TaxTMI 
TaxTMI 
TaxTMI 
2022 (4) TMI 94
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....(A), in so far as it relates to the above grounds may be reversed and that of the Assessing Officer be restored. 5. The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal. 2. The assessee is engaged in the business of generation of power. It filed its return for the assessment year under appeal declaring income of Rs. 9,91,30,590/-, which was assessed at the sum of Rs. 9,92,64,966/- vide assessment order dated 11.02.2014 u/s. 143 of the I.T. Act, 1961. As per the Profit & Loss Account as on 31.03.2011, Schedule-I, the total sales from operation was shown at Rs. 24,39,91,943/-, which comprised of the following two heads:- Sale of Electricity Rs. 15,56,29,390 Sale of Carbon Credit Rs. 8,83,62,553 Rs. 24,39,91,943/- 3. During the course of assessment proceedings, the assessee vide its letter dated 16.12.2013 brought to the notice of the AO that owing to a bona fide mistake, it has inadvertently treated carbon credit as revenue receipt which was, in fact, capital in nature and hence not taxable. In the said letter, the assessee also explained in detail the nature of business and receipt against s....
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....its. The CIT(A) deleted the additions made by the AO by following the decision of the ITAT, Bengaluru Bench, in the assessee's own case for Assessment Year 2009-10, in Subhash Kabini Power Corporation (2015) 37 ITR (Tribunal) 106 (Bengaluru), dated 28.11.2014 wherein it was held that income from sale of carbon credits is a capital receipt, not chargeable to tax. This decision of the Tribunal is also affirmed by the Hon'ble Karnataka High Court reported in 385 ITR 592 and the Court followed the decision of the ITAT, Hyderabad Bench, rendered in the case of My Home Power Ltd. 7. Aggrieved by the order of the CIT(A), Revenue has raised ground No. 2. As far as ground No. 2 is concerned, as we have already stated, the Hon'ble Karnataka High Court in the case of assessee (supra) has approved the decision of the ITAT, Hyderabad Bench, with the following observations: "The ITAT Hyderabad has decided this issue for the first time and the discussion made by the ITAT Hyderabad Bench worth to note, it read 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....
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....urs 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 certain consideration. Therefore, the receipt of such consideration cannot be considered as 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 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 he transferred to all other 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 o....
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....at it is capital receipt and not business income." ..... "12. Considering the above, we find that when the carbon credit is generated out of environmental concerns. and it is not having the character of trading activity, the Tribunal has rightly held that it is capital receipt and it is not income out of business and hence, not liable to pay income tax. Once it is found that the amount realized by sale of carbon credit is not taxable as I naturally it will have no adverse effect on the Revenue." 8. In view of the above binding decision of the jurisdictional High Court, grounds of appeal raised by the Revenue on this issue is dismissed. 9. The next issue is whether income in the form of carbon credits should be excluded for the purpose of computing books profits under section 115JB of the Act, also. On this issue, the CIT(A) agreed that the contention of the assessee that when an item of income is not chargeable to tax at all the same cannot be included for the purpose of computing book profits under section 115JB of the Act. The assessee relied on the decision of the ITAT, Delhi Bench, in the case of Malana Power Company and Others, ITA No. 2281/Del/2013, order dated 27.04.....