Case Law Details
Gujarat Fluorochemicals Ltd Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that profit earned for carbon credits is capital in nature and hence addition treating the same as revenue in nature is unsustainable in law.
Facts- It was pointed out that the assessee had shown Rs.51.40 lakhs as Dividend Income exempt from tax under the Act, earned during the impugned year. AO noted that the assessee had interest bearing borrowed funds on which the interest was paid during the year and the business funds were mixed funds. He noted that the assessee did not maintain separate account for source of funds utilized for the investment activities. He, therefore, held that where tax free activities and taxable income earning activities were carried out using a common kitty of funds, interest burden needed to be apportioned between the two activities since the case fell under Section 14A(2) of the Act. Applying Rule 8D for the purpose of calculating the attribution of interest and other expenses as per Section 14A(2) of the Act to the exempt income earned, AO went on to disallow the expenses amounting to Rs.7,92,83,524/-.
Further, the assessee pointed out that the revenue earned by the assessee from sale of Carbon Credits, net of expenses was held by AO to be taxable in the hands of the assessee as opposed to the assessee returning the same as capital receipts not subject to tax. CIT(A) upheld the order of AO.
Conclusion- Held that the disallowance u/s. 14A of the Act of expenses incurred for the purposes of earning exempt income be restricted to the extent of exempt income earned by the assessee during the year amounting to Rs.51,40,000/- in accordance with the decision of the Hon’ble jurisdictional High Court in the case of the assessee itself as cited before us. Further, we direct that no adjustment be made to the book profits of the assessee under Section 115JB of the Act of the expenses disallowed under Section 14A of the Act again following the decision of the jurisdictional High Court in the case of the assessee itself as cited before us and the Special Bench of the ITAT in the case of Vireet Investment Private Limited.
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