THE ANDHRA SUGARS LIMITED,TANUKU V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, , ELURU

CO 140/VIZ/2019

AI Insights

The case involves the Assistant Commissioner of Income Tax, Circle-1, Eluru as the appellant and M/s. Andhra Sugars Ltd., Tanuku as the respondent. The dispute arose from the assessment year 2012-13, where the Revenue challenged the order of the CIT(A) which partly allowed the appeal of the assessee against the assessment order passed under Section 143(3) of the Income Tax Act, 1961. The main issues revolved around the disallowance of interest expenditure related to exempt dividend income, the eligibility for additional depreciation on wind mill units, and the classification of income from carbon credits. The Tribunal examined the submissions, evidence, and relevant legal provisions, ultimately upholding the CIT(A)'s decision on all contested issues.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633233 (ITAT-VISAKHAPATNAM)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-06-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Other Referred Cases: CIT vs. Wascare (India) Ltd, My Home Power Ltd. vs. CIT, NTPC vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SATYA SAI RATH
• Assessee Lawyers: C. SUBRAHMANYAM
• Keywords: Condonation of delay; Business income; Capital asset; Proportionate interest; Revised return; Revenue expenditure; Reasonable cause; Depreciation; Additional depreciation; Cost of acquisition; Capital receipt; Capital expenditure; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 32(1)(iia)

Judgement Text

"आयकरअपीलीयअधिकरण, धिशाखापटणमपीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM “DIVN” BENCH, VISAKHAPATNAM श्रीधिजयपालराि, उपाध्यक्षएिंश्रीएसबालाकृष्णन, लेखासदस्यकेसमक्ष BEFORE SHRI VIJAY PAL RAO, HON’BLE VICE PRESIDENT & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. No. 380/Viz/2019 (धनिाारणिर्ा/ Assessment Year: 2012-13) Assistant Commissioner of Income Tax, Circle-1, Eluru. Vs. M/s. Andhra Sugars Ltd., Tanuku. PAN: AAACT6357Q (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) सी.ओ सं. / C.O. No. 140/VIZ/2019 [आयक अपील सं. से उत्पन्न / ARISING OUT OF I.T.A. No. 380/VIZ/2019(A.Y. 2012-13)] M/s. Andhra Sugars Ltd., Tanuku. PAN: AAACT6357Q Vs. Assistant Commissioner of Income Tax, Circle-1, Eluru. अपीलार्थीकीओरसे/ Assessee by : Shri C. Subrahmanyam, CA प्रत्यार्थीकीओरसे/ Revenue by : Dr.Satyasai Rath, CIT-DR सुनिाईकीतारीख/ Date of Hearing : 02/04/2025 घोर्णाकीतारीख/Date of Pronouncement : 09/06/2025 O R D E R PERS. BALAKRISHNAN, AM: This appeal filed by the Revenue is against the order of the Learned Commissioner of Income Tax (Appeals)-11, Hyderabad in Appeal No. 230/2017-18/CIT(A)-11/Hyd/18-19, dated 25/02/2019 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 (“the Act”) for the AY 2012-13. 2 2. At the outset, it is noticed that there is a delay of 07 days in filing the Revenue’s appeal before the Tribunal. With respect to belated filing of the appeal, the Revenue has filed a petition seeking condonation of delay in filing the appeal along with affidavit wherein it was mentioned that the delay has occurred because no regular incumbent holding the charge of Pr. CIT, Rajahmundry and the Pr. CIT-1, Visakhapatnam is holding the additional charge. It was further mentioned that due to voluminous judicial matters and also the High Court / SLP matters pending before the Pr. CIT, Rajahmundry the appeal could not be filed with the prescribed time limit which is neither deliberate nor intentional. Considering the reasons advanced by the Revenue for belated filing of the appeal, we are of the view that there is a sufficient and reasonable cause that prevented the Revenue in filing the appeal within the prescribed time limit. Therefore, we condone the delay of 07 days in filing the Revenue appeal and proceed to adjudicate the case on merits. 3. Brief facts of the case are that the assessee M/s. the Andhra Sugars Limited is a domestic company engaged in the business of manufacture and sale of sugar and other chemical products and 3 power generation, filed its return of income for the AY 2012-13 admitting a total income of Rs. 127,56,82,550/- on 28/09/2012. Subsequently, a revised return of income on 21/05/2013 was filed revising the total income to Rs. 127,11,77,180/-. Thereafter, once again the return of income was revised on 26/03/2014 admitting a total income of Rs. 123,49,48,180/- after claiming deduction U/s. 80IA of Rs. 3,62,29,004/-. The case was selected for scrutiny under CASS to verify large deduction claimed under Chapter VIA, additional depreciation claimed and larger interest expenses relating to exempted investments U/s. 14A of the Act. Thereafter, notice U/s. 143(2) of the Act was issued on 06/08/2013 and served on the assessee on 19/08/2013. The Manager (Finance) of the assessee appeared from time to time and produced the information called for. After verifying the details furnished in the course of the assessment proceedings, the Ld. AO assessed the total