ATUL SHIVDAS GANATRA,MUMBAI vs. DCIT 22(1), MUMBAI

The learned CIT (A) erred in not following the decision of the Delhi Tribunal in the case of N.T.P.C. Limited v. DCIT [2012] 54 SOT 177 (Del.) which held that process of generation of electricity is akin to manufacture or production of an article or thing and that an assessee engaged in the activity of generation of electricity would be entitled to additional depreciation u/s 32(1)(iia).”

2. Assessee is engaged in trading in cotton bales and generation of power. He claimed deduction on income of generation of power from two wind mills which included sale of carbon credits valuing to Rs.10,88,689/-. Assessing Officer disallowed the same inter alia stating that there should be direct nexus between activity of assessee and income generated for it. CIT(A) held that income arising from sale of carbon A.Y. 10-0711 [Shri Atul S. Ganatra vs. DCIT] Page 3 credits cannot be said to be derived from income of eligible business of company. According to assessee, the generation of carbon credits is a direct result of the wind power energy production. Only the generation of clean energy can give rise to carbon credits. A carbon credit is a right to emit one tonne of carbon dioxide or another greenhouse gas with a carbon dioxide equivalent of a tonne. It is a direct internationally recognized instrument of offsetting lopsided emissions. The sale of carbon credit works as a direct subsidy for the enterprise as it is intrinsically linked with the production of clean energy. So, it was requested that sale of carbon credits should be considered as revenue receipt, it goes finally towards reducing the cost of the production of energy. Ld. Authorized Representative relied on the decision of Hon’ble Karnataka High Court in case of CIT vs. Subhash Kabini Power Corporation Ltd. [2016] 69 taxmann.com 394 (Kar.)(HC). In this case, issue was whether carbon credit was generated out of environmental concerns and it was not having character of trading activity, receipt from sale of carbon credit was capital receipt and not business income. In case before us, issue is whether carbon credits has direct nexus between activity of assessee and income generated for it. ITAT, Ahmedabad ‘C’ Bench in case of DCIT vs. Kalpataru Power Transmission Ltd. [2016] 68 taxmann.com 237 (Ahmedabad – Trib.), wherein assessee was engaged in business of power generation through biomass power generation unit. It received Carbon Emission Reduction Certificates (CERs) popularly known as ‘Carbon ITA No.4899/Mum/14 A.Y. 10-0711 [Shri Atul S. Ganatra vs. DCIT] Page 4 Credits’ for activity of using agricultural waste as fuel. Assessee received certain amount from transfer of carbon credit which was shown as capital receipt. Assessing Officer treated said receipt as business income and brought it to tax. CIT(A) following the decision in case of My Home Power Ltd. vs. Dy.CIT [2013] 63 SOT 227/[2012] 27 taxmann.com 27 (Hyd.) held that the receipt on sale of carbon credits was a capital receipt and deleted the addition. On appeal, Tribunal observed that assessee was engaged in the business of power generation through biomass power generation unit. It received Carbon Emission Reduction Certificates (CERs) popularly known as ‘Carbon Credits’ for activity of using agricultural waste as fuel. Assessee received certain amount from transfer of carbon credit which was shown as capital receipt. Assessing Officer treated said receipt as business income and brought it to tax. Whether since carbon credit was not an offshoot of business but an offshoot of environmental concerns, amount received on transfer of carbon credit had no element of profit or gain and, thus, it could not be brought to tax. Ld. Authorized Representative fairly agree to restore the matter to be decided in its facts and circumstances. So, issue is restored to Assessing Officer with a direction to decide the same as per fact and law after providing due opportunity of being heard to assessee.

2.1 Next issue is with regard to additional depreciation of Rs.2,19,29,891/- on two windmills acquired and installed by assessee during the year, which was confirmed by CIT(A). As A.Y. 10-0711 [Shri Atul S. Ganatra vs. DCIT] Page 5 stated above, assessee is engaged in the business of generation of power. During the year two windmills were acquired and installed. Assessee claimed additional depreciation of Rs.2,19,29,891/- u/s.32(1)(iia). Assessing Officer disallowed same by relying of the decision of Tamilnadu Chlorates [2006] 98 ITD 1 (Chennai) (Trib.). CIT(A) upheld the disallowance by relying upon the explanatory notes (memorandum) to amendments as inserted by Fiance Act, 2012. The stand of assessee has been that ITAT Chennai Bench in Tamilnadu Chlorates (suupra) has been relied upon by Assessing Officer was not relevant to current scenario as dealt with the provisions of Section 80HHC of the Act and not with the provisions of Section 32(1)(iia) of the Act. Ld. Authorized Representative submitted that ITAT, Delhi Bench in case of N.T.P.C. vs. DCIT [2012] 54 SOT 177 (URO) (Delhi) (Trib.), considered this decision while dealing with the activity of generation of electricity with respect of additional depreciation u/s.32(1)(iia) and ruled in favour of assessee. Hon’ble Madras High Court in case of CIT vs. VTM Ltd. [2009] 319 ITR 336 (Mad.) (HC) examined the same issue and dismissed the revenue appeal seeking to disallow additional depreciation u/s.32(1)(iia) of the Act with respect of setting up a windmill by a manufacturer of textile goods. Thus, following the ratio of VMT Ltd.(supra) issue has been decided in favour of assessee with regard to addition depreciation u/s.32(1)(iia) of the Act. Hon’ble Supreme Court in case of CST vs. M.P. Electricity Board (AIR 1970 SC 732), held that the electricity generated by ITA No.4899/Mum/14 A.Y. 10-0711 [Shri Atul S. Ganatra vs. DCIT] Page 6 an assessee is an article or goods. The explanation to amendments (memorandum) as inserted by Finance Act, 2012 as relied upon by CIT(A) cannot be said to overrule and earlier decision of Hon’ble High Court. An amendment that has prospective application cannot be said to retrospectively take away the rights of an assessee qua it’s explanatory notes. Where there is no ambiguity in the Section, there is no warrant for resort to external aids of interpretation namely the notes on clauses and the memorandum explaining its provisions. In the light of decision of VTM Ltd.(supra) with regard to claim of additional depreciation u/s.32(1)(iia) for setting up a windmill, wherein material being sole decision by Hon’ble High Court on the matter, we hold that additional depreciation should be allowed.

Pronounced in the open Court on this the 26th day of August, 2016.