M/s Subhash Kabini Power Corporation Ltd., Bangalore V. CIT, Bangalore

ITA 258/BANG/2014

• Counselvise Citation: 25821114 RSA 2014
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: SAJJAN KUMAR TULSIYAN
• Keywords: Capital asset; Business income; Depreciation; Question of law; Capital receipt; Unabsorbed depreciation
• Section: 143(3); 142(1); 263

Judgement Text

ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 1 OF 15 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.258/BANG/2014 (ASSESSMENT YEAR: 2009-10) M/S. SUBHASH KABINI POWER CORPORATION LIMITED 8/2 ULSOOR ROAD BANGALORE PAN: AACCS 0881 J VS. COMMISSIONER OF INCOME TAX, BANGALORE-III BANGALORE (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SAJJAN KUMAR TULSIYAN, ADVOCATE DEPARTMENT BY: SHRI C.H. SUNDAR R AO, CIT (DR) DATE OF HEARING: 19/11/2014 DATE OF PRONOUNCEMENT: 28/11/2014 O R D E R PER RAJPAL YADAV, J.M. THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIO NER DATED 27.01.2014 PASSED U/S 263 IN ASSESSMENT YEAR 2009-1 0. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE LEAR NED CIT HAS ERRED IN TAKING CONGNIZANCE U/S 263 OF THE INCOME T AX ACT AND THEREBY SETTING ASIDE THE ASSESSMENT ORDER DATE D 22.08.2011 PASSED U/S 143(3) OF THE INCOME TAX ACT AND DIRECTING THE ASSESSING OFFICER TO REFRAME THE ASSE SSMENT ORDER DE NOVO. ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 2 OF 15 2. THE ASSESSEE HAD FILED AN APPLICATIN TO RAISE AD DITIONAL GROUND OF APPEAL, WHEREBY, ON THE STRENGTH OF ITAT ORDER IN THE CASE OF MY HOME POWER LTD VS. DCIT (151 TTJ 616 ) UPHELD BY THE HON'BLE ANDHRA PRADESH HIGH COURT), I T HAS PLEADED THAT THE RECEIPTS FROM THE SALE OF CARBON C REDIT IS CAPITAL IN NATURE AND THUS NEITHER IN THE NATURE OF THE INCOME CHARGEABLE TO TAX NOR IN THE NATURE OF BUSINESS PRO FIT/INCOME ARISING FROM BUSINESS, THEREFORE, NO PREJUDICE CAUS ED TO THE REVENUE AND ACCORDINGLY THE ORDER U/S 263 IS NTO SUSTAINABLE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2009-10 ON 30.09.2009 DECLARING AN INCOME OF RS.22,89,820/-. T HIS RETURN WAS REVISED ON 31.3.2011 WHEREIN INCOME WAS DECLARED AT RS.22,66,320/-. ACCORDING TO THE ASSESS EE, A MISTAKE IN THE COMPUTATION OF TOTAL INCOME CREPT IN PERTAINING TO THE BROUGHT FORWARD LOSSES SET OFF AGAINST THE T AXABLE INCOME, THEREFORE, IT HAS TO REVISE THE RETURN. THE ASSESSING OFFICER HAD ISSUED NOTICE U/S 143(2) DATED 23.08.20 10 AND 142(1) DATED 1.6.2011. THE ASSESSEE IS IN THE LINE OF POWER GENERATION BUSINESS. IT HAS UNDERTAKEN PROJECT DURI NG THE YEAR UNDER CONSIDERATION FOR A HYDEL POWER PROJECT AT KABINI DAM, HEGGADADEVANAKOTE, MYSORE DISTRICT ALLOTTED BY THE GOVT. OF KARNATAKA. THE ASSESSEE HAS CLAIMED DEDUCT ION U/S 80IA OF THE I.T. ACT AT RS.7,66,87,094/-. THE ASSES SING OFFICER AFTER CONSIDERING THE ISSUE WITH REGARD TO FOREX GA IN HAS CONSIDERED THE ISSUE WITH REGARD TO ADMISSIBILITY O F DEDUCTION U/S 80IA AND DETERMINED THE INCOME AS UNDERL ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 3 OF 15 4. THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.7,66,87,094/- U/S 80IA OF THE INCOME TX ACT AFTE R ADJUSTING A SUM OF RS.1,79,40,907/- BEING UNABSORBED DEPRECIATION BROUGHT FORWARD FROM ASSESSMENT YEAR 2004-05. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS MADE A WRITTEN SUBMISSION THA THE SAID UNABSORBED DEPRECIATION OF RS.1,79,40,907/- HAS BEEN INADVERTENTLY CLAIMED SINCE IT WAS ALREADY CLAIMED FOR THE ASSESSMENT YEAR 2006-07. THEREFORE, THIS IS ADD ED BACK TO THE ASSESSEES INCOME AS A RESULT OF WHICH THE TOTAL INCOME IS TO BE TAKEN AT RS.2,02,30,730/- INS TEAD OF RS.22,66,320/-. 5. AFTER VERIFICATION OF THE DETAILS, THE ASSESSMEN T IS CONCLUDED ACCEPTING THE INCOME RETURNED. TAX PAYABLE AS PER NORMAL PROVISIONS TOTAL INCOME RETURNED RS.22,66,320 TOTAL INCOME ASSESSED RS.2,02,30,730 TAX THEREON 30% RS.60,69,219 ADD: SURCHARGE @ 10% RS.6,06,922 TOTAL RS.66,76,141 ADD: EDUCATION CESS @ 3% RS.2,00,284 NET TAX RS.68,76,425 4. THE LEARNED COMMISSIONER AFTER GOING THROUGH THE RECORD FORMED AN OPINION THAT THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER IS ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF THE REVENUE. HE OBSERVED THAT ON VERIFI CATION, IT WAS NOTICED THAT THERE WAS INCORRECT ALLOWANCE OF DEDUC TION U/S 80IA OF THE INCOME TAX ACT. THE COPY OF THE SHOW CA USE NOTICE IS AVAILABLE ON PAGE NO.123 OF THE PAPER BOOK. AFTE R HEARING THE ASSESSEE, THE LEARNED COMMISSIONER HAS OBSERVED THA T THE ASSESSEE HAS RECEIVED A SUM OF RS.4,88,61,721/- ON SALE OF CARBON CREDITS. ACCORDING TO THE CIT, THIS INCOME W AS NOT DERIVED FROM THE ELIGIBLE BUSINESS, THEREFORE, IT D OES NOT QUALIFY ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 4 OF 15 FOR GRANT OF DEDUCTION 80IA OF THE INCOME TAX ACT. THE LEARNED COMMISSIONER HAS MADE REFERENCE TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S LIBERTY IN DIA VS. CIT REPORTED IN 317 ITR 218 AND IN THE CASE OF M/S STER LING FOOD REPORTED IN 237 ITR 579. 5. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDER OF THE COMMISSIONER CONTENDED THAT THE RECEIP TS RECEIVED ON SALE OF CARBON CREDIT IS A CAPITAL RECEIPT AS HE LD BY THE ITAT HYDERABAD BENCH IN THE CASE OF MY HOME POWER LTD VS . DCIT REPORTED IN 151 TTJ 616 (SUPRA). THIS ORDER HAS BEE N FOLLOWED BY THE ITAT CHENNAI IN THE CASE OF AMBICA COTTON MI LLS LTD VS. DCIT REPORTED IN 27 ITR 44. IT HAS BEEN FURTHER FOL LOWED BY ITAT CHENNAI IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. DCIT (2013) 27 ITR (TRIB.) 106. FURTHER BOT H THESE ORDERS HAVE BEEN FOLLOWED IN THE CASE OF SHREE CEME NT LTD VS. ACIT (ITAT JAIPUR). THE LEARNED COUNSEL FOR THE ASS ESSEE PLACED ON RECORD COPIES OF THESE ORDERS. HE FURTHER CONTEN DED THAT THE HON'BLE ANDHRA PRADESH HIGH COURT HAS UPHELD THE OR DER IN THE CASE OF MY HOME POWER LTD AND IT IS REPORTED IN 2014 (6)TMI/82. ON THE STRENGTH OF THESE ORDERS, HE CONT ENDED THAT THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND OF APP EAL, PLEADING THEREIN THAT RECEIPT FROM THE SALE OF CARB ON CREDIT BEING CAPITAL IN NATURE WOULD NOT FORM PART OF THE TOTAL INCOME, THEREFORE, THERE IS NO PREJUDICE TO THE REVENUE. FO R BUTTRESSING HIS CONTENTION THAT THIS GROUND OUGHT TO BE TAKEN I NTO CONSIDERATION, HE RELIED UPON THE JUDGMENT OF THE H ON'BLE SUPREME COURT IN THE CASE OF NTPC VS. DCIT REPORTED IN 229 ITR 383, WHEREIN IT HAS BEEN HELD THAT THE TRIBUNAL HAS ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 5 OF 15 JURISDICTION, AS TO EXAMINE THE QUESTION OF LAW WHI CH AROSE FROM THE FACT AS FOUND BY THE INCOME TAX AUTHORITIES AND HAVING A BEARING ON TAX LIABILITY OF THE ASSESSEE. THE LEARN