income at Rs. 1,45,57,25,050/- while framing the assessment U/s. 143(3) of the Act on 31/03/2015 by making the following additions: (Rs.) 1. Disallowance U/s. 14A 1,10,52,654 2. Disallowance of additional depreciation 2,47,68,671 3. Disallowance of stores written off 2,74,00,000 4. Disallowance of capital expenditure 8,05,92,163 4 5. Disallowance of 80IA deduction 3,62,29,004 6. Addition on account of carbon credits 45,05,374 4. On being aggrieved by the additions made by the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee made similar submissions regarding each of the addition made by the Ld. AO. The Ld. CIT(A) considering the submissions and after examining the documents provided by the assessee, partly allowed the appeal of the assessee. On being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us by raising the following grounds of appeal: “1. The order of the Ld. CIT(A) is erroneous in law and on facts. 2. The Ld. CIT(A) erred in deleting the addition made on account of disallowance of interest expenditure to exempt dividend income made by the AO U/s. 14A read with Rule 8D of IT Rules. 3. The Ld. CIT(A) ought to have appreciated that the business activity of the assessee is composite and indivisible and it is not possible to exactly correlate on asset or investment to a particular liability and therefore pro-rata interest expenditure in relation to exempt income has to be disallowed as per the formula provided in Rule 8D of IT Rules r.w.s 14 of the Act. 4. The Ld. CIT(a) erred in deleting the addition made on account of disallowance of additional depreciation on plant and machinery of wind mill units installed during the year. 5. The Ld. CIT(A) has failed to note that the benefit of additional depreciation on the new machinery or plant installed by the assessee in the business of generation or generation and distribution of power is made available by Finance Act, 2012 w.e.f AY 2013-14. 6. The Ld. CIT(A) ought to have appreciated that the decisions relied upon by the L,. CIT(A) were rendered in respect of companies which claimed additional 5 deprecation on power generation units, meant for captive consumption whereas in the present case, assessee is selling the power to Tamilnadu Electricity Board as an independent unit. 7. The Ld. CIT(A) erred in deleting he disallowance of loss claimed under the head ‘stores written off’ without appreciating that the said loss ws not incurred during the year under consideration as the purchase orders were raised and received by the assessee in April, 2012. 8. The Ld. CIT(A) erred in restricting the addition on account of disallowance of capital expenditure to Rs. 1.74 Crs treating the balance amount as revenue expenditure. 9. The Ld. CIT(A) ought to have upheld the entire addition (other than expenditure on Membrane Sheets) as the AO has discussed each and every item of such expenditure and given his finding how a particular item is plant and machinery, which constituted capital expenditure as the same are capable of being used for recurring benefit. 10. The Ld CIT(A) erred in deleting the addition made on account of receipts from the sale of carbon credits treating it to be a capital receipt. 11. The Ld. CIT(A) ought to have appreciated that sale of carbon credit is a revenue receipt as the same arises in the course of carrying on manufacturing activity by the assessee. 12. The Ld. CIT(A) ought to have further appreciated that the decision of the Hon’ble High Court of AP in the case of My Home Power Limited was not accepted by the Revenue and SLP is pending before the Hon’ble Apex Court. 13. The assessee craves leave to add or amend or alter or delete any ground at the time of hearing of the appeal. 14. For these and other grounds that may be urged at the time of appeal hearing, the assessee prays that the order of the Assessing Officer on the above issues be restored.” 5. Grounds No. 1, 13 and 14 are general in nature and need not adjudication. 6. Grounds No. 2 & 3 relates to disallowance of interest expenditure in relation to exempt dividend income U/s. 14A r.w.r 8D of the IT Rules amounting to Rs. 1,10,52,654/-. On this issue, the Learned Departmental Representative (“Ld. DR”) 6 submitted that the Ld. AO has disallowed the proportionate expenditure including interest amounting to Rs. 1,10,52,654/- out of which administrative expenditure is Rs. 17,88,000/- and interest expenditure is Rs. 92,64,000/-. The Ld. DR therefore submitted that the Ld. AO has rightly disallowed the expenditure in accordance with Rule 8D r.w.s 14A of the Act. He therefore pleaded that the deletion of interest expenditure of Rs. 92,64,000/- by the Ld. CIT(A) is bad in law. 7. Per contra, the Learned Authrorized Representative (“Ld. AR”) submitted that in earlier assessment years in the assessee’s own case the Tribunal has deleted the proportionate addition of interest expenditure as it was established by the assessee that it has not utilized the borrowed funds for investment. He also submitted that no fresh investments are made in the impugned assessment year. The Ld. AR further submitted that these investments are made 15 to 20 years earlier and hence, proportionate disallowance of interest during the impugned assessment year cannot be made. He therefore pleaded that the order of the Ld. CIT(A) on this issue be upheld. 