Gujarat High Court
Principal Commissioner Of Income Tax 3 vs M/S Kalpataru Power Transmission Ltd on 10 September, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 209 of 2024
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PRINCIPAL COMMISSIONER OF INCOME TAX 3
Versus
M/S KALPATARU POWER TRANSMISSION LTD.
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Appearance:
MRS KALPANA K RAVAL(1046) for the Appellant(s) No. 1
MR B S SOPARKAR(6851) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 10/09/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Standing Counsel
Mr.Karan Sanghani for learned advocate
Mrs.Kalpana K. Raval for the appellant and
learned advocate Mr.B.S.Soparkar through video
conference with learned advocate Mr.Manya
Anjaria for the respondent who appears on
caveat.
2. This Tax Appeal is filed under Section
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260A of the Income Tax Act, 1961 (for short
'the Act') by the Revenue proposing the
following substantial questions of law arising
out of the Judgment and Order dated 11.10.2023
passed by the Income Tax Appellate Tribunal,
Ahmedabad (for short 'the Tribunal') in ITA
No.279/Ahd/2020 for Assessment Year 2015-16 :
"(i) Whether, on the facts and in the
circumstances of the case and in law,
the ITAT erred in confirming the order
of Ld. CIT(A) in deleting the addition
of Rs.5,94,18,494/- on account of
receipt of receipt of CER and treating
the same as Capital Receipt instead of
Revenue receipts ?
(ii) Whether, on the facts and in the
circumstances of the case and in law,
the ITAT erred in deleting the addition
of Rs.52,50,100/- on account of
disallowance u/s 14A r.w.r. 8D of the
I.T. rules, 1962 ?
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3.1. At the outset learned Senior Standing
Counsel Mr.Karan Sanghani for the appellant
and learned advocate Mr.B.S.Soparkar for the
respondent submitted that both the proposed
questions are covered by the decision of this
Court.
3.2. It was submitted that question No.(i)
pertaining to the deletion of addition on
account of the receipt of CER and treating the
same as Capital Receipt instead of Revenue
Receipt, is answered by this Court in case of
The Principal Commissioner of Income Tax
versus M/s Gujarat Flurochemicals LTD in Tax
Appeal No.423 of 2023 wherein, the Co-ordinate
Bench of this Court has answered the similar
question pertaining to treating the income
from realisation of Carbon Credit as capital
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in nature as under :
"4.5 Similarly, in case of the last
question (F), the coordinate bench has
answered the same as below:
"26. The fifth question proposed by
the revenue whether the income from
the Carbon Credits is capital in
nature. This issue is squarely
covered by the following decisions:
(1) M/s. Alembic Ltd. Tax Appeal
No.553 & 554 of 2017
(2) CIT Vs. My Home Power Ltd.
[2014] 46 Taxmann.com 314
(3) Subhash Kabini Power Corporation
Ltd. (KHC) [2016] 69 Taxmann.com 394
27. We quote the relevant
observations made by this Court in
the Alembic Limited (supra) as
under:
"6. The last surviving question
pertains to the treatment that
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the assessee's income from
trading of carbon credits should
be given. The Tribunal held that
receipts should be in the nature
of capital receipts and
therefore, would not invite tax.
This issue has been examined by
two High Courts. The Karnataka
High Court in case of CIT v.
Subhash Kabini Power Corporation
Ltd. reported in (2016) 385 ITR
592 (Karn) and Andhra Pradesh
High Court in case of
Commissioner of Incometax v. My
Home Power Limited reported in
(2014) 365 ITR 82 (AP) have held
that receipts of carbon credit
are in nature of revenue
receipts. Following the decision
of said two High Courts, this
question is also not considered."
5. Having considered the question of law
and in light of the decision of the
coordinate bench of this court which has
been relied upon by the tribunal in the
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order under challenge, no substantial
question of law arises for the
consideration of this court. In view of
the same, the appeal is dismissed."
4. The Tribunal has also followed its earlier
decisions in the earlier years for Assessment
Year 2014-15 wherein, in turn it has followed
the decision for Assessment Year 2012-13 by
treating the Carbon Credits as Capital
Receipt.
