M/S SHYAM METALICS AND ENERGY LTD.,KOLKATA vs. ACIT, CEN. CIR. 1(1), KOLKATA

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 A.Y.2014-2015 is allowed.

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 :-

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.