2015 (11) TMI 1865 - AT - Income Tax

Deduction u/s 80IA - sale of carbon credit as income derived from business of generation of power - whether expression derived from has a narrow meaning and different from the term attributable to ? - CIT (A) has held that the profit was earned on sale of carbon credit only when power was generated and not otherwise and profit earned on sale of carbon credit was the gain derived from the business of generation of power, consequently, eligible for claiming deduction u/s 80IA (4) - HELD THAT - We find that as we have already held that the receipt on account of carbon credit sale is a capital receipt and hence the same is not liable to tax. The adjudication of issue raised by the Revenue is only of academic interest. Accordingly we are not engaging under the same. Hence this ground raised by the Revenue is dismissed as infructuous. Disallowance of the claim of assessee u/s 80IA - allegation of the AO was that the electricity was transferred at higher rate to one of the Division which was eligible for deduction u/s 80IA - HELD THAT - On the issue whether the tariff determined by State Electricity Board represents market value or not, a detailed verdict has already been pronounced by the Hon ble Jurisdictional High Court. In the case of CIT Vs M/s. Godawari Power Ispat Ltd. 2013 (10) TMI 5 - CHHATTISGARH HIGH COURT as held CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders. Disallowance u/s 14A r.w.r 8D - HELD THAT - The formula of Rule 8D is to be applied only after considering the applicability of the main provisions of Section 14A of the Act. Due to this reason it is worth to restore this issue back to the file of the AO to first of all, determine whether the assessee has earned any dividend or exempted income from the alleged investment. If, no dividend is earned, then, next question is that whether any expenditure has been incurred to earn in connection with the investment made. If, expenditure is in the shape of interest, then, whether the assessee had sufficient self generated funds. For this reason, the assessee is directed to place on record that the investment has been made out of the self generated income to create interest-free funds. Hence, we deem it proper as well as justifiable to restore this issue back to the file of the AO to examine the facts afresh and then only apply the provisions of Section 14A of the IT Act as per law. Resultantly, this cross objection may be treated as allowed but, for statistical purposes only. Addition of subsidy received - revenue or capital receipt - CIT-A held that the subsidy was capital in nature, therefore, directed to delete the addition - HELD THAT - We are of the view that this issue has been decided in the case of DCIT Vs Reliance Industries Ltd. 2003 (10) TMI 255 - ITAT BOMBAY-J Respectfully following this precedence, we hereby confirm the findings of the learned CIT (A) and dismiss the ground of appeal of the Revenue.

Summary

Issues Involved:
1. Deduction under Section 80IA of the IT Act on sale of carbon credits.
2. Transfer pricing of electricity between divisions.
3. Disallowance under Section 14A of the IT Act.
4. Taxability of sales tax subsidy.

Detailed Analysis:

1. Deduction under Section 80IA of the IT Act on sale of carbon credits:
The primary issue was whether the profit earned from the sale of carbon credits qualifies for deduction under Section 80IA of the IT Act. The Revenue contended that the sale of carbon credits did not derive directly from the business of power generation and thus should not be eligible for the deduction. The assessee argued that carbon credits are a result of the power generation process and should be considered part of the business income.

The Tribunal considered the arguments and referred to the judgment of the Andhra Pradesh High Court in CIT vs. My Home Power Ltd., which held that income from the sale of carbon credits is a capital receipt and not taxable. The Tribunal concluded that the sale of carbon credits is a capital receipt and not liable to tax, thus dismissing the Revenue's appeal and allowing the assessee's cross-objection.

2. Transfer pricing of electricity between divisions:
The AO disallowed a portion of the deduction under Section 80IA, arguing that the electricity was transferred at a higher rate to the Steel Division to reduce taxable profit. The assessee transferred electricity at Rs.3.01 per unit, while the AO compared it with the rate of Rs.2.80 per unit supplied to CSEB.

The Tribunal upheld the CIT(A)'s decision, which relied on the jurisdictional High Court's judgment in CIT vs. Godawari Power & Ispat Ltd., stating that the market value of power supplied to a consumer should be considered, not the rate charged to a supplier. The Tribunal found no fallacy in the CIT(A)'s view and dismissed the Revenue's appeal.

3. Disallowance under Section 14A of the IT Act:
The AO disallowed Rs.6,67,653 under Section 14A, arguing that the assessee had invested in equity shares and incurred interest expenses. The CIT(A) upheld the disallowance.

The Tribunal remanded the issue back to the AO to determine if the assessee earned any exempt income and if the investment was made from self-generated funds. The Tribunal directed the AO to re-examine the facts and apply Section 14A as per law, treating the cross-objection as allowed for statistical purposes.

4. Taxability of sales tax subsidy:
The AO treated the sales tax subsidy of Rs.25,00,000 received by the assessee as revenue receipt. The CIT(A) held it as a capital receipt, following the Supreme Court judgments in Sahney Steel & Press Works Ltd. and CIT vs. Ponni Sugars & Chemicals Ltd.

The Tribunal upheld the CIT(A)'s decision, following the Special Bench decision in DCIT vs. Reliance Industries Ltd., and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years 2008-09 and 2009-10, allowed the assessee's cross-objection for 2009-10, and partly allowed the cross-objection for 2008-09. The Tribunal's decisions were based on established legal precedents and detailed examination of facts.