Income Tax Appellate Tribunal - Kolkata
Dcit, Circle-6, Kolkata, Kolkata vs M/S. Ifb Agro Industries Ltd., Kolkata on 23 August, 2017
ITA No.2088/Kol/2014- M/s. IFB Agro Industries Ltd. A.Y.2010-11 1
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH 'C' KOLKATA
[Before Hon'ble Shri J.Sudhakar Reddy, AM & Shri S.S.Viswanethra Ravi, JM ]
ITA No.2088/Kol/2014
Assessment Year : 2010-11
D.C.I.T., Circle-6, -versus- M/s. IFB Agro Industries Ltd.
Kolkata Kolkata
(PAN: AAACI 6487 L)
(Appellant) (Respondent)
For the Appellant: Shri David Z. Chowngthu, Addl. CIT(DR)
For the Respondent: Shri Sanjandeep Chowdhury, Manager Finance
Date of Hearing : 08.08.2017.
Date of Pronouncement : 23.08.2017
ORDER
PER J.SUDHAKAR REDDY, AM:
This is an appeal by the Revenue directed against the order of the Commissioner of Income Tax-VI, Kolkata for the Assessment Year 2010-11 on the following grounds :-
"1. "That on the facts and in circumstances of the case, the CIT(A) erred on facts as well as in law in holding that treatment of loans granted by M/s IFB Automotive (P) Ltd. to the assessee as deemed dividend was not warranted, ignoring the fact that the assessee satisfies the condition laid down in the provisions of Section 2(22)(e) for treating the loan as deemed dividend in the hands of the assessee."
2. "That on the facts and in circumstances of the case, the CIT(A) erred on facts as well as in law in holding that disallowance u/s14A of Rs.1,41,989/- was not warranted, ignoring the fact that as per clarification issued by the CBDT vide Circular No.5/2014 provisions for disallowance u/s 14A may be invoked even if exempt income was not earned during the particular Financial Year. "
3. "That on the facts and in circumstances of the case, the CIT(A) erred on facts as well as in law in holding that receipt of account of sale CER credit was an exempt income, ignoring the fact that receipt on account of sale of CER was revenue in nature as decided by the Hon 'ble Supreme Court in the case of Tata Consultancy [271 ITR 401(SC)]."
2. After hearing the rival contentions we hold as follows :-
ITA No.2088/Kol/2014- M/s. IFB Agro Industries Ltd. A.Y.2010-11 2The first Ground is whether intercorporate deposit falls within the ken of section 2(22)(e) of the Income Tax Act, 1961 (Act).
3. The Hon'ble Calcutta High Court in ITA No.70 of 2013 Judgment dated 2nd September, 2014 in the case of Commissioner of Income Tax, Kolkata vs IFB Agro Industries Ltd, upheld the order of the Tribunal that intercorporate deposit cannot be treated as a loan, for the purpose of application of section 2(22)(e) of the Act which does not apply. It held as follows :-
"Keeping in mind, that a fiscal statute has to be construed strictly, we do not find the word 'deposit 'used in Section 2(22)(e) of the Act when the said Act itself contemplates both "loans' and 'deposits' as provided in Section 269SS and Section 269T. Therefore, as the word 'deposit' does not fall within the purview of Section 2(22)(e) of the Act the intercroproate deposits cannot be treated to be a 'loan ' for the purposes of its application in the facts of this case.
We, therefore, answer the question formulated in the positive in favour of the assessee and against the revenue. We answer the other substantial question involved in this case in the negative in favour of the assessee and against the revenue. "
4. Respectfully following the binding decision of the Hon'ble Calcutta High Court we uphold the orders of First Appellate Authority on this issue and dismiss Ground No.1 of the revenue.
5. Ground No.2 is on the issue of disallowance u/s 14A of the Act. The assessee suo moto disallowed Rs.6,096/- u/s 14A of the Act. The AO applied section 14A read with Rule 8D of IT Rules and computed the disallowance at Rs.1,48,085/-. Aggrieved the assessee carried the matter to the ld. CIT(A). The First Appellate Authority at para 5.2. held as follows :-
"5.2. As stated earlier, the appellant, in its return, had offered disallowance of Rs.6,096/-. The appellant was asked to provide the working for the same. On going through the appellant's working, it is seen that it has also computed disallowance in accordance with Rule 8D and the only point of difference is that it has taken average value of investments relating to exempt income at Rs.4,71,933/-. On being asked the basis of the same, it was informed that though the appellant had substantially higher investments in shares, during the year the dividend was earned only in respect of 5000 shares of Tamil Nadu Newsprint Ltd. in which the appellant had made investments of Rs.4,71 ,933/-. On the other hand, the assessing officer has, in his working considered the entire investment. This issue had come up for consideration before the jurisdictional bench of ITA No.2088/Kol/2014- M/s. IFB Agro Industries Ltd. A.Y.2010-11 3 tribunal in the case of REI Agro Ltd vs DCIT, CC-XXVII, Kolkata in ITA No.1331/KoIl2011. It was held by the Hon'ble tribunal in its decision in that case that it is only such investment, in respect of which exempt income has been earned, which can be considered while computing the disallowance u/s 14A read with Rule 8D of IT Rules, 1962. Although the said decision is in contradiction to that of Special Bench decision in the case of Cheminvest Ltd. 121 ITO 318 (Delhi)(S8), as well as Board's Circular no. 5/2014 dated 11.2.2014, I am following the jurisdictional bench of tribunal in line with the principle of judicial discipline. The disallowance made: by the appellant is largely in conformity with the ratio given in the decision of jurisdictional bench of Hon'ble tribunal in the case of REI Agro Ltd. (supra). However, as mentioned by the appellant itself, there was a computational error due to which the disallowance has been understated by an amount of Rs.2,124/-. Considering this, the further disallowance of Rs.1,41,989/- made by the assessing officer is reduced to Rs.
2,124/-."
6. Aggrieved the revenue is in appeal. The decision of the Jurisidictional Tribunal in the case of REI Agro Ltd. Vs DCIT was upheld by the Hon'ble Special Bench of Delhi the Tribunal in the case of ACIT vs Vireet Investments Private Ltd. Order dated 16.06.2017 wherein it is held that only those investments are to be considered for computing the average value of investment which yielded exempt income during the year. It was held that the investments which do not yield any exempt income should not enter into the computation under Rule 8D while arriving at the average value of investment. The Special Bench decision in the case of General Investment Ltd. 121 ITD 318 (Delhi)(SB) has been reversed by the Hon'ble Delhi High Court vide its judgment dated 02.09.2015 in ITA No.749 of 2014. Hence we uphold the findings of the First Appellate Authority and dismiss this ground of the revenue.
7. Ground No.3 is on the issue of taxability of the amount realised on transfer of certified emission reduction (CER in short) or carbon credits under the normal computation of income as well as for MAT purpose. The ld. First Appellate Authority at para 8.7 and 8.8 held as follows :-
" 8.7. Coming to mertit of the claim, it is noted that the CER under question had accrued to the appellant for implementing modern technology which reduced leakage of bio- gas and thus was more environment- friendly. The question regarding taxability of such receipt has been considereed by Hon'ble ITAT in several cases. In the decision in the case of My Home Power Ltd. vs DCIT, Central Circle-7 in ITA No. 1114 of 2009, Hyderabad bench of Hon'ble tribunal ITA No.2088/Kol/2014- M/s. IFB Agro Industries Ltd. A.Y.2010-11 4 examined this issue and held that carbon credit is in nature of entitlement to reduce carbon emission without any cost of acquisition or cost of production and such carbon credit was not in nature of profit or income. Thereafter, Chennai Bench of tribunal has held in the case of Sri Velayudhaswamy Spinning Mills (P) Ltd vs DCIT in ITA No. 582 of 2013 that sale of carbon credit was to be considered as a capital receipt. Jaipur Bench of tribunal has also, in the case of M/s. Shree Cements Ltd. vs. ACIT, circle-2, Jaipur, ITA No. 503/JP/2012, taken the view that carbon credit is capital in nature and neither chargeable to tax under the head 'business income ' nor as 'capital gain'. Same view has been taken/by Chennai Bench of tribunal in the case of Ambica Cotton Mills Ltd.vs CIT in ITA No. 1836/Mad/2012. No decision to the contrary has come to the notice of the undersigned. Recently, Hon'ble Andhra Pradesh High Court has confirmed the decision of tribunal in the case of My Home Power Ltd. (supra) by dismissing the appeal filed by revenue in the case of My Home Power Ltd., as reported in 46 taxmann.com 314 (AP). Respectfully following the ratio given by the Hon'ble High Court, as well as various benches of Hon'ble tribunal in the cited cases, it is held that receipt from sale of CER credit is neither taxable as capital gain nor as business profit. In other words, the sam§ to be treated as exempt from income tax in the computation under normal provision of income tax.
8.8. However, so far as the appellant's claim regarding exclusion of receipts from transfer of CER from computation u/s 115JB is concerned, it is to be noted that sales from CER was duly credited by the appellant itself to its P&L A/c and thus was part of book profit. Computation of tax liability under section 115JB is based on book profit as per P& L a/c prepared in accordance with Part II & III of Schedule-VI to the Company Act, 1956. It has been held by Supreme Court in its decision in the case of Apollo Tyres Ltd. v, CIT 255 ITR 273, that for purpose of section 115J (equivalent to the present 115 JB), the net profit as per P&L account can be modified only to the extent provided for in the explanation to section 115J. The adjustment sought to be made by the appellant by way of excluding sale from CER from book profit is not covered under any of the clauses of explanation to section 115JB of the Income Tax Act, 1961. The decisions of Jaipur bench of tribunal in the case of Shree Cement Ltd. ITA No. 614,615 & 635/JP/2010 and of Mumbai tribunal in the case of Pal Synthetics Ltd. ITA No.1310/Mum/03, relied upon by the appellant, are related to receipt of treatment of subsidy. Moreover, they have, in my opinion, not given due weightage to the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra), which was a binidng precedent. Therefore, with due respect to Hon'ble Jaipur and Mumbai bench of Tribunal, I differ with their view. Following the ratio given by the Apex Court in the case of Apollo Tyres Ltd. (supra) the appellant's claim for reducing CER receipts from book profit for purpose of section 115 JB of the Act is not found to be acceptable and the same is rejected.
ITA No.2088/Kol/2014- M/s. IFB Agro Industries Ltd. A.Y.2010-11 58. The Hon'ble Karnataka High Court in the case of CIT vs Subhash Kabini Power Corporation Ltd. [2016] 69 Taxmann.com 394 (Karnataka) judgment dated 29.03.2016 held as follows :-
"The principal question which arises for consideration is as to whether by sale of carbon credit capital receipt is generated or a profit out of the business activity of the assessee [Para 4].
• The Andhra Pradesh High Court in the case of My Home Power Ltd. (supra) has confirmed the view of the Tribunal that carbon credit is not an offshoot of business, but an offshoot of environmental concerns. Io asset is generated in the course of business, but it is generated due to environmental concerns. It was also found that the carbon credit is not even directly linked with the power generation and the income is received by sale of the excess carbon credit. It was found that the Tribunal has rightly held that it is capital receipt and not business income. [Para 6] • As such when the issue is already covered by the decision of the Andhra Pradesh High Court, one may say that no substantial question of law would arise for consideration. [Para 7] • However, the revenue relied upon the provisions of section 28 and contended that if any benefit or perquisite or credit is generated from the business, the same would be a profit from business and is taxable. Therefore, the same cannot be termed as capital. receipt, but business income. In submission, it was stated that on account of running the business of power generation, carbon credit is earned, which is marketable and, therefore, it is an income out of business. [Para 8] • One cannot accept the submission for the simple reason that earning of carbon credit is not the business of the assessee nor the same is generated as a by- product on account of business activity of power generation, but it is generated on account of employment of good and viable practices by the assessee. [Para 9] • When the carbon credit is generated out of environmental concerns and it is not having the character of trading activity, the Tribunal has rightly held that receipt from sale of carbon credit is capital receipt and it is not income out of business and hence not liable to income tax. [Para 12] • Once it is found that the amount realised by sale of carbon credit is not taxable as profit, naturally it will' have no adverse effect on the revenue. It is settled legal position that one of the requirements for exercise of power under section 263 is that the order passed by the lower authority should not only be erroneous, but should also be prejudicial to the interest of the revenue, which is lacking in the instant case and rightly found so by the Tribunal. [Para 13] ITA No.2088/Kol/2014- M/s. IFB Agro Industries Ltd. A.Y.2010-11 6 Therefore, the order passed by the Tribunal deserved to be upheld. [Para 14]."
9. The Hon'ble Andhra Pradesh High Court in the case of CIT vs My Home Power Ltd. (supra) at para-3 held as follows :-
"3. We have considered the aforesaid submission and we are unable to accept the same, as the learned Tribunal has factually found that "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 environmental concems." We agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal."
10. Respectfully following the propositions laid down by the High Courts in the cases referred to above we uphold the order of the First Appellate Authority and dismiss the appeal of the revenue.
11. In the result the appeal of the revenue is dismissed.
Order pronounced in the Court on 23.08.2017.
Sd/- Sd/-
[S.S.Viswanethra Ravi] [ J.Sudhakar Reddy ]
Judicial Member Accountant Member
Dated : 23.08.2017.
[RG PS]
Copy of the order forwarded to:
1.M/s. IFB Agro Industries Ltd.,Plot No.Ind-5, Sec-1, East, Kolkata-700107.
2. D.C.I.T., Circle-6, Kolkata.
3. C.I.T.(A)- VI, Kolkata 4. C.I.T-XVIII, Kolkata
5. CIT(DR), Kolkata Benches, Kolkata.
True Copy By order, Senior Private Secretary Head of Office/D.D.O, ITAT Kolkata Benches ITA No.2088/Kol/2014- M/s. IFB Agro Industries Ltd. A.Y.2010-11 7