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2021 (1) TMI 1081 - HC - Income TaxDeduction u/s 80IA - Treatment to carbon credit receipt - revenue or capital receipts - income from generation of electricity and the carbon credit earned by the assessee are totally separate and the source of the income is also separate - assessee is not entitled for deduction in respect of the carbon credit - HELD THAT - Assessee while preferring appeal before the CIT(A), has specifically raised a contention that the receipts from sale of carbon credit is a capital receipt and cannot be included in the taxable income. Though this ground raised by the assessee before the CIT(A) has been recorded in the order, the CIT(A) did not take a decision on the same. Similar ground was raised by the assessee before the Tribunal, which was not considered by the Tribunal, though the Tribunal refers to all the decisions relied on by the assessee, but would pin the assessee to his claim made under Section 80IA of the Act and accordingly, negatives it. This finding of the Tribunal is wholly erroneous and perverse. Tribunal was expected to apply the law and take a decision in the matter and if the CIT(A) or the Assessing Officer had failed to apply the law, then the Tribunal was bound to apply the law. This is so because, in the light of the decisions referred above, the receipt by way of sale of carbon credit has been held to be capital receipt. Therefore, it is of a little consequence as to the claim made by the assessee under Section 80IA of the Act or in other words, the question of taking a decision as to whether the deduction is admissible under Section 80IA of the Act is a non-issue. If the receipt from the sale of carbon credit is a capital receipt, then it will go out of the purview of the gross total income as defined under Section 80B(5) of the Act, which expression is found in Section 80IA of the Act. Thus, if the receipts by sale of carbon credit will not fall within the definition of total income, the same cannot be included under Section 80IA of the Act. Therefore, even if the assessee has made such a claim, that cannot be a reason for the Tribunal to non-suit the assessee. Section 115BBG of the Act was introduced by Finance Act, 2017 with effect from 01.04.2018, prior to which, there was no such provision and Mr.V.S.Jayakumar, learned counsel for the assessee would submit that the assessees were under utter confusion as to under which provision of the Act, they should make a claim for deduction and having left with no other option, had been making the claim under Section 80IA of the Act and merely because the assessee due to uncertainty in the legal position, had made a claim under Section 80IA of the Act that cannot be a reason to deny a benefit granted in favour of the assessee. The submission, made by Mr.V.S.Jayakumar, learned counsel for the appellant, in this regard, is well found and accepted. - Decided in favour of assessee. Disallowance of interest u/s 36(1)(iii) - AO held that the assessee, having provided interest free loans to subsidiary companies and obtained cash credits from two companies, had diverted the business loan for non-business purpose and proportionate disallowance of interest at 12% was calculated and added back to the income of the assessee - HELD THAT - Tribunal had remanded the matter to the Assessing Officer for fresh consideration and on such remission, the Assessing Officer has allowed the relief on the ground that the assessee has adequate interest free funds to advance amounts to sister concerns. In the light of the same it is held that it is not necessary for the this Court to decide substantial question of law no.3, as relief has already been granted to the assessee. Disallowance u/s 14A - assessee had invested a sum of ₹ 9 Crores in the subsidiary companies and it had not claimed any expenditure - HELD THAT - we find that this issue has not been adjudicated in the manner, in which, it is required to be done. The Tribunal, while remanding the issue with regard to interest disallowance under Section 36(1)(iii) of the Act, ought to have remanded the issue with regard to disallowance under Section 14A of the Act as well. But, however failed to do so and therefore, we are of the view that this issue needs to be remanded back to the Assessing Officer for fresh consideration. Accordingly, the finding rendered by the Tribunal with regard to the disallowance under Section 14A of the Act is set aside and the matter is remanded to the Assessing Officer for fresh consideration.
Issues Involved:
1. Interpretation of Section 14A of the Income Tax Act, 1961, and Rule 8D of the IT Rules, 1962, regarding the disallowance of expenses in the absence of exempt income. 2. Disallowance under Section 14A even without incurring expenditure related to exempt income. 3. Notional interest disallowance under Section 36(1)(iii) of the Income Tax Act, 1961. 4. Eligibility of carbon credit for deduction under Section 80IA. Detailed Analysis: Issue 1 & 2: Interpretation and Disallowance under Section 14A The Tribunal's interpretation of Section 14A and Rule 8D was questioned, particularly regarding the disallowance of expenses in the absence of exempt income. The assessee argued that no expenditure was incurred directly or indirectly related to the investments in subsidiary companies, and no income was earned from such investments during the year. The Tribunal, while deciding on this issue, was guided by Section 36(1)(iii) and remanded the matter for fresh consideration, failing to address the specific contention under Section 14A. The High Court noted this oversight and remanded the issue back to the Assessing Officer for fresh consideration, emphasizing that the Tribunal should have adjudicated the matter properly. Issue 3: Notional Interest Disallowance under Section 36(1)(iii) The Tribunal had remanded the issue of interest disallowance under Section 36(1)(iii) to the Assessing Officer, who later allowed the relief, noting that the assessee had adequate interest-free funds to advance to sister concerns. Consequently, the assessee did not press for a decision on this issue, and the High Court recorded that it was unnecessary to decide on this substantial question of law. Issue 4: Eligibility of Carbon Credit for Deduction under Section 80IA The Tribunal upheld the CIT(A)'s view that carbon credit receipts are not eligible for deduction under Section 80IA, treating them as business income. However, the High Court highlighted that several High Courts, including Andhra Pradesh and Karnataka, have held that carbon credit receipts should be treated as capital receipts, not taxable as business income. The High Court criticized the Tribunal for not applying the law correctly and remanded the issue to the Assessing Officer for reassessment, emphasizing that carbon credit receipts should be excluded from taxable income as they are capital receipts. Conclusion: - The High Court remanded the issue of disallowance under Section 14A to the Assessing Officer for fresh consideration. - The issue of notional interest disallowance under Section 36(1)(iii) was not pressed as relief was already granted. - The High Court ruled in favor of the assessee regarding the treatment of carbon credit receipts, holding them as capital receipts and not taxable. Judgment Summary: The appeal was allowed in part: 1. Issues under Section 14A were remanded for fresh consideration. 2. The issue under Section 36(1)(iii) was not pressed. 3. The treatment of carbon credit receipts as capital receipts was affirmed, favoring the assessee.
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