The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the proceeds received on the sale of carbon credit is a capital receipts and not business income.
The assessee is a company which got subsequently reorganized. Return of Income was filed showing normal computed income at Rs. Nil and Rs 7,17,38,434/- as book profit under Section 115 JB of the Income Tax Act.
The assessee preferred an appeal before the Commissioner of the Income (Appeal) [CIT(A)] where an appellate order was passed resulting in confirmation of disallowance of Rs. 36,62,266/- being the payment of cane transportation charges.
The Commissioner of Income Tax (Appeal) confirmed the disallowance of Rs.36,62,266/- on account of cane transportation charges for the reason that the payment does not prove the year of liability or the crystallization of the liability.
The first additional ground with respect to the amount of ₹ 12.49 crores (net) in respect of the estimated value of carbon credits/certified emission reduction was treated as taxable income.
The claim of the assessee is that the same is a capital receipt and not liable to tax under the provisions of the income tax act, under the normal computation of income as well as under the book profit computation under Section 115JB of the Income Tax Act as the value of carbon credit is not liable to tax.
It was also the claimed that while calculating the book profit; it cannot be levied on income not at all chargeable to tax. As the income from carbon credit is not income, it should be excluded from the book profit also.
The Departmental Representative objected and submitted that this claim was never raised before the assessing officer or before the Commissioner of Income Tax (Appeal).
Such foregoing claim or forgotten claim cannot be now entertained before the tribunal. It was also the claimed that the assessee itself has offered the same income for taxation in the normal computation of income as well as in the computation of book profit under section 115JB of the Income Tax Act.
In case of Commissioner of Income Tax, Chennai V Ambika Cotton Mills Ltd 125 taxmann.com 206 (Madras) wherein it has been held that proceeds received by assessee-company carrying on the business of power generation on sale of certified emission reduction credit (carbon credit) are a capital receipt and not business income as carbon credit is not an offshoot of business, but an offshoot of environmental concerns.
The two-member bench comprising of Amit Shukla (Judicial member) and Prashant Maharishi (Accountant member) directed the assessing officer to verify the amount of carbon credit received by the assessee during the year. It was also directed to consider it as a capital receipt and compute the income of the assessee accordingly.
Thus, the appeal of the assessee was partly allowed for statistical purposes.
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