Income Tax Appellate Tribunal - Jaipur
Shree Cement Ltd. , Beawar vs Assessee on 15 January, 2014
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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 & Revenue against the orders of CIT(Appeals), Ajmer relating to Assessment 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 deciding 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 disposed off in the following manner.
3. We will first take up the appeal filed by assessee 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 Power Undertaking is predominantly used by the assessee captively at its Cement Unit also in Rajasthan. For computing the profitability of the power captively consumed, in terms of provisions of section 80IA(8), the assessee has considered the market value or Arm's Length Value being the value at which independent Power supplier, has sold power to Power Distribution Companies (DISCOMs) in the State of Rajasthan. In the order u/s 143(3), 4 the AO has instead applied rate (being Average Annual Landed Cost) at which power is supplied by the State Electricity Grid to Assesse's 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' & is in accordance with Sec. 80-IA(8) Vide Sec. 80-IA(8), power captively consumed by assessee needs to be transferred at 'market value', which denotes price which such goods would ordinarily fetch in the open market. The price adopted by the Assessee is in terms of the requirement of section 80-IA(8) of the Act as it contains following basic features of an open market:
a. Determined based on transaction entered into between 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 hypothetical 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 fairly representative In the assessment order, the AO has nowhere disputed any of the above facts or the fact that the price considered by appellant is market price or arm's length price. The AO has merely substituted the above with another arm's length 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, Revenue's 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 'Market Value' as the price at which goods or services from an eligible unit are transferred to a non eligible unit. 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 assessee's discretion. So long as the assessee has adopted a 'Market Value' as the transfer price, that is sufficient compliance of law. A.O. can adopt a different value only where the value adopted by assessee does not correspond to the 'market value'. In the present case, the AO has simply substituted one market value with another market value which is neither permissible nor required under the statute.
Hon'ble 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 Hon'ble 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 assessee.
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 prerogative of choosing the comparable cases is always that of assessee. It is but natural also for the reason that 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 domain.
(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 by assessee with a view to test whether or not these are, 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 cogent 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 determination of arms' length price are equally applicable for determination 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 'Market Value' 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, which is purely Assessee's discretion. So long as the assessee has adopted a 'Market Value' as the transfer price, that is sufficient compliance of law. A.O. can adopt a different 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. Hon'ble Apex Court in CIT -vs- Vegetable Products Ltd. (1973) 88 ITR 192 (SC) has held that when two reasonable constructions of a taxing provision are possible, the construction which favors the assessee must be adopted. This is a well accepted rule of construction. On the above principle, reliance is also placed on :-
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- 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 specific provision, out of these two formulas, the formula which 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 assessee should be preferred. This is a well settled principle which should be followed.
4.0 It is a settled legal position that assessee is entitled to arrange his affairs so that his taxes are low & it is the prerogative of the assessee to do so Hon'ble Apex Court in the landmark ruling of Vodafone International Holdings B.V. -vs.- Union of India (2012) 341 ITR 1 (SC) have held that every taxpayer is entitled to arrange his affairs so that his tax liability is optimised and that he is not bound to choose those patterns, which 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 funds. 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 the 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 consideration 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 arm's length value, has not been disputed by the AO. The AO has merely substituted the above with another market price or arm's length price. b. With the reforms brought pursuant to Electricity Act 2003, independent players have been provided open access. Thus, electricity has a wider market since many independent players have been given licence for transmission and/or distribution and/or trading of power. These independent parties are required to file statutory returns (of the transactions entered into by them) with the Electricity Regulatory Commission which data is 9 available in public domain. With the above, the assessee has a 'basket' of market values. In such situation, the question 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 adopted one of the market values which is also at arm's length and AO has adopted another market value which is also at arm's length. The Learned Authorised Representative (AR) submits that AO's action is not tenable.
c. In support of the above proposition, the AR relied on various decisions in similar situations including the decision of Supreme Court in the case of CIT Vs. Vegetable Products 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 Hon'ble Supreme Court in the case of Vodafone International Holdings Vs. UOI [2012] 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 treasury. e. Lastly, by way of examples in the case of borrowed funds & own funds, reasonableness & commercial expediency of the expenditure incurred for business purposes, it was submitted that where law is silent it has been time & again held by the courts that the discretion exercised by the assessee is to be accepted.
