2016 (3) TMI 271 - AT - Income Tax

Reopening of assessment - disallowance of deduction u/s 80- IA - Held that - Perusal of reassessment order passed by the Assessing Officer goes to prove inter alia that he has reopened the assessment to examine the issue as to the admissibility of deduction claimed by the assessee u/s 80- IA which issue has been squarely decided by the Assessing Officer in original assessment vide order dated 31.05.2005 u/s 143(3) of the Act; that after reassessment, the Assessing Officer has withdrew the deduction earlier made available to the assessee u/s 80-IA on the ground that deductions are available under clause (ii) of sub-section (4) of Section 80- IA to the person who is in the business of generation and distribution of power despite the fact that the assessee made a categorical submission that the power plant was set up for demonstration and the primary reason for installation of WEGs was to promote the basic business and to convince the prospective buyers for purchasing the windmills manufactured by the assessee; that the Assessing Officer came to the conclusion that since the windmill was set up for display and not for power generation, the assessee is not entitled for deduction u/s 80-IA of the Act. Following the law laid down by Hon ble Supreme Court in the judgement cited as Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ), no doubt the Assessing Officer has the powers of reassessment after having reason to believe that the income has escaped assessment but it does not confer powers upon him to reopen the assessment on mere change of opinion. The Assessing Officer has powers to reopen an assessment only on the basis of tangible material sufficient to hold that there has been escapement of income from the assessment. But in the case at hand, the Assessing Officer has apparently exercised the powers to review under the garb of reopening of the issue as to the deduction u/s 80-IA of the Act already decided by him in the original assessment order passed u/s 143(3), which is not permissible u/s 147 of the Act. - Decided in favour of assessee

Issues Involved:
1. Reassessment proceedings u/s 147/148 of the Income Tax Act, 1961.
2. Denial of exemption under Section 80-IA.
3. Disallowance of expenses related to power generation income.
4. Capital vs. revenue nature of supervision, erection, and commissioning charges.

Detailed Analysis:

1. Reassessment Proceedings u/s 147/148:
The primary issue was whether the reassessment proceedings initiated by the Assessing Officer (AO) under sections 147/148 were valid. The appellant argued that the reassessment was based on a mere change of opinion, which is not permissible. The original assessment for AY 2004-05 was completed under section 143(3) and the reassessment notice was issued after more than four years. The AO's reasons for reopening the assessment were scrutinized, and it was found that the issue of deduction under section 80-IA was already examined during the original assessment. The Tribunal referred to the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., which held that reassessment based on a mere change of opinion is not valid. Thus, the Tribunal concluded that the reassessment proceedings were invalid as they were based on a change of opinion and lacked tangible material indicating income escapement.

2. Denial of Exemption under Section 80-IA:
The AO denied the exemption claimed under section 80-IA, arguing that the wind electric generators (WEGs) were set up for demonstration purposes and not for power generation. The appellant contended that the WEGs were indeed used for power generation and the income from this activity was eligible for deduction under section 80-IA. The Tribunal noted that the appellant had been claiming this deduction since AY 1996-97 and that the AO had accepted this in previous assessments. The Tribunal found that the AO's conclusion that the WEGs were for demonstration purposes was not supported by tangible evidence. The Tribunal also highlighted that the appellant maintained separate books of accounts for the power generation business, contrary to the AO's claim. Therefore, the Tribunal ruled in favor of the appellant, allowing the deduction under section 80-IA.

3. Disallowance of Expenses Related to Power Generation Income:
The AO disallowed expenses claimed by the appellant on the grounds that they were not properly accounted for and that the appellant did not maintain separate books of accounts for the power generation business. The Tribunal found that the appellant had indeed maintained separate accounts and that the expenses were genuine and necessary for the business. The Tribunal emphasized that the AO's disallowance was based on assumptions and not on concrete evidence. Consequently, the Tribunal ruled that the disallowance of expenses was unjustified.

4. Capital vs. Revenue Nature of Supervision, Erection, and Commissioning Charges:
The AO treated the supervision, erection, and commissioning charges amounting to Rs. 72,94,218 as capital expenditure, arguing that these expenses provided long-term benefits. The appellant contended that these were revenue expenses incurred in the ordinary course of business. The Tribunal examined the nature of the expenses and concluded that they were indeed revenue in nature, as they were incurred for the regular maintenance and operation of the WEGs. The Tribunal noted that similar expenses had been allowed as revenue expenses in previous assessments. Thus, the Tribunal directed that these expenses be treated as revenue expenses and allowed as deductions.

Conclusion:
The Tribunal set aside the reassessment proceedings initiated under sections 147/148, allowed the deduction under section 80-IA, and ruled that the disallowed expenses should be treated as revenue expenses. The reassessment order and the subsequent denial of deductions and disallowances were found to be invalid and not sustainable in law. The appeal was consequently allowed in favor of the appellant.

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