Gujarat High Court
Pr. Commissioner Of Income Tax Vadodara vs Alembic Limited....Opponent(S) on 28 August, 2017
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
O/TAXAP/553/2017 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 553 of 2017
With
TAX APPEAL NO. 554 of 2017
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PR. COMMISSIONER OF INCOME TAX VADODARA-1....Appellant(s)
Versus
ALEMBIC LIMITED....Opponent(s)
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Appearance:
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 28/08/2017
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. These tax appeals arise out of a common judgment. We may record facts from Tax Appeal No.553/2017.
2. Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 9.12.2016 raising following questions for our consideration :
"(1) Whether ITAT erred in law and on facts in deleting the addition made under section 14A r.w. Rule 8D to the tune of Rs.75,02,592/ after holding that the relevant investments are out of assessee company's old and own funds, which exceeds tax free investments. Whereas assessee did not show that at the relevant point of time the funds were available?Page 1 of 6
HC-NIC Page 1 of 6 Created On Sat Sep 02 08:06:18 IST 2017 O/TAXAP/553/2017 ORDER (2) Whether on the facts and in the circumstances of the case and in law, the ITAT is justified in holding that the adjustment made on account of disallowance u/s 14A of the Act, in computation of book profit u/s 115JB of the Act is not as per law without appreciating that the amount disallowable under section 14A is covered under clause (f) of Explanation to Section 115JB(2)?
(3) Whether ITAT is right in law and on facts in allowing the assessee's claim of deduction u/s 80IA(4) of the IT Act, 1961, as the rate on which the GEB supplied power to its consumers ignoring the rate on which power generating company supplied its power to GEB and not considering rate other than the selling price charged by the assessee?
Alternatively Whether the ITAT was right in law and on facts in not appreciating that deduction u/s 80IA(4) is not allowable to the assessee for generating power for captive consumption?
(4) Whether on facts and in the circumstances of the case and in law, the ITAT erred in treating the income from realisation of carbon credits as capital in nature, despite the fact that the realization from carbon credits has been treated by the assessee itself as revenue income and offered to tax?"
3. First and second questions are interlinked and pertain to disallowance under section 14A of the Act. The first question is connected with Rule 8D whereas the second is with respect to disallowance for the purpose of computation of book profit under section 115JB of the Act. The assessee had made investments earning tax free income. The assessee also had borrowed funds paying interest. The Assessing Officer was of the view that sum of Rs.75,02,592/ which represented the interest expenditure Page 2 of 6 HC-NIC Page 2 of 6 Created On Sat Sep 02 08:06:18 IST 2017 O/TAXAP/553/2017 ORDER of the assessee, should be disallowed with the aid of section 14A of the Act. CIT (Appeals) as well as Tribunal however came to factual findings that the assessee had substantial interest free funds far in excess of the investments in earning tax free income. The Tribunal while confirming the view of CIT (Appeals) made the following observations :
"8. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. As the facts emerge, we find that the assessee's own funds, i.e., equity, reserve and surplus funds amounting to Rs.32,699.06 lakhs far exceed the tax free investments. The impugned investments are old and out of own funds have not been rebutted. Relying on the 'Hon'ble Gujarat High Court judgments in the case of Hitachi Home and Life. Solutions (1) Ltd (supra), Torrent Power Ltd (supra) and other judgments mentioned above, we are of the view that when the assessee possesses own funds much more than the tax free investments, the disallowance u/s 14A read with Rule 8D cannot be made. There is also merit in the plea of 1d.
Counsel on the count that the burden of establishing the nexus has been wrongly attributed to the assessee and it was for the Assessing Officer to rebut the assessee's contention and demonstrate that the tax free investments were not from own funds but from borrowed funds. In the absence of such rebuttal, it cannot be assumed that the assessee made tax free investments out of borrowed funds. The assessee has suo moto offered Rs. 2 lakhs out of income of Rs.3,l8,472/as disallowed u/s 14A of the Act. In view of our foregoing observations and relying on Hon'ble Gujarat High Court judgments, we are of the view that no disallowance beyond what has been suo moto disallowed by the assessee can be made. In the result, the assessee's ground in this behalf is allowed and that of Revenue is dismissed."
4. The Tribunal on appreciation of facts came to the conclusion that the assessee had interest free funds in excess of investment generating exempt income. Therefore, no question of law arises.
