2015 (9) TMI 642 - AT - Income Tax

Income generated in sale of Carbon Credits - whether treated as a capital receipt and not taxable as held by CIT(A) - Held that - The issue in dispute is squarely covered by the decision of the ITAT, Hyderabad Bench in case of M/s My Home Power Ltd. Vs DCIT (2012 (11) TMI 288 - ITAT HYDERABAD), which has been confirmed by the Hon ble Jurisdictional High Court in case of same assessee while dismissing department s appeal as reported in 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT holding that the amount on sale of carbon credits is in the nature of capital receipt, hence, is not taxable. - Decided in favour of assessee. Disallowance of deduction u/s 80IA - CIT(A) deleted the disallowance admitting additional evidence - Held that - As can be seen from the assessment order, while computing assessee s claim of deduction u/s 80IA, AO has excluded the amount of ₹ 7,79,389 by treating it as interest income without ascribing any reasons. However, the learned CIT(A), as it appears, after examining details with regard to the component of ₹ 7,79,389, which includes ₹ 7,14,138 towards scrap sales and ₹ 65,251 as interest on FDRs. has allowed assessee s claim of deduction u/s 80IA. On perusal of letter dated 01/12/2010 along with accompanying documents submitted before Assessing Officer, copies of which were also placed on record, it appears assessee has furnished the details of other income amounting to ₹ 7,79,389. Hence, department s claim that Ld. CIT(A) has considered additional evidence in violation of Rule 46A is devoid of merit. As the department has challenged the decision of Ld. CIT(A) on this issue only on violation of Rule 46A, without going into merits of assessee s claim of deduction, we uphold the order of ld. CIT(A). - Decided in favour of assessee. Employees compensation expenses (ESOPs) disallowed - CIT(A) allowed claim - Held that - Order of CIT(A) that after verifying details CIT(A) has allowed the expenditure claim by assessee. Undisputedly, expenditure incurred towards ESOPs is an allowable expenditure. Therefore, the only thing which needed verification is whether assessee has actually incurred the expenditure. When the learned CIT(A) by verifying the material on record has found that assessee has actually incurred the expenditure, then, no useful purpose would have been served in getting it verified again through AO. In the aforesaid view of the matter, we do not find any infirmity in the order of the CIT(A) in deleting the addition made by AO and accordingly we uphold the same - Decided in favour of assessee.

Summary

Issues:
1. Taxability of income generated from sale of Carbon Credits as a capital receipt.
2. Disallowance of 80IA deduction on interest income component.
3. Disallowance of deduction u/s 80IA on employee compensation expenses.

Analysis:

Issue 1:
The department contested the deletion of addition made by the Assessing Officer (AO) regarding the income from the sale of carbon credits, arguing it should be taxable. The Commissioner of Income-tax (Appeals) (CIT(A)) allowed the relief to the assessee, considering it a capital receipt. The ITAT Hyderabad upheld the CIT(A)'s decision, citing a precedent from the ITAT Hyderabad Bench and the Jurisdictional High Court. The ITAT found no flaw in the CIT(A)'s order and dismissed the department's appeal.

Issue 2:
The department challenged the deletion of disallowance of 80IA deduction on interest income by the AO. The CIT(A) allowed the deduction after considering the details provided by the assessee. The department argued that the CIT(A) accepted additional evidence without giving the AO an opportunity under Rule 46A. The ITAT upheld the CIT(A)'s decision, stating that the evidence was submitted to the AO earlier, and the CIT(A) did not violate Rule 46A.

Issue 3:
The AO disallowed the deduction claimed by the assessee on employee compensation expenses, which was later deleted by the CIT(A) after verifying the details provided by the assessee. The ITAT upheld the CIT(A)'s decision, emphasizing that the CIT(A) had already verified the expenditure and found it to be legitimate. The ITAT concluded that as the expenditure was allowable and verified by the CIT(A), there was no need for further verification by the AO.

In conclusion, the ITAT Hyderabad upheld the decisions of the CIT(A) on all three issues, dismissing the department's appeal and affirming the relief granted to the assessee. The judgment was pronounced on 12/11/2014.