TaxTMI 
TaxTMI 
2023 (6) TMI 1025
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....unt of Rs. 4,57,32,318/- paid to ZYLO international has been wrongly treated as bogus expenditure u/s 69C and further the amount of Rs. 17,77,26,000/- received on account of sale/ transfer of Recs/ESCs has been wrongly treated as business income. 2. That in the facts fit circumstances of the case, the Ld. AO NFAC has erred on facts fit law in making the addition of Rs. 17,77,26,000/- received on account of sale/transfer of RECs/ESCs, in pursuance of directions of Dispute Resolution Panel dated 29.06.2022, while recording the finding that the claim of the assessee u/s 115BBG is being rejected despite the fact that the claim made in the return of income was modified during the course of assessment proceedings and in the objections filed before the DRP that the receipts from sale/transfer of RECs/ESCs are capital receipts which are not liable to tax. 2.1. That in the facts & circumstances of the case, the Ld. AO NFAC has erred on facts fit law in making the addition of Rs. 17,77,26,000/-, in pursuance of directions of Dispute Resolution Panel dated 29.06.2022, by treating the receipts from sale/transfer of RECs/ESCs as business income, and charging the tax on the same as against....
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....e payment of Rs. 4,57,32,318/- to ZYLO International as Bogus without appreciating the evidence filed by the assessee during the course of proceedings before the Dispute Resolution Panel. 5. That in the facts 8t circumstances of the case, the Ld. AO NFAC has erred on facts & law in making the addition of Rs. 4,57,32,318/- u/s 69C, in pursuance of directions of Dispute Resolution Panel dated 29.06.2022, by treating the payment of Rs. 4,57,32,318/- to ZYLO International as Bogus because the DRP has issued the directions for enhancement of income without making any independent inquiry. 5.1. That the Ld. AO NFAC has erred on facts & law invoking the provisions of section 115BBE of the Act and charging the special rate of tax, which is highly unjustified. 6. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed of." 3. Tersely, we advert the fact of the case. The assessee-company is manufacturer of writing and printing paper, having factory premises at village Rupana situated at Muktsar Sahib. The assessee-company has a co-generation captive power division also, in which electricity is generated from renewable sou....
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....,26,000/- by transferring of the RECs and ESCs credit during the impugned year which is capital in nature. Though in the return the assessee claimed it u/s 115BBG and paid the tax in special rate. 5.1 Mr Sehgal, ld. AR invited our attention in APB pages 7 to 15, the copy of the letter dated 26.09.2021 submitted before the revenue related to claim made in which income earned from RECs/ESCs. The relevant part of the assessee's submission is extracted as below: 5.2 Mr Sehgal, ld. AR further explained the details about the sale of renewable energy certificate (REC and ESCarts), the relevant part is extracted as below: "2. Receipts on sale of Renewable Energy Certificates [REC] & ESCERTS [Addition made as per directions of the DRP]: Before we specifically, deal with the above said ground of appeal, it is important to give the 'brief profile' of the company and the business carried on by it which is as under: a. The assessee is a public company engaged in the manufacturing of 'writing & printing paper', having factory premises in Village Rupana, situated in District Muktsar Sahib, which is Agro based area. The company has a cogeneration captive power division also, in which, el....
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....Under the REC mechanism, the units/undertakings/entities, which are not using 'renewable energy resources' are required to purchase, at a cost, RECs, to compensate its RPO. This mechanism helps in promoting use of 'renewable energy resources' and in sustaining the non-renewable energy resources. i. The company engaged in generation of electricity from use of 'renewable energy sources' is required to apply for registration for issuance of certificates and thereafter, transferable certificates are issued by Central Agency of MNRE. j. The CERC Regulations also provide that the certificates issued to an eligible entity can also be placed for dealing in any of the 'Power Exchanges' as the certificate holder may consider appropriate, and such certificate shall be available for dealing in accordance with the Rules and Byelaws of such Power Exchange at a value pre-determined by the Power Exchange. Similarly, ESCERTS are also issued for the conservation of energy and the same can be sold on the Power Exchange regulated by the Government. k. Regarding Energy Saving Certificates (ESCerts), it is issued to those plants who had over achieved the targets to reduce specific energy consum....
