PRISM CEMENT LTD,MUMBAI vs. DCIT CC 6(1), MUMBAI

Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed of by this consolidated order.

Firstly we are taking the appeal for Assessment Year 2011- 12 filed by assessee and revenue. Since the issues in both the appeals are common, therefore we prefer to deal with these issues ground wise.

The brief facts of the case are, assessee filed its return of income on 29.09.11 declaring total loss of Rs. 1,36,67,03,673/- as per profit and loss (return of income) and Rs. 1,25,85,18,744/- u/s 115JB of the Act. The return of income was processed u/s 143(1) of the Act and thereafter, the case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued and served upon the assessee. In response, AR of the assessee attended and filed the relevant information as called for.

AO passed the assessment order by making disallowance u/s 14A, 40A(9) of the Act, disallowance in respect of depreciation and bogus purchases.

Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee, partly allowed the appeal of the assessee. During appellate proceedings, vide letter dated 02.11.17, assessee raised 4 additional grounds of appeal and since the additional grounds raised by the assessee are legal in nature, therefore Ld. CIT(A) admitted the additional grounds and adjudicated the same.

Aggrieved with the above order, both assessee and revenue preferred the appeal before us by raising the respective grounds of appeal. Since many grounds of appeal raised by assessee and revenue, therefore we shall deal the issues ground wise.

Ground No. 1(a) to 1(d) raised by assessee and Ground No. 1 to 3 raised by revenue in respect of disallowance u/s 14A r.w.r. 8D. 8. It is brought to our notice by Ld. AR that assessee is pressing only ground no. 1(c). The other grounds raised by the assessee are dismissed as not pressed.

The brief facts relating to disallowance u/s 14A are, during the assessment proceedings, AO observed that assessee has received dividend of Rs. 12,62,95,486/- and assessee has added back an amount of Rs. 29,87,943/- stating that the same is added as per the provision of section 14A of the Act. When the assessee was asked to explain as to why the expenditure incurred in relation to exempt income should not be computed by applying the provision of section 14A r.w.r 8D of the Act. In response, assessee submitted that there are no major expenses incurred for the purpose of earning dividend income.

After considering the explanation of the assessee, AO rejected the explanation of the assessee and invoked rule 8D. AO by relying on the decision of ITAT, Spl. Bench in the case of M/s Daga Capital Management Pvt. Ltd, determined the disallowance under rule 8D(2)(ii) at Rs. 10,56,83,273 and under rule 8D(2)(iii) at Rs. 95,26,000/- totaling Rs. 11,52,09,273/- and AO reduced the amount of Rs. 29,87,943/- which was already disallowed by the assessee and disallowed net amount of Rs. 11,22,21,330/-.

Aggrieved with the above, assessee preferred the appeal before Ld. CIT(A) and before him, assessee raised 3 contentions on the issue of 14A disallowance. The first one was, AO failed to record any dissatisfaction with regard to suo moto disallowance of expenses made by the assessee. Second, the AO was not justified in considering the entire interest expenses for the purpose of calculation under rule 8D and Third, the disallowance under rule 8D works out to more than 100% of the amount of dividend received.

For the first issue, assessee submitted before Ld. CIT(A) that he has not incurred any specific expenditure directly attributable to making investments and earning dividend income there from. As a matter of cautious, assessee suo moto added an amount of Rs. 29,87,943/- based on time spent by certain employees in connection with the investment activities. Assessee also submitted that AO determined disallowance under rule 8D to the extent of Rs. 11,52,09,273/- and also added back the amount suo moto disallowance made by the assessee while determining the book profit u/s 115JB. Assessee further submitted that AO considered the whole interest expenditure incurred by the assessee and AO cannot charge the whole interest expenditure. Since assessee has incurred interest expenditure on specific term loan, other interest, processing fees and bank charges. Assessee further pointed out that AO has not recorded his dissatisfaction in respect of claim made by the assessee with regard to suo moto expenditure and relied on the various case laws. Assessee further submitted that investment yielding exempt income have been made out of its own funds and gave a chart in support of its claim for 3 years and relied on various case laws in this regard. Assessee further argued that 14A disallowance cannot be added while computing the book profit u/s 115JB and lastly, submitted that the disallowance u/s 14A cannot be more than exempt income earned by the assessee.

