Expense against carbon credit (Capital Receipt) not deductible

By | March 3, 2020
(Last Updated On: March 3, 2020)
Rajshree Sugars and Chemicals Limited Vs ACIT (ITAT Chennai)
ITA No.1126/Chny/2011
05/12/2019
2007-08

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by the Assessee against the order of the learned Commissioner of Income Tax (Appeals)-I, Coimbatore in ITA No.188/09-10 dated 01.03.2011 for the Assessment Year 2007-08.

2. Shri R. Vijayaraghavan, Advocate represented on behalf of the Assessee and Mr. M. Srinivasa Rao, CIT-DR represented on behalf of the Revenue.

3. The learned Authorized Representative drew our attention to the additional grounds filed by the assessee which is dated 20.12.2014 but filed on 22.12.2014. In the additional grounds, the assessee has raised the following ground:

Additional Ground: An amount of Rs.5,76,72,595/- realized to transfer of Carbon Credits – CER (Certified Emission Reductions) was not a receipt in the nature of revenue, but only a capital receipt and therefore not liable to be included in the total income of the appellant for the assessment year, in conformity with the ratio of the decision of the Hon’ble Income Tax Appellate Tribunal “B” Bench, Hyderabad in its order dated 02.11.2012 in I.T.A. No.1114/HYD/2009”, in the facts and circumstances of the case and in law.”

It was submitted by the learned Authorized Representative that the assessee has claimed that the receipt from the sale of carbon credits had originally been offered by the assessee as business income and the assessee had claimed the same as eligible for deduction u/s.80IA of the Income Tax Act, 1961. It was a submission that the Assessing Officer in the course of the assessment had denied the assessee’s claim of deduction u/s.80IA in respect of the receipts on the sale of the carbon credits. It was a submission that in the additional ground, the assessee is raising an alternative prayer that the receipts from the sale of the carbon credit is liable to be treated as the capital receipts in view of the decision of the Co-ordinate Bench of the Tribunal, Hyderabad Benches in the case of Commissioner of Income Tax Vs. My Home Power Limited 365 ITR 82 (AP). It was further a submission by the learned Authorized Representative that for the Assessment Year 2008-09 and 2010-11 and in ITA Nos.851/Mds/2012 and 2235/Mds/2014 vide order dated 28.12.2016, the issue of the additional ground, wherein the assessee has claimed the receipts on the sale of the carbon credits as a capital receipt had been restored to the file of the Assessing Officer for re-adjudication. It was a prayer that he had no objection if for the current year also the issue was restored to the file of the Assessing Officer for re-adjudication in similar lines.

The same was put up to the learned Departmental Representative. Shri. M. Srinivasa Rao, CIT-DR who argued the matter submitted that the issue as to whether the receipts from the sale of carbon credits can be treated as capital receipts or not should not be considered by the Tribunal nor should it be restored to the file of the Assessing Officer. It was a submission that the assessee has not produced any evidence to show as to why the said details were not placed before the Assessing Officer. It was a submission by the learned Departmental Representative that the assessee had in the computation of income filed by the assessee offered the same as business income and the assessee claimed relief u/s.80IA.

4. The learned Departmental Representative placed before us the copy of the decision of the Co-ordinate Bench of this Tribunal in the case of S.P. Spinning Mills (P) Limited Vs. Assistant Commissioner of Income Tax, Salem reported in [2017] 81 taxmann.com 34 (Chennai – Trib), wherein it was held that the assessee was not entitled to the deduction u/s.80IA in respect of the receipts from the sale of carbon credits. It was also a submission that the receipts from the sale of carbon credits had been treated by the Assessing Officer therein as business income itself. It was thus a prayer of the learned Departmental Representative that the ground has to be adjudicated at the Tribunal level itself. It was also a submission that the decision of the Cochin Benches of the Tribunal in the case of Apollo Tyres Limited Vs. Assistant Commissioner of Income Tax reported in [2014] 47 taxmann.com 416/149 ITD 756 (Coch.-Trib.), wherein it has been held that the receipt of the sale of carbon credits is liable to be treated as business income.

