Dy.CIT, Circle-3(2),, Hyderabad v. M/s Sree Rayalaseema Green Energy Ltd.,, Hyderabad

ITA 1190/HYD/2014 | 2010-2011
Pronouncement Date: 07-11-2014 | Result: Dismissed

Appeal Details

RSA Number 119022514 RSA 2014
Assessee PAN AADCS7075A
Bench Hyderabad
Appeal Number ITA 1190/HYD/2014
Duration Of Justice 4 month(s) 20 day(s)
Appellant Dy.CIT, Circle-3(2),, Hyderabad
Respondent M/s Sree Rayalaseema Green Energy Ltd.,, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 07-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 07-11-2014
Assessment Year 2010-2011
Appeal Filed On 17-06-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER I.T.A. NO. 1190/HYD/2014 ASSESSMENT YEAR 2010-11 THE DEPUTY CIT CIRCLE-3(2) HYDERABAD VS. M/S. SREE RAYALASEEMA GREEN ENERGY LTD. HYDERABAD PAN: AADCS7075A APPELLANT RESPONDENT APPELLANT BY: SRI RAJAT MITRA RESPONDENT BY: SRI P. VINOD DATE OF HEARING: 30. 10.2014 DATE OF PRONOUNCEMENT: 0 7 .1 1 .2014 O R D E R PER ASHA VIJAYARAGHAVAN JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV HYDERABAD DATED 15.4.2014 FOR A.Y . 2010-11. 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND IS IN THE BUSINESS OF GENERATION OF POWER AND SALE OF TRANSFO RMERS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESS EE FILED RETURN OF INCOME DECLARING INCOME OF RS. 49 36 258 AFTER CLAIMING DEDUCTION UNDER SECTION 80IA OF INCOME-ACT 1961 (THE ACT) OF RS. 43 21 191 UNDER NORMAL PROVISIONS OF T HE ACT AND ADMITTED INCOME OF RS. 98 18 339 UNDER SECTION 115J B OF THE ACT UNDER MAT PROVISIONS. THE CASE OF THE ASSESSEE HAS BEEN PICKED UP FOR SCRUTINY AND DURING THE COURSE OF SCR UTINY THE AO APART FROM OTHERS CONSIDERED THE ISSUE OF INCOME F ROM THE SALE OF CARBON CREDITS. I.T .A. NO. 1190/HYD/2014 M/S. SREE RAYALASEEMA GREEN ENERGY LTD. =============================== 2 3. DURING THE ASSESSMENT PROCEEDINGS THE AO HAD ISSUED A SHOW-CAUSE NOTICE CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INCOME OF RS. 5 60 00 000 FROM SALE OF C ARBON CREDITS WHICH IS CREDITED TO ASSESSEE'S SISTER CONCERN M/S. SREE RAYALASEEMA GREEN STELOY LIMITED SHOULD NOT BE CRE DITED TO THE PROFIT AND LOSS ACCOUNT AND SUBJECTED TO TAX. THE A SSESSEE IN RESPONSE TO SUCH SHOW CAUSE NOTICE SUBMITTED THAT S ALE RECEIPTS FROM CARBON CREDITS ARE CAPITAL IN NATURE AND HENCE CANNOT BE CREDITED TO PROFIT AND LOSS ACCOUNT. THE ASSESSEE R ELYING ON THE DECISION OF THIS TRIBUNAL SUBMITTED THAT THE SAID P ROCEEDS ARE CAPITAL RECEIPTS AND CANNOT BE SUBJECTED TO TAX. W ITH REGARD TO ENTRY OF CREDITING THE ACCOUNT OF SREE RAYALASEEMA GREEN STELOY LIMITED IT WAS SUBMITTED THAT THE SAME WAS DONE AS PER THE UNDERSTANDING BETWEEN THE ASSESSEE AND THE SAID COM PANY AS THE ASSESSEE IS USING THE STEAM SUPPLIED BY SREE RA YALASEEMA GREEN STELOY IN LIEU OF WHICH THE ASSESSEE HAD AGRE ED TO PASS ON PORTION OF THEIR ENTITLEMENT BY WAY OF CREDITING TO THEIR ACCOUNT AS THEY ARE NOT OTHERWISE ENTITLED TO. AS A MATTER OF FACT THE CREDIT TO THE EXTENT OF RS. 5 60 00 000 WAS OFFERED AS INCOME BY SREE RAYALASEEMA GREEN STELOY LIMITED FOR THE SAME YEAR. ALTERNATELY IT WAS SUBMITTED THAT SINCE GENERATION OF SUCH INCOME HAS DIRECT NEXUS WITH POWER GENERATION USING BIOMASS IS DERIVED FROM SUCH BUSINESS WHICH IS ALLOWABLE AS DE DUCTION U/S. 80IA OF THE ACT. 4. THE AO FURTHER HELD THAT IT IS OBVIOUS THAT THE COM PANY COULD NOT JUSTIFY WHY IT HAD CREDITED THIS INCOME O F RS. 5 60 00 000 TO ITS SISTER CONCERN INSTEAD OF CREDIT ING TO ITS PROFIT AND LOSS ACCOUNT. IT IS PERHAPS ONLY AN AFTERTHOUGH T TO HAVE CREDITED THIS AMOUNT TO THE SISTER COMPANY AND RECO RD IT AS OTHER INCOME IN THE BOOKS OF THE SISTER COMPANY M/ S. I.T .A. NO. 1190/HYD/2014 M/S. SREE RAYALASEEMA GREEN ENERGY LTD. =============================== 3 RAYALASEEMA GREEN STELOYS LTD. WHICH HAS GOT HUGE LOSSES IN ITS BOOKS WHICH WAS SET OFF AGAINST THIS INCOME. TH E ABOVE ACCOUNTING OF THIS TRANSACTION OF THE COMPANY IS NO T IN ACCORDANCE WITH THE ACCOUNTING PRINCIPLES OR WITH T HE PROVISIONS OF THE INCOME-TAX ACT AND HENCE THIS IN COME OF RS. 5 60 00 000 IS NOW CREDITED TO THE PROFIT AND LOSS ACCOUNT AND BROUGHT TO TAX. THOUGH THE COMPANY CLAIMS DEDUCTION U/S 80IA OF THE INCOME FROM GENERATION OF POWER THE BENEFIT CANNOT BE APPLIED TO THIS INCOME FROM SALE OF CARBON CREDITS FOR THE REASONS DESCRIBED ON THE SAME ISSUE IN THE ASSESSEE 'S OWN CASE IN THE A.Y. 2009-10. IN VIEW OF THE ABOVE THE INC OME FROM SALE OF CARBON CREDITS AMOUNTING TO RS. 5 60 00 000 NOT OFFERED FOR TAXATION IS NOW BROUGHT TO TAX AND ADDED TO THE BUS INESS INCOME. 5. THE ASSESSING OFFICER FURTHER OBSERVED FROM THE DET AILS OF MISCELLANEOUS INCOME OF THE POWER UNIT FILED WITH T HE RETURN OF INCOME THAT THERE IS PROFIT ON SALE OF ASSET OF RS . 3 81 389 FOR WHICH DEDUCTION ON 80IA WAS ALSO CLAIMED. SINCE TH IS INCOME IS NOT DERIVED FROM SALE OF POWER IT WAS PROPOSED TO EXCLUDE THIS AMOUNT FROM THE DEDUCTION CLAIMED. IN RESPONSE TH E COMPANY IN ITS REPLY DATED 8.2.2013 HAD SUBMITTED A CLARIFI CATION ON THIS BUT HAS NOT GIVEN ANY OBJECTION TO THIS EXCLUSION. HENCE THE ASSESSING OFFICER EXCLUDED THE SAME FROM THE DEDUCT ION CLAIMED. 