DCIT, Mohali V. M/s Punjab Hydro Power Private Limited, Noida

ITA 390/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90100 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Business income; Cost of acquisition; Capital receipt

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 389/CHD/2013 ASSESSMENT YEAR: 2009-10 THE DCIT, VS. M/S KOTLA HYDRO POWER PRIVATE LTD. , CIRCLE 6(1), NOIDA MOHALI PAN NO. AABCK9253B ` & ITA NO. 390/CHD/2013 ASSESSMENT YEAR: 2009-10 THE DCIT, VS. M/S PUNJAB HYDRO POWER PRIVATE LTD ., CIRCLE 6(1), NOIDA MOHALI PAN NO. AACCP6806CB (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH RESPONDENT BY : SHRI TEJ MOHAN SINGH DATE OF HEARING : 08.04.2015 DATE OF PRONOUNCEMENT : 15.04.2015 ORDER PER T.R.SOOD, A.M. BOTH THE APPEALS BY THE REVENUE ARE DIRECTED AGAINS T THE ORDER DATED 31.01.2013 PASSED BY THE CIT(A), CHANDIGARH. 2. SINCE IDENTICAL ISSUES HAVE BEEN RAISED IN BOTH THE APPEALS, THE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO NSOLIDATED ORDER. FIRST WE SHALL DEAL WITH THE APPEAL IN ITA NO.389/CHD/2013. ITA NO. 389/CHD/2013 : 1. WHETHER IN THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACT OF THE CASE? 2 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 2,43,40,143/- WHICH WAS MADE BY THE ASSESSING OFFIC ER BY DENYING THE BENEFIT OF DEDUCTION CLAIMED BY THE ASS ESSEE 2,43,40,143/- WAS NOT DERIVED FROM THE ELIGIBLE B USINESS OF THE ASSESSEE? 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE RECEIPTS F ROM SALE OF CERS AS CAPITAL RECEIPT WHEREAS ASSESSE HAS HIMSE LF TREATED THE SAME AS REVENUE RECEIPT IN HIS RETURN OF INCO ME WHICH HAS NOT BEEN REVISED IT AS PER PROVISION OF SECTION 139(5)? 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80-IA ON THE INCOME OF RS. 3,89,767 RECEIVED AS INSURANCE R ECEIPT WHICH WAS DISALLOWED BY ASSESSING OFFICER SINCE THE SAME WAS NOT DERIVED FROM THE ELIGIBLE BUSINESS OF THE ASS ESSEE. 3. GROUND NOS. 1 TO 3 : AFTER HEARING BOTH THE PART IES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS SHOWN IN PROFIT AND LOSS ACCOUNT A SUM OF RS. 2,43,40,143/- FROM SALE OF CARBON EMISSION REDUCTION UNITS (IN SHORT CER). IN RESPONSE TO Q UERIES, THE ASSESSEE FILED DETAILED REPLY. IT WAS POINTED OUT THAT BECAUSE OF THE INCREASING ACCUMULATION OF GREEN HOUSE GASES IN THE ATMOSPHERE LEADING TO P OLLUTION, UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE WAS CONDUCTE D AND AN AGREEMENT WAS SIGNED BY VARIOUS NATIONS IN KYOTO (IN JAPAN). THE SAME IS KNOWN A KYOTO PROTOCOL AND IS EFFECTIVE FROM 2005. UNDER THIS AGR EEMENT VARIOUS COUNTRIES UNDERTOOK TO REDUCE EMISSION OF GREEN HOUSE GASES. IT WAS ALSO AGREED THAT IF SOME INDUSTRIES WERE SET UP WHICH LEAD TO EMISSION OF LESSER GREEN HOUSE GASES THAN THE STANDARD PRESCRIBED, THEN THEY WOULD BE CR EDITED WITH CARBON CREDIT UNITS. THESE CARBON CREDIT UNITS WERE TRADABLE AND WHOSOEVER WAS ENABLE TO GENERATE SUCH CERS COULD SELL THEM IN THE INTERNAT IONAL MARKET. THE SALE OF SUCH CER WAS IN THE NATURE OF BUSINESS INCOME WHICH WAS DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE THROUGH WHICH ASSESSEE HAS PUT UP A ELECTRIC GENERATION PROJECT WHICH PRODUCES LESSER AMOUNT OF GREEN HOUSE GASES AND ASSESSEE BECAME ENTITLED TO CREDIT OF CARBON UNITS. THE ASSESSING O FFICER EXAMINED THE ISSUE IN DETAIL AND WAS OF THE OPINION THAT GENERATION OF SU CH CER HAS NOTHING TO DO 3 WITH THE BUSINESS OF THE ASSESSEE AND IT WAS BECAUS E OF ENVIRONMENT PROTOCOL, THEREFORE, DEDUCTION U/S 80IA WAS DENIED OF THIS AM OUNT. 4. ON APPEAL, THE ASSESSEE RAISED GROUND THAT ASSES SEE WAS ENTITLED TO DEDUCTION U/S 80IA ON SUCH SALES. IN ADDITION AN A DDITIONAL GROUND WAS ALSO RAISED THROUGH WHICH IT WAS CONTENDED THAT CONSIDER ATION RECEIVED ON SALE OF CERS IS IN FACT ON ACCOUNT OF SALE OF CAPITAL ASSE T AND, THEREFORE, THE SAME WAS NOT TAXABLE AT ALL AND IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF HYDERABAD BENCH OF TRIBUNAL IN MY HOME POWER LTD VS . DCIT 21 ITR (TRIB) 186 (HYDERABAD). THE LD. CIT(A) FOLLOWING THE DECI SION OF MY HOME POWER LTD VS. DCIT (SUPRA) HELD THAT SALE OF CER IS A CAP ITAL RECEIPT AND NOT INCLUDIBLE IN TAXABLE INCOME. 5. BEFORE US LD. DR SUBMITTED THAT CARBON CREDIT I S AN INCENTIVE GIVEN BECAUSE OF THE KYOTO PROTOCOL WHERE AN INTERNATIONA L AGREEMENT WAS REACHED BETWEEN SEVERAL COUNTRIES TO REDUCE THE EMISSION OF GREEN HOUSE GASES, THEREFORE, THE AMOUNT WHICH WAS RECEIVED ON SALE OF SUCH CERS HAS NO RELATION WITH NORMAL BUSINESS IN RESPECT OF GENERATION OF PO WER. ALTERNATIVELY, THE SALE OF SUCH CER SHOULD BE TREATED AS AN INCENTIVE GIVEN BY GOVERNMENT BECAUSE OF AN INTERNATIONAL SCHEME AND ACCORDINGLY THE SAME WA S NOT ENTITLED TO DEDUCTION U/S 80IA. HE FURTHER SUBMITTED THAT THIS VIEW HAS A LREADY BEEN CONFIRMED BY THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF APOLLO TYRES LTD V ACIT IN 31 ITR (TRIB) 477 (COCHIN). 6. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT ISSUE IS SQUARELY COVERED BY THE DECISION OF HYDERABAD BENCH DECISION IN THE CASE OF MY HOME POWER LTD VS. DCIT (SUPRA). HE FURTHER POINTED OUT THAT THIS DECISION HAS BEEN CONFIRMED BY HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V MY HOME POWER LTD AT 365 ITR 82(A.P). HE ALSO POINTED OUT THAT THIS DECISION HAS BEEN FOLLOWED BY CHENNAI BENCH IN THE CASE OF AMBIK A COTTON MILLS LTD V DCIT 27 ITR (TRIB) 44 (CHENNAI) AND SRI VELAYUDHASWAMY SPINNING MILLS P. LTD V 4 DCIT 27 ITR (TRIB) 106 AND JAIPUR BENCH OF THE TRIB UNAL IN THE CASE OF SHREE CEMENT LTD VS. ADDL CIT 31 ITR (TRIB) 513. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY H YDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF MY HOME POWER LTD VS. DCIT (SUPRA). IN THAT CASE IT WAS HELD AS UNDER:- HELD, THAT CARBON CREDIT WAS IN THE NATURE OF AN ENTITLEMENT RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCIN G CARBON, HEAT AND GAS EMISSIONS. IT WAS NOT AN OFFSHOOT OF BUSINE SS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET WAS GENERATED IN T HE COURSE OF BUSINESS. CREDIT FOR REDUCING CARBON EMISSION OR GR EENHOUSE EFFECT COULD BE TRANSFERRED TO ANOTHER PARTY IN NEED OF REDUCTIO N OF CARBON EMISSION. IT DOES NOT INCREASE PROFITS IN ANY MANNER AND DOES NOT NEED ANY EXPENSES. IT WAS IN THE NATURE OF ENTITLEMENT TO RE DUCE CARBON EMISSION, AND THERE WAS NO COST OF ACQUISITION OR COST OF PRO DUCTION TO GET THIS ENTITLEMENT. CARBON CREDIT WAS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. THE AMOUNT REALIZED ON TRANSFER OF CARBO N CREDIT WAS NOT TAXABLE. 