5. We have considered the rival submission and perused the materials available on record.

6. We find substantial merits in the arguments raised by the learned CIT-DR. We are of the clear view that in view of the arguments raised by the learned CIT-DR on the issue of whether the receipts on the sale of the carbon credits is liable to be sent back to the Assessing Officer it is not permissible. This is because it has been brought to our notice that the decision in the case of Commissioner of Income Tax Vs. My Home Power Limited by the Tribunal has already been upheld by the Hon’ble Andhra Pradesh High Court by dismissal of the appeal by the Revenue on the ground that there was no substantial question of law. It is also noticed that the decision of the Co­ordinate Cochin Bench of this Tribunal in the case of Apollo Trues Limited Vs. Assistant Commissioner of Income Tax has also been upheld by the Hon’ble High Court of Kerala by dismissal of the appeal by the assessee , therein on the ground that there was no substantial question of law. It is also brought to our notice that the Hon’ble Karnataka High Court and the Hon’ble Gujarat High Court has decided this issue in favour of the assessee following the decision in the case of My Home Power Limited. It is also being brought to our attention that the provision of Section 115 BBG(1) has been brought to the statute w.e.f 01.04.2018, wherein it has been held as follows:

“(1) Where the total income of an assessee includes any income by way of transfer of carbon credits, the income-tax payable shall be the aggregate of:-

(a) The amount of income-tax calculated on the income by way of transfer of carbon credits, at the rate of ten percent; and

(b) The amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).”

7. This being so, we are inclined to follow the decision of the Co-ordinate Bench of the Tribunal, Hyderabad Bench in the case of My Home Power Limited (supra) to hold that the receipts from the sale of the carbon credits is liable to be held as capital receipts only. This view of ours is also supported by the decision of the Co-ordinate Bench of this Tribunal in the case of Assistant Commissioner of Income Tax Vs. M/s. Chemplast Sanmar Limited in I.T.A. Nos. 2957 to 2963 of 2017 dated 04.12.2019. Consequently, the additional ground filed by the assessee stands allowed.

In respect of the main ground in Ground No.2 and 3, it was submitted by the learned Authorized Representative that the issue was against the action of the learned CIT(A) in confirming the method of computation of the eligible profits done by the Assessing Officer in respect of the steam generated and re­transmitted in respect of the production of the electricity through steam generators, for the purpose of computation of deduction u/s.80IA of the Income Tax Act, 1961. The learned Authorized Representative though submitted a Chartered Engineer’s certificate but was unable to substantiate the claim as made the said certificate.

The learned Departmental Representative left the court room after the argument on the additional grounds and did not return. In reply, there was no answer from the learned CIT-DR.

8. We have considered the submission and perused the materials available on record.

9. As the learned Authorized Representative has been unable to substantiate the Chartered Engineer’s Certificate and has been unable to show us as to how the order of the CIT(A) is erroneous, we find no reason to interfere in the findings of the CIT(A). Consequently the order of the learned CIT(A) on this issue stands confirmed.

10. In Ground Nos. 4, 5, 6 and 1, it was submitted by the learned Authorized Representative that the issue in respect of the commission paid to a person outside India in respect of arranging the sale of the carbon credits. It was put to him that once the issue as to whether the receipts on the sale of carbon credits is treated as a capital receipt. How can the expenses in relation to the sale of carbon credits outside India be claimed as Revenue expenditure. For this he did not make any specific submission.

11. We have considered the submissions of the learned Authorized Representative. As we have already held that the receipt on the sale of carbon credits is liable to be treated as capital receipts, admittedly, the expenditure incurred by the assessee in respect of the sale of the carbon credits cannot be treated as Revenue expenditure at all. However, the Assessing Officer is also directed to see to it that when the capital receipt is computed, the said expenditure is reduced from the said capital receipts for determining the net capital receipts. In the result, Ground Nos. 4, 5, 6 and 1 stands dismissed.

12. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 5th December, 2019 in Chennai.

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