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2018 (6) TMI 1735 - AT - Income Tax


Issues:
1. Disallowance of interest expenditure.
2. Sale of Carbon Credits.

Issue 1: Disallowance of interest expenditure:
The Assessing Officer (AO) challenged an order of the CIT(A) regarding the disallowance of interest expenditure amounting to &8377; 6.09 crores. The AO observed an increase in interest expenditure corresponding to an increase in borrowings and directed the assessee to explain the reason for not disallowing the interest expenses. The AO disallowed a proportionate interest amount of &8377; 2,00,32,397. The First Appellate Authority (FAA) considered the fund flow chart and loan details, concluding that no borrowed funds were diverted for investments. The FAA relied on the judgment of the Hon'ble Bombay High Court in a similar case and deleted the addition made by the AO. During the hearing, the Departmental Representative argued that borrowed funds were used for investments, while the Authorized Representative contended that no borrowed funds were utilized for investments. The tribunal found that the assessee used its own funds for investments, and since the borrowed funds were not diverted, the FAA's decision was upheld, and the appeal against the AO was dismissed.

Issue 2: Sale of Carbon Credits:
The second effective ground of appeal involved the sale of Carbon Credits. The Tribunal referred to a previous decision related to the allowability of deduction under section 80IA of the Income Tax Act for receipts earned from the sale of carbon credits. The Tribunal reproduced relevant paragraphs from the previous order, highlighting the contention between the assessee and the Revenue regarding the nature of income derived from carbon credits. The Tribunal considered various judgments and held that receipts from the sale of carbon credits are capital in nature and not taxable as business income. Citing judgments and findings from different Tribunals and High Courts, the Tribunal concluded that carbon credits are not a business receipt but a capital receipt. Therefore, the Tribunal dismissed the appeal filed by the AO, following the settled proposition in law regarding the treatment of receipts from the sale of carbon credits as capital items not to be included in the Profit & Loss Account.

In conclusion, the ITAT Mumbai upheld the decisions of the FAA regarding the disallowance of interest expenditure and the treatment of receipts from the sale of carbon credits, dismissing the appeal filed by the AO in both instances.

 

 

 

 

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