Sri Indra Power Energies Limited, ... vs Department Of Income Tax

Dy. Commissioner of Income- V/s. M/s. Sri Indra Power Energies tax Circle 3(2), Hyderabad Limited, Hyderabad

(PAN - AAFCS 6524 H)

(Appellant) (Respondent)

Appellant by : Shri Ramakrishna Bandi DR

Respondent by : Shri V.Raghavendra Rao Date of Hearing 24.03.2015 Date of Pronouncement 27.03.2015

ORDER

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 case.

2. The learned CIT(A) ought to have appreciated the fact that the receipts on sale of Carbon emission Receipts are revenue in nature but since they are not derived from the eligible business are accordingly not entitled for deduction u/s. 80IA.

3. The CIT(A) ought to have appreciated the fact that as per AS-2, prescribed by the ICAI, the Certified Emission Receipts (CERs) 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 2 ITA No.1769/Hyd/2014 M/s. Sri Indra Power Energies Limited, Hyderabad

Hon'ble 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 using non- fossil fuels. The return of income for the year under consideration was filed by it on 13.10.2010 declaring total income at Rs.NIL under normal provisions of the Act after claiming deduction of Rs.1,46,37,506 under S.80-IA and book profit of Rs.1,06,11,359 under S.115JB of the Act. During the course of assessment proceedings, it was noticed by the assessing officer that the assessee had claimed deduction under S.80IA in respect of other income including income from 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 was examined by the Assessing Officer and on such examination, he recorded the following observations/findings -

"1. The company's main business activity is generation of bio-mass based power, the receipt in question had no relationship with production nor it was connected with the sale of power or with the raw material consumed. It was not even the sale proceed of any bye product. The carbon credits are issued to every industry which saves emission of carbon and not limited 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 80IA by virtue of the fact that the power 3 ITA No.1769/Hyd/2014 M/s. Sri Indra Power Energies Limited, Hyderabad

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 carbon 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 producing 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 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. "

3. On the basis of the above observations/findings, the learned Assessing Officer held that the income from sale of carbon emission reduction was not derived by the assessee from the business of power generation, and the same, therefore, was not eligible for deduction under S.80IA. In this regard, he did not entertain the alternative clam of the assessee that the carbon credit 4 ITA No.1769/Hyd/2014 M/s. Sri Indra Power Energies Limited, Hyderabad

receipts constituted capital receipts not chargeable to tax, as the same was not made by filing the revised return. Accordingly, the claim of the assessee for deduction under S.80IA in respect of income from sale of carbon emission reduction was disallowed by the Assessing Officer in the assessment completed under S.143(3) vide order dated 10.1.2013.

4. Against the order passed by the Assessing Officer under S.143(3), an appeal was preferred by the assessee before the learned CIT(A), who allowed the alternative claim of the assessee that the carbon credits constituted capital receipts not chargeable to tax, relying on the decision of the coordinate bench of the Tribunal in the case of My Home Power Ltd. V/s. DCIT (21 ITR (Trib) 186) (Hyd). Aggrieved by the order of the learned CIT(A), Revenue has preferred this appeal before the Tribunal.

5. We have heard the arguments of both the sides and perused the relevant material on record. As agreed by the learned representatives of both the sides, the 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 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 of 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...."

5 ITA No.1769/Hyd/2014 M/s. Sri Indra Power Energies Limited, Hyderabad

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 carbon 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 27th March, 2015

Sd/- Sd/-

(Saktijit Dey) (P.M.Jagtap) Judicial Member Accountant Member

Dt/- 27th March, 2015

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. Commissioner of Income-tax(Appeals) IV, Hyderabad

4. Commissioner of Income-tax III, Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S