TMI Blog2018 (5) TMI 1902X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue has accepted this issue in the set-aside assessment proceedings, therefore, we do not find any infirmity in the order of CIT(A). Accordingly, this ground of Revenue is dismissed. Disallowance on account of depreciation claimed on assets given on lease under mere financial arrangement by assessee who was not engaged in the leasing business - HELD THAT:- We held that it is an operative lease and not a financial lease, hence the disallowance based on the same lease agreement, are allowable as deduction. Further the AO has allowed the depreciation claimed by the assessee. Hence, following the decision of ITAT for A.Y 2008-09 [ 2017 (5) TMI 1686 - ITAT AHMEDABAD] , the order of the CIT(A) is upheld, accordingly this ground of Revenue is dismissed. Additional depreciation claim u/s.32(1)(iia) on wind mill - AO has disallowed the claim of the additional depreciation on the ground that wind mill does not produce article or thing but generates electricity whereas the provisions of section 32 (1)(iia) requires that the assessee should produce article or thing - HELD THAT:- It is now a settled position as held by the Hon ble Supreme Court in the case of CST Madhya Prad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotment/receipt of subsidy in the form of bond. Hence, the contention of the AO that it is notional loss is not correct. Further, we find that in A.Y. 2008-09, the AO has already allowed the loss of ₹ 7,71,16,280/- incurred on allotment of 8.30% and 7.95% bond as business loss or revenue loss. Therefore, the actual loss of ₹ 18,62,04,574/- is allowable as business loss. With regard to loss of ₹ 37,77,73,348/- is concerned, the bonds are received in lieu of subsidy which was the additional sale price received from Government of India. The appellant company had offered to tax the subsidy accordingly as part of the sale price, therefore, the realisation to additional sale price by way of subsidy in the form of fertilizer bonds does not make bond an investment, because the bonds were never acquired by the assessee as investment for capital but as debt and also shown as current assets. Accordingly, the loss offered on allotment of bonds and actual sale of the bonds cannot be considered as capital loss but has to be allowed as business loss u/s. 28 read with section 37 of the Act Disallowance on account of depreciation of goodwill by wrongly applying Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and further the income from Carbon Credit is capital receipt and therefore, it cannot be brought to tax. 3. Succinct facts are that the Assessing Officer (AO) noticed that the assessee has deducted ₹ 5,10,73,986/- in the computation of income on account of Carbon Credit income being capital receipts. Therefore, the assessee was asked to justify the claim. It was submitted that there is enhanced awareness and concern globally in respect of increasing level pollution. This discussion among with countries of UNO culminated into an agreement known as KyotoProtocol which came into force on 15.02.2005. The protocol requires a 5.2% cut in Green House Gas Emissions in the world as a whole by 2012. The protocol requires 36 countries falling in the category of high producers of gas due to intense industrialization, in such countries to reduce gas emission. The reduction targets set for the countries in the said category can be achieved by either reducing emissions or by paying to countries which do not fall in the said category which are having credits of low production of Green House Gas Emissions. India along with China and Brazil has emerged as one of its larges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after year as long as it lowers Green House Gas Emissions, thus, it will be received regularity and expected to regularly and received from this source being the greener technology and process thus, all the ingredients of it being Revenue Receipts are satisfied, therefore it is nothing but Revenue Receipt. 5. With regard to argument of assessee regarding consequent effect in subsequent years, the AO observed that the assessee is free to make such claim during the assessment proceedings of next year. Accordingly, the AO disallowed the claim of deduction of ₹ 5,10,73,986/- in computation of income. 6. Being aggrieved, the assessee went in appeal before CIT(A). However, the CIT(A) held that Carbon Credit is not result of its production for manufacturing activity. Carbon Credit is in fact a result of changed work environmental concern and due to that appellant gets a privilege in nature of transferable Carbon Credit. In such cases, the appellant does not incur any cost of acquisition or cost of production to get entitlement of Carbon Credit. Thus, amount received for Carbon Credit has no element of profit or gain. It cannot be subjected to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT vs. My Homes Power Ltd. [2014] 46 taxmann.com 314 (Andhra Pradesh) wherein it was held that where the assessee engaged in the business of power generation, received Carbon Credit s for project activity of switching of fossil fuel from Naptha and Diesel to biomass Carbon Credit not being linked with power generation, amount received on their transfer did not have element of profit and gain and it was not taxable. The ld.Counsel further placed reliance on the decision of Hon'ble Gujarat High Court in the case of Pr. CIT vs. Kalpatharu Power Transaction Ltd. (Tax Appeal No141/2017 dated 02.03.2017) wherein after discussing various decisions including the decision of CIT vs. Excel Industries Ltd. [2013] 358 ITR 295 (SC) of Hon'ble Supreme court it was held that applying the aforesaid law laid down by the Hon'ble (SC) to facts of the case on hand, it cannot be said that the ld.CIT(A) as well as ld.Tribunal have committed any error in deleting the addition of ₹ 5,78,28,058/- holding that as neither the Carbon receipts were sold/transferred in favour of foreign companies in the year under consideration, the same cannot be included as receipts/income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, this ground appeal is allowed. 11. In the result, appeal of the assessee is allowed. Cross Appeal No. 1363/Ahd/2013 by Revenue: 12. Ground No.1.(i) relates to deleting the disallowance of ₹ 2,55,82,153/- claimed as Revenue Expenditure. 13. Brief facts of the case are that the assessee incurred expenses of consumption and replacement of stores and spares of ₹ 9,548.68 lakhs and claimed the same as revenue expenditure. However, out of that, the Assessing Officer (AO) has disallowed ₹ 3,00,96,651/-treating it as capital expenditure after allowing the depreciation of ₹ 45,14,498/- thereon. The AO has made disallowance of net amount ₹ 2,55,82,153/- on the ground that the items are in the nature of independent machine and average life span is 5 years or more and in one item life span is 20 years which suggests that these items can be used independently. 14. The assessee went in to appeal before the CIT(A). The CIT(A) after examining the facts of the case and items of machinery to replace component and relying on various case laws examined the explanation of the assessee and on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled 12MW Wind Mill Power Turbines at a cost of ₹ 72,98,43,626/- and generation of electricity has started during the year. Depreciation of ₹ 43,79,05,958/- u/s.32 and additional depreciation of ₹ 10,94,76,489/- u/s.32(1)(iia) had been claimed on the cost of wind mill. However, the AO has disallowed the additional depreciation on the ground that the wind mill does not produce article or thing, but generate electricity, therefore, the requirement for claiming deduction u/s. 32(1)(iia) are not met, hence, depreciation is not allowable. 22. Being aggrieved, the assessee filed appeal before CIT(A). The CIT(A) observed that the additional depreciation section requires fulfillment of two conditions (i) any machinery or plant which has been acquired and installed after 31.03.2005; (ii) by an assessee engaged in the business of manufacture/production of any article or thing. The assessee company has fulfilled both the conditions, there is no dispute as far as first condition is concerned. However, as per the second condition the assessee should engaged in the business of manufacture of any article or thing. The AR relied on the decision of Hon'ble Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a machinery of plant should be a new machinery or plant (other than ships and aircraft) which has been acquired and installed after the 31st day of March, 2005. It further provides that the additional depreciation in new machinery or plant shall be allowed in the hands of the assessee who is engaged in the business of manufacture or production of any article or thing or in the business of generation or generation distribution of power. In the instant case, it is not in dispute that new machinery or plant has been acquired and installed after the 31st March 2005. It is also not in dispute that the assessee has claimed depreciation u/s 32(1)(ii) of the Act. Once the AO has accepted the assessee s claim u/s 32(1)(ii) of the Act, we do not see a reason why the assessee should be denied the claim of additional depreciation on the same assets u/s 32(1)(iia) of the Act. The learned counsel for the assessee has placed reliance in the case of CIT Vs. Diamines Chemicals Ltd. (2014) 109 DTR 62 (Guj.) (HC): wherein the facts were that the assessee already in the business of manufacture of chemicals, is eligible for additional depreciation u/s 32(1)(iia) in respect of windmill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of CST Madhya Pradesh Indore vs. Madhya Pradesh Electricity Board Jabalpur (1969) 1 SCC 200 (SC) and Hon'ble Gujarat High Court in the case of Diamines and Chemicals Ltd.(supra) that the process of generation of electricity is akin to manufacture of an article or thing, the assessee in the instant case satisfy the requirement that it is engaged in the business of manufacture or production of an article or thing. In light of above, the assessee is held entitled to the additional claim of depreciation on the power plant and the windmill installed during the year. Hence, we do not find any infirmity in the order of CIT(A), hence this ground of the Revenue is dismissed. 