2018 (1) TMI 838 - AT - Income Tax

Receipts on account of carbon credit - Held that - Receipts on account of carbon credit is not in the nature of income and not chargeable to tax. See case of CIT Vs. My Home Power Ltd. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT wherein it was held that carbon credit was not an offshoot of business of the assessee but an offshoot of environmental concerns. No asset was generated in the course of business but it was generated due to environmental concerns. There was no cost of acquisition or cost of production to get entitlement for the carbon credits - Decided against revenue Acceptance of revised return - the assessee in the return of income did not make any claim that receipts on account of carbon credit is not taxable - Held that - CIT(A) being the First Appellate Authority has the power to entertain a new claim even in the absence of a revised return of income. The Supreme Court in case of Goetze (India) Ltd. (2006 (3) TMI 75 - SUPREME Court) has clarified that the decision was restricted to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return, and did not impinge on the power of the Appellate Tribunal under section 254 of the Income-tax Act, 1961 . CIT(A) was right in accepting the revised claim regarding non taxable of carbon credits. Accordingly ground no.2 raised by the revenue is also dismissed.

Summary

Issues:
1. Disallowance of brokerage/commission under sec 40(a)(ia) of the IT Act, 1961.
2. Treatment of carbon credits as capital receipts and non-taxable.

Issue 1: Disallowance of Brokerage/Commission:
The Assessee, a manufacturer and trader in jute goods, paid &8377; 37,21,056 towards brokerage/commission. The AO disallowed this amount under section 40(a)(ia) of the Act for not deducting tax at source. The Assessee contended that since the commission/brokerage had been paid by the last date of the previous year, no disallowance should be made. However, CIT(A) upheld the disallowance, citing the decision of the Calcutta High Court. The Assessee appealed to the Tribunal, arguing that the disallowance should be set aside as the recipients had included the receipts in their income tax returns. The Tribunal remanded the issue for fresh consideration, acknowledging that the Assessee had not been given the opportunity to present this plea before the revenue authorities.

Issue 2: Treatment of Carbon Credits:
The Assessee received &8377; 1,01,58,581 on account of carbon credits, claiming it as a capital receipt not chargeable to tax. The AO rejected this claim, but CIT(A) ruled in favor of the Assessee, following a decision by the ITAT, Hyderabad Bench. The Revenue appealed, arguing that the claim was not made in the return of income and thus should not have been entertained by CIT(A). The Tribunal dismissed the Revenue's appeal, citing various judgments that established carbon credits as capital receipts not liable to tax. The Tribunal upheld CIT(A)'s decision to accept the Assessee's claim regarding the non-taxability of carbon credits, emphasizing that the appellate authorities have the power to consider new claims even without a revised return of income.

In conclusion, the Tribunal remanded the issue of disallowance of brokerage/commission for fresh consideration, acknowledging the Assessee's plea regarding recipient declarations. Regarding carbon credits, the Tribunal upheld the decision that they are capital receipts not subject to tax, dismissing the Revenue's appeal. The Tribunal emphasized the authority of appellate bodies to entertain new claims, even without a revised return of income, in line with established judicial interpretations.