6. AGGRIEVED BY THIS ASSESSMENT THE ASSESSEE HAD PREF ERRED AN APPEAL BEFORE THE CIT(A) ON THE FOLLOWING LINES: 1. THE ORDER OF THE ASSESSING OFFICER IS PERVERSE ILLEGAL AND IS AGAINST THE FACTS AND UNSUSTAINABLE IN LAW. I.T .A. NO. 1190/HYD/2014 M/S. SREE RAYALASEEMA GREEN ENERGY LTD. =============================== 4 2. THE ASSESSING OFFICER ERRED IN BRINGING TO TAX THE PROCEEDS OF CARBON CREDITS OF RS. 5 60 00 000 WHICH IS CAPITAL IN NATURE BY DISREGARDING BINDING DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF MY HOME POWER LTD. VS. DCIT. 3. WITHOUT PREJUDICE EVEN IF THE PROCEEDS OF CARBON CREDITS ARE TREATED AS REVENUE RECEIPT THE ASSESSING OFFICER ERRED IN BRINGING TO TAX THE SAID INCOME. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT INCOME FROM SALE OF CARBON CREDITS IS INTRICATELY CONNECTED TO THE BUSINESS OF POWER GENERATION AND THEREFORE THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S. 80IA OF THE ACT IN RESPECT OF PROCEEDS FROM SALE OF CARBON CREDITS. 4. THE FINDING OF THE ASSESSING OFFICER IN RESPECT OF CREDITING SREE RAAYALASEEMA GREEN STELOY LTD. WITH THE PROCEEDS OF CARBON CREDITS ARE IN CORRECT AND UNSUSTAINABLE AND OUGHT TO HAVE ALLOWED THE SAME AGAIN AS EXPENDITURE FOR GETTING THE STEAM FROM THE SISTER COMPANY. 7. THE CIT(A) OBSERVED THAT AS NOTED BY THE ASSESSI NG OFFICER THE ASSESSEE HAS NOT FURNISHED ANY EVIDENC E OF THE AGREEMENT UNDER WHICH THE RECEIPT OF RS. 5 60 00 00 0 FROM SALE OF CARBON CREDIT WAS TRANSFERRED TO SRGS. THERE IS ALSO NO EVIDENCE OF ANY SALE OF STEAM BY SRGS TO THE ASSESS EE WHETHER IN THE CURRENT YEAR OR IN ANY OF THE PRECEDING OR S UCCEEDING YEARS. 8. THE CIT(A) OBSERVED THAT IN ANY EVENT THE ISSUE IN APPEAL IS SALE RECEIPTS FOR CARBON CREDITS AND NOT MERELY OF STEAM. AS ADMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFIC ER SRGS I.T .A. NO. 1190/HYD/2014 M/S. SREE RAYALASEEMA GREEN ENERGY LTD. =============================== 5 WAS NOT REGISTERED WITH UNFCCC THE INTERNATIONAL B ODY FOR ACCREDITATION FOR CARBON CREDITS AND WAS NOT EVEN E NTITLED FOR SUCH REGISTRATION AS IT WAS NOT IN THE BUSINESS OF POWER GENERATION. THE TRANSFER OF THE SALE RECEIPTS FOR C ARBON CREDITS TO SRGS BY THE ASSESSEE WAS THEREFORE WITHOUT ANY BA SIS AND NOT ON BUSINESS CONSIDERATIONS. THE ASSESSING OFFICER I S THEREFORE CORRECT IN HIS CONCLUSIONS THAT THE RECEIPT OF RS. 5 60 00 000 ON SALE OF CARBON CREDITS WERE RECEIPTS OF THE ASSESSE E. ACCORDINGLY THE CIT(A) DISMISSED THE GROUND ON THIS ISSUE. 9. THE CIT(A) FURTHER OBSERVED THAT THE SECOND AND THI RD GROUNDS OF APPEAL RELATE TO THE TAXATION OF THE SUM OF RS. 5 60 00 000 FROM SALE OF CARBON CREDITS AND THE DEN IAL OF DEDUCTION U/S 80IA TO IT. THIS ISSUE HAD BEEN THE SUBJECT MATTER OF APPEAL IN THE ASSESSEE'S CASE FOR THE A.Y . 2003-04 IN ITA NO. 457/ACIT 3(2)/CIT(A)-IV/2011-12 WHERE HE HA D ALLOWED THE APPEAL IN HIS ORDER DATED 20.9.2013 FOLLOWING T HE DECISION IN THE CASE OF MY HOME POWER LTD VS. DCIT [2012] 27 TA XMAN.COM 27 (HYD). THE DECISION OF THE ITAT IN THAT CASE WAS LATER UPHELD BY THE HIGH COURT WITH THE FOLLOWING REMARKS IN ITS ORDER IN ITAT APPEAL NO. 60 OF 2014 DATED 19.2.2014: 'WE HAVE CONSIDERED THE AFORESAID SUBMISSION AND WE ARE UNABLE TO ACCEPT THE SAME AS THE LEARNED TRIBUNAL HAS FACTUALLY FOUND THAT CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GENERATED IN T HE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS. WE AGREE WITH THIS FACTUA L ANALYSIS AS THE ASSESSEE IS CARRYING ON THE BUSINES S OF POWER GENERATION. THE CARBON CREDIT IS NOT EVEN DIRECTLY LINKED WITH POWER GENERATION. ON THE SALE OF EXCESS CARBON CREDITS THE INCOME WAS RECEIVED AND HENCE AS CORRECTLY HELD BY THE TRIBUNAL IT IS CAPIT AL RECEIPT AND IT CANNOT BE BUSINESS RECEIPT OR INCOME .' 10. THE CIT(A) RESPECTFULLY FOLLOWING THE DECISION OF THE HIGH COURT HELD THAT THE AMOUNT OF RS. 5 60 00 00 0 I.T .A. NO. 1190/HYD/2014 M/S. SREE RAYALASEEMA GREEN ENERGY LTD. =============================== 6 RECEIVED ON SALE OF CARBON CREDIT IS A CAPITAL RECE IPT. ACCORDINGLY HE PARTLY ALLOWED THE SECOND AND THIRD GROUNDS OF APPEAL. AGGRIEVED THE REVENUE IS IN APPEAL BEF ORE US WITH THE FOLLOWING GROUNDS OF APPEAL: (A) THE LEARNED CIT (A) ERRED IN LAW ALLOWING THE ASSESSEE'S APPEAL.. (B) THE HON'BLE CIT (A) OUGHT NOT TO HAVE TREATED THE SALE OF CARBON CREDITS AS CAPITAL RECEIPT. (C) THE HON'BLE CIT(A) OUT TO HAVE APPRECIATED THE FACT THAT THE ISSUE INVOLVED IN THE APPEAL IS NOT THE TAXABILITY OF CARBON CREDITS BUT ITS ELIGIBILI TY FOR DEDUCTION UNDER SECTION 80IB 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CIT(A) HAS FOLLOWED THE OR DER OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MY HOME POWER LTD. 365 ITR 82 (AP) AND HENCE WE FIND NO IN FIRMITY IN THE ORDER OF THE CIT(A) AND CONFIRM THE SAME. 12. IN THE RESULT REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH NOVEMBER 2014. SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD DATED THE 7 TH NOVEMBER 2014 TPRAO COPY FORWARDED TO: 1. THE DEPUTY CIT CIRCLE - 3(2) 7 TH FLOOR B BLOCK IT TOWERS AC GUARDS HYDERABAD-500 004. 2. M/S. SREE RAYALASEEMA GREEN ENERGY LTD. 1 - 10 - 19 STREET NO. 3 ASHOK NAGAR HYDERABAD. 3. THE CIT(A) - IV HYDERABAD . 4. THE CIT - III HYDERABAD. 5. THE DR B BENCH ITAT HYDERABAD