2015 (10) TMI 2808 - AT - Income Tax

Deduction u/s.80IA - claim denied in respect of the profits relating to captive generation of power which could not be considered as profits derived from an identification industrial undertaking - Whether CIT(Appeals) erred in holding that the assessee was entitled to deduction u/s.80IA from the two power generating units situated in the main manufacturing plants producing news print and writing paper set up for captive consumption as they did not qualify to be considered as separate industrial undertakings within the meaning of clause (iv) of sub-section (4) of sec 80IA? - HELD THAT - As decided in own case 2011 (6) TMI 776 - ITAT CHENNAI assessee is bound to succeed in these appeals. Its claim for deduction under Section 80-IA of the Act has to be allowed in respect of its power generated from TG-3 Boiler 4 and TG-4 Boiler 5 units as well. Initial assessment year referred to in section 80IA(5) - unabsorbed depreciation and carried forward losses of the earlier years which had already been set off against the other income to be carried forward and taken into consideration for the purpose of computation of deduction u/s.80IA - HELD THAT - As decided in Velayudhaswamy Spinning Mills (P) Ltd 2010 (3) TMI 860 - MADRAS HIGH COURT eligible business were the only source of income during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business Once the set off is taken place in earlier year against the other income of the assessee the Revenue can not rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplate to bring set off amount notionally. Fiction is created only for the limited purpose and the same can not be extended beyond the purpose for which it is created. Incentive on carbon credit is capital in nature - capital or revenue receipt - HELD THAT - Similar issue was decided by the Andhra Pradesh High Court in the case of CIT v. My Home Power Ltd 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT wherein it was held that income received from sale of carbon credit is considered as capital receipt and not business receipt and not liable for tax under the Act. Accordingly we agree with the finding of the Commissioner of Income-tax(Appeals) on this ground and dismiss the ground of appeal taken by the Revenue.

Summary

Issues Involved:
1. Deduction under Section 80IA for power generating units.
2. Interpretation of "initial assessment year" under Section 80IA(5).
3. Nature of incentive on carbon credit.
4. Delay in filing cross-objection by the assessee.

Issue-Wise Detailed Analysis:

1. Deduction under Section 80IA for Power Generating Units:
The first issue concerns whether the assessee was entitled to a deduction under Section 80IA from two power generating units situated in the main manufacturing plants producing newsprint and writing paper, set up for captive consumption. The Revenue argued that these units did not qualify as separate industrial undertakings as per clause (iv) of sub-section (4) of Section 80IA. The Revenue contended that the power generating units were integral to the main manufacturing undertaking and thus could not be considered separate for the purposes of Section 80IA. The assessee, however, relied on the Tribunal's previous decision in its favor, which had held that such units were eligible for deduction under Section 80IA even if used for captive consumption. The Tribunal reiterated its earlier stance, noting that the power generated, though primarily used for paper manufacturing, was also sold to the Tamil Nadu Electricity Board, indicating that the units were indeed separate undertakings. Consequently, the Tribunal dismissed the Revenue's ground.

2. Interpretation of "Initial Assessment Year" under Section 80IA(5):
The second issue revolved around the interpretation of the term "initial assessment year" in Section 80IA(5). The Revenue argued that the initial assessment year should be the first year of the claim of deduction by the assessee, not the commencement of operation of the eligible undertaking. They also contended that unabsorbed depreciation and carried forward losses of earlier years, which had been set off against other income, should be notionally carried forward for computing the deduction. The assessee cited the Madras High Court's decision in Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT, which supported their interpretation. The Tribunal, following its previous decision and the High Court's ruling, held that the initial assessment year referred to the first year of the claim of deduction and not the commencement of operations. It also ruled that losses set off in earlier years could not be notionally brought forward. Thus, the Tribunal dismissed the Revenue's ground.

3. Nature of Incentive on Carbon Credit:
The third issue was whether the incentive received on carbon credit was capital in nature. The Revenue argued that such incentives were akin to profits from the sale of duty drawback, which the Supreme Court had held were not eligible for deduction under Section 80IA. The assessee relied on the Andhra Pradesh High Court's decision in CIT v. My Home Power Ltd., which held that income from the sale of carbon credits was a capital receipt and not liable for tax under the Act. The Tribunal agreed with the assessee, ruling that the incentive on carbon credit was capital in nature and dismissing the Revenue's ground.

4. Delay in Filing Cross-Objection by the Assessee:
The final issue was the delay of 27 days in filing the cross-objection by the assessee. The assessee provided an affidavit explaining the reasons for the delay. After reviewing the reasons, the Tribunal found a reasonable cause for the delay and admitted the cross-objection for adjudication. However, since the issue regarding the carbon credit receipt had already been decided in favor of the assessee in the Revenue's appeal, the cross-objection was dismissed as infructuous.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds and also dismissed the cross-objection filed by the assessee as infructuous. The order was pronounced on October 16, 2015, in Chennai.