7 8. We have heard both the sides and perused the material available on record. The Ld. AO disallowed the interest expenditure and administrative expenditure U/s. 14A of the Act on pro-rata basis due to the fact that the assessee has earned exempt income during the impugned assessment year. It was the contention of the Ld. AO that the assessee has not utilized own funds for the purpose of investment in shares and has failed to provide any evidence regarding the utilization of own funds for the purpose of investment in shares. The assessee also contended that the investment in shares in these companies have been made 15 to 20 years back and has not utilized borrowed funds for the purpose of investment to earn exempt income. The assessee, being a manufacturing company, invested its surplus funds in its subsidiary companies which cannot be considered on par with the investment involving in main business of dealing in shares and securities. There is no dispute with regard to the earning of exempt income during the year under consideration where the assessee has claimed exemption U/s. 10(34) of the Act. The Ld. AO invoked Rule 8D of IT Rules and disallowed proportionate interest and indirect expenditure. As far as interest expenditure is concerned it was held in the assessee’s 8 own case for the AY 2008-09 by the coordinate Bench of this Tribunal that the assessee has proved that it has not utilized borrowed funds and also the usage of own surplus funds was made 15 to 20 years back. In the case on hand no material have been brought on record before us to controvert the submissions of the Ld.AR. Hence, we are of the considered view that no interest bearing funds are diverted for investment during the impugned AY. Given these facts and circumstances of the case and also respectfully following the decision of the coordinate Bench in the assessee’s own case for the earlier period, we are of the opinion that the Ld. CIT(A) has rightly deleted the addition made towards interest and upheld the proportionate disallowance made towards the expenditure. We therefore find no infirmity in the order of the Ld. CIT(A) and therefore we are inclined to uphold the order of the Ld. CIT(A) thereby dismiss the Grounds No. 2 and 3 raised by the Revenue. 9. Grounds No. 4, 5 and 6 relates to additional depreciation allowed by the Ld. CIT(A). On this issue, the Ld. DR relying on the order of the Ld. AO submitted that the assessee is not entitled to claim additional depreciation U/s. 32(1)(iia) of the Act for the installation of wind mill since the assessee is not engaged 9 in the business of generation and distribution of power. Moreover, the Ld. DR also submitted that power generated and distributed is not an article or thing produced contemplating the provisions of claiming additional depreciation. He therefore pleaded that the order of the Ld. AO be upheld. 10. Per contra, the Ld. AR submitted that the generation of electricity is akin to manufacture of a product and is considered as a good under the Sale of Goods Act, 1930. He further submitted that as per section 32(1)(iia) of the Act what required isto install the new machinery or plant after 31/03/2002 for the purpose of claiming additional depreciation. He argued that it is not necessary to have any operational connectivity to the articles / things manufactured or produced by the assessee company. He therefore pleaded that the Ld. CIT(A) has rightly appreciated these facts and has allowed the same. The LD AR relied on various judicial pronouncements as detailed in the Paper Book. 11. We have heard both the sides and perused the material available on record. From the submissions of the Ld. AR, it is observed that various judicial pronouncements have held that electricity is a ‘good’ covered by the definition of ‘goods’ under 10 the Sale of Goods Act, 1930. Since it is considered as an article or good which is tradable electricity is covered under the definition of good under the Sale of Goods Act, 1930.It was the submission of the Ld. AR that power generation unit used for captive consumption. Prior to the amendment brought in the Finance Act, 2012, additional depreciation is also allowable in the case of power generating unit used for captive consumption by the assessee who manufacture or produce articles / things. In the instant case the assessee uses electricity in the manufacturing activity. “8. Similarly, it is clear that electricity has been held to be \"goods\" for the purposes of sales tax in the Constitution Bench judgment of the Supreme Court in State of Andhra Pradesh vs. NTPC Ltd. AIR 2002 SC 1895. The Supreme Court, in that judgment held as follows: “20. Before we deal with the constitutional aspects let us first state what electricity is, as understood in law, and what are its relevant characteristics. It is settled with the pronouncement of this Court in Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur – 1969(2) SCR 939 that electricity is goods. The definition of goods as given in Article 366 (12) of the Constitution was considered by this Court and it was held that the definition in terms is very wide according to which “goods” means all kinds of moveable property. The term “moveable property” when considered with reference to “goods” as defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because electrical energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be moveable property when it has all the attributes of such property. It is capable of abstraction, consumption and use which if done dishonestly is punishable under Section 39 of the Indian Electricity Act, 1910. If there can be sale and purchase of electrical energy like any other moveable object, this Court held that there was no difficulty in holding that electric energy was intended to be covered by the definition of “goods”. However, A.N. Grover, J., speaking for three-Judge Bench of this Court went on to observe that electric energy “can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other moveable property”. In this observation we agree with Grover. J., on all other characteristics of electric energy except that it can be „stored‟ and to the extent that electric energy can be „stored‟, the observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored.” 11 9. The Tribunal's judgment in NTPC vs. DCIT [relied upon in the orders of the CIT(A) as well as the Tribunal in the present case] followed this judgment of the Supreme Court to hold that electricity has all the necessary trappings of “articles” or “things” and the benefit of additional depreciation cannot be denied. 10. As held by the Constitution Bench, electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property. Following the same logic, to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an “article” or “thing” is in our view an artificially restrictive meaning of the provision. The benefit of additional depreciation under Section 32(1)(iia) has, therefore, been rightly granted to the assessee by the concurrent judgments of the CIT(A) and the Tribunal.” Hence, in our considered opinion, the assessee is entitled for additional depreciation U/s. 32(1)(iia) of the Act on the machinery involved in wind power division. We therefore find no infirmity in the order of the Ld. CIT(A) on this issue and thereby dismissing the Grounds No. 4, 5 and 6 raised by the Revenue. 12. Ground No.7 is with respect to the deletion of disallowance of loss claimed by the assessee under the head ‘stores written off’. On this issue, the Ld. DR argued that the event of sale of stores happened during the subsequent Financial Year whereas the assessee has claimed it as expenditure in the earlier Financial Year. He therefore pleaded that the addition made by the Ld. AO be upheld as this transaction does not pertain to the year under consideration. 12 13. Per contra, the Ld. AR submitted that as per the Accounting Standards issued by the Ministry of Corporate Affairs and Institute of Chartered Accountants of India (“ICAI”) any event occurring after the balance sheet date may require adjustment of reported values of assets, liabilities, expense, income and equity for the accounting period shall be considered during the accounting period. The Ld. AR further submitted that the stores written off is based on the anticipated sales realization of Rs. 4 Crs which was already been reduced from the block of assets while claiming depreciation on the balance WDV for the AY 2011- 12. The Ld. AR further pleaded that since the plant (stores written off) was sold to M/s. Rayalaseema Alkali Chemicals Ltd., Kurnool for Rs. 1,26,00,000/- during the AY 2012-13 before the finalization of audit of accounts, the balance of Rs. 2,74,00,000/- was written off in the books of account and claimed as expenditure. He therefore submitted that it is revenue neutral as the same has to be allowed during the subsequent assessment year. Further, the Accounting Standards mandate it to be considered in the accounting period wherein if it materialized before the finalization of accounts for the impugned assessment 13 year and the loss has been quantified. He therefore pleaded that the order of the Ld. CIT(A) be upheld. 14. We have heard both the sides and perused the material available on record. It is a fact that the listed entities have a mandate to follow the Accounting Standard-4 “Contingencies and Events Occurring after the balance sheet date” issued by the Ministry of Corporate Affairs and ICAI. Accordingly, the company has followed recognizing the loss arising out of the writing off of stores which materialized during the subsequent Financial Year but pertaining the accounting period. The assessee has also considered on provisional basis an amount of Rs 4 Crs and has reduced it from WDV of assets while claiming depreciation during the FY. We therefore find no infirmity in the order of the Ld. CIT(A) on this issue and hence the Ground No.7 raised by the Revenue is dismissed. 