Commissioner Of Income Tax, Ajmer v. M/S Shree Cement Limited, Bangur Nagar, P.b

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 86 / 2014 Commissioner of Income Tax, Ajmer ----Appellant Versus M/s Shree Cement Limited, Bangur Nagar, P.B. No. 33, Beawar. ----Respondent D.B. Income Tax Appeal No. 87 / 2014 Commissioner of Income Tax, Ajmer ----Appellant Versus M/s Shree Cement Limited, Bangur Nagar, P.B. No. 33, Beawar. ----Respondent D.B. Income Tax Appeal No. 227 / 2016 Pr. Commissioner of Income Tax, Ajmer ----Appellant Versus M/s Shree Cement Limited, Bangur Nagar, Beawar ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain For Respondent(s) : Mr. S. Ganesh, Sr. Advocate with Mr. Anant Kasliwal, Mr. Nitin Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment / Order 1.By way of these appeals, the appeals has challenged thejudgment and order of the Tribunal whereby Tribunal hasdismissed the appeal of the department and confirmed the orderof the CIT(A). 2.This court while admitting the appeals on different datesframed following substantial questions of law:- D.B. Income Tax appeal No.86/2014 (i)Whether the Tribunal was legally justified inholding that the sales tax subsidy received by theassessee for Rs.46,22,28,850/- in the form of sales taxexemption was a capital receipt and not a revenuereceipt and also not to be included in book profit u/s115JB ignoring the purpose of subsidy, which was givento enhance the production employment and sales in theState of Rajasthan which are post operationalactivities? (ii)Whether the Tribunal was legally justified inreversing the findings of the CIT(A) and allowing theassessee to adopt different market value of goods orservices for the purpose of section 80IA(8) on the basisof the revised return against the value adopted in theoriginal return which was filed after closing the booksand getting the accounts audited thereby deviatingfrom the principle of determining the market value ofgoods or services referred to Section 80IA(8) which hasbeen consistently adopted by the assessee in theearlier years?" D.B. Income Tax appeal No.87/2014 (i)Whether the Tribunal was legally justified inholding that the sales tax subsidy received by theassessee for Rs.80,40,47,166/- in the form of sales taxexemption was a capital receipt and not a revenuereceipt and also not to be included in book profit u/s115JB ignoring the purpose of subsidy, which was givento enhance the production employment and sales in theState of Rajasthan which are post operationalactivities? (ii)Whether the Tribunal was legally justified inreversing the findings of the CIT(A) and allowing theassessee to adopt different market value of goods orservices for the purpose of section 80IA(8) on the basisof the revised return against the value adopted in theoriginal return which was filed after closing the booksand getting the accounts audited thereby deviatingfrom the principle of determining the market value ofgoods or services referred to Section 80IA(8) which hasbeen consistently adopted by the assessee in theearlier years?" (iii)Whether the Tribunal was legally justified inholding that the sale proceeds received by the companyfrom the sale of Certified Emission Reduction (CER)pertaining to Carbon credit shown as capital receiptwas neither chargeable to tax under the head “capitalgain” nor under the head “business income” u/S.28(iv)and to be excluded for the purpose of section 115JBspecifically when the benefit arose to the companyfrom the business activity? D.B. Income Tax appeal No227/2016 (iii)Whether the Tribunal was legally justified inholding that the sale proceeds received by the companyfrom the sale of Certified Emission Reduction (CER)pertaining to Carbon credit shown as capital receiptwas neither chargeable to tax under the head “capitalgain” nor under the head “business income” u/S.28(iv)and to be excluded for the purpose of section 115JBspecifically when the benefit arose to the companyfrom the business activity? D.B. Income Tax appeal No227/2016 (i)Whether the Tribunal was legally justified inreversing the findings of the CIT(A) and allowing theclaim of the assessee for the value of the goods orservices for the purpose of section 80IA(8) against theAll India rate and the rate at which power was sold tothird parties thereby deviating from the principle ofdetermining the market value of goods or servicesreferred to Section 80IA(8)?" (ii)Whether the Tribunal was legally justified inholding that the sale proceeds received by the companyfrom the sale of Certified Emission Reduction (CER)pertaining to Carbon credit shown as Capital receiptwas neither chargeable to tax under the head “capitalgain” nor under the head “business income” u/s 28(iv)and to be excluded for the purpose of section 115JBspecifically when the benefit arose to the companyfrom the business activity?” 3.In view of our decision taken today, in tax appeal no.85/2014 wherein it has been observed as under:- “23.As stated above, issue No.1, same is alreadydecided in Tax Appeal No.204/2010. In that view ofthe matter, the first issue is required to be answered infavour of the assessee. 24.The issue No.2 is with regard to the claim of theassessee for the value of the goods or services for thepurpose of Section 80IA(8). 