ATUL SHIVDAS GANATRA, MUMBAI V. DCIT 22(1), MUMBAI

ITA 4899/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3471 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 24-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: K SHIVARAM
• Keywords: Business income; Depreciation; Additional depreciation; Capital receipt
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI A BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. ITA. NO. 4899/MUM/2014 (ASSESSMENT YEAR:2010-11) SHRI ATUL SHIVDAS GANATRA 104, KAVERI BUILDING, NEELKANTH VALLEY, RAJAWADI ROAD 7, GHATKOPAR (E), MUMBAI 400 077 APPELLANT VS. D.C.I.T., 22(1), MUMBAI RESPONDENT PAN: AABPG2055L /BY APPELLANT : SHRI K. SHIVARAM, A.R. /BY RESPONDENT : A. RAMACHANDRAN, D.R. /DATE OF HEARING : 11.08.2016 /DATE OF PRONOUNCEMENT : 26.08.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-33, MUMBAI, DA TED 02.06.2014 FOR A.Y. 2010-11 ON FOLLOWING GROUNDS: SALE OF CARBON CREDITS - RS. 10,88,689/- 1. THE LEARNED CIT (A) ERRED IN HOLDING THAT THE AM OUNT OF RS. ITA NO.4899/MUM/14 A.Y. 10-0711 [SHRI ATUL S. GANAT RA VS. DCIT] PAGE 2 10,88,689/- RECEIVED ON SALE OF CARBON CREDITS IS N OT DERIVED FROM ELIGIBLE BUSINESS OF GENERATION OF POWER. THE APPELLANT HAS SATISFIED ALL THE CONDITIONS OF SEC. 80-IA, AND HENCE, IS ELIGIBLE FOR DEDUCTION. 2. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT SA LE OF CARBON CREDITS IS NOT AN INDEPENDENT ACTIVITY OF THE APPEL LANT AND THAT HE RECEIVED CARBON CREDITS DUE TO GENERATION O F POWER THROUGH WINDMILLS, WHICH IS ELIGIBLE BUSINESS FOR T HE PURPOSE OF SEC. 80-IA. HENCE, DEDUCTION U/S 80-IA M AY BE GRANTED ON RS. 10,88,689/-. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE AMOUNT OF RS. 10,88,689/- RECEI VED ON SALE OF CARBON CREDITS IS A CAPITAL RECEIPT, AND HE NCE, IS NOT TAXABLE. ADDITIONAL DEPRECIATION - RS. 2,19,29,891/- 4. THE LEARNED CIT (A) ERRED IN NOT ALLOWING THE CL AIM OF ADDITIONAL DEPRECIATION OF RS. 2,19,29,891/- ON TWO WINDMILLS ACQUIRED AND INSTALLED BY THE APPELLANT D URING THE YEAR. 5. THE LEARNED CIT (A) ERRED IN NOT FOLLOWING THE D ECISION OF THE DELHI TRIBUNAL IN THE CASE OF N.T.P.C. LIMITED V. D CIT [2012] 54 SOT 177 (DEL.) WHICH HELD THAT PROCESS OF GENERA TION OF ELECTRICITY IS AKIN TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING AND THAT AN ASSESSEE ENGAGED IN THE ACTIVI TY OF GENERATION OF ELECTRICITY WOULD BE ENTITLED TO ADDI TIONAL DEPRECIATION U/S 32(1)(IIA). 2. ASSESSEE IS ENGAGED IN TRADING IN COTTON BALES A ND GENERATION OF POWER. HE CLAIMED DEDUCTION ON INCOM E OF GENERATION OF POWER FROM TWO WIND MILLS WHICH INCLU DED SALE OF CARBON CREDITS VALUING TO RS.10,88,689/-. ASSESSIN G OFFICER DISALLOWED THE SAME INTER ALIA STATING THAT THERE S HOULD BE DIRECT NEXUS BETWEEN ACTIVITY OF ASSESSEE AND INCOM E GENERATED FOR IT. CIT(A) HELD THAT INCOME ARISING FROM SALE OF CARBON ITA NO.4899/MUM/14 A.Y. 10-0711 [SHRI ATUL S. GANAT RA VS. DCIT] PAGE 3 CREDITS CANNOT BE SAID TO BE DERIVED FROM INCOME OF ELIGIBLE BUSINESS OF COMPANY. ACCORDING TO ASSESSEE, THE G ENERATION OF CARBON CREDITS IS A DIRECT RESULT OF THE WIND POWER ENERGY PRODUCTION. ONLY THE GENERATION OF CLEAN ENERGY CAN GIVE RISE TO CARBON CREDITS. A CARBON CREDIT IS A RIGHT TO EMIT ONE TONNE OF CARBON DIOXIDE OR ANOTHER GREENHOUSE GAS WITH A CAR BON DIOXIDE EQUIVALENT OF A TONNE. IT IS A DIRECT INTER NATIONALLY RECOGNIZED INSTRUMENT OF OFFSETTING LOPSIDED EMISSI ONS. THE SALE OF CARBON CREDIT WORKS AS A DIRECT SUBSIDY FOR THE ENTERPRISE AS IT IS INTRINSICALLY LINKED WITH THE P RODUCTION OF CLEAN ENERGY. SO, IT WAS REQUESTED THAT SALE OF CA RBON CREDITS SHOULD BE CONSIDERED AS REVENUE RECEIPT, IT GOES FI NALLY TOWARDS REDUCING THE COST OF THE PRODUCTION OF ENERGY. LD . AUTHORIZED REPRESENTATIVE RELIED ON THE DECISION OF HONBLE KA RNATAKA HIGH COURT IN CASE OF CIT VS. SUBHASH KABINI POWER CORPORATION LTD. [2016] 69 TAXMANN.COM 394 (KAR.)(H C). IN THIS CASE, ISSUE WAS WHETHER CARBON CREDIT WAS GENE RATED OUT OF ENVIRONMENTAL CONCERNS AND IT WAS NOT HAVING CHA RACTER OF TRADING ACTIVITY, RECEIPT FROM SALE OF CARBON CREDI T WAS CAPITAL RECEIPT AND NOT BUSINESS INCOME. IN CASE BEFORE US , ISSUE IS WHETHER CARBON CREDITS HAS DIRECT NEXUS BETWEEN ACT IVITY OF ASSESSEE AND INCOME GENERATED FOR IT. ITAT, AHMEDA BAD C BENCH IN CASE OF DCIT VS. KALPATARU POWER TRANSMISS ION LTD. [2016] 68 TAXMANN.COM 237 (AHMEDABAD TRIB.), WHER EIN ASSESSEE WAS ENGAGED IN BUSINESS OF POWER GENERATIO N THROUGH BIOMASS POWER GENERATION UNIT. IT RECEIVED CARBON EMISSION REDUCTION CERTIFICATES (CERS) POPULARLY KNOWN AS C ARBON ITA NO.4899/MUM/14 A.Y. 10-0711 [SHRI ATUL S. GANAT RA VS. DCIT] PAGE 4 CREDITS FOR ACTIVITY OF USING AGRICULTURAL WASTE A S FUEL. ASSESSEE RECEIVED CERTAIN AMOUNT FROM TRANSFER OF C ARBON CREDIT WHICH WAS SHOWN AS CAPITAL RECEIPT. ASSESSI NG OFFICER TREATED SAID RECEIPT AS BUSINESS INCOME AND BROUGHT IT TO TAX. CIT(A) FOLLOWING THE DECISION IN CASE OF MY HOME PO WER LTD. VS. DY.CIT [2013] 63 SOT 227/[2012] 27 TAXMANN.COM 27 ( HYD.) HELD THAT THE RECEIPT ON SALE OF CARBON CREDITS WAS A CAPITAL RECEIPT AND DELETED THE ADDITION. ON APPEAL, TRIBUN AL OBSERVED THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF POWER GENERATION THROUGH BIOMASS POWER GENERATION UNIT. IT RECEIVED CARBON EMISSION REDUCTION CERTIFICATES (CERS) POPULARLY KN OWN AS CARBON CREDITS FOR ACTIVITY OF USING AGRICULTURAL WASTE AS FUEL. ASSESSEE RECEIVED CERTAIN AMOUNT FROM TRANSFER OF C ARBON CREDIT WHICH WAS SHOWN AS CAPITAL RECEIPT. ASSESSI NG OFFICER TREATED SAID RECEIPT AS BUSINESS INCOME AND BROUGHT IT TO TAX. WHETHER SINCE CARBON CREDIT WAS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS, AMOUNT R ECEIVED ON TRANSFER OF CARBON CREDIT HAD NO ELEMENT OF PROFIT OR GAIN AND, THUS, IT COULD NOT BE BROUGHT TO TAX. LD. AUTHORIZ ED REPRESENTATIVE FAIRLY AGREE TO RESTORE THE MATTER T O BE DECIDED IN ITS FACTS AND CIRCUMSTANCES. SO, ISSUE IS RESTOR ED TO ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE SA ME AS PER FACT AND LAW AFTER PROVIDING DUE OPPORTUNITY OF BEI NG HEARD TO ASSESSEE. 