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2015 (1) TMI 646 - AT - Income TaxRevision u/s 263 - directing the Assessing Officer to reframe the assessment order de novo - incorrect allowance of deduction u/s 80IA - receipts from the sale of carbon credit - whether it has been derived from the eligible industrial undertaking for qualifying the grant of deduction u/s 80IA? - Held that - As the nature of the receipt from sale of carbon credit is concerned, it is available from the assessment stage. It is not disputed even by the learned Commissioner, the dispute is, whether it has been derived from the eligible industrial undertaking for qualifying the grant of deduction u/s 80IA. The learned Commissioner felt that this receipt has not been derived from the industrial undertaking which will be eligible for grant of deduction u/s 80IA and the Assessing Officer committed an error in including the receipt in the eligible profit. Those facts are already on the record. It is to be seen, whether the receipt is of capital nature or of a revenue nature. Even in case the order of the CIT is upheld, then, in law, it will affect the computation of income, ultimately because the receipt will not be taxable, it will not come under the ambit of computation of income. Simultaneously it will be excluded from the deduction u/s 80IA as well as of the total income. The result will remain as it is. It is a revenue neutral case. Therefore, in view of the ratio laid down by the Hon'ble jurisdictional High Court in the case of Gopala Gowda (2013 (5) TMI 46 - KARNATAKA HIGH COURT), the second condition for taking action u/s 263, does not exist. The assessment order is not prejudicial to the interests of the Revenue. In view of the above discussion, we allow the appeal of the assessee and quash the impugned order of the learned CIT passed u/s 263 of the Income Tax Act. - Decided in favour of assessee.
Issues Involved:
1. Validity of the CIT's action under Section 263 of the Income Tax Act. 2. Nature of receipts from the sale of carbon credits. 3. Conditions for invoking Section 263. 4. Revenue neutrality of the assessment order. Issue-wise Detailed Analysis: 1. Validity of the CIT's action under Section 263 of the Income Tax Act: The assessee appealed against the order of the CIT dated 27.01.2014, which set aside the assessment order dated 22.08.2011 under Section 143(3) and directed the Assessing Officer (AO) to reframe the assessment de novo. The CIT believed the assessment order was erroneous and prejudicial to the interest of the Revenue due to incorrect allowance of deduction under Section 80IA. The CIT referenced judgments from the Supreme Court in Liberty India vs. CIT and Sterling Food to support this view. 2. Nature of receipts from the sale of carbon credits: The assessee argued that receipts from the sale of carbon credits are capital in nature, citing the ITAT Hyderabad Bench's decision in My Home Power Ltd vs. DCIT, which was upheld by the Andhra Pradesh High Court. The Tribunal held that carbon credits are an entitlement received to improve the world atmosphere and environment, not generated from business activities, and thus should be treated as a capital receipt, not taxable as revenue. 3. Conditions for invoking Section 263: The Tribunal examined the principles for invoking Section 263, emphasizing that the CIT must record satisfaction that the AO's order is both erroneous and prejudicial to the Revenue. The Tribunal referenced the Supreme Court's decision in Malabar Industries Co. vs. CIT, which outlined that an order could only be revised if both conditions were met. The Tribunal also noted that if the AO had applied his mind and made inquiries during the assessment, the CIT could not simply substitute his estimate of income for that of the AO. 4. Revenue neutrality of the assessment order: The Tribunal considered whether the assessment order caused any prejudice to the Revenue. It noted that if the receipt from the sale of carbon credits is capital in nature, it would not form part of the total income, thus causing no prejudice to the Revenue. The Tribunal referenced the jurisdictional High Court's decision in CIT vs. D.G. Gopala Gowda, which held that an erroneous order must also be prejudicial to the Revenue to justify action under Section 263. The Tribunal concluded that the assessment order was revenue-neutral, as excluding the carbon credit receipts from the deduction under Section 80IA would not affect the overall tax liability. Conclusion: The Tribunal allowed the appeal of the assessee, quashing the CIT's order under Section 263. It held that the assessment order was not prejudicial to the interests of the Revenue, as the receipts from the sale of carbon credits were capital in nature and not taxable. The Tribunal emphasized the need for both conditions (erroneous and prejudicial) to be met for invoking Section 263 and found that in this case, the assessment order did not meet these criteria. Order Pronounced: (Order pronounced in the Open Court on 28.11.2014)
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