DCIT, Tiruppur v. Eastman Exports Global Clothing P Ltd., Tiruppur

ITA 1663/CHNY/2014 | 2010-2011
Pronouncement Date: 31-07-2014 | Result: Dismissed

Appeal Details

RSA Number 166321714 RSA 2014
Assessee PAN AACCC0952E
Bench Chennai
Appeal Number ITA 1663/CHNY/2014
Duration Of Justice 1 month(s) 19 day(s)
Appellant DCIT, Tiruppur
Respondent Eastman Exports Global Clothing P Ltd., Tiruppur
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 31-07-2014
Assessment Year 2010-2011
Appeal Filed On 11-06-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI . . . . !' # $% $& BEFORE DR. O.K.NARAYANAN VICE-PRESIDENT AND SHRI V.DURGA RAO JUDICIAL MEMBER $ ./ ITA NO. 1429/MDS/2014 # ' '' / ASSESSMENT YEAR : 2010-11 EASTMAN EXPORTS GLOBAL CLOTHING (P) LTD. NO. 10 12 2 ND STREET KUMAR NAGAR SOUTH TIRUPUR 641 603. PAN AACCC0952E V. THE JOINT COMMISSIONER OF INCOME-TAX TIRUPUR RANGE TIRUPUR. ( )*/ APPELLANT) ( -)*/ RESPONDENT) $ ./ ITA NO. 1663/MDS/2014 # ' '' / ASSESSMENT YEAR : 2010-11 THE JOINT COMMISSIONER OF INCOME-TAX TIRUPUR. ( )*/ APPELLANT) V. EASTMAN EXPORTS GLOBAL CLOTHING (P) LTD. TIRUPUR. ( -)*/ RESPONDENT) ASSESSEE BY : SH RI T. BANUSEKAR FCA DEPARTME NT BY : MRS. V.S. SREELEKHA IRS CIT & SHRI GURU BHASHYAM IRS JCIT - - ITA 1429 & 1663/14 2 $ 5 67 / DATE OF HEARING : 31 ST JULY 2014 89' 5 67 / DATE OF PRONOUNCEMENT : 31 ST JULY 2014 / O R D E R PER DR.O.K.NARAYANAN VICE-PRESIDENT THESE TWO APPEALS RELATE TO THE ASSESSMENT YEAR 2010-11. THE APPEALS ARE FILED BY THE ASSESSEE AND THE REVENUE. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX-II AT COIMBATORE DAT ED 31.3.2014 AND ARISE OUT OF THE ASSESSMENT COMPLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT 1961. 2. IN THE APPEAL FILED BY THE ASSESSEE THE FIRST ISSUE RAISED IS THAT THE COMMISSIONER OF INCOME-TAX(APPEA LS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM O F ` 650 LAKHS PAID BY THE ASSESSEE TO M/S. CIBI INTERNATIONAL . IT IS THE CASE OF THE ASSESSEE THAT THE ABOVE AMOUNT WAS PAID TO M/S. CIBI INTERNATIONAL AS PER THE TERMS AND CONDITIONS OF A GREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S. CIBI INT ERNATIONAL. IT IS ALSO THE CASE OF THE ASSESSEE THAT THE FINDING O F THE COMMISSIONER OF INCOME-TAX(APPEALS) THAT THE PAYMEN T MADE TO - - ITA 1429 & 1663/14 3 M/S. CIBI INTERNATIONAL IS CAPITAL IN NATURE IS NO T SUSTAINABLE IN LAW. 3. WE HEARD SHRI T. BANUSEKAR THE LEARNED CHARTER ED ACCOUNTANT APPEARING FOR THE ASSESSEE AND SMT. V.S. SREELEKHA THE LEARNED COMMISSIONER OF INCOME-TAX ALONG WITH S HRI GURU BHASHYAM THE LEARNED JOINT COMMISSIONER OF INCOME- TAX APPEARING FOR THE REVENUE. 