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Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee directed against the order passed u/s 263 by the Principal Commissioner of Income- tax [Principal CIT], dated 03/12/2015 for the assessment year 2011-12.
The assessee raised the following grounds of appeal:
3. Briefly facts of the case are that the assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It is engaged is engaged in the business of iron ore mining and generation of power. Return of income for the assessment year 2011-12 was filed on 26/9/2011 declaring nil income. After processing the said return of income under the provisions of section 143(1) of the Income-tax Act,1961 [‘the Act’ for short], the case was selected for scrutiny assessment. After issuing requisite notice u/s 143(2) and the assessment came to be completed u/s 143(3) vide order dated 29/3/2014 after making addition of Rs.3,71,489/- u/s 40a(ia) of the Act. The Principal Commissioner of Income-tax, Gulbarga, had issued a show cause notice dated 25/08/2015 u/s 263 proposing to revise the assessment order on the ground that the Assessing Officer [AO] while completing the assessment, had not examined the issue of taxability of income from sale of certified emission reduction rights of Rs.9,78,64,712/- u/s 28(iv) of the Act as mentioned in Page 4 of 8 schedule 13 to the Profit & Loss account. In response to the show cause notice, the assessee-company has contended as follows:
The above contentions of the assessee-company have been turned down by the Principal CIT holding that the AO had passed the assessment without making inquiries and examining genuineness of the claim and therefore the Principal CIT held that the assessment order passed is erroneous and prejudicial to the Page 5 of 8 interests of revenue. He, accordingly, set aside the issue to the file of the AO for de novo assessment after affording due opportunity of being heard to the assessee-company.
Being aggrieved, assessee-company is in appeal before us.
5.1 Learned counsel for assessee argued that the issue of taxability of Carbon Credit is no longer res integra as the issue was concluded in favour of the assessee-company by the Hon’ble jurisdictional High Court in the case of CIT vs. M/s.Subhash Kabini Power Corporation Ltd. (2016) 385 ITR 592)(Kar.)
5.2 On the other hand, learned Departmental Representative relied on the order of the Principal CIT passed u/s 263 of the Act.
We heard rival submissions and perused material on record. The issue in the present appeal is about the legality of the power of assumption of jurisdiction u/s 263 of the Act by the Principal CIT. The Principal CIT was of the view that the AO simply accepted the claim of the assessee-company that improvement on account of sale of certified emission reduction rights of Rs.9,78,64,712/- is capital receipt without even examining the nature of the receipt, nature of the claim whether it is capital or revenue. Even before us, learned counsel for assessee simply relied on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. M/s.Subhash Kabini Power Corporation Ltd. (supra). The nature of claim was not in dispute whereas in the present case, the learned Principal CIT was of the view that even
Page 6 of 8 the nature of claim was not examined and no enquiry was caused on this issue. The Hon’ble Supreme Court in the case of CIT vs. Amitabh Bachan (384 ITR 200) after reviewing several authorities on the power of revision vested u/s 263 held that when facts and circumstance warrant further investigation the power of revision of the CIT was held to be justified. In the present case also the assessee-company had made a claim through revised of income claiming sale of Carbon credit as capital receipt. The same gave rise to necessity of further enquiry of the matter to examine not only nature of claim and also taxability or otherwise of it under provisions of the Act. Admittedly the AO made no enquiry on this aspect and respectfully following the decision of the Hon’ble Apex Court in the case of Amitabachan (supra) and Malabar Industries Co. vs. CIT (2000) 243 ITR 83 wherein it was held that where AO accepts the claim of the assessee in absence of any supporting material without making any enquiry, exercise of jurisdiction by the CIT was held to be justified. Relevant part of the judgment is reproduced hereunder:
“10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant- company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence
Page 7 of 8 of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263(l) was justified. ”
Even the Hon’ble jurisdictional High Court in the case of CIT vs. Infosys Technologies Ltd. (341 ITR 290) upheld assumption of jurisdiction u/s 263 by the CIT to set aside assessment order passed without making any enquiry and accepting the claim. The following Explanation has been inserted by the Finance Act, 2015 w.e.f. 1/6/2015 by way of Explanation 2 to section 263 of the Act:
“Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. ” After insertion of above Explanation 2, the order of assessment made without making inquiries or verification which should have been made or assessment order passed allowing relief without
Page 8 of 8 inquiring into the claim renders the assessment order erroneous and prejudicial to the interests of revenue. In light of the above legal position, we uphold assumption of jurisdiction by the Principal CIT u/s 263 of the Act in the facts of the present case. Even in the present case, the learned counsel for assessee had not demonstrated before us that the AO had looked into this issue and applied his mind. Therefore, assumption of jurisdiction by the Principal CIT is justified.
In the result, the appeal filed by the assessee is dismissed.