2010 (5) TMI 539 - AT - Income Tax

Reassessment - Deduction u/s 80IA - Assessing Officer was not correct in invoking the provisions of section 80IA(10) as well as re-determining the profits on the basis of tariff order of MERC which was altogether for the different purpose. Even otherwise, quantum of determination of profits having been contested in appeal and got concluded in the original assessment proceedings, the re-determination by the Assessing Officer in reassessment proceedings is not correct. - Decided in the favour of the assessee

Issues Involved:

1. Validity of the initiation of reassessment proceedings under Section 147 of the Income Tax Act.
2. Merits of the additions made by the Assessing Officer in the reassessment proceedings.
3. Applicability of Section 80IA(10) versus Section 80IA(8) for determining profits eligible for deduction.
4. Impact of the Maharashtra Electricity Regulatory Commission (MERC) order on the computation of profits.
5. Alleged failure to disclose fully and truly all material facts by the assessee.
6. Change of opinion as a basis for reassessment.
7. Reopening of assessment based on audit objections not accepted by the revenue authorities.
8. Merger of the original assessment order with appellate orders.

Issue-wise Detailed Analysis:

1. Validity of the Initiation of Reassessment Proceedings under Section 147:

The CIT (A) held that the reassessment proceedings were invalid for AY 2001-02 as they were initiated beyond four years from the end of the assessment year without any failure on the part of the assessee to disclose fully and truly all material facts. The second proviso to Section 147 was cited, which restricts reopening on matters already subject to an appeal, revision, etc. The CIT (A) noted that the reassessment was based on an audit objection that was not accepted by the Assessing Officer and the CIT, indicating a change of opinion rather than new information.

2. Merits of the Additions Made by the Assessing Officer in the Reassessment Proceedings:

The CIT (A) did not address the merits of the additions made by the Assessing Officer since the reassessment proceedings were held invalid. The assessee argued that even on merits, the additions were unsustainable.

3. Applicability of Section 80IA(10) versus Section 80IA(8) for Determining Profits Eligible for Deduction:

The tribunal found that Section 80IA(10) was incorrectly invoked by the Assessing Officer as it pertains to transactions between the assessee and any other person, which was not the case here. Instead, Section 80IA(8) was applicable, which deals with transfers between eligible and non-eligible businesses of the same assessee. The original assessment had correctly applied Section 80IA(8) to determine the profits.

4. Impact of the Maharashtra Electricity Regulatory Commission (MERC) Order on the Computation of Profits:

The tribunal noted that the MERC order, which was issued for determining the tariff for FY 2004-05, had no relevance to the profits of the generation unit for the assessment years under consideration. The MERC order was for tariff fixation and did not restrict the assessee from earning more than the reasonable rate of return. Therefore, the MERC order could not be a basis for reassessment.

5. Alleged Failure to Disclose Fully and Truly All Material Facts by the Assessee:

The tribunal held that there was no failure on the part of the assessee to disclose material facts. The notifications under the Electricity Act were in the public domain, and the MERC order was issued after the original assessment. Therefore, the reopening beyond four years was invalid.

6. Change of Opinion as a Basis for Reassessment:

The tribunal agreed with the assessee that the reassessment was based on a change of opinion. The original assessment had determined profits under Section 80IA(8), and the reassessment attempted to apply Section 80IA(10) based on the same facts, which constituted a change of opinion and was not a valid ground for reassessment.

7. Reopening of Assessment Based on Audit Objections Not Accepted by the Revenue Authorities:

The tribunal noted that the reassessment was initiated based on an audit objection that was not accepted by the Assessing Officer and the CIT. This indicated that there was no "reason to believe" that income had escaped assessment, making the reassessment invalid.

8. Merger of the Original Assessment Order with Appellate Orders:

The tribunal held that the issue of profit determination for deduction under Section 80IA had merged with the appellate orders of the CIT (A) and the ITAT. Therefore, the reassessment on the same issue was beyond the powers of the Assessing Officer as per the second proviso to Section 147.

Conclusion:

The tribunal upheld the CIT (A)'s orders canceling the reassessment proceedings for both assessment years, deeming them invalid on multiple grounds, including the improper invocation of Section 80IA(10), reliance on the MERC order, failure to disclose material facts, change of opinion, and the merger doctrine. The appeals by the Revenue and the assessee were dismissed.

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