15. Grounds No. 8 & 9 relate to confirming the disallowance of capital expenditure amounting to Rs. 1.74 Crs and treating the balance as revenue expenditure by the Ld.CIT(A). The Ld. DR submitted that the Ld. AO has analyzed the expenditure in detail the expenditure incurred by the assessee under the head ‘repairs 14 and maintenance’ items wise and has disallowed a sum of Rs. 8,05,92,163/- considering it as capital expenditure and not allowable as revenue expenditure. He therefore pleaded that since the Ld. AO has analyzed the expenditure item by item, there is no ambiguity in considering the expenditure as capital expenditure and hence pleaded that the order of the Ld. AO be upheld. 16. Per contra, the Ld. AR submitted that in the assessee’s own case for the AY 2007-08 and 2008-09, this Tribunal has considered that the assessee has incurred expenditure in connection with replacement of certain parts of machineries such of Membrane Sheets etc., as detailed in the Ld. AO’s order. He further argued that these Membrane Sheets are nothing but spare parts / consumables for the existing machinery and did not constitute any new machinery to be considered as capital expenditure. He therefore pleaded that the Ld. CIT(A) has rightly considered the Membrance sheets and other items as detailed in his order in para 9.2 as revenue expenditure and hence pleaded that it may be upheld. 15 17. We heard both the sides and perused the material available on record. On a perusal of the items of expenditure disallowed by the Ld. AO, we find that some of the items are independent machineries like Motors, Pumps, Compressors, transformers, UPS Systems etc., having distinct characteristics of machines and also capable of independent function whether or not fixed to continuous process plant. These machinery being part of the continuous process that does not lose their identity or function. Each machine in a plant should be treated independently as such and not as a mere part of the composite machinery of the plant. Considering these facts and circumstances, the Ld. CIT(A) has examined the items of disallowance and had given relief to the items which are to be treated as revenue in nature while upholding the action of the Ld. AO in the case of expenditure which are capital in nature. The Ld. CIT(A) by relying on the decision in the assessee’s own case for the earlier assessment year has given his findings regarding the items constituting capital or revenue in nature. We therefore find no reason to interfere in the decision of the Ld. CIT(A) and therefore we find no infirmity in the order of the Ld. CIT(A) on this issue. Thus, Ground No. 8 raised by the Revenue is dismissed. 16 18. Grounds No. 10, 11 and 12 relate to the treatment of sale of carbon credit as revenue or capital receipt. The Ld. DR submitted that Special Leave Petition (“SLP”) has been filed before the Hon’ble Supreme Court which is admitted against the order of the Hon’ble High Court of Madras in CIT vs. Wascare (India) Ltd [2022] 138 taxmann.com 185 (SC). He further submitted that notice has been issued in SLP filed against the High Court. He therefore pleaded that since the matter is pending before the Hon’ble Supreme Court, the decision of the Hon’ble High Court in the case of CIT vs. Wascare (India) Ltd (supra) shall not be applicable. 19. Per contra, the Ld. AR submitted that the carbon credit accrued to the assessee and the sale of the same which was earned on clean development mechanism in its wind energy operations is a capital receipt and cannot be considered as a revenue receipt. He further submitted that carbon credits are made available to the assessee on account of saving of energy consumption and not because of the assessee’s business and it is not a byproduct of the assessee. The Ld. AR relied on the order of the coordinate Bench in ITA No.78/Viz/2017 in the case of ACIT vs. M/s. Sree Kalyani Agro Industries Pvt Ltd, dated 17 25/01/2018. He therefore pleaded that the carbon credits cannot be considered as a revenue receipt as it is not directly linked with the power generation. He prayed that the order of the Ld. CIT(A) be upheld. 