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DCIT-8 (1) , Mumbai Versus Dodson Lindblom Hydro Power Pvt Ltd. and Vica-Versa

2016 (2) TMI 512 - ITAT MUMBAI

Disallowance of claim u/s 80IA made in respect of the sale of Carbon Credit - Held that:- It is now settled proposition in law that in principle the receipts on sale of carbon credits should not brought into the "Profit & Loss Account" and it relates to the "balance sheet‟ item. Consequently, the question of making a claim u/s 80IA(4) of the Act, allowability of the same or otherwise becomes an academic exercise. In view of the above, the questions raised by the Revenue in its appeal and t .....

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r appeals, ITA No.5933/M/2012; ITA No.7716/M/2011 and C.O. No.128/M/2011 are filed by the assessee and the appeal ITA No.5932/M/2010 is filed by the Revenue. Since, the issues raised in these appeals are inter-connected and some issues are identical, therefore, for the sake of convenience, they are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order. Appeals for the AY 2007-2008 ITA No.5932/M/2010 (By Rev .....

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and circumstances of the case and in law. 3. At the outset, Ld Counsel for the assessee submitted that the issue contested both by the assessee and the Revenue relates to the allowability of claim of deduction u/s 80IA of the Act in respect of the receipts earned by the assessee on sale of carbon credits‟. Referring to the impugned order of the CIT (A), Ld Counsel for the assessee submitted that the assessee earned revenue from the sale of Carbon Emission Reductions (CERs) amounting to &# .....

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ct. The contents of para 1.5 of the CIT (A)‟s order are relevant in this regard. On these facts, both the parties brought our attention to the judgment of the Hon‟ble High Court of Andhra Pradesh in the case of CIT vs. My Home Power Ltd [2014] 365 ITR 82 (AP) and mentioned that the income derived from the sale of carbon credits is considered as a capital receipt‟ and not business receipt‟ and the same is not liable for tax under the Act. To that extent, as per the law sta .....

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0 and held that the receipts on sale of carbon credits are capital in nature. In the process, the Chennai Bench relied on the judgment of the Hon‟ble High Court of Andhra Pradesh in the case of My Home Power Ltd (supra). Thus, such receipts are now outside the scope of income chargeable to tax. In view of this, the order of the CIT (A) is required to be reversed to that extent. 5. We have heard both the parties and perused the orders of the Revenue Authorities as well as the decisions cite .....

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ffshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns . ITAT agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess carbon credits, the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or .....

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der dated 12.9.2014 are extracted as under: 6. Both sides heard. We have perused the orders of the authorities below and examined the decisions on which both sides have place reliance. The Hyderabad Bench of the Tribunal in the case of My Home Power Ltd (supra) has held carbon credit as capital receipts. The relevant extract of the findings of the coordinate Bench are as under: We have heard both the parties and perused the material on record. Carbon credit is in the nature of an element‟ .....

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. Due to that the assessee gets aprivilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax for the assessment year under consideration in terms of section 2(24), 28, 45 and 56 of the Income Tax Act, 1961. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered .....

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cing and / or selling any product, biproduct or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion f capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgment of the Supreme Court in the case of CIT vs. Maheshwari Devi Jute Mills Ltd [1965] 57 ITR 36 (SC) .............In the present case, the assessee transferred the carbon credits like loom hours to some othe .....

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ncome. 7. The Hon‟ble Andhra Pradesh High Court in the appeal of the Revenue in ITTA No.60 of 2014 decided on February 19, 2014 My Home Power Ltd (supra) has upheld the view taken by the Hyderabad Bench in the case of My Home Power Ltd (supra). 7. Therefore, considering the above, it is now settled proposition in law that in principle the receipts on sale of carbon credits should not brought into the Profit & Loss Account‟ and it relates to the balance sheet‟ item. Conseque .....

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raised the following ground of cross objection. The respondent submits that if the DCIT‟s stand that income from sale of carbon credit do not qualify for deduction under section 80IA(4) is accepted, then the expenditure incurred for earning the carbon credit should also be reduced in computing the profit of the eligible undertaking. 9. During the proceedings before us, assessee also raised an additional ground and the same reads as under:- 1. Without prejudice to Ground no.1 of cross obje .....

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objections. 10. From the above, assessee requested for excluding the said receipts earned on sale of carbon credits from the computation of total income consequent to the finding of the Hon‟ble High Court of Andhra Pradesh in the case of My Home Power Ltd (supra). Considering the fact that the relevant facts are already available on record, we find the issue does not call for any investigation. Therefore, we admit the said additional ground and direct the AO to exclude the relevant receip .....

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der of the CIT (A)-16, Mumbai dated 22.8.2011 for the assessment year 2008-2009. 13. In this appeal, the issue raised in the grounds relates to the allowability of the claim of deduction u/s 80IA(4) of the Act in respect of the receipts earned on sale of carbon credits. On this issue, during the first appellate proceedings, unlike in the AY 2007-2008, CIT (A) directed the AO to exclude the said receipts on the ground that the same are not derived from the eligible undertaking. CIT (A) denied the .....

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utes capital receipt‟. For this, we relied on the said judgment of the High Court of Andhra Pradesh (supra). Therefore, the issue raised by the assessee in the Ground no.1 is required to be dismissed, in principle. 14. Before us, Ld Counsel for the assessee brought our attention to the additional ground, identically worded as in the AY 2007-2008, which was already extracted and adjudicated in the above paragraphs of this order. While adjudicating the said additional ground for the AY 2007- .....

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s appeal filed by the assessee on 28.9.2012 is against the order of the CIT (A)-16, Mumbai dated 19.7.2012 for the AY 2009-2010. 17. In this appeal, the issue raised in the grounds relates to the allowability of the claim of deduction u/s 80IA(4) of the Act in respect of the receipts earned on sale of carbon credits. On this issue, during the first appellate proceedings, unlike in the AY 2007-2008, CIT (A) directed the AO to exclude the said receipts on the ground that the same are not derived f .....

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