After considering the submission of the assessee, Ld. CIT(A) however agreed that AO has not recorded any dissatisfaction and observed that ITAT Mumbai Bench in assessee’s own case for Assessment Year 2008-09 & 2009-10, held that in the absence of recording necessary satisfaction, it was wrong on the part of the AO to determine the disallowance u/s 14A by applying rule 8D. Further, Ld. CIT(A) analyzed the other contentions of the assessee and came to the conclusion as below:-

However, we notice that Ld. CIT(A) after accepting that no satisfaction was recorded by the AO further proceeded to analyse the alternate pleas of the assessee and deleted the additions under rule 8D(2)(ii) and while analyzing the disallowance under rule 8D(2)(iii), he gave a direction that the disallowance may be restricted to the exempt income earned by assessee. We find that the whole exercise of the Ld. CIT(A) is unwarranted and gave a conflicting decision with regard to Rule 8D(2)(iii). We notice from the record that AO has actually made a disallowance of Rs. 95,26,000/- only by calculating 0.5% of the average value of the investment. Once Ld. CIT(A) has deleted the disallowance under rule 8D(2)(ii), then there is no scope to restrict the disallowance to the exempt income earned by the assessee.

Therefore, in our considered view, since there is no satisfaction recorded by the AO and by respectfully following the decision of Coordinate Bench of ITAT, we are inclined to direct the AO to delete the addition made u/s 14A r.w.r. 8D. Accordingly, ground no. 1(c) is allowed and other grounds raised by the assessee are dismissed as well as the ground no. 1, 2 & 3 raised by the revenue are dismissed.

The brief facts relating to this ground are, during the assessment proceedings, AO observed that in tax audit report para 17(J), the auditors have mentioned that the company has reimbursed expenses of Rs. 97,20,786/- to an institution for running of school, situated at Mankahari Village, Satna. The company contends that this is not in the nature of contribution which is disallowable u/s 40A(9). When the assessee was asked to furnish the details with justification of the above said expenditures of running school, assessee submitted that the company had reimbursed to Prism Cement Ltd Education Trust towards running the school. Further assessee submitted that it is engaged in the business of manufacture of cement and clinker and their factory is located in Satna and the institution which provides education facilities. It is their business necessity to develop the locality near to their factory premises and also to provide various facility to their staff and people located in that area. It is also submitted that the main object of the Institution is to set up educational institutions for providing education, vocational training, development of curricular activities and other activities relating to human resources amongst the children of the employees and also to the children of surrounding community. It also submitted that as there is a business necessity to set up educational institutions for providing educational and other curricular activities to the children of employees and surrounding community, the expenditure incurred is for the purpose of carrying on the business activities of the company and is wholly and exclusively for the purpose of business.

After considering the submission of the assessee, AO rejected the submissions made by assessee and observed that the expenses reimbursed by the assessee are relating to educational institution, which is a separate tax entity and the business of the assessee is not relating to carrying out business of the school. Therefore, the provisions of section 40A(9) of the Act are clearly attracted in this case. He further observed that assessee has not submitted any details to prove that the institution is exclusively used by the employees' children and relied on the decision of the Allahabad High Court in the case of Simbholi Sugar Mills Vs CIT reported at 45 ITR 125, wherein the Hon'ble Court has disallowed the expenditure reimbursed by the assessee.

Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee observed that the issue under consideration has already been decided by the Hon’ble ITAT in assessee’s own case for Assessment Year 2003-04 to 2009-10. Hon’ble ITAT has consistently upheld the allowability of reimbursement of expenses for running the school. Accordingly, Ld. CIT(A) by following the decision of Coordinate Bench of ITAT in assessee’s own case, directed the AO to allow the expenses claimed by the Assessee.

Aggrieved with the above, revenue is in appeal before us.

After considering the submission of both Ld. Counsels on this issue, we notice that the Coordinate Bench of ITAT in assessee’s own case for Assessment Year 2003-04 to 2009-10 has already allowed the reimbursement of expenses to the educational institution. Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to dismiss the ground raised by the revenue.

