DCIT CORPORATE CIRCLE 6(2), CHENNAI vs. SOUNDARARAJA MILLS LTD., DINDIGUL

आदेश / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER Grounds taken by the Revenue in this appeal are reproduced hereunder:- ‘’1.The order of the Commissioner of Income Tax (Appeals) is contrary to the law and facts of the case.

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2)The CIT(A) erred in directing the AO to verify the assessee's submission and to delete the addition of Employee's contribution .to PF & ESI Rs.15,50,051/- u/S 36(1) (va) r.w.s 2(24) (x) 2.1 )The CIT(A) ought to have appreciated that as per section 251(1)(a) of the Act, the "power to set aside" or "examining the issue afresh" has been omitted .with effect from 1.06.2001 as per Finance Act, 2001. 2.2 The Ld CIT(A) ought to have appreciated that there is a difference of opinion between HCS on this issue. The matters needs to be kept alive till the outcome of the final decision by the Supreme Court. 2.3 The Ld 'CIT(A) erred in directing the AO to delete the addition of Carbon credit for �17.86 crores 2.4 The Ld CIT(A) failed to appreciate that the assessee itself has recognized the carbon credit receipts to the extent of Rs.6.25 crores as revenue receipt in the earlier AY 2007- 08. Since the assessee is following mercantile system of accounting, by quantifying the amount of carbon credit income it its accounts, it amply clear that the income has already accrued. 2.5 The Ld CIT(A) failed to appreciate that CDM receipts are to be considered as Revenue Receipts. The procedure of allotment of CERs gives ample evidence that CDM receipts are revenue in nature. 2.6) The Ld CIT(A) failed to appreciate that the company has established the right to receive the carbon credit income in the accounts by quantifying the amount. For the reason that the application has not been taken up for processing does not prevent the income from being recognized. As the income has already accrued and the same is quantified. Hence, the amount of Rs.17.86 crore of carbon credit income should be brought to tax. 3)For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored’’.

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Commissioner of Income Tax (Appeals) to the ld. Assessing Officer to

verify whether assessee had remitted employee’s contribution to

PF/ESTI before the due date of the filing of the return, and if so to

allow such claim. Ld. Commissioner of Income Tax (Appeals) had

relied on the judgment of Hon’ble Jurisdictional High Court in the case

of CIT vs. Industrial Security & Intelligence India Pvt Ltd. (TCS No.585

& 586 of 2015, dated 24.07.2015) and remitted the question of

disallowance for employees contribution to PF/ESI back to the ld.

Assessing Officer. Ld. Commissioner of Income Tax (Appeals) had

directed the ld. Assessing Officer to verify whether the amounts were

remitted by the assessee before the due date of filing the return. Ld.

Commissioner of Income Tax (Appeals)’s direction in our opinion could

not be faulted. Grounds 2 and 2.1 stand dismissed.

Ld. Counsel for the Revenue in support of effective grounds 3.

2.2 to 2.6 submitted that assessee had omitted to consider carbon

credit as income of the impugned assessment year, though it had

made proper quantification of the amount. As per the ld.

Departmental Representative, in the preceding year, assessee had

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recognized carbon credit to the extent of �6.25 Crores. Contention of

the ld. Departmental Representative was that assessee was following

mercantile system of accounting and therefore carbon credit had to be

accounted as income in the year in which it was quantified.

guidance note of Chartered Accountants of India on self generated

emission reduction clearly specified that it could be recognized in

books only when it was unconditionally available. As per the ld.

Authorised Representative, unless a nodal agency recognized by

United Nations Framework Convention on Climate Change (UNFCCC)

approved assessee’s application for carbon emission reduction, income

could not be recognized. Relying on the audited profit and loss account

of the assessee for the previous year relevant to impugned

assessment year, ld. Authorised Representative submitted that there

were no carbon credit recognized as income. As per the ld. Authorised

Representative, in the preceding year, a sum of �6.25 Crores was

recognized as income in the accounts and for that reason the said

amount was taxed in that year.

We have perused the orders and heard the rival 5.

contentions. Schedule 14 which gives break up of other income of the

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assessee as it appears in its Audited final accounts is reproduced

hereunder:-

31st March, 2008 31st March, 2007 Schedule 14: Other income

Interest receipts on FD (TDS 29.97 14.51 �4.26 lacs)

Non trade investments Rent (TDS �8.57 lacs) 35.22 31.70

Profit on sale of assets (surplus land value �2408.48 lacs converted as stock in trade) 2437.51 401.66

Conversion charges (1.52) 0.00

Dividend receipts 0.06 0.00

Miscellaneous income 131.66 40.96

Insurance claim 1.52 0.00

Wind Mill carbon credit receipts 0.00 625.00 (Refer Note No.7)

2,634.42 1,113.83

Note No. 7, which is referred in the above schedule is reproduced

hereunder:-

‘’During 20.06-07 a sum of 625.Do.lacs was taken as income from wind mill carbon credit in respect of 16 wind mills which were installed upto March 2005. However the procedure and formalities in respect of getting the carbon credit through

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Certified Emission Route ( CER) is time consuming, as advised by the nodal agency

The company is going through Verified Emission Route (VER) which will be more flexible and faster realisation. In view of these uncertainties the company is not taking credit of RS.1786.DD lacs carbon credit income which the company is entitled to in respect of 16 Nos. 1.25 MW Suzlon wind mills installed during 20.0.5-0.6 as a prudent measure. Because, the company's application has not yet been taken up for processing by the nodal agency’’.

What we find from the above is that assessee had accounted �6.25

crores as carbon credit receipts for previous year ending 31.03.2007

relevant to assessment year 2007-2008. However, there was no such

credit for previous year relevant to impugned assessment year. What

is mentioned in the note is that procedure and formalities for getting

carbon credit through certified emission route was still to be

completed and hence it was not taking any credit for this. Since

assessee had not accounted carbon credit receipt, there is no question

of taxing any amount. It may be true that assessee was following

mercantile system but mercantile system does not obligate the

assessee to show as income what was not a crystallized income. We

are therefore of the opinion that ld. Commissioner of Income Tax

(Appeals) was justified in deleting the addition made by the ld.

Assessing Officer for carbon credit. We do not find any reason to

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interfere with the order of the ld. Commissioner of Income Tax (Appeals). Grounds 2.3 to 2.6 of the Revenue stand dismissed.

In the result, the appeal of the Revenue stands dismissed. 6.

Order pronounced on Tuesday, the 21st day of August, 2018, at Chennai.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (अ�ाहम पी. जॉज�) (DUVVURU RL REDDY) (ABRAHAM P. GEORGE) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:21st August, 2018. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF