DCIT CORPORATE CIRCLE-1, COIMBATORE vs. M/S. BANNARI AMMAN SUGARS LTD., COIMBATORE

आदेश / O R D E R

PER MANISH BORAD, AM: This appeal filed by the Revenue is directed against the order of the

Commissioner of Income Tax (Appeals)-1, Coimbatore, dated 25.02.2019

and pertains to assessment year 2013-14.

1 On the facts and circumstances of the case, the CIT(A) erred in Rs.27,367/- deleting the disallowance made u/s 14A r.w.rule 8D(2)(iii), in the (Notional) light of section 14A as inserted by the Finance Act, 2006 w.e.f. 01.04.2007? 2 On the facts and circumstances of the case, the CIT(A) erred in placing reliance in the case of Patco investment & Consultancy Services (P) Ltd to delete the disallowance made u/s 14 A, in which the A.Y. involved is earlier to the insertion in the section vide Finance Act, 2006 w.e.f. 01.04.2007? 3 On the facts and circumstances of the case, the CIT(A) erred in Rs.16,877/- deleting the addition made of Rs.84,350/- on the computation of (Notional)

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book profit u/s 115JB by relying upon the decision o! Apollo Tyres Limited vs CIT 255 ITR 273 (SC) in the light sub-clause (f) of Explanation 1 given in section 115JB? 4 On the facts and in the circumstances of the case the learned Rs.19,28,214/- CIT(A) erred by directing the Assessing Officer to allow the (Notional) deduction claimed on account of "Provision no long required" without appreciating the fact that assessee had given the amount as advance for using the quarry of the concerned party, therefore, the payment is capital in nature which could be written off over the period of lease. Since quarrying activity could not be carried out, write-off of the amount would be a capital loss and not revenue loss/expenditure. 5 On the facts and circumstances of the case, the CIT(A) erred in relying upon the decision of Jurisdictional High Court in the case of CIT vs IndenBiselers (1990) reported in 181 ITR 69 MAD), in which the advances did not result in making a capital asset? 6 On the facts and circumstances of the case, the CIT(A) erred in Rs.22,36,109/- directing the Assessing Officer to treat the receipt on sale o1 (Notional) Carbon Credit as capital receipt not liable to tax without appreciating the fact that assessee is eligible to claim the credit only because it was running the Co-generation Unit. If the Unit had not operated assessee would not have got any Carbon Credit. Also the Cochin IT AT has in the case of Apollo Tyres Ltd. vs ACIT 149 ITD 0756 held Carbon Credit as business Income.? 7 On the facts and circumstances of the case, the CIT(A) erred in treating the sale of carbon credit as capital receipt without appreciating the fact that the decision in the case of CIT-IV vs My Home Power Ltd. (2014) 365 ITR 82 is not accepted by the Revenue and SLP is pending before the Hon'ble Supreme Court? 8 Rs.60,08,771/- (Notional) On the facts and in the circumstances of the case the learned CIT(A) erred by deleting the disallowance made under section 80IA without appreciating the fact that, as per details filed by assessee during the course of assessment proceedings, in some months the electricity units imported from the State Electricity Board have only been partly consumed by the Co-generation Unit, the value of the balance imported units have been claimed as captive consumption by the other manufacturing units and deduction incorrectly claimed under section 80IA.

9 The Hon'ble ITAT is requested to cancel the order of the learned CIT(A)-1, Coimbatore and uphold the order of the Assessing Officer on the above points. 10 The Hon'ble ITAT is requested leave to add, amend or modify the grounds of appeal, if necessary Total tax effect Rs.1,02,17,338/- (Notional)

engaged in the business of manufacturing of sugar, alcohol, granite and co-

generation of power. Income of Rs.107,59,48,470/- declared in the e-

return filed for AY 2013-14. Case selected for scrutiny through CASS after

serving valid notice u/s.143(2) of the Act. After considering the assessee’s

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submissions, the assessment has been completed after making various

disallowance and additions amounting to Rs.3,14,60,641/-, assessing

income at Rs.110,74,09,111/- in the following manner:

Returned Income Rs.107,59,48,470/- Tax thereon Add: Disallowance of Rs.84,350 - - expenditure u/s 14A of the IT Act as discussed in paragraph 5 Add: Disallowance of Rs.21,400 - - personal expenditure u/s 37 of the IT Act as discussed in paragraph 6 Add: Disallowance of Rs. 59,49,023 - - provision no longer required as discussed in paragraph 7 Add: Treating carbon credit Rs.68,92,000 - - income as revenue receipt as discussed in paragraph 8 Add: Disallowance of Rs.1,85, 19,868 3,14,60,641/- - deduction u/s 8 01 A as discussed in paragraph 9 Revised income - Rs. 110,74,09,111/- Rs.33,22,22,733/- Returned book profit - Rs.32,34,00,975/- - Add: 14A disallowance - Rs.84,350/- - Revised book profit - 32,34,85,325/- Rs.5,98,44,785/-

and succeeded.

findings of the Ld.CIT(A).

authorities. On the other hand, the Ld.Counsel for the assessee except for

the disallowance u/s.14A of the Act, at Rs.84,350/- for which no specific

submissions were made before us, strongly supported the findings of the

Ld.CIT(A)

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record. The Revenue is aggrieved with the findings of the Ld.CIT(A) deleting

the addition/disallowance made by the AO.

of disallowance u/s.14A of the Act, at Rs.84,350/-, since, the Ld.Counsel

for the assessee did not make any specific submissions, we therefore

considering the fact that the assessee has earned exempt income of

Rs.4,46,946/- and average investments in the equity shares stood at

Rs.168.70 lakhs and also considering the fact that the Ld.CIT(A) has

deleted the said disallowance merely observing that the AO failed to

establish the nexus between the expenditure incurred and exempt income

earned, hold that disallowance made u/s.14A of the Act r.w.r. 8D((2)(iii)

of the Income Tax Rules, 1962, at Rs.84,350/-, is justified. Finding of

Ld.CIT(A) is reversed and Ground Nos.1 & 2 raised by the Revenue are

allowed.

u/s.14A of the Act, for computing book profit u/s.115JB of the Act. We

noticed that Ld.AO while computing book profit has added disallowance

u/s.14A of the Act, for the purpose of computing book profit. We, however,

considered the ratio laid down by the Hon’ble Supreme Court in the case of

Apollo Tyres Ltd. v. CIT reported in 255 ITR 273 (SC) that where the

accounts have been prepared in accordance with Schedule –VI of the

Companies Act, then the AO is permitted to make only such adjustments

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as prescribed u/s.115JB of the Act, while computing book profit under MAT

provisions, are inclined to hold that no interference is called for in the

findings of the Ld.CIT(A), who has rightly held that the AO erred in

considering disallowance u/s.14A of the Act, for the purpose of computing

book profit u/s.115JB of the Act. Ground No.3 raised by the Revenue is

dismissed.

Rs.59,43,023/- claimed on account of disallowance of “provision no longer

required”. We notice that under the head ‘other expenses’, assessee

claimed expenses of Rs.59,43,023/- and the nomenclature used is

“provision no longer required”. Ld.AO while carrying out the assessment

proceedings noticing the said claim, invoked provisions of Sec.36(2) of the

Act, and held that since the assessee did not satisfy the conditions

mentioned in Sec.36(2) of the Act, such claim under the head ‘provision no

longer required’ cannot be allowed. Further, we notice that before the lower

authorities, it has been stated that the assessee gave an advance to

M/s.Anand Granites, Bangalore, at Rs.59,43,023/- towards environmental

protection fees and dead rent and the same was adjustable against the

consideration to be received towards sale contract. On perusal of the

details field in the Paper Book and the findings of the Ld.CIT(A) which

remain uncontroverted by the Ld.DR, we find that said transaction of giving

advance to M/s.Anand Granites, was in the regular course of business and

the amount was adjustable against sale consideration. Further, since the

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transactions could not materialize and the advance could not be recovered,

it was in the nature of business loss, which was written off after being

resolved in the meeting of Board of Directors. We further notice that the

alleged expenditure is neither capital in nature nor personal in nature. We,

therefore, hold that the alleged business transaction is a genuine

transaction and since, the advance could not be recovered and the same

was written off it is in the nature of business loss, which the assessee is

entitled to set off against the income. However, the assessee should take

precaution to mention the correct nomenclature of the expenditure in the

financial statement, because, in the instant case, the issue was preferred

because of the nomenclature i.e. “provision no longer required”, even

though, the alleged expenditure was not in the nature of any provision but

in the nature of advance written off. Thus, we confirm the finding of the

Ld.CIT(A) and dismiss Ground Nos.4 & 5 raised by the Revenue.

Rs.68,92,000/- as Carbon Credit and claimed as capital receipt. Ld.AO

treated it as Revenue receipt u/s.28(iv) of the Act. Thereafter, Ld.CIT(A)

respectfully following the judgment of the Hon’ble Andhra Pradesh High

Court in the case of CIT v. My Home Power Ltd., reported in [2014] 365

ITR 82 (Andhra Pradesh) deleted the addition made by Ld.AO. Before us, it

is not in dispute that the alleged receipt is on account of Carbon Credit.

Further, the said receipt being capital in nature, has been consistently held

by the Hon’ble Courts. The Ld.CIT(A) has placed reliance on the judgment

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of the Hon’ble Andhra Pradesh High Court in the case of My Home Power

Ltd. (supra). Similar view has also been taken in the case of PCIT v.

Chemplast Sanmar Ltd., in TCA No.525 of 2021 vide order dated

25.11.2021. We, therefore, respectfully following the judicial precedents

fail to find any infirmity in the findings of the Ld.CIT(A) holding the Carbon

Credit receipt of Rs.68,92,000/- as a capital receipt. Thus, Ground Nos.6

& 7 raised by the Revenue are dismissed.

Rs.1,85,19,868/-. The assessee has claimed deduction u/s.80IA of the Act,

at Rs.102,70,48,360/- against income from generation of power from 5

independent power generation undertaking units. Ld.AO noticed that the

assessee has purchased power units from the grids of TNEB & KPTCL

totaling to Rs.1,85,19,868/-. Ld.AO was of the opinion that since for the

said amount assessee has not generated power and has purchased it from

other power units. This amount does not represent the value of own power

generation and therefore, the same should be reduced from the claim made

u/s.80IA of the Act. Further, we notice that during the course of hearing

before Ld.CIT(A), the assessee submitted that the power units imported

were utilized for industrial co-generating units and the cost of the same has

already been charged as an expenditure in the statement of profit & loss.

It was further submitted before the Ld.CIT(A) that profit has been arrived

only after deducting the expenditure incurred on purchase of units from

Grid and therefore, making further disallowance will tantamount to double

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deduction of expenditure. We find that the Ld.CIT(A) on examining the

facts as well as going through the financial statement found merit in the

submissions of the assessee and has rightly held that the assessee has

charged the cost of imported power from TNEB & KPTCL to the P & L A/c

before arriving at the figure of eligible profit of the industrial undertaking

for the purpose of deduction u/s.80IA of the Act. In this issue, Ld.AO ought

to have computed the sale price of units purchased by the assessee in

question before us and should have denied the benefit of Sec.80IA of the

Act on the profit element. But for lack of any such working, we find no

reasons to interfere in the findings of the Ld.CIT(A) deleting the said

disallowance of Rs.1,85,19,868/- on a valid ground that the assessee has

claimed it an expenditure before computing income eligible for deduction

u/s.80IA of the Act. Thus, Ground Nos.8 & 9 raised by the Revenue are

dismissed.

specific adjudication.

Order pronounced on the 25th day of April, 2023, in Chennai.

Sd/- Sd/- (वी. दुगा� राव) (डॉ. मनीष बोराड) (V. DURGA RAO) (DR. MANISH BORAD) �याियक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

ITA No.1290/Chny/2019 :: 9 :: चे�ई/Chennai, �दनांक/Dated: 25th April, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF