DCIT, Tiruppur V. Sri Matha Spinning Mills P Ltd., Tiruppur

ITA 606/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4610 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 29-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: T BHANUSEKAR
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE , ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER REVENUE BY : MR. S.DAS GUPTA, JCIT ASSESSEE BY : MR. T.BHANUSEKAR, C.A DATE OF HEARING : 29 TH AUGUST, 2013 DATE OF PRONOUNCEMENT : 3 0 TH AUGUST, 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JM : THESE TWO APPEALS ARE FILED BY THE REVENUE AND TH E ASSESSEE RESPECTIVELY FOR THE ASSESSMENT YEAR 2009 -10 AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, COIMBATORE DATED 30.01.2013. FIRST WE TAKE UP THE APPEAL OF THE REVENUE. ITA NO. 606/MDS/2013:- 2. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, COIMBA TORE ITA NO. APPELLANT RESPONDENT ASSESS- MENT YEAR 606/MDS/2013 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR. M/S. SRI MATHA SPINNING MILLS P. LTD., 207/86, MANGALAM ROAD, TIRUPUR-641 601. PAN:AAECS1881Q 2009-10 617/MDS/2013 M/S. SRI MATHA SPINNING MILLS P. LTD., TIRUPUR-641 601. PAN:AAECS1881Q THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR. 2009-10 ITA NOS. 606 & 617/MDS//2013 2 DATED 30.01.2013 FOR THE ASSESSMENT YEAR 2009-10. THE ONLY GRIEVANCE OF THE REVENUE IN THIS APPEAL IS THA T THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLO WING DEDUCTION CLAIMED FOR THE EXPENDITURE INCURRED TOWA RDS MODERNIZATION EXPENSES ON COMPACT DRAFTING SYSTEM AS REVENUE EXPENDITURE UNDER SECTION 37 OF THE ACT. 3. AT THE TIME OF HEARING, THE AUTHORIZED REPRESENT ATIVE FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN THE APP EAL IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. PRABHU SPINNING M ILLS P.LTD. FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.593/MDS/2 013 DATED 9.7.2013. 4. THE DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORD ER OF THE ASSESSING OFFICER. 5. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE DECISION OF THE CO-ORDINATE BEN CH OF THIS TRIBUNAL IN ITA NO.593/MDS/2013 DATED 9.7.2013 FO R THE ITA NOS. 606 & 617/MDS//2013 3 ASSESSMENT YEAR 2008-09. THE COMMISSIONER OF INC OME TAX (APPEALS) FOLLOWING THE DECISION OF TRIBUNAL I N THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO.1848/MDS/2011 DATED 20.01.2012 ALLOWED THE CLAI M OF THE ASSESSEE HOLDING THAT EXPENDITURE ON COMPACT SP INNING SYSTEM IS ALLOWABLE AS REVENUE EXPENDITURE. WE HAV E GONE THROUGH THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. PRABHU SPINNING MILLS PVT. LTD. FO R THE ASSESSMENT YEAR 2008-09 IN ITA NO.593/MDS/2013 DAT ED 9.7.2013, WHEREIN SIMILAR ISSUE HAS BEEN CONSIDERED AND HELD IN FAVOUR OF THE ASSESSEE OBSERVING AS UNDER:- 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVE OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS RELIED ON BY THE REPRESENTATIVES OF BOTH THE SIDES. WE FIND THAT THE ISSUE IN HAND HAS ALREA DY BEEN ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY. 2007-08 IN ITA NO. 1847/MDS/2011 (SUPRA) WHEREIN THE TRIBUNAL HAS DISCUSSED IN DETAIL