ITA503-2012 SHREE CEMENT LTD - itatonline.orgitatonline.org/archives/wp-content/files/shree_cement_carbon_credits_80_IA.pdf · 1 in the income tax appellate tribunal jaipur bench,

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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


PAN : AACCS 8796 G

The ACIT vs. M/s. Shree Cement Ltd.

Circle- 2 Bangur Nagar

Jaipur Beawar


ITA No.504/JP/2012


PAN : AACCS 8796 G

M/s. Shree Cement Ltd. vs. The ACIT

Bangur Nagar, P.B. No.33 Circle- 2

Beawar Jaipur


ITA No.569/JP/2012


PAN : AACCS 8796 G



Jaipur Beawar


http://www.itatonline.org

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ITA No.505/JP/2012


PAN : AACCS 8796 G

M/s. Shree Cement Ltd. vs. The ACIT

Bangur Nagar, P.B. No.33 Circle- 2

Beawar Jaipur


ITA No.570/JP/2012


PAN : AACCS 8796 G



Jaipur Beawar


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.


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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),


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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


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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


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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


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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


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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.


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b. 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


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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


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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


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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


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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


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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


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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


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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


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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


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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:-


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“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

exemption from total tax

liability

Maximum

exemption in

terms of

percentage of

eligible fixed

capital

investment

Maximum

time limit of

availing

exemption

from tax

1. New Units other than

the units mentioned at

items 2 and 3 and units

going in for expansion

or diversification

1st year 100%

3rd

year 80%

5th

year 60%

7th year 50%

9th

year 40%

11th

year 30%

2nd

year 90%

4th

year 70%

6th

year 50%

8th year 40%

10th

year

30%

Eleven years

** 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.


24

Alternatively, 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.


28

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.


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.


32

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.


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.


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.


43

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


Documents

ITA503-2012 SHREE CEMENT LTD - itatonline.orgitatonline.org/archives/wp-content/files/shree_cement_carbon_credits_80_IA.pdf · 1 in the income tax appellate tribunal jaipur bench,