25.In view of the submissions made by Mr. S.Ganesh, price which has been given to the sisterconcern is to be determined on the basis of principlelaid down by the Supreme Court in case all the fourconditions are fulfilled as stated in his submissions andmore so the Tribunal has given the finding which readsas under:- “10. We have heard the rival submissions and perusedthe evidence on record. We have also gone through thefacts of the case, assessment order, order ofCIT(Appeals), the principles and the judicial decisionsrelied upon and documents produced by both theparties. At the outset, we find that the revised returnfiled by the Assessee has been accepted by the AO 12by clear finding in the Assessment Order. Once revisedreturn is validly filed & accepted, the original return isnon-est, as it is completely substituted by the revisedreturn. Now let us deal with ‘Market Value’. On perusalof the assessment order & all other records, we findthat facts with regard to adaptation of ‘market value’are clear. The assessee has adopted a ‘value’ which ismarket value and the department has substituted thesame by another value. The department is contendingthat the ‘market value’ as adopted by AO is the mostappropriate since it represents price charged by theState Grid to various customers including the assessee.Hence, the same should be considered. The AR of theassessee submits that the value adopted by assesseerepresents ‘market value’ since it is based on realtransactions between unrelated parties and the detailsfor the same are available in public domain. The issuebefore us is whether in such situations where there aretwo or more market values available and if theAssessee has adopted a ‘value’ which is ‘market value’,whether it is permissible for the Revenue to still replacethe same by another ‘market value’. 11. At this stage, it is necessary to refer to the relevantprovisions of the Act i.e. Sec 80IA(8), which states that- “Where any goods or services held for thepurposes of the eligible business are transferred 11. At this stage, it is necessary to refer to the relevantprovisions of the Act i.e. Sec 80IA(8), which states that- “Where any goods or services held for thepurposes of the eligible business are transferred to any other business carried 13 on by theassessee, or where any goods or services held forthe purposes of any other business carried on bythe assessee are transferred to the eligiblebusiness and, in either case, the consideration, ifany, for such transfer as recorded in the accountsof the eligible business does not correspond to themarket value of such goods or services as on thedate of transfer, then for the purposes of thededuction under this section, the profits and gainsof such eligible business shall be computed as ifthe transfer, in either case, had been made at themarket value of such goods or services as on thatdate” Explanation – For the purposes of this sub-section, “market value”, in relation to any goodsor services, means the price that such goods orservices would ordinarily fetch in the openmarket.” 12. On perusal of the above, it could be clearlyseen that the Statute provides that the assesseemust adopt ‘Market Value’ as the transfer price.In the open market, where a basket of ‘MarketValues’[say like, independent third partytransactions, grid price (average annual landedcost at which grid has sold power to theassessee), Power Exchange Price for the relevantperiod etc.] are available, the law does not putany restriction on the assessee as to which‘Market Value’ it has to adopt, it is purelyassessee’s discretion. So long as the assesseehas adopted a ‘Market Value’ as the transferprice, that is sufficient compliance of law. AOcan adopt a different value only where the valueadopted by assessee does not correspond to the‘market value’. Even if assessee’s Cement Unithas purchased power, also from the Grid or thatassessee’s Power Unit has also partly sold itspower to grid or third parties that by itself, doesnot 14 compel the assessee or permit theRevenue, to adopt ONLY the ‘grid price’ or theprice at which the Eligible Unit has partly sold itspower to grid or third parties, as the ‘marketvalue’ for captive consumption of power tocompute the profits of the eligible unit. Any suchattempt is clearly beyond the explicit provisionsof Section 80IA(8) of the Act. Underlyingprinciples forming the basis of our findings givenhere in before in this order are also supportedby the decision of Special Bench of Hon’ble Bangalore Tribunal in Aztec Software &Technology Services Ltd. Vs. ACIT [2007] 107ITD 141 [Bang] as well as Mumbai Tribunaldecision in the case of ACIT Vs. Maersk GlobalService Centre (I) Pvt. Ltd [2011] 133 ITD 543[Mum] wherein while interpreting the TransferPricing provisions, the courts have held that it isthe assessee who is the best judge to know thetransactions undertaken & thus finding out thecomparable cases from the vast databaseavailable in the public domain. Once theassessee has adopted the same, the AO has toexamine whether the same is market price ornot. AO has the power to adopt the market priceonly when the price adopted by the assesseedoes not correspond to market value. In thepresent case, we find that the assessee hasadopted a rate at which actual transactions havebeen undertaken by unrelated entities. Thevolumes of transaction as relied upon are