ED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT IN ORDER TO TAK E ACTION U/S 263, THE TWIN CONDITIONS I.E. ASSESSMENT ORDER SHOU LD BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE SHOULD BE FULFILLED. IN THE PRESENT CASE, EVEN IF I T IS FOUND THAT THE ASSESSMENT ORDER IS ERRONEOUS, BUT IF IT DOES N OT CAUSE ANY PREJUDICE TO THE REVENUE, THEN THAT ORDER CANNOT BE SET ASIDE U/S 263 OF THE INCOME TAX ACT. HE RELIED UPON THE J UDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIES LTD. VS. CIT, 243 ITR 83(SC) AND THE DECISION OF TH E HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. D. G. GOPALA GOWDA 354 ITR 501. HE FURTHER MADE REFERENCE TO THE FOLLOWING DECISIONS: A) HON'BLE CALCUTTA HIGH COURT IN THE CASE OF DAWJE E DADABHOY AND CO. V. S.P. JAIN (1957) 31 ITR 872 B) HON'BLE GUJARAT HIGH COURT IN THE CASE OF ADD. C IT VS. MUKUR CORPORATION (1978) 111 ITR 312 C) HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF ADD. CIT VS. SARAYA DISTILLERY, 115 ITR 34 (1978) D) HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIEL INDIA LTD, 203 ITR 108 (BOM.) E) HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS . MINALBEN S. PARIKH (SMT.) 215 ITR 812 GUJ. (1995) F) HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. G.R. THANGAMALIGAI, 259 ITR 129 (MAD.) 2003. ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 6 OF 15 6. THE LEARNED DR ON THE OTHER HAND CONTENDED THAT THE ASSESSMENT ORDER WAS PASSED IN 2011 AND AT THAT POI NT OF TIME THERE WAS NO DECISION OF ITAT HYDERABAD AS WELL AS HON'BLE ANDHRA PRADESH HIGH COURT WERE AVAILABLE WITH THE A SSESSING OFFICER. THE ASSESSMENT ORDER, WHETHER ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS OR N OT? IS TO BE SEEN WHEN IT WAS PASSED?. THE POSITION OF LAW AT TH AT POINT OF TIME WAS THAT RECEIPT ON SALE OF CARBON CREDIT WOUL D NOT BE CONSIDERED AS DERIVED FROM THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80IA. THEREFORE, A PREJUDICE TO THE R EVENUE FOR GRANT OF DEDUCTION U/S 80IA QUA THOSE RECEIPTS IS T HERE AND THE ASSESSMENT ORDER IS ERRONEOUS. HE FURTHER CONTENDED THAT AT THIS STAGE, THE ADDITIONAL GROUND BE NOT PERMITTED TO BE RAISED. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. BEFORE EMBARKING UPO N AN INQUIRY ABOUT THE FACTS AVAILABLE ON RECORD AND HOW TO CONSTRUE THEM, WE DEEM IT PERTINENT TO TAKE NOTE OF THE FUND AMENTAL PRINCIPLES FOR JUDGING THE ACTION OF THE CIT TAKEN U/S 263. THE ITAT IN THE CASE OF M/S KHATIZA S. OOMERBHOY VS. IT O, MUMBAI REPORTED IN 101 TTJ 1095, ANALYZED IN DETAILS VARIO US AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUST RIES CO. VS. CIT 243 ITR 83 AND PROPOUNDED THE FOLLOWING BRO ADER TESTS: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 7 OF 15 BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. IF CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRATIFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S. 