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TMI Blog2015 (10) TMI 1867X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee : Shri S. Rama Rao, AR ORDER PER B. RAMAKOTAIAH, A. M. : Both these appeals are by Revenue against separate orders of the Commissioner of Income Tax (Appeals)-V, Hyderabad dated 31-03-2014 for the Assessment Years (AYs) 2008-09 2009-10. The issue involved in these appeals is with reference to exemption claimed on the sale of carbon credits in assessee's power division. 2. Briefly stated, assessee is a company in which public are not substantially interested and is engaged in the production of seeds and wind power. In the impugned assessment years, assessee has shown incomes from sale of carbon credits or Certified Emission Reductions (CER) in the company's power division totaling to ₹ 6,47,02,202/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rabad vide order in ITA No. 1114/Hyd/2009 dated 2.11.2012. 4.4 In so far as deduction u/s. 80IA of ₹ 10,02,98,827/- is concerned, the appellant is not entitled for deduction u/s. 80IA in view of the decision of the ITAT, Hyderabad mentioned above but the same is to be treated as a capital receipt in view of the said decision. Extract of the operative portion of the decision of the ITAT is reproduced hereunder: 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for rendering any service 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 ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ories of the generating 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. Thus, sale of carbon credits is to be considered as capital receipt . 4.5. In view of the above, I hold that the appellant is not entitled for deduction u/s. 80IA but the said amount is to be treated as a capital receipt. Therefore, the addition of ₹ 6,47,02,202/- is deleted . 3. After considering the contentions of the Ld. DR and Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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