alsosubstantial and hence it cannot be said that theassessee has hand picked 15 some transactions,which are beneficial to it. The DR submitted thatsince the assessee has itself drawn power fromthe grid, the grid rate represents the ‘bestmarket value’ & hence the same should only beadopted. We are not agreeable to the abovecontention of the department. No doubt the gridrate is market value but there is no concept of‘best’ market value in law. If by using the saidadjective, Revenue seeks to infer that grid rateis the only market value in the present context,such inference is also clearly not tenable.Further, in case there are options, the optionfavorable to the Assessee is to be adopted. Thisis a well settled principle of law laid down bycourts time and again including Supreme Courtin the case of CIT Vs. Vegetable Products Ltd.[1973] 88 ITR 192 and other High Courtsas pointed out by the AR. 13. In the light of the aforesaid, we hold that – (a) the value adopted by the Assesse be it valueas per independent third party tradingtransactions or as per Power Exchange (IEX etc.)or any other independent transaction (for therelevant period and which has taken place in therelevant area where the eligible unit is located)constitute ‘market value’ in terms of explanationto Section 80IA(8); (b) the value at which State Grid has sold powerto the Cement Unit of the Assessee (averageannual landed cost) also constitute ‘market value’in terms of explanation to Section 80IA(8) but thevalue at which State Grid or third party haspurchased power from the Power Unit of theAssessee, which represents its power which issold when not required by the Cement Unit, doesnot constitute ‘market value’ in terms of 16explanation to Section 80IA(8). It is the ‘principle’and not the ‘quantum’ which is deciding factor; (c) where a basket of ‘market values’ areavailable for the relevant period and relevantgeographical area where the eligible unit issituated, the assessee has discretion to adopt anyone of them as market value; and (d) If the value adopted by the assessee is‘market value’ as explained above, it is notpermissible for Revenue to recompute the profits& gains of the eligible unit by substituting the saidvalue (as adopted by the Assesse) by any other‘market value’.‘market value’ as explained above, it is notpermissible for Revenue to recompute the profits& gains of the eligible unit by substituting the saidvalue (as adopted by the Assesse) by any other‘market value’. 14. Accordingly, we delete the disallowance as made bythe AO in order u/s 143(3) on account of deduction u/s80IA of the Act and hence the grounds 1 & 2 areaccordingly decided in favor of the assessee.” 27.The said issue is also answered in favour of theassessee. 28.The issue No.3 is with regard to sale proceedsreceived by the company from the sale of CertifiedEmission Reduction (CER) pertaining to Carbon Creditshown as capital receipt. 14. Accordingly, we delete the disallowance as made bythe AO in order u/s 143(3) on account of deduction u/s80IA of the Act and hence the grounds 1 & 2 areaccordingly decided in favor of the assessee.” 27.The said issue is also answered in favour of theassessee. 28.The issue No.3 is with regard to sale proceedsreceived by the company from the sale of CertifiedEmission Reduction (CER) pertaining to Carbon Creditshown as capital receipt. 29.In view of the decision rendered by the SupremeCourt in Vodafone International (supra), it has to betaken as capital account and it cannot be taxed underthe Income Tax Act since it was taxable under directtax and the Tribunal has given the finding whichreads as under:- “We have heard the rival submissions and perused theevidence on record. We find that the Appellate Tribunalin My Home Power Ltd. Vs. DCIT (supra), have, afterdetailed examination, concluded that the receipts fromCarbon credit are capital in nature. We are inclined tofollow the said decision and the other two decisions ofChennai Tribunal in Sri Velayudhaswamy Spinning Mills (P.) Ltd. Vs. DCIT(Supra) and Ambika Cotton Mills Ltd.Vs.DCIT (supra) where also it has been held thatreceipt on account of Carbon Credit is capital in nature& neither chargeable to tax under the head BusinessIncome nor liable to tax under the head Capital Gains.Our above view is also supported by the decision ofSupreme Court in the case of Vodafone InternationalHoldings Vs. UOI (supra) wherein Supreme Court hasheld that treatment of any particular item in differentmanner in the 1961 Act and DTC serves as animportant guide in determining the taxability of saiditem. Since DTC by virtue of the deeming provisionsspecifically provides for taxability of carbon credit asbusiness receipt and Income Tax Act does not do so,our view gets duly fortified by the principles stated inthe above decision of Supreme Court. Accordingly, thisground of the assessee is allowed and the additionmade by the AO is deleted.” 30.In that view of the matter, the third issue is alsorequired to be answered in favour of the assessee. Allthe issues are therefore answered in favour of theassessee against the department.” 4.In that view of the matter, the issue is answered in favour of the assessee and against the department. 5.In that view of the matter, the appeals stand dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Pdaiya/56,57,59