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Facts
The tribunal heard appeals against revisionary orders issued by the Pr.CIT (Central), Kolkata-1, for various assessment years. One appeal (ITA No.873/Kol/2024) concerned the treatment of carbon credits (revenue vs. capital) in an assessment originally framed under Section 153A following a search action, where the CIT(A) had found no incriminating material. The other appeals (ITA Nos.1016-1020/Kol/2024) challenged Pr.CIT orders under Section 263 for failing to apportion common expenses, such as head office, finance, and employee benefit costs, while computing the deduction under Section 80IA for captive power plants.
Held
For ITA No.873/Kol/2024, the tribunal set aside the Pr.CIT's Section 263 order, ruling that the basis for the Section 153A assessment (incriminating material) was lost, as the CIT(A) had previously determined that the seized documents were part of regular books and not incriminating. For ITA Nos.1016-1020/Kol/2024, the tribunal upheld the Pr.CIT's Section 263 orders, finding that the AO's failure to apportion common expenses when calculating the Section 80IA deduction constituted an error causing prejudice to the revenue, and this specific issue had not been subject to prior appeal.
Key Issues
1. Whether a Pr.CIT's revisionary order under Section 263 is valid when the underlying assessment under Section 153A was based on material subsequently deemed non-incriminating by the CIT(A). 2. Whether the Pr.CIT can invoke Section 263 to correct the AO's failure to apportion common expenses in computing the deduction under Section 80IA, when this specific issue was not previously part of appeals to CIT(A) or ITAT.
Sections Cited
263, 153A, 143(3), 80IA, 68, 115BBG, 144C(3)
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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI GEORGE MATHAN & SHRI RAKESH MISHRA
O R D E R Per George Mathan, JM: These are the appeals filed by the two different assessees against the separate orders passed by the ld. Pr.CIT(Central), Kolkata-1, dated 07.03.2024, 14.03.2024 & 18.03.2024, respectively for the assessment years 2014-2015, 2017-2018, 2018-2019 & 2019-2020, respectively.
2 ITANo.873,1016-1020/Kol/2024 2. Shri A.K.Tulsiyan with Shri Robin Maheshwari, ld.AR appeared on behalf of the assessee and Shri Raja Sengupta, ld.CIT-DR appeared on behalf of the revenue. 3. Ld. AR argued first in its appeal for A.Y.2014-2015 in therefore, this appeal is decided first.
It was submitted by the ld. AR that the ld. Pr.CIT has invoked his powers u/s.263 of the Act in respect of an assessment order passed u/s.153A r.w.s.143(3) of the Act, dated 19.07.2021. It was the submission that originally the return filed by the assessee for the impugned assessment year came to be processed u/s.143(3) of the Act on 28.12.2017. Subsequently there was a search and seizure action conducted against the assessee on 17.01.2019 and in consequence of the search the assessment came to be completed u/s.153A r.w.s. 143(3) of the Act on 19.07.2021. It was the submission that in the assessment u/s.153A r.w.s.143(3) of the Act dated 19.07.2021, the issue of the carbon credit, as to whether the same is treated as revenue receipt or capital receipt was admittedly not considered by the AO. It was the submission that in the said assessment order, the AO had considered only the money received from certain companies towards share capital to an extent of Rs.1,85,60,000/- which was treated as the unexplained cash credit as also certain disallowance of deduction u/s.80IA of the Act and disallowance of trading loss. It was the submission that hard disk bearing id No.SME/HD/1 and SME/HD/2 was considered as incriminating material. It was the submission that at the outset in the proceedings u/s.263 of the Act the ld. Pr.CIT had taken a stand that the 3 ITANo.873,1016-1020/Kol/2024 assessee had shown the income from sale of carbon credits as revenue from operations but in the computations had reduced the same and had treated the same as capital receipt. It was the submission that before the ld. CIT(A) it was submitted that the issue of carbon credit was not an issue which could be considered in an assessment u/s.153A of the Act but the ld. Pr.CIT in page 3 para 6.iii had held that as incriminating material in the form of SME/HD/1 and SME/HD/2 was considered in the course of assessment the decision in the case of Abhisar Buildwell Pvt. Ltd. would apply. It was the submission that the ld. CIT(A) in respect of appeal filed by the assessee against the assessment order passed u/s.153A r.w.s.143(3) of the Act on 19.07.2021 has in page 32 has held that the said documents namely SME/HD/1 and SME/HD/2 were part of the regular books of