TMI Blog2023 (6) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... ature and not liable to tax under business income. Amendment of claim in assessment stage - The transfer value of REC/ESCs was duly claimed as capital receipt in assessment stage. As relying on case of Goetze (India) Ltd [ 2006 (3) TMI 75 - SUPREME COURT] case of Ankit Metal Power Ltd [ 2019 (7) TMI 878 - CALCUTTA HIGH COURT] Both the orders have not impinged the power of ITAT u/s 254 to allow the claim duly amended by assessee after filing the return. The revised claim made by the assessee during the time of assessment is duly accepted. We set aside the order of CIT(A) and restore the claim of assessee. Commission paid by the assessee was treated as bogus and added back u/s 69C - DRP issued the SCN for enhancement, through e-mail, for the first time on 27th June, 2022 and the assessee was allowed time up to 28.06.2022 to respond to the same and the order making enhancement was passed by the DRP on 29.06.2022 - grievance of the assessee is that the ld. DRP has acted beyond jurisdiction u/s 144C(8) - HELD THAT:- After submission of requisite documents as evidence of transaction, the ld. DRP had not considered the same. Considering the submission of assessee the Tax I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax. 2.1. That in the facts circumstances of the case, the Ld. AO NFAC has erred on facts fit law in making the addition of Rs. 17,77,26,000/-, in pursuance of directions of Dispute Resolution Panel dated 29.06.2022, by treating the receipts from sale/transfer of RECs/ESCs as business income, and charging the tax on the same as against the claim of the assessee, based on the assessment order for A.Y 2017-18 in the case of the assessee, that the receipts from sale/transfer of RECs/ESCs are capital receipts which are not liable to tax. 2.2. The claim of the assessee before the AO NFAC in the objection filed before the DRP that the amount received from sale/transfer of RECs/ESCs is capital receipt for which judgement of various benches of ITAT (including the order of the jurisdictional benches) has been rejected by the AO NFAC and DRP without rebutting the case law relied upon by the assessee. 3. That the SCN dated 27.06.2022 issued by the DRP for enhancement of income of Rs. 4,57,32,318/-, on the basis of information forwarded by the Principle CIT Amritsar-1 vide letter dated 21.04.2022, to submit the reply on 28.06.2022 proves that there was violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal before the appeal is finally heard or disposed of. 3. Tersely, we advert the fact of the case. The assessee-company is manufacturer of writing and printing paper, having factory premises at village Rupana situated at Muktsar Sahib. The assessee-company has a co-generation captive power division also, in which electricity is generated from renewable source i.e. bio-fuel, re-include rice husk, unlike other companies which utilised fossil fuel i.e. coal and diesel and the same is consumed by the paper division. The generation of power from renewable energy resources helps in reduction of emission of carbon / heat and gases in environment. 3.1 During the impugned financial year, the Ministry of New and Renewable Energy (MNRE) issued transferable and saleable credit certificates under the Electricity Act 2003, which are generally referred to as Renewable Energy Certificates ( RECs ). Such RECs are issued, under the Central Electricity Regulatory Commission Regulations, 2010 ( CERC ) issued pursuance to section 178(1) and section 66 r.w. clause (y) of section 178(2) of the Electricity Act, 2003. 3.2 During the impugned year, the assessee earned by sale/trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before we specifically, deal with the above said ground of appeal, it is important to give the brief profile of the company and the business carried on by it which is as under: a. The assessee is a public company engaged in the manufacturing of writing printing paper , having factory premises in Village Rupana, situated in District Muktsar Sahib, which is Agro based area. The company has a cogeneration captive power division also, in which, electricity is generated from renewable energy sources i.e. Bio-fuels which includes Rice Husk , unlike other companies which utilize fossil fuels i.e. coal Diesel and the same is consumed by the paper division. b. The generation of power from renewable energy resources helps in reduction of emission of carbon/heat and gases. c. The assessee is maintaining complete record viz a viz cashbook and ledger, which are audited and no defects have been pointed by the DRP/Ld. AO in day to day of maintenance of books of accounts. d. It is also an undisputed fact that the electricity so generated by use of the Bio-fuels is not being sold to any other concern, but it is wholly consumed in the manufacturing activity of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e holder may consider appropriate, and such certificate shall be available for dealing in accordance with the Rules and Byelaws of such Power Exchange at a value pre-determined by the Power Exchange. Similarly, ESCERTS are also issued for the conservation of energy and the same can be sold on the Power Exchange regulated by the Government. k. Regarding Energy Saving Certificates (ESCerts), it is issued to those plants who had over achieved the targets to reduce specific energy consumption in energy intensive industries those plants who are under achievers of that targets are entitled to purchase ESCerts. l. The energy saving certificates (ESCerts) are also issued as the energy saving also reduces the emission of carbon heat gases. m. It is submitted that the receipts generated from the sale proceeds of RECs/ESCerts are not liable to tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56 of the Act. RECs/ESCerts are made available to the assessee on account of reduction in emission of carbon/heat gases saving of energy consumption also reduces emission of carbon/heat gases and not because of its business. Further, RECs/E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion carbon credit in respect of one unit shall mean reduction of one tonne of carbon dioxide emissions or emissions of its equivalent gases which is validated by die United Nations Framework on Climate Change and which can be traded In market at its prevailing market price. Thus, the Panel is of the view that the assessee has wrongly claimed the Income from Sale of RECs/ESCs u/s 115BBG of Income Tax Act, 1961. Income from sale of REC/ESCs is normal business income few the assessee and needs to be included in the business income and taxed at normal tale rather than at concessional rate. 3.5.3. The AO has rightly noted that the assessee has shown the income from sale of RECs/ESCs in P L account in the item no. 33. Other Income'. The assessee claims that income from sale of Renewable Energy Certificates end Carbon Emission Reductions is income from other sources is not tenable as toy are intrinsically connected to business of the assessee. It may be noted that the assessee is engaged in the manufacturing of writing and printing paper which is agro based. The company generated captive power through renewable energy source Bio fuel. The raw material for electricity gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions of the Hon. DRP, the addition of Rs. 17,77,26,000/- is made to the total income as business income and the assessee s claim under section 115BBG is rejected. 6.1 The ld. DR further argued and placed the order of the High Court of Orissa in the case of Orissa Rural Housing Development Corpn. Ltd. v. Assistant Commissioner of Income-tax, Circle - 1(1), 2012] 17 taxmann.com 186 (Orissa)- Held Section 139 of the Income-tax Act, 1961 - Return of income - Revised return - Assessment year 2006-07 - Whether an assessee can revise his return of income by way of filing a revised statement of income after filing original return other than by way of filing revised return as contemplated under section 139(5) - Held, no 7. The ld. AR further argued and placed that a written submission related to comparable study of comment of DRP and the assessee s submission in relation to claim of the income. The said submission is extracted as below: - 14. The DRP has rejected this bonafide claim of the assessee at page 27 of the order by making the following comments and which are being distinguished as under: Comments of the DRP Our S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (24), (28) (45) (56). It has further been held that the Carbon Credits are on the account of savings of energy consumption and not on business. Even while rendering this judgment, the Jaipur Tribunal has discussed the provisions of 115BBG and, thus, since as on the day also, RECs/ESCs are not part of Section 2(24) and, hence, it is a capital receipt. It has been stated that activity of obtaining RECs/ESCs is a systematic activity which requires series of action and they are not windfall and, therefore, they have an essential role to play in the manner the business is carried out. RECs/ESCs do not bear the character of income u/s 2(24) and are not covered u/s 115BBG of the Act as there is a mention of only Carbon Credits and, even, the latest judgment of the Jaipur Bench of the Tribunal in the case of Ginni Global Pvt. Ltd. in ITA No. 403/JP/2019 clarifies the issues along with the other judgments which are being relied upon in the judgment set. It has been stated by the DRP that the benefit or perquisite or credit is generated from business and the same would be business income and is taxable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This leaves us with the issue regarding addition of Rs. 15,51,913. Undisputedly, the only strife between the parties is that per assessee it is liable to be taxed in the assessment year 2010-11 which is opposed by the Revenue who states that since it is a case of mercantile system of accounting, the amount has to be taxed in the impugned assessment year. We notice and even the Assessing Officer holds that necessary intimation of credit in question was received on October 3, 2009, i.e., in the previous year relevant to the succeeding assessment year 2010-11. The assessee also submits that it had included the amount as income for the purpose of assessment in the next assessment year instead of impugned assessment year. Faced with this situation and without going into merits of legality of the claim in hand, we deem it appropriate to observe that in case the Assessing Officer has already treated the amount as income in the assessment year 2010-11, the addition in question would stand deleted in favour of the assessee. 