TaxTMI 
TaxTMI 
TaxTMI 
2010 (5) TMI 539
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.... addition made in the reassessment proceedings. The Assessee in its appeals has prayed that even on merits, the additions made by the Assessing Officer in the reassessment proceedings are unsustainable. We shall first take up for consideration the appeals by the Revenue. 2. The facts and circumstances giving raise to the appeals by the Revenue are as follows: The assessee is a company. It is engaged in business of generation and distribution of electricity. Originally the company was only in distribution of electricity in the suburbs of Mumbai. Subsequently in A.Y. 1996-97 it had put up a plant for generation of electricity at Dahanu. The company was entitled to deduction u/s 80IA in respect of income from generation of electricity at Dahanu. The relevant section reads as follows: [Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accorda....
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....he Assessee as "market value' of the goods supplied by eligible business-generation of electricity at Dahanu to its non eligible business- distribution thereof. The Assessing Officer applied section 80IA(8) which provides that the goods transferred from one business to another business of the same assessee should be at its market value to ascertain the profit eligible for deduction u/s 80IA. The provisions of Sec.80-IA(8) read as follows: Sec.80-IA ( 8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date :....
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....e Act. 3. However, the Revenue Audit in their report considered the reasonable return worked out by MERC and observed that the profit eligible for deduction u/s 80IA has to be worked out based on reasonable return. Since the reasonable return figure was for the combined activity of generation and distribution, Audit observed that the profit determined in the MERC order should be allocated in the ratio of power generated at Dahanu and total power supplied by the company. Consequent to the audit objection, the Assessing Officer reopened the assessments for the above two impugned assessment years. It was the assessee's objection that a similar issue was considered by the Assessing Officer in the original assessment order, which underwent the process of appeal before the CIT (A) and the Tribunal. Moreover, for assessment year AY 2001-02 the reopening was after four years from the end of Assessment year and there is no failure on the part of the assessee to disclose fully and truly all material facts, therefore the reopening is bad in law. For assessment year 2003-04, since the issue was already decided in the original assessment, it was contended that there was only a change of opinio....
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....ed his own order for AY 2001-02. The CIT (A) also has stated that the Assessing Officer has reopened the assessment applying section 80IA(10) which is applicable to transactions between two persons. He accordingly cancelled the reassessment proceedings for this Assessment Year also. 6. The revenue is aggrieved on the cancellation of notices u/s 148 by the CIT (A) whereas, the assessee is aggrieved that the issue was not considered on merits as well. Accordingly, there are cross appeals in these two assessment years. 7. Initiating the discussion, the Learned Departmental Representative reiterated the facts and submitted that the assessment for AY 2001-02 was reopened after end of 4 years but there were reasons to believe on the facts that the assessee has not informed about the applicability of Electricity Act and the notifications and the orders of the MERC were also not on record, according to which the assessee was entitled only for reasonable return of 16% on the capital employed and, therefore, there are reasons to believe that income has escaped assessment as there was failure on the part of assessee to disclose the facts. It was further submitted that the issue of quantum o....
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....tion applies and any other person, or for any other reason, the course of business between them was so arranged..........". It was his submission that this provision can be invoked only when there were transactions with "any other person". In the assessee's case, it was submitted that transactions were not between the two different organisations but is a case of transfer of goods from eligible business to other non-eligible business with in the organisation. The Assessing Officer, has originally invoked the provisions of subsection (8) as that provision was applicable. Accordingly, his submission that reference to section 80IA(10) in the reasons recorded itself was not correct and so 'reason to believe' by the Assessing Officer does not exist. 8.2 Next proposition made by the Learned Counsel for the assessee is with reference to failure to disclose fully and truly all material facts. It was his submission that the assessee has disclosed all material facts. Notification No. S 0152E dated 30th March'92 issued under Electricity Act, 1948 by the Maharashtra Government was published in the official gazette and, therefore, this notification is available to the public at large. Acc....
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....he Learned Counsel is that the, second proviso to section 147 prevents the Assessing Officer from reopening the assessment in respect of matters, which are subject matter of appeal. It was his submission that the subject matter of appeal in the original assessment was determination of market value of Electricity transferred from Dahanu Unit to distribution network and arriving at the profit on generation by the eligible unit for the purpose of deduction u/s 80IA. The Assessing Officer has determined the market value on the basis of purchase price of Tata Power Corporation (TPC) in determining the sale price of the generated unit. The only issue contested is also with reference to the sale price on the standby charges paid to TPC. By the time the orders was considered by the ITAT in AY 2000-01, the assessee and TPC has settled the issue of standby charges and accordingly the Tribunal has directed the AO to work-out average price paid to TPC while computing the profit of generation unit at Dahanu Unit. It was his submission that the issue before ITAT was nothing but determination of profit on generation of electricity by the Dahanu Unit and Assessing Officer has correctly invoked sec....
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....e applicable for distribution of electricity and while arriving at the tariff, they have various parameters including 16% reasonable return on capital investment. This is only one of the consideration in fixing the tariffbut MERC also takes into consideration the actual profits earned so for and possible profits in future and various other considerations/ parameters in determining the tariffs, which has no relevance at all in arriving at the profits of the generation unit. He also made reference to the audit objection, replies to the audit objection, placed in the paper book to submit that reopening pursuant to audit objection is invalid and referred to the Hon'ble Bombay High Court judgement in IL & FS Investment Managers vs ITO 298 ITR 32 (Bom) wherein the Hon'ble Bombay High Court has cancelled the reassessment where audit objections were not accepted by the Assessing Officer but proceedings were initiated. It was his submission that similar facts exist in the assessee's case. He also referred to the cross appeals by the assessee on merits holding that the Assessing Officer order in determining the profits of the Dahanu Unit is not according to the provisions of the Act and the ....
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....gible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produced to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the AO shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. Tariff for purchase of sale of power is determined on the basis of the normative parameters determined by the Govt. of India under its Notification No.SO 251(E) dated 30.3.1992 issued under the provisions of Electricity Act, 1948. Tariff situates, both for the Central Sector and Independent Power producers (IPPS), were determined on COST PLUS PROFIT BASIS. Profit was determined on the 'return on equity' basis which was to be computed on the paid up and subscribed capital relatable to the generating unit at the rate of 16 per cent of such capital. In this case, the assessee has claimed the deduction u/s 80IA of the Act in respect of generation of power from its power from its....
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....ng Officer's reason to believe arises from the interpretation of section 80IA(10) and further the determination of profits as reasonable rate of return on capital on the basis of Electricity Act 1948 and MERC order which admittedly was issued after completion of assessment order. These issues are dealt with as under 10.1 Issue of applicability of section 80IA(10) The provision of section 80IA(10) relied upon by the Assessing Officer is as under:- "10. Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom." 10.1.2 As can be seen from the provision, the Assessing Officer can only invoke this provi....
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....ligible business and any other business carried on by the assessee (generally called non-eligible business), the Assessing Officer has to determine the market value of goods and services in arriving at the profits. This aspect was taken care by the Assessing Officer at the time of original assessment from AY 2000-01 and onwards and so the Assessing Officer's opinion in invoking the provisions of 80IA(10) is not according to the law and facts. 10.2 Tariff determined in the MERC Order Another reason for reopening is the order for determination of tariff for sale of power issued by the Maharashtra Regulatory Commission for financial 2004-05 in assessee case of 18 of 2003, dated 1.7.2004. As admitted by the Assessing Officer himself in the reasons recorded, this order was not available at the time of completion of original assessment, therefore, the assessee cannot be considered to have not disclosed full facts when the said order itself was not available and even the proceedings have not been initiated for any of the assessment years under consideration. As can be seen from the order of the MERC, the order itself indicates that it is in a matter of "approval of M/s BSES Ltd) (N....
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....n yearly basis stated capital base was higher than the capital base projected by the BSES. Accordingly, the restated level of reasonable returns for the period FY 2002-03 to financial year 2004-05 has been given in detail in page 117 of the order. As seen from the order and the table, there are various rates of return for investments made by the assessee company from capital base on 31st March 1965 to 1st April 1999 and at various percentages of reasonable return. The probable reasonable returns were estimated by the MERC. The projections also indicate that the assessee submitted that the reasonable return at Rs 337.37 crores whereas MERC arrived at 256.66 crores. Likewise, clear profits were discussed in para 21 and at the end of the discussion, the commission has left this note "Thus, the revised net surplus between clear profit and the reasonable return in financial year 2004-05 based on the existing tariff and the commission's projections of expenses works out to 309.4 crores, which was adjusted by the revising tariff to different categories based on the commission's tariff philosophy discussed in the next section". 10.2.2. All this indicates that under the Electricity Act, M....
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....uly all material facts For the assessment year 2001-02, the assessment was reopened after 4 years from the end of the assessment year. As per the first proviso to section 147, the Assessing Officer cannot reopen the assessment unless there is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. As rightly submitted by the Learned Counsel, the Electricity Act 1948 and its notification issued way back in 1992 are in the public domain and there is no need to specifically furnish them to the Assessing Officer. Moreover, the assessee is also assessed from so many years and is in the business of supply of transmission of electricity initially and power generation and transmission in the recent past and it cannot be stated that the Act, notifications, which are in public domain cannot be considered as non-disclosure of material facts necessary for his assessment. Even the MERC order relied upon by the Assessing Officer was not even in the knowledge of the assessee as they have for the first time approached the MERC in year 2003 only and the order was passed, after obtaining public objections and after examination of facts on 1.7.....
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....er to issue notices under section 148 of the Act on the basis of any income of the appellant escaping assessment either under clause (a) or clause (b) of section 147 of the Act. All the notices under section 148 of the Act were liable to be quashed." In this case also we are of the opinion that the MERC order given subsequently for fixation of tariff on the basis of Electricity Supply Act and its Notifications operate in different field and has no bearing for determination of profits under the IT Act. 10.4 Merger of the Order It was also one of the contention that the issue of quantification of deduction under section 80IA in respect of the Dahanu plant by the Assessing Officer, in the original assessment order has merged with the orders of the CIT (A) and ITAT and, therefore, the re-computation thereof by adopting a different method of working of profit eligible for deduction u/s 80IA was beyond the powers of the Assessing Officer. The Learned Departmental Representative vehemently argued that the issue in original assessment was entirely different. We are not in a position to accept the contention. The issue in original assessment was determination of profit for the purpose of ....
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....there was an audit objection based on which the assessment proceedings were reopened. Though the Assessing Officer did not accept the audit objection later after initiation of reassessment proceedings, yet the fact remains that there was some material based on which he issued notice u/s.148 of the Act. In the decision of the Hon'ble Supreme Court in the case of Kelvinator India Ltd. (supra) it has been clarified that even after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. The following observations of the Hon'ble Supreme Court highlight this aspect. "We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by....