TaxTMI 
TaxTMI 
2014 (4) TMI 683
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....e under the Act on 24.10.2005 and declared a total income of Rs.1330,17,92,000/. The return was processed under Section 143(1) on 27.2.2006 at the same figure. Later, the case was selected for scrutiny assessment and a notice under Section 143(2) of the Act was issued on 23.3.2006; the AO had served a detailed questionnaire upon NTPC under Section 142(1) of the Act. NTPC in response furnished the necessary details whenever called for by the AO. Upon analysis of various issues, the AO framed the assessment order under Section 143(3) on 27.11.2006. He determined the taxable income at Rs.3736,18,91,370/-. 3. The Commissioner, after going through the assessment order, felt that the AO allowed additional depreciation under Section 32(1)(iia) of the Act for the sum of Rs.187,55,71,000/30 due to additional assets at the Ramagundam and Talcher Super Power Plants, and that prima facie, this was not inadmissible. It was stated that there was lack of deliberation by the AO on the issue and, therefore, his order was erroneous as well as prejudicial to the revenue's interest. The Commissioner also noted that NTPC had raised the total sale bills to its customers of Rs.23066.03 crores in terms....
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....erefore, in light of the position of facts and law claim of additional depreciation has been erroneously allowed and to that extent order of the A.O. is erroneous is so far as it is prejudicial to the interest of revenue. (b) Provisional Revision of Sales In Schedule 28 of Annual Report of the company vide para 3(a) and (b) it is mentioned: 3(a) The Central Electricity Regulatory Commission (CERC) has notified by regulation in March 2004, the terms and conditions for determination of tariff applicable with effect from Ist April, 2004 for a period of five years. Pending final determination of tariff for the period Ist April 2004 onwards, CERC has directed by notification that on provisional basis, the annual fixed charges as applicable on 31st March, 2004 shall be billed at target availability and variable charges based on norms of operation notified in Regulation, 2004. The amount billed for the year on this basis is Rs.230,663 Million. Since the amount billed is subject to adjustment with effect from Ist April, 2004, pending final determination of the tariff by CERC, sales amounting to Rs.221,280 million for the year have been provisionally recognized on the basis of prin....
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....ion 32(1)(vi) (as stood prior to 01.04.1998), provided for additional depreciation but that it categorically specified both businesses i.e. generation of power and manufacture of production or an article or thing. He therefore held that additional depreciation was inadmissible to NTPC. He also held that the AO incorrectly allowed additional depreciation. He therefore set aside the AO's order and directed the latter to withdraw the additional depreciation of Rs.187,55,71,000. On the second issue, the Commissioner observed that the CERC was tasked by law to regulate the tariff of electricity generating companies owned or controlled by the Central Government. NTPC had issued total sales bills of Rs.23,066.30 crores to its customers in terms of CERC's existing norms. CERC's final norm fixation order was not made during the year. Yet NTPC revised the sales downwards to Rs.22,128 crores and did not take into account a sum of Rs.938.30 crores. The AO permitted this without any inquiry. On this score, the Commissioner set aside the assessment order and remitted this issue to the file of the Assessing Officer for fresh examination. NTPC approached the ITAT. 6. By the impugned order, ITAT....
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....ssioner formed an opinion that an issue available in the computation of income required verification and investigation at the end of Assessing Officer before its acceptance or rejection and such inquiry was not conducted than and an error has crept in the assessment order. If such an error caused a prejudice to the revenue than assessment order on such issue could be set aside. Therefore, in view of the above discussion, we are of the view that on reduction of sales Learned CIT has rightly taken cognizance u/s. 263 and has rightly remitted this issue to the Assessing Officer for fresh adjudication." 7. Relying upon the decision reported as Malabar Industrial Co. Ltd. v. CIT, 243 ITR 83, Mr. Dastur, the learned senior counsel for NTPC, argued that the term "prejudicial to the interests of the Revenue" in Section 263 is not defined under the Act; in the sense that it is understood ordinarily it has wide implications and is not confined to loss of tax. It is stated that the Supreme Court ruled that every loss of revenue as a consequence of the order of the Assessing Officer (AO) cannot be treated as prejudicial to the Revenue's interest. Thus, when an Income Tax Officer adopts one ....