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.... income by way of transfer of carbon credits, the income-tax payable shall be the aggregate of- (a) the amount of income-tax calculated mi die income by way of transfer of carbon credits, at the rate of ten per cent; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). (2) Notwithstanding anything contained in this Act mi deduction In respect of any expenditure or allowance stud! be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1). Explanation, -For the purposes of this section 'carbon credit" in respect of one unit shall mean reduction of one tonne of carbon dioxide emissions or emissions of its equivalent gases which is validated by die United Nations Framework on Climate Change and which can be traded In market at its prevailing market price. Thus, the Panel is of the view that the assessee has wrongly claimed the Income from Sale of RECs/ESCs u/s 115BBG of Income Tax Act, 1961. Income from sale of REC/ESCs is normal business income few the assessee and needs to be included in t....
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....e same must be included in business income. As per section 28 if any benefit or perquisite or credit is generated from the business, the same would be a profit from business and is taxable. Therefore, the same cannot be termed as income from other sources, but business income. Since on account of running the business of paper manufacturing for which power is an essential and compulsory requirement, RECs were earned which is marketable and is sold, therefore, it is an income out of business. It is hereby established that the REC/ESCs are a sresult of the assessee's business. The Panel, therefore, finds no infirmity in the order of the AO. 9.2 Thus following the directions of the Hon. DRP, the addition of Rs. 17,77,26,000/- is made to the total income as business income and the assessee's claim under section 115BBG is rejected." 6.1 The ld. DR further argued and placed the order of the High Court of Orissa in the case of Orissa Rural Housing Development Corpn. Ltd. v. Assistant Commissioner of Income-tax, Circle - 1(1), 2012] 17 taxmann.com 186 (Orissa)- Held "Section 139 of the Income-tax Act, 1961 - Return of income - Revised return - Assessment year 2006-07 - Whether an asses....
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....'Jaipur Bench' of the ITAT in ITA No. 403 &404/ JP/2019 in which, the decision of the Andhra Pradesh High Court as cited supra in the case of CIT vs. My Home Power Ltd. as cited above and also of the Hon'ble Rajasthan High Court in the case of CIT vs. Shree Cement Ltd. dated 22.08.2017 and the finding has been reproduced that since the source of the Carbon Credit is the World Concern and Environment and due to this, the assessee gets a privilege in the nature of transfer of Carbon Credit and cannot be liable for tax in terms of Section 2(24), (28) (45) & (56). It has further been held that the Carbon Credits are on the account of savings of energy consumption and not on business. Even while rendering this judgment, the Jaipur Tribunal has discussed the provisions of 115BBG and, thus, since as on the day also, RECs/ESCs are not part of Section 2(24) and, hence, it is a capital receipt. It has been stated that activity of obtaining RECs/ESCs is a systematic activity which requires series of action and they are not windfall and, therefore, they have an essential role to play in the manner the business is carried out. RECs/ESCs do not bear the character of income u/s 2(24) and are ....
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....come Tax Act and an earlier decision on the same question cannot be reopened." 8. The ld. AR further respect fully relied on the orders of the Hon'ble Apex Court and High Court which are as follows: - 8.1. The relince was placed on following judgments related nature of income as capital receipt:- 8.1.1. Ambika Cotton Mills Ltd. v. Deputy Commissioner of Income-tax, [2013] 40 taxmann.com 171 (Chennai - Trib.) "15. This leaves us with the issue regarding addition of Rs. 15,51,913. Undisputedly, the only strife between the parties is that per assessee it is liable to be taxed in the assessment year 2010-11 which is opposed by the Revenue who states that since it is a case of mercantile system of accounting, the amount has to be taxed in the impugned assessment year. We notice and even the Assessing Officer holds that necessary intimation of credit in question was received on October 3, 2009, i.e., in the previous year relevant to the succeeding assessment year 2010-11. The assessee also submits that it had included the amount as income for the purpose of assessment in the next assessment year instead of impugned assessment year. Faced with this situation and without going into ....
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....ixed profit-making structure of the respondent and it was not correct to say that the capital structure of the business was 220 looms multiplied by the number of hours per week for which the machinery was entitled to work. The "loom-hours" had in the view of the court nothing to do with the capital structure of the business and there was nothing to show that the defect in the preparatory section which rendered the "loom-hours" un-utilisable was permanent. It was always open to the respondent to acquire the necessary yarn from outside and thereby utilise the remaining quota of "loom-hours" in manufacturing jute, and if the respondent preferred not to procure yarn and chose to sell the surplus "loom-hours" and thus ensure profit for itself without incurring any risk, the receipt by disposal of a commercial asset was profit of the business irrespective of the manner in which that asset was exploited by the owner of the business. In the view of the High Court the respondent was entitled to exploit the asset to its best advantage: it may do so either by utilising it personally or by letting it out to somebody else, and the sale of a part of its quota of "loom-hours" amounted to exploita....
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.... cannot be held to be taxable as 'book profit' under MAT in terms of section 115JB. Accordingly, our conclusion remains the same that, the capital surplus on account of waiver of dues neither is nether taxable nor can be included in computation of book profit u/s 115JB." 8.2.3. Principal Commissioner of Income-tax, Central-2, Kolkatav.Ankit Metal & Power Ltd, [2019] 109 taxmann.com 93 (Calcutta) "28. The third issue involve in the instant appeal which requires adjudication is whether the action of Tribunal entertaining / allowing the claim which was made by the assessee before the Assessing Officer by filing a revised computation instead of filing a revised return since the time to file the revised return was lapsed, for claiming to treat the incentive subsidies in question as capital receipts instead of revenue receipts as claimed in original return. The Assessing Officer had denied this claim. Revenue has attacked the order of the tribunal by relying on the decision in the case of Goetze (India) Ltd. (supra). 29. This case does not help the revenue/appellant. In this case Supreme Court has made it clear that its decision was restricted to the power of the Assessi....
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....Rs. 4,57,32,318/- on account of alleged bogus and ingenuine expenditure Facts * As stated above the assessee is a public company engaged in the manufacturing of writing and printing paper having its factory premises in village Rupana, situated in District of Sri. Muktsar Sahib [Punjab] which is a rural area. * The turn over of the assessee company is in the range of 622 Crores in FY 2017-18 relevant to AY 2018-19 and for the purpose of arranging orders for sale of writing and printing paper, the assessee has engaged the services of agents to procure the orders for which the commission is paid.[P&L Account/ balance sheet on PB-6A-6D] * This is a permanent trade practice of the assessee company and commission is being paid from year to year and all the cases of assessee company has been assessed u/s 143(3) of the Act and no adverse inference has been drawn by the department in any of the assessment years prior to AY 2018- 19. * It is matter of record that no query had been raised by the AO NFAC, relating to the payment of commission by the assessee, during the course of faceless assessment proceedings which culminated in Draft Assessment Order dated 28.09.2021.[Draft Asse....
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....natory notes to Finance Bill, 2012 which is reproduced as below. "Explanatory notes to Finance Bill, 2012 clarifies the above stated view of the courts. Dispute Resolution Panel (DRP) had been constituted with a view to expeditiously resolve the cases involving transfer pricing issues in the case of any person having international transactions or in case of a foreign company. It has been provided under sub-section (8) of section 144C that DRP may confirm, reduce or enhance the variations proposed in the draft order of the Assessing Officer. In a recent judgement, it was held that the powers of DRP is restricted only to the issues raised in the draft assessment order and therefore it cannot enhance the variation proposed in the order as a result of any new issue which comes to the notice of the panel during the course of proceedings before it. This is not in accordance with the legislative intent. It is accordingly proposed to insert an Explanation in the provisions of section 144C to clarify that the power of the DRP to enhance the variation shall include and shall always be deemed to have included the power to consider any matter arising out of the assessment proceeding....
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....ith the same in appropriate cases may be dealt with under section 147, or section 148, or even section 263 of the Act if requisite conditions are fulfilled. It is inconceivable, according to Sardari Lal, that in the presence of such specific provisions, a similar power is available to the first appellate authority. Eventually, Sardari Lal upheld the decision in Union Tyres." The ld AR mentioned that the Hon'ble Delhi High Court has held in the case of CIT vs. Sardari Lal & Co [2001] 251 ITR 864 that the first appellate authority has no power to take into account a new source of income. 12.2. Further in argument the ld. AR placed that the Hon'ble High Court of Kerela in the case of CIT vs. B.P. Sherafudin [2017] 87 taxmann.com 330has held that the appellate authority has no power u/s 251 of the Act to at income not considered by the AO.The Hon'ble court has relied on the following judgments on this issue: * CIT vs. Rai Bahadur Hardutory Motilal Chamaria [1967] 66 ITR 443 (SC) * CIT vs. Shapoorji Pallonji Misty [1962]44 ITR 891 (SC) In view of the above stated case laws on the limitation of the powers of enhancement of CIT(A) u/s 251 of the Act, the action of the ....
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....he sales office of the assessee and that the Corporation did not have the physical resources necessary to have carried out its duties. In the instant case, there is neither any evidence to that effect and, nor any material to support such a hypothesis. On the contrary, it is a case where summons were not issued to such parties and in such circumstances considering the evidence on record, it is incorrect to suggest that, services have not been rendered. Hence, such judgment too has no application to the facts of the present case." 12.3.2. Umacharan Shaw & Bros.v.Commissioner of Income-tax, [1959] 37ITR271 (SC) "The Department contends that one of the unusual features was that though the balances of the partners were fluctuating as their drawings were made, the profits continued to be divided equally. This is no doubt an unusual feature, but it depends upon how the drawings were considered by others. There was an arrangement in the deed itself for such drawings, and looking at the circumstances of the family the drawings during a year could not be said to be too extensive as others had withdrawn large sums also in their turn. Taking into consideration the entire circumstances....
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....m the account of the assessee through RTGS. Therefore, there remains no doubt that the payment has been made to Rolmex international whose alleged prop, Sh. Jaswant Singh Is a labourer and man of no means. In that view of the matter, the Panel concurs with the view of the AO that the aforesaid transactions are entered by the assessee company are Rolmex International, and not with Zylo International The(r), the invoices filed by the assessee in the name of Zylo International and crediting the payments in die name of Rolmex international buttress the contention of the AO that these transactions entered by the assessee company are bogus and that bills have been issued in the name of one concern and the amount has been audaciously credited into the bank accounts of another concern through RTGS. The Panel accordingly directs the AO to make an addition of Rs. 4,57,32,31.8/-, treating the entire transaction as bogus." 14. Mr. Sehgal, Advocate finally concluded that the assessee should get benefit related REC& ESCs are capital receipt and not be the part of 115BBG. The catena of judgment is in favour of assessee. The ld. DR respectfully relied on the order of Hon'ble Orrisa High Court, b....
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....ronmental and business leaders who saw the need for greater quality assurance in voluntary carbon markets. (iv) The assessee company is dealing in a second type of carbon credits which are of voluntary nature and are not regulated by United Nations Framework Convention on climate change. 15.3. Basics of Renewable Energy Certificates Another way to help to reduce carbon footprints has been devised by giving credit to units generating electricity from biofuels [agriculture residue i.e. rice husk and wheat straw] as compared to fossil fuel [Diesel/ Coal] and it is a mechanism in giving incentive to the producers of electricity from Renewable Energy Sources. (i) The regulation has been put in place by the Central Electricity Commission [CERC] and the Renewable Energy Certificates are issued under the rules and regulation framed by a regulatory authority. The REC will be exchanged only in the Power Exchanges approved by CERC within the bank of a floor price and forbearance (Ceiling) price to be determined by CERC from time to time. 15.4. Basics of ESCERTs The Perform Achieve and Trade (PAT) is a market-based mechanism to reduce the specific energy consumption in energy inten....
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.... is not an off shoot of business, but it is generated due to environmental concerns and no asset is generated in the course of business, but it is generated due to environmental concern and the credit for reducing carbon emission or greenhouse effect can be transferred to any other party to reduce carbon emission. 16. The assessee claimed the transfer value of REC/ESCs amounting to Rs. 17,77,26000/-in return under section 1115BBG and paid tax. During the time of assessment, the assessee amended the claim and treated the income as capital receipt. We relied on the orders My Home Power Ltd, (supra)and Maheshwari Devi Jute Mills Ltd, (supra)the income is offshoot from environmental concern not from offshoot of business concern. The nature is fully related to environmental health. We find that said income is capital in nature and not liable to tax under business income. 16.1. The next grievance is related the amendment of claim in assessment stage. The transfer value of REC/ESCs amounting to Rs. 17,77,26000/- was duly claimed as capital receipt in assessment stage. We respectfully relied on the order of Hon'ble Apex Court in the case of Goetze (India) Ltd & the order of the Hon'ble C....