INCOME TAX ACT, 1961

Section 4

Income - Capital or revenue receipt - Receipt on sale of RECs -

The assessee was into the business of manufacturing of sugar and allied products. In course of scrutiny proceedings, it was noted by the AO that the assessee had received a sum of Rs. 8,90,53,500 on account of sale of Renewable Energy Certificates (REC) which was not offered to tax on the plea that it was a capital receipt. However, AO, on approval from DRP, held that the receipts on account of sale of RECs were revenue receipts and added the same to the total income of the assessee. Held: Sale of RECs was held as capital receipt and not a business receipt or income nor it was directly linked with the business of the assessee nor any asset was generated in the course of business but generated due to environmental concern. In view of this, addition of Rs. 8,90,53.500 was deleted.

Followed:CIT v. My Home Power Ltd. (2014) 365 ITR 082 (AP-HC) : 2014 TaxPub(DT) 2672 (AP-HC)