HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR 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 22/08/2017 (2 of 8) [ ITA-86/2014] 1. By way of these appeals, appeals has challenged judgment and order of Tribunal whereby Tribunal has dismissed appeal of department and confirmed order of CIT(A). 2. This court while admitting appeals on different dates framed following substantial questions of law:- D.B. Income Tax appeal No.86/2014 (i) Whether Tribunal was legally justified in holding that sales tax subsidy received by assessee for Rs.46,22,28,850/- in form of sales tax exemption was capital receipt and not revenue receipt and also not to be included in book profit u/s 115JB ignoring purpose of subsidy, which was given to enhance production employment and sales in State of Rajasthan which are post operational activities? (ii) Whether Tribunal was legally justified in reversing findings of CIT(A) and allowing assessee to adopt different market value of goods or services for purpose of section 80IA(8) on basis of revised return against value adopted in original return which was filed after closing books and getting accounts audited thereby deviating from principle of determining market value of goods or services referred to Section 80IA(8) which has been consistently adopted by assessee in earlier years?" D.B. Income Tax appeal No.87/2014 (i) Whether Tribunal was legally justified in holding that sales tax subsidy received by assessee for Rs.80,40,47,166/- in form of sales tax exemption was capital receipt and not revenue receipt and also not to be included in book profit u/s 115JB ignoring purpose of subsidy, which was given to enhance production employment and sales in State of Rajasthan which are post operational activities? (3 of 8) [ ITA-86/2014] (ii) Whether Tribunal was legally justified in reversing findings of CIT(A) and allowing assessee to adopt different market value of goods or services for purpose of section 80IA(8) on basis of revised return against value adopted in original return which was filed after closing books and getting accounts audited thereby deviating from principle of determining market value of goods or services referred to Section 80IA(8) which has been consistently adopted by assessee in earlier years?" (iii) Whether Tribunal was legally justified in holding that sale proceeds received by company from sale of Certified Emission Reduction (CER) pertaining to Carbon credit shown as capital receipt was neither chargeable to tax under head capital gain nor under head business income u/S.28(iv) and to be excluded for purpose of section 115JB specifically when benefit arose to company from business activity? D.B. Income Tax appeal No227/2016 (i) Whether Tribunal was legally justified in reversing findings of CIT(A) and allowing claim of assessee for value of goods or services for purpose of section 80IA(8) against All India rate and rate at which power was sold to third parties thereby deviating from principle of determining market value of goods or services referred to Section 80IA(8)?" (ii) Whether Tribunal was legally justified in holding that sale proceeds received by company from sale of Certified Emission Reduction (CER) pertaining to Carbon credit shown as Capital receipt was neither chargeable to tax under head capital gain nor under head business income u/s 28(iv) and to be excluded for purpose of section 115JB specifically when benefit arose to company from business activity? 3. In view of our decision taken today, in tax appeal no.85/2014 wherein it has been observed as under:- (4 of 8) [ ITA-86/2014] 23. As stated above, issue No.1, same is already decided in Tax Appeal No.204/2010. In that view of matter, first issue is required to be answered in favour of assessee. 24. issue No.2 is with regard to claim of assessee for value of goods or services for purpose of Section 80IA(8). 25. In view of submissions made by Mr. S. Ganesh, price which has been given to sister concern is to be determined on basis of principle laid down by Supreme Court in case all four conditions are fulfilled as stated in his submissions and more so Tribunal has given finding which reads as under:- 10. We have heard rival submissions and perused evidence on record. We have also gone through facts of case, assessment order, order of CIT(Appeals), principles and judicial decisions relied upon and documents produced by both parties. At outset, we find that revised return filed by Assessee has been accepted by AO 12 by clear finding in Assessment Order. Once revised return is validly filed & accepted, original return is non-est, as it is completely substituted by revised return. Now let us deal with Market Value . On perusal of assessment order & all other records, we find that facts with regard to adaptation of market value are clear. assessee has adopted value which is market value and department has substituted same by another value. department is contending that market value as adopted by AO is most appropriate since it represents price charged by State Grid to various customers including assessee. Hence, same should be considered. AR of assessee submits that value adopted by assessee represents market value since it is based on real transactions between unrelated parties and details for same are available in public domain. issue before us is whether in such situations where there are two or more market values available and if Assessee has adopted value which is market value , whether it is permissible for Revenue to still replace same by another market value . 11. At this stage, it is necessary to refer to relevant provisions of Act i.e. Sec 80IA(8), which states that - Where any goods or services held for purposes of eligible business are transferred (5 of 8) [ ITA-86/2014] to any other business carried 13 on by assessee, or where any goods or services held for purposes of any other business carried on by assessee are transferred to eligible business and, in either case, consideration, if any, for such transfer as recorded in accounts of eligible business does not correspond to market value of such goods or services as on date of transfer, then for purposes of deduction under this section, profits and gains of such eligible business shall be computed as if transfer, in either case, had been made at market value of such goods or services as on that date Explanation For purposes of this sub- section, market value , in relation to any goods or services, means price that such goods or services would ordinarily fetch in open market. 12. On perusal of above, it could be clearly seen that Statute provides that assessee must adopt Market Value as transfer price. In open market, where basket of Market Values [say like, independent third party transactions, grid price (average annual landed cost at which grid has sold power to assessee), Power Exchange Price for relevant period etc.] are available, law does not put any restriction on assessee as to which Market Value it has to adopt, it is purely assessee s discretion. So long as assessee has adopted Market Value as transfer price, that is sufficient compliance of law. AO can adopt different value only where value adopted by assessee does not correspond to market value . Even if assessee s Cement Unit has purchased power, also from Grid or that assessee s Power Unit has also partly sold its power to grid or third parties that by itself, does not 14 compel assessee or permit Revenue, to adopt ONLY grid price or price at which Eligible Unit has partly sold its power to grid or third parties, as market value for captive consumption of power to compute profits of eligible unit. Any such attempt is clearly beyond explicit provisions of Section 80IA(8) of Act. Underlying principles forming basis of our findings given here in before in this order are also supported by decision of Special Bench of Hon ble (6 of 8) [ ITA-86/2014] Bangalore Tribunal in Aztec Software & Technology Services Ltd. Vs. ACIT [2007] 107 ITD 141 [Bang][SB] as well as Mumbai Tribunal decision in case of ACIT Vs. Maersk Global Service Centre (I) Pvt. Ltd [2011] 133 ITD 543 [Mum] wherein while interpreting Transfer Pricing provisions, courts have held that it is assessee who is best judge to know transactions undertaken & thus finding out comparable cases from vast database available in public domain. Once assessee has adopted same, AO has to examine whether same is market price or not. AO has power to adopt market price only when price adopted by assessee does not correspond to market value. In present case, we find that assessee has adopted rate at which actual transactions have been undertaken by unrelated entities. volumes of transaction as relied upon are also substantial and hence it cannot be said that assessee has hand picked 15 some transactions, which are beneficial to it. DR submitted that since assessee has itself drawn power from grid, grid rate represents best market value & hence same should only be adopted. We are not agreeable to above contention of department. No doubt grid rate is market value but there is no concept of best market value in law. If by using said adjective, Revenue seeks to infer that grid rate is only market value in present context, such inference is also clearly not tenable. Further, in case there are options, option favorable to Assessee is to be adopted. This is well settled principle of law laid down by courts time and again including Supreme Court in case of CIT Vs. Vegetable Products Ltd. [1973] 88 ITR 192 [SC] and other High Courts as pointed out by AR. 13. In light of aforesaid, we hold that (a) value adopted by Assesse be it value as per independent third party trading transactions or as per Power Exchange (IEX etc.) or any other independent transaction (for relevant period and which has taken place in relevant area where eligible unit is located) constitute market value in terms of explanation to Section 80IA(8); (7 of 8) [ ITA-86/2014] (b) value at which State Grid has sold power to Cement Unit of Assessee (average annual landed cost) also constitute market value in terms of explanation to Section 80IA(8) but value at which State Grid or third party has purchased power from Power Unit of Assessee, which represents its power which is sold when not required by Cement Unit, does not constitute market value in terms of 16 explanation to Section 80IA(8). It is principle and not quantum which is deciding factor; (c) where basket of market values are available for relevant period and relevant geographical area where eligible unit is situated, assessee has discretion to adopt any one of them as market value; and (d) If value adopted by assessee is market value as explained above, it is not permissible for Revenue to recompute profits & gains of eligible unit by substituting said value (as adopted by Assesse) by any other market value . 14. Accordingly, we delete disallowance as made by AO in order u/s 143(3) on account of deduction u/s 80IA of Act and hence grounds 1 & 2 are accordingly decided in favor of assessee. 27. said issue is also answered in favour of assessee. 28. issue No.3 is with regard to sale proceeds received by company from sale of Certified Emission Reduction (CER) pertaining to Carbon Credit shown as capital receipt. 29. In view of decision rendered by Supreme Court in Vodafone International (supra), it has to be taken as capital account and it cannot be taxed under Income Tax Act since it was taxable under direct tax and Tribunal has given finding which reads as under:- We have heard rival submissions and perused evidence on record. We find that Appellate Tribunal in My Home Power Ltd. Vs. DCIT (supra), have, after detailed examination, concluded that receipts from Carbon credit are capital in nature. We are inclined to follow said decision and other two decisions of Chennai Tribunal in Sri Velayudhaswamy Spinning Mills (8 of 8) [ ITA-86/2014] (P.) Ltd. Vs. DCIT(Supra) and Ambika Cotton Mills Ltd. Vs.DCIT (supra) where also it has been held that receipt on account of Carbon Credit is capital in nature & neither chargeable to tax under head Business Income nor liable to tax under head Capital Gains. Our above view is also supported by decision of Supreme Court in case of Vodafone International Holdings Vs. UOI (supra) wherein Supreme Court has held that treatment of any particular item in different manner in 1961 Act and DTC serves as important guide in determining taxability of said item. Since DTC by virtue of deeming provisions specifically provides for taxability of carbon credit as business receipt and Income Tax Act does not do so, our view gets duly fortified by principles stated in above decision of Supreme Court. Accordingly, this ground of assessee is allowed and addition made by AO is deleted. 30. In that view of matter, third issue is also required to be answered in favour of assessee. All issues are therefore answered in favour of assessee against department. 4. In that view of matter, issue is answered in favour of assessee and against department. 5. In that view of matter, appeals stand dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Pdaiya/56,57,59 Commissioner of Income-tax, Ajmer v. Shree Cement Limited