THE PROCESS OF COMPACT SPINNING SYSTEM TO DETERMINE THE NATURE OF EXPENDITURE. THE RELEVANT EXTRACT OF THE ORDER O F THE TRIBUNAL IS RE-PRODUCED HERE IN BELOW: 11. AFTER COGITATING THE RIVAL STANDS IN THE LIGHT OF THE OBTAINING EVIDENCE/FACTS/CIRCUMSTANCES OF THE CASE, WE HAVE FOUND THAT DURING THE YEAR THE ASSESSEE-COMPAN Y HAD INSTALLED A NEW TECHNOLOGY CALLED COMPACT SPINNING SYSTEM. TO UNDERSTAND THE EXACT NATURE OF THIS EXPENDITURE WE HAVE TO EXAMINE THE PROCESS ITA NOS. 606 & 617/MDS//2013 4 INVOLVED IN THIS CASE. THE YARN FROM THE STAGE OF SIMPLEX IS SENT TO DRAFTING BEFORE SPINNING. THE DR AFTING SYSTEM IS SITUATED IN THE RING FRAMES. THE CONVENTI ONAL DRAFTING SYSTEM HAS BEEN REPLACED WITH THE LATEST, STATE-OF-THE-ART GADGET CALLED COMPACT SPINNING. AFTER EXAMINING THE RELEVANT DETAILS, WE HAVE FOUND THAT THIS IS A SINGLE PIECE GADGET WHICH IS FIXED TO EACH SPI NDLE. IT IS NOT A MACHINERY BY ITSELF BUT ONLY AN ATTA CHMENT TO THE MACHINE (LIKE MANUAL ANALOG WALL CLOCK IS F IXED WITH BATTERY OPERATED SYSTEM). IT HAS BEEN CLAIMED AS REVENUE EXPENDITURE. THE OLD DRAFTING SYSTEMS HAVE BECOME SCRAP ON REPLACEMENT. THE LD. A.R HAS TAKEN US THROUGH A SET OF COLOUR PHOTOGRAPHS TO ILLUSTRAT E THE NATURE AND WORKING OF THIS 'COMPACT SPINNING SYSTEM '. IT IS SEEN FROM THE RECORDS [PAPER BOOK PAGE 5] THA T THE ASSESSEE HAD PURCHASED 33 NUMBER OF RING FRAMES AND 18 RING FRAMES FITTED WITH GADGETS. THE COMPANY HAS PURCHASED 18 NUMBER OF SETS, AS ONE SET IS REQUIRED FOR ONE RING FRAME. THUS, TOTAL NUMBER OF GADGETS FOR 1 8 RING FRAMES COMES TO 20,736 AND THE RATE PER GADGET SO PURCHASED COMES TO RS. 4,079/-. WE HAVE SEEN THE COMMERCIAL INVOICES ENCLOSED IN THE PAPER BOOK AND FOUND THE SUBMISSION OF THE LD. A.R TO BE CORRECT. WE HAVE FOUND THAT DURING THE YEAR THE ASSESSEE-COMPAN Y HAS INSTALLED NEW TECHNOLOGY GADGETS CALLED 'COMPAC T SPINNING SYSTEM'. THE YARN FROM THE STAGE OF SIMPLE X IS SENT THROUGH THE DRAFTING FOR SPINNING BY RING F RAMES. THE DRAFTING SYSTEM IS SITUATED IN THE RING FRAMES. THE CONVENTIONAL DRAFTING SYSTEM IS REPLACED WITH THE L ATEST, STATE OF THE ART GADGET CALLED COMPACT SPINNING. THIS IS A SINGLE PIECE GADGET AND THIS IS FIXED TO EACH SPINDLES. EACH GADGETS COST RS. 4,100/- EACH BECAUS E THE ASSESSEE HAS PURCHASED 37,296 SUCH GADGETS IN 37 SETS[BATCHES] FOR RS. 15.39 CRORES. THUS, IT IS NOT A MACHINERY BY ITSELF BUT ONLY AN ATTACHMENT TO THE EXISTING MACHINE. WE HAVE UNDERSTOOD THAT THIS GADG ET CANNOT FUNCTION INDEPENDENTLY. IT FUNCTIONS ONLY AN D ONLY IF IT IS FIXED IN THE SPINDLES. EACH RING FRAM E COMES WITH CONVENTIONAL DRAFTING GADGET AS WE HAVE UNDERSTOOD FROM THE PICTOGRAPH AND PHOTOGRAPHS PRODUCED BY THE LD. A.R. THEREFORE, IN ORDER TO PRO DUCE HIGH QUALITY OF YARN, THE CONVENTIONAL TYPE IS REPL ACED WITH THE LATEST, HI-TECH GADGET. IT WAS BROUGHT TO OUR NOTICE AND IT WAS FOUND FOR A FACT THAT ALL THE RIN G FRAMES HAVE NOT BEEN REPLACED WITH THE LATEST GADGET. ONLY CERTAIN NUMBER OF RING FRAMES ARE FITTED WITH THIS NEW GADGET AND THE REMAINING CONTINUED TO MANUFACTURE EARLIER QUALITY OF YARN CATERING TO THE REQUIREMENT OF ITA NOS. 606 & 617/MDS//2013 5 LOWER STRATA OF THE