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....bmitted that in the original paragraph 13 of the assessment order, the AO dealt with the issue of pre-commissioning scales, and referred to Schedule 28 to the note of account which included notes 3(a) and 3(b). 10. It is submitted that the NTPC is not free to charge any tariff for electricity generated but is subject to strict regulation by through the CERC's regulations. Thus, note A of the Annual Report brought out that in the year ending 31.03.2005 (A.Y. 2005- 06), the CERC had not finally determined the tariff chargeable. Instead, what happened was that NTPC was allowed to bill on the provisionally fixed charges applicable as on 31.03.2004. As this amount was not final and subject to change, the CERC notification clarified that if the billed amount was in excess of final tariff, such excess had to be returned by the company to the consumer. Arguing further, it is urged that the record reveals that the tariff norms fixed by the NTPC for power plants from 2004-09 were lower than the tariff norms for 2000-04. The NTPC had accounted sales for electricity for Rs. 2212.8 crores based upon the previous experience in tariff fixation orders of CERC. This was even though the billed am....
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....n the assessment proceedings, learned counsel submitted that the AO's order was in fact erroneous and led to loss of revenue. It was, therefore, urged that there was in fact no occasion to reduce the sales provisionally of Rs. 2212.2 crores on estimated basis even though the total amount billed upon the NTPC's customers was Rs. 203.66 crores. The determination of liability as on 31.03.2005 was contingent upon final order of the CERC. The estimation, therefore, could not have been made in respect of final determination of the matter in future. Thus, NPTC had wrongly reduced the sale of Rs.938.3 crores. Learned counsel relied upon the ruling of this Court reported as CIT v. Regency Park Property Management Company Pvt. Ltd., ITA 1991/2010 decided on 05.01.2012 and submitted that failure to conduct necessary enquiry and investigation would render the Assessing Officer's orders erroneous as he is required to act as an investigator. Such an order would also be prejudicial to Revenue's interest. It was also submitted that this decision is an authority on the question that the CIT can require the AO - in the proper exercise of his authority under Section 263 - to carry-out further enquiry....
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....sed upon revised terms was likely to take some time. The notification (of 30.04.2004), therefore, went on to direct as follows: "7/25(7)/2004-Legal Dated the 30th April, 2004 NOTIFICATION XXXX XX XXXXXX XXXXXX 2. It is, therefore, directed that with effect from 1.4.2004, the billing of charges shall be done on the following basis, for a period of 6 months, that is, up to 30.9.2004. Thermal Power Generating Stations The annual fixed charges as applicable on 31.3.2004 shall be billed at the target availability and variable charges based on norms of operation notified on 29.3.2004. Hydro Power Generating Stations Full recovery of annual fixed (capacity) charges as applicable on 31.3.2004 shall be billed and recovered based on capacity index notified on 29.3.2004. Similarly, primary/secondary energy rates shall be computed based on the terms and conditions notified on 29.3.2004. Transmission System Annual transmission charges shall be billed as applicable on 31.3.2004 and recovered based on Target Availability notified on 29.3.2004. 3. The development surcharge as applicable up to 31.3.2004 shall not be billed. 4. The billing of charges as directed above shall b....
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....lling. Explanation The premium raised by the generating company while issuing share capital and investment of internal resources created out of free reserve of the generating company, if any, for the funding of the project, shall also be reckoned as paid up capital for the purpose of computing return on equity, provided such premium amount and internal resources are actually utilized for meeting the capital expenditure of the generating station and forms part of the approved financial package." 18. There is no dispute that Notes 3 (a) and 3(b) of the XXI Schedule to the Annual Report in this case disclosed all the facts, especially that initially the sales figures were Rs. 2683.01 crores; how there was a reduction in this on the basis of downward revision, due to the CERC Regulations, resulting in the final figure - shown in the return being Rs. 903.4 crores less. Therefore, NTPC could not be accused of withholding information or material information, or providing incomplete facts. The question therefore is whether the absence of a specific discussion on this aspect in the assessment order resulted in an error of law by the AO, and whether that resulted in prejudice to the....
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....est in such estimate. 21. This Court finds that power generation companies owned or controlled by the Central Government are a sub-species of business entities for which a separate provision has been enacted by the Act. There is no dispute that the income of utilities, especially ones subject to stringent public control, are tightly regulated in terms of what are the accounting methods to be adopted, how depreciation is to be claimed, allowances rate of return on capital, etc. All these aspects are subject to CERC Regulations. At the relevant time, i.e. the transition between the old (2001) CERC Regulations, and the later ones (2004-2009), had not been fully worked out by the CERC as to what had to be recovered by NTPC and other entities. It therefore directed that the previous regime be followed. Apparently for a portion of previous accounting periods, provisional figures were being indicated as income estimates, and depending on how the final figures were worked out at times, higher figures would be offered as amounts received in excess of the sum estimated and reported during other periods. An example cited is one for 2006-2007 when an excess figure of over Rs. 46 crore was r....