2023 (1) TMI 65 - AT - Income Tax

Disallowance of deduction u/s. 80-IA - income on sale of certified emission - Reduction by treating the same as capital asset - As per AO the benefit of carbon credit and the activity carried out by the assessee are separate and independent activity. It does not represent any byproduct of the activity carried out by the company - HELD THAT - We note that there are several orders/ judgments wherein it has been held that the carbon credit received by the assessee represents the capital receipt which is not chargeable to tax. Tribunal in case of Gujarat Fluorochemicals Ltd vs. DCIT 2018 (8) TMI 857 - ITAT AHMEDABAD after considering several judicial Pronouncement including the observation of Hon ble Jurisdictional High Court in case of Alembic Ltd 2017 (9) TMI 189 - GUJARAT HIGH COURT has held that the receipt on account of sale of Carbon credit are to be treated as capital receipts which is not chargeable to tax. We do not find any infirmity in the order of the learned CIT-A. Hence we uphold the same and direct the AO to delete the addition made by the AO. Hence, the ground of appeal of the revenue is hereby dismissed. Deduction u/s 80IA by treating them as profit derived from the business of distribution of power - AO disputed the deduction with respect to such items of income - Delayed payment charges from customers - HELD THAT - No material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, we hold that the assessee is eligible for deduction under section 80-IA of the Act with respect to delayed payment charges from customers. Interest from customer - No material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, we hold that the assessee is eligible for deduction under section 80-IA of the Act with respect to interest from customer. Shifting Services - Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, we hold that the assessee is eligible for deduction under section 80-IA of the Act with respect to Shifting Services. Liquidation damage/ Rebate - If the assessee would have reduced the cost of material purchase by the amount of liquidated damages, there would not have been any question of showing any income under the captioned head and consequently denying the deduction claimed by the assessee under section 80 IA of the Act. It is just a manner of presentation. As such, the assessee has represented the liquidated damages separately as income but it has a live link with the activity of the assessee. Accordingly, we hold that the assessee is eligible for deduction on such liquidated damages. Moving forward, the rebate fetched by the assessee on account of quick payment made to PGCIL has direct link with the activity of the assessee being distribution of power. Similarly, the amount of rebate received by the assessee has been presented in the financial statement in a different format. As such, the assessee instead of showing the rebate income as a separate items income, it could have adjusted such rebate against the payment made to PGCIL. In such an event, there would not have been any question for disclosing any income under the captioned head and consequently disallowing the deduction claimed by the assessee under the provisions of section 80 IA of the Act. Accordingly, we hold that the assessee is eligible for deduction on such rebate. Sale of Scrap - AO was of the view that the income shown by the assessee by way of scrap sale is not directly arising from the activity of power generation but incidental to the business of the assessee. Accordingly, the same cannot be made subject to deduction under section 80 IA - in effect only the amount of material consumed is claimed as deduction against the income of the assessee. If obsolete stores have been sold out in the year under consideration the same will be shown as income in the profit and loss account at the sale price and simultaneously the corresponding material cost of the consumables will be debited in the profit and loss account. Thus in effect the losses that the assessee has incurred on account of obsolescence of consumable materials is reduced by the amount of sale s realization. It is a matter manner of presentation in the books of accounts about the sale of consumable materials. If the assessee instead of showing the sale of the consumable materials as income and adjusting the same against the cost of the consumables sold by it there will not be any income in the books of accounts of the assessee and accordingly the question of disallowances of deduction under the section 80IA of the Act will not arise. Thus, merely the assessee has presented the sale of consumable stores in a particular manner, the assessee cannot be debarred from claiming the deduction under the provisions of section 80IA of the Act. It is also pertinent to note that the income from the sale of consumable stores used in the eligible unit has direct link with the generation and distribution of power, therefore on this score as well, the assessee cannot be denied the benefit of the deduction under section 80IA of the Act. Accordingly, we uphold the order of the learned CIT-A, and direct the AO to delete the addition made by him. Hence the grounds of appeal of the revenue is dismissed. Disallowance of deduction made by the AO under section 80G and 80GGB - assessee has made certain donations from different units and claimed deduction under section 80G/80GGB - AO was of the view that such donation shown in the profit and loss account of the eligible undertaking cannot be claimed as deduction under the provisions of section 80G /80GGB of the Act from the gross total income of the assessee - HELD THAT - As decided in own case 2022 (1) TMI 174 - ITAT AHMEDABAD no dispute to the fact that the amount of donation was claimed by the assessee in the profit and loss account of the eligible undertaking which has been disallowed while computing the eligible profit. Certainly, the profit of the eligible undertaking will increase by the amount of disallowance made by the assessee on account of the donations paid to the institutions which is entitled for deduction under section 80G/80GGB of the Act. It has to be disallowed/added back while computing the eligible profit of the business referred therein under section 80-IA of the Act. It is for the reason that this donation does not relate to the business referred under section 80-IA of the Act which is eligible for deduction. But the same can be claimed as deduction by virtue of the provisions of section 