The brief facts relating to this ground are, during the assessment proceedings, AO observed that assessee had not claimed any depreciation as per Income Tax Act, on its assets for the previous year relevant to Assessment Year 2000-2001 and 2001-2002. He further observed that if such effect of allowing the eligible depreciation in those years are considered, then as against the depreciation claim of Rs. 3,61,03,53,497/-, the assessee will only be eligible for depreciation of Rs. 3,58,02,02,566/-. He further observed that the claim of depreciation is a charge on the profits for determining the income of a particular year and since explanation 5 to section 32 has clarified that irrespective of the claim made such deduction has to be allowed for computing the total income, the eligible depreciation should be calculated after allowing for such reduction in WDV on account of depreciation allowable for Assessment Year 2000 - 2001 and 2001 - 2002. In response, assessee has submitted that the amendment for compulsorily claiming depreciation in the computation of income is effective from Assessment Year 2002 - 2003. The assessee had also submitted that since depreciation was not claimed for Assessment Year 2000 - 2001 and 2001 - 2002 and consequently not being allowed in the assessment, the same cannot be reduced in arriving at WDV of fixed assets for calculation of depreciation in future years. However, AO rejected the contention of the assessee and proceeded to make disallowance.

Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee observed that the issue under consideration has already been decided by the Coordinate Bench of ITAT in assessee’s own case for Assessment Year 2005-06 and 2009-10. Accordingly, Ld. CIT(A) by following the said decision of Coordinate Bench of ITAT in assessee’s own case, allowed the ground of appeal raised by the assessee.

Aggrieved with the above, revenue is in appeal before us.

After considering the submission of both Ld. Counsels on this issue, we notice that the Coordinate Bench of ITAT in assessee’s own case for Assessment Year 2005-05 to 2007-08 has already decided this issue in favour of the assessee. For the sake of clarity, relevant portion of the said decision is reproduced below:-

Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to dismiss the ground raised by the revenue.

Ground No. 6 raised by revenue is general in nature, therefore, no needs for adjudication. Ground No. 2(a) & 2(b) raised by assessee in respect of VAT subsidy.

The brief facts relating to this ground are, assessee vide letter dated 12.11.17 raised the additional ground with a plea to consider the additional ground being legal in nature. Since the claim is made for the first time during appellate proceedings, Ld. CIT(A) with reference to Jurisdictional High Court decision in the case of CIT vrs. Pruthvi Brokers and Shareholders (349 ITR 336 – Bom) considered the additional grounds raised by the assessee and this claim of the assessee submitted first time before him, therefore Ld. CIT(A) accepted and adjudicated the same.

Ld. CIT(A) observed that assessee is making this claim first time during the appellate proceedings and this was not in the return of income or had not claimed during the assessment proceedings, assessee had shown it as income in its return of income.

Before him, Ld. AR submitted that assessee manufactures cement in its 2 manufacturing units i.e. Unit I & II, Satna, Madhya Pradesh. The Government of Madhya Pradesh, vide "Madhya Pradesh Industrial Investment Promotion Assistance Scheme-2004" read with Madhya Pradesh Industrial Policy, 2004 (Scheme) had introduced sales tax exemption scheme for units in Madhya Pradesh. It was submitted that assessee commenced its commercial production in respect of Unit-II, Satna, Madhya Pradesh on 01-01-2011 and filed a copy of confirmation from Ministry of Commerce and Industry. As per the Scheme, industries having Fixed Capital Investment ('FCI') of more than Rs. 10 crores are given industrial investment promotion assistance equivalent to 75% of the amount of commercial tax and central sales tax restricted to the amount of FCI. The value of FCI in Unit-II was Rs. 808.89 crores. During FY relevant to that AY under consideration, MP Trade & Investment Facilitation Corporation Ltd. sanctioned subsidy of Rs. 6.87 crores and a copy was enclosed. Ld. AR brought to the notice Ld. CIT(A) key objectives of the schemes, which are given below:-

With reference to the above objectives of the Scheme, it was submitted that the key objective of granting sales tax exemption is to accelerate industrialization and maximize employment prospects in Madhya Pradesh and creation of infrastructure is the basic requirement for setting any industrial unit. It is the responsibility of the State to provide such infrastructure and the subsidy given in the form of government contribution to the industrial units to subsidize the portion of their capital investment which they have incurred for setting up /improving said infrastructure. It was submitted with reference to CBDT Circular No. 142 dated 01.08.1974 that where the subsidy is primarily given for helping the growth of the industries and not for supplementing their profits, such subsidy shall be regarded as capital receipt in the hands of the recipient. He submitted a copy of the above said circular before Ld. CIT(A) and in this regard, Ld. AR relied on following case laws before him:-

