2013 (1) TMI 219 - HC - Income Tax

Reopening of assessment - non-eligibility of deduction u/s 80IA in respect of the steam turbine of the combined cycle gas power stations belonging to the petitioner - AY 2000-01 - Held that - The entire process of generation of electricity, both by the gas turbine unit and the steam turbine unit, has been explained by the petitioner in great detail in the assessment proceedings for the assessment year 1998-99 which has been taken notice of by the AO. He was fully aware that there is a gas turbine unit which generates electricity and which has a waste product which is in the form of hot waste gases. It is through the technology of the waste heat recovery boiler that these hot waste gases are utilized for driving the steam turbine which, in turn, generates additional electricity. So both the gas turbine as well as the steam turbine generate electricity independently. It is another matter that the waste product of the gas turbine is utilized as the only input for driving the steam turbine. It was not as if it was a fact or a figure hidden in some books of accounts which the AO could have, with due diligence, discovered but had not done so. The AO had asked specific queries with regard to the manner of functioning of the two units and the petitioner had provided detailed answers. All facts were staring the Assessing Officer at his face. He could have drawn his own inferences and, in fact, he did by treating them as separate units. On the very same facts, he is now trying to draw a different set of inferences which is nothing but a mere change of opinion. The inspection report of September, 2004 does not indicate anything new. While considering the fuel cost argument in the earlier assessment year, when the matter travelled right up to the Tribunal, the entire factual position was examined by the AO, the CIT (A) as well as by the Tribunal and also by the Committee on Disputes and the two units were treated as separate units.Therefore, this is not a case where the assessee/ petitioner can be said to have failed to disclose fully and truly all material facts necessary for assessment in respect of the assessment year 2000-01 - in favour of assessee. Taxability of income tax recoverable by NTPC from the State Electricity Boards - amount of income tax recoverable by NTPC from the State Electricity Boards for the assessment year 2000-01 have not been fully reported by NTPC Limited as revenue receipts and instead major portions of such amounts had been kept out of the credit side of the Profit & Loss Account - Held that - Petitioner had paid tax on the generation income by grossing up the rate of tax instead of grossing up the income. The rate of grossed up tax is 62.60162% as against the normal rate of 38.50% 35% tax 10% surcharge - By virtue of either method, the total tax payable by NTPC, as per the assessment order would come to Rs. 1819.05 crores. Therefore, this is a clear case where no income has escaped assessment. Also that there was no failure to disclose material facts inasmuch as the figures which have been referred in the recorded reasons were all taken from the audited accounts and, in any event, the respondent No.1 has not alleged as to which material fact was omitted to be disclosed. There was due application of mind on this issue at the stage of the original assessment itself as there was a reference of issue of grossing up - thus as no income has escaped assessment no reopening is warranted - in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Non-eligibility of deduction under Section 80IA for the steam turbine of combined cycle gas power stations.
3. Taxability of income tax recoverable by NTPC from State Electricity Boards.
4. Whether the notice is barred by limitation.
5. Alleged failure to disclose fully and truly all material facts necessary for assessment.
6. Change of opinion by the Assessing Officer.
7. Validity of the sanction required for issuance of the notice under Section 147/148.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner, NTPC Limited, challenged the notice dated 03.02.2006 issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, on the grounds that it was issued beyond the permissible period of four years from the end of the relevant assessment year (2000-01). The notice indicated a belief that NTPC's income chargeable to tax had escaped assessment.

2. Non-eligibility of Deduction Under Section 80IA:
The reasons for reopening the assessment included the non-eligibility of deduction under Section 80IA concerning the steam turbine of the combined cycle gas power stations. NTPC argued that the steam turbine did not consume any fuel except waste hot gases from the gas turbine, which otherwise would have been released into the atmosphere. The Tribunal had previously ruled in favor of NTPC, stating that the steam turbine should not be considered an integrated unit with the gas turbine and should be eligible for separate deductions.

3. Taxability of Income Tax Recoverable by NTPC from State Electricity Boards:
The second reason for reopening the assessment was the taxability of income tax recoverable by NTPC from the State Electricity Boards. NTPC contended that the income tax recoverable was shown in the balance sheet and that there was no failure to disclose material facts. The court found that NTPC had grossed up the rate of tax instead of grossing up the income, and no income had escaped assessment.

4. Whether the Notice is Barred by Limitation:
NTPC argued that the notice was barred by limitation as it was issued beyond four years from the end of the relevant assessment year. The court agreed, stating that the notice was time-barred unless it fell within the exceptions specified under the proviso to Section 147.

5. Alleged Failure to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The court examined whether NTPC had failed to disclose fully and truly all material facts necessary for assessment. It found that NTPC had disclosed the entire process of electricity generation by both the gas turbine and steam turbine units in great detail during the original assessment proceedings. The court concluded that there was no failure on NTPC's part to disclose material facts.

6. Change of Opinion by the Assessing Officer:
NTPC contended that the reopening of the assessment was based on a change of opinion, which is not permissible in law. The court agreed, noting that the Assessing Officer had previously treated the gas and steam turbine units as separate entities and was now attempting to treat them as integrated units based on the same facts.

7. Validity of the Sanction Required for Issuance of the Notice Under Section 147/148:
NTPC argued that the sanction for the issuance of the notice was granted by the Commissioner of Income Tax in a mechanical fashion without proper application of mind. The court found merit in this argument, stating that the sanction was given in a proforma manner with the words "I am satisfied," which was insufficient to show application of mind.

Conclusion:
The court quashed the impugned notice dated 03.02.2006 and all proceedings pursuant thereto, holding that the notice was time-barred, there was no failure on NTPC's part to disclose material facts, and the reopening of the assessment was based on a mere change of opinion. The court also found that no income had escaped assessment, and the sanction for the notice was granted without proper application of mind. The parties were directed to bear their own costs.

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