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Income Tax Appellate Tribunal, BENCH ‘A’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
ORDER PER N.V.VASUDEVAN, JM:
ITA No.1994/Kol/2014 is an appeal by the Assessee while is an appeal by the revenue. Both these appeals are against the order dated 30.07.2014 of CIT(A)-Central-III, Kolkata, relating to AY 2010-11.
ITA No.1994/Kol/2014 (Assessee’s appeal)
Grounds of appeal
raised by the assessee read as follows :-
1. That in the facts and circumstances of the case, the ld. CIT(A) erred in confirming disallowance of Rs.37,21,056/- under sec 40[a][ia] of the I.T.Act, 1961. & 1994/Kol/2014-M/s. Howrah Mills Co.Ltd. A.Y.2010-11 2
2. That in the facts and circumstances of the case the appellant craves leave to add, alter, modify and/or submit further or more ground(s) of appeal either before or at any time during the hearing of the appeal.”
3. The Assessee is a manufacturer and trader in jute goods. In the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act) the AO noticed that the assessee had paid a sum of Rs.37,21,056/- towards brokerage/commission. According to the AO the assessee ought to have deducted tax at source on the aforesaid payment and since the assessee failed to do so the AO invoking the provisions of section 40(a)(ia) of the Act disallowed the claim of the assessee for deduction of the aforesaid amount. Consequently an addition of the amount in question was made to the total income of the assessee.
4. Aggrieved by the addition made by the AO the assessee preferred an appeal before CIT(A). Before CIT(A) the assessee contended that as on the last date of the previous year the commission/brokerage in question had already been paid and “did not remain payable” as on the last date of the previous year. The assessee relied on the decision of the Special Bench of ITAT, Visakhapatnam in the case of Merilyn Shipping & Transports vs Addl. CIT 136 ITD 23 (Visakhapatnam)(SB) and submitted that in a case where the amounts in question have already been paid as in the last date of the previous year no disallowance can be made u/s 40(a)(ia) of the Act. This argument of the assessee was not accepted by CIT(A) by following the decision of the Hon’ble Calcutta High Court in the case of Crescent Exports Syndicate (2013)216 Taxman.com 258 (Cal).
5. Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal.
6. At the time of hearing it was brought to our notice by the parties that the view expressed by the Hon’ble Calcutta High Court in the case of Crescent Export Syndicate (supra) has now been approved by the Hon’ble Supreme Court in the case & 1994/Kol/2014-M/s. Howrah Mills Co.Ltd. A.Y.2010-11 3 of Palam Gas Service Ltd. Vs CIT in CA No..5512 of 2017 judgment dated 04.05.2017 wherein the Hon’ble Supreme Court held that the provision of section 40(a)(ia) of the Act are applicable even when the amounts which are claimed as an expenditure on which TDS has not been deducted has already been paid as on the last date of the relevant previous year. In our view following the decision of the Hon’ble Calcutta High Court, we do not find any merits in the grounds raised by the assessee in this appeal. The ld. Counsel however, submitted that the appellant sends jute goods on consignment and the consignees while remitting the sale proceeds and sending account sales in respect of the consignment sale, deducts various charges from such sale proceeds towards various expenses relating to consignment including commission on sales. It was submitted that in respect of expenses incurred by the consignees which are reimbursed which is also included in the sum of Rs.37,27,056/- disallowance by the AO u/s 40(a)(ia) of the Act, the assessee is not obliged to deduct tax at source.
7. Another submission made by the ld. Counsel for the assessee was for a remand of the issue to the AO with a direction to the AO to verify if the payees have declared the receipt from the Assessee in their return of income and if they have so declared then the addition u/s.40(a)(ia) of the Act should be deleted by the AO. The above submission was made in the context of the amendments to the provisions of Sec.40(a)(ia) of the Act by the Finance Act, 2012 w.e.f. 1-4-2013, whereby a second proviso was inserted which provided that if the payees have filed their return of income showing the receipts from the Assessee in their return of income than the it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in Sec.40(a)(ia) of the Act.