2.1 NEXT ISSUE IS WITH REGARD TO ADDITIONAL DEPRECI ATION OF RS.2,19,29,891/- ON TWO WINDMILLS ACQUIRED AND INST ALLED BY ASSESSEE DURING THE YEAR, WHICH WAS CONFIRMED BY CI T(A). AS ITA NO.4899/MUM/14 A.Y. 10-0711 [SHRI ATUL S. GANAT RA VS. DCIT] PAGE 5 STATED ABOVE, ASSESSEE IS ENGAGED IN THE BUSINESS O F GENERATION OF POWER. DURING THE YEAR TWO WINDMILLS WERE ACQUI RED AND INSTALLED. ASSESSEE CLAIMED ADDITIONAL DEPRECIATION OF RS.2,19,29,891/- U/S.32(1)(IIA). ASSESSING OFFICER DISALLOWED SAME BY RELYING OF THE DECISION OF TAMILNADU CHLORA TES [2006] 98 ITD 1 (CHENNAI) (TRIB.). CIT(A) UPHELD THE DISA LLOWANCE BY RELYING UPON THE EXPLANATORY NOTES (MEMORANDUM) TO AMENDMENTS AS INSERTED BY FIANCE ACT, 2012. THE ST AND OF ASSESSEE HAS BEEN THAT ITAT CHENNAI BENCH IN TAMILN ADU CHLORATES (SUUPRA) HAS BEEN RELIED UPON BY ASSESSIN G OFFICER WAS NOT RELEVANT TO CURRENT SCENARIO AS DEALT WITH THE PROVISIONS OF SECTION 80HHC OF THE ACT AND NOT WITH THE PROVISIONS OF SECTION 32(1)(IIA) OF THE ACT. LD. A UTHORIZED REPRESENTATIVE SUBMITTED THAT ITAT, DELHI BENCH IN CASE OF N.T.P.C. VS. DCIT [2012] 54 SOT 177 (URO) (DELHI) ( TRIB.), CONSIDERED THIS DECISION WHILE DEALING WITH THE ACT IVITY OF GENERATION OF ELECTRICITY WITH RESPECT OF ADDITIONA L DEPRECIATION U/S.32(1)(IIA) AND RULED IN FAVOUR OF ASSESSEE. HO NBLE MADRAS HIGH COURT IN CASE OF CIT VS. VTM LTD. [2009] 319 I TR 336 (MAD.) (HC) EXAMINED THE SAME ISSUE AND DISMISSED T HE REVENUE APPEAL SEEKING TO DISALLOW ADDITIONAL DEPRE CIATION U/S.32(1)(IIA) OF THE ACT WITH RESPECT OF SETTING U P A WINDMILL BY A MANUFACTURER OF TEXTILE GOODS. THUS, FOLLOWING T HE RATIO OF VMT LTD.(SUPRA) ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE WITH REGARD TO ADDITION DEPRECIATION U/S.32(1)(IIA) OF THE ACT. HONBLE SUPREME COURT IN CASE OF CST VS. M.P. ELECT RICITY BOARD (AIR 1970 SC 732), HELD THAT THE ELECTRICITY GENERATED BY ITA NO.4899/MUM/14 A.Y. 10-0711 [SHRI ATUL S. GANAT RA VS. DCIT] PAGE 6 AN ASSESSEE IS AN ARTICLE OR GOODS. THE EXPLANATIO N TO AMENDMENTS (MEMORANDUM) AS INSERTED BY FINANCE ACT, 2012 AS RELIED UPON BY CIT(A) CANNOT BE SAID TO OVERRULE AND EARLIER DECISION OF HONBLE HIGH COURT. AN AMENDMENT THAT HAS PROSPECTIVE APPLICATION CANNOT BE SAID TO RETROSPEC TIVELY TAKE AWAY THE RIGHTS OF AN ASSESSEE QUA ITS EXPLANATORY NOTES. WHERE THERE IS NO AMBIGUITY IN THE SECTION, THERE I S NO WARRANT FOR RESORT TO EXTERNAL AIDS OF INTERPRETATION NAMEL Y THE NOTES ON CLAUSES AND THE MEMORANDUM EXPLAINING ITS PROVISION S. IN THE LIGHT OF DECISION OF VTM LTD.(SUPRA) WITH REGARD TO CLAIM OF ADDITIONAL DEPRECIATION U/S.32(1)(IIA) FOR SETTING UP A WINDMILL, WHEREIN MATERIAL BEING SOLE DECISION BY HONBLE HIG H COURT ON THE MATTER, WE HOLD THAT ADDITIONAL DEPRECIATION SH OULD BE ALLOWED. 3. IN THE RESULT, THE APPEAL FILED BY ASSESSEE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 26 TH DAY OF AUGUST, 2016. SD/- SD/- ( RAJESH KUMAR ) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R MUMBAI: DATED 26/08/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. !'!#$ % / CONCERNED CIT 4. %- / CIT (A) 5.-./00#$, #$, !' / DR, ITAT, MUMBAI ITA NO.4899/MUM/14 A.Y. 10-0711 [SHRI ATUL S. GANAT RA VS. DCIT] PAGE 7 6./4567 / GUARD FILE. BY ORDER / , / !, #$, !'