2015 (10) TMI 2737 - AT - Income Tax

Disallowance of deduction made u/s 80IA in respect of carbon credit - gain on account of carbon credit is a capital receipt or revenue receipt - Held that - Case of My Home Power Ltd. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT affirmed that Carbon Credit is not an offshoot of an environmental concerns. That no asset is generated in the course of business but it is generated due to environmental concerns. The Hon ble High Court has agreed that the factual analysis as the assessee was carrying the business of power generation. That the carbon credit is not directly linked with the power generation. Hence Hon ble High Court concluded that on the sale of excess carbon credits the income was received and the same was capital receipt and it cannot be business receipt or income. Thus carbon credit sale emanating to the assessee is a capital receipt not exigible to tax. Accordingly this cross objection filed by the assessee is allowed and we hold that the assessee is not liable to pay any tax on the carbon credit sale receipts. Disallowance of claim u/s 80IA with respect to the receipt on account of carbon credit sale - Held that - We find that as we have already held that the receipt on account of carbon credit sale is a capital receipt and hence the same is not liable to tax. The adjudication of issue raised by the Revenue is only of academic interest. Accordingly we are not engaging under the same. Hence this ground raised by the Revenue is dismissed as infructuous. - Assessee appeal allowed.

Issues Involved:
1. Whether the CIT(Appeals) was justified in deleting the disallowance of deduction made by the AO under Section 80IA in respect of carbon credit.
2. Whether the gain on account of carbon credit is a capital receipt and not liable to tax.
3. Whether the delay in filing cross objections by the assessee should be condoned.
4. Whether the CIT(Appeals) was justified in deleting the disallowance of Rs. 2,29,285/- on account of interest income claimed as deduction under Section 80IA.

Detailed Analysis:

1. Deletion of Disallowance of Deduction under Section 80IA for Carbon Credit:
The Revenue questioned the CIT(Appeals) decision to delete the disallowance of deduction under Section 80IA related to carbon credit. The CIT(Appeals) held that the assessee was entitled to this deduction, referencing several case laws and the process by which income from carbon credit is generated. The CIT(Appeals) observed that the generation of carbon credit is directly related to the power generation process, thus qualifying for deduction under Section 80IA. The Tribunal, however, found the issue moot since it determined that carbon credit sales are capital receipts and not taxable, making the deduction question irrelevant.

2. Carbon Credit as Capital Receipt:
The assessee argued that the gain from carbon credit should be treated as a capital receipt, relying on the judgment of the Andhra Pradesh High Court in CIT vs. My Home Power Ltd. The Tribunal agreed, referencing the ITAT Hyderabad decision and the Andhra Pradesh High Court's affirmation that carbon credit is an offshoot of environmental concerns and not business operations. The Tribunal concluded that carbon credit sales are capital receipts and not taxable, following judicial precedence and various Tribunal decisions supporting this view.

3. Condonation of Delay in Filing Cross Objections:
The assessee's cross objections were delayed by significant periods (ranging from 1145 to 1498 days). The Tribunal considered the Supreme Court's decision in National Thermal Power Co. Ltd. vs. CIT, which allows raising new grounds in the interest of justice if relevant facts are on record. The Tribunal also referenced the Supreme Court's decision in Collector Land Acquisition vs. MST Katiji & Others, emphasizing a pragmatic approach to condoning delays to ensure substantial justice. The Tribunal admitted the cross objections, deeming the delay justified and in the interest of justice.

4. Deletion of Disallowance of Interest Income Claimed under Section 80IA:
The Revenue challenged the deletion of Rs. 2,29,285/- disallowed as interest income under Section 80IA. However, this issue was rendered moot by the Tribunal's decision that carbon credit sales are capital receipts and not taxable. Consequently, the Tribunal dismissed this ground as infructuous.

Conclusion:
The Tribunal allowed the assessee's cross objections, holding that carbon credit sales are capital receipts and not taxable. Consequently, the Revenue's appeals were dismissed as infructuous. The Tribunal emphasized the importance of substantial justice over technicalities, condoning the delay in filing cross objections and ensuring the correct assessment of tax liability. The order was pronounced in the open court on October 30, 2015.

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