2011 (9) TMI 135 - AT - Income Tax

Whether CIT(A) has erred in canceling the notice u/s. 148 and the assessment made u/s. 143(3) r.w.s. 147 of the Act holding that the re-assessment proceedings initiated based merely on change of opinion. - claim of deduction u/s 80IA - generation and transmission of power - Held that - invoking the provisions of section 80IA(10) does not arise in this case. - the Assessing Officer originally has invoked section 80IA(8) which is the correct provision applicable to the transactions of the assessee. - 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. - since in both the assessment years the issue was originally considered and agitated at the level of the ITAT the reopening on the same issue is to be considered as bad in law.

Issues Involved:
1. Validity of the reassessment proceedings initiated under Section 148 based on a change of opinion.
2. Applicability of Section 80IA(10) of the Income Tax Act.
3. Relevance of the Maharashtra Electricity Regulatory Commission (MERC) order for determining profits.
4. Alleged failure to disclose fully and truly all material facts necessary for the assessment.
5. Merger of the original assessment order with the appellate orders.
6. Change of opinion as a basis for reassessment.
7. Basis of audit objection for reassessment.
8. Academic nature of the issues raised in the assessee's appeals.

Detailed Analysis:

1. Validity of the reassessment proceedings initiated under Section 148 based on a change of opinion:
The Tribunal examined the reasons for issuing the notice under Section 148 and found that the reassessment proceedings were initiated based on a change of opinion, which is not permissible. The Tribunal cited its own decision in the assessee's case for earlier years (I.T.A. Nos. 4629 and 4630/Mum/09) where similar reasons for reopening were found invalid. The Tribunal reiterated that reassessment based on a change of opinion is not valid, following the principles established in the case of Kelvinator India Ltd (320 ITR 561 SC).

2. Applicability of Section 80IA(10) of the Income Tax Act:
The Tribunal held that Section 80IA(10) was not applicable in the assessee's case as there was no close connection between the assessee and any other person that would justify invoking this section. The Tribunal clarified that the correct provision applicable was Section 80IA(8), which deals with transactions between eligible and non-eligible businesses carried on by the same assessee. The original assessment had correctly invoked Section 80IA(8), and the reassessment under Section 80IA(10) was deemed incorrect.

3. Relevance of the Maharashtra Electricity Regulatory Commission (MERC) order for determining profits:
The Tribunal found that the MERC order, which was issued for determining the tariff for FY 2004-05, had no relevance for determining the profits for the assessment years under consideration. The MERC order was for tariff fixation and did not restrict the assessee from earning profits exceeding the reasonable rate of return. The Tribunal concluded that the MERC order could not be a basis for reassessment.

4. Alleged failure to disclose fully and truly all material facts necessary for the assessment:
The Tribunal noted that the information regarding the Electricity Act, 1948, and its notifications were in the public domain and did not constitute non-disclosure by the assessee. The MERC order, which was issued after the original assessment, could not be considered as a failure to disclose material facts. The Tribunal held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

5. Merger of the original assessment order with the appellate orders:
The Tribunal observed that the issue of quantification of deduction under Section 80IA had been subject to appeal before the CIT(A) and the ITAT. Therefore, the original assessment order had merged with the appellate orders, and the reassessment on the same issue was beyond the powers of the Assessing Officer. The second proviso to Section 147, which limits the jurisdiction of the AO in such cases, was applicable.

6. Change of opinion as a basis for reassessment:
The Tribunal reiterated that reassessment based on a change of opinion is not permissible. The original assessment had correctly invoked Section 80IA(8), and the reassessment under Section 80IA(10) was considered a change of opinion. The Tribunal upheld the CIT(A)'s decision to cancel the reassessment proceedings.

7. Basis of audit objection for reassessment:
The Tribunal noted that the reassessment was initiated based on an audit objection, which was later not accepted by the revenue authorities. The Tribunal expressed doubts about the validity of reopening the assessment based on an audit objection that was not accepted. However, since the reassessment proceedings were held to be invalid on other grounds, this issue was not decisive.

8. Academic nature of the issues raised in the assessee's appeals:
Since the Tribunal upheld the CIT(A)'s decision to cancel the reassessment proceedings, the issues raised in the assessee's appeals regarding the merits of redetermination of profits became academic and infructuous. The Tribunal dismissed the assessee's appeals as they had become academic.

Conclusion:
The Tribunal dismissed the revenue's appeals and upheld the CIT(A)'s decision to cancel the reassessment proceedings. The assessee's appeals were also dismissed as they had become academic and infructuous. The reassessment proceedings were found to be invalid due to being based on a change of opinion, incorrect application of Section 80IA(10), irrelevance of the MERC order, and the merger of the original assessment order with the appellate orders.

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