DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-28, NEW DELHI, DELHI vs. JCT LIMITED, DELHI

“6. Ground Nos. 1 to 10: The brief facts are that in this case re-assessment u/s 147 r.w.s. 143(3) was initiated by the AO on the ground that under the head other expenses, an amount of Rs. 2,08,54,758/- was incurred towards loss on sale of Carbon Emission Reduction Credit. The assessment was completed on 29.09.2021 after treating this loss to be capital in nature. The present appeal emanates against this order. 6.1 The appellant has contended that it has regularly claimed income earned on sale of Carbon Emission Reduction Credit in its profit & loss under the head "Miscellaneous Income" and it has been consistently offered to tax. The same is duly accepted by the Income Tax department for the A.Y. 2007-08 to 2012-13 and in A.Y. 2014-15 also. During the F.Y. under consideration i.e. 2012-13, the appellant has incurred loss on sale of Carbon Emission Reduction Credit and has claimed deduction in its Profit & loss account, but the same was disallowed by the AO by treating the same as "capital in nature". The appellant further relied upon judgment rendered by the Hon'ble Supreme Court of India in the case of Commissioner of Income Tax (Delhi) vs. Kelvinator of India Ltd. (2010) 187 Taxman 312(SC). 6.2 The appellant has contended that the Ld. AO has made disallowance of loss on sale of Carbon Emission Reduction credit by treating it as "Capital receipts" without appreciating the fact that income from sale of Carbon Emission Reduction Credit has always been Page | 3 credited to Profit and Loss account under the head "Miscellaneous Income" and has been consistently offered to tax by the appellant from A.Y. 2007-08 to 2012-13 and even in A.Y. 2014-15 and the same has been consistently Income Hence, reopening of accepted by the department as Business Income(A completed assessment on the contention that loss on sale of carbon emission reduction credit is capital in nature is unreasonable, invalid and liable to be quashed. 6.3 The appellant has also contended that assumption of jurisdiction to select the case of the appellant for scrutiny without while providing reasons for reopening of assessment first and without disposing the objections filed by the appellant by the jurisdictional AO, is without jurisdiction, invalid and liable to quashed. The jurisdictional AO is bound to issue notice under section 143(2) after disposing the objections of the appellant. However, in the instant case, the NFAC proceeded with making enquiries even before the disposal of objections and appropriate issue of notice of section 143(2). 6.4 The appellant has also drawn attention to Section 144B of the Act. which states as under: "Faceless Assessment. 144B. (1) Notwithstanding anything to the contrary contained in any other provisions of this Act, the assessment under sub-section (3) of section 143 or under section 144, in the cases referred to in sub- section (2), shall be made in a faceless manner as per the following procedure, namely:- (i) the National Faceless Assessment Centre shall serve a notice on the assessee under sub-section (2) of section 143; (ii) the assessee may, within fifteen days from the date of receipt of notice referred to in clause (i), file his response to the National Faceless Assessment Centre; (iii) where the assessee- (a) has furnished his return of income under section 139 or in response to a notice issued under sub-section (1) of section 142 or under sub-section (1) of section 148, and a notice under sub-section (2) of section 143 has been issued by the Assessing Officer or the prescribed income-tax authority, as the case may be; or (b) has not furnished his return of income in response to a notice issued under sub-section (1) of section 142 by the Assessing Officer; or (c) has not furnished his return of income under sub- section. (1) of section 148 and a notice under sub- section (1) of section 142 has been issued by the Assessing Officer, Page | 4 the National Faceless Assessment Centre shall intimate the assessee that assessment in his case shall be completed in accordance with the procedure laid down under this section; …..” 6.5 The appellant has also contended that the NPAC only has the power of assessment and is not bestowed with any power which the jurisdictional AO can exercise before the proceedings are ready for assessment and thereby it does not have any power to deal with the objections raised by the appellant. It is only the jurisdictional AO who has the power to issue reasons, deal with the objections filed by the appellant and select the case of the appellant for scrutiny under reassessment by issuing under section 143(2) of the Act. Hence, disposal of objections filed by the appellant before the Jurisdictional AO by the NFAC is without jurisdiction, arbitrary and liable to be quashed. 6.6 I have perused the assessment order and submissions of the appellant. The appellant had incomes on sale of Carbon Credit for Emission Reduction for the F.Y. 2006-07 to 2011-12 and 2013-14 which had been considered as business income in the accounts under the head "Miscellaneous Receipts" and offered to tax. The same were assessed as business income since the A.Y. 2007-08 to A.Y. 2012-13 and in the A.Y. 2014-15. The department had also considered Carbon Credit for Emission Reduction as income u/s 2(24)(vd) since A.Y. 2007-08 to Α.Υ. 2012-13 and also in the A.Y. 2014-15. However, in the A.Y. 2013-14, there was loss in place of income, which is now being treated as a capital loss and not allowed as a deduction. From the submissions of appellant, it is seen that the appellant has been consistently declaring the income on account of consideration received on account of Carbon Credit Appellant has submitted details of such income in his written submission. Such incomes offered by the appellant had been accepted by the department. Now, since the appellant had incurred loss in present year, the change in stance occurred. 6.7 Further, it is also seen that the case of appellant was selected for Scrutiny and assessment in this case was originally passed u/s 143(3) of the Act on 03.03.2016 as noted in the present assessment order u/s 147. dated 29.09.2021. From the reasons to believe recorded by AO, it is seen that there is no new tangible material now before the AO to support re-opening u/s 148. Since the assessment proceedings were initially Page | 5 completed u/s 143(3) on 03.03.2016, the re-opening beyond 4 years from the end of relevant A.Y. i.e. on 20.03.2020 should have been based on escapement of income chargeable to tax, because of the failure on the part of the appellant to disclose fully and truly the material facts necessary for assessment. Neither in the reasons recorded, nor in the order of re-assessment, AO has brought out any facts to establish any omission on the part of the appellant to disclose the material facts that warranted re-opening u/s 147 of the Act. As a matter of fact, the AO had been accepting income offered by the appellant under the same head for the preceding years and it was only because there was a loss on this year that the AO choose to change his opinion on the nature of the receipt/loss to be offered as capital nature from the revenue nature. Therefore, I hold that the re-assessment order being beyond the period of existing material on records which has also been consistently accepted, 4 years cannot be held valid solely on the basis of change of opinion on without any new tangible material before AO. Reliance is placed on various judicial decisions on this issue. The Hon'ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), has held that for reopening of the assessment, the AO should have in its possession 'tangible material'. The term 'tangible material' has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment. The Hon'ble Delhi High Court in the case of Pr. CIT vs Tupperware India Pvt. Ltd., in its order dt 10.8.2015 (ITA по 415/2015) has taken the view that that even in the case of original assessment order having been passed u/s 143(1), it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case. In the case of CIT vs. Orient Craft Ltd. 354 ITR 536, it was held by Hon'ble Delhi High Court that reasons for reassessment disclosed that AO reached belief that there was escapement of income "on going through the return of income" filed by assessee after he accepted return u/s. 143(1) without scrutiny, and nothing more. In these facts, it was held by the Hon'ble High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came to possession of AO subsequent to issue of intimation, Page | 6 therefore, it was an arbitrary exercise of power conferred u/s 147. Thus, reopening was held to be invalid on this ground itself. 6.8 Keeping in view of the facts of the case and various judicial pronouncements on this issue it is held that the re-opening u/s 147 of the Act is bad in law and does not have any merit. The reassessment proceedings are therefore held to be invalid in the absence of tangible material for re-opening. These ground income of appeals are accordingly allowed.”

Order pronounced in the open court on 19.12.2025.