30. Ground No.1.(iv) relates to deleting disallowance of ₹ 39,00,000/- on account of expenditure claimed towards donation on the ground of corporate social responsibility in contravention to section 37(1) of the Act being expenditure not expended wholly and exclusively for the purpose of business or profession. 31. Brief facts of the case are that the assessee has contributed 4000 kits for the value amounting to ₹ 39,00,000/- for people of Bihar who were affected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flood relief in the state of Bihar, therefore, the expenditure was incurred out of commercial expediency and hence deductible u/s.37(1) of the Act in support of his contention the ld.Counsel has placed reliance in the case of CIT vs. Madras Refineries Ltd. 266 ITR 170 Madras, Shri Venkata Satyanarayana Rice Mills Contractors Co. vs. CIT 223 ITR 101 (SC), Mumbai ITAT Hindustan Petroleum Corporation ltd. 96 ITD 186 and in appellants own case such expenditure was allowed by Hon'ble ITAT in assessment year 1994-95, 1995-96 and 2001-02. 35. We have heard the rival submissions and perused the available material on record. We find that the expenditure has been incurred on account of various relief materials like food items, kerosene, blankets etc. to the flood affected people of Bihar. Therefore, this expenditure has been incurred on behest of the State Government of Gujarat as the assessee is a public undertaking of Gujarat Government. The assessee is conscious of its corporate social responsibility and makes contributions in the ordinary course of its business towards socially useful activities and in view of very nature the expenditure incurred for corporate social ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t admissible under Income Tax Act. However, the AO disallowed this loss on the ground that the assessee has received bonds. The value of which has been reflected in sales. Subsequent action of the assessee would determined whether the bonds were investment or not. If the intention of the assessee was to receive cash on sale proceeds then immediately on allotment of bonds, the assessee would have sold it in the market, since it was tradable. If the assessee does not sell the bonds, but holds it then it would imply that the assessee has made investment in bonds. By not selling the bonds of allotment the assessee has decided to invest the sale proceeds received in the bonds into investment which are regular to the assessee capital gain in case of payable interest rate cycle. 39. The assessee went in appeal before CIT(A). The CIT(A) considered the facts and has given its finding as under: 10.3 I have carefully considered the facts of the case, finding of the AO and written submission of the appellant. The AO has disallowed the loss on sale of Bonds on the grounds that the nature of is capital as it has arisen on sale of investments. However, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not held by the appellant company for a very long time. This is also to be reviewed from the fact that bonds may not have day to day market. Lower realization for bonds is nothing but lower realization of subsidy. Actual subsidy received by the appellant is the actual realization on sale of bonds and therefore the loss is a revenue loss. The following decisions support the case of the appellant. The Supreme Court of India in case of Patnaik Co. Ltd. v. Commissioner of Incometax 27 Taxman 287 held that where the Government bonds or securities were purchased by the assessee with a view to increasing his business with the Government or with the object of retaining the goodwill of the authorities for the purpose of his business, the loss incurred on the sale of such bonds or securities was allowable as a business loss. Even Calcutta High Court in case of Commissioner of Income-tax v, Shalimar Industries (P.) Ltd. 78 Taxman 521 held that The shares were received as consideration for the services rendered under a technical collaboration agreement. Such receipt must be on revenue account. That it was shown in the balance sheet as investment did not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r contra, the ld.Counsel for the assessee submitted the break-up of loss that the loss of allotment of fertilizers bonds is worked at ₹ 18,62,04,574/- whereas loss on sale of fertilizer bonds is calculated at ₹ 3,77,73,348/-. It was submitted that the bonds are received in lieu of subsidy to which assessee is entitled. However, since the Government does not have funds they have allotted bonds to fertilizer companies, thus bonds are business assets. The subsidy is offered as income by assessee and is assessed accordingly. Therefore, loss on account of such receipts of fertilizer bonds which yield lower value in market as compared to their face value is a business loss allowable under section 28 read with section 37 of the Act. It was further claimed as alternative measures that the sale realisation is lesser than the face value and is a reduction towards the claim against debtor, the amount allowable also u/s.36(1)(vii) as bad debts. The ld.Counsel further placed reliance in ITAT in ITA No.319 339/Ahd/2012 for the A.Y. 2008-09 and 2009-10 in the case of Gujarat State Fertilizers and Chemicals Ltd vs. DCIT, Circle-1(1), Vadodara wherein such loss is allowed as bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the assessee was receiving in normal course. It was by force that assessee had to accept the fertilizer bonds in lieu of subsidy as the Government was facing a cash crunch at that point of time. Even though the alleged bonds have been shown as investment in the balance sheet, the very nexus of these bonds being of Revenue nature cannot be disregarded. We are therefore of the view that loss incurred on sale fertilizer bonds at ₹ 91,45,000/- is purely a business loss incurred in the normal course of business and the both the lower authorities erred in treating it as a capital. We therefore allow ground No.4 of the assessee for A.Y. 2008-09. 44. Therefore, in the light of above decision and facts of the case, we find no infirmity in the order of CIT(A), accordingly, same is sustained. Consequently, this ground of Revenue is dismissed. 45. Ground No.1(vi) relates to deleting disallowance of ₹ 2,37,51,371/- on account of depreciation of goodwill by wrongly applying Apex Court s decision when in fact no goodwill was created on account of merger of NCPA. 46. Brief facts of the case are that the assessee has claimed depreciation of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreting the said expression which finds place in Explanation 3(b). Consequently, Goodwill is an asset under Explanation 3(b) to s. 32(1) eligible for depreciation. Though the AO held that the assessee had not paid anything for the goodwill, this cannot be accepted because (a) the CIT(A) Tribunal (correctly) held that that the difference between the cost of an asset and the amount paid in the process of amalgamation constituted goodwill , I hold that the difference of consideration over the net value of assets is goodwill and that the same is eligible for depreciation. This ground is allowed. 48. Being aggrieved, the Revenue filed appeal before this Tribunal. The ld.CIT-DR submitted that the decision of CIT(A) is not acceptable as the AO has rightly pointed out the goodwill has arisen because of cancellation of investment made by it and investment made in a company is not an asset on which depreciation allowable. The assessee should have allotted shares in proportion of shareholding in NCPL has been done for the other shareholders of NCPL. These shares so allotted could have been kept by the assessee has treasury stock which could have been sold out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was also restored to the file of the CIT(A) in assessee s own case in ITA No.2921 2930/Ahd/2013 for A.Y. 2008-09 dated vide order 19.05.2017. Therefore, following the reasoning given therein, we restored this issue to the file of the CIT(A) to examine the issue in the light of Supreme Court in the decision of Smifs Securities Ltd. This ground is therefore set-aside for statistical purposes. 51. Ground No.1.(vii) relates to deleting disallowance of ₹ 2,95,09,335/- of dealers sales made to them. However, the AO has treated the discount as commission which ought to have been subjected to TDS and therefore disallowed u/s.40(a)(ia) of the Act. 52. Being aggrieved, the assessee went into appeal before CIT(A). The CIT(A) observed that whether the transaction with dealers are on principle to principle basis or whether the dealer is an agent which in turn would settle the issue whether the payment made by the appellant to its dealers is in the nature of discount or commercial. The CIT(A) observed that the salient feature of this transaction of sale to dealers and methodology of executing transactions and accounting thereon that the dealings with the dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h stamps paper to retail customer, neither of the two activities of (buying from Government and selling to customers) can be termed as service in course of buying or selling of goods-held-yes -- Whether, therefore, discount made available to licensed stamp vendors under provisions of Gujarat Stamp Supply and Sales Rules, 1987 is outside expression commission or brokerage under section 194H and as such, no deduction of tax at source is required to be made from discount- held yes . The ld.Counsel further, without prejudice submitted that the assessee is not declared assessee in default and since the payees are regular income tax payers benefit to section proviso to section 40(a)(ia) is also available to the assessee which is held to be retrospective by several decisions on that ground also addition made may be deleted. In support of this contention, the ld.Counsel has placed reliance in the case of Accme Uravashi Pumps Engineering Private Ltd. vs. JCIT 90 taxmann.com 198 (Jaipur) and Punjab Goods Transport (P) Ltd. vs. ITO 77 taxmann.com 37 (Kol). 55. We have considered the facts and arguments of the parties, we have observed that the sale transactions are regularly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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