20. We have heard both the sides and perused the material available on record and gone through the case law submitted by the Ld. AR in the case of ACIT vs. M/s. Sree Kalyani Agro Industries Pvt Ltd (supra) by the coordinate Bench of the Tribunal. We find that the Tribunal has relied on the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. My Home Power Ltd [2014] 365 ITR 0082 (AP) wherein it was held that carbon credit is a capital receipt. Relevant portion of the order is extracted below: “7. We have heard the rival submissions and perused the materials placed on record. The Ld.CIT(A) allowed the appeal of the assessee and held that the carbon credits are capital receipts following the decision of jurisdictional High Court in the case of My Home Power Ltd. cited supra. The Hon'ble ITAT, Hyderabad in the case of My Home Power Ltd. has held that the sale of carbon credits is not taxable and they are capital receipts. The relevant portion of the discussion is extracted 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 world concern. The source of carbon credit is world concern and environment Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the 18 amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. it/s not liable for tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56 of the income-tax Act, 1961, Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered as a b/-product it is a credit given to the assessee under the Kyoto Protocol and because of international understanding Thus, the assessee's who have surplus carbon credits can sell them to other assesses to have capped emission commitment under the Kyoto Protocol Transferable carbon credit is not a result or incidence of one's business and it is a credit for reducing emissions. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome ones negative point carbon credit The amount received isnot received for producing and/or selling any product, b/- product or 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 judgment of the Supreme Court in the case of CIT vs. Maheswari Devi Jute Mills Ltd (57 17W 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 certain consideration. Therefore, the receipt of such consideration cannot be considered as business in 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 green house 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 product 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 Self-generated Certified Emission Reductions (CER5) issued by the institute of Chartered -Accountants of India (ICAI) in June, 2009 states that CERs should be recognized in books when those are created by (J/VFCCC and/or unconditionally available to the generating entity. CERs are inventories 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 19 should be accounted as per AS-2 (Valuation of inventories) at a cost or market price, whichever is lower. Since CERs are recognized as inventories, thegenerating assessee should apply AS-9 to recognize revenue in respect of sale of CERs.\" 7.1 The Hon'ble Jurisdictional High Court in the case of My Home Power Ltd., upheld the view taken by Hon'ble ITAT, Hyderabad and the relevant part of the order is extracted as under: \"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 asset is generated in the course business but it is generated due to environmental concerns.\" We agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal.\" Facts of the case are similar and the order of the jurisdictional High Court is binding on the lower courts, thus respectfully following the judgment of the Hon'ble Jurisdictional High Court we hold that the carbon credits are capital receipts and cannot' be considered as business income. Accordingly, we uphold the order of the CIT(A) and dismiss the appeal of the revenue.” 21. Further, the argument of the Ld. DR cannot be accepted that notice has been issued in SLP filed by the Revenue wherein the case is pending before the Hon’ble Supreme Court. We therefore find that the Ld. CIT(A) has rightly followed the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. Myhomes Power Limited (supra) and has deleted the addition made by the Ld. AO. In the absence of any finality on this issue by the Hon’ble Apex Court, the ratio laid down by Hon’ble Jurisdictional High Court and Hon’ble Madras High Court shall 20 be considered final. Thus, we are of the considered view that no interference is required in the order of the Ld. CIT(A) thereby dismissing the Grounds No. 10, 11 and 12 raised by the Revenue. 22. In the result, appeal of the Revenue is dismissed. 23. With respect to the assessee’s Cross Objection in C.O.No.140/Viz/2019 (AY 2012-13), since the Revenue appeal is dismissed, the grounds raised by the assessee in its Cross Objection supporting the order of Ld CIT(A) are considered infructuous and hence dismissed. 24. Ex-consequenti, appeal of the Revenue as well as the Cross Objection filed by the assessee are dismissed. Pronounced in the open Court on 09th June, 2025. Sd/- Sd/- (VIJAY PAL RAO) (S. BALAKRISHNAN) उपाध्यक्ष/VICE PRESIDENT लेखासदस्य/ACCOUNTANT MEMBER Dated :09/06/2025 OKK - SPS 21 आदेशकीप्रधतधलधपअग्रेधर्त/Copy of the order forwarded to:- 1. धनिााररती/ The Assessee – M/s. Andhra Sugars Limited, Venkatarayapuram, Tanuku, West Godavari District, Andhra Pradesh-534215. 2. राजस्ि/The Revenue - Asst. Commissioner of Income Tax, 2nd Floor, K.K.S Towers, R.R. Peta, Eluru-534002. 3. The Principal Commissioner of Income Tax, 4. आयकरआयुक्त (अपील)/ The Commissioner of Income Tax 5. धिभागीयप्रधतधनधि, आयकरअपीलीयअधिकरण, धिशाखापटणम/ DR,ITAT, Visakhapatnam 6. गार्ाफ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam "