INCOME TAX APPELLATE TRIBUNALDIVISION BENCH, CHANDIGARH

ITA No. 1122/CHD/2014
Assessment Year : 2010-11
ACIT (Appellant) vs M/s Oswal Woollen Mills Ltd (Respondent)
Date of Order : 16-12-2015

ORDER

  PER BHAVNESH SAINI ,JM
This appeal by revenue is directed against the order of ld. CIT(Appeals)-II Ludhiana dated 29.10.2014 for assessment year 2010-11 on the following grounds :

“1. Whether on the facts and in the circumstances of case the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,21,16,909/-- accrued on account of carbon credits entitlement ignoring that such profits are included in the definition of income as per section 2(24)(xii) of the I.T. Act, 1961 and also not noticing the decision of Hon'ble ITAT, Chennai in the case of M/s Sripathy Paper Boards (P) Vs. DCIT, Circle-1(2), Coimbatore in ITA No. 1452/Mds/2012 dated 29.11.2012 for the Assessment Year 2009-10.”

2. The brief facts are that Assessing Officer noted that assessee had shown income of Rs.1.21 Cr under the head Carbon Credit Receipts. This income was based upon total carbon emission reduction made by company during the year . The assessee had claimed these receipts to be capital receipts. The Assessing Officer held that these receipts were revenue receipts and added to the income of the assessee. The assessee filed written submissions before ld. CIT(Appeals) which is quoted in the appellate order in which the assessee explained that the said claim was made on the basis that CER undoubtedly known as Carbon Credit Commodity and are quoted in stock exchange like MCX and NCDE. The gain from the carbon credits represents the receipt to compensate the unforeseenable loss. The view of the assessee was also fully subscribed by ITAT Hyderabad Bench in the case of My Home Power Ltd. reported in 151 TTJ 616. The Assessing Officer rejected the claim of the assessee because the view of the Tribunal is not accepted by the Revenue Department and appeal is pending before High Court . It was also submitted that on identical issue, ld. CIT(A) has decided the issue in favour of the assessee in the case of Nahar Industrial Enterprises Ltd. Copy of the order is placed on record in which it was held that carbon credit receipt is not revenue receipt but capital receipt. The ld. CIT(Appeals) , following his order in assessee's group cases of M/s Nahar Industrial Enterprises Ltd. dated 19.02.2014 al lowed the appeal of the assessee.

3. The ld. counsel for the assessee, at the outset submitted that the issue is covered in favour of the assessee by order of ITAT Chandigarh Bench dated 15.04.2015 in ITA No. 389/CHD/2013 for assessment year 2009-10 in the case of DCIT Vs Kotla Hydro Power Pvt. Ltd., copy of the same is placed on record in which in para 7 to 9, the Tribunal held as under :

“7. We have considered the rival submissions carefully. The facts of the case are identical to the facts of the case decided by Hyderabad Bench of the Tribunal in the case of My Home Power Ltd Vs. DCIT (supra). In that case it was held as under: -

“Held, that carbon credit was in the nature of “an entitlement” received to improve world atmosphere and environment reducing carbon, heat and gas emissions. It was not an offshoot of business but an offshoot of environmental concerns. No asset was generated in the course of business. Credit for reducing carbon emission or greenhouse effect could be transferred to another party in need of reduction of carbon emission. It does not increase profits in any manner and does not need any expenses. It was in the nature of entitlement to reduce carbon emission, and there was no cost of acquisition or cost of production to get this entitlement. Carbon credit was not in the nature of profit or in the nature of income. The amount realized on transfer of carbon credit was not taxable. “

8. This decision was confirmed by Hon'ble Andhra Pradesh High Court in the decision of CIT Vs. My Home Power Ltd Vs. DCIT 365 ITR 82(A.P.) and it was held as under:-

“Held, dismissing the appeal, that the assessee was carrying on the business of power generation for the assessment year 2007-08. Carbon credit was not an offshoot of business of the assessee but an offshoot of environmental concerns. No asset was generated in the course of business but it was generated due to environmental concerns. There was no cost of acquisition or cost of production to get entitlement for the carbon credits. Therefore, the income from sale of carbon credits was to be considered as capital receipt and not liable to tax under any head of income under the Income-tax Act, 1961.”

9. Further, this decision has been followed by Chennai Bench in two cases of Ambika Cot ton Mi l ls Ltd v DCIT (supra) and Sri Velayudhaswamy Spinning Mills P. Ltd v DCIT (supra). Even Jaipur Beach has followed this decision in the case of Shree Cement Ltd Vs. Addl CIT (supra). No doubt the DR has been able to point out the contrary decision rendered by Cochin Bench of the Tribunal in the case of Apol lo Tyres Ltd v ACIT (supra). Since the decision of Hyderabad Tribunal Bench has already been confirmed by the Hon'ble Andhra Pradesh High Court and there is no contrary decision from any other High Court, in our opinion, we are bound to fol low the decision of High Court. Therefore, following this decision we decide this issue against the Revenue.”

4. Consider ing the above, we find that the issue is covered in favour of the assessee by order of ITAT Chandigarh Bench in the case of Kotla Hydro Power Pvt. Ltd. (supra) . The departmental appeal , therefore, stands dismissed.

5. In the result, departmental appeal is dismissed.

Order pronounced in the Open Court.

( RANO JAIN)             (BHAVNESH SAINI )
ACCOUNTANT            MEMBER JUDICIAL MEMBER