2017 (10) TMI 1560 - AT - Income Tax

Deduction u/s.80IA in respect of the profits derived from the sale of the Carbon Credits - HELD THAT - Now the issue was squarely covered by the decision of My Home Power Ltd. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT as held the Carbon Credits was not an offshoot of business but offshoot of environmental concerns. Consequently, the sale of the excess Carbon Credits was capital receipt. It was a submission that the AO may be directed to assess the benefit of Carbon Credits as a capital receipt. Respectfully following the decision of the Hon ble Andhra Pradesh High Court in the case of My Home Power Ltd., referred to supra, the AO is directed to treat the sale of the Carbon Credits as a capital receipt. Appeal filed by the assessee stands allowed.

Summary

Issues:
Appeal against disallowance of deduction u/s.80IA for profits from Carbon Emission Reduction (CER) - Treatment of Carbon Credits as capital receipt.

Issue 1: Appeal against disallowance of deduction u/s.80IA for profits from Carbon Emission Reduction (CER)

The appellant filed an appeal against the Order of the Commissioner of Income Tax (Appeals)-8, Chennai, regarding the disallowance of the claim of deduction u/s.80IA for profits derived from the sale of Carbon Emission Reduction (CER), also known as Carbon Credits. The appellant, engaged in electricity generation, claimed the deduction u/s.80IA for profits from the sale of Carbon Credits. The Ld.CIT(A) confirmed the action of the AO in disallowing the deduction, relying on a decision of the ITAT Cochin Bench in the case of Apollo Tyres Ltd. The appellant argued that the issue was now covered by the decision of the Hon’ble Andhra Pradesh High Court in the case of My Home Power Ltd., where it was held that Carbon Credits were not a business offshoot but stemmed from environmental concerns, making the sale of Carbon Credits a capital receipt. The AO was directed to treat the sale of Carbon Credits as a capital receipt based on the decision of the Hon’ble Andhra Pradesh High Court.

Issue 2: Treatment of Carbon Credits as capital receipt

The primary contention revolved around whether the profits derived from the sale of Carbon Credits should be treated as a capital receipt. The appellant argued that the Carbon Credits were not a business offshoot but a result of environmental concerns, making the sale of excess Carbon Credits a capital receipt. The Ld.DR supported the AO and the Ld.CIT(A) in disallowing the deduction. The tribunal, after considering the submissions, noted that the decision of the Hon’ble Andhra Pradesh High Court in the case of My Home Power Ltd. was the only decision on the issue by a High Court, and no contrary decision was presented by the Revenue. Consequently, the tribunal directed the AO to treat the sale of Carbon Credits as a capital receipt, thereby allowing the appeal filed by the assessee.

In conclusion, the judgment by the ITAT Chennai addressed the appeal against the disallowance of deduction u/s.80IA for profits from Carbon Emission Reduction (CER) and the treatment of Carbon Credits as a capital receipt. The tribunal relied on the decision of the Hon’ble Andhra Pradesh High Court in the case of My Home Power Ltd. to rule in favor of the appellant, directing the AO to treat the sale of Carbon Credits as a capital receipt. The appeal was allowed, emphasizing the distinction between business-related receipts and capital receipts concerning Carbon Credits.