2022 (7) TMI 731 - AT - Income Tax

Nature of receipts - sale of Renewable Energy Certificate (REC) carbon credits as revenue receipt or a capital receipt - DRP disallowed the claim of the assessee claiming the sale of REC as capital receipt being not offered to tax by holding that the same is a revenue receipt and is liable to be subjected to tax - HELD THAT - Following the order passed by the co-ordinate Bench of the Tribunal in assessee s own case for A.Y. 2015-16 which is based upon the decision rendered in case of My Home Power Ltd. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT we are of the considered view that sale of REC (carbon credits) income received by the assessee is a capital receipt and could not be a business receipt or income nor it is directly linked with the business of the assessee nor any asset is generated in the course of business but it is generated due to environmental concern. Therefore, addition made by Ld. TPO/AO on account of sale of RECs/carbon credits during the year under assessment is not sustainable in the eyes of law, hence, ordered to be deleted. - Decided in favour of assessee.

Summary

Issues:
1. Treatment of sum of Rs.8,90,53,500/- in respect of sale of Renewable Energy Certificates (RECs) as revenue receipt or capital receipt.
2. Allowance of expenses incurred by the Appellant.
3. Levying of interest under section 234 B and 234D of the Act.
4. Initiation of penalty proceedings under section 270A of the Act for alleged under-reporting of income.

Issue 1 - Treatment of sum of Rs.8,90,53,500/- in respect of sale of RECs:
The appellant sought to set aside the order passed by the Dispute Resolution Panel (DRP) regarding the treatment of Rs.8,90,53,500/- from the sale of RECs as revenue receipt instead of a capital receipt. The appellant argued that several judicial pronouncements, including a previous decision in their favor for Assessment Year 2015-16, supported their claim. The Tribunal referred to the previous decision and upheld it, concluding that the income from the sale of RECs was a capital receipt, not directly linked to the business, and generated due to environmental concerns. Therefore, the addition made by the authorities was deemed unsustainable, and the appeal was allowed.

Issue 2 - Allowance of expenses incurred by the Appellant:
The Appellant claimed expenses of Rs.1,17,40,018/- incurred to earn REC receipts as a deduction. However, the Assessing Officer erred in not allowing this deduction. The Tribunal did not provide specific details on the resolution of this issue in the summary provided.

Issue 3 - Levying of interest under section 234 B and 234D of the Act:
The Assessing Officer levied interest under sections 234 B and 234D of the Act. However, the Tribunal did not elaborate on the resolution of this issue in the summary provided.

Issue 4 - Initiation of penalty proceedings under section 270A of the Act:
The Assessing Officer initiated penalty proceedings under section 270A of the Act for the alleged under-reporting of income. The Tribunal did not provide specific details on the resolution of this issue in the summary provided.

In conclusion, the Tribunal's judgment primarily focused on the treatment of income from the sale of RECs as a capital receipt, overturning the decision of the authorities. The Tribunal referenced previous decisions and legal principles to support its conclusion. However, details on the resolution of other issues raised by the Appellant, such as the allowance of expenses and penalty proceedings, were not explicitly provided in the summary.