2019 (5) TMI 1540 - AT - Income Tax

Taxability of Carbon credit receipts - nature of receipts - revenue or capital receipts - HELD THAT - Identical issue came up in assessee s own case for AY 2009-10 2016 (4) TMI 916 - ITAT AHMEDABAD receipts received by the assessee on sale of carbon credit are to be treated as capital receipts and not liable to tax once both the parties are unanimous on the factual aspect that the sale is not effected in the relevant previous year, there cannot be any good reasons to bring the CER value to tax in this assessment year. In view of the above discussions, in our considered view, the gains on sale of CERs, though taxable in nature, could only have been taxed at the point of time when these CERs were actually transferred to the foreign entity. Accordingly, the value of CERs, even though quantifiable, cannot be brought to tax by the reason of accrual simplictor. That is precisely what has been done in this case. It is for this reason that we confirm the relief granted by the CIT(A) and decline to interfere in the matter. - Decided in favour of assessee. Disallowance u/s 14A read with Rule 8D - quantum of disallowance - HELD THAT - As held in assessee s own case 2016 (4) TMI 916 - ITAT AHMEDABAD we find that its not even in dispute that a part of expenses attributable to the work in connection with the investment are to be disallowed, as the assessee has on its own offered ₹ 30,000 for disallowance in this regard. The dispute is confined to the quantum of disallowance and the basis on which it is to be quantified. In the absence of any reasonable basis of disallowance offered by the assessee, and in the absence of the assessee even disclosing the basis on which disallowance is made, the Assessing Officer had invoked the rule 8D. We see no infirmity in this action. In view of these discussions, as also bearing in mind entirety of the case, we vacate the relief granted by the CIT(A) and restore the disallowance made by the Assessing Officer. - Decided against assessee. Rejection of claim of additional depreciation u/s 32(l)(iia) - plant machinery were used for less than 182 days, the claim of additional depreciation during AY 2010-11 was restricted to 50% - HELD THAT - We find that the CIT(A) has appreciated the facts and loan in perspective and has rightfully came to a conclusion that assessee was entitled to remaining part of 50% of the claim of the additional depreciation eligible under s.32(1)(iia) of the Act in the subsequent assessment year adopting purposive approach to the issue. We thus find no infirmity in the view taken by the CIT(A) and therefore decline to interfere. - Decided against revenue

Summary

Issues Involved:
1. Taxability of carbon credit receipts as revenue or capital receipts.
2. Disallowance under Section 14A read with Rule 8D of the Income Tax Act.
3. Eligibility of additional depreciation under Section 32(1)(iia) of the Income Tax Act.

Detailed Analysis:

Issue 1: Taxability of Carbon Credit Receipts
The primary issue was whether the receipts from carbon credits should be treated as revenue receipts or capital receipts. The Tribunal referred to its earlier decision in the assessee's case for AY 2009-10, where it was held that carbon credit receipts are capital receipts and not taxable. The Tribunal emphasized that carbon credits are financial instruments representing CO2 reduction, primarily linked to the Kyoto Protocol. These credits are not generated from business operations but due to environmental concerns and thus should be treated as capital receipts. This view was supported by various judicial precedents, including the Hon'ble Andhra Pradesh High Court's approval. The Tribunal also noted the insertion of Section 115BBG effective from AY 2018-19, which taxes income from carbon credits, indicating that prior to this, such income was not taxable. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer on account of carbon credit receipts for AYs 2010-11 and 2011-12.

Issue 2: Disallowance under Section 14A read with Rule 8D
The second issue pertained to the disallowance of expenses under Section 14A read with Rule 8D. The Assessing Officer had disallowed ?63,03,835/- for AY 2010-11 and ?1,16,12,352/- for AY 2011-12, which the CIT(A) had deleted. The Tribunal, referring to its previous decision in the assessee's case for AY 2009-10, noted that the CIT(A) had erred in deleting the disallowance without proper justification. The Tribunal observed that the Assessing Officer had correctly invoked Rule 8D after being dissatisfied with the assessee's claim of ?30,000/- as disallowance. The Tribunal restored the disallowance made by the Assessing Officer for both assessment years, thereby allowing the Revenue's appeal on this ground.

Issue 3: Eligibility of Additional Depreciation
The third issue involved the eligibility of additional depreciation amounting to ?7,91,852/- for AY 2011-12. The CIT(A) allowed the claim of the assessee for additional depreciation, which was restricted to 50% in the previous year due to the assets being used for less than 182 days. The CIT(A) relied on various judicial precedents, including decisions from the ITAT and High Courts, which supported the allowance of the remaining 50% of additional depreciation in the subsequent year. The Tribunal upheld the CIT(A)'s decision, noting that the legislative intent was to provide an incentive for industrialization, and there was no restriction in the statute that disallowed the balance of additional depreciation in the subsequent year.

Conclusion:
The Tribunal's decision resulted in a mixed outcome. The appeal concerning the taxability of carbon credit receipts was decided in favor of the assessee, treating them as capital receipts and not taxable for the relevant assessment years. However, the Tribunal upheld the Revenue's contention on the disallowance under Section 14A read with Rule 8D, restoring the disallowance made by the Assessing Officer. Lastly, the Tribunal supported the CIT(A)'s decision on allowing the remaining 50% of additional depreciation in the subsequent year.