DCIT, Circle-3(2), Hyderabad, Hyderabad V. M/s Sri Indra Power Energies Limited, Hyderabad

ITA 1769/HYD/2014

• Counselvise Citation: 176922514 RSA 2014
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Business income; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1769/HYD/14 : ASSESSMENT YEAR 2010 - 11 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(2), HYDERABAD V/S. M/S. SRI INDRA POWER ENERGIES LIMITED, HYDERABAD (PAN - AAFCS 6524 H) (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI RAMAKRISHNA BANDI DR RESPONDENT BY : SHRI V.RAGHAVENDRA RAO DATE OF HEARING 24 .0 3 .201 5 DATE OF PRONOUNCEMENT 27.03.2015 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX( APPEALS) IV, HYDERABAD DATED 12.9.2014 ON THE FOLLOWING GROUNDS - 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE C A SE. 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE RECEIPTS ON SALE OF C A RBON E MISSION R E CEIP T S ARE REVENUE IN NATURE BUT SINCE THEY ARE NOT DERIVED FROM THE ELIGIBLE BUSINESS ARE ACCORDINGLY NOT ENTITLED FOR DEDUCTION U/S. 80IA. 3. T HE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT AS PER AS - 2, PRESCRIBED BY THE ICAI, THE CERTIFIED EMISSION RECEIPTS (C ERS) ARE TO BE ACCOUNTED AS INVENTORIES AND SUCH INVENTORIES ARE DEFINED AS ASSETS HELD FOR SALE IN ORDINARY COURSE OF BUSINESS. THEREFORE, THE SALE RECEIPTS ARE REVENUE IN NATURE AND HAVE TO BE TAXED ACCORDINGLY. 4. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE SALE PROCEEDS OF CERS WOULD FALL WITHIN THE DEFINITION OF INCOME U/S. 2(24) R.W.S.28(IV) OF I.T.ACT AS HELD BY I TA NO. 1769/H YD/201 4 M/S. SRI INDRA POWER ENERGIES LIMITED, HYDERABAD 2 HONBLE ITAT, COCHIN BENCH IN THE CASE OF M/S. APOLLO TYRES LTD. VS. ACIT IN 31 ITR (TRIB) 477(COCHIN) DATED 07/03/2014. 5 . . 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF GENERATION OF ELECTRICITY BY U S IN G NON - FOSSIL F U E L S . T H E RETURN OF INCOME FOR TH E YE A R UN D ER CONSIDERATION WAS FIL E D BY IT ON 13.10.2010 DECLARING TOTAL INCOM E AT R S .NIL UN DE R NORMAL PROVIS I ON S OF THE ACT AFTER CLAIMING DEDUCTION OF R S .1,46,37,506 UN D ER S.80 - IA AND BOOK PROFIT O F R S .1,06,11,359 UN D ER S.115 JB OF THE ACT . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD C LAIMED DEDUCTION UNDER S.80IA IN RESPECT OF OTHER INCOME INCLUDING INCOME F R OM SALE OF CARBON EMISSION REDUCTION AMOUNTING TO RS.1,80,00,000. THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.80IA IN RESPECT OF INCOME FROM SALE OF CARBON EMISSION REDUCTION W AS EXAMINED BY THE ASSESSING OFFICER AND ON SUCH EXAMINATION, HE RECORDED THE FOLLOWING OBSERVATIONS/FINDINGS 1. THE COMPANYS MAIN BU S IN E SS ACTIVITY IS GEN E R A TION OF BIO - MASS BASED POWER, THE R EC E IPT IN QUESTION HAD NO RELATIONSHIP WITH P RO DU C TION NOR IT WAS CONNECTED WITH THE SALE OF POWER OR WITH THE R A W MATERIAL CONSUMED. IT WAS NO T EVEN THE SALE PROCEED OF ANY BYE PRO D U C T. THE CARBON CREDITS ARE ISSUED TO EVERY IN D U S TRY WHICH SAVES EMISSION OF CARBON AND NO T LIM I TED TO POWER PROJECTS. 2 . THE INCOME FROM SALE OF CARBON CREDITS IS INDEPENDENT OF THE MAIN BUSINESS OF POWER GENERATION SO IT COULD NOT BE SAID THAT THE RECEIPT FROM SALE OF CARBON CREDITS WOULD AUTOMATICALLY BE ENTITLED FOR DEDUCTION UNDER SECTION 80 IA BY VIRTUE OF THE FACT THAT THE POWER I TA NO. 1769/H YD/201 4 M/S. SRI INDRA POWER ENERGIES LIMITED, HYDERABAD 3 GENERATION BUSINESS OF THE ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 80 - LA. 3. CARBON CREDITS ARE MADE AVAILABLE ON ACCOUNT OF SAVING OF ENERGY, CONSUMPTION AND NOT BECAUSE OF ASSESSEE'S BUSINESS. FURTHER, CARBON CREDITS CANNOT BE CONSIDERED AS A BI - PRODUCT. IT IS A CREDIT GIVEN UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. THUS, THE ASSESSEE'S WHO HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEE'S TO HAVE CAPPED EMISSION COMMITMENT. ACHIEVING CA RBON CREDIT IS NOT A RESULT OR INCIDENCE OF ONE'S BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. 