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2015 (11) TMI 1866 - AT - Income TaxDeduction u/s 80IA in respect of income from generation of power and sale of carbon credit - AO held that the sale on carbon credit was neither having direct nor having immediate nexus with the income from power generation division of the assessee therefore profit on sale of carbon credit was not eligible for claiming deduction u/s 80IAWhether deduction is eligible for power and not for carbon credit ? - HELD THAT - On identical facts and circumstances we have already decided this issue in the case of ACIT Raipur Vs Bajrang Power Ispat Ltd. 2015 (11) TMI 1865 - ITAT RAIPUR holding that the income on sale of carbon credit was derived from the activity of the industrial undertaking. Disallowance on account of temple pooja expenses when the expenses on temple and pooja are personal and not for the welfare of the employees - HELD THAT - We have noticed that the AO has not pointed out any specific reason that why the expenditure in question was not admissible; specifically when the claim of the assessee was that the same were wholly and exclusively incurred for the purpose of assessee s business. In a very cryptic manner he has held that the purpose of the travel was not explained and the temple and pooja expenditure are personal and not for welfare of the employees. Hence he had made disallowance respectively on ad-hoc basis. When the matter was carried before the first appellate authority the learned CIT(A) has reversed the impugned ad-hoc disallowance on the ground that even on verification of bills and vouchers no specific instance was mentioned by the AO in support of the said disallowances. We are also of the view that estimation in question pertaining to travelling expenses and temple pooja expenses was not based upon any cogent evidence. As a result we hereby confirm the findings of the learned CIT (A) and dismiss these two grounds of appeal of the Revenue.
Issues Involved:
1. Eligibility of deduction under Section 80IA for income from the sale of carbon credits. 2. Determination of market value for inter-unit transfer of electricity. 3. Disallowance of traveling expenses. 4. Disallowance of temple and pooja expenses. Detailed Analysis: Issue 1: Eligibility of Deduction under Section 80IA for Income from the Sale of Carbon Credits The primary issue was whether the income from the sale of carbon credits qualifies for a deduction under Section 80IA of the Income Tax Act. The Assessing Officer (AO) disallowed the deduction, arguing that the income from carbon credits was not "derived from" the generation and distribution of power. The AO cited case laws such as Cambay Electric Supply Industrial Co. Ltd. vs. CIT to support his stance that the sale of carbon credits had no direct nexus with power generation. Upon appeal, the CIT (A) granted relief, stating that carbon credits could only be earned if power was generated, thus considering the gains from the sale of carbon credits as derived from the business of power generation. The CIT (A) concluded that such gains were eligible for deduction under Section 80IA(4). The Tribunal referenced a similar case, ACIT, Raipur vs. Bajrang Power & Ispat Ltd., where it was held that profits from the sale of carbon credits were derived from the industrial undertaking's activities and thus eligible for deduction under Section 80IA. However, the assessee argued that the income from carbon credits should be treated as a capital receipt, citing the Andhra Pradesh High Court's decision in CIT vs. My Home Power Ltd., which held that income from carbon credits is a capital receipt and not liable to tax. The Tribunal agreed with the assessee, holding that the income from carbon credits is a capital receipt based on the Andhra Pradesh High Court's ruling. Consequently, the Tribunal dismissed the Revenue's appeal and allowed the cross-objection raised by the assessee. Issue 2: Determination of Market Value for Inter-Unit Transfer of Electricity The AO disallowed a portion of the deduction under Section 80IA, arguing that the assessee transferred electricity to its Steel Division at a higher rate (Rs. 3.01 per unit) compared to the rate charged by the Chhattisgarh State Electricity Board (CSEB) (Rs. 2.80 per unit). The AO alleged that this inflated rate reduced the profit of the Steel Division, which was subject to normal tax rates. The CIT (A) relied on the decisions in M/s. Jindal Steels & Power Ltd. and Dalmia Cement (Bharat) Ltd., concluding that the rate charged by the State Electricity Board represents the market value. The Tribunal upheld the CIT (A)'s decision, referencing the Chhattisgarh High Court's ruling in CIT vs. M/s. Godavari Power & Ispat Ltd., which stated that the market value should be based on the rate charged to consumers, not suppliers. The Tribunal confirmed the CIT (A)'s findings and dismissed the Revenue's appeal. Issue 3: Disallowance of Traveling Expenses The AO disallowed Rs. 2,00,000 on account of traveling expenses, stating that the purpose of the travel was not explained and lacked relevant details. The CIT (A) reversed this disallowance, noting that the AO did not provide specific reasons or evidence to support the disallowance. The Tribunal agreed with the CIT (A), finding no cogent evidence for the disallowance and dismissed the Revenue's appeal on this ground. Issue 4: Disallowance of Temple and Pooja Expenses The AO disallowed Rs. 2,33,642 on account of temple and pooja expenses, labeling them as personal and not for the welfare of employees. The CIT (A) reversed this disallowance, stating that the AO did not mention any specific instances to support the claim. The Tribunal upheld the CIT (A)'s decision, agreeing that the disallowance was not based on any substantial evidence, and dismissed the Revenue's appeal on this ground. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the cross-objection filed by the assessee, confirming that the income from the sale of carbon credits is a capital receipt and not liable to tax. The Tribunal also upheld the CIT (A)'s decisions on the issues of inter-unit electricity transfer rates, traveling expenses, and temple and pooja expenses, finding no substantial evidence to support the AO's disallowances.
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