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 8 OF 15 THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 8. BEFORE ADVERTING TO THE FACTS OF THE PRESENT CAS E, WE WOULD LIKE TO MAKE A REFERENCE TO THE DECISION OF THE HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. D .G. GOPALA GOWDA, 354 ITR 501 (2013). IN THIS CASE, THE FACTS NOTICED BY THE HON'BLE HIGH COURT READ AS UNDER: 2. THE ASSESSEE HAD PURCHASED A SITE AT RUPENA AGRA HARA IN THE FINANCIAL YEAR 1995-96 FOR A CONSIDERATION OF R S.3,46,520/-. HE STARTED CONSTRUCTION OF THE BUILDING IN APRIL 19 99. HE AGREED TO SELL THE SAID PROPERTY UNDER THE AGREEMEN T DATED 9-9- 2000 IN UNFINISHED CONDITION. UNDER THE TERMS OF AG REEMENT, THE ASSESSEE SHOULD COMPLETE THE CONSTRUCTION OF TH E BUILDING BEFORE EXECUTION OF SALE DEED WITH THE HELP OF THE FUNDS PROVIDED BY THE PURCHASER. ON 22-11-2000 THE ASSESS EE EXECUTED A SALE DEED IN FAVOUR OF THE PURCHASER FOR A CONSIDERATION OF RS.1,38,00,000/-. THE ASSESSEE REC EIVED A SUM OF RS.40,00,000/- AT THE TIME OF AGREEMENT. THE TOTA L COST OF CONSTRUCTION WAS RS.1,04,30,425/-. THEREAFTER, THE A SSESSEE PURCHASED ANOTHER PROPERTY AT KORAMANGALA. THE ASSE SSING OFFICER COMPUTED THE INCOME FROM THE LONG TERM CAPI TAL GAINS AT RS.22,17,940/- FOR THE SALE OF THE PROPERTY. HOWE VER, THE ASSESSEE WAS EXEMPTED FROM PAYING TAX SINCE THE FUN D WAS UTILIZED FULLY TOWARDS PURCHASE OF ANOTHER PROPERTY AT KORAMANGALA. THE COMMISSIONER OF INCOME TAX ISSUED NOTICE UNDER SECTION 263 OF THE ACT STATING THAT THE ASSES SING OFFICER WAS NOT JUSTIFIED IN TREATING THE SALE AS LONG TERM CAPITAL GAIN AND ACCORDING TO HIM, IT SHOULD HAVE BEEN TREATED A S SHORT TERM CAPITAL GAIN. THE ASSESSEE FILED HIS REPLY TO THE S HOW CAUSE NOTICE. THEREAFTER, THE COMMISSIONER PROCEEDED TO P ASS THE ORDER SETTING ASIDE THE ORDER OF ASSESSMENT ON THE GROUND THAT IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. A GGRIEVED BY THE SAID ORDER, THE ASSESSEE PREFERRED AN APPEAL TO THE TRIBUNAL. THE TRIBUNAL WENT INTO THE FACTUAL ASPECTS AND TOOK NOTE OF THE LEGAL POSITION AS SETTLED IN VARIOUS JUDGMENTS OF T HE COURTS AND IN FACT, CALCULATED BOTH THE SHORT TERM AND LONG TE RM CAPITAL GAIN AND THEN FOUND THAT THE ASSESSEE IS NOT LIABLE TO PAY ANY TAX. THEREFORE, IT RECORDED THE FINDING THAT EVEN I F THE ORDER OF THE ASSESSING AUTHORITY IS ERRONEOUS, IT IS NOT PRE JUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE, SET ASIDE THE O RDER OF THE REVISIONAL AUTHORITY AND GRANTED RELIEF TO THE ASSE SSEE. ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 9 OF 15 9. THE HON'BLE HIGH COURT WHILE UPHOLDING THE ORDER OF THE ITAT HAS OBSERVED AS UNDER: EVEN IF IT IS ERRONEOUS, UNLESS THE SAID ERRONEOUS ORDER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, THE COM MISSIONER COULD NOT HAVE EXERCISED THE SAID POWER. FROM THE A DMITTED MATERIAL ON RECORD, THE AMOUNT THAT IS ORDERED TO B E REFUNDED TO THE ASSESSEE IS NOT THE AMOUNT, WHICH IS LAWFULL Y DUE TO THE REVENUE AT ALL, IT WAS AN AMOUNT WHICH IS REVENUE L EGITIMATELY SHOULD HAVE REFUNDED IF ONLY THE CLAIM HAD BEEN IN THE RETURN ENCLOSING THE CERTIFICATES UNDER SECTION 203. THE S AID AMOUNT SHOULD HAVE BEEN REFUNDED TO THE ASSESSEE. BECAUSE HE WAS HANDICAPPED BY SUCH CERTIFICATES NOT BEING FORWARDE D TO HIM, CONSEQUENTLY NOT ABLE TO MAKE THE CLAIM, SUCH A CLA IM WAS NOT MADE. THE MOMENT HE GOT POSSESSION OF THOSE CERTIFI CATES ON 12.02.2001, WITHIN TWO YEARS FROM THE DATE OF THE E ND OF THE ASSESSMENT YEAR HE HAS PUT FORTH THE CLAIM. THE SAI D AMOUNT WAS NOT A LAWFUL AMOUNT TO THE GOVERNMENT. IT WAS A N AMOUNT WHICH SHOULD HAVE BEEN REFUNDED TO THE ASSESSEE. THEREFORE, THE CONDITION PRECEDENT FOR EXERCISING T HE REVISIONAL POWER UNDER SECTION 263 OF THE ACT IS THAT