Whether TUF is a capital receipt and assessee is not entitled to Sec 80IA benefits on it - YES: ITAT

THE issue before the Bench is - Whether TUF is a capital receipt and assessee is not entitled to Sec 80IA benefits on it. YES is the answer.

Facts of the case

The assessee is engaged in the business of manufacturing knitted garments. During assessment, the AO disallowed deduction under section 80IA on sale of carbon credit, TUF interest subsidy receipt and generation loss compensation receipt. The AO while completing the assessment restricted the deduction under section 80IA on the windmill profits. However, the CIT(A) confirmed the disallowance of deduction under section 80IA on sale of carbon credit, TUF interest subsidy receipt and generation loss compensation receipt, but on the other hand also held that for the purpose of computing deduction under section 80IA, initial assessment year did mean the year in which the assessee begins to claim deduction under section 80IA and allowed the claim of the assessee. Hence, aggrieved the present cross appeals were filed.

The Tribunal held that,

++ the co-ordinate Bench of this Tribunal in the case of C.N.V Textiles Pvt. Ltd., Vs. DCIT., in ITA No.746/Mds/2014 dated 21.11.2014 held;

"... 7. First we take up assessee's appeal I.T.A.No.746/Mds/2014. Its first ground is that the Assessing Officer and CIT(A) have wrongly treated its carbon credit receipts as 'revenue' receipts. The assessee itself seems to have included this sum of Rs. 13,44,581/- as 'revenue' receipts for claiming section 80IA deduction. The Assessing Officer referred to 'derived' expression . The assessee raised an alternative plea in lower appellate proceedings based on the case law of My Home Power Ltd vs DCIT 2012-TIOL-637-ITAT-HYD upheld by the A.P high court in Income Tax Appellate Tribunal Appeal No.60 of 2014 in order dated 19.2.2014 that these receipts are not 'revenue' but 'capital' in nature. The CIT(A) turns down this alternative plea as well. There is no quarrel about this factual backdrop. We find that a co-ordinate bench of the 'tribunal' in P.K.Ganeshwr vs ACIT - I.T.A.No. 2091/ Mds/2013 dated 17.7.2014 has accepted a similar plea raised in lower appellate proceedings for treating sale of carbon credit receipts as 'capital' receipts instead of 'revenue' receipts already accounted. The Revenue fails to point out any distinction on facts. Thus, we accept the assessee's ground. The Assessing Officer is directed to frame necessary computation."

++ respectfully following the said decision, we hold that income from carbon credit is capital receipt not exigible to tax and such income is not eligible for deduction under section 80IA of the Act;

++ as far as TUF interest subsidy is concerned on going through the decisions relied on by the assessee, we find that the issue is squarely covered by the said decisions. The co-ordinate Bench of this Tribunal in C.N.V Textiles Pvt. Ltd., Vs. DCIT., in ITA No.746/Mds/2014 dated 21.11.2014. Respectfully following the said decision, we hold that TUF is a capital receipt and not a revenue receipt and not entitled for deduction under section 80IA on such receipt;

++ as generation loss compensation receipt is concerned, we find that the Tribunal was of the view that generation loss compensation receipt is entitled for deduction under section 80IA of the Act. Similar view has been expressed by the Delhi Bench of this Tribunal in the case of Magnum Power Generation Ltd. Vs. DCIT. Respectfully following the said decisions, we hold that generation loss compensation is eligible for deduction under section 80IA of the Act;

++ the High Court in the case of Sri Velayudhaswamy Spinning Mills Pvt.Ltd. Vs. ACIT held that for the purpose of computing deduction under section 80IA, initial assessment year means the year in which the assessee begins to claim deduction under section 80IA of the Act. The Commissioner of Income Tax (Appeals) allowed the claim of the assessee following the jurisdictional High Court decision in the case of Velayudhaswamy Spinning Mills Ltd. Vs. ACIT. Respectfully following the said decision, we sustain the order of the Commissioner of Income Tax (Appeals) on this issue and reject the grounds of appeal raised by the Revenue.