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TMI Blog2011 (9) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the AO be restored." 2. After hearing both the parties, we find that originally assessment was completed u/s.143(3) for A.Y 2002-03 on 30-1-05 and for A.Y 2004-05 on 24-3-06. Notice u/s.148 was served on 26-3-2009 i.e. beyond four years for A.Y 2002-03 and within four years for A.Y 2004-05. The reasons recorded for issue of notice are noted at page-2 of the assessment order for A.Y 2002-03 which are as under: "In this case the assessee has filed the return of income for A.Y.2002-03 on 31/10/2002 declaring total income at Rs.NIL and taxable income u/s 1 I5JB at Rs. NIL. The revised return of income was filed on 6/12/2002 declaring total at Rs. 14,69,84,848/- and taxable income u/s.115JB at Rs.NIL. Assessee had again revised return declaring total income at Rs.NIL on 30/03/2004. At the time of the assessment proceedings, the assessee has again submitted for revised computation of income by revising their claim u/s.80IA to Rs. 546,26,0/233/- on the basis of the order of MERC dated 31ST May,2004. The assessment order u/s.143(3J of the Act has been passed on 31/01/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit which exceeded 16% of the capital. Since the assessee was aware of the tariff regulation of restricting its profits to 16% in view of the Act (supra), the c/aim of the deduction filed by the assessee and this fact should also have been brought to the notice of the Assessing Officer during the course of assessment proceedings. Maharashtra Electricity Regulatory Commission (MERC) in its Order in case No.18 of 2003 calculated "Clear profit or Reasonable Rate of return on the assessee's capital for both generation and distribution of power. On perusal of assessee's records for A. Y.2002-03, it is observed that incorrect compilation of profits without taking into consideration the tariff regulation which provides for Clear Profit and Reasonable rate of return on capital base method has resulted in escapement of income to the extent of Rs. 245.93 crores, which is worked out as under:- (Rupees in Crore) Reasonable profit allowed by MERC while calculating tariff 235 Net power transferred from generated unit 3442 Total sales in license area 5776 rata Reasonable profit 140.04 availed after restricting to available Total income 492.78 Excess 801A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produced to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the AO shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. Tariff for purchase of sale of power is determined on the basis of the normative parameters determined by the Govt. of India under its Notification No.SO 251(E) dated 30.3.1992 issued under the provisions of Electricity Act, 1948. Tariff situates, both for the Central Sector and Independent Power producers (IPPS), were determined on COST PLUS PROFIT BASIS. Profit was determined on the 'return on equity' basis which was to be computed on the paid up and subscribed capital relatable to the generating unit at the rate of 16 per cent of such capital. In this case, the assessee has claimed the deduction u/s 80IA of the Act in respect of generation of power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. 10. As can be seen from the above, the Assessing Officer's reason to believe arises from the interpretation of section 80IA(10) and further the determination of profits as reasonable rate of return on capital on the basis of Electricity Act 1948 and MERC order which admittedly was issued after completion of assessment order. These issues are dealt with as under 10.1 Issue of applicability of section 80IA(10) The provision of section 80IA(10) relied upon by the Assessing Officer is as under:- "10. Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. 10.1.2 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 80IA(8) applicable to the assessee's business, where there are transactions between eligible business and any other business carried on by the assessee (generally called non-eligible business), the Assessing Officer has to determine the market value of goods and services in arriving at the profits. This aspect was taken care by the Assessing Officer at the time of original assessment from AY 2000-01 and onwards and so the Assessing Officer's opinion in invoking the provisions of 80IA(10) is not according to the law and facts. 10.2 Tariff determined in the MERC Order Another reason for reopening is the order for determination of tariff for sale of power issued by the Maharashtra Regulatory Commission for financial 2004-05 in assessee case of 18 of 2003, dated 1.7.2004. As admitted by the Assessing Officer himself in the reasons recorded, this order was not available at the time of completion of original assessment, therefore, the assessee cannot be considered to have not disclosed full facts when the said order itself was not available and even the proceedings have not been initiated for any of the assessment years under consideration. As can be seen from the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of commission's philosophy in reducing the reserves to match the shortfall in clear profit on yearly basis stated capital base was higher than the capital base projected by the