SHREE CEMENT LTD., BEAWAR V. ADD. CIT, Ajmer

ITA 503/JPR/2012

• Counselvise Citation: 50323114 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 22-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Assessee Lawyers: D B DESAI
• Keywords: Capital asset; Gift; Business income; Depreciation; Transfer pricing; Cost of acquisition; Capital receipt; Commercial expediency; Revised return; Revenue expenditure
• Section: 143(3); 244A; 115JB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI HARI OM MARATHA AND SHRI N.K. SAINI) ITA NO.503/JP/2012 ASSESSMENT YEAR: 2007-08 PAN : AACCS 8796 G M/S. SHREE CEMENT LTD. VS. THE ADDL. CIT BANGUR NAGAR, P.B. NO.33 RANGE-2 BEAWAR JAIPUR (APPELLANT) (RESPONDENT) ITA NO.568/JP/2012 ASSESSMENT YEAR: 2007-08 PAN : AACCS 8796 G THE ACIT VS. M/S. SHREE CEMENT LTD. CIRCLE- 2 BANGUR NAGAR JAIPUR BEAWAR (APPELLANT) (RESPONDENT) ITA NO.504/JP/2012 ASSESSMENT YEAR: 2008-09 PAN : AACCS 8796 G M/S. SHREE CEMENT LTD. VS. THE ACIT BANGUR NAGAR, P.B. NO.33 CIRCLE- 2 BEAWAR JAIPUR (APPELLANT) (RESPONDENT) ITA NO.569/JP/2012 ASSESSMENT YEAR: 2008-09 PAN : AACCS 8796 G THE ACIT VS. M/S. SHREE CEMENT LTD. CIRCLE- 2 BANGUR NAGAR JAIPUR BEAWAR (APPELLANT) (RESPONDENT) 2 ITA NO.505/JP/2012 ASSESSMENT YEAR: 2009-10 PAN : AACCS 8796 G M/S. SHREE CEMENT LTD. VS. THE ACIT BANGUR NAGAR, P.B. NO.33 CIRCLE- 2 BEAWAR JAIPUR (APPELLANT) (RESPONDENT) ITA NO.570/JP/2012 ASSESSMENT YEAR: 2009-10 PAN : AACCS 8796 G THE ACIT VS. M/S. SHREE CEMENT LTD. CIRCLE- 2 BANGUR NAGAR JAIPUR BEAWAR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI A.K. KHANDELWAL ASSESSEE BY : SHRI D.B. DESAI DATE OF HEARING: 15-01-2014 DATE OF PRONOUNCEMENT: 27-01-2014 ORDER PER BENCH:- THERE ARE SIX APPEALS, FILED BY THE ASSESSEE & REV ENUE AGAINST THE ORDERS OF CIT(APPEALS), AJMER RELATING TO ASSESSMEN T YEARS 2007-08, 2008-09 & 2009-10. SINCE COMMON ISSUES ARE INVOLVED IN ALL THE APPEALS, FOR THE SAKE OF CONVENIENCE AND BREVITY, WE ARE DEC IDING THEM BY A COMMON ORDER. 3 2. THE LEARNED AUTHORIZED REPRESENTATIVE, SRI D. B DESAI HAS FILED GROUND WISE KEY SUBMISSIONS IN RELATION TO EACH OF THE SIX APPEALS. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO FILED WRITTEN SUBMISSIONS IN RELATION TO ITS APPEALS. ALL THE APPEALS ARE NOW DI SPOSED OFF IN THE FOLLOWING MANNER. 3. WE WILL FIRST TAKE UP THE APPEAL FILED BY ASSESS EE FOR A.Y. 2007-08 IN ITA 503/JP/12. 4. GROUND NO. 1 & 2 ARE ON ACCOUNT OF REDUCTION IN THE CLAIM FOR TAX HOLIDAY U/S 80IA OF THE ACT IN RESPECT OF ASSESSEE S POWER UNDERTAKING AS A RESULT OF MODIFICATION IN THE MARKET PRICE OF THE POWER CAPTIVELY CONSUMED. 5. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IA IN RESPECT OF ITS POWER UNDERTAKING LOCATED IN THE STATE OF RAJASTHAN. POWER GENERATED BY THE P OWER UNDERTAKING IS PREDOMINANTLY USED BY THE ASSESSEE CAPTIVELY AT ITS CEMENT UNIT ALSO IN RAJASTHAN. FOR COMPUTING THE PROFITABILITY OF THE P OWER CAPTIVELY CONSUMED, IN TERMS OF PROVISIONS OF SECTION 80IA(8) , THE ASSESSEE HAS CONSIDERED THE MARKET VALUE OR ARMS LENGTH VALUE B EING THE VALUE AT WHICH INDEPENDENT POWER SUPPLIER, HAS SOLD POWER TO POWER DISTRIBUTION COMPANIES (DISCOMS) IN THE STATE OF RAJASTHAN. IN T HE ORDER U/S 143(3), 4 THE AO HAS INSTEAD APPLIED RATE (BEING AVERAGE ANNU AL LANDED COST) AT WHICH POWER IS SUPPLIED BY THE STATE ELECTRICITY GR ID TO ASSESSES CEMENT UNIT AND RE-COMPUTED THE DEDUCTION ELIGIBLE U/S 80IA. CIT(APPEALS) HAS SINCE UPHELD THE ACTION OF THE AO. 6. THE LEARNED AUTHORISED REPRESENTATIVE IN ITS KEY SUBMISSIONS HAS STATED AS UNDER: 1.0 PRICE ADOPTED BY THE ASSESSEE IS MARKET PRICE & I S IN ACCORDANCE WITH SEC. 80-IA(8) VIDE SEC. 80-IA(8), POWER CAPTIVELY CONSUMED BY ASS ESSEE NEEDS TO BE TRANSFERRED AT MARKET VALUE, WHICH DE NOTES PRICE WHICH SUCH GOODS WOULD ORDINARILY FETCH IN TH E OPEN MARKET. THE PRICE ADOPTED BY THE ASSESSEE IS IN TER MS OF THE REQUIREMENT OF SECTION 80-IA(8) OF THE ACT AS IT CO NTAINS FOLLOWING BASIC FEATURES OF AN OPEN MARKET: A. DETERMINED BASED ON TRANSACTION ENTERED INTO BETWEE N INDEPENDENT PARTIES I.E. TATA POWER & DISCOM. B. PRICE IS DETERMINED INDEPENDENTLY BY THE DEMAND AND SUPPLY FORCES. C. TRANSACTIONS ARE ACTUAL AND REAL AND NOT HYPOTHETIC AL OR FICTITIOUS. D. MARKET ENVIRONMENT IN WHICH TRANSACTION HAVE TAKEN PLACE IS COMPETITIVE AND FREE. E. MARKET PRICE IS TRANSPARENT AND AVAILABLE IN PUBLIC DOMAIN. F. TRANSACTIONS ARE IN VERY LARGE VOLUME AND ARE FAIRL Y REPRESENTATIVE IN THE ASSESSMENT ORDER, THE AO HAS NOWHERE DISPUTE D ANY OF THE ABOVE FACTS OR THE FACT THAT THE PRICE CONSI DERED BY APPELLANT IS MARKET PRICE OR ARMS LENGTH PRICE. TH E AO HAS MERELY SUBSTITUTED THE ABOVE WITH ANOTHER ARMS LEN GTH 5 PRICE, NAMELY GRID RATE, BEING THE PRICE AT WHICH GRID HAS SUPPLIED POWER TO ASSESSEE. 2.0 ONCE ASSESSEE HAS ADOPTED A PARTICULAR MARKET VALUE , REVENUES PREROGATIVE IS TO VERIFY WHETHER THE SAME REPRESENTS MARKET VALUE OR NOT. THE STATUTE NEITHER CONTEMPLATES, NOR PERMITS REVENUE TO SUBSTITUTE THE SAME WITH ANOTHER MARKET VALUE SEC 80IA(8) STIPULATES THAT ASSESSEE MUST ADOPT MA RKET VALUE AS THE PRICE AT WHICH GOODS OR SERVICES FROM AN ELIGIBLE UNIT ARE TRANSFERRED TO A NON ELIGIBLE UNI T. IN THE OPEN MARKET, WHERE A BASKET OF MARKET VALUES ARE AVAILABLE, THE LAW DOES NOT PUT ANY RESTRICTION ON THE ASSESSEE AS TO WHICH MARKET VALUE IT HAS TO ADOPT . IT IS PURELY ASSESSEES DISCRETION. SO LONG AS THE ASSESS EE HAS ADOPTED A MARKET VALUE AS THE TRANSFER PRICE, THA T IS SUFFICIENT COMPLIANCE OF LAW. A.O. CAN ADOPT A DIFF ERENT VALUE ONLY WHERE THE VALUE ADOPTED BY ASSESSEE DOES NOT CORRESPOND TO THE MARKET VALUE. IN THE PRESENT CA SE, THE AO HAS SIMPLY SUBSTITUTED ONE MARKET VALUE WITH ANO THER MARKET VALUE WHICH IS NEITHER PERMISSIBLE NOR REQUI RED UNDER THE STATUTE. HONBLE MUMBAI TRIBUNAL IN ACIT VS.- MAERSK GLOBAL SERVICE CENTRE (I) PVT. LTD (2011) 133 ITD 543 (MUM ) [AT PARA 36] RELYING UPON THE DECISION OF SPECIAL BENCH OF HONBLE BANGALORE TRIBUNAL IN AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. -VS.- ACIT (2007) 107 ITD 141 (BANG)(SB) HAS LAID DOWN THE FOLLOWING PRINCIPLES:- (I) ONUS OF DEMONSTRATING ARMS LENGTH PRICE IS ON ASSE SSEE. ONCE SUCH ONUS IS DISCHARGED & STILL AO PROPOSE ANY VARIATION IN THE METHOD OF COMPARABLE OF ASSESSEE, HE IS REQUIRED TO SHOW THAT THE COMPARABLE SELECTED BY ASSESSEE WERE, IN FACT, NOT COMPARABLE. (II) IT IS, THEREFORE, MANIFEST THAT THE INITIAL PREROGA TIVE OF CHOOSING THE COMPARABLE CASES IS ALWAYS THAT OF ASSESSEE. IT IS BUT NATURAL ALSO FOR THE REASON THA T THE ASSESSEE IS THE BEST JUDGE TO KNOW THE TRANSACTIONS 6 UNDERTAKEN & THUS FINDING OUT THE COMPARABLE CASES FROM THE VAST DATABASE AVAILABLE IN THE PUBLIC DOMA IN. (III) ONCE THIS EXERCISE IS DONE, THEN THE BALL COMES IN THE COURT OF THE REVENUE. THEN THEY HAVE TO EXAMINE VARIOUS ASPECTS OF THE COMPARABLE CASES SUBMITTED B Y ASSESSEE WITH A VIEW TO TEST WHETHER OR NOT THESE A RE, IN FACT, COMPARABLE. IF AO AGREES WITH THE COMPARABLE GIVEN BY THE ASSESSEE, THE MATTER ENDS. (IV) IF HE WANTS TO EXCLUDE ANY OF SUCH COMPARABLE, THEN IT IS FOR HIM TO JUSTIFY THE EXCLUSION BY ADDUCING COG ENT REASONS. IT IS NOT OPEN TO THE AO TO EXCLUDE THE COMPARABLE CASES GIVEN BY THE ASSESSEE AT HIS WHIMS AND FANCIES. THE PRINCIPLES STATED ABOVE IN RELATION TO DETERMIN ATION OF ARMS LENGTH PRICE ARE EQUALLY APPLICABLE FOR DETER MINATION OF MARKET VALUE FOR THE PURPOSE OF SECTION 80IA(8 ). 3.0 WHEN BASKET OF MARKET VALUE ARE AVAILABLE, IT IS THE PREROGATIVE OF THE ASSESSEE TO DECIDE AND ADOPT MA RKET VALUE IN THE OPEN MARKET, WHERE A BASKET OF MARKET VALUE S ARE AVAILABLE, THE LAW DOES NOT PUT ANY RESTRICTION ON THE ASSESSEE AS TO WHICH MARKET VALUE IT HAS TO ADOPT , WHICH IS PURELY ASSESSEES DISCRETION. SO LONG AS THE ASS ESSEE HAS ADOPTED A MARKET VALUE AS THE TRANSFER PRICE, THA T IS SUFFICIENT COMPLIANCE OF LAW. A.O. CAN ADOPT A DIFF ERENT VALUE ONLY WHERE THE VALUE ADOPTED BY ASSESSEE DOES NOT CORRESPOND TO THE MARKET VALUE. IT IS A SETTLED PRINCIPLE THAT WHERE MORE THAN ONE VIEW IS POSSIBLE THE VIEW FAVORABLE TO THE ASSESSEE MUST BE ADOPTED. HONBLE APEX COURT IN CIT VS- VEGETABLE PRODUCTS L TD. (1973) 88 ITR 192 (SC) HAS HELD THAT WHEN TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISION ARE POSSIBLE, T HE CONSTRUCTION WHICH FAVORS THE ASSESSEE MUST BE ADOP TED. THIS IS A WELL ACCEPTED RULE OF CONSTRUCTION. ON T HE ABOVE PRINCIPLE, RELIANCE IS ALSO PLACED ON :- 7 - JASWANT RAI VS- CWT (1977) 107 ITR 477 (P&H) : HELD THAT THE ESTIMATE MADE BY ADOPTING ONE METHOD MAY VARY WITH THE ESTIMATE MADE BY ADOPTING ANOTHER METHOD. IN SUCH A SITUATION, IT LOOKS FAIR & PROPER THAT THE BENEFIT OF THE METHOD WHICH IS FAVORABLE TO THE ASSESSEE SHOULD BE ALLOWED TO HIM. - ACIT VS- BRIGHT STAR INVESTMENT (P) LTD (2009) 120 TTJ 498 (MUM) : HELD THAT IN THE ABSENCE OF SPECIFIC PROVISION TO DEAL WITH THE PRESENT SITUATION, TWO FORMULAS CAN BE EVOLVED TO WORK OUT THE PROFITS AND GAINS ON TRANSFER OF ASSETS. ONE FORMULA WHICH HAS BEEN ADOPTED BY THE A.O. & THE OTHER FORMULA WHICH IS ADOPTED BY THE ASSESSEE. IN THE ABSENCE OF A SPECIF IC PROVISION, OUT OF THESE TWO FORMULAS, THE FORMULA W HICH IS FAVORABLE TO THE ASSEESSEE SHOULD BE ACCEPTED. - SHANTADEVI GAEKWAD VS- DCIT (2012) 250 CTR 421 (GUJ) : HELD THAT WHEN TWO EQUALLY EFFICACIOUS AND ACCEPTABLE DATA FOR THE PURPOSE OF VALUATIONS ARE AVAILABLE, THE ONE WHICH IS BENEFICIAL TO THE ASSES SEE SHOULD BE PREFERRED. THIS IS A WELL SETTLED PRINCIP LE WHICH SHOULD BE FOLLOWED. 