2022 (3) TMI 570 - HC - Income Tax

Reopening of assessment u/s 147 - carbon credit to be treated as capital receipt or not? - HELD THAT - Division Bench of this Court in the case of Principal Commissioner of Income Tax Vs. L.H.Sugar Factory (P) Ltd. 2016 (3) TMI 367 - ITAT LUCKNOW has held that carbon credit is a capital receipt. The present controversy arose on account of issuance of notice under Section 148 of the Act for the assessment year 2016-2017 recording reasons not being a capital receipt. Prima facie the impugned notices under Section 148 of the Act is based on change of opinion which is not permissible under the provisions of Sections 147/148 of the Act. Consequently the notices dated 6.12.2021 under Section 143(2) and 27.1.2022 under Section 142(1) of the Act are also prima facie without jurisdiction. Since prima facie it appears to us that the notice under Section 148 of the Act dated 30.3.2021 is without jurisdiction therefore impugned notices are stayed till the next date of listing. Income Tax Department prays for and is granted four weeks time to file counter affidavit. The petitioner shall have two weeks thereafter to file rejoinder affidavit.

Summary

Issues:
1. Validity of notice dated 30.3.2021 issued under Section 148
2. Validity of notice dated 6.12.2021 issued under Section 143(2)
3. Validity of notice dated 27.01.2022 issued under section 142(1)

Analysis:
1. The petitioner filed a return of income disclosing exempt income of ?1,84,37,272 under Section 139(1) of the Income Tax Act, 1961. The assessing authority issued notices under Sections 142(1) and 143(3) for regular assessment. The petitioner claimed the income as REC receipt under Section 10 of the Act, citing it as a capital receipt not liable to tax. The assessing authority passed an assessment order accepting the claim. The High Court previously held in a similar case that carbon credit is a capital receipt. The current issue arose due to a notice under Section 148 challenging the nature of the income. The Court found the notice to be based on a 'change of opinion,' which is impermissible under Sections 147/148 of the Act. Consequently, the notices under Sections 143(2) and 142(1) were also deemed without jurisdiction. The Court stayed the impugned notices pending further proceedings.

2. The petitioner had complied with all requirements and provided detailed explanations regarding the nature of the income claimed as exempt. The assessing authority, after due consideration, had computed the total income of the assessee. The Division Bench of the Court had previously ruled that carbon credit constitutes a capital receipt. Despite these precedents and the petitioner's submissions, the notice under Section 148 challenged the capital nature of the income. The Court found this challenge to be a 'change of opinion,' leading to the notices under Sections 143(2) and 142(1) being considered prima facie without jurisdiction. The Court granted time for the Income Tax Department to file a counter affidavit and for the petitioner to respond accordingly.

3. The petitioner's case revolves around the treatment of income claimed as exempt, specifically related to REC receipt under Section 10 of the Act. The assessing authority had accepted this claim previously, and the High Court had established in earlier cases that carbon credit is a capital receipt. However, the current dispute arose from a notice challenging the capital nature of the income, which the Court deemed as a 'change of opinion.' As a result, the notices issued subsequently under Sections 143(2) and 142(1) were considered prima facie without jurisdiction. The Court granted time for filing affidavits and scheduled the matter for further proceedings after six weeks.