2014 (5) TMI 553

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ore, a common order is passed for the sake of convenience. 2. The Effective Grounds raised are common in both the appeals, which are as under: "2. The learned CIT(A) erred in directing to delete the addition made towards Carbon Credits (CER Certificates) Scheme are recurring in nature and hence Revenue expenditure. 3. The learned CIT(A) ought to have confirmed the addition made towards Carbon Credits (CER Certificates) Scheme." 3. To dispose of both these appeals, we refer to the facts from AY 2008-09 in ITA No. 80/Hyd/2014. 4. Briefly the facts are relating to raise the said grounds are that the assessee received 41,586 CERs for the project activity of 'Switching of Fossil Fuel from Naptha & Diesel to Biomass (agriculture pr....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....issue came up for consideration before this Tribunal in assessee's own case for AY 2007-08 in ITA No. 1114/Hyd/2009 and vide its order dated 02/11/2012 the coordinate bench held as follows: "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 world concern....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... 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 is on account of exploitation of capital asset and it is capital receipt and not an income. Similarly, in the present case the assessee transferred the carbon credits like loom hours to some other concerns for cert....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....rice, 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." 8. When the revenue took up the matter to the Hon'ble AP High Court against the order of the Tribunal, the Hon'ble Jurisdictional High Court in ITAT Appeal No. 60 of 2014, vide judgment dated19/02/2014 confirmed the order of the Tribunal by holding as follows: "We have considered the aforesaid submission and we are unable to accept the same, as the learned Tribunal has factually found that "Carbon Credit is not an offshoot of business but an offshoot of environmental concerns. No....