SULOCHANA COTTON SPINNING MILLS (P) LTD.,TIRUPPUR vs. DCIT CIRCLE 1, TIRUPPUR

ITTPA 85/CHNY/2024Status: DisposedITAT Chennai18 December 2025AY 2021-2213 pages
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What were the facts?

The assessee, M/s. Sulochana Cotton Spinning Mills (P) Ltd., filed an appeal against the assessment order dated 25.10.2024 for Assessment Year 2021-22. The primary dispute concerns the tax treatment of Rs. 27,25,000 derived from the sale of Renewable Energy Certificates (RECs). The assessee claimed this income as part of its eligible business of captive solar power generation, seeking deduction under Section 80-IA. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) treated it as ‘other income’. The Transfer Pricing Officer (TPO) had initially made an adjustment concerning the sale of power by captive units, including a downward adjustment to the solar power generating unit's revenue due to the REC sale. The assessee also alternatively argued that REC income is a capital receipt, not taxable under Section 115G.

What did the Tribunal hold?

The Tribunal rejected the assessee's grounds claiming deduction under Section 80-IA in respect of REC receipts. It followed the ratio decidendi from the decisions of the Hon'ble Andhra Pradesh High Court in CIT Vs My Home Power Ltd and the Madras High Court, which held that carbon credits (RECs) are not directly linked to power generation but are an offshoot of environmental concerns, not directly linked to the business. Regarding the alternate plea that REC receipts are capital in nature, the Tribunal noted that the legal position changed with the introduction of Section 115BBG w.e.f. 01.04.2018, which specifically taxes the sale of carbon credits (RECs) at 10%. The Tribunal found that the decision in Satia Industries Ltd. was rendered prior to this change and thus not applicable. Coordinate Benches have treated RECs as akin to carbon credits. Therefore, the Tribunal found no infirmity in the action of lower authorities treating the income from sale of RECs as ‘other income’ and taxing it under Section 115G of the Act. The ground regarding loss on sale of machinery was dismissed as not pressed. The ground relating to MAT Credit was disposed of with a direction to the AO to re-compute it.

What were the issues?

1. Whether the income from the sale of Renewable Energy Certificates (RECs) is to be considered as income derived from the eligible business of captive solar power generation, thereby eligible for deduction under Section 80-IA of the Income Tax Act, 1961, or as 'other income'. Assessee's contention: The income from RECs is inextricably linked to the eligible business of solar power generation and should be considered revenue receipt eligible for Section 80-IA deduction. The issuance of RECs by CERC is an incentive for renewable energy generation, directly derived from the solar power plant. Revenue's contention: The income from RECs is not generated from the business activity but is incidental to it, aimed at addressing environmental concerns. The DRP held that RECs are not income from the business of solar power generation but income generated on account of environmental concerns and statutory provisions, thus should be treated as 'other income'. 2. Alternatively, whether the income from the sale of RECs is in the nature of a capital receipt and therefore not taxable, or taxable under Section 115BBG of the Act. Assessee's contention: If not eligible for Section 80-IA deduction, the income should be treated as a capital receipt, and Section 115BBG does not apply as RECs are not akin to carbon credits. Relied on ITAT Amritsar in Satia Industries Ltd. v NFAC. Revenue's contention: Supported the lower authorities' orders. The Tribunal noted that the legal position changed from 01.04.2018 with the introduction of Section 115BBG, which taxes carbon credits (RECs) at 10%.

Which sections of the Income-tax Act were involved?

Section 80-IA,Section 115G,Section 115BBG,Section 143(3),Section 144C,Section 144B,Section 92CA,Section 92BA,Section 115JAA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA

Hearing: 25.09.2025Pronounced: 18.12.2025

PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the assessment

order dated 25.10.2024 vide DIN No. ITBA/AST/S/143(3)/2024-

25/1069956583(1) for the assessment year (AY) 2021-22. 2. Ground No. 1 was stated to be general in nature which does not call

for any specific adjudication and is therefore dismissed.

3.

Ground Nos. 2 & 3 were not pressed by the Ld. AR at the time of hearing and are therefore dismissed as well

The order continues below.

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