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O/TAXAP/553/2017 ORDER
5. Question no.3 pertains to claim of deduction under section 80IA(4) of the Act and the rate for computation of such benefit for purchase of electricity. Counsel for the Revenue candidly pointed out that such an issue was examined by this Court in case of this very assessee in the earlier assessment year in Tax Appeal No.471/2009 and connected tax appeals vide order dated 20.7.2016 and question was decided in favour of the assessee making the following observations :
"10.1 Regarding eligibility and rate for the purpose of granting benefit, learned counsel for the assessee has contended that the assessee is entitled to claim market value of the eligible unit. In support of this contention, he has relied on the decisions of this court in Tax Appeal No. 1646 of 2010 A.C.I.T., Bharuch Circle, Bharuch, through Commissioner v. Pragati Glass Works Pvt. Ltd. decided on 30.1.2012; Tax Appeal No. 1493 of 2011 Commissioner of Income tax IV v. Shah Alloys Ltd., decided on 25.9.2012 and Tax Appeal No. 2092 of 2010 Commissioner of IncometaxIV v. Shah Alloys Ltd., decided on 22.11.2011. He has further relied on the decision of Calcutta High Court in the case of Commissioner of Incometax, KolkataIV, Kolkata v. Kanoria Chemicals & Industries Ltd., reported in (2013) 35 taxmann.com 566 (Calcutta) where the court has held as under:
It is price at which assessee transferred electricity generated by it eligible business to its other business which would be considered for purpose of computation of profits and gains of eligible business in terms of section 80IA(8) and not lesser price at which surplus electricity was sold to Electricity Board.
10.2 The learned counsel for the assessee has further relied on the decision in the case of Commissioner of Incometax, Raipur v.
Godawari Power & Ispat Ltd., reported in (2014) 42 taxmann.com 551 (Chhattisgarh) where the court has held thus:
Page 4 of 6HC-NIC Page 4 of 6 Created On Sat Sep 02 08:06:18 IST 2017 O/TAXAP/553/2017 ORDER Where the assessee had established a captive power plant in State of Chhattisgarh to supply electricity to its steel division, for purpose of section 80IA deduction market value of power supplied by assessee to steel division should be computed considering rate of power charged by Chhattisgarh State Electricity Board for supply of electricity to industrial consumers.
10.3 The learned counsel for the assessee has submitted that the assessee is eligible for deduction under section 80IA of the Act for captive power plant. In this regard, he has relied on the decision of Delhi High Court in the case of Commissioner of Incometax v.
Orient Abrassive Ltd., reported in (2014) 49 taxmann.com 174 (Delhi) where it is held as under:
Profit and gain from captive consumption of electricity supplied only to assessee by power plant of assessee will qualify for deduction under section 80IA.
10.4 Further reliance has been placed on the decision in the case of Commissioner of Incometax v. Cethar Ltd., reported in 228 Taxman 139 (Madras) (Mag.) where it is observed as follows:
Assessee was entitled to claim deduction under section 80IA in respect of income relatable to power generated by its own wind mill that was consumed by assessee.
10.5 Lastly, the learned counsel for the assessee has relied on the decision of Madras High Court in the case of Tamilnadu Petro Products Ltd. v. Assistant Commissioner of Incometax reported in 338 ITR 643 where it is held as under:
The revenues contention had no application to the case on hand. Inasmuch the issue was to be dealt with in the light of section 80IA and in particular subclause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it would have to be held that the assessee fully complied with the requirements prescribed under section 80IA in order to avail the benefits provided therein. Therefore, the contention based on the Page 5 of 6 HC-NIC Page 5 of 6 Created On Sat Sep 02 08:06:18 IST 2017 O/TAXAP/553/2017 ORDER interpretation of the expression `derived from could have no application to the case where the provisions of section 80IA got attracted.
11. We have considered the submissions made by the learned counsel for the parties. We have also considered the case laws cited by the learned counsel for the assessee. Taking into consideration the judements of this court and other High Courts, cited above, we are of the opinion that the Tribunal has rightly allowed the claim of the assessee. In that view of the matter, we do not find any infirmity in the order of the Tribunal. Therefore, we answer question (C) and (D) in favour of the assessee and against the revenue."
6. The last surviving question pertains to the treatment that the assessee's income from trading of carbon credits should be given. The Tribunal held that receipts should be in the nature of capital receipts and therefore, would not invite tax. This issue has been examined by two High Courts. The Karnataka High Court in case of CIT v. Subhash Kabini Power Corporation Ltd. reported in (2016) 385 ITR 592 (Karn) and Andhra Pradesh High Court in case of Commissioner of Incometax v. My Home Power Limited reported in (2014) 365 ITR 82 (AP) have held that receipts of carbon credit are in nature of revenue receipts. Following the decision of said two High Courts, this question is also not considered.
7. Tax appeals are dismissed.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) raghu Page 6 of 6 HC-NIC Page 6 of 6 Created On Sat Sep 02 08:06:18 IST 2017