SOCIETY. OUT OF 50 RING FRAMES, ONLY 37 RING FRAMES ARE FITTED WITH THIS GADGET AND THE REMAINING ARE RUNNING WITH CONVENTIONAL GADGET. THI S FACT WAS ALSO FOUND TO BE UNDENIABLE AND TO BE CORR ECT. IT WAS ALSO FOUND TO BE A FACT THAT THE OLD DRAFTIN G SYSTEMS SIMPLY BECOME SCRAP ON REPLACEMENT AND CANNOT BE USED AGAIN AS SUCH. WE ARE CONVINCED THAT THE YARN NORMALLY CONTAINS HAIRY SUBSTANCE LIKE B RISTLES ON THE SIDE OF THE THREAD AND WHEN THIS YEARN IS SE NT THROUGH THE 'COMPACT SPINNING SYSTEM', THESE HAIRY SUBSTANCES ARE REMOVED AND YARN GETS A SHINING. MANUFACTURING PREMIUM QUALITY OF YARN WHICH FETCHES HIGHER PRICE IN THE MARKET AND ATTRACTS HIGH INCOME GROUP CUSTOMERS. WE HAVE ALSO UNDERSTOOD THE NEED FOR INSTALLING THESE COMPACT SPINNING SYSTEMS BECAU SE THESE ARE USED IN MANUFACTURE OF T SHIRTS AND THE MANUFACTURERS OF T SHIRTS NEED SUCH PREMIUM BRAND PRODUCTS. THIS CHANGE WAS NECESSITATED TO COMPETE I N THE MARKET AND THIS STEP OF THE ASSESSEE CANNOT BE TAKEN AS A SURPRISE BUT HAS TO BE TREATED AS TAKEN IN BUSINESS EXIGENCY. WHEN A QUESTION REGARDING LIFE O F THESE GADGETS WAS PUT TO THE LD. A.R, HE STATED THA T EACH GADGET ITSELF CONSIST OF MANY SMALL PARTS AND EACH PART IS ASSEMBLED TOGETHER TO HAVE ONE SINGLE GADGE T SO, THEY ARE SUBJECT TO HEAVY WEAR AND TEAR DUE TO CONTINUOUS RUNNING. IT WAS BROUGHT TO OUR NOTICE WI TH CERTITUDE THAT THESE GADGETS REQUIRE CONSTANT REPLACEMENT ALMOST AFTER FOUR YEARS AT THE MAXIMUM . WE FIND THAT THE TRIBUNAL WHILE ADJUDICATING THE MATTER HAS ALSO TAKEN INTO CONSIDERATION VARIOUS CASE LAWS DECIDED BY THE HONBLE SUPREME COURT OF INDIA INCLUDING ASSAM BENGAL CEMENT CO. LTD., VS. CIT REPORTED AS 27 ITR 34 (SC); EMPIRE JUTE CO. LTD., VS. CIT REPORTED AS 124 ITR 1 (SC); ALEMBIC CHEMICAL WORKS CO. LTD., VS. CIT REPORTED AS 177 ITR 377 (SC); AND THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. VIJAYESWARI TEXTILES LTD., IN ITA NO. 963/MDS/2011 FOR AY. 2006-07 DATED 23-08-2011. THE CO-ORDINATE BENCH OF THE TRIBUNAL AFTER DISCUSSING THE FACTS OF THE CASE AND THE AFORESAID DECISIONS OF THE HONBLE APEX COURT CAME TO THE CONCLUSION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON INTRODUCING THE COMPACT SPINNING SYSTEM IS REVENUE IN NATURE AND IS THUS AN ALLOWABLE EXPENDITURE. ITA NOS. 606 & 617/MDS//2013 6 7. SINCE THE ISSUE IN HAND IS SIMILAR TO THE ONE DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY. 2007-08, AND DISMISS THIS APPEAL OF THE REVENUE HOLDING THE EXPENDITURE INCURRED BY THE ASSESSEE ON INTRODUCING COMPACT SPINNING SYSTEM AS REVENUE EXPENDITURE. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED. 6. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-OR DINATE BENCH OF THIS TRIBUNAL CITED ABOVE, WE REJECT THE G ROUNDS OF APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ITA NO.617/MDS/2013:- 8. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I I, COIMBATORE DATED 30.01.2013. 9. THE FIRST ISSUE RAISED IN THE APPEAL OF THE ASSE SSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING CLEAN DEVELOPMENT MECHANISM RECEIPTS OF ` 2,80,17,966/- AS REVENUE RECEIPTS. ITA NOS. 606 & 617/MDS//2013 7 10. AT THE TIME OF HEARING, THE AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS SQUAREL Y COVERED BY THE DECISIONS OF THE CO-ORDINATE BENCH OF THIS T RIBUNAL IN THE CASE OF SRI VELAYUDHASWAMY SPINNING MILLS P.LTD . VS. DCIT IN ITA NO.582/MDS/2013 AND IN THE CASE OF SR I AMBIKA COTTON MILLS LTD. VS. DCIT IN ITA NO.1836/MDS/2012 . THE COPIES OF THE SAID ORDERS ARE PLACED AT PAGE 48 AND 55 RESPECTIVELY IN THE PAPER BOOK FILED. 11. THE DEPARTMENTAL REPRESENTATIVE SUPPORTS THE OR DERS OF THE LOWER AUTHORITIES. 12. WE HAVE GONE THROUGH THE ORDER OF THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF SRI VELAYUDHA SWAMY SPINNING MILLS P. LTD. AND FIND THAT THE ISSUE IN A PPEAL IS SQUARELY COVERED BY THE SAID DECISION, WHEREIN THE TRIBUNAL HELD THAT CLEAN DEVELOPMENT MECHANISM RECEIPTS ARE CAPITAL RECEIPTS AND NOT REVENUE RECEIPTS. WHILE HOLDING SO , THE TRIBUNAL OBSERVED AS UNDER:- 5. WE HAVE HEARD SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE ITA NOS. 606 & 617/MDS//2013 8 HAVE ALSO EXAMINED THE JUDGMENTS/ORDERS RELIED UPON BY THE REPRESENTATIVES OF BOTH THE SIDES. WE FIND THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MY HOME POWER LIMITED VS. DCIT (SUPRA). THE HYDERABAD BENCH WHILE DEALING WITH THE SIMILAR ISSUE HAS HELD AS UNDER: 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. CARBON CREDIT IS IN THE NATURE OF 'AN ENTITLEMENT' RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING CARBON, HEAT AND GAS EMISSIONS. THE ENTITLEMENT EARNED FOR CARBON CREDITS CAN, AT BEST, BE REGARDED AS A CAPITAL RECEIPT AND CANNOT 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 CREDIT IS WORLD CONCERN AND ENVIRONMENT. DUE TO THE ASSESSEE GETS A PRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, THE AMOUNT RECEIVED FOR CARBON CREDITS HAS NO ELEMENT OF PROFIT 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 AND 56 OF THE INCOME-TAX ACT, 1961. CARBON CREDITS ARE MADE AVAILABLE TO THE ASSESSEE ON ACCOUNT OF SAVING OF ENERGY CONSUMPTION AND NOT BECAUSE OF ITS BUSINESS. FURTHER, IN OUR OPINION, CARBON CREDITS CANNOT BE CONSIDERED AS A BI-PRODUCT. IT IS A CREDIT GIVEN TO THE ASSESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. THUS, THE ASSESSEES WHO HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CAPPED ITA NOS. 606 & 617/MDS//2013 9 EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE CARBON CREDIT IS NOT A RESULT OR INCIDENCE OF ONE'S BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CREDITS GET BENEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS CARBON CREDITS TO OVERCOME ONE'S NEGATIVE POINT CARBON CREDIT. THE AMOUNT RECEIVED IS NOT RECEIVED FOR PRODUCING AND/OR SELLING ANY PRODUCT, BI-PRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYING ON THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS ENTITLEMENT OR ACCRETION OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CREDITS IS CAPITAL RECEIPT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. MAHESHWARI DEVI JUTE MILLS LTD. (57 ITR 36) WHEREIN HELD THAT TRANSFER OF SURPLUS LOOM HOURS TO OTHER MILL OUT OF THOSE ALLOTTED TO THE ASSESSEE UNDER AN AGREEMENT FOR CONTROL OF PRODUCTION WAS CAPITAL RECEIPT AND NOT INCOME. BEING SO, THE CONSIDERATION RECEIVED BY THE ASSESSEE IS SIMILAR TO CONSIDERATION RECEIVED BY TRANSFERRING OF LOOM HOURS. THE SUPREME COURT CONSIDERED THIS FACT AND OBSERVED THAT TAXABILITY OF PAYMENT RECEIVED FOR SALE OF LOOM HOURS BY THE ASSESSEE IS ON ACCOUNT OF EXPLOITATION OF CAPITAL ASSET AND IT IS CAPITAL RECEIPT AND NOT AN INCOME. SIMILARLY, IN THE PRESENT CASE THE ASSESSEE TRANSFERRED THE CARBON CREDITS LIKE LOOM 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 OPINION THAT THE CONSIDERATION RECEIVED ON ACCOUNT OF CARBON CREDITS CANNOT BE CONSIDERED AS INCOME AS TAXABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GENERATED IN THE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO ITA NOS. 606 & 617/MDS//2013 10 ENVIRONMENTAL CONCERNS. CREDIT FOR REDUCING CARBON EMISSION OR GREENHOUSE 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 EXPENSES. IT IS A NATURE OF ENTITLEMENT TO REDUCE CARBON EMISSION, HOWEVER, THERE IS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET THIS ENTITLEMENT . CARBON CREDIT IS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME . 25. FURTHER, AS PER GUIDANCE NOTE ON ACCOUNTING FOR SELF-GENERATED CERTIFIED EMISSION REDUCTIONS (CERS) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) IN JUNE, 2009 STATES THAT CERS SHOULD BE RECOGNIZED IN BOOKS WHEN THOSE ARE CREATED BY UNFCCC AND/OR UNCONDITIONALLY AVAILABLE TO THE GENERATING ENTITY . CERS ARE INVENTORIES OF THE GENERATING ENTITIES AS THEY ARE GENERATED AND HELD FOR THE PURPOSE OF SALE IN ORDINARY COURSE. EVEN THOUGH CERS ARE INTANGIBLE ASSETS THOSE SHOULD BE ACCOUNTED AS PER AS-2 (VALUATION OF INVENTORIES) AT A COST OR MARKET PRICE, WHICHEVER IS LOWER. SINCE CERS ARE RECOGNISED AS INVENTORIES, THE GENERATING ASSESSEE SHOULD APPLY AS-9 TO RECOGNISE REVENUE IN RESPECT OF SALE OF CERS. 26. THUS, SALE OF CARBON CREDITS IS TO BE CONSIDERED AS CAPITAL RECEIPT. THIS GROUND IS ALLOWED. THE RATIO LAID DOWN IN JUDGMENTS RELIED UPON BY THE LD. DR ARE NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THEREFORE, THEY DO NOT SUPPORT THE CASE OF THE REVENUE. 6. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. AMBIKA COTTON MILLS LIMITED VS. DCIT (SUPRA) WHILE DEALING WITH AN IDENTICAL ISSUE ITA NOS. 606 & 617/MDS//2013 11 FOLLOWED THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF MY HOME POWER LIMITED VS. DCIT (SUPRA). RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, WE HOLD THAT THE CDM RECEIPTS ARE CAPITAL RECEIPTS. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 13. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E CO- ORDINATE BENCH OF THIS TRIBUNAL, WE HOLD THAT THE C LEAN DEVELOPMENT MECHANISM RECEIPTS ARE CAPITAL RECEIPTS . WE THEREFORE SET ASIDE THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS) ON THIS ISSUE AND ALLOW THIS GROUND O F APPEAL OF THE ASSESSEE. 14. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (AP PEALS) FAILED TO APPRECIATE THAT EXPENDITURE INCURRED TOWA RDS MODERNIZATION AND REPLACEMENT OF MACHINERY IS REVEN UE EXPENDITURE AND NOT CAPITAL EXPENDITURE. 15. THE ASSESSING OFFICER WHILE COMPLETING THE ASSE SSMENT DISALLOWED ` 1,36,97,608/- INCURRED TOWARDS MODERNIZATION EXPENSES IN RESPECT OF AUTOCONER TREATING THE SAID EXPENDITURE AS CAPITAL EXPENDITURE. THE COMMISSION ER OF ITA NOS. 606 & 617/MDS//2013 12 INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER FOLLOWING THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF CIT VS. MANGAYARKARASI MILLS P. LTD. (315 ITR 114), AGAINST WHICH THE ASSESSEE IS I N APPEAL BEFORE US. 16. THE COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES TO EM PHASIZE THAT THAT THE EXPENDITURE IS ONLY REVENUE EXPENDITU RE AND NOT CAPITAL EXPENDITURE. 17. THE DEPARTMENTAL REPRESENTATIVE SUPPORTS THE OR DER OF THE LOWER AUTHORITIES. 18. HEARD BOTH SIDES. PERUSED THE ORDERS OF THE LOW ER AUTHORITIES. WE FIND THAT THE COMMISSIONER OF INCOM E TAX (APPEALS) HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON REPLACEMENT OF AUTOCONER MACHINE AS CAPITAL EXPE NDITURE FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF M/S. MANGAYARKARASI MILLS P.LTD. (SUPRA). WHILE HOL DING SO, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UN DER:- ITA NOS. 606 & 617/MDS//2013 13 6. EXPENDITURE ON AUTOCONER MACHINES TO THE TUNE OF ` 1,36,97,608/-: THE ASSESSEE HAS INCURRED EXPENDITURE OF ` 1,36,97,608/- ON PURCHASE OF AUTOCONER MACHINES. FOR THESE MACHINERIES, THE ASSESSEE SUBMITTED THAT THERE IS NO INCREASE IN NUMBER OF SPINDLAGE BEFORE AND AFTER REPLACEMENT AND HENCE IT IS TO BE HELD AS REVENUE EXPENDITURE AS HELD IN THE CASE OF SRI KARTHIKEYA SPINNING MILLS (2004) 265 ITR 285. 6.1 ACCORDING TO ME, THE EXPENDITURE OF THE ASSESSEE IN THE PURCHASE OF ABOVE MACHINERIES HAS RESULTED IN ENDURING BENEFIT TO THE COMPANY AND THEREFORE IS CLEARLY A CAPITAL EXPENDITURE SQUARELY COVERED BY THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS. MANGAYARKARASI MILLS PVT LTD. REPORTED IN 315 ITR 114. 6 . 2 HENCE RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HON'BLE APEX COURT IN THE CASE OF MANGAYARKARASI MILLS PVT LTD. CITED SUPRA, WHICH IS FULLY RELEVANT TO THE FACTS OF THE CASE IN HAND , THE ACTION OF A .O. IN TREATING THE EXPENDITURE MADE BY THE ASSESSEE ON REPLACEMENT OF MACHINERIES AS CAPITAL EXPENDITURE IS UPHELD. HOWEVER THE ASSESSEE WILL BE ENTITLED TO PROPORTIONATE DEPRECIATION ON THE QUANTUM OF EXPENDITURE CAPITALIZED. THIS GROUND APPEAL IS ACCORDINGLY DISMISSED. ITA NOS. 606 & 617/MDS//2013 14 19. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE DO NOT FIND ANY GOOD REASO N TO INTERFERE WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT EXPENDITURE ON REPLACEME NT OF AUTOCONER MACHINE IS CAPITAL EXPENDITURE. THEREFO RE, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ON THIS IS SUE ARE REJECTED. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. 21. TO SUM UP, THE APPEAL OF THE REVENUE IN ITA NO.606/MDS/2013 IS DISMISSED AND THAT THE ASSESSEE IN ITA NO.617/MDS/2013 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 30 TH DAY OF AUGUST, 2013 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE ) (CHALLA NA GENDRA PRASAD) ACCOUNTANT MEMBER J UDICIAL MEMBER CHENNAI, DATED THE 30 TH AUGUST, 2013. SOMU COPY TO: (1) ASSESSEE (4) CIT(A) (2) ASSESSING OFFICER (5) D.R. (3) CIT (6 ) G.F.