2017 (9) TMI 189 - HC - Income Tax

Disallowance under section 14A - Held that - Assessee possesses own funds much more than the tax free investments, the disallowance u/s 14A read with Rule 8D cannot be made.The assessee had made investments earning tax free income and on the he also had borrowed funds paying interest of ₹ 75,02,592/-.AO is of the view to disallowed this interest with the aid of section 14A of the Act.Since it cannot be assumed that investments are made from borrowed funds rather than from assessee s own funds therefore no disallowance could be made. Therefore, no question of law arises. Revenue s appeal is dismissed. Claim of deduction under section 80IA(4) - entitled to claim market value of the eligible unit - rate for computation of such benefit for purchase of electricity - Held that - Claim allowed as relying on assessee s own case for preceeding AYs held that it is price at which assessee transferred electricity generated by it eligible business to its other business which would be considered for purpose of computation of profits and gains of eligible business in terms of section 80IA( 8) and not lesser price at which surplus electricity was sold to Electricity Board. Profit and gain from captive consumption of electricity supplied only to assessee by power plant of assessee will qualify for deduction under section 80IA.- Decided in favour of assessee. Treatment to assessee s income from trading of carbon credits - Held that - Receipts of carbon credit are in nature of revenue receipts. See CIT v. Subhash Kabini Power Corporation Ltd. reported in (2016 (5) TMI 793 - KARNATAKA HIGH COURT) and Commissioner of Incometax v. My Home Power Limited 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT - Tax appeal is dismissed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act
2. Computation of book profit under section 115JB of the Income Tax Act
3. Claim of deduction under section 80IA(4) of the Income Tax Act
4. Treatment of income from realization of carbon credits

Issue 1 - Disallowance under section 14A of the Income Tax Act:
The case involved an appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal (ITAT) regarding the disallowance under section 14A of the Act. The ITAT had deleted the addition made under section 14A r.w. Rule 8D, as the assessee had substantial interest-free funds exceeding the investments earning tax-free income. The Tribunal observed that the disallowance cannot be made when the assessee possesses own funds much more than the tax-free investments. The ITAT confirmed the view of CIT (Appeals) and held that no disallowance beyond what was voluntarily offered by the assessee could be made. The Tribunal concluded that the assessee had interest-free funds in excess of investments generating exempt income, hence no question of law arose.

Issue 2 - Computation of book profit under section 115JB of the Income Tax Act:
The second question raised was regarding the adjustment made on account of disallowance under section 14A in the computation of book profit under section 115JB of the Act. The Tribunal found that the assessee had interest-free funds exceeding the investment generating exempt income, leading to the conclusion that no question of law arose in this regard.

Issue 3 - Claim of deduction under section 80IA(4) of the Income Tax Act:
The third question pertained to the claim of deduction under section 80IA(4) of the Act and the rate for computation of such benefit for purchasing electricity. The Tribunal referred to previous judgments favoring the assessee's eligibility for claiming deduction under section 80IA for captive power plant, based on market value considerations and relevant case laws. The Tribunal upheld the claim of the assessee, citing precedents and found no infirmity in the Tribunal's order, answering in favor of the assessee against the revenue.

Issue 4 - Treatment of income from realization of carbon credits:
The final issue concerned the treatment of the assessee's income from trading carbon credits. The Tribunal held that such receipts should be treated as capital receipts and not taxable. This decision was supported by judgments from the Karnataka High Court and Andhra Pradesh High Court, which considered receipts of carbon credits as revenue receipts. Following the precedent set by these High Courts, the Tribunal decided not to consider this question further.

In conclusion, the Tax Appeals were dismissed, with the Tribunal's decisions upheld on various issues related to disallowance under section 14A, computation of book profit, deduction under section 80IA(4), and treatment of income from trading carbon credits.