2020 (2) TMI 774 - AT - Income Tax

Characterization of income - Transfer of Carbon Credits CER (Certified Emission Reductions) - Revenue or capital receipt - HELD THAT - We are inclined to follow the decision of the Co-ordinate Bench of the Tribunal, Hyderabad Bench in the case of My Home Power Limited (supra) to hold that the receipts from the sale of the carbon credits is liable to be held as capital receipts only. This view of ours is also supported by the decision of the Co-ordinate Bench of this Tribunal in the case of Assistant Commissioner of Income Tax Vs. M/s. Chemplast Sanmar Limited 2019 (12) TMI 1272 - ITAT CHENNAI Consequently, the additional ground filed by the assessee stands allowed. Computation of deduction u/s.80IA - CIT(A) in confirming the method of computation of the eligible profits done by the Assessing Officer in respect of the steam generated and re-transmitted in respect of the production of the electricity through steam generators, for the purpose of computation of deduction u/s.80IA - HELD THAT - The learned Authorized Representative though submitted a Chartered Engineer s certificate but was unable to substantiate the claim as made the said certificate. DR left the court room after the argument on the additional grounds and did not return. In reply, there was no answer from the learned CIT-DR As the AR has been unable to substantiate the Chartered Engineer s Certificate and has been unable to show us as to how the order of the CIT(A) is erroneous, we find no reason to interfere in the findings of the CIT(A). Consequently the order of the learned CIT(A) on this issue stands confirmed. Commission paid to a person outside India in respect of arranging the sale of the carbon credits - HELD THAT - As we have already held that the receipt on the sale of carbon credits is liable to be treated as capital receipts, admittedly, the expenditure incurred by the assessee in respect of the sale of the carbon credits cannot be treated as Revenue expenditure at all. However, the Assessing Officer is also directed to see to it that when the capital receipt is computed, the said expenditure is reduced from the said capital receipts for determining the net capital receipts.

Summary

Issues:
1. Treatment of receipts from the sale of carbon credits as revenue or capital receipt.
2. Computation of eligible profits for deduction under section 80IA.
3. Claim of commission paid for arranging the sale of carbon credits as revenue expenditure.

Analysis:
1. The appeal involved a dispute regarding the nature of receipts from the sale of carbon credits. The Assessee contended that the receipts should be treated as capital receipts, not liable for inclusion in total income. The Assessee relied on a decision of the Income Tax Appellate Tribunal "B" Bench, Hyderabad, and claimed that the receipts were initially offered as business income and eligible for deduction under section 80IA. The Departmental Representative argued against reconsidering the issue, stating that the Assessee did not provide evidence to justify the change in treatment. The Tribunal considered various decisions and upheld that the receipts from the sale of carbon credits should be treated as capital receipts, following precedents and statutory provisions. The additional ground filed by the Assessee was allowed based on this analysis.

2. Another issue pertained to the computation of eligible profits for deduction under section 80IA concerning the steam generated and re-transmitted for electricity production. The Assessee failed to substantiate the Chartered Engineer's certificate provided and could not demonstrate any error in the CIT(A)'s order. Consequently, the Tribunal confirmed the CIT(A)'s decision on this issue.

3. The final issue revolved around the claim of commission paid for arranging the sale of carbon credits outside India as revenue expenditure. Since the Tribunal held that the receipts from the sale of carbon credits were capital receipts, the expenditure incurred in relation to such sales could not be treated as revenue expenditure. The Tribunal directed the Assessing Officer to adjust the said expenditure from the capital receipts for determining the net capital receipts. Thus, the claim for commission paid as revenue expenditure was dismissed.

In conclusion, the appeal was partly allowed, with the Tribunal making decisions on the treatment of receipts from the sale of carbon credits, computation of eligible profits under section 80IA, and the claim of commission paid for arranging the sale of carbon credits. The judgment provided detailed reasoning based on legal precedents and statutory provisions to resolve the issues raised by the Assessee.