2016 (11) TMI 1311 - AT - Income Tax

Tribunal Rules on Tax Treatment of Carbon Credits and Prevents Double Taxation

The Tribunal held that the CIT's revision under Section 263 was not sustainable as the assessment order was not erroneous or prejudicial to the interests ... Revision of order u/s 143(3) and also u/s 154 by a combined order u/s 263 - Held that:- The objection of the assessee, that the CIT ought to have passed independent and separate orders, is not sustainable because the order u/s 154 is only a rectification of a mistake apparent from record of an order passed under the provisions of the I.T. Act and therefore, forms part of the order which is rectified. The order u/s 154 has no independent existence and is part of assessment proceedings itself as held by the Hon'ble Apex Court in the case of S. Sankappa vs. Income Tax Officer, reported in (1967 (12) TMI 2 - SUPREME Court). Therefore, the CIT was within his powers u/s 263 to revise the order u/s 143(3) and also the order u/s 154 by way of a combined and a single order. Entitlement of the assessee for claiming deduction u/s 80IA - Held that:- The allowability of the deduction u/s 80IA in respect of receipts from the sale of carbon credits is covered against the assessee by the decision of the Coordinate Bench of this Tribunal in the case of My Home Power Ltd vs. Dy.CIT [2012 (11) TMI 288 - ITAT HYDERABAD] wherein the Coordinate Bench of this Tribunal has held that it is not a revenue receipt but is a capital receipt. Thus, while holding that such receipt is not eligible for a deduction u/s 80IA, the Tribunal has also held that the addition cannot be made as it is a capital receipt. Therefore, assessment order is clearly erroneous in so far as allowing the deduction u/s 80IA is concerned. But since it is held to be a capital receipt and cannot be brought to tax, it is not prejudicial to the interest of the Revenue. Unaccounted income from the sale of remnant seed - Held that:- From the assessment order for the A.Y 2006-07, it is seen that the assessee has admitted a sum of ₹ 2,77,52,000 towards undisclosed cash payment in the return of income filed by it and the AO has made a further addition of ₹ 2,92,60,012 as unaccounted investment u/s 69 of the I.T Act. As seen from the table reproduced above from the CIT’s order u/s 263, the unaccounted income from remnant seed for the A.Y 2006-07 is ₹ 2,65,61,097, is included in the returned income of the assessee and further the addition of ₹ 2,07,32,443 is also made in the A.Y 2006-07. Therefore, if the same is brought to tax in the A.Y 2007-08 also because the assessee has offered it, it is clearly a double taxation of the same amount. We have gone through the annual report of the assessee and find that this sum of ₹ 2.07 crores is included in the returned income of the assessee for the A.Y 2007-08. The AO has considered the issue at length and thereafter accepted the assessee’s contention while passing the order u/s 154 of the Act. Therefore, we are of the opinion that the assessment order is not erroneous and prejudicial to the interests of the Revenue. Issues Involved:1. Revision of assessment orders under Section 263 of the I.T. Act.2. Allowability of deduction under Section 80IA for profit from the sale of carbon credits.3. Taxability of unaccounted income from the sale of remnant seeds.4. Legality of a combined order revising both the assessment order under Section 143(3) and the rectification order under Section 154.Detailed Analysis:1. Revision of Assessment Orders under Section 263:The CIT revised the assessment orders under Section 263, stating that the AO did not consider that the profit from the sale of carbon credits is not derived from an industrial undertaking and should not be eligible for deduction under Section 80IA. Additionally, the CIT noted that unaccounted income from the sale of remnant seeds amounting to Rs. 2.89 crores had escaped assessment due to the rectification order under Section 154. The Tribunal found that the AO had already considered these issues during the assessment and rectification proceedings, and thus, the assessment order was not erroneous or prejudicial to the interests of the Revenue. Therefore, the revision under Section 263 was not sustainable.2. Allowability of Deduction under Section 80IA for Profit from the Sale of Carbon Credits:The CIT held that the profit from the sale of carbon credits is not eligible for deduction under Section 80IA as it is not derived from an industrial undertaking. The Tribunal referred to the decision in My Home Power Ltd vs. Dy.CIT, which held that the receipt from the sale of carbon credits is a capital receipt and not taxable. Therefore, while the assessment order was erroneous in allowing the deduction under Section 80IA, it was not prejudicial to the interests of the Revenue as the receipt itself was not taxable.3. Taxability of Unaccounted Income from the Sale of Remnant Seeds:The CIT observed that the unaccounted income from the sale of remnant seeds amounting to Rs. 2.89 crores had escaped assessment. The Tribunal found that the AO had already considered this issue during the assessment and rectification proceedings and had accepted the assessee's explanation. The unaccounted income was included in the returned income for A.Y 2006-07, and the AO had made necessary adjustments. Therefore, taxing the same amount again in A.Y 2007-08 would result in double taxation. Hence, the Tribunal held that the assessment order was not erroneous or prejudicial to the interests of the Revenue.4. Legality of a Combined Order Revising Both the Assessment Order under Section 143(3) and the Rectification Order under Section 154:The assessee contended that the CIT should have passed separate orders for revising the assessment order under Section 143(3) and the rectification order under Section 154. The Tribunal dismissed this contention, stating that the rectification order under Section 154 is part of the assessment proceedings and does not have an independent existence. Therefore, the CIT was within his powers to revise both orders through a combined order.Separate Judgments:- The Tribunal allowed the assessee's appeal in ITA No.968/Hyd/2011 partly, allowed the assessee's appeal in ITA No.969/Hyd/2011, dismissed the Revenue's appeal in ITA No.1242/Hyd/2014, and allowed the assessee's cross-objection in C.O. 59/Hyd/2014.Conclusion:- The Tribunal held that the CIT's revision under Section 263 was not sustainable as the assessment order was not erroneous or prejudicial to the interests of the Revenue.- The profit from the sale of carbon credits was held to be a capital receipt and not taxable, thus not eligible for deduction under Section 80IA.- The unaccounted income from the sale of remnant seeds was already considered in the assessment for A.Y 2006-07, and taxing it again in A.Y 2007-08 would result in double taxation.- The combined order revising both the assessment order under Section 143(3) and the rectification order under Section 154 was held to be legal and within the powers of the CIT.