4. THE FACTS RELATING TO THE PAYMENT OF ` 650 LAKHS MADE TO M/S. CIBI INTERNATIONAL HAVE BEEN STATED BE FORE US IN THE FOLLOWING MANNER. 5. THE ASSESSEE HAD RECEIVED INFORMATION FROM ITS OVERSEAS CLIENTS/BUYERS THAT LARGE QUANTITIES OF EX PORT ORDERS WORTH APPROXIMATELY US$ 4 BILLION (APPROXIMATELY ` 17 600 CRORES AT THAT POINT OF TIME) FOR SUPPLY OF KNITTED GARMENTS WOULD BE PLACED WITH THE ASSESSEE. THE SUPPLY PERIOD WOU LD EXTEND TO 10 YEARS BUT THE ASSESSEE SHOULD ENSURE THE QUALIT Y AND THE STANDARD OF PRODUCTS AS PRESCRIBED BY THE BUYERS. THE ASSESSEE WAS BOUND TO MAINTAIN OTHER VALUE STANDARDS LIKE HE ALTH AND SAFETY PROVISION FOR THE WORKERS PROTECTION OF WO RKERS INTERESTS - - ITA 1429 & 1663/14 4 PROVIDING ADEQUATE FACILITIES FOR WORKERS ETC. THE ASSESSEE WAS ALSO BOUND TO FOLLOW STANDARD OPERATING PROCEDURE. 6. IN ORDER TO CARRY OUT THE HUGE PRODUCTION OF KN ITTED GARMENTS COMMENSURATE TO THE EXPORT ORDER THE ASSE SSEE HAD TO ENSURE THAT NECESSARY FACILITIES ARE AVAILABLE A T ITS COMMAND. THE FACILITIES OPERATED BY THE ASSESSEE ALONE WERE NOT SUFFICIENT TO COPE UP WITH THE SIZE OF PRODUCTION ANTICIPATED IN THE LIGHT OF THE EXPORT ORDER. THEREFORE THE ASSESSEE IDENTIFI ED M/S. CIBI INTERNATIONAL ANOTHER FIRM HAVING REQUISITE MANPOW ER AND OTHER OPERATIONAL FACILITIES TO UNDERTAKE THE PRODUCTION OF GARMENTS IN COMPLIANCE OF THE EXPORT ORDER. IN ORDER TO AVAIL THE FACILITIES OFFERED BY M/S. CIBI INTERNATIONAL THE ASSESSEE EN TERED INTO AN AGREEMENT/ARRANGEMENT WITH M/S. CIBI INTERNATIONAL. AS PER THE SAID AGREEMENT M/S. CIBI INTERNATIONAL HAS TO MAIN TAIN SUFFICIENT INFRASTRUCTURE FACILITIES TO ENSURE QUALITY PRODUCT ION OF GOODS PRESCRIBED BY THE OVERSEAS CLIENTS BOTH IN TERMS OF PRODUCT AS WELL AS WORK FACILITIES. 7. IN CONSIDERATION TO SHOULDERING THE RESPONSIBIL ITIES OF PROVIDING INFRASTRUCTURAL AND OPERATIONAL FACILI TIES TO THE ASSESSEE FOR MANUFACTURING KNITTED GARMENTS THE AS SESSEE - - ITA 1429 & 1663/14 5 COMPANY PAID A SUM OF ` 650 LAKHS TO M/S. CIBI INTERNATIONAL IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER APPEAL. ACCORDING TO THE ASSESSEE THE PAYMENT HAS BEEN MAD E FOR THE PURPOSE OF CARRYING ON OF ITS BUSINESS IN A SUBSTAN TIAL MANNER SO AS TO HONOUR THE COMMITMENT OF EXPORT FOR A PERIOD OF 10 YEARS. THE ASSESSEE IDENTIFIED M/S. CIBI INTERNATIONAL AS AN ASSOCIATE FOR THE PURPOSE OF PRODUCTION FOR THE REASON THAT M /S. CIBI INTERNATIONAL HAS TRAINED AND SKILLED LABOUR FORCE OF AROUND 40000 WITH THEM WHO COULD EXECUTE THE WORK WITHOUT ANY PROBLEM. M/S. CIBI INTERNATIONAL