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Reliance in this regard can be placed on the decision of Hon’ble ITAT Bangalore in case of M/s SubhashKabini Power Corporation Limited vs. CIT (ITA No 258/Bang/2014) pronounced on 28th November 2014 wherein the Commissioner taking cognizance of Section 263, directed the AO for de novo consideration. The CIT proposed to tax the sale of carbon credits.

The assesse relied on a plethora of judicial pronouncements including the decision of ITAT Jaipur in case of Shree Cements Limited and Hon’ble AP High Court in case of My Home Power Ltd wherein it was held that sale of carbon credit is not taxable. The assesse further contended that since the sale is non taxable, so no prejudice has been caused to the revenue, and thus the order u/s 263 is liable to be set aside relying on the decision of Hon’ble SC in case of Malabar Industries Limited.

The Revenue contended that since the decisions relied upon were given at a later stage and thus the position of law was different at the time of making the order. In view of this, prejudice has been caused to the revenue. The Hon’ble Tribunal relied on the decision of Hon’ble P&H HC in case of ArunaLuthra reported in 254 ITR 76 and held that

“When a Court interprets a provision, it decides as to what is the meaning and effect of the words used by the Legislature, it is the declaration regarding the statute. In other words the judgment declares as to what the legislature had said at the time of promulgation of the law, the declaration is……….., this was the law, this is the law, this is how the provision shall be construed. Therefore, he cannot plead that the view taken by the Tribunal and upheld by the Hon'ble Andhra Pradesh 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 treated, has been explained.

The assessment order is not prejudicial to the interests of the Revenue. In view of the above discussion, we allow the appeal of the assessee and quash the impugned order of the learned CIT passed u/s 263 of the Income Tax Act.”

Author – Deepak Bansal

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