Sale of renewable energy certificate of income received by the assessee Is a capital receipt: ITAT

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The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the sale of renewable energy certificates (carbon credit) of income received by the assessee is a capital receipt.

The two-member bench of Kuldip Singh (Judicial Member) and Gagan Goyal (Accountant Member) has observed that the sale of carbon credit could not be a business receipt or income, nor is it directly linked with the business of the assessee, nor any asset is generated in the course of business, but it is generated due to environmental concern.

The assessee-company filed its return of income on 30.09.2015, declaring a total loss of Rs. 229,54,99,761/-. The case was selected for scrutiny under CASS. During the Assessment Year (AY) 2015-16, the assessee was engaged in the business of raising ore, manufacturing Nitrogen Gas & Ferro Alloys, trading of Iron Ore & Ferro Alloys, generation of electricity (Wind Power & Solar Power), railway siding for captive use, and operating lease of solar energy equipment. During the scrutiny assessments, various additions were made by the AO.

The assessee preferred the appeal against the order before the CIT (A). The CIT (A) disallowed the common expenses against the deduction claimed under Section 80IA of Rs. 5,92,7000 and the carbon credit treated as revenue income under Section 28 of Rs. 102,05,87.

The assessee stated that CIT (A) erred in confirming the disallowance of the claim of Carbon Credit Income as a Capital Receipt.

The issue raised was whether receipts received by the assessee on the sale of alleged carbon credit were revenue in nature or capital in nature.

The ITAT noted that any money received for carbon credits or environmental protection is not included in business income. However, with the insertion of Section 115BBG w.e.f. 01-04-2018, revenue from the transfer of carbon credits has been granted a unique status as liable to tax at 10% and not as part of the assessee’s usual business income. The amendment was enacted prospectively and so cannot be applied to the assessment years 2015-16.

The ITAT deleted the addition of Rs. 10,20,587 by the AO from the sale of carbon credit and confirmed it by the CIT (A).

Case Title: Essel Mining & Industries Limited Versus Dy. CIT

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