After considering the submission of the assessee, Ld. CIT(A) rejected the contention of the assessee by relying on decision of Hon’ble Supreme Court in the case of Sahney Steel and Press works Ltd. 228 ITR 253 (SC), CIT vrs. Chhindwara fuels 245 ITR 9 (Kol HC) and CIT vrs. Shiv Shakti Flour Mills Pvt. Ltd. – ITAT Guwahati Bench. With reference to the above cases, Ld. CIT(A) observed that subsidy given by the government is after the commencement of the business and to promote the business and not to set up the business. The creation of the infrastructure is of the State Govt. and assessee cannot take advantage of such objectives of the State Govt. He further observed that sales tax subsidy received by the assessee from the Govt. of Madhya Pradesh is after setting up of the new industry and the subsidy received by the assessee is revenue nature and it is liable to tax. Accordingly, he dismissed the grounds raised by the assessee.

Aggrieved with the above assessee is in appeal before us raising this ground of appeal.

On the other hand, Ld. DR submitted that Ld. CIT(A) has considered the facts and issue raised by the assessee before him and Ld. CIT(A) rejected the contentions of the assessee by giving reasoning and relying on relevant case law. He supported the findings of Ld. CIT(A) that all the subsidy are having revenue character and he relied in the case of Sahney Steel and press works 228 ITR 253 (SC). He further submitted that Ld. CIT(A) has decided the issue based on the facts on record but primarily, the documents and facts were not verified by any authority and for that purpose, he prayed that the issue may be remitted back to the AO for further verification and AO may be given proper opportunity to verify the issue whether it is capital or revenue.

After considering the submission of both Ld. Counsels on this issue, we notice that the Coordinate Bench of ITAT in the case Parle Agro Pvt. Ltd. vrs. ACIT (ITA No. 6209/Mum/2013) has already decided this issue in detail. For the sake of clarity, relevant portion of the said decision is reproduced below:-

Further we notice that Ld. DR submitted that this issue may be remitted back to the AO for factual verification and documents and AO may be given opportunity to verify the claim of the assessee. We notice that this issue was analyzed and adjudicated by Ld. CIT(A) after verifying the relevant documents submitted by the assessee before him and moreover, the proceedings before Ld. CIT(A) is only extension of assessment, it is otherwise known as extended assessment proceedings, therefore Ld. CIT(A) has applied his mind and came to the conclusion with his own reasoning and rejected the submission /contention of the assessee. Therefore, there is no necessity to remit this issue back to the AO for further verification.

Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to allow the ground nos. 2(a) and 2(b) raised by the assessee. Ground No. 3(a) & 3(b) raised by assessee in respect of Sales Tax exemption.

This issue is relating to Sales Tax exemption scheme by the Maharashtra Govt. Since this issue is made for the first time during appellate proceedings, Ld. CIT(A) with reference to Jurisdictional High Court decision, considered the additional grounds raised by the assessee and this claim of the assessee submitted first time before him, therefore Ld. CIT(A) has accepted the additional grounds and adjudicated the same.

The brief facts relating to this ground are, the HRJ division of the assessee is the manufacturing units at various locations. One of the said manufacturing units of HRJ division is at Penn, district Raigad, Maharashtra. Due to its location, the assessee has enjoyed sales tax incentive from the government of Maharashtra in the form of sales tax exemption under the package scheme of incentives, 1993. The above said incentive is declared with an objective of dispersal of industries outside Mumbai, Thane and Pune belt and attract the industries to underdeveloped and developing areas of Maharashtra. The above said incentive is available to new units as well as units undertaking expansion. Under the above said scheme, assessee also received incentive from the Maharashtra State Govt.

Ld. CIT(A) observed that for the reasons discussed while adjudicating the issue of VAT subsidy received from Madhya state government and the entry tax exemption received from the Madhya Pradesh state government the sales tax exemption received from the Maharashtra state government is also treated as revenue receipts liable to be taxed. He further observed that the objective and nature of receipts are identical and it will not be out of place to mention here that the assessee itself treated these incomes as revenue both while filing the returns and during the assessment proceedings. Accordingly, Ld. CIT(A) dismissed this ground raised by the assessee.

Aggrieved with the above assessee is in appeal before us raising this ground of appeal.

Before us, Ld. AR submitted that sales tax scheme declared by the Maharashtra Govt. based on the Industries and Labour Scheme of 1993, copy of the scheme is placed at paper book and brought to our notice the scheme of exemption granted by the Maharashtra Govt. He submitted that the Coordinate Bench of ITAT has decided the similar issue in the case of ACIT v. Mihir Packaging (ITA No.5629/Mum/2011) dated 21.09.2012 and in the case of John Deere India Pvt. Ltd v. ITO (ITA No. 828/Pun/2014) dated 17.05.2017, wherein it was held that the subsidy received by the assessee is a capital receipt. He further relied the similar case law which are as under:-

On the other hand, Ld. DR submitted that Ld. CIT(A) has considered the facts and issue raised by the assessee before him and Ld. CIT(A) rejected the contentions of the assessee by giving reasons and relevant case law. He supported the findings of Ld. CIT(A) that all the subsidy are having revenue character and he relied in the case of Sahney Steel and press works 228 ITR 253 (SC). He further submitted that Ld. CIT(A) has decided the issue based on the facts on record but primarily, the documents and facts were not verified by any authority and for that purpose, he prayed that the issue may be remitted back to the AO for further verification and AO may be given proper opportunity to verify the issue whether it is capital or revenue.

Considered the rival submission of both Ld. Counsels on this issue and material placed on record, we notice that Coordinate Bench of ITAT in the case ACIT v. Mihir Packaging (ITA No.5629/Mum/2011) and in the case of John Deere India Pvt. Ltd v. ITO (ITA No. 828/Pun/2014) has already decided this issue in detail. For the sake of clarity, relevant portion of the decision of Mihir Pacakging case is reproduced below:-

Further we notice that Ld. DR submitted that this issue may be remitted back to the AO for factual verification and documents and AO may be given opportunity to verify the claim of the assessee. We notice that this issue was analyzed and adjudicated by Ld. CIT(A) after verifying the relevant documents submitted by the assessee before him and moreover, the proceedings before Ld. CIT(A) is only extension of assessment, it is otherwise known as extended assessment proceedings, therefore Ld. CIT(A) has applied his mind and came to the conclusion with his own reasoning and rejected the submission /contention of the assessee. Therefore, there is no necessity to remit this issue back to the AO for further verification.

Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to allow the ground nos. 3(a) and 3(b) raised by the assessee.

The brief facts relating to this ground are, the assessee has received entry tax exemption from the Madhya Pradesh government. As per the Scheme, the incentive has been availed to achieve increasing employment to qualify the residence of the state of Madhya Pradesh and to accelerate the pace of industrialization and the same is capital in nature, hence is liable to be excluded in computing total income. Ld. CIT(A) observed that in the preceding paragraphs while deciding the issue of sales tax subsidy received by the assessee from the Madhya Pradesh state government, by applying the same ratio, the entry tax exemption is held to be revenue in nature and is liable to tax. Accordingly, he dismissed this ground raised by the assessee.

Aggrieved with the above assessee is in appeal before us raising this ground of appeal.

Before us, Ld. AR brought to our notice the Scheme of Madhya Pradesh Govt. at page 78 and 98 of the paper book. He further brought to our notice at page no. 99 of the Scheme as per which, the new industrial units will be exempted from the payment of entry tax for a period of 5 years from the date of first purchase of raw material. The scheme was similar to the Sales Tax Exemption Scheme and the industries were given incentives not only based on exemption in Sales Tax. Further, incentives were given based on entry tax on purchase of raw material. This is also given for promotion of new industries of MP State and in order to bring new industries and capital to the State and this assistance is only against the capital investment made by the respective industries. He brought to our notice page 209 and 210 of the paper book as per which, assessee was awarded a certificate of eligibility for exemption of entry tax and he relied the same case laws relied for the VAT subsidy. For that purpose, by relying on the case CIT vrs. Ponni Sugars & Chemicals Ltd (supra), he submitted that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which subsidy is given, therefore one has to apply the purpose test and the point of time at which the subsidy is paid is not relevant and the source is immaterial. He further brought to our notice page 399 of the decision of Ponni Sugars & Chemicals Ltd (supra) that according to the department, the price and costs are essential items that are basic to profit making process and any price relating to mechanism would normally be presumed to be revenue in nature. In other words, according to the department, since incentives were given through price and duty differential, the character of the impugned incentive in this case was revenue and not capital in nature. According to the assessee, what was relevant to decide the character of the incentive is the purpose to test and not the mechanism of payment. The Hon’ble Supreme Court has upheld the purpose test and observed that such payment received by the assessee under the scheme was not in the course of trade, but was of capital in nature. He submitted that the Scheme under consideration is similar to the Sales Tax Scheme and this incentive should also be treated as capital not revenue.