4.0 IT IS A SETTLED LEGAL POSITION THAT ASSESSEE IS ENT ITLED TO ARRANGE HIS AFFAIRS SO THAT HIS TAXES ARE LOW & IT IS THE PREROGATIVE OF THE ASSESSEE TO DO SO HONBLE APEX COURT IN THE LANDMARK RULING OF VODAFO NE INTERNATIONAL HOLDINGS B.V. VS.- UNION OF INDIA (2 012) 341 ITR 1 (SC) HAVE HELD THAT EVERY TAXPAYER IS ENTITLED TO ARRANGE HIS AFFAIRS SO THAT HIS TAX LIABILITY IS OP TIMISED AND THAT HE IS NOT BOUND TO CHOOSE THOSE PATTERNS, WHIC H REPLENISHES THE TREASURY. SIMILARLY, COURTS HAVE TIME & AGAIN HELD THAT WHERE THE LAW IS SILENT, IT IS THE PREROGATIVE OF THE ASSESSEE TO BE CONSIDERED. - CIT VS- RELIANCE UTILITIES & POWER LTD (2009) 313 ITR 340 (BOM) : HELD THAT WHERE THERE ARE BOTH BORROWED FUNDS AS ALSO INTEREST FREE FUNDS, DISCRETION LIES IN THE 8 HANDS OF THE ASSESSEE FOR UTILISATION OF THOSE FUND S. HENCE, THE PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED & NOT OUT OF BORROWED FUNDS. THE COURT RELIED UPON EAST INDIA PHARMACEUTICAL WORKS LTD VS- CIT (1997) 224 ITR 627 (SC) & WOOLCOMBERS OF INDIA LTD VS- CIT (1982) 134 ITR 219 (CAL) - WHETHER ANY EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSES OF BUSINESS OR NOT IS THE SOLE PREROGATIVE OF THE ASSESSEE. REVENUE CANNOT SIT ON THE CHAIR OF TH E ASSESSEE TO DECIDE THE PRUDENCE OF EXPENDITURE INCURRED. REASONABLENESS & COMMERCIAL EXPEDIENCY HAS TO BE JUDGED FROM THE POINT OF VIEW OF ASSESSEE & NOT DEPARTMENT. REFER SHAHZADA NAND & SONS -VS.- CIT (1977) 108 ITR 358 (SC) & J.K. WOOLLEN MANUFACTURES -VS.- CIT (1969) 72 ITR 612 (SC) 5.0 WHEN REVISED RETURN IS FILED, IT SUPPLANT THE ORIGINAL RETURN & REVISED RETURN ALONE HAS TO BE TAKEN INTO CONSIDE RATION IN COMPLETING ASSESSMENT. REFER CIT VS- ARUN TEXTILE (1991) 192 ITR 700 (GUJ), DR S. B. BHARGAVA VS- CIT (1982 ) 136 ITR 559 (ALL) & CCIT VS- MACHINE TOOL CORPORATION OF INDIA LTD (1993) 201 ITR 101 (KAR) 7. THE CRUX OF THE ABOVE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE ARE - A. IN THE PRESENT CASE, THE FACT THAT VALUE CONSIDERED BY THE ASSESSEE IS MARKET VALUE OR ARMS LENGTH VALUE, HAS NOT BEEN DISPUTED BY THE AO. THE AO HAS MERELY SUBSTITUTED T HE ABOVE WITH ANOTHER MARKET PRICE OR ARMS LENGTH PRICE. B. WITH THE REFORMS BROUGHT PURSUANT TO ELECTRICITY AC T 2003, INDEPENDENT PLAYERS HAVE BEEN PROVIDED OPEN ACCESS. THUS, ELECTRICITY HAS A WIDER MARKET SINCE MANY INDEPENDE NT PLAYERS HAVE BEEN GIVEN LICENCE FOR TRANSMISSION AND/OR DIS TRIBUTION AND/OR TRADING OF POWER. THESE INDEPENDENT PARTIES ARE REQUIRED TO FILE STATUTORY RETURNS (OF THE TRANSACTIONS ENTE RED INTO BY THEM) WITH THE ELECTRICITY REGULATORY COMMISSION WH ICH DATA IS 9 AVAILABLE IN PUBLIC DOMAIN. WITH THE ABOVE, THE ASS ESSEE HAS A BASKET OF MARKET VALUES. IN SUCH SITUATION, THE Q UESTION WHICH ARISES IS THAT OUT OF THE VARIOUS AVAILABLE MARKET VALUES WHICH VALUE NEEDS TO BE CONSIDERED SINCE EACH ONE FULFILS THE REQUIREMENT OF MARKET VALUE. THE ASSESSEE HAS ADOPT ED ONE OF THE MARKET VALUES WHICH IS ALSO AT ARMS LENGTH AND AO HAS ADOPTED ANOTHER MARKET VALUE WHICH IS ALSO AT ARMS LENGTH. THE LEARNED AUTHORISED REPRESENTATIVE (AR) SUBMITS THAT AOS ACTION IS NOT TENABLE. C. IN SUPPORT OF THE ABOVE PROPOSITION, THE AR RELIED ON VARIOUS DECISIONS IN SIMILAR SITUATIONS INCLUDING THE DECIS ION OF SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PROD UCTS LTD [1973] 88 ITR 192 [SC] & OTHER HIGH COURT DECISIONS AS REFERRED ABOVE, WHEREIN IT HAS BEEN HELD THAT WHEN TWO EQUALLY EFFICACIOUS AND ACCEPTABLE DATA FOR THE PURPOSES OF DETERMINING VALUE ARE AVAILABLE, THE ONE WHICH IS BENEFICIAL TO THE ASSESSEE SHOULD BE PREFERRED. D. THE AR FURTHER SUBMITTED THAT HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS VS. UOI [20 12] 341 ITR 1 [SC] HAVE HELD THAT THE TAXPAYER IS ENTITLED TO ARRANGE HIS AFFAIRS SO THAT HIS TAX LIABILITY IS OPTIMIZED AND HE IS NOT BOUND TO CHOSE THOSE PATTERNS WHICH REPLENISHES THE TREAS URY. E. LASTLY, BY WAY OF EXAMPLES IN THE CASE OF BORROWED FUNDS & OWN FUNDS, REASONABLENESS & COMMERCIAL EXPEDIENCY O F THE EXPENDITURE INCURRED FOR BUSINESS PURPOSES, IT WAS SUBMITTED THAT WHERE LAW IS SILENT IT HAS BEEN TIME & AGAIN H ELD BY THE COURTS THAT THE DISCRETION EXERCISED BY THE ASSESSE E IS TO BE ACCEPTED. 8. IN REPLY, THE DR SUBMITTED THAT A. THE ASSESSEE ITSELF IN THE ORIGINAL RETURN OF INCOM E HAS CONSIDERED THE GRID RATE AS THE MARKET RATE. IT IS BY WAY OF REVISED RETURN, THE ASSESSEE HAS CHANGED THE METHOD OF COMPUTING MARKET VALUE BY ADOPTING MARKET VALUE OF POWER AS SOLD BY INDEPENDENT POWER SUPPLIER. 10 B. SINCE, THE ASSESSEE ITSELF IS DRAWING POWER FROM TH E GRID, THE SAME REPRESENTS MARKET PRICE AS IT IS THE GRID WHIC H IS SUPPLYING POWER NOT ONLY TO ASSESSEE BUT TO OTHER CONSUMERS. C. HE FURTHER ARGUED THAT THE ASSESSEE HAS ADOPTED MAR KET PRICE OF ITS CHOICE IN COMPUTING THE TRANSFER PRICE & SUCH D ISCRETION CANNOT BE ALLOWED TO THE ASSESSEE. D. ON THE POINT OF SELECTION OF PRICE FROM THE BASKET OF MARKET VALUES, THE DR SUBMITTED THAT THERE IS NO SUCH PROV ISION IN THE ACT WHICH GIVES ASSESSEE SUCH PREROGATIVE. THE ASSE SSEE HAS TO SELECT MARKET VALUE AS PER SEC 80IA (8) AS ON THE D ATE OF TRANSFER SUCH THAT IT WOULD ORDINARILY FETCH SUCH P RICE IN THE OPEN MARKET. E. SINCE, ASSESSEE ITSELF IS DRAWING POWER FROM THE ST ATE GRID ON REGULAR BASIS, GRID RATE IS THE BEST MARKET PRICE A VAILABLE WHICH SHOULD BE ADOPTED FOR COMPUTING DEDUCTION U/S 80IA. 9. AGAINST THE ABOVE SUBMISSIONS OF THE DEPARTMENT, THE AR FOR THE ASSESSEE IN THE REJOINDER SUBMITTED THAT A. THE CONTENTION THAT ASSESSEE HAS PICKED & CHOSEN ON LY THOSE TRANSACTIONS WHICH HAVE HIGHER RATES IS NOT FACTUAL LY CORRECT. IN DETERMINING THE MARKET PRICE, THE ASSESSEE HAS CONS IDERED ALL TRANSACTIONS WHERE THE POWER DISTRIBUTION OR TRADIN G COMPANY HAS SUPPLIED POWER IN THE STATE OF RAJASTHAN SINCE THE ASSESSEES UNIT IS IN RAJASTHAN AS COULD BE SEEN FR OM THE PAPER BOOK PAGES 30-32. OTHER TRANSACTIONS ARE NOT RELEVA NT AS THEY PERTAIN TO OTHER STATES, I.E. MADHYA PRADESH, MAHAR ASHTRA ETC. B. THE ASSESSEE HAS TAKEN THE WEIGHTED AVERAGE RATE OF ALL TRANSACTIONS UNDERTAKEN BY THE SAID POWER DISTRIBUT ION OR TRADING COMPANY IN THE STATE OF RAJASTHAN AND NOT O NLY THOSE TRANSACTIONS WITH THE HIGHER RATE. C. AS REGARDS THE SUBMISSION THAT GRID RATE REPRESENTS THE MARKET PRICE, THE AR SUBMITTED THAT THE ASSESSEE HAS NEVER CONTENDED THAT THE GRID RATE (BEING AVERAGE ANNUAL LANDED COS T) AT WHICH ELECTRICITY IS BEING SUPPLIED BY STATE ELECTRICITY BOARD DOES NOT REPRESENT MARKET PRICE. EQUALLY IT IS ALSO NOT IN D ISPUTE THAT THE 11 RATE ADOPTED BY THE ASSESSEE ALSO REPRESENTS MARKET PRICE AS IT IS BETWEEN INDEPENDENT PARTIES, VOLUMES OF TRANSACTION ARE SUBSTANTIAL, THE TRANSACTIONS ARE ACTUAL AND REAL A ND NOT HYPOTHETICAL OR FICTITIOUS & DATA REGARDING THE SAM E ARE AVAILABLE IN PUBLIC DOMAIN. FURTHER, THE FACT THAT THE SAME DOES REPRESENT MARKET PRICE HAS ALSO NOT BEEN DISPUTED B Y ANY OF THE AUTHORITIES. IN FACT THE SAME CAN NEVER BE DISPUTED SINCE IT REPRESENTS ACTUAL ARMS LENGTH TRANSACTION BEING EN TERED BETWEEN UNRELATED PARTIES. HENCE, IN SUCH SITUATION , WHERE THERE ARE TWO OR MORE SETS OF MARKET PRICE AVAILABLE, SO LONG AS THE ASSESSE HAS ADOPTED A PRICE WHICH REPRESENTS MARKE T PRICE, REVENUE CANNOT COMPEL THE ASSESSEE TO ADOPT ANOTHER MARKET PRICE. D. IN SRI VELAYUDHASWAMY SPINNING MILLS PVT. LIMITED VS- DCIT [ITA NO. 850(MDS)/2011] & OTHER DECISIONS, IT HAS B EEN HELD THAT PRICE AT WHICH THE GRID HAS PURCHASED POWER FR OM THE POWER UNIT OF THE ASSESSE DOES NOT CONSTITUTE MARKE T VALUE ALTHOUGH THE PRICE AT WHICH GRID HAS SOLD POWER TO THE ASSESSEE DOES CONSTITUTE MARKET VALUE. EXTENDING THE SAID PR INCIPLE THE AR FURTHER SUBMITTED THAT EVEN THE PRICE AT WHICH T HIRD PARTY HAS PURCHASED POWER FROM THE POWER UNIT OF THE ASSE SSEE, WHICH IS MOSTLY ITS POWER SOLD WHEN NOT REQUIRED BY THE CEMENT UNIT, DOES NOT CONSTITUTE MARKET VALUE TO BE ADOP TED IN VALUING THE POWER SUPPLIED BY THE SAID POWER UNIT TO THE CE MENT UNIT. IN LIGHT OF ABOVE, IT WAS SUBMITTED BY AR THAT THE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED AND SINCE NOT IN ACCORDANCE WITH THE LAW, THE SAME NEEDS TO BE DELETED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE EVIDENCE ON RECORD. WE HAVE ALSO GONE THROUGH THE FACTS OF THE CASE, ASSESSMENT ORDER, ORDER OF CIT(APPEALS), THE PRINCIPLES AND THE JUDIC IAL DECISIONS RELIED UPON AND DOCUMENTS PRODUCED BY BOTH THE PARTIES. AT THE OUTSET, WE FIND THAT THE REVISED RETURN FILED BY THE ASSESSEE HAS B EEN ACCEPTED BY THE AO 12 BY CLEAR FINDING IN THE ASSESSMENT ORDER. ONCE REVI SED RETURN IS VALIDLY FILED & ACCEPTED, THE ORIGINAL RETURN IS NON-EST, A S IT IS COMPLETELY SUBSTITUTED BY THE REVISED RETURN. NOW LET US DEAL WITH MARKET VALUE. ON PERUSAL OF THE ASSESSMENT ORDER & ALL OTHER RECORDS , WE FIND THAT FACTS WITH REGARD TO ADAPTATION OF MARKET VALUE ARE CLEAR. T HE ASSESSEE HAS ADOPTED A VALUE WHICH IS MARKET VALUE AND THE DEPARTMENT HAS SUBSTITUTED THE SAME BY ANOTHER VALUE. THE DEPARTMENT IS CONTENDING THAT THE MARKET VALUE AS ADOPTED BY AO IS THE MOST APPROPRIATE SIN CE IT REPRESENTS PRICE CHARGED BY THE STATE GRID TO VARIOUS CUSTOMERS INCL UDING THE ASSESSEE. HENCE, THE SAME SHOULD BE CONSIDERED. THE AR OF THE ASSESSEE SUBMITS THAT THE VALUE ADOPTED BY ASSESSEE REPRESENTS MARK ET VALUE SINCE IT IS BASED ON REAL TRANSACTIONS BETWEEN UNRELATED PARTIE S AND THE DETAILS FOR THE SAME ARE AVAILABLE IN PUBLIC DOMAIN. THE ISSUE BEFO RE US IS WHETHER IN SUCH SITUATIONS WHERE THERE ARE TWO OR MORE MARKET VALUES AVAILABLE AND IF THE ASSESSEE HAS ADOPTED A VALUE WHICH IS MARKET VALUE, WHETHER IT IS PERMISSIBLE FOR THE REVENUE TO STILL REPLACE THE SA ME BY ANOTHER MARKET VALUE. 11. AT THIS STAGE, IT IS NECESSARY TO REFER TO THE RELEVANT PROVISIONS OF THE ACT I.E. SEC 80IA(8), WHICH STATES THAT - WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSI NESS CARRIED 13 ON BY THE ASSESSEE, OR WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE AS SESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDE D IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPO ND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DA TE OF TRANSFER, THEN FOR THE PURPOSES OF THE DEDUCTION UN DER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUS INESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BE EN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON TH AT DATE EXPLANATION FOR THE PURPOSES OF THIS SUB-SECTION, MARKET VALUE, IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. 12. ON PERUSAL OF THE ABOVE, IT COULD BE CLEARLY SE EN THAT THE STATUTE PROVIDES THAT THE ASSESSEE MUST ADOPT MARKET VALUE AS THE TRANSFER PRICE. IN THE OPEN MARKET, WHERE A BASKET OF MARKET VALUE S[SAY LIKE, INDEPENDENT THIRD PARTY TRANSACTIONS, GRID PRICE (A VERAGE ANNUAL LANDED COST AT WHICH GRID HAS SOLD POWER TO THE ASSESSEE), POWER EXCHANGE PRICE FOR THE RELEVANT PERIOD ETC.] ARE AVAILABLE, THE LA W DOES NOT PUT ANY RESTRICTION ON THE ASSESSEE AS TO WHICH MARKET VAL UE IT HAS TO ADOPT, IT IS PURELY ASSESSEES DISCRETION. SO LONG AS THE ASSESS EE HAS ADOPTED A MARKET VALUE AS THE TRANSFER PRICE, THAT IS SUFFI CIENT COMPLIANCE OF LAW. AO CAN ADOPT A DIFFERENT VALUE ONLY WHERE THE VALUE ADOPTED BY ASSESSEE DOES NOT CORRESPOND TO THE MARKET VALUE. EVEN IF ASSESSEES CEMENT UNIT HAS PURCHASED POWER, ALSO FROM THE GRID OR THAT ASS ESSEES POWER UNIT HAS ALSO PARTLY SOLD ITS POWER TO GRID OR THIRD PARTIES THAT BY ITSELF, DOES NOT 14 COMPEL THE ASSESSEE OR PERMIT THE REVENUE, TO ADOPT ONLY THE GRID PRICE OR THE PRICE AT WHICH THE ELIGIBLE UNIT HAS PARTLY SOLD ITS POWER TO GRID OR THIRD PARTIES, AS THE MARKET VALUE FOR CA PTIVE CONSUMPTION OF POWER TO COMPUTE THE PROFITS OF THE ELIGIBLE UNIT. ANY SUCH ATTEMPT IS CLEARLY BEYOND THE EXPLICIT PROVISIONS OF SECTION 8 0IA(8) OF THE ACT. UNDERLYING PRINCIPLES FORMING THE BASIS OF OUR FIND INGS GIVEN HERE IN BEFORE IN THIS ORDER ARE ALSO SUPPORTED BY THE DECI SION OF SPECIAL BENCH OF HONBLE BANGALORE TRIBUNAL IN AZTEC SOFTWARE & TECH NOLOGY SERVICES LTD. VS. ACIT [2007] 107 ITD 141 [BANG][SB] AS WELL AS MUMBAI TRIBUNAL DECISION IN THE CASE OF ACIT VS. MAERSK GL OBAL SERVICE CENTRE (I) PVT. LTD [2011] 133 ITD 543 [MUM] WHEREIN WHILE INTERPRETING THE TRANSFER PRICING PROVISIONS, THE COURTS HAVE HELD T HAT IT IS THE ASSESSEE WHO IS THE BEST JUDGE TO KNOW THE TRANSACTIONS UNDE RTAKEN & THUS FINDING OUT THE COMPARABLE CASES FROM THE VAST DATABASE AVA ILABLE IN THE PUBLIC DOMAIN. ONCE THE ASSESSEE HAS ADOPTED THE SAME, THE AO HAS TO EXAMINE WHETHER THE SAME IS MARKET PRICE OR NOT. AO HAS THE POWER TO ADOPT THE MARKET PRICE ONLY WHEN THE PRICE ADOPTED BY THE ASS ESSEE DOES NOT CORRESPOND TO MARKET VALUE. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS ADOPTED A RATE AT WHICH ACTUAL TRANSACTIONS HAV E BEEN UNDERTAKEN BY UNRELATED ENTITIES. THE VOLUMES OF TRANSACTION AS R ELIED UPON ARE ALSO SUBSTANTIAL AND HENCE IT CANNOT BE SAID THAT THE AS SESSEE HAS HAND PICKED 15 SOME TRANSACTIONS, WHICH ARE BENEFICIAL TO IT. THE DR SUBMITTED THAT SINCE THE ASSESSEE HAS ITSELF DRAWN POWER FROM THE GRID, THE GRID RATE REPRESENTS THE BEST MARKET VALUE & HENCE THE SAME SHOULD ONL Y BE ADOPTED. WE ARE NOT AGREEABLE TO THE ABOVE CONTENTION OF THE DEPART MENT. NO DOUBT THE GRID RATE IS MARKET VALUE BUT THERE IS NO CONCEPT OF BE ST MARKET VALUE IN LAW. IF BY USING THE SAID ADJECTIVE, REVENUE SEEKS TO IN FER THAT GRID RATE IS THE ONLY MARKET VALUE IN THE PRESENT CONTEXT, SUCH INFE RENCE IS ALSO CLEARLY NOT TENABLE. FURTHER, IN CASE THERE ARE OPTIONS, THE O PTION FAVORABLE TO THE ASSESSEE IS TO BE ADOPTED. THIS IS A WELL SETTLED P RINCIPLE OF LAW LAID DOWN BY COURTS TIME AND AGAIN INCLUDING SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. [1973] 88 ITR 192 [SC] AND OTHER HIGH COURTS AS POINTED OUT BY THE AR. 13. IN THE LIGHT OF THE AFORESAID, WE HOLD THAT (A) THE VALUE ADOPTED BY THE ASSESSE BE IT VALUE A S PER INDEPENDENT THIRD PARTY TRADING TRANSACTIONS OR AS PER POWER EXCHANGE (IEX ETC.) OR ANY OTHER INDEPENDENT TRANSA CTION (FOR THE RELEVANT PERIOD AND WHICH HAS TAKEN PLACE IN TH E RELEVANT AREA WHERE THE ELIGIBLE UNIT IS LOCATED) CONSTITUTE MARKET VALUE IN TERMS OF EXPLANATION TO SECTION 80IA(8); (B) THE VALUE AT WHICH STATE GRID HAS SOLD POWER T O THE CEMENT UNIT OF THE ASSESSEE (AVERAGE ANNUAL LANDED COST) A LSO CONSTITUTE MARKET VALUE IN TERMS OF EXPLANATION T O SECTION 80IA(8) BUT THE VALUE AT WHICH STATE GRID OR THIRD PARTY HAS PURCHASED POWER FROM THE POWER UNIT OF THE ASSESSEE , WHICH REPRESENTS ITS POWER WHICH IS SOLD WHEN NOT REQUIRE D BY THE CEMENT UNIT, DOES NOT CONSTITUTE MARKET VALUE IN TERMS OF 16 EXPLANATION TO SECTION 80IA(8). IT IS THE PRINCIPL E AND NOT THE QUANTUM WHICH IS DECIDING FACTOR; (C) WHERE A BASKET OF MARKET VALUES ARE AVAILABL E FOR THE RELEVANT PERIOD AND RELEVANT GEOGRAPHICAL AREA WHERE THE ELI GIBLE UNIT IS SITUATED, THE ASSESSEE HAS DISCRETION TO ADOPT ANY ONE OF THEM AS MARKET VALUE; AND (D) IF THE VALUE ADOPTED BY THE ASSESSEE IS MARKE T VALUE AS EXPLAINED ABOVE, IT IS NOT PERMISSIBLE FOR REVENUE TO RECOMPUTE THE PROFITS & GAINS OF THE ELIGIBLE UNIT BY SUBSTITUTING THE SAID VALUE (AS ADOPTED BY THE ASSE SSE) BY ANY OTHER MARKET VALUE. 14. ACCORDINGLY, WE DELETE THE DISALLOWANCE AS MADE BY THE AO IN ORDER U/S 143(3) ON ACCOUNT OF DEDUCTION U/S 80IA O F THE ACT AND HENCE THE GROUNDS 1 & 2 ARE ACCORDINGLY DECIDED IN FAVOR OF THE ASSESSEE. 15. GROUND NO. 3 OF THE ASSESSEE RELATES TO DISALLO WANCES OF RS. 16,00,000/- CONFIRMED BY CIT(APPEALS) ON ACCOUNT OF EXPENDITURE INCURRED TOWARDS GIFTS. THE AO IN THE ASSESSMENT OR DER HAD DISALLOWED EXPENDITURE ON GIFTS OF RS. 47,11,876/- HOLDING THE SAME AS NOT RELATED TO THE BUSINESS OF THE ASSESSEE. THE LD. CIT(APPEALS) FOLLOWING THE DECISION OF TRIBUNAL VIDE ORDER DATED 23 RD DEC. 2009 IN ASSESSEES OWN CASE FOR A.Y. 2003-04 IN I.T.A NO. 942/JP/08 ALLOWE D RELIEF OF RS. 31,11,876/- AND RESTRICTED THE DISALLOWANCE TO RS. 16,00,000/-. WE FIND THAT FACTS FOR THE YEAR UNDER CONSIDERATION ARE SIM ILAR WITH THE FACTS OF EARLIER YEAR. FOLLOWING THE DECISION OF TRIBUNAL DA TED 23 RD DEC. 09, THE DISALLOWANCE CONFIRMED BY THE CIT(APPEALS) IS REASO NED ONE AND HENCE 17 WE DO NOT FIND ANY INFIRMITY THEREIN. ACCORDINGLY, GROUND NO. 3 OF THE APPEAL PREFERRED BY THE ASSESSEE IS DISMISSED. 16. GROUND NO. 4 OF THE ASSESSEE RELATES TO DISALLO WANCE OF TELEPHONE EXPENSES OF RS. 1,00,000/- CONFIRMED BY CIT(APPEALS ) CONSIDERING THE SAME AS PERSONAL IN NATURE. WE FIND THAT TRIBUNAL I N A.Y. 2003-04 IN ITA NO. 751 /JP/07 VIDE ORDER DATED 23 RD DEC. 2009 HAD SET ASIDE THE ISSUE TO THE FILE OF THE A.O. TO EXAMINE THE CONTENTION OF T HE ASSESSEE AS THERE CANNOT BE DISALLOWANCE OF PERSONAL EXPENDITURE IN T HE HANDS OF THE COMPANY. ACCORDINGLY, FOLLOWING THE ORDER OF EARLIE R YEAR, WE SET ASIDE THIS GROUND TO THE FILE OF THE AO TO VERIFY THE SAM E AFTER GIVING OPPURTUNITY TO THE ASSESSEE BEFORE DECIDING THE ISS UE. THIS GROUND OF THE ASSESSEE IS THEREFORE ALLOWED FOR THE STATISTICAL P URPOSES ONLY. 17. NOW WE TAKE UP THE DEPARTMENTAL APPEAL FOR AY 2 007-08 VIDE ITA NO. 568/JP/12. 18. GROUND 1 IS ON ACCOUNT OF DELETING THE DISALLOW ANCE MADE BY AO ON ACCOUNT OF SALES TAX SUBSIDY BY TREATING THE SAM E AS CAPITAL RECEIPT INSTEAD OF REVENUE RECEIPT. BRIEF FACTS ARE THAT AS SESSEE HAS CREDITED TO THE PROFIT & LOSS ACCOUNT SUBSIDY RECEIVED UNDER RAJAST HAN INVESTMENT PROMOTION SCHEME, 2003 (RIPS) VIDE NOTIFICATION NO. F4(18)FD/TAX DIV/2001 DATED 02-12-2005. THE ABOVE SUBSIDY IS ARI SING DUE TO 18 EXPANSION IN CAPACITY (ANNUAL) FROM 26 LAKHS MT TO 41 LAKH MT AT RAS, RAJASTHAN EFFECTIVE FROM 21-12-2005 AND FROM 41 LAK HS MT TO 86 LAKHS MT TOWARDS (A) FURTHER EXPANSION AT RAS, RAJASTHAN (15 LAKH MT) AND (B) KHUSKHEDA, RAJASTHAN (30 LAKH MT) BOTH EFFECTIVE FR OM 26-03-2007 AND IN ALL CASES, SUBSIDY IS FOR SEVEN YEARS FROM THE R ESPECTIVE COMMENCEMENT DATE NOTED ABOVE. THE SAME HAS BEEN CL AIMED AS CAPITAL RECEIPT IN COMPUTING TOTAL INCOME UNDER REGULAR PRO VISIONS OF THE ACT AS WELL AS IN COMPUTING BOOK PROFIT U/S 115JB. IN THE ASSESSMENT ORDER U/S 143(3), THE ASSESSING OFFICER HAS CONSIDERED ABOVE RECEIPT AS REVENUE IN NATURE BASED ON STAND TAKEN BY HIM IN EARLIER YEARS . LD. CIT(APPEALS) HAS SINCE DELETED THE ADDITION RELYING ON THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR EARLIER YEARS. 19. THE LEARNED AR SUBMITS AS UNDER :- THE ISSUE IS SQUARELY COVERED IN FAVOR OF ASSESSEE BY T HE DECISION OF HONBLE JAIPUR TRIBUNAL IN ITS OWN CASE FOR AY 2 006-07 VIDE ORDER DATED 09-09-2011 IN ITA NO. 635/JP/2010. HONBLE TRIBUNAL HAS EXAMINED THE SCHEME IN GREAT D EPTH & HAS GIVEN FOLLOWING KEY FINDINGS - (I) THE PURPOSE OF GRANTING INCENTIVE WAS TO ACCELERA TE THE INDUSTRIAL GROWTH. (II) HONBLE TRIBUNAL HAS RELIED UPON CIT VS.- PONNI SU GARS & CHEMICALS LTD. (2008) 306 ITR 392 (SC) AND HELD THAT WHETHER ANY INCENTIVE IS CAPITAL OR REVENUE WOULD D EPEND UPON THE PURPOSE FOR WHICH SUBSIDY IS GRANTED. IF THE PURPOSE OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE 19 BUSINESS MORE PROFITABLY THEN THE INCENTIVE IS ON R EVENUE ACCOUNT AND IF THE OBJECT OF THE SUBSIDY IS TO ENAB LE THE ASSESSEE TO SET UP A NEW UNIT OR EXPAND THE EXISTIN G UNIT THEN THE INCENTIVE IS ON CAPITAL ACCOUNT. (III) BASED ON THE PURPOSE TEST AS TO WHY THE INCENTIVE H AS BEEN GRANTED, THE HONBLE TRIBUNAL HAVE HELD THAT INCENT IVE UNDER RIPS, 2003 IS PROVIDED TO THE ASSESSEE TO SET UP A NEW UNIT OR CARRY OUT EXPANSION AND NOT FOR RUNNING THE BUSINES S MORE PROFITABLY. ISSUE ALSO COVERED IN FAVOR OF ASSESSEE BY PRINCIP LES LAID DOWN IN VARIOUS OTHER DECISIONS PRESENT ISSUE IS ALSO SETTLED IN FAVOUR OF ASSESSE E BY FOLLOWING JUDICIAL PRONOUNCEMENTS OF THE HONBLE APEX COURT, HIGH COURTS AND SPECIAL BENCH OF ITAT:- SUPREME COURT - CIT VS.- PONNI SUGAR & CHEMICALS LTD. (2008) 306 I TR 392 (SC) HIGH COURTS - CIT VS.- SIYA RAM GARG (HUF) (2011) 237 CTR 321 (P &H) - SHREE BALAJI ALLOYS AND OTHERS VS.- CIT (2011) 333 ITR 335 (J&K) - CIT VS.- RASOI LIMITED (ITA NO. 258 OF 2001)(CAL) - DCIT -VS.- INOX LEISURE LTD. [2013] 30 TAXMANN.COM 127 (GUJ) ITAT SPECIAL BENCH - DCIT VS.- RELIANCE INDUSTRIES LTD. (2004) 88 ITD 2 73 (MUM)(SB) 20. THE DR DURING THE COURSE OF THE HEARING FILED W RITTEN SUBMISSION AS BELOW:- 20 THE APPELLANT HEREIN SUBMITS THE FOLLOWING WRITTEN ARGUMENTS IN ADDITION TO THE VERBAL ARGUMENTS TO BE TAKEN DUR ING THE COURSE OF HEARING IN THE ABOVE APPEAL. GROUND NO. 1 (COMMON IN ALL THE APPEALS) DELETING THE ADDITION OF SALES TAX SUBSIDY (FOR A.Y. 07-08 RS. 4 6.22 CRS, A.Y. 08-09 RS. 80.40 CRS & A.Y. 09-10 RS. 40.53 CRS) UND ER REGULAR ASSESSMENT AS WELL AS U/S 115JB, BY TREATING THE SA ME AS CAPITAL RECEIPT INSTEAD OF REVENUE RECEIPT. THE LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR O F THE ASSESSEE COMPANY HAS RELIED UPON THE DECISION OF TH E HONBLE ITAT IN ASSESSEE OWN CASE FOR A.Y 03-04 ORDER DATED 23.12.2009 AND A.Y. 2004-05 TO 06-07 ORDER DATED 09 .09.2011. THE APPEALS FOR THE SAID ORDER ARE PENDING BEFORE T HE HONBLE JURISDICTIONAL HIGH COURT. HOWEVER, MOST RESPECTFUL LY, I WOULD LIKE TO BRING THE FOLLOWING FACTS FOR KIND CONSIDER ATION OF HONBLE MEMBERS, ON THE SUBJECT. THE FACTS OF THE CASE ARE AS UNDER: 1. THE ASSESSEE COMPANY HAD COMMENCED ITS COMMERCIAL PRODUCTIONS IN MAY 1985 WITH AN INSTALLED CAPACITY OF 6 LACS M.T. IN F.YS 02-03, IT HAS INCREASED ITS INSTALLED CAPACITY FROM 20 LACS M.T. TO 26 LACS M.T (BY EXPANDING ITS BUSINESS) FOR AVAILING THE BENEFITS UNDER R.S.T/C.S.T EXEMPTI ON SCHEME 1998 (SR. 1131). AS PER SCHEME THE ASSESSEE IS ENTITLED FOR EXEMPTION OF PAYMENT OF SALES TAX FOR A PERIOD OF 11 YEARS I.E 1.5.02 TO 30.04.13. AS PER THE ELIGIBI LITY CERTIFICATE ISSUED IN THIS REGARD, ON FORM C DATED 12.9.02 BY SALES TAX OFFICER, SPL. CIRCLE, AJMER, AT COLUMN NO . 8 INTERALIA INCLUDES THE FOLLOWING FACTS:- DETAILS FOR EXEMPTION FROM TAX A. PERCENTAGE OF EXEMPTION FROM TAX LIABILITY AS PER CO. NO. 3 SR. 1 OF ANNEX. B*. B. ELIGIBLE FIXED CAPITAL INVESTMENT ON ** - RS. 15,72 7.66 LACS C. MAXIMUM LIMIT OF YEARS 11 YEARS 21 D. QUANTUM OF EXEMPTION OF SALES TAX - RS. 15,727.66 L ACS * ANNEXURE B S.NO. TYPE OF UNITS EXTENT OF THE PERCENTAGE OF EXEMPTION FROM TOTAL TAX LIABILITY MAXIMUM EXEMPTION IN TERMS OF PERCENTAGE OF ELIGIBLE FIXED CAPITAL INVESTMENT MAXIMUM TIME LIMIT OF AVAILING EXEMPTION FROM TAX 1. NEW UNITS OTHER THAN THE UNITS MENTIONED AT ITEMS 2 AND 3 AND UNITS GOING IN FOR EXPANSION OR DIVERSIFICATION 1 ST YEAR 100% 3 RD YEAR 80% 5 TH YEAR 60% 7 TH YEAR 50% 9 TH YEAR 40% 11 TH YEAR 30% 2 ND YEAR 90% 4 TH YEAR 70% 6 TH YEAR 50% 8 TH YEAR 40% 10 TH YEAR 30% ELEVEN YEARS ** THE ELIGIBLE FIXED CAPITAL INVESTMENT MEANT FOR INVESTMENT IN COST OF LAND, COST OF NEW BUILDING, C OST OF NEW P.M AND OTHER FIXED ASSETS. THIS CLEARLY INDICA TE THAT THE SALES TAX SUBSIDY HAS BEEN ALLOWED AGAINST CAPI TAL ASSETS FOR EXPANSION OF ASSESSES EXISTING BUSINESS. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAS COLLECTED THE SALES TAX FROM ITS CUSTOMERS AGAINST SALES OF MANUFACTURED GOODS AND CREDITED THE SAME IN ITS BOO KS OF ACCOUNT. HERE THE SOURCE OF SUBSIDY IS SALES TAX, C OLLECTED FROM THE CUSTOMERS AGAINST SALES OF GOODS IS IN THE NATU RE OF REVENUE AND THE ASSESSEE HAS CREDITED ITS BOOKS OF ACCOUNT ACCORDINGLY. IN VIEW OF THESE FACTS, THE SAME WAS LIABLE TO BE T REATED AS REVENUE RECEIPT FOR THE PURPOSE OF COMPUTING NORMAL INCOME AS WELL AS BOOK PROFIT, AS PER PROVISION OF SECTION 11 5JB OF I.T ACT 1961. THIS VIEW GETS SUPPORT FROM DECISION OF THE H ONBLE S.C IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. (1 997) 228 ITR 0253 (SC), WHERE IN HONBLE SUPREME COURT, INTE R ALIA, HELD AS UNDER: IF PAYMENTS IN THE NATURE OF SUBSIDY FROM PUBLIC F UNDS ARE MADE TO THE ASSESSEE TO ASSIST HIM IN CARRYING ON HIS TRADE OR BUSINESS, THEY ARE TRADE RECEIPTS. THE CHA RACTER OF THE SUBSIDY IN THE HANDS OF THE RECIPIENT-WHETHE R REVENUE OR CAPITAL WILL HAVE TO BE DETERMINED, HAVI NG REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVE N. THE 22 SOURCE OF THE FUND IS QUITE IMMATERIAL. HOWEVER, IF THE PURPOSE IS TO HELP THE ASSESSEE TO SET UP ITS BUSIN ESS OR COMPLETE A PROJECT THE MONIES MUST BE TREATED AS HA VING BEEN RECEIVED FOR CAPITAL PURPOSES. BUT IF MONIES A RE GIVEN TO THE ASSESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSINESS OPERATIONS AND THE MONEY IS GIVEN ONLY AFT ER AND CONDITIONAL UPON COMMENCEMENT OF PRODUCTION, SU CH SUBSIDIES MUST BE TREATED AS ASSISTANCE FOR THE PUR POSE OF THE TRADE. A NOTIFICATION WAS ISSUED BY THE ANDHRA PRADESH GOVERNMENT THAT CERTAIN FACILITIES AND INCENTIVES W ERE TO BE GIVEN TO ALL THE NEW INDUSTRIAL UNDERTAKINGS, WITH INVESTMENT CAPITAL (EXCLUDING WORKING CAPITAL) NOT EXCEEDING RS. 5 CRORES. THE INCENTIVES WERE TO BE A LLOWED FOR A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENC EMENT OF PRODUCTION. CONCESSION WAS ALSO AVAILABLE FOR SUBSEQUENT EXPANSION OF 50 PER CENT. AND ABOVE OF EXISTING CAPACITIES, .. THE INCENTIVES WOULD BE LIMITED TO A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION; THE INCENTIVES WERE TO BE GIVEN BY WAY OF REFUND OF SAL ES TAX .. THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSIN ESS ENTIRELY AS IT LIKED AND WAS NOT OBLIGED TO SPEND T HE MONEY FOR A PARTICULAR PURPOSE. THE SUBSIDIES HAD N OT BEEN GRANTED FOR PRODUCTION OF, OR BRINGING INTO EX ISTENCE ANY NEW ASSET. THE SUBSIDIES WERE GRANTED YEAR AFTE R YEAR, ONLY AFTER THE SETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ON LY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF C ARRYING ON OF THE BUSINESS OF THE ASSESSEE. THE SUBSIDIES W ERE OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORDING LY. THE FACTS OF THE ABOVE CASE ARE EXACTLY MATCHING WI TH THE CASE OF THE ASSESSEE UNDER QUESTION. IN THIS CASE ALSO T HE ASSESSEE HAS EXPANDED ITS INSTALLED CAPACITY BY MORE THAN 25 % OF EXISTING CAPACITY AND SALES TAX EXEMPTION WAS ALLOW ED FROM DATE OF FIRST SALE AND NOT MERE SETTING UP / EXPAND ING OF NEW UNITS. THIS MEANS THAT EXEMPTION HAS BEEN ALLOWED B Y THE GOVERNMENT BY WAY OF SALES TAX SUBSIDY, ONLY AFTER STARTING ITS COMMERCIAL PRODUCTION TO ASSIST IT IN CARRYING ON I TS TRADE OR 23 BUSINESS. THIS FACT GET SUPPORTS FROM THE DECISION OF THE HONBLE ITAT BENCH D DELHI IN I.T APPEAL NO. 1404 (DEL) OF 2007 IN THE CASE OF M/S L G ELECTRONICS INDIA PVT. LTD. V/S ADDL. CIT RANGE-4, NEW DELHI, WHICH INTER ALIA HELD THAT THE SALES TAX SUBSIDY AVAILED BY THE ASSESSEE IS A REVE NUE RECEIPT SINCE IT IS NOT LINKED WITH SETTING UP OF INDUSTRY RATHER LINKE D WITH THE PRODUCTION AND FIRST SALE MEANS ASSESSEE HAS COLLECTED THIS AMOUNT EMBODIED IN DEALER PRICE IN ORDINARY COURSE OF BUSINESS AND THE DECISION OF THE SPECIAL BENCH IN THE CASE OF RELIANCE INDUSTRIES IS NOT APPLICABLE TO THE FACTS OF THE CASE. IN SPITE OF THESE FACTS, THE ASSESSEE HAS TREATED T HE SALES TAX SUBSIDY AS CAPITAL RECEIPT, BY CLAIMING THE FACT TH AT RST/CST EXEMPTION SCHEME 1998 IS MEANT FOR ACQUIRING NEW AS SETS TO EXPAND THE EXISTING BUSINESS. IT HAS FURTHER RELIED ON THE 2 MAJOR DECISION OF THE HONBLE S.C IN THE CASE OF PO NNI SUGARS AND CHEMICALS LTD. (2003) 260 ITR 0605 (MAD.) AND D ECISION OF THE SPECIAL BENCH IN THE CASE OF RELIANCE INDUST RIES (2003- TIOL-14- ITAT-MUM-SB) . THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F PONNI SUGARS & CHEMICAL LTD., A.Y. 89-90, IS NOT COMPARAB LE WITH THE FACTS OF THE CASE UNDER QUESTION, AS THE INCENTIVE/ SUBSIDY PROVIDED UNDER THE SCHEME WAS EXCLUSIVELY FOR THE P URPOSE OF REPAYMENT OF LOAN BORROWED FROM PUBLIC FINANCIAL IN STITUTIONS, FOR ACQUIRING FIXED ASSETS (USED FOR NEW/EXPANSION OF BUSINESS). THE ASSESSEE WAS LIABLE TO SUBMIT EVERY YEAR (BY 31 ST DEC.) SUBSIDY UTILIZATION CERTIFICATE FROM C.A. TO SHOW T HAT THE MONIES HAD BEEN SO UTILIZED. FAILURE TO SUBMIT THE UTILIZA TION CERTIFICATE WOULD RESULT NOT ONLY IN THE TERMINATION OF SCHEME BUT ALSO IN RECOVERY OF INCENTIVE/SUBSIDY ALLOWED TO THE ASSESS EE. WHEREAS IN THE CASE OF ASSESSEE SUCH CONDITIONS ARE NOT APP LICABLE. SECONDLY, THE HONBLE SUPREME COURT HAS DECIDED THI S ISSUES FOR A.Y 89-90 I.E. PRIOR TO INTRODUCTION OF PROVISI ON OF EXPLANATION 10 OF SECTION 43(1) OF I.T. ACT 1961. L IKEWISE THE DECISION OF HONBLE SPECIAL BENCH, ITAT, MUMBAI IN THE CASE OF RELIANCE INDUSTRIES (A.Y 85- 86) WHICH IS ALSO N OT APPLICABLE IN THE CASE UNDER QUESTION FOR THE FACTS DISCUSS AB OVE AND ALSO IN THE LIGHT OF DECISION OF HONBLE ITAT, BENCH D DELHI IN THE CASE OF M/S L.G ELECTRONICS INDIA LTD. ADDL. CIT, R ANGE-4 DELHI(2010) TIOL-222-ITAT-DEL. 24 ALTERNATIVELY, THE ASSESSEE COMPANY HAS TREATED THE S.T SUBSIDY AS CAPITAL RECEIPT, ON THE GROUND THAT THE SAME HAS BEEN RECEIVED AGAINST INVESTMENT MADE IN THE ELIGIBLE FI XED ASSETS FOR EXPANDING OF ITS EXISTING BUSINESS, THEN HOW COME T HE ASSESSEE COMPANY HAS NOT REDUCED SUCH SUBSIDY (CLAIMED TO HA VE BEEN RECEIVED AGAINST ELIGIBLE ASSETS AS PER CERTIFICATE ISSUED BY SALES TAX OFFICER) FROM THE ACTUAL COST OF THE ASSETS, AS THE COST OF THE ASSETS TO THAT EXTEND HAS NOT BEEN MET BY THE ASSES SEE. THESE FACTS HAVE BEEN MADE ABUNDANTLY CLEAR, IN THE EXPLA NATION 10 OF SUB SECTION 1 OF THE SECTION 43 OF IT ACT, 1961, WH ICH READ AS UNDER: WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVT. OR A STATE GOVT. OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, I N THE FORM OF A SUBSIDY OR A GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE: PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE D IRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMO UNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT O R GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO AL L THE ASSETS REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASS ESSEE. IN SPITE OF THE ABOVE AMENDMENT, WITH EFFECT FROM A.Y.1999-2000, THE ASSESSEE HAS NOT REDUCED SUCH SU BSIDY FROM THE COST OF THE ASSETS, THEREBY CLAIMED EXCESS DEPR ECIATION IN THE FORM OF REVENUE EXPENDITURE, IN THE PROFIT & LO SS ACCOUNT. THUS, ON ONE HAND THE ASSESSEE COMPANY HAS NOT CRED ITED THE SALES TAX SUBSIDY AS REVENUE INCOME AND ON OTHER HA ND IT HAS CLAIMED REVENUE EXPENDITURE IN THE FORM OF DEPRECIA TION IN RESPECT OF THOSE ASSETS FOR WHICH THE GOVERNMENT HA S MET THE COST BY WAY OF SALES TAX SUBSIDY. IT HAS RESULTED I N EXCESS CLAIM OF DEPRECIATION IN RESPECT OF THOSE ASSETS FOR WHIC H THE ASSESSEE HAS NOT INCURRED THE COST. IN THIS REGARD I WOULD L IKE TO BRING TO YOUR KIND NOTICE THAT THE INTENTION OF THE LEGISLAT OR FOR AMENDING THE PROVISION OF SECTION 43(1) WAS THAT TH E ASSESSEE 25 SHOULD NOT CLAIM DUAL BENEFITS I.E. ONE BY NOT SHOW ING THE SALES TAX SUBSIDY AS REVENUE INCOME AND ANOTHER BY CLAIMI NG DEPRECIATION ON THOSE ASSETS FOR WHICH SUBSIDY HAS BEEN GRANTED BY THE GOVERNMENT. THIS IS CLEAR FROM THE L EGISLATIVE HISTORY- 1998-EXPLANATION 10 WHICH WAS INSERTED BY THE FINANCE (NO.2) ACT, 1998, WITH EFFECT FROM 1-4-1999 .THE BOARD CIRCULAR EXPLAINS THE AMENDMENT IN PARAGRAPH 22.2 I N FOLLOWING WORDS: WHERE A PORTION OF THE COST OF AN ASSETS ACQUIRED B Y THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVT. OR A STATE GOVT. OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSID Y OR A GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, S O MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT O R REIMBURSEMENT SHALL NOT BE INCLUDED THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. COST INCURRED/PAYABLE BY TH E ASSESSEE ALONE COULD BE THE BASIS FOR ANY TAX ALLOWANCE. THI S EXPLANATION FURTHER PROVIDES THAT WHERE SUCH SUBSID Y OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT B E DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMO UNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRAN T THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REI MBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. EXPLANATION 10 TO SECTION 43(1) WAS INTRODUCED TO N ULLIFY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. P. J. CHEMICALS LTD.(1994) 210 ITR 830, WHERE IT WA S HELD THAT SUBSIDY GRANTED BY THE GOVT. AS AN INCENTIVE FOR SE TTING UP INDUSTRIES IN BACKWARD AREA AT AN PERCENTAGE OF COS T OF CAPITAL ASSETS IN NOT A PAYMENT FOR MEETING ANY PORTION OF THE COST OF THE CAPITAL ASSETS WITHIN THE CONTEMPLATION OF SECT ION 43(1) OF THE I.T. ACT 1961 AND THE SAME IS NOT TO BE DEDUCTE D IN COMPUTATION OF ACTUAL COST OF THE ASSETS FOR THE PU RPOSE OF GRANT OF DEPRECIATION ALLOWANCE, ETC. POSITION OF SUBSIDY UP TO ASSESSMENT YEAR 1998-99: UP TO A.Y. 1998-99 : UPTO A.Y. 1998-99 IF THE SUBSIDY WAS GIVEN BY THE GOVT. FOR ANY PARTICULAR ASSET, IT WAS DEDUCTIBLE F ROM THE COST OF THE SAID ASSET, WHEREAS IF A SUBSIDY WAS GIVEN TO S ET UP AN 26 INDUSTRIAL UNIT IN A BACKWARD AREA, ETC. IT WAS NOT DEDUCTIBLE FROM THE COST. IT WAS TREATED AS A CAPITAL RECEIPTS . FROM THE ABOVE FACTS IT IS SEEN THAT THE ASSESSEE H AS NOT REDUCED THE COST OF THE ASSETS TO THE EXTENT OF THE SALES T AX SUBSIDY RECEIVED, THEIR BY CLAIMED EXCESS DEPRECIATION AS E XPLAINED IN THE EARLIER PARAS. ON THE OTHER HAND, INSPITE OF CR EDITING THE SUBSIDY RECEIVED IN ITS BOOKS OF ACCOUNT, HAS NOT BEEN OFFER FOR TAX UNDER NORMAL COMPUTATION OF INCOME AS WELL AS B OOK PROFIT U/S 115JB OF THE I.T. ACT. KEEPING IN VIEW, THE ABO VE FACTS, THE SUBSIDY RECEIVED BY THE ASSESSEE IS REVENUE IN NATU RE AND THEREFORE, LIABLE TO BE ASSESSED AS REVENUE RECEIPT S IN ALL THE THREE ASSESSMENT YEARS, UNDER REFERENCE. 