2014 (7) TMI 1157 - AT - Income Tax

Exclusion of receipts from trading of carbon credit and insurance claim while computing the deduction under sec.80IA - Held that - We are bound to follow the judgment of the Hon ble Andhra Pradesh High Court in the case of CIT vs. M/s. My Home Power Ltd. 2014 (6) TMI 82 and hold that the receipts in the hands of the assessee generated out of sale of excess carbon credit are in the nature of capital receipts and, therefore, not includible in the computation of taxable income. Once the entire receipts are excluded from the computation of income itself, there is no question of any separate argument of sec.80IA deduction. As far as carbon credit receipt is concerned, the issue is decided in favour of the assessee. Therefore, the Assessing Officer is directed to exclude the carbon credit receipts from the computation of assessee s income. - Decided against revenue First initial assessment year for claiming deduction under sec.80IA - depreciation of earlier years (which already have been absorbed) cannot be notionally carried forward and considered in computing the quantum of deduction under sec.80IA - Held that - This issue is already covered by the judgment of the Hon ble Madras High Court rendered in the case of CIT v. Velayuthasamy Spinning Mills 2010 (3) TMI 860 - Madras High Court and held that Commissioner of Income-tax(Appeals) didn t erred in holding that the assessment year 2005-06 is the first initial assessment year in which the assessee claimed deduction under sec.80IA and, therefore, the depreciation of earlier years (which already have been absorbed) cannot be notionally carried forward and considered in computing the quantum of deduction under sec.80IA. - Decided against revenue

Summary

Issues:
1. Exclusion of receipts from trading of carbon credit and insurance claim while computing deduction under sec.80IA.
2. Whether the income generated from the sale of excess carbon credit is in the nature of capital receipt or business income.
3. Notional carry forward of depreciation for computing the quantum of deduction under sec.80IA.

Analysis:

Issue 1: Exclusion of receipts from trading of carbon credit and insurance claim for sec.80IA deduction
- The assessee appealed against the exclusion of receipts from trading of carbon credit and insurance claim while computing the deduction under sec.80IA.
- The Hon'ble Andhra Pradesh High Court in CIT vs. M/s. My Home Power Ltd. held that income from the sale of excess carbon credit is a capital receipt, not business income.
- The ITAT Chennai followed the Andhra Pradesh High Court judgment and excluded the carbon credit receipts from the computation of the assessee's income.
- The issue of insurance claim for sec.80IA was rejected as not pressed.

Issue 2: Nature of income from sale of excess carbon credit
- The Tribunal held that receipts from the sale of excess carbon credit are capital receipts, following the Andhra Pradesh High Court judgment.
- The Tribunal directed the Assessing Officer to exclude the carbon credit receipts from the computation of the assessee's income, deciding in favor of the assessee.

Issue 3: Notional carry forward of depreciation for sec.80IA deduction
- The Revenue contended that depreciation of earlier years cannot be notionally carried forward for computing the deduction under sec.80IA.
- The Tribunal referred to the judgment of the Hon'ble Madras High Court in CIT v. Velayuthasamy Spinning Mills, which covered the issue.
- As the Revenue had filed an SLP before the Supreme Court, the Tribunal allowed the Revenue to keep the issue alive for further appeals.
- However, based on the Madras High Court judgment, the Tribunal found the order of the Commissioner of Income-tax(Appeals) just and proper in law.
- The appeal filed by the assessee was partly allowed, and the appeal filed by the Revenue was dismissed.

This detailed analysis of the judgment addresses the issues raised by the parties and the Tribunal's decision based on relevant legal precedents and interpretations of the Income-tax Act, 1961.