accounts of the amalgamated company and that no incriminating documents have been found. The findings of the ld. CIT(A) reads as follows:- As mentioned above, no incriminating documents have been found during search against the assessee relevant to this particular assessment year. Also after going through the facts of the case, the alleged seized documents namely SME/HD/1 and SME/HD/2 relates to purchases, which are very much part of regular books of accounts of the amalgamated company. The said sales/purchases were made in the normal course of business of the amalgamated company. In the current case, additions (disallowances) have been made on the basis of information available in the Audit Report/Return of Income or on the basis of information gathered during post search enquiries. Hence, respectfully following the judgments/decisions of various High Courts and the Tribunals, including those of the jurisdictional High Court and ITAT and the judgement of the Hon'ble Supreme Court in PCIT, Central-3 vs. Abhisar Buildwell Pvt. Ltd., Civil Appeal No.6580 of 2021, order dated 24-04-2023, it is held that the disallowances/additions made are not sustainable. In view of the facts narrated and the discussion above the disallowances/additions made by the AO vide order u/s. 153A read with section 143(3) in this particular assessment year are not sustainable, as these are not linked to any incriminating material 4 ITANo.873,1016-1020/Kol/2024 found at the time of search. Hence, addition of Rs. 1,85,60,000/- u/s. 68 and the addition of Rs. 11,99,250/- on account of bogus trading loss are deleted.
It was the submission that as no incriminating materials have been found, the assessment order passed u/s.153A r.w.s.143(3) of the Act itself dated 19.07.2021 would not survive. It was further submission that no incriminating material in relation to the said carbon credit which has been claimed as capital receipt by the assessee has also been found in the course of search and consequently the order passed u/s.263 of the Act is liable to be quashed.
In reply, ld.CIT-DR vehemently supported the orders of the ld. Pr.CIT. It was the submission that the carbon credit was generated on account of the revenue operations of the assessee and the income from carbon credits is liable to be assessee only as revenue income and not as a capital receipt. It was the further submission that the provisions of Section 115BBG of the Act has also been introduced w.e.f.. 1st April, 2018. It was the submission that the order of the ld. Pr.CIT is liable to be upheld.
We have considered the rival submission. Admittedly the assessment order u/s.153A r.w.s.143(3) of the Act dated 19.07.2021 has been passed in consequence of search and seizure operation conducted on the assessee. Admittedly, there is no incriminating material found in the course of search in relation to the carbon credit. It is also an admitted fact that the assessee has in his audited accounts under the head revenue from operations in the notes to the financial statements at para 17 shown the income from the carbon credits. After showing the income from the carbon 5 ITANo.873,1016-1020/Kol/2024 receipts under the revenue head has in the computation of income reduced the same and claimed it as capital receipts. However, as the revision of the order is in respect of an order u/s.153A r.w.s.143(3) of the Act, obviously there must be some incriminating material on the basis of which the assessment has been done, if such incriminating material is available then in view of the decision of the Hon’ble Supreme Court in the case of Abhisar Buildwell (P) Ltd., reported in [2023] 149 taxmann.com 399/459 ITR 212 (SC), the AO would be entitled to assume the jurisdiction to assess or reassess the total income, taking into consideration the incriminating material unearthed during the search and the other materials available with the AO including the income declared in the returns. However, in the present case as incriminating material which has been considered by the AO being SME/HD/1 and SME/HD/2 has been held to be not incriminating documents by the ld. CIT(A) in his order against the said assessment order passed u/s.153A r.w.s.143(3) of the Act dated 19.07.2021. This being so, the very foundation for the assessment order having been lost and no incriminating material in respect of carbon credits having been found during the course of search, the findings of ld. Pr.CIT(Central) Kolkata-1 in para 6.iii no more survives and consequently the order passed u/s.263 of the Act by the ld. Pr.CIT would fail. Consequently the order passed u/s.263 of the Act by the ld Pr.CIT stands set aside and the appeal of the assessee is allowed.
Thus, the appeal in for A.Y.2014-2015 is allowed.
6 ITANo.873,1016-1020/Kol/2024 9. Now, we shall take up the appeals in & 1017/Kol/2024 in the case of assessee M/s Shyam Metalics and Energy Ltd. for the assessment years 2017-2018 & 2018-2019 and to 1020/Kol/2024 in the case of M/s Shyam Sel and Power Limited for the assessment years 2017-2018, 2018-2019 & 2019-2020.
In these cases, ld. AR submitted that the issues in these appeals in the case of both the assessees are identical. It was the submission that in the course of assessment u/s.153A r.w.s.144C(3) of the Act the AO had disallowed the assessee’s claim of deduction u/s.80IA(iv) of the Act. It was the submission that the ld. Pr.CIT had invoked his power u/s.263 of the Act in respect of computation of the claim of deduction u/s.80IA of the Act on the ground that there was no allocation of “head-office expenses” while computing the profit. It was the submission that when passing the assessment order u/s.153A on 31.08.2021 the AO had made certain disallowance of deduction u/s.80IA of the Act as is mentioned in para 5.02 and 5.03 of the assessment order. It was the submission that this disallowance was the subject matter of an appeal before the ld. CIT(A) and further appeal before the ITAT and the Tribunal has also adjudicated on the quantification of the deduction u/s.80IA of the Act on the captive power plant in each of the cases as follows :-
7 ITANo.873,1016-1020/Kol/2024 8 ITANo.873,1016-1020/Kol/2024 9 ITANo.873,1016-1020/Kol/2024 10 ITANo.873,1016-1020/Kol/2024 11. It was the submission that as the issue of provision u/s.80IA of the Act has been considered by the AO in the assessment order and it is the subject matter of an appeal before the ld. CIT(A) as also the Tribunal, in view of the sub-clause (c) to the Explanation 1 to Section 263 of the Act, the same could not be considered, as the issue has already been merged with the order of the ld. CIT(A). It was the submission that the order of the ld. Pr.CIT(Central)-1, Kolkata in all the appeals are required to be quashed.
In reply, ld. CIT-DR vehemently supported the order of the ld. Pr.CIT. It was the submission that the AO had considered the issue of the deduction u/s.80IA of the Act. When computing the deduction u/s.80IA of the Act, the AO had not considered the apportionment of the common expenses under the head office expenses or the other expenses, finance cost and the employee benefits. It was the submission that this was not the subject matter of the assessment order nor the appeal before the ld. CIT(A) or the ITAT.
We have considered the rival submissions. For better understanding, it would be worthwhile to extract the provisions of sub-clause (c) of Explanation 1 to Section 263 of the Act, which reads as follows :- Revision of orders prejudicial to revenue. 263. (1) Explanation 1. (c) where any order referred to in this sub-section and passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub- section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
11 ITANo.873,1016-1020/Kol/2024 14. The word used is that the powers of the Principal Commissioner under this sub-section shall extend and shall be deemed always to have extended to “such matters” as had not been considered and decided in such appeal. The word used is not “subject matter”. The word used is “such matters”. “Such matters” is a very restrictive term. “Subject matter”, on the other hand, would incorporate all issues relevant to a particular issue. “Such matters” give option for pick and choose. A general issue of deduction u/s.80IA of the Act would come under “subject matter”. Specific issues in deduction u/s.80IA of the Act would come under “such matters”. Now, it is noticed that in the assessment order the AO has only considered the deduction u/s.80IA of the Act by considering the depreciation. Even though the said accounts of the assessee clearly showed other expenses and finance cost and employee benefit expenses but the AO did not consider the same when apportioning the expenditure relatable to each of the captive power plants. Admittedly, this is an error and this error has also caused prejudice, insofar as the deduction u/s.80IA of the Act has wrongly been computed. The issue of apportioning of the expenses was not the subject matter of deduction/ us.80IA of the Act, which was in appeal before the ld. CIT(A) or the ITAT. The wrong computation of the deduction u/s.80IA of the Act was very much open to the ld. Pr.CIT to invoke his powers u/s.263 of the Act, insofar as such computation was not the issue in the appeal nor the issue in the assessment. This being so, we are of the view that the order passed u/s.263 of the Act in all the impugned appeals are liable to be upheld and we do so.