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TMI Blog2014 (3) TMI 428X X X X Extracts X X X X X X X X Extracts X X X X ..... due to environmental concerns - Credit for reducing carbon emission or greenhouse effect can be transferred to another party in need of reduction of carbon emission - It does not increase profit in any manner and does not need any expenses - It is a nature of entitlement to reduce carbon emission, however, there is no cost of acquisition or cost of production to get this entitlement - Carbon credit is not in the nature of profit or in the nature of income. Self- generated Certified Emission Reductions (CERs) - CERs are inventories of the generating entities as they are generated and held for the purpose of sale in ordinary course - Since CERs are recognised as inventories, the generating assessee should apply AS-9 to recognise revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER PER S.S. Godara, Judicial Member This assessee s appeal is directed against the order of the Commissioner of Income Tax (Appeals) I, Coimbatore dated 02.07.2012 in ITA No. 191/11-12 for the assessment year 2009-10, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the Act ]. 2. From the array of grounds raised in the appeal, it emerges that the assessee has assailed the order of the CIT(A) confirming additions made in the assessment order dated 29.12.2011 of an amount of Rs. 3,39,64,303/- claimed as capital receipt re Clean Development Mechanism (CDM) by realizing carbon credit, Rs. 660/- for delayed payment of TDS, Rs. 89,690/- on account of interest on TDS and that of TNEB interest for security d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity was disproportionate to the benefit. 7. As we notice from the assessment order, the aforesaid contentions of the assessee failed to convince the Assessing Officer. Rejecting assessee s explanation, he held that after examining the concept of clean development mechanism; its objects as well as the intricacies of the issue pertaining to carbon credits that the receipt in question was Revenue in nature since it had risen from emission reduction in market which is liable to be considered in the nature of goods having all attributes thereof. Similarly, the Assessing Officer also turned down assessee s submissions claiming interest of Rs. 89,660/- on TDS by holding that the parties at whose behest the amount had been paid did not agree a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms it as revenue receipt liable to be taxed. We make it clear that there is no issue between the parties qua realization of the amount in question or its source and the dispute is regarding nature of receipt i.e. whether capital or revenue. In this backdrop, we find that the very issue stands adjudicated by the Coordinate Bench of ITAT, Hyderabad (supra) wherein it has been held as under: 24. We have heard both the parties and perused the material on record. Carbon credit is in the nature of "an entitlement" received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as a revenue re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgement of the Supreme Court in the case of CIT vs. Maheshwari Devi Jute Mills Ltd. (57 ITR 36) wherein held that transfer of surplus loom hours to other mill out of those allotted to the assessee under an agreement for control of production was capital receipt and not income. Being so, the consideration received by the assessee is similar to consideration received by transferring of loom hours. The Supreme Court considered this fact and observed that taxability of payment received for sale of loom hours by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating entities as they are generated and held for the purpose of sale in ordinary course. Even though CERs are intangible assets those should be accounted as per AS-2 (Valuation of inventories) at a cost or market price, whichever is lower. Since CERs are recognised as inventories, the generating assessee should apply AS-9 to recognise revenue in respect of sale of CERs. 26. Thus, sale of carbon credits is to be considered as capital receipt. This ground is allowed. Taking cue from the same, we also hold that the CIT(A) has erred in confirming addition made by the Assessing Officer holding herein that the realization of carbon credit in question by the assessee gives rise to a revenue receipt. Therefore, the addition stands deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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