ALSO POSSESSED EX PERTISE TO MANUFACTURE KNITTED GARMENTS ACCORDING TO THE BUYER S SPECIFICATIONS. THE ASSESSEE PAID THE SUM OF ` 650 LAKHS M/S. CIBI INTERNATIONAL TO PREPARE AND COMMIT TO THE WOR K ENTRUSTED BY THE ASSESSEE COMPANY WITHOUT ANY HITCH OR HINDRANCE . THE ASSESSEE FELT THAT INSTEAD OF ACQUIRING ITS OWN INF RASTRUCTURAL FACILITIES IT IS MORE ECONOMICAL TO UTILIZE THE FA CILITIES OF A COMPETENT ASSOCIATE SO THAT THE ASSESSEE NEED NOT INCUR RECURRING EXPENDITURE FOR THE MAINTENANCE OF INFRAS TRUCTURAL AND OPERATIONAL FACILITIES. ONCE THE ASSESSEE PAID ` 650 LAKHS TO M/S. CIBI INTERNATIONAL THE SAID ASSOCIATE WOULD P ROCURE ALL THE - - ITA 1429 & 1663/14 6 NECESSARY FACILITIES TO MAKE THE OPERATIONS TO THE SATISFACTION OF THE BUSINESS INTERESTS OF THE ASSESSEE. MORE PARTI CULARLY THE ASSESSEE HAS PAID ` 650 LAKHS TO M/S. CIBI INTERNATIONAL TO EXECUTE HUGE EXPORT ORDER AND THE SAID ASSOCIATE CO ULD UPDATE ITS OPERATIONAL FACILITIES TO THE REQUIRED STANDARD S FOR THE ADVANTAGE OF THE BUSINESS OF THE ASSESSEE. 8. THE ASSESSEE CLAIMED THIS AMOUNT OF ` 650 LAKHS AS A DEDUCTION IN COMPUTING ITS TAXABLE INCOME FOR THE IMPUGNED ASSESSMENT YEAR. THE DEDUCTION HAS BEEN CLAIMED UN DER SEC.37 OF THE ACT. BUT THE ASSESSING OFFICER DID N OT ALLOW THE ABOVE DEDUCTION CLAIMED BY THE ASSESSEE. THE ASSES SING OFFICER HELD THAT THE ACQUISITION OF FACILITIES BY M/S. CIBI INTERNATIONAL AGAINST PAYMENT OF ` 650 LAKHS MADE BY THE ASSESSEE WOULD RESULT IN ENDURING BENEFIT TO THE A SSESSEE AND THEREFORE THE PAYMENT COULD NOT BE CONSIDERED AS A REVENUE EXPENDITURE. AS IT IS ALSO NOT IN THE NATURE OF TR ADE ADVANCE THE ASSESSING OFFICER HELD THAT THE PAYMENT IS VOLUNTAR Y AND THERE WAS NO OBLIGATION FOR THE ASSESSEE TO MAKE SUCH PAY MENT. THE MERE FACT THAT THE PAYMENT WAS MADE UNDER AN AGREEM ENT DOES NOT ESTABLISH THAT THE EXPENDITURE HAS BEEN INCURRE D DURING THE - - ITA 1429 & 1663/14 7 YEAR. THE SUM GIVEN BY THE ASSESSEE WAS SPENT FOR IMPROVING THE INFRASTRUCTURE OF M/S. CIBI INTERNATIONAL. THE ASSESSING OFFICER ALSO OBSERVED THAT M/S. CIBI INTERNATIONAL HAS SHOWN THIS ADVANCE AS ITS BUSINESS LIABILITY IN ITS BALANCE SH EET. WHEN THE ASSESSEE HAS CLAIMED IT AS A DEDUCTION UNDER SEC.37 M/S. CIBI INTERNATIONAL OUGHT TO HAVE SHOWN IT AS INCOME. FO R THE REASONS STATED ABOVE HE DISALLOWED THE CLAIM OF DEDUCTION AND ADDED BACK THE SUM OF ` 650 LAKHS TO THE INCOME OF THE ASSESSEE COMPANY. 9. IN FIRST APPEAL AFTER GOING THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE THE COMMISSIONER OF INCO ME- TAX(APPEALS) HELD THAT ON THE PAYMENT OF ` 650 LAKHS TO M/S. CIBI INTERNATIONAL AN ENTIRELY NEW CAPITAL ASSET FOR TH E EXCLUSIVE USE OF THE ASSESSEE HAS BEEN CREATED AND THEREFORE IT CANNOT BE DENIED THAT THE ASSESSEE IS DERIVING ENDURING BENEF IT. HE CONFIRMED THE FINDING OF THE ASSESSING OFFICER ON T HE ABOVE ISSUE. 10. IN THE LIGHT OF THE FACTS STATED ABOVE AND TH E ORDERS PASSED BY THE LOWER AUTHORITIES WE CONSIDERED THE NATURE OF PAYMENT OF ` 650 LAKHS IN DETAIL. WE HAVE ALSO CONSIDERED THE - - ITA 1429 & 1663/14 8 DECISION OF THE HONBLE SUPREME COURT RENDERED IN T HE CASE OF EMPIRE JUTE CO. LTD. VS. CIT 124 ITR 1 RELIED ON BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE. 11. THE ASSESSEE HAS PAID THE SUM OF ` 650 LAKHS TO M/S. CIBI INTERNATIONAL ON THE BASIS OF A BUSINESS AGREEMENT. THE BUSINESS AGREEMENT CASTS DUTIES AND OBLIGATIONS ON THE ASSESSEE AS WELL AS ON M/S. CIBI INTERNATIONAL. AS FAR AS THE ASSESSEE IS CONCERNED IT MUST PAY ` 650 TO M/S. CIBI INTERNATIONAL TO IMPROVE AND UPDATE ITS OPERATIONAL FACILITIES TO UNDERTAKE THE WORK ENTRUSTED BY THE ASSESSEE COMPAN Y IN CONTEMPLATION OF FULFILLING ITS EXPORT OBLIGATIONS. M/S. CIBI INTERNATIONAL ON THE OTHER HAND WAS BOUND TO EXEC UTE PRODUCTION ORDERS IN CONFORMITY TO THE QUALITY STAN DARD PRESCRIBED BY THE FOREIGN BUYERS. AS PER THE AGREEMENT M/S. CIBI INTERNATIONAL WAS ALSO BOUND TO REPAY THE SUM OF ` 650 LAKHS TO THE ASSESSEE COMPANY IF M/S. CIBI INTERNATIONAL FA ILS TO PERFORM THE OBLIGATIONS CAST ON IT. SINCE SUCH A LIABILITY IS CAST ON M/S. CIBI INTERNATIONAL AS PER THE AGREEMENT M/S. CIBI INTERNATIONAL MIGHT HAVE SHOWN THE AMOUNT OF ` 650 LAKHS AS A LIABILITY IN ITS BALANCE SHEET. SUCH A DISCLOSURE IN THE BALANCE SH EET OF M/S. - - ITA 1429 & 1663/14 9 CIBI INTERNATIONAL NEED NOT INFLUENCE IN DECIDING T HE REAL CHARACTER OF THE PAYMENT OF ` 650 LAKHS MADE BY THE ASSESSEE COMPANY. 12. IT IS VERY DIFFICULT TO ACCEPT THE FINDINGS OF THE LOWER AUTHORITIES THAT BY PAYING ` 650 LAKHS THE ASSESSEE COMPANY HAD ACQUIRED NEW CAPITAL ASSET OF ENDURING BENEFIT. THERE IS NO DISPUTE ON THE FACT THAT THE FACILITIES WERE CREATE D IN THE WORK PLACE OF M/S. CIBI INTERNATIONAL AND NOT IN THE PRE MISES OF THE ASSESSEE COMPANY. THEREFORE IF AT ALL ANY NEW AS SET IS CREATED BY UTILIZING THIS AMOUNT THAT ASSET IS OWNED BY M/ S. CIBI INTERNATIONAL. THE RIGHT OF THE ASSESSEE IS ONLY T O UTILIZE SUCH FACILITY FOR THE PURPOSE OF CARRYING ON OF ITS BUSI NESS. THEREFORE IT IS NOT POSSIBLE TO SAY THAT THE ASSESSEE COMPAN Y HAS ACQUIRED ANY CAPITAL ASSET BY PAYING ` 650 LAKHS TO M/S. CIBI INTERNATIONAL. SUCH A FINDING IS NOT POSSIBLE IN THE FACTS OF THE PRESENT CASE. 13. IT IS TO BE SEEN THAT THE PAYMENT WAS NOT MADE BY THE ASSESSEE COMPANY GRATUITOUSLY. THE PAYMENT WAS MADE AGAINST THE BUSINESS AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S. CIBI INTERNATIONAL WHEREBY M/S. CIBI INTERNATIONAL IS OBLIGED TO CARRY OUT THE PRODUCTIO N ASSIGNED BY - - ITA 1429 & 1663/14 10 THE ASSESSEE COMPANY CONFORMING TO THE STANDARDS A ND QUALITY. THAT IS A BUSINESS OBLIGATION UNDERTAKEN BY M/S. CI BI INTERNATIONAL. THE QUESTION THEREFORE TO BE DECI DED IS WHETHER THE ARRANGEMENT MADE BY THE ASSESSEE COMPANY WITH M/S. CIBI INTERNATIONAL IS FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND WHETHER JUSTIFIED IN THE FACTS AND CI RCUMSTANCES OF THE CASE. THE SECOND QUESTION TO BE CONSIDERED IS WHETHER THE PAYMENT OF ` 650 LAKHS IS COMMENSURATE AND REASONABLE TO THE TASKS ASSIGNED TO M/S. CIBI INTERNATIONAL. 14. AS ALREADY STATED IN PARAGRAPHS ABOVE THE ASSESSEE COMPANY WAS GOING TO RECEIVE BULK ORDERS FOR EXPORT OF KNITTED GARMENTS FOR A PERIOD OF 10 YEARS. THE EXPORT ORDERS ARE FOR AN AMOUNT OF US$ 4 BILLION APPROXIMATELY AM OUNTING TO ` 17 600 CRORES AT THAT POINT OF TIME. THIS IS A HUG E ORDER. THEREFORE IT WAS NECESSARY FOR THE ASSESSEE COMPAN Y TO ENSURE ATLEAST FOR A PERIOD OF 10 YEARS THAT SUFFICIENT OP ERATIONAL FACILITIES ARE AVAILABLE AT ITS DISPOSAL. THE EXECUTION OF E XPORT ORDERS WOULD BE POSSIBLE ONLY IF SUCH REFINED FACILITIES A RE AVAILABLE AT THE DISPOSAL OF THE ASSESSEE COMPANY. THEREFORE T HERE IS NO DOUBT THAT THE ASSESSEE WAS BADLY IN NEED OF SUFFIC IENT - - ITA 1429 & 1663/14 11 OPERATIONAL FACILITIES TO EXECUTE THE EXPORT ORDER. IF THOSE FACILITIES WERE CREATED IN ASSESSEES OWN PREMISES IT WOULD HAVE BEEN DEFINITELY HELD AS AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE ASSESSEE. 15. THE QUESTION IS THAT WHETHER THE CHARACTER OF THE EXPENDITURE WOULD BE ALTERED IF THE ASSESSEE ENTRU STS THE WORK TO ANOTHER ASSOCIATE ON THE BASIS OF AN AGREEMENT. THERE IS NO DOUBT THAT SUFFICIENT FACILITIES ARE NECESSARY FOR THE ASSESSEE TO EXECUTE THE EXPORT ORDERS. INSTEAD OF CREATING FAC ILITIES FOR ITSELF THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. C IBI INTERNATIONAL SO THAT THE PRODUCTION FACILITIES AV AILABLE WITH THE LATTER WOULD BE UTILIZED FOR PRODUCING THE KNITTED GOODS REQUIRED BY THE ASSESSEE COMPANY FOR MEETING ITS EXPORT COMM ITMENTS. WHILE TAKING THE DECISION TO RELY ON M/S. CIBI INTE RNATIONAL FOR AVAILING PRODUCTION FACILITIES RATHER THAN ACQUIRIN G SUCH FACILITIES BY ITSELF THE ASSESSEE COMPANY HAS ASSESSED THE EC ONOMY OF SCALE AND ALL OTHER OPERATIONAL AND BUSINESS CONSID ERATIONS. IN ITS WISDOM THE ASSESSEE FOUND THAT IT IS MORE ECON OMICAL TO PAY A LUMP SUM AMOUNT TO M/S. CIBI INTERNATIONAL TO DEV ELOP THE PRODUCTION FACILITIES FOR ASSESSEES OWN BUSINESS RATHER THAN - - ITA 1429 & 1663/14 12 ESTABLISHING SUCH FACILITIES IN ITS OWN WORK PLACE. THEREFORE IT IS NOT POSSIBLE TO QUESTION THE BUSINESS DECISION ARRI VED AT BY THE ASSESSEE COMPANY UNLESS IT IS OTHERWISE PROVED TO BE A DEVICE TO CONCEAL ANY ULTERIOR MOTIVE. SUCH ALLEGATIONS A RE ANYHOW NOT MADE IN THE PRESENT CASE. 16. THEREFORE THE SIMPLE FACT EMERGING OUT OF THE DISCUSSION IS THAT THE ASSESSEE COMPANY INSTEAD OF CREATING THE FACILITIES IN ITS OWN PREMISES SELECTED M/S. CIBI INTERNATIONAL TO SHOULDER THE RESPONSIBILITY OF THE PRODUCTION OF KN ITTED GARMENTS UTILIZING THEIR FACILITIES AND TO IMPROVE THE FACIL ITIES AN AMOUNT OF ` 650 LAKHS WAS PAID. A CLEAR NEXUS IS APPARENT BET WEEN THE PAYMENT OF ` 650 LAKHS TO M/S. CIBI INTERNATIONAL AND THE BUSINESS INTERESTS OF THE ASSESSEE COMPANY. THEREF ORE IT IS CLEAR THAT THE ASSESSEE COMPANY HAS MADE THE PAYME NT OF ` 650 LAKHS TO M/S. CIBI INTERNATIONAL ON THE BASIS O F THE BUSINESS AGREEMENT FOR THE PURPOSE OF CARRYING ON OF ITS BUS INESS MORE EFFECTIVELY AND MORE ECONOMICALLY. IN SUCH CIRCUMS TANCES IT IS NOT POSSIBLE TO HOLD THAT THE ASSESSEE HAS ACQUIRED AN ENDURING BENEFIT BY CREATING NEW CAPITAL ASSET BY MAKING PAY MENT OF ` 650 LAKHS TO M/S. CIBI INTERNATIONAL. IN FACT THE ASSESSEE HAS - - ITA 1429 & 1663/14 13 MADE THE PAYMENT OF ` 650 LAKHS TO M/S. CIBI INTERNATIONAL FOR THE PURPOSE OF EXECUTING ITS EXPORT COMMITMENT SPAN NING OVER A PERIOD OF 10 YEARS. THE EXPENDITURE IS THEREFORE INCURRED FOR RUNNING THE BUSINESS AND NOT FOR CREATING THE FACIL ITIES TO RUN THE BUSINESS. THEREFORE WE FIND THAT THE PAYMENT OF ` 650 LAKHS MADE BY THE ASSESSEE COMPANY IS AN EXPENDITURE ALL OWABLE UNDER SEC.37 OF THE ACT. 17. THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADD ITION OF ` 650 LAKHS. 18. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CO NFIRMING THE EXCLUSION OF RECEIPTS FROM TRADING OF CARBON CR EDIT AND INSURANCE CLAIM WHILE COMPUTING THE DEDUCTION UNDER SEC.80IA. 19. THE HONBLE ANDHRA PRADESH HIGH COURT IN THE C ASE OF CIT VS. M/S. MY HOME POWER LTD. 2014 (6) TMI 82 HAS CONSIDERED THE ISSUE OF CARBON CREDIT FOR THE PURPO SE OF INCOME- TAX. THE COURT HAS HELD THAT THE INCOME RECEIVED ON SALE OF EXCESS CARBON CREDIT IS IN THE NATURE OF CAPITAL RE CEIPT AND IT CANNOT BE TREATED AS BUSINESS INCOME. THE LEARNED JOINT - - ITA 1429 & 1663/14 14 COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVEN UE HAS RELIED ON THE ORDER OF THE ITAT COCHIN RENDERED IN THE CASE OF APOLLO TYRES LTD. VS. ACIT 31 ITR (TRIB) 477 WHER EIN THE TRIBUNAL HAS HELD THAT RECEIPT ON SALE OF CARBON CR EDIT IS REVENUE IN NATURE. 