THE ORDE R UNDER REVISION SHOULD NOT ONLY BE ERRONEOUS, BUT SUCH ERR ONEOUS ORDER SHOULD RESULT IN PREJUDICE TO THE INTEREST OF THE REVENUE. MERE ERROR WOULD NOT CONFER JURISDICTION TO EXERCIS E REVISIONAL POWER UNDER SECTION 263 OF THE ACT. WE HAVE GONE THROUGH THE ORDER PASSED BY THE REVISI ONAL AUTHORITY. IT IS A VERY CRYPTIC ORDER. IT NEITHER P OINTS OUT AN ERROR NOR PREJUDICE WHICH HAS CAUSED TO THE REVENUE . AFTER DECLARING THAT THE ORDER IS PREJUDICIAL, IT REFERS TO THE NOTICE BEING ISSUED TO THE ASSESSEE AND THE ASSESSEE FILIN G REPLY TO THE SAID NOTICE AND THEN REVIEW AUTHORITY FEELS THAT IT IS A MATTER TO BE READJUDICATED BY THE ASSESSING AUTHORITY AND THE REFORE, THE MATTER WAS REMANDED FOR FRESH CONSIDERATION. THIS I S NOT THE WAY, THE REVISIONAL AUTHORITY SHOULD EXERCISE THEIR POWER UNDER SECTION 263 OF THE ACT. THE ORDER OF REVISIONAL AUT HORITY SHOULD INDICATE THE ERROR COMMITTED BY THE ASSESSING AUTHO RITY AND CONSEQUENTIAL PREJUDICE CAUSED TO THE REVENUE BECAU SE OF THE ERRONEOUS ORDER. UNLESS THESE TWO CONDITIONS EXIST, THE REVISIONAL AUTHORITY DOES NOT GET JURISDICTION TO P ASS ANY ORDER UNDER SECTION 263 OF THE ACT. ONCE THESE TWO CONDIT IONS ARE SET OUT IN THE ORDER, THEN IT IS OPEN TO THE REVISIONAL AUTHORITY TO CONSIDER THE CASE ON MERITS AND PASS FINAL ORDER OR IN ITS VIEW, REQUIRES SOME ADJUDICATION OR ENQUIRY, THE MATTER C AN BE REMANDED TO ASSESSING AUTHORITY. BUT SUCH REMAND SH OULD BE ONLY AFTER SETTING OUT THE FACTS WHICH SHOW ERRONEO US NATURE OF ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 10 OF 15 THE ORDER AND THE CONSEQUENTIAL PREJUDICE TO THE RE VENUE WHICH CONFER JURISDICTION ON THE REVISIONAL AUTHORITY. SEEN FROM THAT ANGLE, IN THE IMPUGNED ORDER THOUGH WE COULD MAKE OUT WHAT IS THE ERROR COMMITTED BY THE REVISIO NAL AUTHORITY, CERTAINLY THERE IS NO IOTA OF EVIDENCE T O SHOW HOW IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ON T HE CONTRARY, IN THE REPLY TO THE NOTICE, THE ASSESSEE HAD FILED A S TATEMENT. EVEN IF THE ASSESSMENT IS TO BE MADE SEPARATELY FOR THE LAND ON LONG TERM BASIS AND TO THE BUILDING ON SHORT TERM BASIS, THE ASSESSEE IS NOT LIABLE TO PAY ANY TAX FOR THE BUILDING. THE ASSESSEE HAS DEMONSTRATED THAT IN NO EVENT THE ORDER PASSED BY T HE ASSESSING OFFICER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THAT ASPECT HAS NOT BEEN CONSIDERED AND THERE IS NO REFERENCE TO THAT ASPECT IN THE ENTIRE ORDER PASSED BY THE RE VISIONAL AUTHORITY AND BY A CRYPTIC ORDER, THE MATTER IS REM ANDED TO THE ASSESSING AUTHORITY. THOUGH THE TRIBUNAL WAS NOT EX PECTED TO GO INTO THE MERITS OF THE CASE, IN ORDER TO DEMONST RATE THAT THE ORDER PASSED BY THE ASSESSING AUTHORITY EVEN IF IT IS ERRONEOUS, IS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEY HAVE SET OUT COMPUTATION OF CAPITAL GAINS AND DEMONSTRATED T HAT THE ORDER WAS NOT PREJUDICIAL. THEREFORE, THE ORDER PAS SED BY THE REVISIONAL AUTHORITY IS ILLEGAL AND RIGHTLY IT HAS BEEN SET ASIDE. IN THE LIGHT OF WHAT WE HAVE STATED ABOVE, THE SUBS TANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE. 10. THE HON'BLE HIGH COURT HAS HELD THAT FULFILLMEN T OF TWIN CONDITION IS MUST I.E. ASSESSMENT ORDER SHOULD BE E RRONEOUS AND IT SHOULD CAUSE A PREJUDICE TO THE REVENUE. IF ANY ONE CONDITION IS LACKING, THEN ACTION U/S 263 WOULD NOT BE JUSTIFIED. IN THE ABOVE CASE, THE ASSESSMENT ORDER WAS ERRONEO US BECAUSE THE LEARNED ASSESSING OFFICER FAILED TO COMPUTE THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN SEPARATELY . BUT THE TRIBUNAL ULTIMATELY ARRIVED AT A CONCLUSION THAT EV EN IF THIS EXERCISE IS BEING DONE, THEN THERE WILL NOT BE ANY TAX LIABILITY AND THEREFORE, THERE IS NO NEED TO SET ASIDE THE AS SESSMENT ORDER. THE HON'BLE HIGH COURT HAS UPHELD THIS FINDI NG OF THE TRIBUNAL. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE FACTS OF ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 11 OF 15 THE PRESENT CASE. THERE IS NO DISPUTE THAT THE ASSE SSEE IS IN THE BUSINESS OF HYDRO POWER PROJECT. IT HAS EARNED CARB ON CREDIT WHICH HAS BEEN RATED BY THE AGENCY AND IT HAS SOLD THOSE CARBON CREDIT TO A JAPANESE COMPANY. THE DETAILS IN DICATING SERVICE FROM CARBON MANAGEMENT SERVICE, ALLOTMENT O F LETTER OF CARBON CREDIT, SALE BILL FOR SALE OF CARBON CREDITS ARE AVAILABLE ON PAGE NOS. 102 TO 110 OF THE PAPER BOOK. THE ITAT HY DERABAD HAS DECIDED THIS ISSUE FOR THE FIRST TIME AND THE D ISCUSSION MADE BY THE ITAT HYDERABAD BENCH WORTH TO NOTE, IT READ AS UNDER: 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. CARBON CREDIT IS IN THE NATURE OF 'AN ENTITLEMENT' RECEIVED TO IMPROVE WORLD ATMOSPHERE A ND ENVIRONMENT REDUCING CARBON, HEAT AND GAS EMISSIONS . THE ENTITLEMENT EARNED FOR CARBON CREDITS CAN, AT BEST, BE REGARDED AS A CAPITAL RECEIPT AND CANNOT BE TAXED A S A REVENUE RECEIPT. IT IS NOT GENERATED OR CREATED DUE TO CARRYING ON BUSINESS BUT IT IS ACCRUED DUE TO 'WORL D CONCERN'. IT HAS BEEN MADE AVAILABLE ASSUMING CHARA CTER OF TRANSFERABLE RIGHT OR ENTITLEMENT ONLY DUE TO WORLD CONCERN. THE SOURCE OF CARBON CREDIT IS WORLD CONCERN AND ENVIRONMENT. DUE TO THAT THE ASSESSEE GETS A PRIVIL EGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, THE AMO UNT RECEIVED FOR CARBON CREDITS HAS NO ELEMENT OF PROFI T OR GAIN AND IT CANNOT BE SUBJECTED TO TAX IN ANY MANNER UND ER ANY HEAD OF INCOME. IT IS NOT LIABLE FOR TAX FOR THE AS SESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 2(24) , 28, 45 AND 56 OF THE INCOME-TAX ACT, 1961. CARBON CREDITS ARE MADE AVAILABLE TO THE ASSESSEE ON ACCOUNT OF SAVING OF ENERGY CONSUMPTION AND NOT BECAUSE OF ITS BUSINESS. FURTHER, IN OUR OPINION, CARBON CREDITS CANNOT BE CONSIDERED AS A BI-PRODUCT. IT IS A CREDIT GIVEN TO THE ASSESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. THUS, THE ASSESSEES WH O HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER ASSES SEES TO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE CARBON CREDIT IS NOT A RESUL T OR INCIDENCE OF ONE'S BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CREDITS GET BE NEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS CARBON CREDI TS TO OVERCOME ONE'S NEGATIVE POINT CARBON CREDIT. THE AM OUNT ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 12 OF 15 RECEIVED IS NOT RECEIVED FOR PRODUCING AND/OR SELLI NG ANY PRODUCT, BI-PRODUCT OR FOR RENDERING ANY SERVICE FO R CARRYING ON THE BUSINESS. IN OUR OPINION, CARBON CR EDIT IS ENTITLEMENT OR ACCRETION OF CAPITAL AND HENCE INCOM E EARNED ON SALE OF THESE CREDITS IS CAPITAL RECEIPT. FOR TH IS PROPOSITION, WE PLACE RELIANCE ON THE JUDGMENT OF T HE SUPREME COURT IN THE CASE OF CIT VS. MAHESHWARI DEV I JUTE MILLS LTD. (57 ITR 36) WHEREIN HELD THAT TRANSFER OF SURPLUS LOOM HOURS TO OTHER MILL OUT OF THOSE ALLOTTED TO T HE ASSESSEE UNDER AN AGREEMENT FOR CONTROL OF PRODUCTION WAS CA PITAL RECEIPT AND NOT INCOME. BEING SO, THE CONSIDERATION RECEIVED BY THE ASSESSEE IS SIMILAR TO CONSIDERATION RECEIVE D BY TRANSFERRING OF LOOM HOURS. THE SUPREME COURT CONSI DERED THIS FACT AND OBSERVED THAT TAXABILITY OF PAYMENT R ECEIVED FOR SALE OF LOOM HOURS BY THE ASSESSEE IS ON ACCOUN T OF EXPLOITATION OF CAPITAL ASSET AND IT IS CAPITAL REC EIPT AND NOT AN INCOME. SIMILARLY, IN THE PRESENT CASE THE ASSES SEE TRANSFERRED THE CARBON CREDITS LIKE LOOM HOURS TO S OME OTHER CONCERNS FOR CERTAIN CONSIDERATION. THEREFORE, THE RECEIPT OF SUCH CONSIDERATION CANNOT BE CONSIDERED AS BUSINESS INCOME AND IT IS A CAPITAL RECEIPT. ACCORDINGLY, WE ARE OF THE OPINION THAT THE CONSIDERATION RECEIVED ON ACCOUNT OF CARBO N CREDITS CANNOT BE CONSIDERED AS INCOME AS TAXABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONM ENTAL CONCERNS. NO ASSET IS GENERATED IN THE COURSE OF BU SINESS BUT IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS. CRED IT FOR REDUCING CARBON EMISSION OR GREENHOUSE EFFECT CAN B E TRANSFERRED TO ANOTHER PARTY IN NEED OF REDUCTION O F CARBON EMISSION. IT DOES NOT INCREASE PROFIT IN ANY MANNER AND DOES NOT NEED ANY EXPENSES. IT IS A NATURE OF ENTIT LEMENT TO REDUCE CARBON EMISSION, HOWEVER, THERE IS NO COST O F ACQUISITION OR COST OF PRODUCTION TO GET THIS ENTIT LEMENT. CARBON CREDIT IS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. 25. FURTHER, AS PER GUIDANCE NOTE ON ACCOUNTING FOR SELF- GENERATED CERTIFIED EMISSION REDUCTIONS (CERS) ISSU ED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IC AI) IN JUNE, 2009 STATES THAT CERS SHOULD BE RECOGNISED IN BOOKS WHEN THOSE ARE CREATED BY UNFCCC AND/OR UNCONDITION ALLY AVAILABLE TO THE GENERATING ENTITY. CERS ARE INVENT ORIES OF THE GENERATING ENTITIES AS THEY ARE GENERATED AND H ELD FOR THE PURPOSE OF SALE IN ORDINARY COURSE. EVEN THOUGH CERS ARE INTANGIBLE ASSETS THOSE SHOULD BE ACCOUNTED AS PER AS-2 (VALUATION OF INVENTORIES) AT A COST OR MARKET PRIC E, WHICHEVER IS LOWER. SINCE CERS ARE RECOGNISED AS INVENTORIES, THE GENERATING ASSESSEE SHOULD APPLY A S-9 TO RECOGNISE REVENUE IN RESPECT OF SALE OF CERS. ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 13 OF 15 26. THUS, SALE OF CARBON CREDITS IS TO BE CONSIDERE D AS CAPITAL RECEIPT. THIS GROUND IS ALLOWED. 27. AS WE HAVE DECIDED THE MAIN ISSUE, THE ALTERNAT E GROUND OF THE ASSESSEE BECOMES INFRUCTUOUS AND THE SAME IS DISMISSED. 28. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 2ND NOVEMBER, 2012. 11. THIS DECISION HAS BEEN UPHELD BY THE HON'BLE AN DHRA PRADESH HIGH COURT. THIS DECISION HAS BEEN SUBSEQUE NTLY FOLLOWED BY THE ITAT CHENNAI AND JAIPUR BENCHES. TH ERE IS NO DECISION EITHER FROM THE HON'BLE SUPREME COURT OR F ROM THE HON'BLE JURISDICTIONAL HIGH COURT. THESE DECISIONS INDICATE THAT SALE OF CARBON CREDIT WOULD RESULT CAPITAL RECEIPT WHICH IS NOT TAXABLE. WHEN WE CONFRONTED THE LEARNED DR WITH REG ARD TO THIS POSITION, IT WAS CONTENDED THAT THE POSITION AS ON THE DAY WHEN THE ASSESSMENT ORDER WAS PASSED, IS TO BE SEEN AND ON THAT DAY THESE ORDERS WERE NOT AVAILABLE. THEREFORE, THE ASS ESSEE CANNOT CLAIM THE BENEFIT OF THESE ORDERS. HOWEVER, WE DO N OT CONCUR WITH THIS PROPOSITION OF THE LEARNED CIT, BECAUSE T HE FULL BENCH OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF ARUNA LUTHRA REPORTED IN 254 ITR 76 HAS HELD THAT A COURT DECIDE A DISPUTE BETWEEN THE PARTIES. THE CASE CAN INVOLVE DECISION ON FACTS. IT CAN ALSO INVOLVE A DECISION O N POINT OF LAW. BOTH MAY HAVE BEARING ON THE ULTIMATE RESULT OF THE CASE. WHEN A COURT INTERPRETS A PROVISION, IT DECIDES AS TO WH AT IS THE MEANING AND EFFECT OF THE WORDS USED BY THE LEGISLA TURE, IT IS THE DECLARATION REGARDING THE STATUTE. IN OTHER WOR DS THE JUDGMENT DECLARES AS TO WHAT THE LEGISLATURE HAD SA ID AT THE TIME OF PROMULGATION OF THE LAW, THE DECLARATION IS .., THIS ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 14 OF 15 WAS THE LAW, THIS IS THE LAW, THIS IS HOW THE PROVI SION SHALL BE CONSTRUED. THEREFORE, HE CANNOT PLEAD THAT THE VIEW TAKEN BY THE TRIBUNAL AND UPHELD BY THE HON'BLE ANDHRA PRADE SH HIGH COURT COULD BE CONSIDERED AS IF APPLICABLE FROM THE DATE OF THE DECISION. IN THE DECISION ONLY THE POSITION OF THE LAW AS TO HOW RECEIPTS FROM SALE OF CARBON CREDITS ARE TO BE TREA TED, HAS BEEN EXPLAINED. ONE OF THE ARGUMENT RAISED BY THE DR WAS THAT AT THIS STAGE, THE ADDITIONAL GROUND OUGHT NOT TO BE P ERMITTED TO BE RAISED. IT IS PERTINENT TO MENTION HERE THAT BAS ICALLY, IT IS NOT A SEPARATE GROUND, IT IS A LIMB OF ARGUMENTS, WHICH IS AFFECTING THE ULTIMATE TAX LIABILITY OF THE ASSESSEE. THE HON 'BLE SUPREME COURT IN THE CASE OF NTPC LTD (SUPRA) HAS HELD THAT THE TRIBUNAL HAD JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH AROSE FROM THE FACT AS FOUND BY THE INCOME TAX AUTH ORITIES AND HAVING A BEARING ON THE TAX LIABILITY OF THE ASSESS EE. AS FAR AS THE NATURE OF THE RECEIPT FROM SALE OF CARBON CREDI T IS CONCERNED, IT IS AVAILABLE FROM THE ASSESSMENT STAG E. IT IS NOT DISPUTED EVEN BY THE LEARNED COMMISSIONER, THE DISP UTE IS, WHETHER IT HAS BEEN DERIVED FROM THE ELIGIBLE INDUS TRIAL UNDERTAKING FOR QUALIFYING THE GRANT OF DEDUCTION U /S 80IA. THE LEARNED COMMISSIONER FELT THAT THIS RECEIPT HAS NOT BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING WHICH WILL BE ELIGIBLE FOR GRANT OF DEDUCTION U/S 80IA AND THE ASSESSING O FFICER COMMITTED AN ERROR IN INCLUDING THE RECEIPT IN THE ELIGIBLE PROFIT. THOSE FACTS ARE ALREADY ON THE RECORD. IT IS TO BE SEEN, WHETHER THE RECEIPT IS OF CAPITAL NATURE OR OF A REVENUE NA TURE. EVEN IN CASE THE ORDER OF THE CIT IS UPHELD, THEN, IN LAW, IT WILL AFFECT THE COMPUTATION OF INCOME, ULTIMATELY BECAUSE THE R ECEIPT WILL NOT BE TAXABLE, IT WILL NOT COME UNDER THE AMBIT OF COMPUTATION ITA NO.258 OF 2014 SUBHASH KABINI POWER CORPN LTD B ANGALORE PAGE 15 OF 15 OF INCOME. SIMULTANEOUSLY IT WILL BE EXCLUDED FROM THE DEDUCTION U/S 80IA AS WELL AS OF THE TOTAL INCOME. THE RESULT WILL REMAIN AS IT IS. IT IS A REVENUE NEUTRAL CASE. THEREFORE, IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF GOPALA GOWDA (SUPRA), THE SECO ND CONDITION FOR TAKING ACTION U/S 263 DOES NOT EXIST. THE ASSESSMENT ORDER IS NOT PREJUDICIAL TO THE INTEREST S OF THE REVENUE. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE APPEAL OF THE ASSESSEE AND QUASH THE IMPUGNED ORDER OF THE LE ARNED CIT PASSED U/S 263 OF THE INCOME TAX ACT. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 28 TH NOVEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE