Case Law Details
Godavari Sugar Mills Pvt Ltd Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that proceeds received by assessee-company carrying on business of power generation on sale of certified emission reduction credit (carbon credit) is a capital receipt and not business income.
Facts- The assessment of the assessee was completed u/s 143(3) which resulted into disallowance of Rs. 36,62,266/-. CIT(A) confirmed disallowance of Rs.36,62,266/- on account of cane transportation charges for the reason that the payment does not prove the year of liability or the crystallisation of the liability. The assessee is aggrieved with that order and preferred appeal before us.
Assessee took up additional ground stating at amount of Rs. 12.49 crores in respect of estimated value of carbon credits/ certified emission reductions was not taxable as income of the assessee.
Conclusion- Hon’ble madras High Court in case of Commissioner of Income Tax, Chennai V Ambika Cotton Mills Ltd has held that proceeds received by assessee-company carrying on business of power generation on sale of certified emission reduction credit (carbon credit) is a capital receipt and not business income as carbon credit is not an offshoot of business, but an offshoot of environmental concerns. Accordingly, we direct the learned assessing officer to verify the amount of carbon credit received by the assessee during the year, consider it is a capital receipt.
The assessee has claimed the cane transport charges of ₹ 3,662,266 during the year. The claim of the assessee is that those expenses though pertaining to earlier assessment year but are crystallised and admitted during the impugned assessment year and therefore those are incurred during the year and hence same should be allowable as deduction in this year. Before CIT – A assessee could not show the details with respect to the agreement or any other information that how these expenses have been crystallised during the year. Therefore, in the interest of the Justice this issue set-aside to the file of the learned assessing officer with a direction to the assessee to substantiate before the learned assessing officer in the year in which these expenses have been crystallised.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is filed by The Godavari Sugar Mills Pvt. Ltd. (the appellant) for Assessment Year (AY) against the appellate order passed by the learned CIT (A)-4, Mumbai dated 31.05.2011 wherein the appeal filed against the assessment order passed under section 143(3) of the Income Tax Act, 1961 (the Act) dated 31.12.2009 by the ACIT (OSD) – 2(1) (learned AO) was partially allowed.
2. The facts relating to the case shows that the assessee is a company which got subsequently reorganised w.e.f. 01.04.2008. Return of Income was filed on 2/11/2007 showing normal computed income at Rs. Nil and Rs 7,17,38,434/- as book profit u/s 115 JB of the Act. ROI was picked up for scrutiny. It culminated into an assessment order passed under section 143(3) of the Act on 31/12/2009 wherein the total income was assessed at Rs.15,41,07,280 and Book profit was assessed at Rs 7,52,27,350/- .
3. Aggrieved, assessee preferred appeal before the ld CIT (A) where in appellate order was passed on 31/5/2021 resulting in to confirmation of disallowance of Rs. 36,62,266/- being the payment of cane transportation charges. The learned CIT(A) confirmed disallowance of Rs.36,62,266/- on account of cane transportation charges for the reason that the payment does not prove the year of liability or the crystallisation of the liability. The assessee is aggrieved with that order and preferred appeal before us. This was the only ground in memorandum of Appeal.
4. During the course of hearing the assessee has raised 2 additional grounds of appeal.
i In the facts and the circumstances of the case, and in law, the amount of ₹ 12.49 crores (net) in respect of estimated value of carbon credits/certified emission reductions was not taxable as income of the assessee (as per application dated 15/9/2014)
ii the learned Commissioner of income tax (appeals) erred in disallowing the ground against reduction in depreciation claim is made by the assessee (application dated 20/file/2016)
5. Coming to the first additional ground with respect to the amount of ₹ 12.49 crores (net) in respect of estimated value of carbon credits/certified emission reduction treated as taxable income. The claim of the assessee is that the same is a capital receipt and not liable to tax under the provisions of the income tax act, under the normal computation of income as well as under the book profit computation under section 115JB of the act as the value of carbon credit is not liable to tax. It is further the claim of the assessee that sum of ₹ 847.37 lakhs is the certified emission reduction credit available to the assessee pertained to the assessment year 2002 – 03 to 2005 – 06 which can even otherwise cannot be taxed for assessment year 2007-08 It is also the claim that while calculating the book profit; it cannot be levied on income not at all chargeable to tax. As the income from carbon credit is not income, it should be excluded from the book profit also.
6. Assessee submitted that all the facts relating to the above grounds are on record and no new facts are required to be investigated. To show this proposition he referred to the annual accounts published of the assessee which were available before the learned assessing officer. He referred to schedule 13 of the profit and loss account of other income wherein carbon credit receipt is included therein of ₹ 401.79 lakhs. He also referred to the notes on accounts wherein the extraordinary items debited to the profit and loss account comprising of expenses of cane price of previous year of 1135.81 lakhs which is also reduced by certified emission reduction credit of 847.37 lakhs and the net extraordinary items debited to the profit and loss account is ₹ 288.44 lakhs. Therefore according to him the information is available on record; therefore, this ground requires to be adjudicated.
7. The learned departmental representative vehemently objected and submitted that this claim was never raised before the assessing officer or before the learned CIT – A. Such foregoing claim or forgotten claim cannot be now entertained before the tribunal. It was also the claim that assessee itself has offered the same income for taxation in the normal computation of income as well as in computation of book profit under section 115JB of the act.
8. We have carefully considered the rival contention and found that if the information is available on record, assessee can raise an additional ground of appeal with respect to forgotten claim. Therefore it is required to be seen whether the information is available on record or not. No doubt assessee has furnished the annual accounts before the learned assessing officer. As per schedule 13 of other income, the carbon credit income of ₹ 401.79 lakhs is shown as income. Therefore to that extent the information is apparently available on record. Further assessee has debited extraordinary item amounting to ₹ 288.44 lakhs. The details of this debited to the profit and loss account shows that assessee has debited cane price of previous year amounting to ₹ 1135.81 lakhs and reduced their from certified emission reduction credit pertaining to year 2002 – 03 to 2005 – 06 of ₹ 847.37 lakhs. Therefore, the total carbon credit emission credited to the profit and loss account is a sum total of ₹ 401.79 lakh shown as other income and ₹ 847.37 lakhs offered in the net of of extraordinary items debited to the profit and loss account. Therefore, the ground raised by the assessee requires to be entertained at this stage. Further judicial precedents also shows that if income is not chargeable to tax, the same can also not be the part of book profit under section 115JB of the act. Accordingly we admit the same.
9. However, as the learned assessing officer has not examined the figures of carbon credit emission income, this ground requires to be set-aside to the file of the learned assessing officer for fresh adjudication. The learned AO is also required to look into the decision of honourable madras High Court in case of Commissioner of Income Tax, Chennai V Ambika Cotton Mills Ltd 125 taxmann.com 206 (Madras) wherein it has been held that proceeds received by assessee-company carrying on business of power generation on sale of certified emission reduction credit (carbon credit) is a capital receipt and not business income as carbon credit is not an offshoot of business, but an offshoot of environmental concerns. Same view is also of the honourable answer to this High Court in case of CIT versus my home power limited in 46 taxmann.com 314. Accordingly we direct the learned assessing officer to verify the amount of carbon credit received by the assessee during the year, consider it is a capital receipt and compute the income of the assessee accordingly.
10. Second additional ground of appeal was with respect to the disallowance of the ground relating to reduction in the depreciation claim is made by the assessee. This was the original ground decided by the learned CIT – A holding that the direction given by the learned CIT – A to the learned assessing officer to recalculate the depreciation as per the law on the revised written down value after giving effect to earlier orders of the CIT – A and allow the depreciation accordingly. However after this directions also the order giving effect to the appellate orders passed by the learned CIT – A, the learned AO did not grant any relief to the assessee and therefore the assessee is aggrieved and has raised this additional ground.
11. We have considered this additional ground filed by the assessee and we find that the learned CIT – A has given a direction to the learned assessing officer to recalculate written down value of the asset based on the orders of the learned CIT – A, the learned AO has carried out those directions. And if the assessee is aggrieved with the order giving effect passed by the learned AO, the appropriate course of action with the assessee is to approach the learned CIT – A against those orders. In the direction of the learned CIT – A to consider written down value of the asset as per the order giving effect of the learned CIT A does not suffer from any infirmity. Therefore this ground is dismissed.
12. This leaves us with the original ground of appeal mentioned in the memorandum of appeal with respect to the disallowance of cane transport charges of ₹ 3,662,266/–. The claim of the assessee is that for the financial year 2005 – 06 for assessment year 2006 – 07 the assessee company had made payment of Ken transport for in the run the assessee unit. Further payment for the said transfer charges were made for after financial year 2005 – 06 which could not be provided for in the books and claimed in assessment year 2007 – 08. The claim of the assessee is that these transport charges are also finally settled after the season is over. However the assessee could not file any agreement with regard to the cane transport charges no any other evidences to show that these charges crystallised in the year under consideration or they pertain to the year under consideration. It was merely a claim made by the assessee that those are allowable because they have been paid for the year under consideration. According to the learned CIT – A payment does not prove the year of the liability of the crystallisation of the same and therefore he disallowed the above sum of ₹ 3,662,266 being cane transportation charges as prior period expenditure.
13. The learned authorised representative reiterated the submission made before the lower authorities and submitted that these expenses have been crystallised during the year and therefore those expenses have been incurred during the year and hence is allowable in the same year though pertaining to the previous year.
14. The learned departmental representative submitted that when the expenses are not pertaining to the relevant assessment year, there cannot be allowed as deduction in this year. It is the duty of the assessee to show that in which those expenses have been incurred. The assessee failed to give any details before the learned CIT – A hence same disallowance was confirmed .
15. We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee has claimed the cane transport charges of ₹ 3,662,266 during the year. The claim of the assessee is that those expenses though pertaining to earlier assessment year but are crystallised and admitted during the impugned assessment year and therefore those are incurred during the year and hence same should be allowable as deduction in this year. Before CIT – A assessee could not show the details with respect to the agreement or any other information that how these expenses have been crystallised during the year. Therefore, in the interest of the Justice this issue set-aside to the file of the learned assessing officer with a direction to the assessee to substantiate before the learned assessing officer in the year in which these expenses have been crystallised. If the learned assessing officer after examination of the detail and giving an opportunity of hearing to the assessee is satisfied that these expenditure have been crystallised during the year though pertaining to earlier financial year, same should be allowed in this year. However, if the expenditure is not shown to have been crystallised during the year, disallowance to that extent is required to made. Accordingly this ground of appeal is allowed for statistical purposes.
16. In the result appeal of the assessee is partly allowed for statistical purposes.
Order Pronounced in the open Court on 23rd June, 2023.
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