21. IN REJOINDER, LD. AR POINTED OUT THAT THE DETAI LS OF EXPANSION NOTED BY LD. DR AS ABOVE, ARE IN RELATION TO THE EARLIER EXPANSION UNDER THE 1998 SCHEME. FURTHER EXPANSION THEREAFTER HAS TAKEN PLACE AS RECORDED IN PARA 18 ABOVE AND INCENTIVE/SUBSIDY FOR THE SAME HA S BEEN GRANTED UNDER THE 2003 SCHEME, WHICH HAS ALSO BEEN DULY CONSIDERE D BY THIS TRIBUNAL WHILE DECIDING DEPARTMENTAL APPEAL FOR EARLIER YEAR S. WE NOTE THAT IN PARA 17 OF THE ORDER OF THIS TRIBUNAL FOR AY 2006-07 IN ITA NO. 635/JP/2010, INCENTIVE/SUBSIDY GRANTED UNDER BOTH THE 1998 SCHEM E AS WELL AS 2003 SCHEME HAVE BEEN DULY CONSIDERED. LEARNED AUTHORIZE D REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT ALL ISSUES RAISED BY THE REVENUE AS ABOVE HAVE BEEN DULY CONSIDERED BY THIS TRIBUNAL WH ILE DECIDING THIS MATTER IN EARLIER YEARS IN ITS COMBINED ORDER DATED 9.9.2011 [AT PAGE 4-9 OF ITS ORDER IN ITA NO. 614/JP/10 (AY 2004-05) AND AT PAGE 33 & 35 OF ITS ORDER IN ITA NO. 615& 635/JP/2010 (AY 2005-06 & 2006-07)]. SINCE, 27 THE ISSUES UNDER CONSIDERATION ARE IDENTICAL FOR EA RLIER YEARS, WHICH THE DR HAS ALSO ACCEPTED DURING THE COURSE OF THE HEARI NG, THE DEPARTMENTAL APPEAL MAY BE QUASHED. 22. WE HAVE CONSIDERED RIVAL CONTENTIONS AND VERIFI ED THE FACTS, ORDER OF AO AND THE CIT (APPEALS) AND GONE THROUGH THE OR DERS OF EARLIER YEARS AS RELIED UPON BY THE AR AND THE SUBMISSIONS OF THE DR. THE DR HAS ALSO CONFIRMED THAT ISSUES IN THE CURRENT YEAR ARE IDENT ICAL TO THAT OF EARLIER YEARS. WITH THE HELP OF REASONING GIVEN IN THE ORDE RS BY THIS TRIBUNAL FOR EARLIER YEARS IN ASSESSEES OWN CASE [AY 2004-05 TO AY 2006-07 IN ITA NO. 614,615 & 635/JP/2010] AND RESPECTFULLY FOLLOWI NG THE SAME, WE REJECT THE ARGUMENT OF THE DEPARTMENT AND HOLD THAT RECEIPT ON ACCOUNT OF SALES TAX SUBSIDY IS CAPITAL IN NATURE & NOT CHARGE ABLE TO TAX. THIS GROUND OF REVENUE IS THUS DISMISSED. 23. GROUND NO. 2 OF THE REVENUES APPEAL RELATES TO THE RELIEF GRANTED BY CIT(APPEALS) ON ACCOUNT OF EXPENDITURE INCURRED ON GIFTS FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS. WE HAVE ALREADY HELD WHILE DEALING WITH THE ASSESSEES APPE AL, THAT THE DISALLOWANCE CONFIRMED AND RELIEF GRANTED BY THE CI T(APPEALS) ON ACCOUNT OF EXPENDITURE INCURRED ON GIFTS IS A REASO NED ONE. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSED. 28 24. GROUND NO. 3 OF THE REVENUES APPEAL RELATES TO GRANT OF INTEREST U/S 244A ON MAT CREDIT. DURING THE COURSE OF THE HE ARING, DR ARGUED THAT INTEREST U/S 244A ARISES TO THE ASSESSEE WHERE THE REFUND IS OUT OF ANY TAX PAID U/S 115WJ OR COLLECTED AT SOURCE U/S 206C OR PAID BY WAY OF ADVANCE TAX OR TREATED AS PAID U/S 199. UNDER SECTI ON 199 OF THE ACT, TAX DEDUCTED AT SOURCE IS CONSIDERED AS PAID ON BEH ALF OF THE ASSESSEE. HENCE, ASSESSEE CANNOT BE GRANTED INTEREST U/S 244A ON REFUND ARISING OUT OF MAT CREDIT. THE AR OF THE ASSESSEE SUBMITS THAT REFUND WOULD ARISE ONLY OUT OF TAXES PAID BY THE ASSESSEE BY WAY OF TD S OR ADVANCE PAYMENT ETC & NOT OUT OF MAT CREDIT. MAT CREDIT IS GRANTED AS REDUCTION FROM TAX LIABILITY AND THEREAFTER TAX PAY ABLE IS COMPUTED. HENCE, RELIANCE OF DR ON SECTION 199 IS TOTALLY MIS PLACED. IT WAS FURTHER SUBMITTED BY AR THAT THE ISSUE IS SQUARELY COVERED IN THE FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT -VS- APAR INDUSTRIES REPORTED IN [2010] 323 ITR 411 [BOM]. 25. AFTER CONSIDERING THE ARGUMENTS ADVANCED BY BOT H PARTIES ON THIS ISSUE, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF AP AR INDUSTRIES (SUPRA) WHEREIN THE HONBLE COURT HAS HELD THAT INT EREST U/S 244A IS ALLOWABLE ON THE REFUND OF PREPAID TAXES AFTER GIVI NG CREDIT OF BROUGHT 29 FORWARD MAT U/S 115JAA. WE ALSO NOTICE THAT ON THIS ISSUE, HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARAT ALUM INIUM CO. LTD [2011] 242 CTR 366 [DEL], AFTER CONSIDERING THE PRO VISO TO SECTION 115JAA(2) OBSERVED THAT SINCE THE MAT CREDIT IS AVA ILABLE FOR ADJUSTMENT AND SET OFF ON THE FIRST DATE OF THE PRE VIOUS YEAR EVEN BEFORE THE INSTALMENT OF ADVANCE TAX IS DUE ON THE CURRENT INCOME, THE ADVANCE TAX LIABILITY HAS TO BE WORKED OUT ON THE CURRENT I NCOME ONLY AFTER THE ADJUSTMENT AND SET OFF OF MAT CREDIT BROUGHT FORWAR D FROM EARLIER YEARS AND THEREFORE INTEREST UNDER SECTION 244A IS PAYABL E TO THE ASSESSEE IF REFUND ARISES FROM ADVANCE TAX PAID BY IT. RESPECTF ULLY FOLLOWING THE ABOVE DECISIONS OF HONBLE HIGH COURTS, WE HOLD THA T THE ASSESSEE IS ENTITLED TO INTEREST U/S 244A ON REFUND ARISING TO THE ASSESSEE AFTER MAT CREDIT. CONSEQUENTLY, THIS GROUND RAISED BY THE REV ENUE IS DISMISSED. 26. NOW WE TAKE UP THE ASSESSEES APPEALS FOR AY 20 08-09 IN ITA NO. 504/JP/2012. 27. GROUND NO. 1 & 2 IN THIS APPEAL ARE SAME AS GRO UND 1 & 2 FOR AY 2007-08 ON DEDUCTION U/S 80IA. THE LEARNED AUTHORIS ED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT FOR AY 2008-09, THE FACTS ARE SIMILAR TO THE FACTS FOR AY 2007-08. IN THIS YEAR ALSO THE ASS ESSEE HAS CONSIDERED THE VALUE AT WHICH INDEPENDENT POWER SUPPLIER HAS S OLD POWER TO 30 DISCOMS DURING THE RELEVANT PERIOD IN THE STATE OF RAJASHTHAN WHERE THE ELIGIBLE UNIT IS LOCATED, AS THE MARKET VALUE O F THE POWER CAPTIVELY CONSUMED BY THE CEMENT UNIT OF THE ASSESSEE. THESE GROUNDS HAVE BEEN EXTENSIVELY DEALT WITH IN PARA 2 TO 14 ABOVE WHILE DEALING WITH ASSESSEES APPEAL FOR AY 2007-08 IN ITA NO. 503/JP/ 12 AND IN THE LIGHT OF OUR FINDINGS RECORDED THEREIN, WE HOLD THAT THE DISALLOWANCE IN THIS YEAR ALSO NEEDS TO BE DELETED. ASSESSEES GROUNDS A RE THEREFORE ALLOWED AND CORRESPONDING DISALLOWANCE U/S 80IA IS DELETED. 28. GROUND NO. 3 OF THE ASSESSEE RELATES TO DISALLO WANCES OF RS. 19,00,000/- CONFIRMED BY CIT(APPEALS) ON ACCOUNT OF EXPENDITURE INCURRED TOWARDS GIFTS. THE FACTS IN THIS GROUND AR E ALSO SIMILAR TO THE FACTS AS DISCUSSED IN AY 2007-08. WITH THE HELP OF SAME REASONINGS, WE UPHOLD THE PART RELIEF ALLOWED AND PART DISALLOWANC E CONFIRMED BY THE CIT(APPEALS). ACCORDINGLY, GROUND NO. 3 OF THE APPE AL PREFERRED BY THE ASSESSEE IS DISMISSED. 29. GROUND NO. 4 OF THE ASSESSEE RELATES TO DISALLO WANCE OF TELEPHONE EXPENSES OF RS. 1,00,000/- CONFIRMED BY CIT(APPEALS ). THE FACTS IN THIS GROUND ARE SIMILAR TO THE FACTS AS DISCUSSED IN A.Y . 2007-08. ACCORDINGLY, FOLLOWING THE ORDER OF EARLIER YEAR, W E SET ASIDE THIS GROUND TO THE FILE OF THE AO FOR VERIFYING THE SAME AFTER GIVING OPPORTUNITY TO THE 31 ASSESSEE BEFORE DECIDING THE ISSUE. THIS GROUND OF THE ASSESSEE IS THEREFORE ALLOWED FOR THE STATISTICAL PURPOSES ONLY . 30. GROUND NO 5 & 6 ARE AS TO WHETHER RECEIPT FROM CARBON CREDIT OF RS. 16,02,32,595/- IS CAPITAL RECEIPT OR REVENUE RE CEIPT. 31. BRIEFLY STATED IN ORDER TO ADDRESS THE THREATS CAUSED BY GLOBAL WARMING THE KYOTO PROTOCOL, AN INTERNATIONAL AGREEM ENT LINKED WITH UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHAN GE [UNFCCC] WAS ADOPTED IN 1998. THIS PROTOCOL COMMITS DEVELOPE D COUNTRIES TO LIMIT AND REDUCE THEIR GREEN HOUSE GASES (GHG) [CARBON DI -OXIDE, METHANE, NITROUS OXIDE, HYDROFLUOROCARBONS, SULPHUR HEXA FLU ORIDE ETC.] EMISSIONS. CLEAN DEVELOPMENT MECHANISM (CDM), IS ON E OF THE THREE MECHANISMS DESIGNED TO ASSIST THE DEVELOPED COUNTRI ES TO MEET THEIR GHG EMISSIONS TARGETS. 32. UNDER CDM, A DEVELOPED COUNTRY CAN INVEST IN GH G MITIGATION PROJECT IN A DEVELOPING COUNTRY BY WAY OF EQUITY, L OAN OR ANY OTHER FINANCING MECHANISMS. THE MITIGATION PROJECT, IN TU RN GENERATES EMISSION REDUCTION THAT SUBSEQUENTLY GETS VERIFIED & CERTIFI ED BY AN INDEPENDENT PARTY. ABOVE REDUCTION IN EMISSION OF GHG IS ACKNOW LEDGED BY ISSUING A CERTIFICATE KNOWN AS CERS OR CARBON CREDITS. 32 33. THE ASSESSEES OPTIMUM UTILIZATION OF CLINKER IS ONE OF THE CDM PROJECTS UNDERTAKEN & REGISTERED WITH UNFCCC. I T IS DULY VERIFIED AND CERTIFIED BY THE DET NORSKE VERITAS CERTIFICATI ON LTD. THE PROJECT ENTAILS REDUCTION OF CLINKER CONTENT OF THE PORTLAN D POZZOLANIC CEMENT (PPC) PRODUCED BY INCREASING FLY ASH CONTENT IN THE CEMENT. THE PROJECT ACTIVITY WOULD THEREFORE REDUCE DIRECT ON-SITE EMIS SIONS FROM CLINKERISATION & DIRECT OFF SITE EMISSIONS FROM POW ER GENERATION AT THE THERMAL POWER PLANTS, PER UNIT OF CEMENT PRODUCED. THE ABOVE PROJECT HAS GENERATED CERS AGAINST WHICH THE ASSESSEE HAS R ECEIVED RS. 16,02,32,595/- DURING THE YEAR UNDER CONSIDERATION WHICH HAS BEEN CLAIMED AS CAPITAL RECEIPT. 34. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS HELD THAT (A) CARBON CREDIT IS NOT A CAPITAL RECEIPT, (B) COST OF ACQUISITION OF CARBON CREDIT IS NIL & (C) ENTIRE RECEIPT IS TAXABLE AS CA PITAL GAIN. HOWEVER, IN THE COMPUTATION, IT HAS BEEN ADDED AS BUSINESS INCO ME. LEARNED CIT(APPEALS) HAS HELD THAT RECEIPT FROM CERS IS IN THE NATURE OF BENEFIT ARISING FROM THE BUSINESS OF THE ASSESSEE AND IS TA XABLE AS BUSINESS INCOME U/S SEC 28(IV) OF THE ACT. 35. THE AR FOR THE ASSESSEE SUBMITS AS UNDER :- (A) ISSUE SQUARELY COVERED IN ASSESSEES FAVOUR BY THE DECISIONS OF HONBLE TRIBUNAL: 33 THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF HONBLE HYDERABAD TRIBUNAL IN FAVOUR OF ASSESSEE IN THE CASE OF MY HOME POWER LTD. VS.- DCIT (2013) 151 TTJ 616 (H YD) WHEREIN IT HAS BEEN HELD THAT RECEIPT ON ACCOUNT OF CARBON CREDIT IS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INC OME AND HENCE HAS TO BE CONSIDERED AS CAPITAL RECEIPT. AFTER EXAMININ G THE MATTER IN DETAIL THE HONBLE TRIBUNAL IN THE SAID CASE HAVE H ELD AS UNDER - CARBON CREDIT IS IN THE NATURE OF 'AN ENTITLEMENT' RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING C ARBON, HEAT AND GAS EMISSIONS. THE ENTITLEMENT EARNED FOR CARBO N CREDITS CAN, AT BEST, BE REGARDED AS A CAPITAL RECEIPT AND CANNO T BE TAXED AS A REVENUE RECEIPT. IT IS NOT GENERATED OR CREATED DUE TO CARRYING ON BUSINESS BUT IT IS ACCRUED DUE TO 'WORLD CONCERN'. IT HAS BEEN MADE AVAILABLE ASSUMING CHARACTER OF TRANSFERABLE RIGHT OR ENTITLEMENT ONLY DUE TO WORLD CONCERN. THE SOURCE OF CARBON CRE DIT IS WORLD CONCERN AND ENVIRONMENT. DUE TO THAT THE ASSESSEE G ETS A PRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, THE AMOUNT RECEIVED FOR CARBON CREDITS HAS NO ELEMENT OF PROFI T OR GAIN AND IT CANNOT BE SUBJECTED TO TAX IN ANY MANNER UNDER ANY HEAD OF INCOME. IT IS NOT LIABLE FOR TAX FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 2(24), 28, 45 AN D 56 OF THE INCOME-TAX ACT, 1961. CARBON CREDITS ARE MADE AVAIL ABLE TO THE ASSESSEE ON ACCOUNT OF SAVING OF ENERGY CONSUMPTION AND NOT BECAUSE OF ITS BUSINESS. FURTHER, IN OUR OPINION, C ARBON CREDITS CANNOT BE CONSIDERED AS A BI-PRODUCT. IT IS A CREDI T GIVEN TO THE ASSESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF IN TERNATIONAL UNDERSTANDING. THUS, THE ASSESSEES WHO HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CA PPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE C ARBON CREDIT IS NOT A RESULT OR INCIDENCE OF ONE'S BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CREDI TS GET BENEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS CARBON CR EDITS TO OVERCOME ONE'S NEGATIVE POINT CARBON CREDIT. THE AM OUNT RECEIVED IS NOT RECEIVED FOR PRODUCING AND/OR SELLING ANY PR ODUCT, BI- PRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYING O N THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS ENTITLEMENT OR ACC RETION OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CREDITS IS CAPITAL RECEIPT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDG MENT OF THE SUPREME COURT IN THE CASE OF CIT V. MAHESHWARI DEVI JUTE MILLS LTD. (57 ITR 36) WHEREIN IT IS HELD THAT TRANSFER O F SURPLUS LOOM 34 HOURS TO OTHER MILL OUT OF THOSE ALLOTTED TO THE AS SESSEE UNDER AN AGREEMENT FOR CONTROL OF PRODUCTION WAS CAPITAL REC EIPT AND NOT INCOME. BEING SO, THE CONSIDERATION RECEIVED BY THE ASSESSEE IS SIMILAR TO CONSIDERATION RECEIVED BY TRANSFERRING O F LOOM HOURS. THE SUPREME COURT CONSIDERED THIS FACT AND OBSERVED THAT TAXABILITY OF PAYMENT RECEIVED FOR SALE OF LOOM HOU RS BY THE ASSESSEE IS ON ACCOUNT OF EXPLOITATION OF CAPITAL A SSET AND IT IS CAPITAL RECEIPT AND NOT AN INCOME. SIMILARLY, IN TH E PRESENT CASE THE ASSESSEE TRANSFERRED THE CARBON CREDITS LIKE LO OM HOURS TO SOME OTHER CONCERNS FOR CERTAIN CONSIDERATION. THEREFORE , THE RECEIPT OF SUCH CONSIDERATION CANNOT BE CONSIDERED AS BUSINESS INCOME AND IT IS A CAPITAL RECEIPT. ACCORDINGLY, WE ARE OF THE OP INION THAT THE CONSIDERATION RECEIVED ON ACCOUNT OF CARBON CREDITS CANNOT BE CONSIDERED AS INCOME AS TAXABLE IN THE ASSESSMENT Y EAR UNDER CONSIDERATION. CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GEN ERATED IN THE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO ENVIR ONMENTAL CONCERNS. CREDIT FOR REDUCING CARBON EMISSION OR GR EENHOUSE EFFECT CAN BE TRANSFERRED TO ANOTHER PARTY IN NEED OF REDUCTION OF CARBON EMISSION. IT DOES NOT INCREASE PROFIT IN ANY MANNER AND DOES NOT NEED ANY EXPENSE. IT IS A NATURE OF ENTITL EMENT TO REDUCE CARBON EMISSION, HOWEVER, THERE IS NO COST OF ACQUI SITION OR COST OF PRODUCTION TO GET THIS ENTITLEMENT. CARBON CREDIT I S NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. THE PRINCIPLES STATED ABOVE HAVE BEEN ACCEPTED AND FOLLOWED BY THE CHENNAI BENCH OF THE HONBLE TRIBUNAL IN THE CA SE OF SRI VELAYUDHASWAMY SPINNING MILLS (P.) LTD. VS.- DCIT (2013) 40 TAXMANN.COM 141 (CHENNAI) AND AMBIKA COTTON MILLS LTD. -VS.- DCIT (2013) I.T.A. NO.1836/MDS/2012(CHENNAI) (B) NO PROVISION UNDER THE INCOME TAX ACT TO TAX CARBON CREDIT PROPOSED DIRECT TAX CODE (DTC) VIDE CLAUSE 33(2)(X I) SPECIFICALLY PROVIDES FOR TAXABILITY OF CARBON CREDIT AS BUSINES S RECEIPTS & CHARGEABLE TO TAX. SIMILAR PROVISION IS NOT PRESENT UNDER THE CURRENT INCOME TAX ACT 1961. APEX COURT IN VODAFONE INTERNATIONAL HOLDINGS VS. - UOI 341 ITR 1 (2012) SC WHILE DECIDING AN ISSUE ON INTERNATIONAL TAXATION MADE A COMPARATIVE ANALYSIS OF THE PROVISIONS OF DIRECT TAXES CODE (DTC) BILL, 2010 AND INCOME TAX ACT, 1961 AND HAVE HELD THAT 35 TREATMENT OF ANY PARTICULAR ITEM IN DIFFERENT MANNE R IN THE 1961 ACT AND DTC SERVES AS AN IMPORTANT GUIDE IN DETERMI NING TAXABILITY OF THE SAID ITEM. SINCE SIMILAR PROVISIO N FOR TAXABILITY IS NOT PRESENT IN THE CURRENT STATUTE, CLEAR INFERENCE CAN BE DRAWN THAT THE ABOVE INCOME IS NOT CHARGEABLE TO TAX UNDER THE INCOME TAX ACT, 1961. 36. THE DR ON THE OTHER HAND RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND STATES THAT RECEIPT ON ACCOUNT OF C ARBON CREDIT IS RELATED TO THE BUSINESS OF THE ASSESSEE AND THE ASSESSEE HAS U NDERTAKEN ACTIVITIES WHICH HAS RESULTED IN THE RECEIPT ON ACCOUNT OF CAR BON CREDITS. HENCE, THE AMOUNT SO RECEIVED HAS TO BE CONSIDERED AS RELATED TO THE BUSINESS OF THE ASSESSEE AND SHOULD EITHER BE CONSIDERED AS REVENUE RECEIPTS CHARGEABLE TO TAX AS BUSINESS INCOME, OR THE NET AMOUNT AFTER DEDUCTION OF EXPENDITURE IF ANY, INCURRED FOR THE SAME SHOULD BE CONSIDERED AS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS. 37. IN REPLY THE AR SUBMITS THAT CARBON CREDIT IN T HE PRESENT CASE HAS BEEN AWARDED DUE TO REDUCTION IN EMISSION OF GREEN HOUSE GASES CONSEQUENT TO THE OPTIMUM UTILIZATION OF CLINKER PR OJECT UNDERTAKEN BY THE ASSESSEE. THE ASSESSEE HAS BEEN PROVIDED ENTITL EMENT/INCENTIVE IN THE FORM OF CARBON CREDIT. HENCE, THIS RECEIPT DOES NOT HAVE THE ELEMENT OF INCOME OR PROFIT EMBEDDED TO IT. FURTHER, THE ABOVE INCENTIVE HAS BEEN GRANTED AS PER KYOTO PROTOCOL TO INCENTIVIZE THE IN DUSTRY IN THE DEVELOPING COUNTRIES FOR REDUCTION OF CARBON EMISSI ON. HENCE, THE SAME 36 NEEDS TO BE CONSIDERED AS CAPITAL RECEIPT NOT CHARG EABLE TO TAX. AS REGARDS THE CONTENTION OF THE DR THAT THE SAME IS CHARGEABL E TO TAX AS BUSINESS INCOME OR AS CAPITAL GAINS, THE AR SUBMITTED THAT T HE ABOVE ISSUE HAS ALREADY BEEN CONSIDERED BY THE HONBLE HYDERABAD TR IBUNAL THAT THE SAID RECEIPT IS NOT CHARGEABLE TO TAX AS IT DOES NOT FAL L U/S 2(24), 28, 45 AND 56 OF THE ACT. 38. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE EVIDENCE ON RECORD. WE FIND THAT THE APPELLATE TRIBUNAL IN MY H OME POWER LTD VS. DCIT [SUPRA], HAVE, AFTER DETAILED EXAMINATION, CON CLUDED THAT THE RECEIPTS FROM CARBON CREDIT ARE CAPITAL IN NATURE. WE ARE INCLINED TO FOLLOW THE SAID DECISION AND THE OTHER TWO DECISION S OF CHENNAI TRIBUNAL IN SRI VELAYUDHASWAMY SPINNING MILLS (P.) LTD. VS. DCIT [SUPRA] AND AMBIKA COTTON MILLS LTD. VS. DCIT (SUPRA) WHERE ALS O IT HAS BEEN HELD THAT RECEIPT ON ACCOUNT OF CARBON CREDIT IS CAPITAL IN NATURE & NEITHER CHARGEABLE TO TAX UNDER THE HEAD BUSINESS INCOME NO R LIABLE TO TAX UNDER THE HEAD CAPITAL GAINS. OUR ABOVE VIEW IS ALSO SUPP ORTED BY THE DECISION OF SUPREME COURT IN THE CASE OF VODAFONE INTERNATIO NAL HOLDINGS VS. UOI [SUPRA] WHEREIN SUPREME COURT HAS HELD THAT TRE ATMENT OF ANY PARTICULAR ITEM IN DIFFERENT MANNER IN THE 1961 ACT AND DTC SERVES AS AN IMPORTANT GUIDE IN DETERMINING THE TAXABILITY OF SA ID ITEM. SINCE DTC BY VIRTUE OF THE DEEMING PROVISIONS SPECIFICALLY PROVI DES FOR TAXABILITY OF 37 CARBON CREDIT AS BUSINESS RECEIPT AND INCOME TAX AC T DOES NOT DO SO, OUR VIEW GETS DULY FORTIFIED BY THE PRINCIPLES STATED I N THE ABOVE DECISION OF SUPREME COURT. ACCORDINGLY THIS GROUND OF THE ASSES SEE IS ALLOWED AND THE ADDITION MADE BY THE AO IS DELETED. 39. GROUND NO. 7 OF THE ASSESSEE RELATES TO DISALLO WANCE OF PROFIT ON SALE OF FIXED ASSETS OF RS. 11,63,403/- & PROFIT ON SALE OF INVESTMENT OF RS. 4,13,50,483/- IN COMPUTING BOOK PROFIT U/S 115J B. THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON BLE TRIBUNAL IN ITS OWN CASE VIDE ORDER DATED 23 RD DEC. 2009 IN I.T.A NO. 942/JP/08. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TRIBUN AL, THIS GROUND OF THE ASSESSEE IS DISMISSED. 40. GROUND NO. 8 IS ON ACCOUNT OF DISALLOWANCE OF C ARBON CREDIT IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THIS IS SUE STANDS COVERED ON PRINCIPLE IN FAVOUR OF THE ASSESSEE VIDE THE ORDER OF THE HONBLE ITAT DATED 9 TH SEPT. 2011 FOR AY 2004-05, 2005-06 AND 2006-07 IN APPELLANTS OWN CASE IN ITA NO. 614, 615 AND 635/JP/2010. HONB LE TRIBUNAL IN THE SAID CASE HAVE HELD THAT CAPITAL RECEIPT IN THE FOR M OF SALES TAX SUBSIDY, NEEDS TO BE EXCLUDED IN COMPUTATION OF BOOK PROFIT ALL THE MORE SINCE THEY DONT HAVE ANY ELEMENT OF PROFIT EMBEDDED IN I T. WE FIND THAT CARBON CREDIT IS ALSO CAPITAL RECEIPT, WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT 38 EMBEDDED IN IT. EVEN HYD. TRIBUNAL IN MY HOME POWER LTD.(SUPRA) HAVE UPHELD THE ABOVE PRINCIPLES. HENCE, IN PRESENT CASE , RECEIPT ON ACCOUNT OF CARBON CREDIT, BEING PURELY CAPITAL IN NATURE NEEDS TO BE EXCLUDED IN COMPUTATION OF BOOK PROFIT. THE AO IS ACCORDINGLY D IRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF CARBON CREDIT IN COMPUT ING BOOK PROFIT U/S 115JB OF THE ACT. THIS GROUND IS ACCORDINGLY DECIDE D IN FAVOR OF THE ASSESSEE. 41. NOW WE TAKE UP THE REVENUES APPEAL FOR AY 2008 -09 VIDE ITA NO. 569/JP/2012. 42. GROUND NO. 1 IS ON ACCOUNT OF DISALLOWANCE OF S ALES TAX INCENTIVE AS CAPITAL RECEIPT. THE FACTS OF THE ABOVE ISSUE AR E IDENTICAL TO GROUND NO. 1 FOR AY 2007-08 OF THE REVENUES APPEAL. THIS GROU ND HAS BEEN EXTENSIVELY DEALT WITH ABOVE WHILE DEALING WITH THE REVENUES APPEAL FOR AY 2007-08 IN ITA NO. 568/JP/2012 AND IN THE LIGHT OF OUR FINDINGS RECORDED THEREIN, WE HOLD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE IS CAPITAL RECEIPT AND THIS GROUND OF THE DEPARTMENT I S ACCORDINGLY DISMISSED. 43. GROUND NO. 2 OF THE REVENUE RELATES TO THE RELI EF GRANTED BY CIT(APPEALS) ON ACCOUNT OF EXPENDITURE INCURRED ON GIFTS FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR EAR LIER YEAR. WE HAVE 39 ALREADY HELD WHILE DEALING WITH THE ASSESSEES APPE AL, THAT RELIEF GRANTED AND DISALLOWANCE CONFIRMED BY THE CIT(APPEALS) ON A CCOUNT OF EXPENDITURE INCURRED ON GIFTS IS A REASONED ONE. AC CORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSED. 44. GROUND NO. 3 IS ON ACCOUNT OF DELETION OF DISAL LOWANCE OF SALES TAX INCENTIVE AS CAPITAL RECEIPT IN BOOK PROFIT COM PUTATION U/S 115JB OF THE ACT. THIS ISSUE IS ALSO COVERED IN FAVOUR OF TH E ASSESSEE VIDE THE ORDER OF THE HONBLE ITAT DATED 9 TH SEPT. 2011 FOR AY 2004-05, 2005-06 AND 2006-07 IN APPELLANTS OWN CASE IN ITA NO. 614, 615 AND 635/JP/2010. HONBLE TRIBUNAL IN THE SAID CASE HAVE HELD THAT CA PITAL RECEIPT IN THE FORM OF SALES TAX SUBSIDY, NEEDS TO BE EXCLUDED IN COMPU TATION OF BOOK PROFIT. RELYING UPON THE ABOVE ORDERS OF ITAT IN ASSESSEES OWN CASE, THIS GROUND OF THE DEPARTMENT IS DISMISSED. 45. NOW WE TAKE UP ASSESSEES APPEALS FOR AY 2009-1 0 IN ITA NO. 505/JP/2012. 46. GROUND NO. 1 & 2 ARE ON DEDUCTION U/S 80IA AND SUBSTANTIVELY SIMILAR TO CORRESPONDING GROUNDS FOR AY 2007-08 & 2008-09. THE AR FOR THE ASSESSEE SUBMITTED THAT SINCE IN THE RELEVA NT PREVIOUS YEAR, TRANSACTION VALUES FROM POWER EXCHANGE (IEX) WERE A VAILABLE FROM JUNE 28, 2008 ONWARDS, THE ASSESSEE HAS ADOPTED (A) FOR THE PERIOD UP TO JUNE 27, 08, THE MARKET VALUE IN RELATION TO INDEPENDEN T THIRD PARTY 40 TRANSACTIONS AS IN EARLIER YEARS AND (B) FOR THE PE RIOD FROM JUNE 28, 08 TO MARCH 31, 2009, IEX MARKET PRICE FOR POWER SALE IN N2 REGION WHICH INCLUDES THE STATE OF RAJASTHAN. IN THE ASSESSMENT ORDER, THE AO HAS ACCEPTED THE ASSESSEES BASIS UPTO JUNE 27 08 AS P ER (A) ABOVE. HOWEVER, FOR THE PERIOD FROM JUNE 28, 08 TO AUGUST 29,08 H E HAS ADOPTED IEX MARKET VALUE FOR POWER SOLD ON THE POWER EXCHANGE [ BY ADOPTING ALL INDIA RATE INSTEAD OF N2 REGION RATE APPLICABLE TO RAJASTHAN WHERE ASSESSEES UNIT IS LOCATED] AND FOR THE SUBSEQUENT PERIOD, THE AO HAS ADOPTED RATE AT WHICH POWER IS SOLD BY THE ASSESSEE S POWER UNIT TO THIRD PARTIES, WHEN NOT REQUIRED BY ITS CEMENT UNIT. WE H AVE EXTENSIVELY DEALT WITH THE DISPUTE ON ADAPTATION OF MARKET VALUE FOR POWER CAPTIVELY CONSUMED IN PARA 2 TO 14 ABOVE WHILE DEALING WITH A SSESSEES APPEAL FOR AY 2007-08 IN ITA NO. 503/JP/12 AND IN THE LIGHT OF OUR FINDINGS AND DECISION RECORDED IN PARA 13 ABOVE, WE HOLD THAT TH E DISALLOWANCE IN THIS YEAR ALSO NEEDS TO BE DELETED. ASSESSEES GROUNDS A RE THEREFORE ALLOWED AND CORRESPONDING DISALLOWANCE U/S 80IA IS DELETED. 47. GROUND NO. 3 OF THE ASSESSEE RELATES TO DISALLO WANCE OF TELEPHONE EXPENSES OF RS. 1,00,000/- CONFIRMED BY CIT(APPEALS ). THE FACTS OF THIS ISSUE ARE EXACTLY SIMILAR TO THE FACTS AS DISCUSSED IN AY 2007-08. ACCORDINGLY, WITH THE HELP OF THE REASONINGS GIVEN IN EARLIER YEAR, WE SET ASIDE THIS GROUND TO THE FILE OF THE AO TO VERIFY T HE SAME AFTER PROVIDING 41 OPPORTUNITY TO THE ASSESSEE. THIS GROUND OF THE ASS ESSEE IS THEREFORE ALLOWED FOR THE STATISTICAL PURPOSES ONLY. 48. GROUND NO. 4 & 5 OF THE ASSESSEE RELATED TO DIS ALLOWANCE OF RECEIPTS FROM CARBON CREDIT AS REVENUE RECEIPT. FAC TS OF THIS ISSUE IS IDENTICAL TO GROUND NO. 5 & 6 FOR AY 2008-09. THIS GROUNDS HAVE BEEN EXTENSIVELY DEALT WITH WHILE DEALING WITH ASSESSEE S APPEAL FOR AY 2008-09 IN ITA NO. 504/JP/2012. WITH THE HELP OF TH E REASONINGS GIVEN FOR AY 2008-09, WE HOLD THAT THE RECEIPTS ARE CAPIT AL IN NATURE. ASSEESSEES GROUNDS ARE THEREFORE ALLOWED AND CORRE SPONDING ADDITION IS DELETED. 49. GROUND NO. 6 OF THE ASSESSEE RELATES TO DISALLO WANCE OF TELEPHONE EXPENSES OF RS. 2,00,000/- IN COMPUTING BOOK PROFIT . THE FACTS ARE THAT THE A.O. MADE DISALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSES BOTH UNDER NORMAL PROVISIONS AS WELL AS IN COMPUTING BOO K PROFIT UNDER MAT WITHOUT ASSIGNING ANY REASON. CIT(APPEALS) HELD THA T AS THE SAME IS DISALLOWABLE UNDER NORMAL PROVISIONS AND THE A.O. I S JUSTIFIED IN MAKING DISALLOWANCE UNDER MAT AS WELL. THE AR OF THE ASSES SEE POINTED OUT THAT WHILE COMPUTING BOOK PROFIT NO ADJUSTMENT CAN BE MADE APART FROM THOSE SPECIFIED IN EXPLANATION TO SEC 115JB OF THE ACT. SINCE TELEPHONE EXPENSES ARE NOT SPECIFIED, SUCH DISALLOWANCE IS NO T PERMISSIBLE IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. WE AGRE E WITH THE VIEW OF 42 THE LEARNED AR AND HOLD THAT DISALLOWANCE OF TELEPH ONE EXPENSES NEEDS TO BE DELETED IN BOOK PROFIT U/S 115JB OF THE ACT. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED. 50. GROUND NO. 7 IS ON ACCOUNT OF DISALLOWANCE OF C ARBON CREDIT IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THIS GR OUND HAS BEEN EXTENSIVELY DEALT WITH WHILE DEALING WITH ASSESSEE S APPEAL FOR AY 2008-09 IN ITA NO. 504/JP/2012. WITH THE HELP OF TH E REASONINGS GIVEN FOR AY 2008-09, WE HOLD THAT THE RECEIPTS ON ACCOUN T OF CARBON CREDIT ARE CAPITAL IN NATURE DEVOID OF ANY PROFIT ELEMENT AND ARE TO BE EXCLUDED IN COMPUTING BOOK PROFIT U/S 115JB. THE AO IS ACCOR DINGLY DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF CARBON CREDI T IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. ACCORDINGLY, THIS GROU ND OF THE ASSESSEE IS ALLOWED. 51. NOW, WE TAKE UP THE REVENUES APPEAL FOR AY 200 9-10. 52. GROUND NO. 1 & 2 ARE ON ACCOUNT OF TREATMENT OF SALES TAX SUBSIDY AS CAPITAL RECEIPT AND ALSO EXCLUDING THE S AME IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE ABOVE GROUNDS ARE IDENTICAL AS PER GROUND 1 & 3 FOR AY 2008-09 IN ITA NO. 569/JP/2 012. FOLLOWING OUR DECISION IN SAID YEAR, THESE GROUNDS OF THE DEP ARTMENT ARE DISMISSED. 43 53. IN THE RESULT, THE ASSESSEES APPEALS FOR AY 2 007-08, 2008-09 & 2009-10 VIDE ITA NO. 503/JP/2012, 504/JP/2012 & 505 /JP/2012 ARE PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL P URPOSES AND DEPARTMENTAL APPEALS VIDE ITA NO. 568/JP/2012, 569/JP/2012 & 570 /JP/2012 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27- 01-2014 SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMEBR JUDICIAL MEMBER JAIPUR DATED: 27 TH JAN 2014 COPY FORWARDED TO:- 1.M/S. SHREE CEMENT LTD., BEAWAR 2. THE ADDL. CIT, RANGE-2, JAIPUR / ACIT, CIRCLE- 2 , JAIPUR 3. THE LD. CIT(A) 4. THE LD. CIT BY ORDER 5. THE LD. DR 6. THE GUARD FILE (ITA NOS. 503/JP/2012 ITAT, JAIPUR