20. WE ARE BOUND TO FOLLOW THE JUDGMENT OF THE HON BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. M/ S. MY HOME POWER LTD. TO HOLD THAT THE RECEIPTS IN THE HANDS OF THE ASSESSEE GENERATED OUT OF SALE OF EXCESS CARBON CRE DIT ARE IN THE NATURE OF CAPITAL RECEIPTS AND THEREFORE NOT INCLUDIBLE IN THE COMPUTATION OF TAXABLE INCOME. ONCE THE ENTIRE REC EIPTS ARE EXCLUDED FROM THE COMPUTATION OF INCOME ITSELF THE RE IS NO QUESTION OF ANY SEPARATE ARGUMENT OF SEC.80IA DEDUC TION. 21. AS FAR AS CARBON CREDIT RECEIPT IS CONCERNED THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THEREF ORE THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE CARBON CREDIT RECEIPTS FROM THE COMPUTATION OF ASSESSEES INCOME. 22. AS FAR AS THE QUESTION OF INSURANCE CLAIM FOR THE PURPOSE OF SEC.80IA IS CONCERNED THE SAME IS REJEC TED AS NOT PRESSED. - - ITA 1429 & 1663/14 15 23. IN THE APPEAL FILED BY THE REVENUE THE ONLY I SSUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ER RED IN HOLDING THAT THE ASSESSMENT YEAR 2005-06 IS THE FIR ST INITIAL ASSESSMENT YEAR IN WHICH THE ASSESSEE CLAIMED DEDUC TION UNDER SEC.80IA AND THEREFORE THE DEPRECIATION OF EARLIE R YEARS (WHICH ALREADY HAVE BEEN ABSORBED) CANNOT BE NOTIONALLY CA RRIED FORWARD AND CONSIDERED IN COMPUTING THE QUANTUM OF DEDUCTION UNDER SEC.80IA. 24. THIS ISSUE IS ALREADY COVERED BY THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF C IT V. VELAYUTHASAMY SPINNING MILLS 231 ITR 368. AS TH E REVENUE HAS FILED AN SLP BEFORE THE HONBLE SUPREME COURT THE REVENUE IS FREE TO KEEP SUCH ISSUES ALIVE AND FILE APPEALS BEFORE THE APPROPRIATE COURT. BUT AS ON TODAY THE ISSUE IS COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT WE FIND THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS ) IS JUST AND PROPER IN LAW AS HE HAS RELIED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF C IT V. VELAYUTHASAMY SPINNING MILLS 231 ITR 368. - - ITA 1429 & 1663/14 16 25. IN RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISM ISSED. ORDERS PRONOUNCED ON THURSDAY THE 31 ST OF JULY 2014 AT CHENNAI. SD/- SD/- ( . !' ) ( . . . ) (V.DURGA RAO) (DR. O.K.NARAYANAN) # $% /JUDICIAL MEMBER /VICE-PRESIDENT /CHENNAI ; /DATED THE 31 ST JULY 2014. MPO* < 5 #6=> ?>'6 /COPY TO: 1. )* /APPELLANT 2. -)* /RESPONDENT 3. @6 () /CIT(A) 4. @6 /CIT 5. >A! #6# /DR 6. !' B /GF.