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2021 (9) TMI 349 - AT - Income TaxRevision u/s 263 by CIT - amount received by the assessee company on sale of carbon/Voluntary Emission Reduction (CER/VER) certificates and renewable Energy Certificates (REC) which have been claimed exempt - As per the Pr. CIT, the said exemption was not allowable under any provisions of the Act and there is a complete failure on the part of the AO to examine the said exemption claimed by the assessee company - HELD THAT - AO issued a specific show cause notice dated 28.09.2018 asking the assessee company to explain the carbon emission receipts as to how and under what statutory provisions the same has been claimed as exempt income when the same is in the nature of Revenue receipt. In response, the assessee company vide its submission dated 11.10.2018 has again reiterated its earlier submissions. In the instant case, AO has raised specific queries not once but twice, firstly as part of initial notice u/s 142(1) and thereafter, by way of a specific show-cause before passing the assessment order - assessee has also submitted its response explaining the factual as well as the legal position and the fact that the matter has been examined earlier by the Tribunal in assessee s own case for A.Y 2007-08 and which has also been affirmed by the Hon ble Rajasthan High Court - where the AO has taken into consideration the decision of the Tribunal as well as of jurisdictional High Court in assessee s own case and find that identical facts and circumstances of the case are prevailing during the year under consideration, the opinion formed by the AO cannot be held as erroneous in nature. It is therefore not a case of lack of inquiry as held by the Pr. CIT rather it is a case where the AO has taken into consideration the factual and the legal position, the decision in assessee s own case rendered by the Tribunal and affirmed by the Hon ble High Court and also the fact that there is prospective amendment in the statue which is not applicable in the instant year - findings of the ld. Pr. CIT to the effect that there is a failure on the part by the AO to examine the claim of exemption by the assessee and the assessment order has been passed in a routine and perfunctionary manner cannot be sustained and is hereby set aside. Amount paid by assessee company to organize the event Resurgent Rajasthan in nature of assistance/contribution and no details/nature of expenditure/utilization by the nodal agency, was available on record - Government of Rajasthan also entered into various agreements with Fertilizers, Cement and Steel Industries to setup new plants or expand their manufacturing activities which will directly benefit the assessee in increasing its turnover and profits as the main raw material in Fertilizer industries is Rock Phosphate, in Cement Industry is Limestone and Gypsum - steel industry also uses limestone for its various manufacturing activities. These industries will be having huge power requirement and assessee is a major supplier of Lignite used in power plants in the State of Rajasthan. Accordingly there are several direct and indirect benefits to the assessee by incurring this expenditure. Copy of the publication of the State Government showing various partnerships/MOUs taking place in the Resurgent Rajasthan 2015 Summit is enclosed as Annexure-II. Thus the expenditure is incurred solely for the purpose of the business of the assessee. Even if by incurring the expenditure, third party is also benefited, the same is a allowable expenditure u/s 37(1) - reliance was placed on various Hon ble Supreme Court and High Court decisions. It was accordingly submitted that where the Assessing Officer has made necessary inquiry/verification which he should have made and has applied his mind and has allowed the claim of the assessee, the order cannot be said to be erroneous in so far as prejudicial to the interest of the Revenue. In this second matter as well, the AO has raised specific queries not once but twice, firstly as part of initial notice u/s 142(1) and thereafter, by way of a specific show-cause before passing the assessment order. The assessee has also submitted its response explaining the factual position as to how the sponsorship payment to Bureau of Investment Promotion, the nodal agency for organizing Resurgent Rajasthan 2015 Summit has been incurred for the purposes of its business duly approved by its Board of Directors and its claim duly supported by various Court decisions, the opinion formed by the AO cannot be held as erroneous in nature. It is therefore not a case of lack of inquiry as held by the ld. Pr. CIT rather it is a case where the Assessing Officer has taken into consideration the factual and the legal position and then has decided to accept the claim of the expenditure so claimed by the assessee. Therefore, the findings of the ld. Pr. CIT to the effect that there is a failure on the part by the Assessing Officer to examine the claim of expenses by the assessee and the assessment order has been passed in a routine and perfunctionary manner cannot be sustained and is hereby set aside - Appeal of the assessee is allowed.
Issues Involved:
1. Legality of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. 2. Examination of exemption claimed on account of Carbon Emission Reduction (CER) receipts. 3. Examination of expenditure claimed on account of payment made for the Resurgent Rajasthan 2015 Summit. Issue-wise Detailed Analysis: 1. Legality of the order passed by the PCIT under Section 263 of the Income Tax Act: The assessee contended that the order passed by the PCIT under Section 263 was illegal and bad in law, arguing that the PCIT did not consider the complete reply filed by the assessee. The PCIT had set aside the assessment order passed under Section 143(3) by the Assessing Officer (AO) on the grounds that it was erroneous and prejudicial to the interest of the Revenue. The PCIT directed a fresh assessment after considering the issues raised. The assessee appealed against this order. 2. Examination of exemption claimed on account of CER receipts: The assessee, a State Government undertaking engaged in mining, had claimed an exemption of ?2,58,48,598 on account of the sale of CER and Renewable Energy Certificates (REC), treating it as a capital receipt not liable for tax. The AO had examined this claim in detail during the assessment proceedings, including issuing notices under Section 142(1) and considering the assessee's detailed replies supported by judicial decisions. The PCIT, however, held that the AO failed to properly examine the veracity and allowability of this exemption, thus rendering the assessment order erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the AO had indeed conducted a thorough inquiry, including specific queries and show-cause notices, and had considered the assessee's responses and relevant judicial precedents, including decisions by the Tribunal and the Rajasthan High Court in the assessee's own case. Therefore, the Tribunal concluded that the AO's order could not be deemed erroneous merely because the PCIT held a different view. The Tribunal set aside the PCIT's findings, stating that the AO's inquiry was adequate and the exemption was correctly allowed. 3. Examination of expenditure claimed on account of payment made for the Resurgent Rajasthan 2015 Summit: The assessee claimed an expenditure of ?20,26,50,000 for sponsoring the Resurgent Rajasthan 2015 Summit, arguing that it was incurred wholly and exclusively for business purposes. The AO had examined this claim through detailed inquiries and show-cause notices, and the assessee provided comprehensive explanations and supporting documents, including Board approvals and evidence of business benefits derived from the summit. The PCIT, however, held that the AO failed to verify the veracity of this expenditure, thus making the assessment order erroneous and prejudicial to the Revenue. The Tribunal found that the AO had made specific inquiries and the assessee had provided detailed responses justifying the expenditure as business-related and supported by judicial precedents. The Tribunal concluded that the AO's acceptance of the claim was based on adequate inquiry and proper application of mind. Therefore, the Tribunal set aside the PCIT's findings, stating that the AO's order was not erroneous or prejudicial to the Revenue. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the PCIT's order under Section 263, and upheld the AO's original assessment order. The Tribunal emphasized that the AO had conducted a thorough and adequate inquiry into both the exemption of CER receipts and the expenditure for the Resurgent Rajasthan Summit, and the PCIT's differing view did not justify revising the AO's order.
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