On the other hand, Ld. DR submitted that Ld. CIT(A) has considered the facts and issue raised by the assessee before him and Ld. CIT(A) rejected the contentions of the assessee by giving reasons and relevant case laws. He supported the findings of Ld. CIT(A) that all the subsidy are having revenue character and he relied in the case of Sahney Steel and press works 228 ITR 253 (SC). He further submitted that Ld. CIT(A) has decided the issue based on the facts on record but primarily, the documents and facts were not verified by any authority and for that purpose, he prayed that the issue may be remitted back to the AO for further verification and AO may be given proper opportunity to verify the issue whether it is capital or revenue.

Considered the rival submissions of both Ld. Counsels on this issue and material placed on record, we notice that assessee was awarded a certificate of eligibility for exemption of entry tax considering the fact that assessee has made investments in the Units established in the State of Madhya Pradesh and the Industrial Development Scheme clearly states that the incentive awarded only because, the assessee has made the investments and also the Scheme of incentive clearly based on the range of the investment made by the respective industries. As held in the various decisions, it is not relevant what mechanism was adopted by the State Govt. to award the incentive, but for what purpose this incentive were awarded whether these were awarded to benefit the units to function profitably or in order to bring capital inside the State in order to improve the industrial development in the State. As per the scheme, it is clear that incentives were awarded only because of new industrial units were commenced after 2004. Therefore, we are in agreement with Ld. AR by following the various case laws as mentioned below:- i) Universal Cables vrs. DCIT 57 taxman 95 (Kol- Trib)

Therefore, respectfully following the aforesaid decisions of various Courts which are applicable mutatis mutandis in the present case, we are inclined to allow the ground nos. 4(a) and 4(b) raised by the assessee. Ground No. 5 raised by assessee in respect of Sale of Carbon Credit.

This issue is made for the first time during appellate proceedings, Ld. CIT(A) with reference to Jurisdictional High Court decision, considered the additional grounds raised by the assessee and this claim of the assessee submitted first time before him, therefore Ld. CIT(A) accepted and adjudicated the same.

The brief facts relating to this ground are, assessee earned the income from sale of carbon credit and assessee has undertaken a clean development mechanism project by utilisation of waste gases emitted from gas-based power generating system for spray drying and vertical drying application at HRJ unit in Dewas, Madhya Pradesh. The project for utilisation of waste gases generated has been registered under UNFCC as COM project. Accordingly, assessee received carbon emission reductions (CERs) for utilisation of waste gases. Therefore, assessee sold the above CERs and credited to the profit and loss account. As the Carbon Credit are being in the nature of an entitlement received to improve the atmosphere and environment reducing carbon, heat and gas emissions, it is arising out of environmental concerns and not as part of the business of the assessee. Further, the assessee treated the above receipt as capital receipt with the submission that if the absence of any element or profit or gain, income from sale of carbon credit should be treated as capital receipt and should be excluded in computing the total income both under the normal provisions of the Act as well as in computing book profit under section 115 JB of the Act.

Ld. CIT(A) observed that the United Nation's (UN) Kyoto protocol commits to certain development countries to reduce their GHG (green house gases) emissions and for this, they will be given carbon credits. He further observed that a reduction in emission entitles the entity to credit in the form of a Certified Emission Reduction (CER) certificate. The above said CER is tradeable and its holder can transfer it to an entity which needs carbon credits to overcome an unfavourable position on carbon credits and as per Article 6 of the Kyoto Protocol provides for achieving these reduction norms, the parties may "acquire from any such other party emission reduction units resulting from projects aimed in reducing and throw anthroprogenic emissions by sources or enhancing anthroprogenic removals by sinking of green gas house in any sector of the economy" provided, inter alia, "in such project as the approval of the parties involved" and "in such project provides a reduction in emission by sources, or of enhancing by removal of sinks, ie. additional to any that would otherwise occur". Ld. CIT(A) confirmed that these CERs are tradeable and the entities trade in and facilitate transfer of these credits from one entity to another entity. In affect, CERs generated by entities in developing countries get converted into cash and entities in the developing country was their guilt for generating harmful gas by doling out names to those who save emission of harmful gases. Before Ld. CIT(A), assessee relied on the judgement of ITAT Hyderabad in the case of My Home Power Ltd. vrs. CIT [365 ITR 82 (AP)] which was subsequently confirmed by the Hon’ble Andhra Pradesh High Court. Assessee further submitted before Ld. CIT(A) that the same issue was dealt and decided by Hon’ble Karnataka High Court in the case of CIT vs. Subhash Kabini Power Corporation Ltd. [69 Taxmann.com 399 (Karnataka)] in favour of the assessee. However, Ld. CIT(A) relied on the decision of Coordinate Bench of ITAT Ahmedabad in the case of DCIT vs Kalpataru Power Transmission Ltd. [ITA No. 538/AHD/2013] and distinguished the case relied by assessee i.e. My Home Power Ltd. vrs. CIT (supra) and decided this issue in favour of the revenue. Accordingly, by following the decision in the case of DCIT vs Kalpataru Power Transmission Ltd that present case is similar to the facts of the above case, dismissed the ground of assessee.

Aggrieved with the above assessee is in appeal before us raising this ground of appeal.

Before us, Ld. AR brought to our notice the facts of the case and submitted that the sale of carbon credit to be treated as capital in nature and not to be considered in computing the income under normal provision as well as MAT provisions. For that proposition, he relied in the case of Dodson Lindblom Hydro Power Ltd. Bom HC [ITA No.1820 of 2016 dated 27-02-2019] and Dy. CIT v Dodson Lindblom Hydro Power Ltd (ITA No. 6704/Mum/2016 dated 12.06.2018).

On the other hand, Ld. DR supported the findings and decision of Ld. CIT(A).

Considered the rival submission of both Ld. Counsels on this issue and material placed on record, we notice that assessee has sold the CERs and received the revenue and the same were credited in the profit and loss account and offered to tax. Before Ld. CIT(A), assessee first time claimed that these sale of carbon credit is capital in nature, accordingly raised additional grounds.

After considering the submission of the assessee, we find that this carbon credit should be treated as capital in nature. We notice that Ld. CIT(A) by relying on the case DCIT vs Kalpataru Power Transmission Ltd (supra), decided this issue against the assessee. We further notice that this issue was already considered by Hon’ble AP High Court and Karnataka High Court in favour of the assessee. Our attention was also drawn by Ld. AR to the case of Dodson Lindblom Hydro Power Ltd. Bom HC and Dy. CIT v Dodson Lindblom Hydro Power Ltd, which are similar to the facts of the present case, wherein the Hon’ble Jurisdictional High Court held that the sale of carbon credit is to be considered as capital receipt, therefore not liable to tax. The same reasoning was followed by Hon’ble Allahabad and Rajasthan High Court. Therefore, considering the consistent view of the different High Courts in the country, we see no reason to take a different stand since the different High Courts has decided this issue in favour of the assessee. Respectfully following the aforesaid decisions of various High Courts which are applicable mutatis mutandis in the present case, we are inclined to allow the ground no. 5 raised by the assessee. Ground No. 6 & 7 raised by assessee in respect of exclusion of VAT subsidy, sales tax exemption, entry tax exemption and income from sale of carbon credit while computing income u/s 115JB of the Act.

The brief facts relating to this ground are, Ld. CIT(A) has treated the above said exemption and subsidy as revenue in nature and accordingly, treated as part of the book profit.

Aggrieved with the above assessee is in appeal before us raising these grounds of appeal.

Before us, Ld. AR brought to our notice the decision in the case of PCIT vrs. Ankit Metal & Power Ltd. (2019) 109 taxmann.com 93 (Calcutta), wherein Hon’ble High Court addressed the issue whether the incentive subsidies received by the assessee from the Govt. of West Bengal under the schemes in question are to be included for the purpose of computation of book profit u/s 115JB of the Act. Hon’ble High Court has held that relevant Assessment Year 2010-11, the incentives ‘Interest Subsidy’ and ‘Power Subsidy’ is a capital subsides and does not fall within the definition of income under section 2(24) of the Act and when a receipt is not in the character of income, it cannot form part of the book profit u/s 115JB of the Act. He further submitted that Hon’ble High Court has distinguished the decision in the case of Appollo Tyres Ltd. (supra) and also relied on the decision in the case of Ramgad Minerals vrs. ACIT (ITA No. 1270 & 1271/Bang/2019) and DCIT vrs. Binani Industries Ltd. (2016) 178 TTJ 0658 (Kol-Trib)

On the other hand, Ld. DR supported the findings of Ld. CIT(A).

Considered the rival submission of both Ld. Counsels on these grounds and material placed on record, we notice that since we have already decided that the subsidies are in the nature of capital receipt and also by following the decision of Hon’ble Kolkata High Court decision in the case of PCIT vrs. Ankit Metal & Power (supra), we direct the AO not to consider these receipts in calculating the book profit as decided by Hon’ble Kolkata High Court that these incentives /receipts are capital receipt and does not fall within the definition of income under section 2(24) of the Act and also receipts are not in the character of income. Therefore, it cannot form part of the book profit u/s 115JB of the Act. Accordingly Ground no. 6 & 7 raised by assessee are allowed.

Similarly, assessee has debited an amount towards Debenture Redemption Reserve should be excluded in the computation of book profit u/s 115JB of the Act as it is a provision made towards a known liability. In this regard, assessee relied on the decisions of Hon’ble Apex Court in the case of National Rayon Corporation Ltd. Vrs. CIT (1997) 227 ITR 764 (SC), wherein it was held that ‘the basic principle is that an amount set part to meet a known liability cannot be regarded as reserve.’ Similarly, he relied on the decision of Hon’ble Bombay High Court in the case of CIT vrs. Raymond Ltd. (2012) 209 taxmann 65 (Bom), wherein it was held that Debenture Redemption Reserve is not a reserve within the meaning of Explanation (b) to section 115JA of the Act.

Considered the submission of assessee on this additional ground and since this issue is legal in nature and Ld. DR has not objected on this issue and also considering that all the information is already available on record, we accept the additional grounds raised by the assessee and remitting this issue back to the file of AO to verify the admissibility of claim raised by the assessee and to decide the issue as per law after giving proper opportunity of being heard to the assessee. Accordingly, the additional grounds raised by the assessee are allowed for statistical purposes.

Resultantly, the appeal filed by the revenue for Assessment Year 2011-12 is dismissed and appeal filed by the assessee for Assessment Year 2011-12 is partly allowed for statistical purposes. for Assessment Year 2012-13.

With regard to appeal filed by the assessee for Assessment Year 2012-13, we notice that the grounds raised by the assessee for Assessment Year 2011-12 are exactly similar to the present appeal filed by the assessee for Assessment Year i.e. 2012-13, which are applicable mutatis mutandi. Therefore, the grounds raised by the assessee in this Assessment Year are also partly allowed for statistical purposes.

With regard to appeal filed by the revenue for Assessment Year 2012-13, we notice that the Grounds Nos. 1 to 6 raised by the revenue for Assessment Year 2011-12 are exactly similar to the present appeal filed by the revenue for Assessment Year i.e. 2012-13, which are applicable mutatis mutandi. Therefore, these grounds raised by the assessee in this Assessment Year are also dismissed for parity of reasons.

The brief facts relating to this ground are, during the course of assessment proceedings, AO observed that in the computation of income, assessee has reduced expenses on account of Mines, development expenses. It is also seen that vide Note 3 to statement-II being depreciation calculation as per Income Tax Act, it was stated that, "Expenditure incurred on Mines Development is capitalized as fixed asset in the financial books of account. AO further observed that the company is proposing to claim expenditure incurred during the year as Revenue expenditure in its income tax return & hence the same is not considered as "Addition to Fixed Asset" for reporting under clause-14. When the assessee was asked to substantiate the said claim, assessee vide letter dated 16.12.14 submitted as below:

After considering the submission of the assessee, AO observed that the similar issue was involved in the assessment year 2001-02 & 2002-03 in both the assessment years and Ld. CIT(A) & ITAT has allowed appeal in favour of assessee. But AO observed that the department has filed appeal u/s 260 in the Bombay High Court and in order to keep the issue alive, he made the addition.

Aggrieved with the above, assessee preferred the appeal before Ld. CIT(A) and before him, made the following submissions, which are as under:-

After considering the submission of the assessee, Ld. CIT(A) observed that this issue is covered in assessee's favour by the order of Coordinate Bench of ITAT Mumbai for the preceding years.

Aggrieved with the above, revenue is in appeal before us on this ground of appeal.

Considered the rival submissions and material placed on record, we notice that the Coordinate Bench of ITAT in assessee’s own case for Assessment Year 2001-02 and 2002-03 has already decided this issue in favour of the assessee.

In the net result, the appeal filed by the assessee is partly allowed as indicated above and appeal filed by the revenue stands dismissed.