2012 (12) TMI 379 - HC - Income Tax

Reopening of assessment - deduction u/s 80IA - Pricing of power and quantum of profits eligible for deduction - Escapement of Income - mere change of opinion - held that - assessment is sought to be reopened by a notice dated 31.03.2008 which is admittedly beyond 4 years from the end of assessment year 2001-02 - first proviso to Section 147 is applicable and in the absence of failure to disclose fully and truly all material facts necessary for assessment it cannot be said that there has been any escapement for the assessment year 2001-02. In such circumstances, there could be no failure on the part of the respondent to disclose facts which are not in its possession during assessment proceeding leading to the order dated 23.03.2004. The jurisdiction to exercise powers of reopening and assessment is specifically barred in respect of any matter which has been a subject matter of appeal by the 3rd proviso to Section 147 of the Act. Further issue of application of Sec 80IA (10) of the Act instead of Sec 80IA (8) of the Act to arrive at the profit for claiming deduction under Section 80IA of the Act is a mere change of opinion without any tangible material which would not warrant reopening of assessment. The material to reopen the assessment being relied on by the revenue seems to be the order of MERC dated 01.07.2004 which has nothing to the with arriving at profits for purposes of deduction under Section 80IA of the Act but deals with fixing of the power tariff for the consumer and for that purpose takes as one of the ingredients 16% return on investments - no fault can be found with order of the Tribunal dated 14.05.2010 - questions of law as formulated does not raise any substantial question of law - decided in favor of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 and 148 of the Income Tax Act, 1961.
2. Validity of reassessment proceedings based on change of opinion.
3. Disclosure of material facts and application of MERC circular.
4. Application of Section 80IA(8) vs. Section 80IA(10) for computing eligible profit for deduction.

Detailed Analysis:

1. Reopening of Assessment under Section 147 and 148:
The appeal by the Revenue challenges the Tribunal's order regarding the reopening of assessment for the assessment year 2001-2002. The Tribunal disposed of appeals for two assessment years (2001-02 and 2003-04) separately, addressing the reopening of assessment beyond four years for 2001-02. The Tribunal upheld the CIT(A)'s decision, which found the reopening of the assessment to be unjustified.

2. Validity of Reassessment Proceedings Based on Change of Opinion:
The Tribunal and CIT(A) concluded that the reassessment proceedings were initiated merely due to a change of opinion, which is not permissible under the law. The original assessment was completed under Section 143(3), and the reopening was based on the same facts that were already considered. The Tribunal emphasized that the change in interpretation of the law does not justify reopening.

3. Disclosure of Material Facts and Application of MERC Circular:
The Revenue argued that the assessee failed to disclose the MERC circular, which prescribed the reasonable rate of return for tariff calculation. However, the Tribunal found that the MERC order dated 01.07.2004 was issued after the original assessment order dated 23.03.2004, and therefore, the assessee could not have disclosed it during the original assessment proceedings. The Tribunal also noted that the MERC order was related to tariff fixation and had no direct bearing on the computation of profits for deduction under Section 80IA.

4. Application of Section 80IA(8) vs. Section 80IA(10) for Computing Eligible Profit for Deduction:
The Tribunal and CIT(A) held that Section 80IA(10) was not applicable as it requires a close connection between the assessee and another person, which was not the case here. The assessee was engaged in both power generation and distribution, and there was no transaction with any other person. Therefore, the original assessment correctly applied Section 80IA(8), which deals with transactions between eligible and non-eligible businesses of the same assessee. The Tribunal concluded that the reassessment was based on a mere change of opinion regarding the application of these sections.

Conclusion:
The Tribunal and CIT(A) found no failure on the part of the assessee to disclose material facts fully and truly during the original assessment. The reopening of the assessment was beyond the permissible period and was based on a change of opinion without new tangible material. The MERC order was not relevant for the computation of profits under Section 80IA. The Tribunal's order dated 14.05.2010 was upheld, and the appeal by the Revenue was dismissed with no substantial question of law raised.