80G/80GGB of the Act separately subject to the conditions specified therein. Hence, we do not find any infirmity in the order of learned CIT (A). Thus, the ground of appeal of the Revenue is dismissed. Disallowances u/s 14A read with rule 8D - HELD THAT - We hold that the disallowance under section 14A read with rule 8D of Income Tax Rule was not warranted. Hence the ground of appeal of the assessee is allowed whereas ground of appeal of the Revenue is dismissed. Disallowances of interest fmade on account of diversion of interest bearing fund - HELD THAT - Admittedly, the own fund of the assessee exceeds the amount of loans provided without charging interest thereon. The own fund of the assessee stands at Rs. 3960.15 crore only whereas the amount of loans and advances to subsidiary stands at Rs. 49.79 crore only which can be verified form the financial statement available on record. Thus, a presumption can be drawn that such amount of loan advances have been provided by the assessee out of its own fund. Therefore, there cannot be any disallowance of interest expenses. Hence the ground of appeal of the Revenue is hereby dismissed. Addition made to the books profit u/s 115JB being disallowances under section 14A read with rule 8D of the Income Tax Rules - HELD THAT - DR has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we set-aside the finding of the learned CIT(A) and direct the AO make adhoc disallowances @ 1% of exempted income. However, in the given facts and circumstances, we find that there was no exempt income in the year under consideration, therefore there cannot be any disallowance while computing the book profit under section 115JB of the Act. Thus, the ground of appeal raised by the Revenue is hereby dismissed. Credit of dividend distribution tax - HELD THAT - AO is directed to verify the payments of DDT made by Appellant and allow credit of such taxes while giving effect to this order. AO also directed to verify the claim of Appellant regarding short credit of TDS and if it is found that income pertaining to such TDS is already offered to tax, credit of such TDS needs to be given while giving effect to this order. Deduction under section 80 IA - disallowance of deduction representing street light maintenance income on the reasoning that it is not derived from the activity of power generation - HELD THAT - We hold that the assessee is not eligible for deduction of income derived from the services of streetlight maintenance. Alternate contention of the assessee that it should be allowed to be adjusted the income of streetlight maintenance with the corresponding expenses - AO has given the benefit of the expenses against the income from streetlight maintenance on ad hoc basis. Even before us, the learned AR has not brought anything on record about the expenses incurred against such street light maintenance income. Thus in the absence of such details, we do not find any merit in the argument of assessee. Before parting, we also note that the basis adopted by the AO for computing the income relating to streetlight maintenance does not seem to the proper. It is because, the AO has considered all the income of the assessee for working out the profit from the activity of streetlight maintenance instead of making the estimate directly on the income shown by the assessee under the head streetlight maintenance. In simple words, the AO could have estimated the profit on some reasonable basis in relation to the gross income shown by the assessee from the activity of streetlight maintenance. As such, we are of the view that the justice shall be served to the assessee and the revenue, if the income of the assessee from the streetlight maintenance is estimated at the rate of 8% being gross income from the streetlight maintenance activity. Hence the ground of appeal of the assessee is partly allowed. Disallowance of deduction claimed under section 80-IA on account of recovery of bad debts in Ahmedabad unit and Surat unit - HELD THAT - Where Assessing Officer finds that claim has already been allowed in the earlier year then such benefit under section 80-IA should be given to the profits taxed under section 41(1). The argument of ld. AR is that once it has declared profits under section 41(1) it would mean that assessee has already claimed and allowed deduction thereof in earlier years but in our considered view it requires verification and for that matter we restore the matter to the file of Assessing Officer. Accordingly this ground of assessee is allowed for statistical purposes. Disallowances of deduction under section 80-IA on account of FD interest income and interest on IT refund - HELD THAT - Identical issue with respect to the eligibility of deduction of income from the activity of interest on FD and income tax refund came up before this Tribunal in the own case of the assessee for AY 2008-09 2022 (1) TMI 174 - ITAT AHMEDABAD where the issue has been decided against the assessee. The provisions of Section 80-IA of the Act provides for deduction of the profits derived from the business by an undertaking or enterprise, engaged inter alia, in generation or generation and distribution of power. But the interest income was not arising to the assessee from the activity of distribution of power. Thus, on the same reasoning given in the relation to streetlight maintenance activity in para no. 38 of this order, the impugned income is not eligible for deduction under section 80-IA of the Act. Therefore the authority below rightly excluded the same from the computation of deduction under section 80IA of the Act. Hence the assessee ground of appeal is dismissed. Disallowance of deduction claimed under section 80-IA representing Rental income with respect to Ahmedabad unit and Surat Unit - HELD THAT - The provisions of Section 80-IA of the Act provides for deduction of the profits derived from the business by an undertaking or enterprise, engaged inter alia, in generation or generation and distribution of power. But the rental income was not arising to the assessee from the activity of distribution of power. Thus, on the same reasoning given in the relation to streetlight maintenance activity in para no. 38 of this order, the impugned income is not eligible for deduction under section 80-IA of the Act. Thus in view of the above discussion we are of the opinion that the rental income received from employee should not be included in the computation of deduction under section 80IA of the Act as the same is not the profit or gain derived from the eligible business activity. Disallowance of deduction under section 80-IA representing miscellaneous receipt with respect to Bhivandi unit - HELD THAT - Admittedly, the miscellaneous receipts discussed above is not connected with the generation and distribution activity of the assessee. Thus, the same is not eligible for deduction under the provisions of section 80IA of the Act. However, while excluding the impugned miscellaneous receipt, the assessee is eligible for deduction of the expenses incurred, if any, against such miscellaneous receipt. With respect to the other income we find that no detail has been furnished by the assessee in support of his contention that such other revenue represents the income from the activity of power generation and power distribution. In the absence of any nexus, we do not find any reason to interfere in the finding of the learned CIT-A. Accordingly, we confirm the same. Hence, the ground of appeal of the assessee is partly allowed. Disallowance of deduction under section 80-IA representing receipt of store billing charges - HELD THAT - Eligibility of deduction of income from the activity of store billing charges came up before this tribunal in the own case of the assessee for AY 2011-12 2022 (1) TMI 174 - ITAT AHMEDABAD where the issue has been decided against the assessee. AR or DR has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we hereby set aside the finding of the learned CIT(A). Thus, the ground of objection raised by the Assessee is hereby dismissed. Denying the benefit of deduction under section 80 IA with respect to certain incomes - HELD THAT - It is the trite law that the income, which has direct nexus with the activity of power generation and power distribution carried out by the assessee, are eligible for deduction under section 80IA of the Act. In other words, there has to be proximity between the income shown by the assessee viz a viz income derived from the activity of eligible undertaking. The onus lies upon the assessee to establish such nexus. However, what we find is this that the assessee before us failed to establish such nexus. Therefore, we decline to interfere in the order of the authorities below. Hence, the ground of objection raised by the assessee is hereby dismissed. MAT Computation u/s 115JB - sale of carbon credit being capital in nature cannot be made subject to tax under the provisions of MAT as specified under section 115 JB. Deduction u/s 80IA - Supplier discount and penalty Late delivery payment - HELD THAT - We note that the assessee in connection with the purchases made by the eligible unit received the certain amount from the supplier on late delivery/supply of material. Thus, it appears that such receipt has direct link from the activity of generation and distribution of power. Besides the above, if the assessee reduces the cost of material purchase by the amount of late delivery charges, there would not have been any question of showing the impugned income and consequently denying the deduction claimed by the assessee under section 80 IA - It is just a manner of presentation of the income and expense. As such, the assessee has represented the late delivery charges separately as income instead of reducing the cost. Admittedly, the corresponding expenses i.e. material purchases has been allowed as deduction against the income from generation and distribution of power. Thus,it has a live link with the activity of the assessee. Accordingly, we hold that the assessee is eligible for deduction on such receipt of late delivery charges. Supplier discount and penalty fetched by the assessee because of quick payment made to GETCO has direct link with the activity of the assessee being distribution of power. Similarly, the amount of discount received by the assessee has presented in the financial statement in a different format. As such, the assessee instead of showing such discount income as a separate items income, it could have adjusted such receipt against the payment made to GETCO. In such an event, there would not have been any question of showing the impugned income and consequently for disallowing the deduction claimed by the assessee under the provisions of section 80 IA of the Act. Accordingly, we hold that the assessee is eligible for deduction on such discount. Unscheduled interchange income - We note that in the process of supply of electricity through GETCO, sometimes there were excess or short transmission of electricity to customer than the billed unit. On such excess transmission of electricity, the assessee charged consideration. Thus, it appears that such receipt has direct link from the activity generation and distribution of power as it is charged on the excess supply of power. In our considered view, such receipt is part parcel to the sales made by the assessee. Accordingly, we hold that the assessee is eligible for deduction on such discount. Meter fixing fee - We note that the assessee was in receipt of an amount of Rs. 41,51,680/- from the meter fixing services, testing fee, fault attending fee etc. The AO held that the such receipts are not derived from the activity of the generation or distribution of power. At the outset, we note that electricity to the end customer cannot made available to the customer without fixing meter. Further, meter is necessary for measurement of unit supplied to particular customer and based on which bills are issued. Thus, in our considered opinion meter fixing services has direct link with the activity of distribution of power. Therefore, the assessee is eligible for deduction under section 80IA of the Act on such receipt. Gain on foreign currency exchange - From the preceding discussion we note that impugned gain of foreign currency rate fluctuation arises on import of material, equipment and natural gas which were utilized in generation of power. Thus, the same has direct and live nexus with the eligible business. At this point, we also referred the judgment of Hon ble Gujarat High Court in case of CIT vs. Deverson Industries Ltd. 2015 (1) TMI 394 - GUJARAT HIGH COURT -The above case law is in relation to export business whereas the case on hand of the appellant assessee has made import of materials and equipment for the eligible unit. But the principle laid down by the Hon ble Court in the case cited above is squarely applicable in the case on hand. Thus, in view of the above, the ground of appeal of the Revenue is hereby dismissed.

Summary

Issues Involved:
1. Deduction under Section 80-IA of the Income Tax Act, 1961
2. Treatment of Carbon Credits as Capital Receipts
3. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules
4. Interest Expenditure on Diversion of Borrowed Funds
5. Deduction under Sections 80G and 80GGB of the Income Tax Act, 1961
6. Addition to Book Profit under Section 115JB of the Income Tax Act, 1961
7. Miscellaneous Income and Other Specific Receipts

Detailed Analysis:

1. Deduction under Section 80-IA of the Income Tax Act, 1961:
- Delayed Payment Charges and Interest from Customers: The Tribunal upheld that delayed payment charges and interest from customers are directly linked to the business activity of power distribution and are eligible for deduction under Section 80-IA.
- Income from Shifting Services: The Tribunal found that income from shifting services has direct proximity to the business of power distribution and is eligible for deduction under Section 80-IA.
- Liquidation Damages and Rebate: The Tribunal ruled that liquidation damages and rebates are directly linked to the business activity and reduce the cost incurred, thus eligible for deduction under Section 80-IA.
- Sale of Scrap: The Tribunal held that income from the sale of scrap is directly related to the business of power distribution and is eligible for deduction under Section 80-IA.
- Miscellaneous Receipts: The Tribunal found that miscellaneous receipts such as incentives, penalties, and other minor incomes are not directly linked to the business of power distribution and are not eligible for deduction under Section 80-IA.

2. Treatment of Carbon Credits as Capital Receipts:
- The Tribunal upheld the CIT(A)'s decision that income from the sale of Carbon Credits (Certified Emission Reductions) is a capital receipt and not chargeable to tax. This is based on precedents such as the case of My Home Power Limited and Alembic Limited.

3. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules:
- The Tribunal upheld the CIT(A)'s decision that no disallowance under Section 14A is warranted if no exempt income is earned during the year, following the precedent set by the Gujarat High Court in the case of Corrtech Energy Pvt. Limited.

4. Interest Expenditure on Diversion of Borrowed Funds:
- The Tribunal upheld the CIT(A)'s decision that no disallowance of interest expenditure is warranted if the assessee has sufficient interest-free funds to cover the interest-free loans advanced to its subsidiaries.

5. Deduction under Sections 80G and 80GGB of the Income Tax Act, 1961:
- The Tribunal upheld the CIT(A)'s decision that donations eligible for deduction under Sections 80G and 80GGB can be claimed separately from the deduction under Section 80-IA, as they are mutually exclusive and independent.

6. Addition to Book Profit under Section 115JB of the Income Tax Act, 1961:
- The Tribunal ruled that disallowances made under Section 14A cannot be added to book profit under Section 115JB. It also ruled that capital receipts such as income from the sale of carbon credits should not be included in the computation of book profit under Section 115JB.

7. Miscellaneous Income and Other Specific Receipts:
- Supplier Discount and Penalty & Late Delivery Payment: The Tribunal found these receipts to be directly linked to the business activity and eligible for deduction under Section 80-IA.
- Unscheduled Interchange Income: The Tribunal found that this income is part of the sales and has a direct link with the business activity, thus eligible for deduction under Section 80-IA.
- Meter Fixing Fee: The Tribunal found that meter fixing services are essential for the business of power distribution and eligible for deduction under Section 80-IA.
- Gain on Foreign Currency Exchange: The Tribunal ruled that gains from foreign currency fluctuations related to the import of materials and equipment for power generation are directly linked to the business activity and eligible for deduction under Section 80-IA.

Conclusion:
The Tribunal has provided a detailed analysis of various issues, primarily focusing on the eligibility of different types of income for deduction under Section 80-IA, the treatment of carbon credits as capital receipts, and the applicability of disallowances under Section 14A. The Tribunal's decisions are based on established legal precedents and the specific facts of the case.