REC Income Not Eligible for 10% Concessional Tax Rate Under Section 115BBG — ITAT Hyderabad

Case Background

Valuelabs LLP Vs DCIT (ITAT Hyderabad)

The Income Tax Appellate Tribunal, Hyderabad, recently decided a significant appeal involving the tax treatment of income earned through the sale of Renewable Energy Certificates (RECs). The appeal was filed by the assessee firm against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 13/08/2025, which had confirmed the assessment order framed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 for Assessment Year 2020–21.

The central legal question before the Tribunal was whether income of ₹1,78,24,800 received from the sale of RECs could be subjected to tax at the concessional rate of 10% prescribed under Section 115BBG of the Income Tax Act, 1961. Additionally, the Tribunal examined whether, in the alternative, such income could qualify for deduction under Section 80IA of the Act.

Facts of the Case

The assessee firm, engaged in multiple business activities including software development, solar power generation, and manufacturing of bio-mass briquettes, had filed its return of income for AY 2020–21 on 29/01/2021, declaring total income of ₹68,66,96,690/-. The case was selected for scrutiny under CASS for verification of issues pertaining to:

  • Double taxation relief under Section 90/Section 91 of the Act
  • Foreign bank account details
  • Deductions from total income under Chapter VI-A of the Act

During the scrutiny proceedings, the Assessing Officer (AO) noted that the assessee firm had earned ₹1,78,24,800 from the sale of Renewable Energy Certificates (RECs) in the relevant assessment year, arising out of its renewable energy power generation business. In its return of income, the assessee had offered this amount for taxation at the concessional rate of 10% by invoking Section 115BBG of the Act, treating RECs as equivalent to carbon credits.

The AO's Position and CIT(A) Order

The AO rejected the assessee's claim, firmly holding that Section 115BBG of the Act is applicable exclusively to income arising from the transfer of "carbon credits" as specifically defined in the Explanation to that provision. Since RECs do not satisfy that definition, the AO brought the income to tax at the normal applicable rates. The CIT(A) agreed with the AO's reasoning and upheld the addition, prompting the assessee to approach the Tribunal.

Grounds of Appeal Raised by the Assessee

The assessee raised multiple grounds before the Tribunal, the key contentions being: