DCIT Vs MSPL Ltd. (ITAT Mumbai)
Sale of Carbon Credits Is Capital Receipt; ₹15.16 Cr Addition Deleted Following Bombay HC
The Assessing Officer treated ₹15.16 crore received by the assessee on sale of carbon credits as taxable business income in reassessment for AY 2011-12. The CIT(A) deleted the addition holding the receipt to be capital in nature.
The Tribunal upheld the deletion, noting that the taxability of carbon credit receipts is now conclusively settled. Relying on the landmark judgment of the Andhra Pradesh High Court in My Home Power Ltd. and, more importantly, the binding decisions of the Bombay High Court in Dodson Lindblom Hydro Power Pvt. Ltd. and Essel Mining and Industries Ltd., it held that carbon credits do not arise from normal business operations but from environmental and regulatory mechanisms aimed at reducing emissions. They represent an accretion of capital and not revenue generated from trading or services.
Since the jurisdictional Bombay High Court has expressly affirmed that proceeds from sale of carbon credits are capital receipts not chargeable to tax, the Tribunal held that no contrary view can be taken within its jurisdiction. The Revenue’s contention that the issue was still debatable was rejected as contrary to binding precedent.
Accordingly, the addition of ₹15.16 crore was held unsustainable and the Revenue’s appeal was dismissed. As the addition itself failed on merits, the assessee’s cross-objection challenging the reopening was treated as academic and dismissed as infructuous, with the issue left open.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
