TaxTMI 
TaxTMI 
2017 (12) TMI 119
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....o admitted the book profits of Rs. 10,79,07,294/- u/s.115JB of the Act and paid the taxes thereon. The case was selected for scrutiny and the assessment was completed on 19.11.2010 accepting the income returned. Subsequently, the Assessing Officer (A.O.) noticed the profit and loss account for the year ending 31.3.2008 that the assessee company had received an amount of Rs. 8,43,74,059/- towards carbon credits from UNFCCC and Rs. 13,83,730/- towards sale of ash. The assessee had shown these income as revenue receipt in the profit and loss account and claimed the deduction u/s.80IA. The A.O. took the view that these receipts do not qualify for deduction u/s.80IA as the same are not derived from the assessee's business activity of generation of power. Therefore, the A.O, reopened the assessment and issued the notice u/s.148 of the Act. During the reassessment proceedings the assesse explained their case and after considering the assessee's submissions, the A.O. came to the conclusion that the said receipts of carbon credits and the sale of ash are not directly and inextricably related to the generation and sale of power and accrued to the assessee in view of implementation of....
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....e appeal raising the ground that the receipts on sale of carbon credits being capital receipts not exigible to tax u/s 115JB of I.T.Act and also agitated against the order of the Ld.CIT(A) for sale of Ash. 5. During the appeal hearing, Ld.DR argued that Ld.CIT(A) has committed an error by holding that the carbon credits are capital receipts against the assessee's admission that the carbon credits are revenue receipts in the P&L account and offered to tax u/s 115JB of I.T.Act and requested to set aside the order of the Ld.CIT(A) and restore the AO's order. 6. On the other hand, Ld.AR submitted that now it is settled issue that the carbon credits are capital receipts by the decision of Hon'ble AP High Court in the case of CIT. vs My Home Power Ltd. supra in ITTA 60 of 2014 dated 19.02.2014 hence argued that no interference is called for with regard to carbon credits. 7. We have heard the rival submissions and perused the materials placed on record. The Ld.CIT(A) allowed the appeal of the assessee and held that the carbon credits are capital receipts following the decision of jurisdictional High Court in the case of My Home Power Ltd. cited supra. The Hon'ble ITAT, Hyderabad in the....
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.... of those allotted to the assessee under an agreement for control of production was capital receipt and not income. Being so, the consideration received by the assessee is similar to consideration received by transferring of loom hours. The Supreme Court considered this fact and observed that taxability of payment received for sale of loom hours by the assessee is on account of exploitation of capital asset and it is capital receipt and not an income. Similarly, in the present case the assessee transferred the carbon credits like loom hours to some other concerns for certain consideration. Therefore, the receipt of such consideration cannot be considered as business in and it is a capital receipt. Accordingly, we are of the opinion that the consideration received on account of carbon credits cannot be considered as income as taxable in the assessment year under consideration. Carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns. Credit for reducing carbon emission or greenhouse effect can be transferred to another party in need of reduction of carbon ....
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....5 are general in nature which does not require specific adjudication. 9. Ground No.2 is related to the reopening of the assessment. The assessee challenged the reopening of assessment stating that it is mere change of opinion. In this case, the assessment year involved is 2008- 09 and the assessment is reopened within 4 years from the end of the relevant assessment year. The Ld.CIT(A) applying the ratio laid down by Hon'ble Kerala High Court in the case of Innovative Foods Ltd. Vs. UOI (supra) held that reopening of assessment is valid and accordingly upheld the issue of notice. During the appeal hearing, the Ld. AR did not bring any other case law to controvert the observation of the Ld.CIT(A). Therefore, we uphold the order of the Ld.CIT(A) and hold that the reopening of assessment is valid. The assessee's appeal on this ground is dismissed. 10. Ground No.3 is related to the deduction u/s 80IA of the I.T.Act on sale of Ash. During the assessment proceedings, the AO disallowed the deduction claimed u/s 80IA of Act on sale of ash. The AO relied on the decisions of CIT Vs. Kiran Enterprises [327 ITR 520] (HP), CIT Vs. Liberty India [317 ITR 218], CIT Vs. Pandian Chemicals Ltd. [23....
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....e to show that the assessee is not generating ash out of the manufacturing unit. Therefore, the sale proceeds of ash are directly derived from the generation of power and as such the same are eligible for deduction u/s 80IA. Accordingly, we set aside the orders of the lower authorities and direct the assessing officer to allow the deduction u/s 80IA on sale of ash. Accordingly, the appeal of the assessee on this ground is allowed. 15. Ground No.4 is related to the exclusion of sale proceeds of carbon credits from the computation of book profit u/s 115JB of I.T.Act. The assessee had included the carbon credits in the Profit & Loss account and filed the return of income and accordingly paid the taxes u/s 115JB of I.T.Act. The AO included the carbon credits under the normal provisions of I.T.Act and accordingly made the addition which was deleted by the Ld.CIT(A) holding that the carbon credits are capital receipts. In the revenue's appeal in this order we have upheld the order of the Ld.CIT(A). The assessee company admitted the same in Profit & Loss account and paid the minimum alternate tax u/s 115JB. However, after the judgement of Hon'ble AP High Court, the assessee realized that....
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....gh the Ld.CIT(A) held that the carbon credits are capital receipts he has not given any direction to exclude the same for the purpose of book profits. Hence taking the support from the decision of Hon'ble Apex Court in the case of CIT Vs. NTPC Ltd. [229 ITR 383], the ground raised by the Ld.AR with regard to sale of carbon credits for the purpose of section 115JB is admitted. 18. During the appeal hearing, Ld.AR argued that the carbon credits are capital receipts and the issue is already addressed by the Hon'ble jurisdictional High Court in the case law cited supra. The Profit & Loss account is prepared by crediting the revenue receipts and debiting the revenue expenditure. Carbon credits not being the revenue receipt, the same cannot be included in Profit & Loss account. The issue with regard to the carbon credits is capital receipt was accepted by the Ld.CIT(A)and directed to exclude for computation of income and the same receipt for computation of book profit, cannot be given different treatment as such the carbon credits required to be excluded from the computation of book profit also. The Ld.AR argued that the order of the Ld.CIT(A) in not giving direction to exclude the sale....
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....share warrants was included by the assessee. The assessee also sought to disallow a sum of Rs. 1,37,12,550/- towards section 14A voluntarily under the normal provisions of the Act in the revised return filed by it on 31.3.2011. 4.2. We have heard the rival submissions and perused the materials available on record including the detailed paper book containing the audited financial statements together with notes on accounts thereon for the year ended 31.3.2009, copy of return acknowledgements (both original and revised returns), among others. At the outset, we find from Note No. 6 to Schedule 11 of the Financial Statements for the year ended 31.3.2009, the assessee had stated as below:- 6. As per Resolution passed by the members at the Extra Ordinary General Meeting held on 15th February, 2008, the Company had allotted 50,00,000 warrants on 18th March , 2008 to M/s K.B.Vyapar Pvt Ltd., a Promoter Group Company, convertible into equal number of Equity Shares within 18 months at a price of Rs. 253.15 per share as per SEBI guidelines. The Company had received 10% as upfront deposit amounting to Rs. 1265.75 lakhs which was shown as 'Share Capital Suspense' (Refer Schedule 1A....
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....f the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends, but are managing their affairs in such a way as to avoid payment of income tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115J. An assessee is enabled to claim carry forward and set off of losses , unabsorbed allowance in view of the specific provisions of the Income Tax Act enabling an assessee to claim them. But because of this provision a company will have to pay tax on at least 30 percent of its book profit. Therefore, what is taxed is not fictional or hypothetical income. Under law, thought it is permissible to bring to tax hypothetical income, what is really done under section 115J is not exactly bringing to tax hypothetical income. What is really done is to limit or restrict or curtail deduction, carry forward and set off of losses, unabsorbed depreciation, unabsorbed allowance, etc., etc. Ordinarily, these deductions are permissible in view of the provisions introduced in the statute by Parliament and Parliament is equally competent to take away or....
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....osive construction, i.e., the Court should identify the mischief which existed before passing of the statute and then proceeded to interpret the statute so as to suppress the mischief and advance the remedy. There is no doubting the view that subtle inventions and devices resorted to by any person for continuance of the mischief should be suppressed. However, the proposition cannot be extended beyond the intended purpose and object of the law makers and cause hardship, serious inconvenience, injustice and absurdity. Reference was also made to the decision of the Hon'ble Calcutta High Court in the case of SAIL DSP VR Employees Association 1998 v. Union of India [2003] 262 ITR 638/128 Taxman 704, wherein the Hon'ble Calcutta High Court after placing reliance on the two apex court decisions in Central Board of Direct Taxes v. Aditya V. Birla [1988] 170 ITR 137/36 Taxman 9 (SC) and K.P. Varghese v. ITO [1981] 131 ITR 597 (SC) had held that :- If a plain literal interpretation of statutory provision produces a manifestly absurd and unjust result, which the Legislature could not have intended, the court is supposed to modify the language used by the Legislature, even to do ....
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.... - Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee , being a company, mentioned in this section. Applying the aforesaid provision to the facts of the instant case, according to him, it could be safely concluded that when the forfeiture of share warrants is not taxable under any other provisions of this Act, then the same would not be taxable under book profits u/s 115JB of the Act. 4.4.1 The Learned AR also referred to the decision of the Special Bench of Calcutta Tribunal in the case of Sutlej Cotton Mills Ltd v. Asstt. CIT [1993] 45 ITD 22, wherein it was held that a particular receipt which is admittedly not an income cannot be brought to tax under the deeming provisions of section 115J of the Act as it defies the basic intention behind introduction of provisions of section 115J of the Act. Further it was held that the Rule of Purposive Construction should be invoked to decide the applicability of MAT provisions. 4.5. He then ade a reference to the decision of the Special Bench of Hyderabad Tribunal in the case of Rain Commodities Ltd v. Dy. CIT [2010] 40 SOT 265, wherein it was held the capital gain which is ex....
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....pt which is not chargeable to tax under any provisions of the Act would not be liable for book profits tax u/s 115JB of the Act which was rendered after considering the decisions of Hyderabad Special Bench in Rain Commodities (supra) and the decision of Hon'ble Apex Court in Apollo Tyres (supra) :- (a) Decision of Lucknow Tribunal in the case of ACIT v. L.H.Sugar Factory Ltd. [IT Appeal Nos. 417, 418 & 339/LKW/2013 dated 9.2.2016] wherein it was held that :- 49. We have considered the rival submissions. We find that this aspect has been already decided by us as to whether receipt on account of transfer of carbon credit is a capital receipt not liable to tax or not. Now, in the light of this factual position, we examine the applicability of this Tribunal's order rendered in the case of ACIT vs M/s Shree Cement Ltd for Assessment Year 2004-05 to 2006-07. The relevant paras of this Tribunal's order are para 13 to 13.11 of this Tribunal's order and the same are reproduced herein below for the sake of ready reference :- "13. We have heard the rival submissions and considered them carefully. We have also perused the orders of authorities below as well as other ma....
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....e VI to Companies Act. 13.3 As far as the decisions relied upon by the Ld D/R are concerned, we are unable to follow the same in the present case, as the facts of the said decisions are clearly different from the facts in the present case. It is a settled principle of law as laid down by the Hon'ble Apex Court in the case of Padmasundra Rao (Decd) v. State of Tamil Nadu [2002] 255 ITR 147 that Courts should not place reliance on the decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. 13.4 From perusal of the decisions of Rain Commodities (supra) and Growth Avenues (supra), we notice that both the decision dealt with the issue of taxability of capital gains in computing Book Profit u/s 115JB of the Act. These capital gains were otherwise income u/s 2(24) of the Act and exclusion was claimed in computing Book Profit u/s 115JB on the ground that the said capital gains was exempt either u/s 47(iv) or u/s 54EC of the Act, which the Tribunal did not agree. In the present case, however, we are dealing not with capital gains but with pure capital receipt, which does not even have any 'income....
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....VI to the Companies Act. Part II of Schedule VI prescribes the requirements as to Profit and Loss A/c. Clause 2(a) of Part II clearly spells that the profit and loss a/c shall be so made out as clearly to disclose the result of the working of the company during the period covered by the accounts. Hence, in our view, P&L Accounts do not reflect the true result of the working of the company for the year, it cannot be said to be as per Schedule VI, Part II & III of the Companies Act and it would necessitate corrective adjustment in that situation so as to comply with Schedule VI , Part II & III. 13.8 With the above discussions, the only issue left to be considered is whether exclusion of the above capital receipt is in line with the principles as laid down by Hon'ble Apex Court in the case of Apollo Tyres (supra). In the case of Apollo Tyres (supra), the question before the Apex Court was whether an AO can, while assessing a company for income tax u/s 115J of the IT Act, question the correctness of the P&L a/c prepared in accordance with requirements of Part II and III of Sch. VI to the Companies Act. From the question as framed before the Apex Court it is clear that the issue ....
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.... Ground of the Department is thus dismissed." 50. From the above paras, we find that the Tribunal has duly considered the judgement of the Hon'ble Apex Court rendered in the case of Apollo Tyres Ltd. (Supra) and thereafter, it was noted by the Tribunal in this case that as per the decision of Special Bench of the Tribunal rendered in the case of Rain Commodities Ltd. v. Dy. CIT, 41 DTR 449, if profit and loss account is not in accordance with Part II & Part III of Schedule VI to the Companies Act, 1956 because it is prerequisite for Section 115JB of the Act. The Tribunal in this case also considered two another Tribunal's orders rendered in the case of Dy. CIT v. Bombay Diamond Co. Ltd. (33 DTR 59) and Syndicate Bank v. Asstt. CIT, 7 SOT 51 Bangalore, where it was held by the Tribunal after considering the decision of Hon'ble Apex Court rendered in the case of Apollo Tyres Ltd. (supra), and after explaining the same that adjustment of profit and loss account is possible to make it compliant with Schedule VI Part II and Part III of the Companies Act, 1956 which is prerequisite of Section 115JB of the Act. On this basis, the Tribunal in the case of Shree Cement Ltd (Su....
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....em of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of "income" at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in "book profit" u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point. 27. A careful perusal of the decision rendered by the Special bench in the case of Rain Commodities Ltd. (supra) would show that the above said legal contentions were not considered by the Special bench. We notice that the Special bench considered the following decisions:- (a) Malayala Manorama Co. Ltd. v. CIT [2008] 300 ITR 251/169 Taxman 471 (SC) (b) N.J. Jose & Co. (P.) Ltd. v. Asstt. CIT [2010] 321 ITR 132/[2008] 174 Taxman 141 (Ker.) (c) CIT v. Veekaylal Investm....
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....nto the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to exclude the above said profit from the computation of "Book Profit" for the reasons discussed above. In the instant case, the assessee also has duly disclosed the fact of forfeiture of share warrants amounting to Rs. 12,65,75,000/- in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for the year ended 31.3.2009. Hence respectfully following the aforesaid decision of the Mumbai Tribunal, the profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, includes notes on accounts thereon and accordingly in order to determine the real profit of the assessee as laid down by the Hon'ble Apex Court in the case of Indo Rama Synthetics (I) Ltd. v. CIT [2011] 330 ITR 363/196 Taxman 539/9 taxmann.com 25, adjustment need to be made to the disclosures made in the notes on accounts forming part of the profit and loss account of the assessee and the profits arrived aft....