4. THE PERSONS HAVING CARBON CREDITS GET BENEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS CARBON CREDITS TO OVERCOME ONE'S NEGATIVE POINT CARBON CREDIT. THE AMOUNT RECEIVED IS NOT RECEIVED FOR PRODUC I N G AND/OR SELLING ANY PRODUCT, BI - PRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYING ON THE BUSINESS . 5. CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSE T 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. 3. ON THE B A SIS OF THE ABO V E OBSERVATIONS/FINDINGS, THE LEARNED ASSESSING OFFICER HELD T H A T THE INCOM E FROM SALE O F CARBON EMISSION RE D U CT ION WAS NOT DERIVED BY THE ASSESSEE F R OM T H E BU S IN ES S OF POWER GENERATION, AND THE SAME, TH E R E FORE, WAS NO T ELIGIBLE FOR DEDUC T ION UN D ER S.80 IA. I N THI S REGARD, H E DID NO T ENTERTAIN THE ALTERNATIVE CLAM O F TH E ASSESSEE THAT T H E CARBON CR E DIT I TA NO. 1769/H YD/201 4 M/S. SRI INDRA POWER ENERGIES LIMITED, HYDERABAD 4 R E CEIP T S CONSTITUTED CAPITAL RECEIPTS NOT CH A RGEA B LE TO TAX, AS THE SAME WAS NOT MADE BY FILIN G TH E REVI S ED RETURN. AC C OR D INGLY, THE CL A IM OF TH E ASSESSEE FOR DEDUCTION UN D ER S .8 0 IA IN RESPECT OF INCOME FROM SALE OF CARBON EMISSION REDUCTION WAS DISALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED UN D ER S.143(3 ) VIDE O R DER DATED 10.1.2013. 4. AGAIN S T THE O R DER PASSED BY THE ASSESSING OFFICER UN D ER S. 1 43(3 ) , AN APP E AL WAS PREFERRED BY TH E ASSESSEE BE FORE THE LEARNED CIT(A), WHO ALLOWED THE ALTERNATIVE CLAIM O F T H E ASSESSEE THAT THE CARBON CR E DITS CON S TITU T ED CAPITAL RECEIPTS NOT CH A RGEABL E TO TAX, RELYING ON THE DECISION OF TH E COO R DIN A TE BEN CH O F TH E TRIBUNAL IN TH E C A S E OF M Y HOME POWER LTD. V/ S. DCIT (21 ITR (T R IB) 186) ( HYD) . AGGRIEVED BY THE ORDER O F THE LEARNED CIT(A), REVENUE HAS PREFERRED THIS APP E AL B E FORE THE TRIBUNAL. 5 . WE HAVE H EA RD THE ARGUMENTS OF BO T H THE SIDES AND PERUSE D THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES, TH E ISSUE INVOLVED IN THE PRESENT APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S. MY HOME POWER LTD (365 ITR 82) , WHEREIN THE RECEIPTS FROM CARBON CREDITS WERE TREATED BY THE HON'BLE JURISDICTIONAL HIGH COURT AS CAPITAL IN NATURE BY OBSERVING AS UNDER - WE HAVE CON S I D ERE D THE AFORESAID SUBMISSION AND WE ARE UNABLE TO ACCEPT THE SAME, A S THE LEARNED TRIBUNAL HAS FACTUALLY FOUND THAT CARBON CREDIT IS NO T AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GENERATED IN TH E COU R SE OF BUSIN E SS BUT IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS. WE AGREE WITH THIS FACTUAL ANALYSIS AS THE ASSESSEE I S CARRYING ON THE BU S IN E SS OF POWER GENERATION. TH E C ARBON CREDIT IS NO T EVEN DIRECTLY LINKED WITH POWER GENERATION. ON TH E SALE O F EXCESS CARBON CREDITS THE INCOME WAS RECEIVED AND HENCE AS CORRECTLY HELD BY TH E T RIBUNAL IT IS CAPITAL RECEIP T AND IT CANNOT BE BUSINESS RECEIPT OR INCOME. I TA NO. 1769/H YD/201 4 M/S. SRI INDRA POWER ENERGIES LIMITED, HYDERABAD 5 RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MY HOME POWER LTD. (SUPRA), WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) TREATING THE C ARBON CREDIT RECEIPTS AS CAPITAL IN NATURE AND DISMISS THIS APPEAL OF THE REVENUE. 6 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 27 TH MARCH, 201 5 SD/ - SD/ - ( SAKTIJIT DEY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 27 TH MARCH, 201 5 COPY FORWARDED TO: 1. M/S. SRI INDRA POWER ENERGIES LIMITED, FLAT NO.G - 1, VIJAYA RESIDENCY, H.NO.8 - 2 - 210/110/115, ROAD NO.14, BANJARA HILLS, HYDERABAD 500 033 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 3( 2 ), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) IV, HYDERABAD COMMISSIONER OF INCOME - TAX III, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S