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TMI Blog2019 (12) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... Carbon Emission Reduction Certificates (CERs)) of Rs. 1,53,30,540/- as 'capital receipt- without appreciating the facts that the same is revenue receipt and even the assessee has claimed benefit u/s80IA of the IT Act" That the appellant craves leave to add, amend or alter the grounds of appeal on or before the date the appeal is finally heard for disposal.' 2. The assessee is a company and engaged in the business of generation of electricity through hydro electric power plant. The assessee filed its return of income U/s 139(1) of the Act for both the years which were completed U/s 143(3) of the Act whereby the AO allowed the claim of deduction U/s 80IA of the Act. Subsequently, The AO reopened the assessment by issuing notice U/s 148 of the Act on the ground that the assessee has claimed deduction U/s 80IA of the Act in respect of Carbon Emission Reduction Certificates (CERs) sales which is not eligible for the deduction U/s 80IA of the Act and therefore, the income assessable to tax has escaped assessment. While passing the reassessment order passed U/s 143(3) r.w.s. 147 of the Act the AO disallowed the claim of deduction U/s 80IA of the Act in respect of the income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital income, ignoring that the same was specifically a revenue receipt and even the assessee hs claim benefit u/s 80IA of the Act? 5. Whether the Tribunal was justified in allowing deduction of Rs. 2,94,04,000/- in respect of mines closure expenses by reversing the orders of CIT(A) and Assessing Officer, even when the said expenditure was not even debited in the books of accounts and is also not an ascertained liability?" 3. Now, the issue no. 1,2 & 3 are covered by the decision of this court in the case of assessee in ITA No. 147/2015 on 12.10.2017. 4. For issue no. 4 counsel for the respondent has relied on the decision of this court in ITA No. 85/2014 wherein it has been held as under:- "28. The issue No. 3 is with regard to sale proceeds received by the company from the sale of certified Emission Reduction (CER) pertaining the Carbon credit shown as capital receipt. 29. In view of the decision rendered by the Supreme Court in Vodafone International (supra), it has to be taken as capital account and it cannot be taxed under the Income Tax Act since it was taxable under direct tax and the Tribunal has given the finding which reads as under:- "We have heard the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt judgment that the cardbon credit receipt is a capital receipt holds valid for A.Y. 2011-12. 6.5 I have taken into account the Hon'bleITAT, Delhi Bench Judgment in the case of Malana power Co. Pvt. Ltd. v. DCIT New Delhi, 27th April, 2018, where the Hon'ble ITA says as under; 6.1 Further, ITAT Hyderabad Bench in the case of CIT v. My Home Power Ltd. Hyderabad in ITA No. 1114/Hyd/2009 held that carbon credit receipts are capital in nature. This order of ITAT Hyderabad Bench was subsequently upheld by the Hon'ble Andhra Pradesh High Court in 365 ITR 82. The relevant portions of the order of ITAT Hyderabad Bench are 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 receipt. It is not generated or created due to carrying on business but it is accrued due to "world concern". It has been made available assuming character of transferable right or entitlement only due to wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business income and it is a capital receipt. Accordingly, we are of the opinion that the consideration received on account of carbon credits cannot be considered as income as taxable in the assessment year under consideration. Carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated 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. 25. Further, as per guidance note on accounting for Selfgenerated Certified Emission Reductions (CERs) issued by the Institute of Chartered Accountants of India (ICAI) in June, 2009 states that CERs should be recognised in books when those are created by UNFCCC and/or unconditionally available to the generating entity. CERs are inventories of the generatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head capital gains. Our above view is also supported by the decision of Supreme Court in the case of Vodafone International Holdings v. UOI (supra) wherein Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and DTC serves as an important guide in determining the taxability of said item. Since DTC by virtue of the deeming provisions specifically provides for taxability of carbon credit as business receipt and income Tax Act does not do so, our view gets duly fortified by the principles stated in the above decision of Supreme Court. Accordingly, this ground of the assessee is a allowed and the addition made by the AO is deleted. 30. In that view of the matter, the third issue is also required to be answered in favour of the assessee. All the issue are therefore answered in favour of the assessee against the department." No contrary decision has been brought before us. Before parting with this issue it is pertinent to note that as per proviso to Section 28(va) of the Act a sum received as compensation on account of measure taken to curb the use or emission of substance that Deplete the Ozone layer under the United Nations Env ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credits. 115BBG. (1) Where the total income of an assessee includes any income by way of transfer of carbon credits, the income-tax payable shall be the aggregate of- (a) the amount of income-tax calculated on the income by way of transfer of carbon credits, at the rate of ten per cent; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a)of sub- section (1). Explanation.-For the purposes of this section "carbon credit" in respect of one unit shall mean reduction of one tonne of carbon dioxide emissions or emissions of its equivalent gases which is validated by the United Nations Framework on Climate Change and which can be traded in market at its prevailing market price." Thus, the income by way of transfer of carbon credit has been given a special treatment as chargeable to tax @ 10% and not as part of the normal business income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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