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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 ..... e as under:- "Whether in the law and on facts and circumstances of the case, the learned CIT (A) has erred in allowing the deduction u/s 80IA of the IT Act, 1961 amounting to Rs.7,82,87,701/-holding the sale of carbon credit is income derived from business of generation of power." 3. It is worth to club the additional ground raised by the cross objector as under:- "ADDITIONAL GROUND OF CROSS-OBJECTION 2. On the facts and in the circumstances of the case, gain on account of carbon 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 additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neration and distribution of power, therefore, not eligible for deduction. The sale of carbon credit had no direct nexus with generation of power. According to the AO, at best, it can be incidental to generation/distribution of power. On the question of eligibility of profit from sale of carbon credit, reply of the assessee was as under:- "Power generation process: 2.1 The assessee company has a power division wherein power is generated from flue gas produced during the manufacturing 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 result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term "attributable to" as laid down in the case of Cambay Electric Supply Co. 113 ITR 84 (SC) and Sterling Foods, 237 ITR 579 (SC). Few other decisions have also been cited, however, keeping brevity in mind; need not to be discussed at length. Finally, the AO has held that the sale of carbon credit had no direct nexus with power generation. Generation of carbon credit was stated to be as per Kyoto Protocol. There was a conference under United Nations Framework Convention 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 gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so been submitted by the learned DR to emphasize that the earning on sale of carbon credit was not connected or at all derived from generation of power. The scheme, as such, is an independent scheme having no nexus with the manufacturing of any articles. Whether an article manufacturer is eligible for claiming deduction has no connection with earning from sale of carbon credit. In support of his submissions, the learned DR has placed reliance in the decision 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013, order dated 18-08- 2014 wherein the issue of carbon credit was decided in favour of the assessee following the decision of M/s. My Hope Power Ltd. (supra), although, the decision of Apollo Tires Ltd. (supra) was as well also cited from the side of the Revenue. The learned AR has pleaded that in the light of the decision of CIT Vs Smt. Godavaridevi Saraff, 113 ITR 589, wherein it was held that the law declared by a High Court in a State is binding 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the said case. The facts leading to the emergence of carbon credit in the cases we are adjudicating are also the same. There is no dispute that the process by which carbon credit is generated by the assessee in this case is different from the one dealt with in the case of the assessee "My Hope Power Ltd." Now we have a situation where on similar facts there is Hon'ble High Court decision holding that in these facts, the carbon credit 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hereby dismissed and the cross objection of the assessee is allowed. 11. The Revenue has raised one more ground as reproduced below: "Whether in law and on facts & circumstances of the case, the CIT (A) was justified in deleting the disallowance and addition of Rs.1,66,68,207/- made by the AO out of the claim of assessee u/s 80IA of the IT Act." 12. The observation of the AO was that the assessee had transferred electricity to its Steel 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower to any consumer directly. It has to compulsorily sell it to the Board. 29. The power sold by the Chhattisgarh-Company to the Board is a sale to a company which itself supplies power to the consumers. It is not sale of power to the consumer. 30. The Steel-Division of the Assessee is a consumer. The CPP of the Assessee supplies electricity to the Steel-Division. Had the Steel-Division not taken power from the CPP then it had 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 shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been employed in the business to generate profit without incurring expenditure on interest. By applying the formula, the amount could have reduced to one and a half per cent of the average of the value of investment, the AO had made the disallowance at Rs.6,67,653/-. When the matter was carried before the first appellate authority, the learned CIT (A) has upheld the disallowance. 18. From the side of the cross objector, 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 Hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , hence, to be taxed as revenue receipt. The amount of Rs.25,00,000/- was the sales tax subsidy which was, therefore, held as revenue receipt and taxed in the hands of the assessee. When the matter was carried before the first appellate authority, the learned CIT (A) has followed the decision in the case of Sahney Steel & Press Works Ltd. & Ors. Vs. CIT, 228 ITR 253 (SC) and CIT Vs Ponni Sugars & Chemicals Ltd. & Ors. (2008) 306 ITR 392 (SC) and held that the subsidy was capital in nature, therefore, directed to delete the addition. 22. Having heard the submissions of both the sides, we are of the view that this issue has been decided by the Hon'ble Court in the case of DCIT Vs Reliance Industries Ltd. (2004) 82 TTJ (Mumbai) (SB) 765. Respectfully following this precedence, we hereby confirm the findings of the learned CIT (A) and dismiss the ground of appeal of the Revenue. 23. So far as, the cross objection [C.O. No.135/BLPR/2015 - In ITA No.57/BLPR/2012 for assessment year 2009-10] is concerned, a view has already been expressed in the above paragraphs. On the same line, the cross objection filed by the assessee is hereby allowed. 24. In the result, both the appeals filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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