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2015 (7) TMI 1217 - AT - Income TaxDeduction u/s. 80IA - income from sale of Certified Emission Reduction (CER) - income earned by the assessee on sale of CERs or Carbon Credits - Held that - The income received on sale of excess Carbon Credits is liable to be assessed as a capital receipt not chargeable to tax. The Ground of appeal no. 1 relating to claim of exemption u/s. 80IA of the Act on the income from sale of Carbon Credits is rendered academic Determination of Book Profits for the purpose of section 115JB - admission of additional ground - Held that - The assessee cannot be prevented from raising the Additional Ground of appeal no. 2 relating to relating to assessment of its correct tax liability in the course of application of section 115JB of the Act. It is also quite clear that the factual contours of the claim would not require any fresh investigation of facts but merely an appraisal of those facts which are already available on record.
Issues Involved:
1. Deduction under Section 80IA on income from the sale of Certified Emission Reductions (CERs). 2. Classification of CERs receipts as capital or revenue receipts. 3. Disallowance under Section 14A read with Rule 8D related to interest and administrative expenses. 4. Computation of Book Profits under Section 115JB of the Income Tax Act. Detailed Analysis: 1. Deduction under Section 80IA on Income from the Sale of Certified Emission Reductions (CERs): The primary issue in the assessee's appeal was whether the income from the sale of Certified Emission Reductions (CERs) under the Clean Development Mechanism (CDM) project of the United Nations qualifies for deduction under Section 80IA of the Income Tax Act. The assessee, engaged in the business of power generation, claimed this income as part of its business profits eligible for deduction under Section 80IA. The Assessing Officer (AO) denied this claim, stating that the income from CERs does not constitute income derived from the eligible business of power generation. The CIT(A) upheld the AO's view, leading to the assessee's appeal. 2. Classification of CERs Receipts as Capital or Revenue Receipts: The assessee contended that CERs receipts should be treated as capital receipts not chargeable to tax. The CIT(A) rejected this plea, considering the receipts as revenue generated in the course of business. However, the Tribunal referred to the judgment of the Andhra Pradesh High Court in the case of My Home Power Ltd., which held that income from the sale of Carbon Credits is a capital receipt, not a business receipt. The Tribunal upheld this view, concluding that the income from the sale of CERs is a capital receipt not chargeable to tax. 3. Disallowance under Section 14A read with Rule 8D: The AO disallowed Rs. 29,66,81,836 under Section 14A, attributing it to interest and administrative expenses related to investments. The CIT(A) partially upheld this disallowance, sustaining Rs. 9,05,53,986 for direct interest expenditure but deleting Rs. 15,32,12,850 of indirect interest expenditure. The CIT(A) also sustained Rs. 5,29,15,000 for administrative expenses. The Tribunal found no reason to interfere with the CIT(A)'s findings, noting that the disallowance u/s 14A did not impact the net taxable profits due to the corresponding increase in profits eligible for Section 80IA benefits. 4. Computation of Book Profits under Section 115JB: The assessee raised two additional grounds related to the computation of Book Profits under Section 115JB: - The exclusion of Rs. 3,186,262,683 from the sale of CERs, considering it a capital receipt. - The deduction of Rs. 3,258,313,098 on account of loss from the demerger of the investment division. The Tribunal admitted these additional grounds, following the Supreme Court's judgment in the case of CIT Vs. National Thermal Power Corporation, which allows appellate authorities to consider new grounds involving points of law. The Tribunal restored these issues to the AO for adjudication on merits, ensuring the assessee is given a reasonable opportunity to be heard. Conclusion: - The Tribunal upheld the assessee's plea that income from the sale of CERs is a capital receipt not chargeable to tax, based on the Andhra Pradesh High Court's judgment. - The disallowance under Section 14A was found to be academic as it did not affect the net taxable profits due to the offsetting increase in profits eligible for Section 80IA benefits. - Additional grounds related to the computation of Book Profits under Section 115JB were admitted and remanded to the AO for fresh adjudication. Order Pronounced: The appeal of the assessee is partly allowed, and the appeal of the Revenue is dismissed.
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