8. In reply, the DR submitted that -
a. The assessee itself in the original return of income 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.
10b. Since, the assessee itself is drawing power from the grid, the same represents market price as it is the grid which is supplying power not only to assessee but to other consumers. c. He further argued that the assessee has adopted market price of its choice in computing the transfer price & such discretion 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 provision in the act which gives assessee such prerogative. The assessee has to select market value as per Sec 80IA (8) as on the date of transfer such that it would ordinarily fetch such price in the open market.
e. Since, assessee itself is drawing power from the State grid on regular basis, Grid rate is the best market price available 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 only those transactions which have higher rates is not factually correct. In determining the market price, the assessee has considered all transactions where the power distribution or trading company has supplied power in the State of Rajasthan since the assessee's unit is in Rajasthan as could be seen from the Paper Book pages 30-32. Other transactions are not relevant as they pertain to other States, i.e. Madhya Pradesh, Maharashtra etc. b. The assessee has taken the weighted average rate of all transactions undertaken by the said power distribution or trading company in the State of Rajasthan and not only 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 Cost) at which electricity is being supplied by State Electricity Board does not represent market price. Equally it is also not in dispute 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 and not hypothetical or fictitious & data regarding the same are available in public domain. Further, the fact that the same does represent market price has also not been disputed by any of the authorities. In fact the same can never be disputed since it represents actual arm's length transaction being entered 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 'market 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 been held that price at which the Grid has purchased power from the Power Unit of the Assesse does not constitute market value although the price at which Grid has sold power to the Assessee does constitute market value. Extending the said principle the AR further submitted that even the price at which third party has purchased power from the Power Unit of the Assessee, which is mostly its power sold when not required by the Cement Unit, does not constitute 'market value' to be adopted in valuing the power supplied by the said Power Unit to the Cement 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 judicial decisions relied upon and documents produced by both the parties. At the outset, we find that the revised return filed by the Assessee has been accepted by the AO 12 by clear finding in the Assessment Order. Once revised return is validly filed & accepted, the original return is non-est, as 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. The 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 since it represents price charged by the State Grid to various customers including the assessee. Hence, the same should be considered. The AR of the assessee submits that the value adopted by assessee represents 'market value' since it is based on real transactions between unrelated parties and the details for the same are available in public domain. The issue before 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 same 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 business carried 13 on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer, then for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that 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 seen that the Statute provides that the assessee must adopt 'Market Value' as the transfer price. In the open market, where a basket of 'Market Values'[say like, independent third party transactions, grid price (average annual landed cost at which grid has sold power to the assessee), Power Exchange Price for the relevant period etc.] are available, the law does not put any restriction on the assessee as to which 'Market Value' it has to adopt, it is purely assessee's discretion. So long as the assessee has adopted a 'Market Value' as the transfer price, that is sufficient 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 assessee's Cement Unit has purchased power, also from the Grid or that assessee's 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 captive consumption of power to compute the profits of the eligible unit. Any such attempt is clearly beyond the explicit provisions of Section 80IA(8) of the Act. Underlying principles forming the basis of our findings given here in before in this order are also supported by the decision of Special Bench of Hon'ble Bangalore Tribunal in Aztec Software & Technology Services Ltd. Vs. ACIT [2007] 107 ITD 141 [Bang][SB] as well as Mumbai Tribunal decision in the case of ACIT Vs. Maersk Global Service Centre (I) Pvt. Ltd [2011] 133 ITD 543 [Mum] wherein while interpreting the Transfer Pricing provisions, the courts have held that it is the assessee who is the best judge to know the transactions undertaken & thus finding out the comparable cases from the vast database available 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 assessee does not correspond to market value. In the present case, we find that the assessee has adopted a rate at which actual transactions have been undertaken by unrelated entities. The volumes of transaction as relied upon are also substantial and hence it cannot be said that the assessee 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 only be adopted. We are not agreeable to the above contention of the department. No doubt the grid rate is market value but there is no concept of 'best' market value in law. If by using the said adjective, Revenue seeks to infer that grid rate is the only market value in the present context, such inference is also clearly not tenable. Further, in case there are options, the option favorable to the Assessee is to be adopted. This is a well settled principle 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 as per independent third party trading transactions or as per Power Exchange (IEX etc.) or any other independent transaction (for the relevant period and which has taken place in the 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 to the Cement Unit of the Assessee (average annual landed cost) also constitute 'market value' in terms of explanation to 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 required by the Cement Unit, does not constitute 'market value' in terms of 16 explanation to Section 80IA(8). It is the 'principle' and not the 'quantum' which is deciding factor;
(c) where a basket of 'market values' are available for the relevant period and relevant geographical area where the eligible 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 'market 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 Assesse) 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 of 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 disallowances of Rs. 16,00,000/- confirmed by CIT(Appeals) on account of expenditure incurred towards gifts. The AO in the assessment order 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 23rd Dec. 2009 in assessee's own case for A.Y. 2003-04 in I.T.A No. 942/JP/08 allowed 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 similar with the facts of earlier year. Following the decision of Tribunal dated 23rd Dec. 09, the disallowance confirmed by the CIT(Appeals) is reasoned 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 disallowance of telephone expenses of Rs. 1,00,000/- confirmed by CIT(Appeals) considering the same as personal in nature. We find that Tribunal in A.Y. 2003-04 in ITA No. 751 /JP/07 vide order dated 23rd Dec. 2009 had set aside the issue to the file of the A.O. to examine the contention of the assessee as there cannot be disallowance of personal expenditure in the hands of the company. Accordingly, following the order of earlier year, we set aside this ground to the file of the AO to verify the same after giving oppurtunity to the assessee before deciding the issue. This ground of the assessee is therefore allowed for the statistical purposes only.
17. Now we take up the departmental appeal for AY 2007-08 vide ITA No. 568/Jp/12.
18. Ground 1 is on account of deleting the disallowance made by AO on account of Sales Tax subsidy by treating the same as capital receipt instead of revenue receipt. Brief facts are that assessee has credited to the Profit & Loss account subsidy received under Rajasthan Investment Promotion Scheme, 2003 (RIPS) vide Notification No. F4(18)FD/Tax Div/2001 dated 02-12-2005. The above subsidy is arising 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 Lakhs MT to 86 Lakhs MT towards (a) further expansion at Ras, Rajasthan (15 lakh MT) and (b) Khuskheda, Rajasthan (30 Lakh MT) both effective from 26-03-2007 and in all cases, subsidy is for seven years from the respective commencement date noted above. The same has been claimed as Capital Receipt in computing total income under regular provisions 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 assessee's own case for earlier years.
19. The Learned AR submits as under :-
"The issue is squarely covered in favor of assessee by the decision of Hon'ble Jaipur Tribunal in its own case for AY 2006-07 vide order dated 09-09-2011 in ITA No. 635/Jp/2010.
Hon'ble Tribunal has examined the scheme in great depth & has given following key findings -
(i) The 'purpose' of granting incentive was to accelerate the industrial growth.
(ii) Hon'ble Tribunal has relied upon CIT -vs.- Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC) and held that whether any incentive is capital or revenue would depend 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 revenue account and if the object of the subsidy is to enable the assessee to set up a new unit or expand the existing unit then the incentive is on capital account.
(iii) Based on the purpose test as to why the incentive has been granted, the Hon'ble Tribunal have held that incentive under RIPS, 2003 is provided to the assessee to set up a new unit or carry out expansion and not for running the business more profitably.
Issue also covered in favor of assessee by principles laid down in various other decisions Present issue is also settled in favour of assessee by following judicial pronouncements of the Hon'ble Apex Court, High Courts and Special Bench of ITAT:-
Supreme Court
- CIT -vs.- Ponni Sugar & chemicals Ltd. (2008) 306 ITR 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 273 (Mum)(SB)"
20. The DR during the course of the hearing filed written submission as below:-
20
"The appellant herein submits the following written arguments in addition to the verbal arguments to be taken during 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. 46.22 Crs, A.Y. 08-09 Rs. 80.40 Crs & A.Y. 09-10 Rs. 40.53 Crs) under regular assessment as well as u/s 115JB, by treating the same as capital receipt instead of revenue receipt.
The Ld. CIT(A) while deciding the issue in favour of the assessee company has relied upon the decision of the Hon'ble 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 the Hon'ble Jurisdictional High Court. However, most respectfully, I would like to bring the following facts for kind consideration of Hon'ble 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 Exemption 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 eligibility 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. 15,727.66 lacs C. Maximum limit of years - 11 years 21 D. Quantum of exemption of sales tax - Rs. 15,727.66 lacs * Annexure B S.No. Type of Units Extent of the percentage of Maximum Maximum exemption from total tax exemption in time limit of liability terms of availing percentage of exemption eligible fixed from tax capital investment
1. New Units other than 1st year 100% 2nd year 90% Eleven years the units mentioned at 3rd year 80% 4th year 70% items 2 and 3 and units 5th year 60% 6th year 50% going in for expansion 7th year 50% 8th year 40% or diversification 9th year 40% 10th year 11th year 30% 30% ** The eligible fixed capital investment meant for investment in cost of land, cost of new building, cost of new p.m and other fixed assets. This clearly indicate that the sales tax subsidy has been allowed against capital 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 books of account. Here the source of subsidy is sales tax, collected from the customers against sales of goods is in the nature of revenue and the assessee has credited its books of account accordingly. In view of these facts, the same was liable to be treated as revenue receipt for the purpose of computing normal income as well as book profit, as per provision of section 115JB of I.T Act 1961. This view gets support from decision of the Hon'ble S.C in the case of Sahney Steel and Press Works Ltd. (1997) 228 ITR 0253 (SC), where in Hon'ble Supreme Court, inter alia, held as under:
"If payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The character of the subsidy in the hands of the recipient-whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The 22 source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade.
A notification was issued by the Andhra Pradesh Government that certain facilities and incentives were 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 allowed for a period of five years from the date of commencement 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 sales tax .....
The assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose. The subsidies had not been granted for production of, or bringing into existence any new asset. The subsidies were granted year after year, only after the setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. The subsidies were of revenue nature and would have to be taxed accordingly."
The facts of the above case are exactly matching with the case of the assessee under question. In this case also the assessee has expanded its installed capacity by more than 25% of existing capacity and sales tax exemption was allowed from date of first sale and not mere setting up / expanding of new units. This means that exemption has been allowed by the government by way of sales tax subsidy, only after starting its commercial production to assist it in carrying on its trade or 23 business. This fact get supports from the decision of the Hon'ble 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 revenue receipt since it is not linked with setting up of industry rather linked 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 the sales tax subsidy as capital receipt, by claiming the fact that RST/CST Exemption Scheme 1998 is meant for acquiring new assets to expand the existing business. It has further relied on the 2 major decision of the Hon'ble S.C in the case of Ponni Sugars and Chemicals Ltd. (2003) 260 ITR 0605 (Mad.) and decision of the Special Bench in the case of Reliance Industries (2003- TIOL-14- ITAT-MUM-SB).
The decision of Hon'ble Supreme Court in the case of Ponni Sugars & Chemical Ltd., A.Y. 89-90, is not comparable with the facts of the case under question, as the incentive/subsidy provided under the scheme was exclusively for the purpose of repayment of loan borrowed from Public Financial Institutions, for acquiring fixed assets (used for new/expansion of business). The assessee was liable to submit every year (by 31st Dec.) subsidy utilization certificate from C.A. to show that the monies had been so utilized. Failure to submit the utilization certificate would result not only in the termination of scheme but also in recovery of incentive/subsidy allowed to the assessee. Whereas in the case of assessee such conditions are not applicable. Secondly, the Hon'ble Supreme Court has decided this issues for A.Y 89-90 i.e. prior to introduction of provision of explanation 10 of section 43(1) of I.T. Act 1961. Likewise the decision of Hon'ble Special Bench, ITAT, Mumbai in the case of Reliance Industries (A.Y 85- 86) which is also not applicable in the case under question for the facts discuss above and also in the light of decision of Hon'ble ITAT, Bench 'D' Delhi in the case of M/s L.G Electronics India Ltd. Addl. CIT, Range-4 Delhi(2010) TIOL-222-ITAT-Del.
24Alternatively, 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 fixed assets for expanding of its existing business, then how come the assessee company has not reduced such subsidy (claimed to have 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 assessee. These facts have been made abundantly clear, in the explanation 10 of sub section 1 of the section 43 of IT Act, 1961, which 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, in 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 directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets reimbursement is so received, shall not be included in the actual cost of the asset to the assessee."
In spite of the above amendment, with effect from A.Y.1999-2000, the assessee has not reduced such subsidy from the cost of the assets, thereby claimed excess depreciation in the form of revenue Expenditure, in the profit & loss account. Thus, on one hand the assessee company has not credited the sales tax subsidy as revenue income and on other hand it has claimed revenue expenditure in the form of depreciation in respect of those assets for which the government has met the cost by way of sales tax subsidy. It has resulted in excess claim of depreciation in respect of those assets for which the assessee has not incurred the cost. In this regard I would like to bring to your kind notice that the intention of the legislator for amending the provision of Section 43(1) was that the assessee 25 should not claim dual benefits i.e. one by not showing the sales tax subsidy as revenue income and another by claiming depreciation on those assets for which subsidy has been granted by the government. This is clear from the Legislative 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 in following words:
"where a portion of the cost of an assets 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, in 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 the actual cost of the assets to the assessee. Cost incurred/payable by the assessee alone could be the basis for any tax allowance. This explanation further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement 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 nullify the judgment of the Hon'ble Supreme Court in the case of CIT vs. P. J. Chemicals Ltd.(1994) 210 ITR 830, where it was held that subsidy granted by the Govt. as an incentive for setting up industries in backward area at an percentage of cost of capital assets in not a payment for meeting any portion of the cost of the capital assets within the contemplation of section 43(1) of the I.T. Act 1961 and the same is not to be deducted in computation of actual cost of the assets for the purpose 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 from the cost of the said asset, whereas if a subsidy was given to set 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 has not reduced the cost of the assets to the extent of the sales tax subsidy received, their by claimed excess depreciation as explained in the earlier paras. On the other hand, inspite of crediting the subsidy received in its book's of account, has not been offer for tax under normal computation of Income as well as book profit u/s 115JB of the I.T. Act. Keeping in view, the above facts, the subsidy received by the assessee is revenue in nature and therefore, liable to be assessed as revenue receipts in all the three assessment years, under reference."
21. In rejoinder, Ld. AR pointed out that the details 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 has been granted under the 2003 Scheme, which has also been duly considered by this Tribunal while deciding departmental appeal for earlier years. 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 Scheme as well as 2003 Scheme have been duly considered. Learned Authorized Representative for the assessee further submitted that all issues raised by the Revenue as above have been duly considered by this Tribunal while 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 earlier years, which the DR has also accepted during the course of the hearing, the departmental appeal may be quashed.
22. We have considered rival contentions and verified the facts, order of AO and the CIT (Appeals) and gone through the orders 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 identical to that of earlier years. With the help of reasoning given in the orders by this Tribunal for earlier years in assessee's own case [AY 2004-05 to AY 2006-07 in ITA No. 614,615 & 635/Jp/2010] and respectfully following the same, we reject the argument of the department and hold that receipt on account of Sales Tax subsidy is capital in nature & not chargeable to tax. This ground of revenue is thus dismissed.
23. Ground No. 2 of the Revenue's appeal relates to the relief granted by CIT(Appeals) on account of expenditure incurred on gifts following the decision of Tribunal in assessee's own case for earlier years. We have already held while dealing with the assessee's appeal, that the disallowance confirmed and relief granted by the CIT(Appeals) on account of expenditure incurred on gifts is a reasoned one. Accordingly, this ground of the Revenue is dismissed.
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24. Ground No. 3 of the Revenue's appeal relates to grant of interest u/s 244A on MAT credit. During the course of the hearing, 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 Section 199 of the Act, tax deducted at source is considered as paid on behalf 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 TDS or Advance Payment etc & not out of MAT Credit. MAT credit is granted as reduction from tax liability and thereafter tax payable is computed. Hence, reliance of DR on Section 199 is totally misplaced. It was further submitted by AR that the issue is squarely covered in the favour of the assessee by the decision of Hon'ble Bombay High Court in the case of CIT -vs- Apar Industries reported in [2010] 323 ITR 411 [Bom].
25. After considering the arguments advanced by both parties on this issue, we find that the issue is covered in favour of the assessee by the decision of Hon'ble Bombay High Court in case of Apar Industries (supra) wherein the Hon'ble Court has held that interest u/s 244A is allowable on the refund of prepaid taxes after giving credit of brought 29 forward MAT u/s 115JAA. We also notice that on this issue, Hon'ble Delhi High Court in the case of CIT Vs. Bharat Aluminium Co. Ltd [2011] 242 CTR 366 [Del], after considering the proviso to Section 115JAA(2) observed that since the MAT credit is available for adjustment and set off on the first date of the previous 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 income only after the adjustment and set off of MAT credit brought forward from earlier years and therefore interest under Section 244A is payable to the assessee if refund arises from advance tax paid by it. Respectfully following the above decisions of Hon'ble High Courts, we hold that the assessee is entitled to interest u/s 244A on refund arising to the assessee after MAT credit. Consequently, this ground raised by the Revenue is dismissed.
26. Now we take up the assessee's appeals for AY 2008-09 in ITA No. 504/JP/2012.
27. Ground No. 1 & 2 in this appeal are same as Ground 1 & 2 for AY 2007-08 on deduction u/s 80IA. The Learned Authorised 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 assessee has considered the value at which independent power supplier has sold power to 30 DISCOMs during the relevant period in the State of Rajashthan where the eligible unit is located, as the market value of 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 Assessee's 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. Assessee's Grounds are therefore allowed and corresponding disallowance u/s 80IA is deleted.
28. Ground No. 3 of the assessee relates to disallowances of Rs. 19,00,000/- confirmed by CIT(Appeals) on account of expenditure incurred towards gifts. The facts in this ground are 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 disallowance confirmed by the CIT(Appeals). Accordingly, ground no. 3 of the appeal preferred by the assessee is dismissed.
29. Ground No. 4 of the assessee relates to disallowance 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, we 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 receipt.
31. Briefly stated in order to address the threats caused by global warming the Kyoto Protocol, an international agreement linked with United Nations Framework Convention on Climate Change [UNFCCC] was adopted in 1998. This protocol commits developed countries to limit and reduce their Green House Gases (GHG) [Carbon di-oxide, Methane, Nitrous Oxide, Hydrofluorocarbons, Sulphur Hexa fluoride etc.] emissions. Clean Development Mechanism (CDM), is one of the three mechanisms designed to assist the developed countries to meet their GHG emissions targets.
32. Under CDM, a developed country can invest in GHG mitigation project in a developing country by way of equity, loan or any other financing mechanisms. The mitigation project, in turn generates emission reduction that subsequently gets verified & certified by an independent party. Above reduction in emission of GHG is acknowledged by issuing a certificate known as CERs or Carbon Credits.
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33. The Assessee's "Optimum Utilization of Clinker" is one of the CDM projects undertaken & registered with UNFCCC. It is duly verified and certified by the Det Norske Veritas Certification Ltd. The project entails reduction of clinker content of the Portland Pozzolanic Cement (PPC) produced by increasing Fly Ash content in the cement. The project activity would therefore reduce direct on-site emissions from clinkerisation & direct off site emissions from power generation at the thermal power plants, per unit of cement produced. The above project has generated CERs against which the assessee has received 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 capital gain. However, in the computation, it has been added as Business income. Learned CIT(Appeals) has held that receipt from CER's is in the nature of benefit arising from the business of the assessee and is taxable 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 Assessee's favour by the decisions of Hon'ble Tribunal:33
The issue under consideration is squarely covered by the decision of Hon'ble Hyderabad Tribunal in favour of assessee in the case of My Home Power Ltd. -vs.- DCIT (2013) 151 TTJ 616 (Hyd) wherein it has been held that receipt on account of carbon credit is not in the nature of profit or in the nature of income and hence has to be considered as capital receipt. After examining the matter in detail the Hon'ble Tribunal in the said case have held as under -
"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 that 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 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 judgment of the Supreme Court in the case of CIT v. Maheshwari Devi Jute Mills Ltd. (57 ITR 36) wherein it is held that transfer of surplus loom 34 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 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 expense. 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."
The principles stated above have been accepted and followed by the Chennai Bench of the Hon'ble Tribunal in the case 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)(xi) specifically provides for taxability of Carbon Credit as Business 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 manner in the 1961 Act and DTC serves as an important guide in determining taxability of the said item. Since similar provision 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 carbon credit is related to the business of the assessee and the assessee has undertaken activities which has resulted in the receipt on account of carbon 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 the present case has been awarded due to reduction in emission of green house gases consequent to the Optimum Utilization of Clinker project undertaken by the assessee. The assessee has been provided entitlement/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 industry in the developing countries for reduction of carbon emission. Hence, the same 36 needs to be considered as capital receipt not chargeable to tax. As regards the contention of the DR that the same is chargeable to tax as business income or as Capital Gains, the AR submitted that the above issue has already been considered by the Hon'ble Hyderabad Tribunal that the said receipt is not chargeable to tax as it does not fall 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 Home Power Ltd Vs. DCIT [supra], have, after detailed examination, concluded that the receipts from Carbon credit are capital in nature. We are inclined to follow the said decision and the other two decisions of Chennai Tribunal in Sri Velayudhaswamy Spinning Mills (P.) Ltd. Vs. DCIT [supra] and Ambika Cotton Mills Ltd. Vs. DCIT (supra) where also it has been held that receipt on account of Carbon Credit is capital in nature & neither chargeable to tax under the head Business Income nor liable to tax under the head Capital Gains. Our above view is also supported by the decision of Supreme Court in the case of Vodafone International Holdings Vs. UOI [supra] wherein Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and DTC serves as an important guide in determining the taxability of said item. Since DTC by virtue of the deeming provisions specifically provides for taxability of 37 carbon credit as business receipt and Income Tax Act does not do so, our view gets duly fortified by the principles stated in the above decision of Supreme Court. Accordingly this ground of the assessee is allowed and the addition made by the AO is deleted.
39. Ground No. 7 of the assessee relates to disallowance 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 115JB. This issue is covered against the assessee by the decision of Hon'ble Tribunal in its own case vide order dated 23rd Dec. 2009 in I.T.A No. 942/JP/08. Respectfully following the above decision of Tribunal, this ground of the assessee is dismissed.
40. Ground No. 8 is on account of disallowance of carbon credit in computing Book Profit u/s 115JB of the Act. This issue stands covered on principle in favour of the Assessee vide the order of the Hon'ble ITAT dated 9th Sept. 2011 for AY 2004-05, 2005-06 and 2006-07 in Appellant's own case in ITA No. 614, 615 and 635/Jp/2010. Hon'ble Tribunal in the said case have held that capital receipt in the form of Sales tax Subsidy, needs to be excluded in computation of Book Profit all the more since they don't have any element of profit embedded in it. 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 directed to delete the addition made on account of Carbon Credit in computing Book Profit u/s 115JB of the Act. This ground is accordingly decided in favor of the assessee.
41. Now we take up the Revenue's appeal for AY 2008-09 vide ITA No. 569/JP/2012.
42. Ground No. 1 is on account of disallowance of Sales Tax Incentive as capital receipt. The facts of the above issue are identical to Ground No. 1 for AY 2007-08 of the Revenue's appeal. This ground has been extensively dealt with above while dealing with the Revenue's 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 is accordingly dismissed.
43. Ground No. 2 of the Revenue relates to the relief granted by CIT(Appeals) on account of expenditure incurred on gifts following the decision of Tribunal in assessee's own case for earlier year. We have 39 already held while dealing with the assessee's appeal, that relief granted and disallowance confirmed by the CIT(Appeals) on account of expenditure incurred on gifts is a reasoned one. Accordingly, this ground of the Revenue is dismissed.
44. Ground No. 3 is on account of deletion of disallowance of Sales Tax incentive as capital receipt in Book Profit computation u/s 115JB of the Act. This issue is also covered in favour of the Assessee vide the order of the Hon'ble ITAT dated 9th Sept. 2011 for AY 2004-05, 2005-06 and 2006-07 in Appellant's own case in ITA No. 614, 615 and 635/Jp/2010. Hon'ble Tribunal in the said case have held that capital receipt in the form of Sales tax Subsidy, needs to be excluded in computation of Book Profit. Relying upon the above orders of ITAT in assessee's own case, this ground of the department is dismissed.
45. Now we take up Assessee's appeals for AY 2009-10 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 relevant previous year, transaction values from Power Exchange (IEX) were available from June 28, 2008 onwards, the assessee has adopted (a) for the period up to June 27, '08, the market value in relation to independent third party 40 transactions as in earlier years and (b) for the period 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 assessee's basis upto June 27 '08 as per (a) above. However, for the period from June 28, '08 to August 29,'08 he 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 Assessee's 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 have extensively dealt with the dispute on adaptation of market value for power captively consumed in Para 2 to 14 above while dealing with Assessee's 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 the disallowance in this year also needs to be deleted. Assessee's Grounds are therefore allowed and corresponding disallowance u/s 80IA is deleted.
47. Ground No. 3 of the assessee relates to disallowance 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 the same after providing 41 opportunity to the assessee. This ground of the assessee is therefore allowed for the statistical purposes only.
48. Ground No. 4 & 5 of the assessee related to disallowance of receipts from Carbon Credit as revenue receipt. Facts 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 the reasonings given for AY 2008-09, we hold that the receipts are capital in nature. Asseessee's grounds are therefore allowed and corresponding addition is deleted.
49. Ground No. 6 of the assessee relates to disallowance 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 Book Profit under MAT without assigning any reason. CIT(Appeals) held that as the same is disallowable under normal provisions and the A.O. is justified in making disallowance under MAT as well. The AR of the assessee 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 not permissible in computing Book Profit u/s 115JB of the Act. We agree with the view of 42 the Learned AR and hold that disallowance of telephone 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 carbon credit in computing Book Profit u/s 115JB of the Act. This ground 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 the reasonings given for AY 2008-09, we hold that the receipts on account 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 accordingly directed to delete the addition made on account of Carbon Credit in computing Book Profit u/s 115JB of the Act. Accordingly, this ground of the assessee is allowed.
51. Now, we take up the Revenue's appeal for AY 2009-10.
52. Ground No. 1 & 2 are on account of treatment of sales tax subsidy as capital receipt and also excluding the same 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/2012. Following our decision in said year, these grounds of the department are dismissed.
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53. In the result, the assessee's appeals for AY 2007-08, 2008-09 & 2009-10 vide ITA No. 503/JP/2012, 504/JP/2012 & 505/JP/2012 are partly allowed and partly allowed for statistical purposes 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: 27th 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