BSES. Accordingly, the restated level of reasonable returns for the period FY 2002-03 to financial year 2004-05 has been given in detail in page 117 of the order. As seen from the order and the table, there are various rates of return for investments made by the assessee company from capital base on 31st March 1965 to 1st April 1999 and at various percentages of reasonable return. The probable reasonable returns were estimated by the MERC. The projections also indicate that the assessee submitted that the reasonable return at Rs. 337.37 crores whereas MERC arrived at 256.66 crores. Likewise, clear profits were discussed in para 21 and at the end of the discussion, the commission has left this note "Thus, the revised net surplus between clear profit and the reasonable return in financial year 2004-05 based on the existing tariff and the commission's projections of expenses works out to 309.4 crores, which was adjusted by the revising tariff to different categories based on the commission's tariff philosophy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 for reassessment is not correct and has no basis at all. 10.3 Failure to furnish fully and truly all material facts For the assessment year 2001-02, the assessment was reopened after 4 years from the end of the assessment year. As per the first proviso to section 147, the Assessing Officer cannot reopen the assessment unless there is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. As rightly submitted by the Learned Counsel, the Electricity Act 1948 and its notification issued way back in 1992 are in the public domain and there is no need to specifically furnish them to the Assessing Officer. Moreover, the assessee is also assessed from so many years and is in the business of supply of transmission of electricity initially and power generation and transmission in the recent past and it cannot be stated that the Act, notifications, which are in public domain cannot be considered as non-disclosure of material facts necessary for his assessment. Even the MERC order relied upon by the Assessing Officer was not even in the knowledge of the assessee as they have for the first time approached the MERC in year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to initiate reassessment proceedings. Therefore, there was inherent lack of jurisdiction in the Income-tax Officer to issue notices under section 148 of the Act on the basis of any income of the appellant escaping assessment either under clause (a) or clause (b) of section 147 of the Act. All the notices under section 148 of the Act were liable to be quashed. In this case also we are of the opinion that the 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. 10.4 Merger of the Order It was also one of the contention that the issue of quantification of deduction under section 80IA in respect of the Dahanu plant by the Assessing Officer, in the original assessment order has merged with the orders of the CIT (A) and ITAT and, therefore, the re-computation thereof by adopting a different method of working of profit eligible for deduction u/s 80IA was beyond the powers of the Assessing Officer. The Learned Departmental Representative vehemently argued that the issue in original assessment was entirely d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Kelvinator India Ltd 320 ITR 561 (SC). In the present case we find that there was an audit objection based on which the assessment proceedings were reopened. Though the Assessing Officer did not accept the audit objection later after initiation of reassessment proceedings, yet the fact remains that there was some material based on which he issued notice u/s.148 of the Act. In the decision of the Hon'ble Supreme Court in the case of Kelvinator India Ltd. (supra) it has been clarified that even after 1st April, 1989, Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. The following observations of the Hon'ble Supreme Court highlight this aspect. "We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome has escaped assessment has to be examined at the time of initiation of the proceedings. Even though the Assessing Officer was empowered to drop proceedings, initiated u/s 147 by virtue of provisions of section 152(2), there is no restriction in concluding the proceedings, having been initiated validly. However, this issue becomes academics proceedings u/s 147 are held to be bad in law by virtue of first proviso to section 147 for assessment year 2001-02 and in both the years it involved merger of the orders of the higher authorities and second proviso to section 147 limits the jurisdiction of AO and also on the basis of change opinion, and other reasons as discussed in detail above. Accordingly, we are of the opinion that CIT (A)'s orders in cancelling the proceedings u/s 147 are to be upheld. The revenue's grounds are accordingly dismissed. 11. The cross appeals by the assessee are with reference to the merits of redetermination of profits of the eligible business. Since we discussed the merits of the various issues while considering the revenue appeals, we are of the opinion that the Assessing Officer was not correct in invoking the provisions of section 80IA(10) as w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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