8. THIS DECISION WAS CONFIRMED BY HON'BLE ANDHRA PR ADESH HIGH COURT IN THE DECISION OF CIT VS. MY HOME POWER LTD VS. DCIT 365 ITR 82(A.P.) AND IT WAS HELD AS UNDER:- HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF POWER GENERATION FOR THE ASSESSMENT YEA R 2007-08. CARBON CREDIT WAS NOT AN OFFSHOOT OF BUSINESS OF THE ASSES SEE BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET WAS GENERATED IN T HE COURSE OF BUSINESS BUT IT WAS GENERATED DUE TO ENVIRONMENTAL CONCERNS. THERE WAS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET ENTITLEMENT FOR THE CARBON CREDITS. THEREFORE, THE INCOME FROM SALE OF CARBON CREDITS WAS TO BE CONSIDERED AS CAPITAL RECEIPT AND NOT LIABLE TO TAX UNDER ANY HEAD OF INCOME UNDER THE INCOME-TAX ACT, 1961. 9. FURTHER, THIS DECISION HAS BEEN FOLLOWED BY CHEN NAI BENCH IN TWO CASES OF AMBIKA COTTON MILLS LTD V DCIT (SUPRA) AND SRI VE LAYUDHASWAMY SPINNING MILLS P. LTD V DCIT (SUPRA). EVEN JAIPUR BEACH HAS FOLLOWED THIS DECISION IN 5 THE CASE OF SHREE CEMENT LTD VS. ADDL CIT (SUPRA). NO DOUBT THE DR HAS BEEN ABLE TO POINT OUT THE CONTRARY DECISION RENDERED BY COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF APOLLO TYRES LTD V ACIT (SU PRA). SINCE THE DECISION OF HYDERABAD TRIBUNAL BENCH HAS ALREADY BEEN CONFIRMED BY THE HON'BLE ANDHRA PRADESH HIGH COURT AND THERE IS NO CONTRARY DECISIO N FROM ANY OTHER HIGH COURT, IN OUR OPINION, WE ARE BOUND TO FOLLOW THE D ECISION OF HIGH COURT. THEREFORE, FOLLOWING THIS DECISION WE DECIDE THIS I SSUE AGAINST THE REVENUE. 10. GROUND NO.4 : AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAD RECEIVED A SUM OF RS. 3,89,767/- ON ACCOUNT OF INSURANCE REC EIPT. ACCORDING TO ASSESSING OFFICER THIS AMOUNT WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IA AND ACCORDINGLY DEDUCTION WAS DENIED. 11. ON APPEAL, IT WAS POINTED OUT THAT INSURANCE RE CEIPT WOULD ONLY REDUCE THE EXPENDITURE ON INSURANCE WHICH WOULD HAVE LEAD TO INCREASE IN NORMAL PROFIT AND, THEREFORE, ASSESSEE WAS ENTITLED TO DEDUCTION U/S 80IA. THE LD. CIT(A) HAS AGREED WITH THIS PROPOSITION AND HELD THAT ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IA ON INSURANCE RECEIPT. 12. BEFORE US LD. DR SUPPORTED THE ORDER OF ASSESSI NG OFFICER. 13. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT ASSESSEE HAS GOT THE INSURANCE POLICY WITH REFERENCE TO THE TOTA L TURNOVER. SINCE THE TOTAL TURNOVER FELL, THEREFORE, PART OF THE PREMIUM WAS R EDUCED WHICH WOULD HAVE LED TO REDUCTION IN INSURANCE EXPENDITURE? HOWEVER, TH E ASSESSEE HAS SHOWN THE SAME AS INSURANCE RECEIPTS SEPARATELY I.E WHY THE A SSESSING OFFICER DID NOT AGREE FOR THE DEDUCTION U/S 80IA. HE RELIED ON THE IMPUGNED ORDER. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE HAS NOT BEEN DISCUSSED IN DETAIL BY ASSESSING OFFICER AND C IT(A) IN THEIR RESPECTIVE ORDERS. THEREFORE, IF IT IS A CASE OF REFUND OF ONL Y INSURANCE PREMIUM THEN 6 ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S 80IA ON THIS AMOUNT ALSO. HOWEVER, THIS FACT NEED TO BE VERIFIED, THEREFORE, WE SET AS IDE THE ORDER OF LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO VERIFY THE NATURE O F INSURANCE RECEIPTS AND IF THE SAME WAS IN THE REVENUE FIELD, THEN DEDUCTION U/S 8 0IA SHOULD BE ALLOWED OTHERWISE THE ISSUE MAY BE DECIDED IN ACCORDANCE WI TH LAW. 15. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY A LLOWED. 16. ITA NO. 390/CHD/2013 : IN THIS APPEAL THREE ISSUES HAVE BEEN RAISED BY THE REVENUE NAMELY:- (A) TREATMENT OF SALE OF CER UNIT IS CAPITAL RECEIPT. (B) ALLOWANCE OF DEDUCTION U/S 80IA IN RESPECT OF INSUR ANCE RECEIPT. (C) ALLOWANCE OF DEDUCTION U/S 80IA IN RESPECT OF INTER EST SUBSIDY. 17. THE FIRST ISSUE IS IDENTICAL TO THE ISSUE RAISE D IN GROUND NOS. 1 TO 3 IN ITA NO 389/CHD/2013 IN THE CASE OF DCIT VS. M/S KOTLA H YDRO POWER PRIVATE LTD WHICH WE HAVE ADJUDICATED ABOVE AND DECIDED THE ISS UE IN PARA 7 & 8. THEREFORE, FOLLOWING THE SAME WE DECIDE THIS ISSUE AGAINST THE REVENUE. 18. THE SECOND ISSUE HAS ALSO BEEN DECIDED IN THE C ASE OF DCIT VS. M/S KOTLA HYDRO POWER PRIVATE LTD IN ITA NO. 389/CHD/2013 IN THE ABOVE NOTED PARAS 10 TO 14 AND FOLLOWING THE SAME HERE AGAIN WE SET ASID E THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE SAME IN TERMS OF DIRECTIONS CONTAINED IN PARA 14 19. AS REGARDS THE THIRD ISSUE IS CONCERNED, AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER NOTICED THAT ASSESSEE HAS RECEIVED INTEREST SUBSIDY AMOUNTING TO RS. 14,63,470/-. HE WAS OF THE OPINION THAT THE SAME WAS NOT DERIVED FROM INDU STRIAL UNDERTAKING AND THEREFORE, THE SAME IS NOT ENTITLED TO DEDUCTION U/ S 80IA AND ACCORDINGLY HE DENIED THE DEDUCTION. 7 20. ON APPEAL, IT WAS CONTENDED THAT INTEREST SUBSI DY WOULD HAVE REDUCED THE TOTAL INTEREST EXPENDITURE WHICH WOULD HAVE LED TO INCREASE IN THE NORMAL PROFIT MAKING THE SAME ELIGIBLE FOR DEDUCTION U/S 80IA. T HE LD. CIT(A) AGREED WITH THIS PROPOSITION AND OBSERVED THAT INTEREST SUBSIDY WOULD REDUCE THE INTEREST BURDEN TO THE ASSESSEE AND, THEREFORE, INCOME OF T HE ASSESSEE WOULD GO UP TO THE EXTENT OF SUBSIDY AND, THEREFORE, WAS ENTITLED TO DEDUCTION U/S 80IA OF THE ACT. 21. BEFORE US LD. DR SUPPORTED THE ORDER OF THE ASS ESSING OFFICER 22. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT ASSESSEE RECEIVED INTEREST SUBSIDY IN RESPECT OF THE INTERES T PAID BY THE ASSESSEE BECAUSE OF PARTICULAR INCENTIVE SCHEME. THIS WOULD LEAD TO CONSEQUENCE OF REDUCTION OF INTEREST WHICH WOULD LEAD TO INCREASE IN NORMAL PRO FIT, THEREFORE, ASSESSEE HAS BEEN RIGHTLY HELD TO BE ENTITLED TO DEDUCTION U/S 8 0IA BY THE FIRST APPELLATE AUTHORITY. 23. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. THE EFFECT OF THE INTEREST SUBSIDY WOULD BE THAT NORMAL INTEREST EXPENDITURE WOULD GET REDUCED BECAUSE OF THIS SUBSIDY. THIS IN TURN WOULD LEAD TO INCREASE IN NORMAL PROFITS WH ICH WOULD ENTITLE TO DEDUCTION U/S 80IA, THEREFORE, IN OUR OPINION, THE LD. CIT(A) HAS CORRECTLY DECIDED THIS ISSUE AND WE CONFIRM HIS ORDER. THUS THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 24. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 15.04.2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 15 TH APRIL, 2015 RKK COPY TO: 8 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR