES, THE GENERATING UNITS SHOULD APPLY AS-9 TO RECOGNIZE REV ENUE IN THEIR RESPECT. IN OTHER WORDS, WE OBSERVE, WITH RESPECT, AN INTERNAL INCONSISTENCY IN THE SAID ORDER, FOLLOWED BY THE TRIBUNAL IN AMBICA COTTON MILLS LTD. (SUPRA), EVEN AS THE MATTER CAN BE REGARDED AS COVERED BY THE DECISIONS IN EMPIRE JUTE CO. LTD. (SUPRA), ON ONE HAND, AND, INTER ALIA, LIBERTY INDIA (SUPRA) AND PANDIAN CHEMICALS LTD . (SUPRA) QUA THE OTHER ASPECT. THE RELIANCE BY THE REVENUE ON T HE LATTER (SET OF) DECISIONS HAS ALSO NOT BEEN MET BY THE ASSESSEE IN ANY MANNER. 13 ITA NO.2845/MDS/2016 (AY 2011-12) S.P. SPINNING MILLS PVT. LTD. V. ASST . CIT RATHER, IN THE FACTS OF THE PRESENT CASE, THE ASSES SEE ITSELF REGARDS IT AS BUSINESS INCOME, CLAIMING DEDUCTION U/S. 80-IA THEREON, AND WHICH IS THE BONE OF CONTENTION BETWEEN THE PARTIES. CONTINUING FURTHER, TRUE, THE CERS, THOUGH INTANGIBLE, ARE TO BE VALUED AS INVENTORIES, BUT IT IS ONLY ON ACCOUNT OF THE PROTOCOL THAT THEY STAND TO BE RECOGNIZED SEPARATEL Y AND ARE VALUABLE/REALIZABLE. SIMILAR VIEW, IN FACT, STANDS ALSO EXPRESSED BY THE TRIBUNAL IN APPOLLO TYRES LTD. V. ASST. CIT [2014] 47 TAXMANN.COM 416 (COCH.TRIB), HOLDING TH E INCOME ARISING ON SALE OF CERS AS BUSINESS INCOME U/S. 2(2 4)(VD) AND, FURTHER, AS NOT ELIGIBLE FOR DEDUCTION U/S. 80-IA, ALSO MEETING THE RELIANCE ON THE DECISION IN THE CASE OF MY HOME POWER LTD . (SUPRA), AS INDEED HAVE WE. THE ASSESSEES RELIANCE ON THE CITED DECISION WOULD THUS BE OF LIT TLE ASSISTANCE THERETO. THE RELIANCE ON THE BOARD CIRCULAR 39/2016 SUPRA IS AGA IN MISPLACED; THE CARBON CREDIT BEING NOT A SUBSIDY, MUCH LESS TOWARD SUBSID IZING/MEETING THE COST OF GENERATION OF POWER. WE DECIDE ACCORDINGLY, CONFIRMING THE ASSESSMENT OF THE IMPUGNED RECEIPT AS BUSINESS INCOME AND DISALLOWANCE OF DEDUCTION U/ S. 80-IA IN ITS RESPECT. 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON MARCH 24, 2017 AT CHENNAI . SD/- SD/- ( . ) ( ) (G. PAVAN KUMAR) (SANJAY ARORA) ! /JUDICIAL MEMBER /ACCOUNTANT MEMBER /CHENNAI, . /DATED, MARCH 24, 2017. EDN / ( *!,01 21$, /COPY TO: 1. %& /APPELLANT 2. *+%& /RESPONDENT 3. 3, ( )/CIT(A) 4. 3, /CIT 5. 145 *!,! /DR 6. 56# 7 /GF