16. Consequently, the appeal stands partly allowed 8.1.2 . Commissioner of Income-tax IV v. My Home Power Ltd, [2014] 46 taxmann.com 314 (Andhra Pradesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion which rendered the loom-hours un-utilisable was permanent. It was always open to the respondent to acquire the necessary yarn from outside and thereby utilise the remaining quota of loom-hours in manufacturing jute, and if the respondent preferred not to procure yarn and chose to sell the surplus loom-hours and thus ensure profit for itself without incurring any risk, the receipt by disposal of a commercial asset was profit of the business irrespective of the manner in which that asset was exploited by the owner of the business. In the view of the High Court the respondent was entitled to exploit the asset to its best advantage: it may do so either by utilising it personally or by letting it out to somebody else, and the sale of a part of its quota of loom-hours amounted to exploitation of its capital asset and the receipt obtained therefrom was income. We are unable to agree with this view. The surplus loom-hours were disposed of and no interest remained therein with the respondent: there was no exploitation of the loom-hours by permitting user while retaining ownership. Receipt by sale of loom-hours must therefore be regarded in this case as a capital receipt a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Ltd, [2019] 109 taxmann.com 93 (Calcutta) 28. The third issue involve in the instant appeal which requires adjudication is whether the action of Tribunal entertaining / allowing the claim which was made by the assessee before the Assessing Officer by filing a revised computation instead of filing a revised return since the time to file the revised return was lapsed, for claiming to treat the incentive subsidies in question as capital receipts instead of revenue receipts as claimed in original return. The Assessing Officer had denied this claim. Revenue has attacked the order of the tribunal by relying on the decision in the case of Goetze (India) Ltd. (supra). 29. This case does not help the revenue/appellant. In this case Supreme Court has made it clear that its 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. The Hon'ble Supreme Court in the said decision held as follows: .In the circumstances of the case, we dismiss the Civil Appeal. However, we make it clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The turn over of the assessee company is in the range of 622 Crores in FY 2017-18 relevant to AY 2018-19 and for the purpose of arranging orders for sale of writing and printing paper, the assessee has engaged the services of agents to procure the orders for which the commission is paid.[P L Account/ balance sheet on PB-6A-6D] This is a permanent trade practice of the assessee company and commission is being paid from year to year and all the cases of assessee company has been assessed u/s 143(3) of the Act and no adverse inference has been drawn by the department in any of the assessment years prior to AY 2018- 19. It is matter of record that no query had been raised by the AO NFAC, relating to the payment of commission by the assessee, during the course of faceless assessment proceedings which culminated in Draft Assessment Order dated 28.09.2021.[Draft Assessment Order on PB-17-22] It is also a matter of record that the first notice u/s 148A(b) of the Act was issued by the Jurisdictional AO [DCIT Circle-1, Bathinda] on 24.03.2022, on the basis of information flagged on the insight portal of the Income Tax Department, in continuation of the same notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing issues in the case of any person having international transactions or in case of a foreign company. It has been provided under sub-section (8) of section 144C that DRP may confirm, reduce or enhance the variations proposed in the draft order of the Assessing Officer. In a recent judgement, it was held that the powers of DRP is restricted only to the issues raised in the draft assessment order and therefore it cannot enhance the variation proposed in the order as a result of any new issue which comes to the notice of the panel during the course of proceedings before it. This is not in accordance with the legislative intent. It is accordingly proposed to insert an Explanation in the provisions of section 144C to clarify that the power of the DRP to enhance the variation shall include and shall always be deemed to have included the power to consider any matter arising out of the assessment proceedings relating to the draft assessment order. This power to consider any issue would be irrespective of the fact whether such matter was raised by the eligible assessee or not. This amendment will be effective retrospectively from the 1st day of April, 2009 and will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c provisions, a similar power is available to the first appellate authority. Eventually, Sardari Lal upheld the decision in Union Tyres. The ld AR mentioned that the Hon ble Delhi High Court has held in the case of CIT vs. Sardari Lal Co [2001] 251 ITR 864 that the first appellate authority has no power to take into account a new source of income. 12.2. Further in argument the ld. AR placed that the Hon ble High Court of Kerela in the case of CIT vs. B.P. Sherafudin [2017] 87 taxmann.com 330has held that the appellate authority has no power u/s 251 of the Act to at income not considered by the AO.The Hon ble court has relied on the following judgments on this issue: CIT vs. Rai Bahadur Hardutory Motilal Chamaria [1967] 66 ITR 443 (SC) CIT vs. Shapoorji Pallonji Misty [1962]44 ITR 891 (SC) In view of the above stated case laws on the limitation of the powers of enhancement of CIT(A) u/s 251 of the Act, the action of the DRP to adjudicate the issue of disallowance of Rs. 4,57,32,318/- is outside the scope of the power of the DRP as provided u/s 144C(8) of the Act and its explanation because the issue of disallowance u/s 69C was never taken by the AO in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such a hypothesis. On the contrary, it is a case where summons were not issued to such parties and in such circumstances considering the evidence on record, it is incorrect to suggest that, services have not been rendered. Hence, such judgment too has no application to the facts of the present case. 12.3.2 . Umacharan Shaw Bros.v.Commissioner of Income-tax, [1959] 37ITR271 (SC) The Department contends that one of the unusual features was that though the balances of the partners were fluctuating as their drawings were made, the profits continued to be divided equally. This is no doubt an unusual feature, but it depends upon how the drawings were considered by others. There was an arrangement in the deed itself for such drawings, and looking at the circumstances of the family the drawings during a year could not be said to be too extensive as others had withdrawn large sums also in their turn. Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the matter, the Panel concurs with the view of the AO that the aforesaid transactions are entered by the assessee company are Rolmex International, and not with Zylo International The , the invoices filed by the assessee in the name of Zylo International and crediting the payments in die name of Rolmex international buttress the contention of the AO that these transactions entered by the assessee company are bogus and that bills have been issued in the name of one concern and the amount has been audaciously credited into the bank accounts of another concern through RTGS. The Panel accordingly directs the AO to make an addition of Rs. 4,57,32,31.8/-, treating the entire transaction as bogus. 14. Mr. Sehgal, Advocate finally concluded that the assessee should get benefit related REC ESCs are capital receipt and not be the part of 115BBG. The catena of judgment is in favour of assessee. The ld. DR respectfully relied on the order of Hon ble Orrisa High Court, but the claim is restricted before the ld. AO. Pursuing the order of the Hon ble Apex Court in the case of Goetze (India) Ltdthere is no impingement in power of section 254 of the Act. Mr Sehgal further argued the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voluntary nature and are not regulated by United Nations Framework Convention on climate change. 15.3. Basics of Renewable Energy Certificates Another way to help to reduce carbon footprints has been devised by giving credit to units generating electricity from biofuels [agriculture residue i.e. rice husk and wheat straw] as compared to fossil fuel [Diesel/ Coal] and it is a mechanism in giving incentive to the producers of electricity from Renewable Energy Sources. (i) The regulation has been put in place by the Central Electricity Commission [CERC] and the Renewable Energy Certificates are issued under the rules and regulation framed by a regulatory authority. The REC will be exchanged only in the Power Exchanges approved by CERC within the bank of a floor price and forbearance (Ceiling) price to be determined by CERC from time to time. 15.4. Basics of ESCERTs The Perform Achieve and Trade (PAT) is a market-based mechanism to reduce the specific energy consumption in energy intensive industries. This is facilitated through the trading of ESCERTs which are issued to those plants who have overachieved their targets. Those plants who were under achievers of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental concern and the credit for reducing carbon emission or greenhouse effect can be transferred to any other party to reduce carbon emission. 16. The assessee claimed the transfer value of REC/ESCs amounting to Rs. 17,77,26000/-in return under section 1115BBG and paid tax. During the time of assessment, the assessee amended the claim and treated the income as capital receipt. We relied on the orders My Home Power Ltd, (supra)and Maheshwari Devi Jute Mills Ltd, (supra)the income is offshoot from environmental concern not from offshoot of business concern. The nature is fully related to environmental health. We find that said income is capital in nature and not liable to tax under business income. 16.1. The next grievance is related the amendment of claim in assessment stage. The transfer value of REC/ESCs amounting to Rs. 17,77,26000/- was duly claimed as capital receipt in assessment stage. We respectfully relied on the order of Hon ble Apex Court in the case of Goetze (India) Ltd the order of the Hon ble Calcutta High Court in the case of Ankit Metal Power Ltd. Both the orders have not impinged the power of ITAT u/s 254 to allow the claim duly amended by assessee after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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