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2015 (7) TMI 1333 - AT - Income TaxDeduction u/s. 80IA - income from sale of Certified Emission Reduction (CER) - capital receipts OR Business and Profession - HELD THAT - As per the Hon ble High Court in M/S. MY HOME POWER LTD., 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT the income on sale of excess Carbon Credits was a capital receipt and not a business receipt/income. Notably, even in the case of assessee before the Hon ble Andhra Pradesh High Court, assessee had earned income on sale of Carbon Credits in the course of carrying on the business of power generation, which is also the fact-position before us. The Hon ble High Court has held that the income received on sale of excess Carbon Credits was a capital receipt not chargeable to tax. Quite clearly, the said Judgment supports the plea of assessee in the instant case that the receipts on sale of CERs is a capital receipt not chargeable to tax. Following the said Judgment we uphold the plea of the assessee. The Ground of appeal no. 1 relating to claim of exemption u/s. 80IA of the Act on the income from sale of Carbon Credits is rendered academic in view of our decision on Ground of appeal no. 2. Disallowance u/s 14A - HELD THAT - Representative for the assessee has not seriously disputed the disallowance made by the Assessing Officer on account of direct interest expenditure related to earning of exempt income. Ostensibly, the said working was provided by the assessee itself in the course of hearing before the Assessing Officer. Nevertheless, it is to be noted that the entire issue of the disallowance made by invoking section 14A is quite redundant because the CIT(A) agreed to an omnibus alternate plea of the assessee to the effect that the amount disallowed u/s 14A of the Act resulted in increased profits, which qualified for the benefits of section 80IA of the Act. The aforesaid decision of the CIT(A) is challenged by the Revenue by way of Ground of appeal No.2. We find no reason to interfere with the same inasmuch as the same are unexceptional. The CIT (A) has factually concluded that the disallowance of administrative expenses u/s 14A r.w.r 8D(2)(iii) of the Rules leads to enhanced profits of the eligible business of the generation of power and, therefore, such enhanced profits have been rightly held to be eligible for benefits of section 80IA of the Act. No material has been lead by the Revenue before us which would enable us to distract from the above finding of the CIT(A), which is hereby affirmed and Revenue fails in Ground of appeal no. 2. Whatever income was enhanced on account of disallowance computed u/s 14A of the Act, it has been offset by the exemption available on such enhanced profit in terms of section 80IA of the Act. Thus, on facts it is quite clear that the disallowance u/s 14A of the Act does not impact the net taxable profits as assessee becomes eligible to higher exemption u/s 80IA. Therefore, the dispute pertaining to the efficacy of the disallowance u/s 14A of the Act, r.w. rule 8D(2) of the Rules, which is manifested in Ground of appeal no. 4 of the assessee and in Ground of appeal no. 1 of the Revenue, is academic in nature. Thus, we refrain from adjudicating the same at the present. Determination of Book Profits for the purpose of section 115JB - HELD THAT - Considering the entirety of facts and circumstances and the position of law explained by the Hon ble Supreme Court in the case of National Thermal Power Corporation 1996 (12) TMI 7 - SUPREME COURT and by the Hon ble Bombay High Court in the case of Pruthvi Brokers Share Holders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT we deem it fit and proper to admit the aforesaid Additional Ground of Appeal no. 2 also. Insofar as the merit of said ground is concerned, it would be in the fitness of things that the same is restored back to the file of Assessing Officer for adjudication, since the same was not before the lower authorities. Needless to say the Assessing Officer shall allow the assessee a reasonable opportunity of being heard in support of the aforesaid Additional Ground of Appeal and thereafter pass an order afresh as per law.
Issues Involved:
1. Deduction under Section 80IA on income from the sale of Certified Emission Reductions (CERs). 2. Classification of CERs receipts as capital or revenue receipts. 3. Disallowance under Section 14A read with Rule 8D. 4. Additional Grounds related to computation of Book Profits under Section 115JB. Detailed Analysis: 1. Deduction under Section 80IA on Income from Sale of CERs: The assessee claimed a deduction under Section 80IA for income derived from the sale of CERs, which was included in the total turnover. The Assessing Officer (AO) excluded CERs receipts from the eligible business profits for deduction under Section 80IA, arguing that CERs income was not derived from the business of power generation. The CIT(A) upheld the AO's decision, stating that CERs receipts, though revenue in nature, were not "derived from" the business of power generation. 2. Classification of CERs Receipts as Capital or Revenue Receipts: The assessee contended that CERs receipts should be classified as capital receipts not chargeable to tax. The CIT(A) rejected this plea, considering CERs receipts as revenue earned in the course of business. However, the Hon'ble Andhra Pradesh High Court in the case of My Home Power Ltd. ruled that income from the sale of Carbon Credits is a capital receipt, as it is an offshoot of environmental concerns and not directly linked to the business of power generation. Following this judgment, the tribunal upheld the assessee's plea that CERs receipts are capital receipts not chargeable to tax. 3. Disallowance under Section 14A read with Rule 8D: The AO disallowed Rs. 29,66,81,836 under Section 14A for investments made, applying Rule 8D. The CIT(A) sustained the disallowance of Rs. 9,05,53,986 for direct interest expenditure but deleted Rs. 15,32,12,850 for indirect interest expenditure, and sustained Rs. 5,29,15,000 for administrative expenses. The CIT(A) also allowed the assessee's alternate plea that the disallowance under Section 14A resulted in increased profits eligible for deduction under Section 80IA. The tribunal found no reason to interfere with the CIT(A)'s findings, affirming that the disallowance under Section 14A does not impact the net taxable profits due to the corresponding increase in exemption under Section 80IA. 4. Additional Grounds Related to Computation of Book Profits under Section 115JB: The assessee raised two additional grounds: - Reduction of CERs receipts from Book Profits as they are capital receipts. - Deduction of loss on demerger of the investment division from Book Profits. The tribunal admitted these additional grounds, following the Supreme Court's judgment in the case of National Thermal Power Corporation, which allows raising new legal issues at the appellate stage if relevant facts are on record. The tribunal restored these issues to the AO for adjudication on merits, allowing the assessee a reasonable opportunity to be heard. Conclusion: The tribunal partly allowed the assessee's appeal, recognizing CERs receipts as capital receipts not chargeable to tax and affirming the CIT(A)'s decision on disallowance under Section 14A. The tribunal dismissed the Revenue's appeal and restored the additional grounds related to Section 115JB to the AO for fresh adjudication.
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