2024 (9) TMI 1200 - HC - Income Tax

Nature of receipts - receipt of CER (sale of carbon credit) - Capital Receipt or Revenue receipts - HELD THAT - Tribunal has followed its earlier decisions in the earlier years for Assessment Year 2014-15 wherein, in turn it has followed the decision for Assessment Year 2012-13 by treating the Carbon Credits as Capital Receipt. In view of the decision of this Court in case of Gujarat Flurochemicals LTD . 2023 (12) TMI 713 - GUJARAT HIGH COURT we are of the opinion that no substantial questions of law arise from the impugned order of the Tribunal wherein, the Tribunal has followed the decision for its earlier year. Disallowance u/s 14A r.w.r. 8D - foreign investment made by the assessee - HELD THAT - As decided in SUZLON ENERGY LTD. 2013 (7) TMI 697 - GUJARAT HIGH COURT CIT(A) had directed exclusion of foreign investment made for the purpose of computation of disallowance us. 14A as per Rule 8D of the Income Tax Rules 1962 holding that the dividend earned from the said foreign investment was not exempt from tax. No substantial question of law arises from the impugned order of the Tribunal.

Summary

Issues:
1. Whether the deletion of addition on account of receipt of CER and treating it as a Capital Receipt instead of Revenue Receipt is justified.
2. Whether the deletion of the disallowance under Section 14A r.w.r. 8D of the I.T. rules, 1962 is justified.

Analysis:

Issue 1:
The Tax Appeal filed by the Revenue raised the question of whether the Income Tax Appellate Tribunal (ITAT) erred in confirming the deletion of the addition of Rs. 5,94,18,494/- on account of receipt of CER and treating it as a Capital Receipt instead of Revenue Receipt. The Court referred to a previous decision in the case of The Principal Commissioner of Income Tax versus M/s Gujarat Flurochemicals LTD, where a similar question regarding the nature of income from the realization of Carbon Credits was addressed. The Court noted that the Tribunal had followed its earlier decisions treating Carbon Credits as Capital Receipt for previous assessment years. Based on the precedent and the decision in the Gujarat Flurochemicals case, the Court held that no substantial question of law arose, and the appeal was dismissed.

Issue 2:
The second issue pertained to the deletion of the disallowance under Section 14A r.w.r. 8D of the I.T. rules, 1962. The Court referred to the case of Commissioner of Income Tax-IV versus Suzlon Energy Limited, where a similar issue was considered. The Court highlighted that the Tribunal had examined the disallowance of expenses related to exempt income earned under Section 14A, and had upheld the deletion of disallowance pertaining to foreign investment made by the assessee. The Court quoted the observations made in the Suzlon Energy case, where the Tribunal had analyzed the investment in foreign subsidiaries and Indian subsidiaries separately, concluding that no disallowance under Section 14A could be made in the given circumstances. The Court, based on the precedent and the decision in the Suzlon Energy case, held that no question of law, let alone any substantial question of law, arose from the impugned order of the Tribunal. Consequently, the appeal was dismissed for lacking merit.