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TMI Blog2015 (3) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is the "principle" and not the "quantum" which is deciding factor. Where a basket of "market values" are available for the relevant period and relevant geographical area where the eligible unit is situated, the assessee has discretion to adopt any one of them as market value and if the value adopted by the assessee is "market value" as explained above, it is not permissible for the Revenue to recompute the profits and gains of the eligible unit by substituting the said value (as adopted by the assessee) by any other "market value". Thus delete the disallowance as made by the Assessing Officer in order under section 143(3) on account of deduction under section 80-IA of the Act - Decided in favour of assessee. Disallowance on account of expenditure incurred towards gifts - CIT(A) allowed part claim - Held that:- CIT(Appeals) following the decision of the Tribunal vide order in the assessee's own case for the assessment year 2003-04 allowed relief of ₹ 31,11,876 and restricted the disallowance to ₹ 16,00,000. We find that facts for the year under consideration are similar with the facts of the earlier year. Following the decision of the Tribuna the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt on account of carbon credit, being purely capital in nature needs to be excluded in computation of the book profit. The Assessing Officer is accordingly directed to delete the addition made on account of carbon credit in computing book profit under section 115JB of the Act - Decided in favour of assessee. - ITA No.503/JP/2012, ITA No.568/JP/2012, ITA No.504/JP/2012, ITA No.569/JP/2012, ITA No.505/JP/2012, ITA No.570/JP/2012 - - - Dated:- 27-1-2014 - SHRI HARI OM MARATHA AND SHRI N.K. SAINI , JJ. For the Appellant : Shri A.K. Khandelwal For the Respondent : Shri D.B. Desai ORDER There are six appeals, filed by the assessee and the Revenue against the orders of the Commissioner of Income-tax (Appeals), Ajmer relating to the assessment years 2007-08, 2008-09 and 2009-10. Since the common issues are involved in all the appeals, for the sake of convenience and brevity, we are deciding them by a common order. 2. The learned authorised representative, Sri D. B Desai has filed ground wise key submissions in relation to each of the six appeals. The learned Departmental representative has also filed written submissions in relation to its appeals. All the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and are fairly representative. In the assessment order, the Assessing Officer has nowhere disputed any of the above facts or the fact that the price considered by appellant is market price or the arm's length price. The Assessing Officer has merely substituted the above with another arm's length price, namely grid rate , being the price at which grid has supplied power to the assessee. 2.0 Once the assessee has adopted a particular market value, the Revenue's prerogative is to verify whether the same represents market value or not. The statute neither contemplates, nor permits Revenue to substitute the same with another market value Section 80-IA(8) stipulates that the assessee must adopt market value as the price at which goods or services from an eligible unit are transferred to a non-eligible unit. In the open market, where a basket of market values are available, the law does not put any restriction on the assessee as to which market value it has to adopt. It is purely the assessee's discretion. So long as the assessee has adopted a market value as the transfer price, that is sufficient compliance with law. The Assessing Officer can adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as the assessee has adopted a market value as the transfer price, that is sufficient compliance with law. The Assessing Officer can adopt a different value only where the value adopted by the assessee does not correspond to the market value . It is a settled principle that where more than one view is possible the view favourable to the assessee must be adopted. The hon'ble apex court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) has held that when two reasonable constructions of a taxing provision are possible, the construction which favours the assessee must be adopted. This is a well accepted rule of construction. On the above principle, reliance is also placed on : -Jaswant Rai v. CWT [1977] 107 ITR 477 (P H) : Held, that the estimate made by adopting one method may vary with the estimate made by adopting another method. In such a situation, it looks fair and proper that the benefit of the method which is favourable to the assessee should be allowed to him. -Asst. CIT v. Bright Star Investment P. Ltd. [2009] 120 TTJ (Mum) 498. Held, that in the absence of specific provision to deal with the present situation, two formulas can be evolved to work out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. Bhargava v. CIT [1982] 136 ITR 559 (All) and Chief CIT (Admn) v. Machine Tool Corporation of India Ltd. [1993] 201 ITR 101 (Karn). 