5. In view of the decision of this Court in
case of Gujarat Flurochemicals LTD (Supra), we
are of the opinion that no substantial
questions of law arise from the impugned order
of the Tribunal wherein, the Tribunal has
followed the decision for its earlier year.
6. So far as question No.(ii) is concerned,
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the same is answered by the decision of this
Court in case of Commissioner of Income Tax-
IV versus Suzlon Energy Limited reported in
(2013) 354 ITR 630 (Gujarat) wherein also the
Tribunal followed this decision for the
Assessment Year 2014-15 wherein, in turn the
decision of the Tribunal for Assessment Year
2012-13 was followed on the similar issue as
under :
"50. Ground no.4 reads as under:
4. Whether on the facts &
circumstances of the case, the Ld
CIT(A) was justified in deleting the
disallowance made us 14A rws Rule 8D
of Rs. 2,05,15,540/-
51. The issue relates to disallowance
of expenses pertaining to exempt income
earned as per the provisions of Section
14 A of the Act and the revenue is
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aggrieved by the order of the Ld.
CIT(A) deleting the disallowance of
expenses pertaining to foreign
investment made by the assessee. The
Id. CIT(A) had directed exclusion of
foreign investment made for the purpose
of computation of disallowance us. 14A
as per Rule 8D of the Income Tax Rules
1962 holding that the dividend earned
from the said foreign investment was
not exempt from tax.
52.The ld. D.R. was unable to convert
the above findings of the ld.CIT (A).
53. In view of the above, we see no
reason to interfere in the order passed
by the Ld. CIT(A) deleting the
disallowance made us. 14A read with
Rule 8D of the Rules with respect to
foreign investment made by the
assessee. "
7. In case of Suzlon Energy Limited (Supra)
while considering the similar issue, this
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Court held as under :
"3. Question [2] pertains to
disallowances made by the Assessing
Officer under Section 14A of the
Act in respect of interest
expenses incurred for investments
made in subsidiaries and administrative
expenses. CIT [A] deleted such
disallowances, upon which, Revenue
approached the Tribunal. The
Tribunal rejected Revenue's appeal,
making following observations :-
"3.5 We have considered the rival
submissions, perused the material
on record and have gone
through the orders of
authorities below. Regarding the
grounds raised by the revenue in
respect of disallowance of interest
expenditure made by the A.O under
Section 14A and deletion made by
learned CIT (A), we find that no
interference is called for in the
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order of learned CIT (A). We hold
so because we find that with
regard to the investment of Rs.
5907.18 lacs in foreign
subsidiaries, no disallowance can
be made u/s. 14A because
dividend income from foreign
subsidiaries is taxable in India.
Regarding balance investment of Rs.
38 crores approximately in Indian
subsidiaries, we find that interest
free own funds of the assessee is
many time more than this investment
because interest free funds
available with the assessee as on
31.03.2005 as per the balance sheet
as on that date is of Rs. 929.57
Crores. There is no finding given by
the A.O regarding any direct
nexus between interest bearing
borrowed funds and investment in
Indian subsidiaries. Hence, in our
considered opinion, no disallowance
u/s. 14A can be made out of
interest expenditure in the
facts of the present case.
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Accordingly, ground no.2 & 3
of the Revenue's appeal are
rejected."
3.1 From the above portion, we noticed
that the Tribunal has bifurcated the
expenditure in two parts - first related
to investment of Rs. 5907.18 lakhs in
foreign subsidiaries, it was
held that the dividend income
from such subsidiaries is taxable in
India and that therefore, Section 14A
would have no applicability. The
remaining amount pertain to investment
of Rs. 38 Crores [rounded off] made in
Indian subsidiaries. In this respect,
the Tribunal noted that the assessee had
to its disposal, own interest free funds
many times over the investment in
question. As per the balance sheet as on
31st March 2005, the assessee had
interest free fund of Rs. 929.57 Crores.
3.2 Such being the facts, the Tribunal,
in our opinion, committed no error. No
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question of law, therefore, arises."
8. In view of the above, we are of the
opinion that no question of law much less any
substantial question of law arises from the
impugned order of the Tribunal. The Appeal
therefore, being devoid of any merit, is
accordingly dismissed.
(BHARGAV D. KARIA, J)
(NIRAL R. MEHTA,J)
PALAK
