Case Number: ITA 5055/DEL/2019
Appellant: DCIT Central Circle-31, New Delhi
Respondent: Malana Power Company Ltd., New Delhi
Assessment Year: 2013-14
Result: Final Tribunal Order
Case Filed On: 2019-05-31
Date of Order: 2022-05-04
Pronounced On: 2022-05-04
The present appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-37, New Delhi, dated 28.02.2019. The main issues under consideration were the disallowance under Section 14A of the Income Tax Act and the treatment of carbon credits.
The appeal was based on two primary grounds:
The Revenue, represented by Ms. Rinku Singh, Senior Departmental Representative (DR), argued that the disallowance under Section 14A was warranted even if no exempt income was earned during the year. Additionally, the Revenue argued that the carbon credits should be treated as revenue receipts, subject to tax.
The assessee, Malana Power Company Ltd., represented by Sh. P. K. Jain, Chartered Accountant (CA), argued against the disallowance under Section 14A, stating that since no exempt income was earned during the year, no disallowance was justified. Regarding the carbon credits, the assessee maintained that these should be treated as capital receipts, as previously adjudicated in their favor by the Co-ordinate Bench of the Tribunal.
The Tribunal, comprising Dr. B. R. R. Kumar, Accountant Member, and Sh. Anubhav Sharma, Judicial Member, considered the arguments from both sides and made the following observations:
The Tribunal noted that the assessee had not earned any exempt income during the relevant assessment year. Citing the judicial precedents and consistent rulings, the Tribunal held that no disallowance under Section 14A was called for in the absence of exempt income.
The Tribunal referred to the earlier decision in the assessee’s own case (ITA No. 2281/Del/2013) where it was held that carbon credits are to be considered as capital receipts. The Tribunal noted that the amendment brought with effect from 01.04.2018, which allowed a concessionary tax rate of ten percent for income by transfer of carbon credits, was not applicable to the assessment year under consideration (2013-14).
The Tribunal dismissed the appeal filed by the Revenue, upholding the order of the Commissioner of Income Tax (Appeals). The Tribunal ruled in favor of the assessee on both grounds:
This decision reinforces the principle that disallowance under Section 14A cannot be made in the absence of exempt income. It also supports the treatment of carbon credits as capital receipts for the assessment years prior to the amendment effective from 01.04.2018.
In conclusion, the Tribunal’s decision in the case of DCIT Central Circle-31 vs. Malana Power Company Ltd. highlights important aspects of disallowance under Section 14A and the treatment of carbon credits. The ruling emphasizes the need for taxpayers to understand the implications of earning exempt income and the appropriate classification of carbon credits in their tax filings.
This case is part of the broader efforts by the tax authorities to ensure proper compliance with tax laws while providing clarity on contentious issues such as disallowances under Section 14A and the taxation of carbon credits. The decision aligns with the judicial precedents and legislative amendments aimed at fostering a fair and transparent tax regime.
DCIT Central Circle-31 vs. Malana Power Company Ltd.: Dispute Over Disallowance and Carbon Credits
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