The order of the Bench was delivered by
S. S. GODARA (Judicial Member).-This assessee's appeal is directed against the order of the Commissioner of Income-tax (Appeals)-I, Coimbatore, dated July 2, 2012 in 1. T. A. No. 191/11-12 for the assessment year 2009-10, in proceedings under section 143(3) of the Income-tax Act, 1961 (in short the "Act").
From the array of grounds raised in the appeal, it emerges that the assessee has assailed the order of the Commissioner of Income-tax (Appeals) confirming additions made in the assessment order dated December 29, 2011 of an amount of Rs. 3,39,64,303 claimed as capital receipt of clean development mechanism (CDM) by realising carbon credit, Rs. 660 for delayed payment of IDS, Rs. 89,690 on account of interest on IDS and that of TNEB interest for security deposit amounting to Rs.15,51,913.
In the course of hearing, the assessee vehemently argued that the Con:missioner of Income-tax (Appeals) has erred in confirming the aforesmd additions (except that of Rs. 660, which is not pressed before us) ~d prays for deleting the same. To buttress its submissions, it places reliance on case law reported [2013] 21 ITR (Trib) 186 (Hyd) titled as My Home Power Ltd. v. Deputy CIT (qua realisation of carbon credit) and prays for acceptance of the appeal.
Opposing this, the Revenue draws ,strong support from the order under challenge passed by the Commissioner of Income-tax (Appeals) and prays for upholding the same.
The assessee is a "company". It is engaged in the business of manufacture and sale of cotton yam and knitted fabrics. On September 27, 2009, it had "e-returned" loss of Rs. 2,03,97,501 under normal computation and declared book profit under section 1l5JB of the" Act" of Rs. 9,84,57,424.
In previous year relevant to the impugned assessment year, the assessee being a member of a project by name “ Bundled Wind Power Project" in the state in coordination with Tamilnadu Spinning Mills Association (TASMA); had received an amount of Rs. 3,39,64,303 towards clean development mechanism (CPM). In support, its submission was that the said amount represented entire carbon credit realised in coordination with aforesaid association of spinning mills. It. further pleaded to have indulged in the aforesaid activity for welfare of its members since cost of getting individual eligibility was disproportionate to the benefit.
As we notice from the assessment order, the aforesaid contentions of the assessee. failed to convince the Assessing Officer. Rejecting the assessee's explanation, be held that after examining the concept of clean development mechamsm: Its objects as well as the intricacies of the issue pertaining to carbon credits that the receipt in question was revenue in nature since it had arisen from emission reduction in market which is liable to be considered in the nature of goods having all attributes thereof.
Similarly, the Assessing Officer also turned down the assessee's submissions claiming interest of Rs. 89,660 on IDS by holding that the' parties at whose behest the amount had been paid did not agree and the amount had been written off as sundry expenses.
In the same tune, the Assessing Officer noticed through AIR information, a receipt in the assessee's hands of Rs. 15,59,913 from TNEB. He sought the assessee's accounts copy and IDS certificates. On verification thereof, the Assessing Officer found that though the receipt of Rs. 19,55,434 pertained to the assessment year 2009-10, the same had been offered as income in the assessment year 2010-11. The assessee would submit that since the intimation from the TNEB had been received only on October 3, 2009, 1.e., m the previous year relevant to the succeeding assessment year 2010-11 after closure of accounts, etc., the interest included in the subsequent year was totalled as Rs. 19,55,434 inclusive of IDS amount of Rs.4,43,101. In the assessment order, the Assessing Officer rejected the assessee's explanation and held that as it had been following mercantile system of accounting, the interest accrued during the relevant financial' year had to be, taxed in. the impugned assessment year. Accordingly, he added the said amount m the assessee's total income.
In the assessee's, appeal, the Commissioner of Income-tax (Appeals) has confirmed the additions abovesaid.
Therefore, the assessee is aggrieved.
We have heard both parties and perused' the relevant findings as well as case law cited. The first contention of the assessee is that the amount of Rs.3,39,64, 303 representing realisation of entire carbon credits is a capital receipt which is contested by the Revenue, who terms it as revenue receipt liable to be taxed. We make it clear that there is no issue between the parties qua realization of the amount in question or its source and the dispute is regarding nature of receipt, i.e., whether capital or revenue. In this backdrop, we find that the very issue stands adjudicated by the co-ordinate Bench of the Income-tax Appellate Tribunal, Hyderabad in My home Power Ltd. Vs. Deputy CIT [2013] 21 ITR (Trib) 186 (HYD), whereing it has been held as under (page 202):
"24. We have heard both 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 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 is 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 bi-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding! Thus, the assessees who have surplus carbon credits can sell them other assessee to have capped emission commitment under the Kyoto Protoco Transferad carbon .credit is not a result or incidence of one's business and It is a credit for reducig emissions. 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. 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 v. Maheshwari Devi Jute Mills Ltd. [1965] 57 ITR 36 (SC) wherein held that transfer of surplus loom hours to other mill out ofthose 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 income 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 greenhouse 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 production 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 (CERs) issued by the Institute of Chartered Accountants of India (ICAI') in June, 2009 states that CERs should be recognised in books when those are created by UNFCCC 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 should be accounted as per AS-2 (valuation of inventories) at a cost or market price, whichever is lower. Since CERs are recognised as inventories, the generating assessee should apply AS-9 to recognise revenue in respect of sale of CERs.
26. Thus, sale of carbon credits is to be considered as capital receipt. This ground is allowed."
13 Taking cue from the same, we also hold that the Commissioner of Income-tax (Appeals) has erred in confirming addition made by the Assessing Officer holding herein that the realisation of carbon credit in question by the assessee gives rise to a revenue receipt. Therefore, the addition stands deleted.
14 Coming to the issue of addition pertaining to Rs. 89,690. The sole reason given by the authorities below is that before making the addition, the patty at whose instance the assessee had stated to have paid the amount did not support its plea and the amount had been written off as sundry expenses. In this view of the matter, we see no reason to delete the addition under challenge.
This leaves us with the issue regarding addition of Rs. 15,51,913. Undisputedly, the only strife between the parties is that per assessee it is liable to be taxed in the assessment year 2010-11 which is opposed by the Revenue who states that since it is a case of mercantile system of accounting, the amount has to be taxed in the impugned assessment year. We notice and even the Assessing Officer holds that necessary intimation of credit in question was received on October 3, 2009, i.e., in the previous year relevant to the succeeding assessment year 2010-11. The assessee also submits that it had included the amount as income for the purpose of assessment in the next assessment year instead of impugned assessment year. Paced with this situation and without going into merits of legality of the claim in hand, we deem it appropriate to observe that in case the Assessing Officer has already treated the amount as income in the assessment year 2010-11, the addition in question would stand deleted in favour of the assessee.
Consequently, the appeal stands partly allowed.
The order pronounced on Tuesday, the 16th of April, 2013 at Chennai.