DCIT, Mohali V. M/s Punjab Hydro Power Pvt. Ltd., Noida

ITA 900/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6908 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 01-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP DAHIYA
• Keywords: Business income; Earning of tax free income; Cost of acquisition; Capital receipt
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.900/CHD/2017 (ASSESSMENT YEAR : 2012-13) THE D.C.I.T., VS. M/S PUNJAB HYDRO POWER PVT. LTD., CIRCLE 6(1), B-37, SECTOR 1, 3 RD FLOOR, MOHALI. NOIDA. PAN: AACCP6806C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANDEEP DAHIYA, CIT DR RESPONDENT BY : SHRI TEJ MOHAN SINGH DATE OF HEARING : 25.07.2017 DATE OF PRONOUNCEMENT : 31.08.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER : THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS )-2, CHANDIGARH (HEREINAFTER REFERRED TO AS CIT(A)) DA TED 6.3.2017 RELATING TO ASSESSMENT YEAR 2012-13. 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEA L: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD, CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS. 4,27,78,057/- MADE BY THE AO BY DENYING THE BENEFIT OF DEDUCTION CLAIMED BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 80IA OF INCOME TAX ACT, 1 961 SINCE THIS INCOME WAS NOT DERIVED FROM THE ELIGIBLE BUSINESS OF THE ASSESSEE. 2 III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE RECEI PTS FROM THE SALE OF CERS AS CAPITAL RECEIPTS WHEREAS THE ASSESSEE ITSELF HAS TREATED THE SAME AS 'REVENU E RECEIPTS' IN ITS ORIGINAL RETURN OF INCOME. IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD, CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF INTEREST AT RS. L,54,66,354/~ MADE U/S 14A OF TH E ACT OBSERVING THAT THE ASSESSEE HAD NOT EARNED ANY EXEMPT INCOME WHEREAS AS PER CBDT CIRCULAR NO. 5 OF 2014, IT HAS BEEN CLARIFIED THAT THE DISALLOWANCE OF EXPENDITURE FOR EARNING EXEMPT INCOME U/S 14A READ WITH RULE 8D WOULD BE ATTRACTED EVEN IF THE CORRESPONDING EXEMPT INCOME HAS NOT BEEN EARNED DURING THE F.Y. UNDER CONSIDERATION. V) IT IS PRAYED THAT THE ORDER OF LD. C1T(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. VI) THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD OR DISPOSED OFF. 3. GROUND NOS.1, 5 AND 6 ARE GENERAL IN NATURE AND HENCE, DO NOT REQUIRE ANY ADJUDICATION. GROUND NOS.2 & 3: 4. VIDE THE ABOVE MENTIONED GROUNDS THE REVENUE HAS AGITATED THE ACTION OF THE LD.CIT(A) IN HOLDING THA T THE RECEIPTS FROM THE SALE OF CERTIFIED EMISSION REDUCT ION (CER) UNITS (IN SHORT CARBON CREDITS) AS CAPITAL RECEIPT NOT INCLUDIBLE IN THE TAXABLE INCOME OF THE ASSESSEE. 5. THE BRIEF FACTS ON THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EARNED INCOME OF RS.4,27,78,057/- ON ACCOUNT OF SALE OF CERTIFIED EM ISSION REDUCTION (CER) UNITS. IN THE ORIGINAL RETURN FILED, THE ASSESSEE CLAIMED IT AS REVENUE RECEIPT A ND CLAIMED 3 DEDUCTION U/S 80IA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) IN RESPECT OF THIS INCOME. SUBSEQUENTLY, THE ASSESSEE REVISED ITS RETURN AND CLAIMED RECEIPT FRO M SALE OF (CER) UNITS IN THE NATURE OF CAPITAL RECEIPTS. THE ASSESSING OFFICER HELD THAT THE INCOME EARNED BY THE ASSESSEE FROM (CER) UNITS WAS DIRECTLY OR INDIRECTLY RELATED TO T HE BUSINESS OF THE ASSESSEE AND, THEREFORE, THESE RECE IPTS WERE IN THE NATURE OF REVENUE RECEIPTS/BUSINESS INCOME O F THE ASSESSEE AND, THEREFORE, MADE ADDITION OF RS.4,27,7 8,057/- TO THE INCOME OF THE ASSESSEE. FURTHER THE ASSESSI NG OFFICER OBSERVED THAT THE INCOME FROM SALE OF (CERS ) WAS NOT DIRECTLY DERIVED FROM INDUSTRIAL UNDERTAKING AN D THESE WERE ANCILLARY PROFITS AND NOT ELIGIBLE FOR CLAIM O F DEDUCTION U/S 80IA OF THE ACT. 6. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT( A), WHO DELETED THE ADDITION SO MADE BY THE ASSESSING OFFIC ER BY RELYING UPON THE DECISION OF THE COORDINATE BENCH O F THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR ASSESS MENT YEAR 2009-10 VIDE ORDER DATED 15.4.2015 IN ITA NO.390/CHD/2013. THE RELEVANT PART OF THE LD.CIT(A ) IS REPRODUCED AS UNDER: 6.3 APPELLANT SUBMITTED THAT THE ISSUE OF CER'S AS CAPITAL RECEIPT IS SQUARELY COVERED IN THE ASSESSEE'S OWN CA SE FOR A.Y. 2009-10 BY THE ORDER OF CIT(A), CHANDIGARH AND UPHELD BY ITAT, CHANDIGARH. THE APPELLANT FILED COPIES OF THESE ORDERS WHICH HAVE BEEN PERUSED BY ME. THIS ISSUE HAS BEEN D ECIDED BY IT AT, CHANDIGARH BENCH IN THE CASE OF THE APPELL ANT FOR 4 A.Y. 2009-10 VIDE ORDER DATED 15.04.2015 IN ITA NO.390/CHD/2013 AS UNDER:- '7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY HYDERABAD BENCH OF THE TRIBUNAL IN THE CA SE OF MY HOME POWER LTD. VS. DCIT (SUPRA). IN THAT CASE IT W AS HELD AS UNDER:- HELD THAT CARBON CREDIT WAS IN THE NATURE OF 'AN ENTITLEMENT' RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING CARBON HEAT AND GAS EMISSIONS. IT WAS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET WAS GENERATED IN THE COURSE OF BUSINESS. CREDIT FOR REDUCING CARBON EMISSIO N OR GREEN HOUSE EFFECT COULD BE TRANSFERRED TO ANOTHE R PARTY IN NEED OF REDUCTION OF CARBON EMISSION. IT D OES NOT INCREASE PROFITS IN ANY MANNER AND DOES NOT NEED AN Y EXPENSES. IT WAS IN THE NATURE OF ENTITLEMENT TO REDUC E CARBON EMISSION AND THERE WAS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET THIS ENTITLEMENT CARBON CRE DIT WAS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. THE AMOUNT REALIZED ON TRANSFER OF CARBON CREDIT WA S NOT TAXABLE.' 8. THIS DECISION WAS CONFIRMED BY HON'BLE ANDHRA PRADESH HIGH COURT IN THE DECISION OF CIT VS MY HOM E POWER LTD. VS. DCIT 365 ITR 82 (A.P.) AND IT WAS HELD A S UNDER: HELD DISMISSION THE APPEAL THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF POWER GENERATION FOR TH E ASSESSMENT YEAR 2007-08. CARBON CREDIT WAS NOT AN OFFSHOOT OF BUSINESS OF THE ASSESSEE BUT AN OFFSHOO T OF ENVIRONMENTAL CONCERNS. NO ASSET WAS GENERATED IN THE COURSE OF BUSINESS BUT IT WAS GENERATED DUE TO ENVIRONMENTAL CONCERNS. THERE WAS NO COST OF ACQUISI TION OR COST OF PRODUCTION TO GET ENTITLEMENT FOR THE CA RBON CREDITS. THEREFORE, THE INCOME FROM SALE OF CARBON C REDITS WAS TO BE CONSIDERED AS CAPITAL RECEIPT AND NOT LIAB LE TO TAX UNDER ANY HEAD OF INCOME TAX ACT, 1961. 9. FURTHER THIS DECISION HAS BEEN FOLLOWED BY CHENNAI BENCH IN TWO CASES OF AMBIKA COTTON MILLS LTD. VS. DC /T (SUPRA) AND SRI VELAYUDHASWAMY SPINING MILLS P. LTD. VS. DC/T (SUPRA). EVEN JAIPUR BEANCH HAS FOLLOWED THIS DECISION IN THE CASE OF SHREE CEMENT LTD. VS. ADDL.CIT (SUPR A). NO DOUBT THE DR HAS BEEN ABLE TO POINT OUT THE CONTRAR Y DECISION RENDERED BY COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF APOLLO TYRES LTD. VS. ACIT (SUPRA). SINCE THE DECISION OF HYDERABAD TRIBUNAL BENCH HAS ALREADY BEEN CONFIRMED B Y THE HON'BLE ANDHRA PRADESH HIGH COURT AND THERE IS NO CONTRARY DECISION FROM ANY OTHER HIGH COURT IN OUR OPINION , WE ARE BOUND TO FOLLOW THE DECISION OF HIGH COURT. THEREFOR E, 5 FOLLOWING THIS DECISION WE DECIDE THIS ISSUE AGAINS T THE REVENUE.' 6.3.1 FOLLOWING THE DECISION OF HON'BLE ITAT, CHANDIGAR H (SUPRA), I HOLD THAT THE PROFIT ON SALE OF CER'S IS A C APITAL RECEIPT, NOT INCLUDIBLE IN THE TAXABLE INCOME OF THE AP PELLANT. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO TR EAT INCOME FROM SALE OF CARBON CREDITS (CER'S) AS CAPITAL RECEIPTS AND TH US THE INCOME FROM SALE OF CARBON CREDITS WILL NOT FORM PART OF TOTAL INCOME. GROUNDS OF APPEAL NO. 2 IS ALLOWED. 7. THE LD. DR HAS NOT POINTED OUT ANY CONTRARY DECI SION TO THE ABOVE PROPOSITION OF LAW LAID DOWN BY THE TR IBUNAL IN THE OWN CASE OF THE ASSESSEE AS DISCUSSED AND REPRO DUCED BY THE LD.CIT(A) IN THE IMPUGNED ORDER. WE, THEREF ORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A ) AND THE SAME IS HEREBY UPHELD. GROUND NO.4 : 8. THE REVENUE VIDE THIS GROUND HAS AGITATED THE AC TION OF THE LD.CIT(A) IN HOLDING THAT NO DISALLOWANCE U/ S 14A CAN BE MADE IN THE CASE OF THE ASSESSEE FOR THE YEA R UNDER CONSIDERATION AS THE ASSESSEE HAS NOT EARNED ANY TA X FREE EXEMPT INCOME DURING THE RELEVANT YEAR. THE LD.CIT (A) WHILE HOLDING SO HAS RELIED UPON THE DECISION OF TH E COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S BCL INDUSTRIES & INFRASTRUCTURES LTD. VS. DCIT FOR ASSE SSMENT YEAR 2010-11 IN ITA NO.1002/CHD/2013, ORDER DATED 13.1.2016. WE MAY POINT OUT HERE THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT ( 2015) 61 TAXMAN.COM 118 HAS HELD THAT SECTION 14A WILL NOT A PPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING T HE RELEVANT PREVIOUS YEAR AND THAT THE EXPRESSION DOE S NOT FORM PART OF THE TOTAL INCOME, IN SECTION 14A OF T HE ACT 6 ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WHICH IS NOT INCLUDED IN THE TOTAL INCOME DURING TH E RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWI NG ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME . ALMOST IDENTICAL ISSUE HAS BEEN TAKEN BY THE HONBLE ALLAH ABAD HIGH COURT IN THE CASE OF CIT KANPUR VS. M/S. SHIV AM MOTORS PVT. LTD. IN ITA NO.88 OF 2014 VIDE ORDER D ATED 05.05.2014; BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECTH ENERGY PVT. LTD. IN IT A NO.239 OF 2014 VIDE ORDER DATED 24.03.2014, BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. DELI TE ENTERPRISES IN ITA NO.110 OF 2009 VIDE ORDER DATED 26.02.09 AND BY THE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. LAKHANI MARKETING INC. (2014) 49 TAXMANN.COM 257 (P&H) FURTHER IT MAY BE NOTED T HAT THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED REPORTED IN 372 ITR 694 HAS HELD THAT SECTION 14 OF THE ACT OR RULE 8D CANNOT B E INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMP T INCOME OF THE ASSESSEE IS TO BE DISALLOWED. THAT THE WIND OW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ON LY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTI ON OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWAL LOW THE ENTIRE AMOUNT OF TAX EXEMPT INCOME. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD .CIT(A). 7 9. IN VIEW OF OUR DISCUSSION MADE ABOVE, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST, 2017. SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 31 ST AUGUST, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH