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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI BASKARAN BR & SHRI KULDIP SINGH
Per : Kuldip Singh, Judicial Member:
The appellant, M/s. Dwarikesh Sugar Industries Ltd. (DSIL) (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 28.01.2022 passed by Dispute Resolution Panel [hereinafter referred to as the DRP] qua the assessment year 2017-18 on the grounds inter alia that :- “Dwarikesh Sugar Industries Ltd., the Appellant herein, begs to prefer this appeal against the order dated 23rd February, 2022, passed by the Learned Assessing Officer, National Faceless Assessment Centre, Delhi (hereinafter referred to as "the Learned Assessing Officer") under section 143 (3) r/w. Section 144C (13) r/w. Section 144B of the Income Tax Act, 1961 (hereinafter referred to as "the 2 M/s. Dwarikesh Sugar Industries Ltd.
Act") in pursuance to the directions issued by the Hon'ble Dispute Resolution Panel - 1, Mumbai - 2 (hereinafter referred to as "the Hon'ble DRP") dated 28th January, 2022 under section 144C (5) of the Act on the following grounds :
1. The Learned Assessing Officer erred in law and on facts in treating a sum of Rs.8,90,53,500/- in respect of sale of Renewable Energy Certificates (RECs) as revenue receipt as against capital receipt claimed by the Appellant, following the Hon'ble DRP's directions which having noted several judicial pronouncements including that of Hon'ble Mumbai Tribunal for Assessment Year 2015 - 16 in the Appellant's own case which are in favour of the Appellant, decided this issue against the Appellant just to keep the issue alive as the Revenue has no right of appeal to the Hon'ble Tribunal, under section 253 of the Act.
2. After treating above sum of Rs. 8,90,53,500/- in respect of sale of Renewable Energy Certificates (RECs) as revenue receipt, the Learned Assessing Officer erred in law and on facts in not allowing a sum of Rs. 1,17,40,018/- being expenses wholly and exclusively incurred by the Appellant to earn REC receipts as a deduction.
3. The Learned Assessing Officer erred in law and on facts in levying interest under section 234 B and 234D of the Act.
4. The Learned Assessing Officer erred in law and on facts in initiating penalty proceedings under section 270A of the Act for the alleged under - reporting of income of Rs. 8,90,53,500/- being sale price of Renewable Energy Certificates (REC). The Appellant prays that reliefs on the aforesaid grounds be allowed and order of the Learned Assessing Officer be modified accordingly. The Appellant craves leave to add to, alter amplify or delete any of the aforesaid grounds of appeal at or before the hearing.”
2. Briefly stated facts necessary for adjudication of the controversy at hand are : assessee M/s. Dwarikesh Sugar Industries Ltd. (DSIL) is into the business of manufacturing of sugar and allied products. DSIL’s business portfolio also comprises of molasses and bagasse which are either generated as a residue or a by-product of sugar production process. During the year under 3 M/s. Dwarikesh Sugar Industries Ltd. assessment assessee entered into specified domestic transactions as reported in form 3CEB viz. power transfer to sugar units, stream transfer to sugar units, purchase of raw materials and allocation of expenses. Partly declining the transfer pricing study conducted by the assessee as to finding its specified domestic transactions at arms length the Ld. Transfer Pricing Officer (TPO) proceeded to make adjustment of Rs.39,84,42,988/- towards profit of eligible units, which represents the amount of profit attributable to non eligible units. However, other transactions entered into by the assessee found to be at arms length.
Assessee carried the matter before the Ld. DRP by way of raising objections who has partly allowed the same.
Pursuant to the order passed by the Ld. TPO/Ld. DRP, Assessing Officer (AO) made addition of Rs. Rs.39,84,42,988/- on account of arms length price of the specified domestic transaction. The AO also made addition of Rs.8,90,53,500/- (carbon credits) by disallowing the claim of the assessee qua sale of Renewable Energy Certificates (REC) of Rs.8,90,53,500/- as capital receipt which was not offered to tax by the assessee and thereby framed the assessment at nil income by allowing the balance brought forward unabsorbed depreciation of Rs.21,45,52,898/- under section 143(3) read with section 144C (13) read with section 144B of the Income Tax Act, 1961 (for short ‘the Act’).
Feeling aggrieved with the impugned order passed by AO/DRP/TPO the assessee has come up before the Tribunal by way of filing present appeal. 4 M/s. Dwarikesh Sugar Industries Ltd.
We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
From the facts narrated above and grounds raised by the assessee the sole question arises to be determined in this case is: “As to whether an amount of Rs.8,90,53,500/- received by the assessee on account of sale of Renewable Energy Certificate (REC) carbon credits as revenue receipt or a capital receipt as claimed by the assessee.”
8. AO/DRP disallowed the claim of the assessee claiming the sale of REC of Rs.8,90,53,500/- as capital receipt being not offered to tax by holding that the same is a revenue receipt and is liable to be subjected to tax.
At the very outset, the Ld. A.R. for the assessee brought to the notice of the Bench that identical issue has already been decided in favour of the assessee in its own case in for A.Y. 2015-16. This fact is also clear for the findings returned by Ld. DRP in the impugned order as under: “FINDINGS OF THE DRP FOR GROUND No. 3 13.1 The submissions of the assessee are considered. It is seen that though the Mumbai ITAT has decided this issue in favour of the assessee for the A.Y. 2015-16, Revenue has not accepted the same, and taken a decision to challenge the order of the ITAT in Bombay High Court. Considering that Revenue has no right to file appeal against the order of DRP, to keep the issue alive, the panel refrains from granting relief to the assessee.”
We have perused the order passed by co-ordinate Bench of the Tribunal in assessee’s own case in for 5 M/s. Dwarikesh Sugar Industries Ltd.
A.Y. 2015-16 order dated 24.05.2021 which is on identical issue and decided the same in favour of the assessee by following the decision rendered by Hon’ble Andhra Pradesh High Court in case of CIT vs. My Home Power Ltd. (2014) 365 ITR 082 (AP) by returning following findings: “7. Considered the submissions of the learned Counsel for both the parties and perused the material on record. While going through the judicial pronouncements relied upon by the learned Counsel for the assessee, we find that the issue for our adjudication is squarely covered by the aforesaid decisions relied upon by the learned Counsel wherein in one of the cases relied upon in CIT v/s My Home Power Ltd., [2014] 365 ITR 082 (AP) (supra) filed by the Revenue, the Hon’ble Andhra Pradesh High Court held that the Tribunal had factually found that Carbon Credit was not off–shoot of business but off–shoot of environmental concerns and no asset was generated in course of business but it was generated due to environment concerns. Further we find that the Hon’ble A.P. High Court agreed with the factual analysis as the assessee carried on business of power generation and Carbon Credit was not even directly linked with power generation. It is held that on sale of excess Carbon Credits income was received and the Tribunal correctly held that it is capital receipt and could not be a business receipt or income. As a matter of convenience, the observations of the Hon’ble A.P. High Court in CIT v/s My Home Power Ltd., [2014] 365 ITR 082 (AP) (supra) is reproduced below:– “ITAT have considered the aforesaid submission and ITAT 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 the course of business but it is generated due to environmental concerns”. ITAT agree with this factual analysis as the Assessee is carrying on the business 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 capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal.”
Since the issue in hand is mutatis mutandis covered by the aforesaid decision of the Hon’ble A.P. High Court as well as other decisions referred to above, respectfully following the same, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised
by the Revenue.”
6. M/s. Dwarikesh Sugar Industries Ltd.
When the identical issue has already been decided by the co-ordinate Bench of the Tribunal in assessee’s own case for A.Y. 2015-16 (supra) in favour of the assessee, it is beyond comprehension as to how the Ld. DRP has not followed the same on the pretext that “the Revenue has not accepted the same and taken a decision to challenge the order of ITAT in Bombay High Court to keep the issue alive and as such the panel refrains from granting relief to the assessee”. Such type observation on flimsy grounds are highly uncalled for from such a senior officers of DRP who are expected to follow the judicial discipline.
Following the order passed by the co-ordinate Bench of the Tribunal in assessee’s own case for A.Y. 2015-16 (supra), which is based upon the decision rendered by Hon’ble Andhra Pradesh High Court in case of My Home Power Ltd. (supra), we are of the considered view that sale of REC (carbon credits) income received by the assessee is a capital receipt and could not be a business receipt or income nor it is directly linked with the business of the assessee nor any asset is generated in the course of business but it is generated due to environmental concern. Therefore, addition made by Ld. TPO/AO to the tune of Rs.8,90,53,500/- on account of sale of RECs/carbon credits during the year under assessment is not sustainable in the eyes of law, hence, ordered to be deleted. Consequently, the appeal filed by the assessee is allowed. Order pronounced in the open court on 05.07.2022.