It was argued by the learned counsel for the Assessee that the Assessing Officer and first appellate authorities are vested with statutory powers u/s 133(6) or 131 and or other provisions and they could have made inquires with the parties or their & 1994/Kol/2014-M/s. Howrah Mills Co.Ltd. A.Y.2010-11 4 respective Assessing Officer. In this regard it was submitted that all the relevant details of the payees were furnished and are available on record with their PAN and AO details.
It was pointed out that ITAT, Kolkata in the case of Ramakrishna Vedanta Math v. Income-tax Officer, Ward 59 (1), Kolkata, [2012] 24 taxmann.com 29 (Kol.) has taken a view that once assessee furnishes lawfully maintained information about recipients, Assessing Officer should first ascertain related facts about payment of taxes directly from recipients before invoking section 201 (1). It was submitted that the above decision ITAT Kolkata in the above mentioned case will also apply for the purposes of Section 40(a)(ia) of the Act. Further reliance was also placed on the decision of the ITAT Kolkata in the case of Vas Electronics Vs. ACIT, ITAT Kolkata in dated 24-11-2015 wherein following the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township P. Ltd. (2015) 377 ITR 635 (Del), the AO is directed to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same.
It was therefore submitted that the disallowance u/s.40(a)(ia) of the Act to the extent sustained by the CIT(A) should be set aside and remanded to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u/s. 133(6) or 131 of the Act, for verification of the same.
The learned DR relied on the order of the CIT(A) and submitted that the benefit of the second proviso should not be allowed to the Assessee as the tax deducted at & 1994/Kol/2014-M/s. Howrah Mills Co.Ltd. A.Y.2010-11 5 source has not been paid on or before the due date for filing the return of income u/s.139(1) of the Act.
We have heard the submissions of the ld. Counsel for the assessee and are of the view that on both the aspects pleaded by the ld. Counsel for the assessee the assessee did not have an opportunity of taking this plea before the revenue authorities. In the interest of justice we deem it fit and proper to set aside the order of CIT(A) on this issue and remand the issue for fresh consideration on two aspects pleaded by the ld. Counsel for the assessee before us. Accordingly the appeal of the assessee is treated as allowed for statistical purposes. (Revenue’s appeal) 13. Grounds of appeal raised by the Revenue read as follows :- “(1) That, on the facts and circumstances of the case, the Ld. CIT(A) was not justified in treating the carbon credits for an amount of Rs.l,01,58,581/- as capital receipts.
(2) That, on the facts and circumstances of the case, the Ld. CIT(A) was not justified in considering Rs.l,0l,58,581/- in respect of carbon credits as capital receipts in spite of the fact that the assessee did not claim the same in its return or revised return as in the case of Goetz India Limited [289 ITR 323}.
(3) The appellant craves leave to add, amend, modify and alter any grounds of appeal during the course of hearing of this case.”
14. The assessee received a sum of Rs.1,01,58,581/- on account of carbon credits which was claimed as capital receipt is not in the nature of income and therefore not chargeable to tax. The AO rejected the claim of the assessee. On appeal by the assessee CIT(A) following the decision of the Hon’ble ITAT, Hyderabad Bench in the case of My Home Power Ltd. Vs DCIT 27 taxmann. Com 27 wherein it was held that carbon credit which is a money receipt for reducing carbon is a capital receipt not in the nature of income and hence not chargeable to tax.
15. Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal. & 1994/Kol/2014-M/s. Howrah Mills Co.Ltd. A.Y.2010-11 6
16. As far as ground no.1 of the revenue is concerned we are of the view that there is no merit in the said ground. In the following judgments it has been held that receipts on account of carbon credit is not in the nature of income and not chargeable to tax.
(i) The Andhra Pradesh High Court in case of CIT Vs. My Home Power Ltd. [365 ITR 82] wherein it was held that "carbon credit was not an offshoot of business of the assessee but an offshoot of environmental concerns. No asset was generated in the course of business but it was generated due to environmental concerns. There was no cost of acquisition or cost of production to get entitlement for the carbon credits. Therefore, the income from sale of carbon credits was to be considered as capital receipt and not liable to tax under any head of income under the Income-tax Act, 1961. " (ii) ITAT (Chennai) in case of Ambika Cotton Mills Ltd. v. Deputy Commissioner of Income- tax [27 ITR(Trib) 44] held that "the realisation of carbon credit was to be considered as capital receipt." (iii) ITAT (Chennai) in case of Sri Velayudhaswamy Spinning Mills P. Ltd. v. Deputy Commissioner of Income-tax [27 ITR(Trib) 106] (iv) ITAT (Jaipur) in case ofShree Cement Ltd. Vs. ACIT [31 ITR(Trib) 513] held that "Carbon credit is in the nature of 'an entitlement' received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits is a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to 'world concern '. It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. "
& 1994/Kol/2014-M/s. Howrah Mills Co.Ltd. A.Y.2010-11 7
In view of the aforesaid judgments we do not find any merit in ground no.1 raised by the revenue. Accordingly ground no.1 raised by the revenue is dismissed.
As far as ground no.2 raised by the revenue is concerned the facts are that the assessee in the return of income did not make any claim that receipts on account of carbon credit is not taxable. The facts are that the assessee in the return of income did not make any claim that receipts on account of carbon credit is not taxable but such a claim was made only in the course of assessment proceedings before the AO. The CIT(A) allowed the claim of the assessee. It is the plea of the revenue in ground no.2 that the claim that carbon credit is not chargeable to tax being capital receipt was made by the Assessee without filing the revised return of income and therefore ought not to have been accepted taking up for consideration by CIT(A) in view of the decision of the Hon’ble Supreme Court in the case of Goetz India Ltd. 289 ITR 323(SC) wherein it was held that the AO is not competent to entertain any claim which is not made either in the return or by filing a revised return.
On this issue we have heard the rival submissions and are of the view that there is no merit in this ground raised
by the revenue. The CIT(A) being the First Appellate Authority has the power to entertain a new claim even in the absence of a revised return of income. The Supreme Court in case of Goetze (India) Ltd. (supra) has clarified that "the decision was restricted to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return, and did not impinge on the power of the Appellate Tribunal under section 254 of the Income-tax Act, 1961”. This has been interpreted in several judicial pronouncements as applicable even to the first appellate authorities. The Hon’ble Delhi High Court in the case of Jai parabolic Springs 306 ITR
42. (Delhi) has held that the appellate authorities under the Act, were free to consider a claim made by an Assessee even in the absence of a revised return of income and that the requirement for filing a revised return of income as laid down by the Hon’ble Supreme Court in the case of Goetz India Ltd. (supra) is applicable only when a claim is made contrary to the return of income before the AO. The Hon’ble Delhi High Court in the case of Bharat Aluminium 163 Taxman 430J, & 1994/Kol/2014-M/s. Howrah Mills Co.Ltd. A.Y.2010-11 8 has inter-alia ruled that assessee can file revised computation in the course of ongoing assessment proceedings under the Act, without making recourse to revised return, despite the fact that time limit for revising return under section 139(5) had expired. In the light of the aforesaid decisions, we are of the view that the DRP was right in accepting the revised claim that sales tax remission received is capital receipt and not chargeable to tax.
CIT(A) was right in accepting the revised claim regarding non taxable of carbon credits. Accordingly ground no.2 raised by the revenue is also dismissed.
In the result the appeal of the revenue is dismissed.
In the result the appeal by the assesee is treated as allowed for statistical purposes while the appeal by the revenue is dismissed.
Order pronounced in the Court on 18.08.2017.