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TMI Blog2015 (11) TMI 1865X X X X Extracts X X X X X X X X Extracts X X X X ..... issue whether the tariff determined by State Electricity Board represents market value or not, a detailed verdict has already been pronounced by the Hon ble Jurisdictional High Court. In the case of CIT Vs M/s. Godawari Power Ispat Ltd. [ 2013 (10) TMI 5 - CHHATTISGARH HIGH COURT] as held CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders. Disallowance u/s 14A r.w.r 8D - HELD THAT:- The formula of Rule 8D is to be applied only after considering the applicability of the main provisions of Section 14A of the Act. Due to this reason it is worth to restore this issue back to the file of the AO to first of all, determine whether the assessee has earned any dividend or exempted income from the alleged investment. If, no dividend is earned, then, next question is that whether any expenditure has been incurred to earn in connection with the investment made. If, expenditure is in the shape of interest, then, whether the assessee had sufficient self generated funds. For this reason, the assessee is directed to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on credit is a capital receipt in view of judgment of Hon ble Andhra Pradesh High Court in case of CIT Vs My Home Power Ltd. (2014) 365 ITR 82 (AP) and therefore not liable to tax. The Ld. A. O. has erred in holding it and thereby taxing it as revenue receipt . 4. On the issue of admission of additional ground, we have heard both the sides. From the side of the Revenue Mr. Rajiv Varshnay (CIT) appeared and pleaded that the facts related to the additional ground were already on record as well as discussed by the Revenue Authorities. He has, therefore, argued that on the basis of those very facts this additional ground has now been raised which is legal in nature. On the question of admission of additional ground, the learned DR referred to Rule 11 of the Appellate Tribunal Rules, 1963. The learned DR has also referred to the decision of Maruti Udyog Ltd., 244 ITR 303 and the decision of Pruthvi Brokers Shareholders, 349 ITR 336 (Bom). From the side of the cross objector, no serious objection has been raised, rather pleaded on the same lines in support of the Additional Ground filed as a Cross-objection. 5. Having considered the arguments and the facts of the case, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturing of sponge iron. The generation of electrical power take place through the installation of Waste Heat Recovery Boiler (WHRB) and Turbine Generators. In sponge iron division, coal and iron are processed through a rotary kiln at temperature above 1000 degree C to reduce the iron-ore to produce sponge iron. The reduction process yields Carbon Dioxide and Carbon Monoxide. These gases leave the kiln at high temperature about 950 degree C and being utilized to generate power. After leaving kiln, the hot gases are passed through and after burning chamber where further oxidation of gases occurs i.e. Carbon Monoxide to Carbon Dioxide. The gases are then fed to Waste Heat Recovery Boiler (WHRB) and the resultant steam being utilized to generate electrical power. This technology contributes to sustainable development because of mainly substitution of fossil fuel based power which currently dominates. Therefore the infrastructure on such Waste Heat Recovery General scheme is positive step towards reducing dependence on fossil fuels. 2.1.1 The technology for generation of power from WHRB is so designed that in the process of generation of power, the greenhouse gases emission is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on Climate Change (UNFCCC). Therein Kyoto Protocol was adopted. The protocol requires the developed countries to limit their greenhouse gas emission which could result into an average reduction of 5.2% in greenhouse gas emission. It was advised to adopt a mechanism terms as Clean Development Mechanism which has also provided a cooperation between the developed countries and developing countries. The administering body i.e. Clean Development Mechanism, Executive Board, certify the reduction in emission of greenhouse gases. The Certified Emission Reduction (CER) could be traded in a specialized market where the buyers are from developed countries. The assessee has claimed the deduction in respect of sale of power generation, as well as sale of carbon credit. The AO has held that sale of CER was not the profit and gain derived from: generation of power. The assessee had sold CER of Rs.7,82,87,701/- which was shown in the profit of Power Division. However, that was reduced by the AO from the profit and the balance was considered for the purpose of computation of deduction. Being aggrieved, the matter was carried before the first appellate authority. 7. After detailed discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Apollo Tyres Vs CIT, 47 taxman.com 416 (Coach Trib.) wherein a view has been expressed that even though income on sale of Certified Emission Reduction / Carbon Credit would form part of profits or gains or business, yet, it cannot be treated as profit derived from industrial undertaking, therefore, not eligible for claim of deduction u/s 80IA of the Act. The learned DR has specified that the respected Bench has duly considered several decisions as well as the decision of My Home Power Ltd. Vs DCIT, 27 taxman.com 27. The learned DR has suggested that in a situation when there are two views expressed by the Tribunal, hence, the matter can be referred to a larger Bench. In other words, his main point of arguments was that the profit earned on sale of carbon credit was not derived from eligible industrial activity, hence, rightly disallowed by the AO. Case laws cited are Sterling Foods, 237 ITR 579 etc. 9. On the other hand, from the side of the respondent assessee, the learned AR, Mr. P. C. Maloo appeared and at the outset, vehemently objected the suggestion of the learned DR to refer the issue to a larger Bench of the Tribunal on the ground that in a situation when the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Tribunal in another State. Hence, the decision of the Hon ble A. P. High Court pronounced in the case of My Hope Power Ltd. (supra) has to be followed by this respected Tribunal as it has already been followed by several other Tribunals, decisions cited (supra). The learned AR has also made a statement at the Bar that so far there is no other contrary view expressed by any other High Court and that there is only one decision of a High Court and the same requires to be followed as held in the case of SIFT Communication Ltd. Vs DCIT, ITAT B Bench, Chennai [ITA No.851/Mds/2013 AY 2008-09], order dated 04-10-2013. 10. Having heard submissions of both the sides at length, we are of the considered view that the merits of this issue, whether profit earned on sale of carbon credit is capital receipt or not, has already been judiciously considered by several Hon ble Courts. Hence, in our humble opinion, it stood covered in favour of the tax payer. So far as the facts of the case is concerned, the admitted factual position was that the assessee had sold CER for a consideration of Rs.7,82,87,701/- and the amount was included in the total sales of the Power Division for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit sales are capital receipts. There are several Tribunal decisions which have followed this decision. Learned D. R. has only been able to point out before us the decision of ITAT, Cochin Bench in the case of Apollo Tyres Ltd. Vs ACIT (supra) wherein it has been held that carbon credit sale is a revenue receipt. Now it is settled law in the order of judicial precedence that the decision of Hon ble High Court takes precedence over inferior Court/Tribunals decision. It is also settled law that whatsoever amount of wisdom is displayed by inferior Tribunals and Court the same cannot override the decision of Hon ble High Court. Exactly similar views were also held by several other ITAT decisions quoted by the learned counsel of the assessee reproduced herein above. In these circumstances we hold that the carbon credit sale emanating to the assessee is a capital receipt not excigible to tax. Accordingly this cross objection filed by the assessee is allowed and we hold that the assessee is not liable to pay any tax on the carbon credit sale receipt. 14. Before parting we would like to mention that carbon credit as mentioned above is generated under the Kyoto Protocol and because of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el Division @Rs.3.01 per unit. The AO has compared the rate of supply of electricity with the rate of CSEB which was stated to be Rs.2.80 per unit. Therefore, the allegation of the AO was that the electricity was transferred at higher rate to one of the Division which was eligible for deduction u/s 80IA of the IT Act. By this method, the assessee had reduced the profit of the Steel Division which was subject to tax at normal rate of income tax. The relevant portion of the observation of the AO is as under:- 18. Inter unit sale of electricity: 18.1 As stated earlier, the assessee was engaged in the business of manufacturing and sale of sponge iron, Ferro alloys, steel billet etc. and electricity. The first three items are included in the steel division. The furnace and the kiln of the steel division run on electricity produced by its own power plant. After transferring the electricity produced in the power plant to the steel division, the remaining electricity is sold by the assessee. Details of power sales were requisitioned. In the division wise accounts, total revenue on account of the steel division Manufacturing and Trading is Rs.3203083786/- and Rs.11534632/- respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to purchase power from the Board. The CPP has charged the same rate from the Steel-Division that the Steel-Division had to pay to the Board if the power was purchased from the Board. 31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier; it should have been compared with the market value of power supplied to a consumer. 33. It is admitted by the Department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of Rs.3.20/- per unit for the AY 2004-05 and Rs.3.75 per unit for the AYs 2005-06 and 2006- 07. It was this rate that was to be considered while computing the market value of the power. 34. The CIT-A and the Tribunal had rightly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jector, the learned AR, Mr. P. C. Maloo has pleaded that the assessee had made investment in the wholly owned subsidiary companies which are also engaged in steel business. The assessee had not earned any dividend out of the said investment. There was no expenditure incurred because there was no earning of dividend out of the said investment. Since, the assessee had not earned any exempt income, therefore, the provisions of Section 14A of the IT Act has been wrongly invoked. It has also been pleaded by the learned AR that the assessee has sufficient self generated funds for making investment. Reliance was placed on the following decisions:- 1. CIT Vs Hero Cycle Ltd., 323 ITR 518 (P H) 2. CIT Vs Winsome Textile Industries Ltd., 319 ITR 204 (P H) 3. CIT-IV Vs Holcim India (P) Ltd. (2014) 90 CCH 081(Del.) 4. CIT Vs Corretec Energy Pvt. Ltd. (2014) 223 Taxman 130(Guj) 5. CIT Vs Shivam Motors (P) Ltd (2014) 89 CCH 059 (All) 19. On this issue, we have heard both the sides. In our considered opinion, the formula of Rule 8D is to be applied only after considering the applicability of the main provisions of Section 14A of the Act. Due to this reason it is worth to restor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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