7. The crux of the above submissions of the learned authorised representative are- a. In the present case, the fact that value considered by the assessee is market value or the arm's length value, has not been disputed by the Assessing Officer. The Assessing Officer has merely substituted the above with another market price or the arm's length price. b. With the reforms brought pursuant to Electricity Act 2003, inde pendent players have been provided open access. Thus, electricity has a wider market since many independent players have been given licence for transmission and/or distribution and/or trading of power. These independ ent parties are required to file statutory returns (of the transactions entered into by them) with the Electricity Regulatory Commission which data is available in public domain. With the above, the assessee has a basket of market values. In such situation, the question which arises is that out of the various available market values which value needs to be considered since each one fulfils the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... select market value as per section 80-IA(8) as on the date of transfer such that it would ordinarily fetch such price in the open market. e. Since, the assessee itself is drawing power from the State grid on regular basis, grid rate is the best market price available which should be adopted for computing deduction under section 80-IA. 9. Against the above submissions of the Department, the authorised representative for the assessee in the rejoinder submitted that- a. The contention that the assessee has picked and chosen only those transactions which have higher rates is not factually correct. In determining the market price, the assessee has considered all transactions where the power distribution or trading company has supplied power in the State of Rajasthan since the assessee's unit is in Rajasthan as could be seen from the paper book pages 30-32. Other transactions are not relevant as they pertain to other States, i.e., Madhya Pradesh, Maharashtra etc. b. The assessee has taken the weighted average rate of all transactions undertaken by the said power distribution or trading company in the State of Rajasthan and not only those transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the outset, we find that the revised return filed by the assessee has been accepted by the Assessing Officer by clear finding in the assessment order. Once revised return is validly filed and accepted, the original return is non est, as it is completely substituted by the revised return. Now let us deal with market value . On perusal of the assessment order and all other records, we find that facts with regard to adaptation of market value are clear. The assessee has adopted a value which is market value and the Department has substituted the same by another value. The Department is contending that the market value as adopted by the Assessing Officer is the most appropriate since it represents price charged by the State grid to various customers including the assessee. Hence, the same should be considered. The authorised representative of the assessee submits that the value adopted by the assessee represents market value since it is based on real transactions between unrelated parties and the details for the same are available in public domain. The issue before us is whether in such situations where there are two or more market values available and if the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue for captive consumption of power to compute the profits of the eligible unit. Any such attempt is clearly beyond the explicit provisions of section 80-IA(8) of the Act. Underlying principles forming the basis of our findings given herein before in this order are also supported by the decision of the Special Bench of the hon'ble Bangalore Tribunal in Aztec Software and Technology Services Ltd. v. Asst. CIT [2007] 294 ITR (AT) 32 (Bang) [SB] as well as the Mumbai Tribunal decision in the case of Asst. CIT v. Maersk Global Service Center (India) P. Ltd. [2012] 14 ITR (Trib) 541 (Mum) wherein while interpreting the transfer pricing provisions, the courts have held that it is the assessee who is the best judge to know the transactions undertaken and thus finding out the comparable cases from the vast database available in the public domain. Once the assessee has adopted the same, the Assessing Officer has to examine whether the same is market price or not. The Assessing Officer has the power to adopt the market price only when the price adopted by the assessee does not correspond to market value. In the present case, we find that the assessee has adopted a rate at which actual t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits and gains of the eligible unit by substituting the said value (as adopted by the assessee) by any other market value . 15. Accordingly, we delete the disallowance as made by the Assessing Officer in order under section 143(3) on account of deduction under section 80-IA of the Act and hence grounds Nos. 1 and 2 are accordingly decided in favour of the assessee. 16. Ground No. 3 of the assessee relates to disallowances of ₹ 16,00,000 confirmed by the Commissioner of Income-tax (Appeals) on account of expenditure incurred towards gifts. The Assessing Officer in the assessment order had disallowed expenditure on gifts of ₹ 47,11,876 holding the same as not related to the business of the assessee. The learned Commissioner of Income-tax (Appeals) following the decision of the Tribunal vide order dated December 23, 2009, in the assessee's own case for the assessment year 2003-04 in I. T. A. No. 942/JP/08 allowed relief of ₹ 31,11,876 and restricted the disallowance to ₹ 16,00,000. We find that facts for the year under consideration are similar with the facts of the earlier year. Following the decision of the Tribunal, dated December 23, 2009, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition relying on the order of the Income-tax Appellate Tribunal in the assessee's own case for earlier years. 20. The learned authorised representative submits as under :- The issue is squarely covered in favour of the assessee by the decision of the hon'ble Jaipur Tribunal in its own case for the assessment year 2006-07 vide order dated September 9, 2011, in I. T. A. No. 635/ Jp/2010. The hon'ble Tribunal has examined the scheme in great depth and has given following key findings- (i) The 'purpose' of granting incentive was to accelerate the industrial growth. (ii) The hon'ble Tribunal has relied upon CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC) and held that whether any incentive is capital or revenue would depend upon the 'purpose' for which subsidy is granted. If the 'purpose' of the subsidy is to enable the assessee to run the business more profitably then the incentive is on revenue account and if the object of the subsidy is to enable the assessee to set up a new unit or expand the existing unit then the incentive is on capital account. (iii) Based on the purpose test as to why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tric tonne. In the financial year 2002-03, it has increased its installed capacity from 20 lakhs metric tonne to 26 lakhs metric tonne (by expanding its business) for availing of the benefits under the Rajas than Sales Tax/Central Sales Tax Exemption Scheme 1998 (Sr. 1131). As per scheme the assessee is entitled for exemption of payment of sales tax for a period of 11 years, i.e., May 1, 2002 to April 30, 2013. As per the eligibility certificate issued in this regard, on form C dated September 12, 2002, by Sales Tax Officer, Spl. Circle, Ajmer, at column No. 8, inter alia, includes the following facts : Details for exemption from tax A. Percentage of exemption from tax liability-as per Co. No. 3 sr. 1 of annexure B*. B. Eligible fixed capital investment on **-Rs. 15,727.66 lakhs. C. Maximum limit of years-11 years D. Quantum of exemption of sales tax-Rs. 15,727.66 lakhs S. No. Type of units Extent of the percentage of exemption from total tax liability Maximum exemption in terms of percentage of eligible fixed capital investment Maximum time limit of availing exemption from tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was issued by the Andhra Pradesh Government that certain facilities and incentives were to be given to all the new industrial undertakings which commenced production on or after January 1, 1969, with investment capital (excluding working capital) not exceeding ₹ 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. Concession was also available for subsequent expansion of 50 per cent. and above of existing capacities, . . . The incentives would be limited to a period of five years from the date of commencement of production; the incentives were to be given by way of refund of sales tax . . . The assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose. The subsidies had not been granted for production of, or bringing into existence any new asset. The subsidies were granted year after year, only after the setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. The subsidies were of revenue nature and would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f scheme but also in recovery of incentive/subsidy allowed to the assessee. Whereas in the case of the assessee such conditions are not applicable. Secondly, the hon'ble Supreme Court has decided this issues for the assessment year 1989-90, i.e., prior to introduction of the provision of the Explanation 10 of section 43(1) of the Income-tax Act, 1961. Likewise the decision of the hon'ble Special Bench, Income-tax Appellate Tribunal, Mumbai in the case of Reliance Industries Ltd. [2005] 273 ITR (AT) 16 (Mum) [SB] (assessment year 1985-86) which is also not applicable in the case under question for the facts discuss above and also in the light of decision of the hon'ble Income-tax Appellate Tribunal, Bench 'D' Delhi in the case of L. G. Electronics India Ltd. v. Addl. CIT [2010] TIOL-222-ITAT-Del. Alternatively, the assessee-company has treated the sales tax sub sidy as capital receipt, on the ground that the same has been received against investment made in the eligible fixed assets for expanding of its existing business, then how come the assessee-company has not reduced such subsidy (claimed to have been received against eligible assets as per certificate is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Circular explains the amendment in paragraph 22.2 in following words : 'where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or a grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included the actual cost of the assets to the assessee. Cost incurred/payable by the assessee alone could be the basis for any tax allowance. This Expla nation further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.' Explanation 10 to section 43(1) was introduced to nullify the judg ment of the hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding this matter in the earlier years in its combined order dated September 9, 2011, at pages 4-9 of its order in I. T. A. No. 614/JP/10 (assessment year 2004-05) and at pages 33 and 35 of its order in I. T. A. Nos. 615 and 635/JP/ 2010 (assessment years 2005-06 and 2006-07)]. Since, the issues under consideration are identical for earlier years, which the Departmental representative has also accepted during the course of the hearing, the Departmental appeal may be quashed. 23. We have considered rival contentions and verified the facts, order of the Assessing Officer and the Commissioner of Income-tax (Appeals) and gone through the orders of earlier years as relied upon by the authorised representative and the submissions of the Departmental representative. The Departmental representative has also confirmed that issues in the current year are identical to that of the earlier years. With the help of reasoning given in the orders by this Tribunal for the earlier years in the assessee's own case (assessment year 2004-05 to assessment year 2006-07 in I. T. A. Nos. 614, 615 and 635/JP/2010] and respectfully following the same, we reject the argument of the Department and ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imum alternate tax under section 115JAA. We also notice that on this issue, the hon'ble Delhi High Court in the case of CIT v. Bharat Aluminium Co. Ltd. [2013] 1 ITR-OL 286 (Del), after considering the proviso to section 115JAA(2) observed that since the minimum alternate tax credit is available for adjustment and set off on the first date of the previous year even before the instalment of advance tax is due on the current income, the advance tax liability has to be worked out on the current income only after the adjustment and set off of minimum alternate tax credit brought forward from the earlier years and therefore interest under section 244A is payable to the assessee if refund arises from advance tax paid by it. Respectfully following the above decisions of the hon'ble High Courts, we hold that the assessee is entitled to interest under section 244A on refund arising to the assessee after minimum alternate tax credit. Consequently, this ground raised by the Revenue is dismissed. 27. Now we take up the assessee's appeals for the assessment year 2008-09 in I. T. A. No. 504/JP/2012. 28. Ground Nos. 1 and 2 in this appeal are same as ground Nos. 1 and 2 for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce their green house gases (GHG) (carbon di-oxide, methane, nitrous oxide, hydrofluorocarbons, sulphur hexafluoride etc.) emissions. Clean development mechanism (CDM), is one of the three mechanisms designed to assist the developed countries to meet their GHG emissions targets. 33. Under CDM, a developed country can invest in GHG mitigation project in a developing country by way of equity, loan or any other financing mechanisms. The mitigation project, in turn generates emission reduction that subsequently gets verified and certified by an independent party. Above reduction in emission of GHG is acknowledged by issuing a certificate known as CERs or carbon credits. 34. The assessee's optimum utilisation of clinker is one of the CDM projects undertaken and registered with UNFCCC. It is duly verified and certified by the Det Norske Veritas Certification Ltd. The project entails reduction of clinker content of the Portland Pozzolanic Cement (PPC) produced by increasing fly ash content in the cement. The project activity would therefore reduce direct on-site emissions from clinkerisation and direct off site emissions from power generation at the thermal power plants, pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered as a bi-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding. Thus, the assessees who have surplus carbon credits can sell them to other assessees to have capped emission commitment under the Kyoto Protocol. Transferable carbon credit is not a result or incidence of one's business and it is a credit for reducing emissions. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one's negative point carbon credit. The amount received is not received for producing and/or selling any product, bi-product or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgment of the Supreme Court in the case of CIT v. Maheshwari Devi Jute Mills Ltd. [1965] 57 ITR 36 (SC) wherein it is held that transfer of surplus loom hours to other mill out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r item in different manner in the 1961 Act and the DTC serves as an important guide in determining taxability of the said item. Since similar provision for taxability is not present in the current statute, clear inference can be drawn that the above income is not chargeable to tax under the Income-tax Act, 1961. 37. The Departmental representative on the other hand relied on the order of the lower authorities and states that receipt on account of carbon credit is related to the business of the assessee and the assessee has undertaken activities which has resulted in the receipt on account of carbon credits. Hence, the amount so received has to be considered as related to the business of the assessee and should either be considered as revenue receipts chargeable to tax as business income, or the net amount after deduction of expenditure if any, incurred for the same should be considered as chargeable to tax under the head capital gains. 38. In reply the authorised representative submits that carbon credit in the present case has been awarded due to reduction in emission of green house gases consequent to the optimum utilisation of clinker project undertaken by the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment of ₹ 4,13,50,483 in computing book profit under section 115JB. This issue is covered against the assessee by the decision of the hon'ble Tribunal in its own case vide order dated December 23, 2009 in I. T. A. No. 942/JP/08. Respectfully following the above decision of the Tribunal, this ground of the assessee is dismissed. 41. Ground No. 8 is on account of disallowance of carbon credit in computing book profit under section 115JB of the Act. This issue stands covered on principle in favour of the assessee vide the order of the hon'ble Income- tax Appellate Tribunal dated September 9, 2011, for the assessment years 2004-05, 2005-06 and 2006-07 in the appellant's own case in I. T. A. Nos. 614, 615 and 635/Jp/2010. The hon'ble Tribunal in the said case have held that capital receipt in the form of sales tax subsidy, needs to be excluded in computation of book profit all the more since they do not have any element of profit embedded in it. We find that carbon credit is also capital receipt, which does not have any element of profit embedded in it. Even Hyderabad Tribunal in My Home Power Ltd. [2013] 21 ITR (Trib) 186 (Hyd) have upheld the above princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47. Ground Nos. 1 and 2 are on deduction under section 80-IA and substantively similar to corresponding grounds for the assessment years 2007-08 and 2008-09. The authorised representative for the assessee submitted that since in the relevant previous year, transaction values from power exchange (IEX) were available from June 28, 2008 onwards, the assessee has adopted (a) for the period up to June 27, 2008, the market value in relation to independent third party transactions as in earlier years ; and (b) for the period from June 28, 2008 to March 31, 2009, IEX market price for power sale in N2 region which includes the State of Rajasthan. In the assessment order, the Assessing Officer has accepted the assessee's basis up to June 27, 2008 as per (a) above. However, for the period from June 28, 2008 to August 29, 2008 he has adopted IEX market value for power sold on the power exchange (by adopting all India rate instead of N2 region rate applicable to Rajasthan where the assessee's unit is located) and for the subsequent period, the Assessing Officer has adopted rate at which power is sold by the assessee's power unit to third parties, when not required by its cement unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance is not permissible in computing book profit under section 115JB of the Act. We agree with the view of the learned authorised representative and hold that disallowance of telephone expenses needs to be deleted in book profit under section 115JB of the Act. Accordingly, this ground of the assessee is allowed. 51. Ground No. 7 is on account of disallowance of carbon credit in computing book profit under section 115JB of the Act. This ground has been extensively dealt with while dealing with the assessee's appeal for the assessment year 2008-09 in I. T. A. No. 504/Jp/2012. With the help of the reasonings given for the assessment year 2008-09, we hold that the receipts on account of carbon credit are capital in nature devoid of any profit element and are to be excluded in computing the book profit under section 115JB. The Assessing Officer is accordingly directed to delete the addition made on account of carbon credit in computing the book profit under section 115JB of the Act. Accordingly, this ground of the assessee is allowed. 52. Now, we take up the Revenue's appeal for the assessment year 2009-10. 53. Ground Nos. 1 and 2 are on account of treatment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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