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TMI Blog2013 (1) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id assessment year within thirty days of the service of the notice. The said notice was accompanied by a copy of the purported reasons for reopening of the case. 2. The reasons are in respect of several assessment years, namely, 1999-2000, 2000-01, 2001-02, 2002-03 and 2003-04. However, we are, in this petition, concerned only with the assessment year 2000-01. Two reasons have been set out in the said document. Reason one pertains to the non-eligibility of deduction under Section 80IA in respect of the steam turbine of the combined cycle gas power stations belonging to the petitioner. The second reason pertains to the taxability of income tax recoverable by NTPC from the State Electricity Boards . We shall deal with these purported reasons in greater detail later. For the present, it would be necessary to set out in brief the challenge of the petitioner to the impugned notice dated 03.02.2006. According to the petitioner, the notice is barred by limitation inasmuch as it has been issued beyond four years from the end of the relevant assessment year. In the present case, 2000-01 is the relevant assessment year. Therefore, the four-year period would have ended on 31.03.2005. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to explain as to how the fuel cost in the steam unit was shown as zero by the petitioner. By a letter dated 10.01.2001, the petitioner replied as under:- CONSUMPTION OF FUEL IN GAS POWER STATION NTPC has set up Gas Power Station at Anta, Auraiya, Kawas, Dadri, Jhanor Gandhar and Faridabad as combined cycle gas power stations. These stations have number of gas turbines, which independently generate power, by separately feeding fuel in the form of natural gas/HSD or Naptha. The natural gas after mixing with the air is burnt in the gas combustion chamber to produce gases at a very high temperature. These gases are used to run gas turbines for generation of electricity. The Gas Turbine exhaust hot air gases, which otherwise have no commercial value, are then released into atmosphere. With the advancement in technology the waste heat recovery boilers have been invented to utilize such hot exhaust gases. The exhaust hot gases from gas turbine are routed through the waste heat recovery boilers to utilize it in heating water and producing steam. The steam produced in waste heat recovery boilers is then run to generate electricity in the steam turbine attached separately with such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of power. You have desired us to furnish quantity and cost of exhausted hot gases used in waste heat recovery boiler. On this point we wish to submit that it is not possible to work out actual quantity of exhaust hot gases consumed in WHRB. Depending on grid conditions flow of gases in the waste heat recovery boiler varies from time to time on continuous basis. At times on account of technical reasons the gas station is run in an open cycle and therefore waste hot gases are being discharged into atmosphere. In view of above the flow of waste hot gases in waste heat recovery boilers is neither practicable nor being measured on actual basis. We reiterate that since no fuel is being consumed in waste heat recovery boiler there is no fuel cost that can be allocated to generation of power by steam turbine. It may be mentioned here that the waste hot gas is not a commercial commodity and is not brought to the market for sale and purchase. It is not capable to being transported to a distant place because it would lose it potential heat. Moreover, because of huge requirement of compressor power for transportation and capital cost of equipment like compressor, piping, etc., it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for the assessment year 1998-99, the respondent No.1 wrote a letter to the petitioner to clarify, inter alia, the following:- 1. Income-tax recoverable from customers - On page 157 of the Return of Income, it is stated (point no. 13) that as per Tariff Notification issued by the Govt, of India. The Incidence of Income tax on the Income from generation of electricity is recoverable from customers. For the A.Y. 1998-99, this amount is Rs. 86081 lacs. This has not been taken as part of income or as part of sales of electricity. Why? The said letter was replied to by the petitioner on 05.03.2001, wherein they enclosed a detailed note regarding the impact of income tax liability of NTPC with regard to generation of income. 9. On 29.11.2000, the petitioner filed its original return for the assessment year 2000-01. We may point out that being aggrieved by the assessment order in respect of the assessment year 1998-99 dated 22.03.2001, the petitioner preferred an appeal being Appeal No. 2/2001- 02 before the Commissioner of Income Tax (Appeals) sometime in April, 2001. During the pendency of the appeal for the assessment year 1998- 99, the assessment in respect of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue. 11. We are not so much concerned about the merits of the decision but with the fact that the entire process of production of electricity by both the gas turbine and the steam turbine were examined threadbare at all stages before the Assessing Officer, The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The petitioner had clearly set out and explained the method of electricity generation by both the units and it is the Tribunal which held that it should not be regarded as an integrated unit but as two separate and independent units. This was also the stand taken by the Assessing Officer with regard to the nature of the two units being independent and not integrated. 12. Thereafter, on 23.09.2004, the respondent No.1 forwarded a letter to the Commissioner of Income Tax (Appeals) along with a copy of the purported inspection report which had been allegedly carried out on 02.09.2004 and to consider the same in the pending appeals of the petitioner for the assessment years 2000-01, 2001-02, 2002-03 and 2003- 04. In this inspection report, it has been stated that the contention of the assessee (NTPC), that it has two separate units for gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etariat, Rashtrapati Bhavan, New Delhi. The items considered and the minutes thereon are as under:- a) Item no. b) Case status a) Appellant b) Respondent Issue (s) Involved a)Appl. Ref. No. b) Date c) appeal in Appln against a) auth. Whose order is disputed b) order no. c) order date a) Quantum Involved b) period Involved 1 NG Central Board of Direct Taxes National Thermal Power Corporation Limited Assessee has not debited the fuel cost utilized for generation of power in 16 units of various projects. Therefore, the AO calculated the fuel cost involved debited it to the P L account and reduced u/s 801 801A for the A.Y. 1998-99 and 1999- 2000 UO Note No. 279A/CID/107/ 2004 13.12.2004 High Court ITAT ITA No. 1377 2188/Del of 2002 26.05.2004 Amt 54575.93 1998-2000 The Committee heard the parties in detail w.r.t. the orders of the CIT (A), agenda note submitted by CBDT and the orders dated 26.05.2004 of the Delhi Bench of IT AT. The Committee noted that the contention of the D/o revenue is that the assessee has not debited the fuel cost utilized for generation of power in the units under reference a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment in respect of the assessment year 2000-01 are non-existent. First of all, we shall record his submissions with regard to the first reason. The learned counsel for the petitioner submitted that the petitioner had setup gas and steam undertakings from 01.08.1990 onwards. In the assessment proceedings for the assessment year 1998-99, which we have dealt with in detail above, the Assessing Officer had, after a detailed discussion, granted deduction under Section 80IA in respect of the separate profits of the gas and steam undertakings, though on the basis that they were integrated, he adjusted the quantum of deduction. It was further submitted that this was also followed by the Assessing Officer in respect of the assessment year 1999-2000 and the assessment year 2000-01. The Tribunal reversed the findings of the Assessing Officer in respect of the assessment years 1998-99 and 1999- 2000 and this, according to the learned counsel for the petitioner, had become final as the Committee on Disputes did not permit the department to file an appeal against the order passed by the Tribunal. Insofar as the assessment year 2000-01 is concerned, the Commissioner of Income Tax (Appeals) fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of The ITAT, Delhi Bench in the case of the appellant for A.Y. 1998-99 1999-2000. It is an admitted fact that the facts of the case under appeal are same as for A.Y. 1998-99 1999-2000 for which ITAT has decided the issue. I have also considered the decision of Delhi High Court of not entertaining the appeal filed by the Income Tax Department, as the approval was not granted by the Committee on disputes. The Inspection Report of Addl CIT, Range 13, New Delhi dated 23rd September 2004 and the reply filed by the appellant dated 27th April 2005 were also considered. Para 3.7 on page 9 of this order details the contents of a brief provided by the AO given as annexure A to letter F.No.CIT/Delhi-v/2004-05/646 dated 20.10.2004. This letter was addressed to the COD in order to obtain it s approval to file an appeal before the high court. This brief has discussed all the points that were mentioned in the inspections report mentioned above. However the COD did not accord approval to the AO for filing an appeal against the order of the ITAT. I have found that the facts of the case as mentioned in the inspection report were also before the COD when they withheld the approval for fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment. It was contended by the learned counsel for the petitioner that the steam undertaking is setup from 01.08.1990 onwards and in the earlier years, deduction for the steam undertaking had been allowed to the assessee and, therefore, could not be withdrawn for the subsequent years. Reliance was placed on the following decisions:- (i) CIT v. Modi Industries Ltd: [2010] 48 DTR 364 (Del); (ii) Saurashtra Cement Chemical Industries Ltd. v. CIT: [1980] 123 ITR 669 (Guj); (iii) CIT v. Paul Brothers: [1995] 216 ITR 548 (Bom); and (iv) CIT v. Bhilai Engineering Corporation Pvt. Ltd: [1982] 133 ITR 687 (M.P) 25. Lastly, it was contended by the learned counsel for the petitioner that the sanction required for issuance of a notice under Section 147/148 of the said Act after the period of four years was granted by the Commissioner of Income Tax in a mechanical fashion and without application of mind. The sanction was, according to the learned counsel, given in a proforma with the words I am satisfied . It was contended that this was not sufficient to show application of mind on the part of the Commissioner of Income Tax. Reliance was placed on The Central India Electric Suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax (Appeals) order in respect of the relevant assessment year as also the Income Tax Appellate Tribunal s orders in respect of the assessment years 1998-99 and 1999-2000 were before the inspection of September, 2004. Moreover, insofar as the opinion of the Committee on Disputes is concerned, the issue before it was only with regard to the allocation of fuel cost between the two units. She submitted that the issue whether the two units were separate or integrated was not before the Committee on Disputes and, therefore, it would be wrong to say that the latter issue had attained finality. According to her, the only issue that had attained finality was with regard to the allocation of fuel cost and not the question of whether the two units were separate or integrated. She also referred to the assessment order as well as the order of the Commissioner of Income Tax (Appeals) for the assessment year 2004-05, copies of which were handed over to us in the course of arguments, to submit that in the earlier round the issue was with regard to fuel cost, whereas in the assessment year 2004-05, the issue was whether the two units were independent or one integrated unit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment of an earlier year on the basis of his findings of fact made in respect of fresh materials in the course of assessment of the next assessment year. The learned senior counsel then referred to Diwakar Engineers Ltd v. Income Tax Officer: [2010] 329 ITR 28 (Del), wherein it was observed that at the stage of issuing notice under Section 148 it was not necessary that the materials must be extensive and detailed. The court also felt that one of the methods by which materials could come into the possession of the Assessing Officer was by the assessment proceedings in subsequent assessment years. A reference was also made to Phool Chand Bajrang Lal Anr. v. ITO Anr. : [1993] 203 ITR 456 (SC), wherein the Supreme Court observed as under:- Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the some facts and material which was available which the Income Tax Officer at the time of original assessment proceedings. The two situations are distinct and different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and true. Material facts are those facts which if taken into accounts they would have an adverse affect on assessee by the higher assessment of income than the one actually made. They should be proximate and not have any remote bearing on the assessment. Omission to disclose may be deliberate or inadvertent. This is not relevant, provided there is omission or failure on the part of assessee. The latter confers jurisdiction to reopen assessment. 30. Mrs Bansal submitted that the question of change of opinion would arise only when the Assessing Officer had formed an opinion and was now trying to alter that opinion. She placed reliance on Dalmia Cement Pvt. Ltd v. CIT: WP(C) 6205/2010 decided on 26.09.2011 by a Division Bench of the Delhi High Court. The learned counsel also placed reliance on the decision in Indian Hume Pipe Co. Ltd v. ACIT: WP No. 1017/2011 decided on 08.11.2011 by a Division Bench of the Bombay High Court. The Bombay High Court observed that the basic principle laid down by the Supreme Court was whether the assessee had disclosed the primary facts which were necessary for assessment, fully and truly. The court observed that if the assessee had done so, the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006, whereas the impugned notice had already been issued on 03.02.2006. Therefore, the assessment order for the assessment year 2004-05 could not have been the basis for issuing the notice and that is why, according to the learned counsel for the petitioner, the assessment order for the assessment year 2004-05 is not even mentioned in the recorded reasons. The permission granted by the Committee on Disputes in respect of the assessment year 2004-05 is, therefore, of no consequence. The learned counsel for the petitioner submitted that the jurisdictional question has to be decided and that mere escapement is not sufficient. The case of Diwakar Engineers Ltd (supra) was distinguished by stating that in that case, details had not been provided by the assessee despite enquiry. Therefore, it was not a case of full and true disclosure. Once again, the learned counsel reiterated that each case has to be decided on its own facts. With regard to Phool Chand Bajrang Lal (supra), the learned counsel submitted that the case was entirely distinguishable inasmuch as in that case there was a cash loan which later turned out to be false and, therefore, re-opening of the assessment was susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice could be sustained in law, the ingredients and pre-conditions set out in the proviso to Section 147 have to be satisfied. Section 147, as it stood at the time of issuance of the impugned notice, is as under:- 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars unless and until the conditions precedent mentioned in the proviso are satisfied. The first condition is that income chargeable to tax must have escaped assessment. The second condition is that such escapement from assessment must be by reason of failure on the part of the assessee to, inter alia, disclose fully and truly all material facts necessary for his assessment for that assessment year. If either of these two conditions is missing, the exception to the bar setup in the proviso, does not get triggered. The consequence being that the assessment cannot be reopened. 36. In the present case, we find that the whole issue is with regard to the method of production and the manner in which electricity is generated. 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 Assessing Officer. 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 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 147 is not attracted and, therefore, there is a bar from taking action under Section 147 inasmuch as the period of four years has expired. The impugned notice dated 03.02.2006 is, therefore, liable to be quashed on this ground. 38. We now come to the second purported reason for re-opening the assessment which pertains to taxability of income tax recoverable by the petitioner from the State Electricity Boards. It is stated in the recorded reasons that as per tariff notification issued by the Government of India the incidence of Income Tax on Income from generation of electricity is recoverable from the customers of NTPC, who are the State Electricity Boards. According to the recorded reasons, the amount of income tax recoverable by NTPC from the State Electricity Boards, inter alia 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. This, according to the respondent No.1, resulted in the income tax recoverable from the customers of NTPC escaping assessment due to the reason of the failure on the part of the assessee to discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customer, it has to be grossed up on tax on tax basis (38.50 x 100/61.50) 62.60162% Grossed up tax payable by NTPC on the generation income 1,560.85 The said grossed up tax of Rs. 1,560.85 crores is recoverable from the customer. (What is shown as recoverable from the customer in the balance sheet is a lesser figure of Rs. 1345.50 crores worked out on a provisional basis at the time of finalizing the accounts) Add: Tax on non-generation income of Rs. 670.67 crores at the normal rate of tax of 38.50% 258.20 Total tax payable by NTPC as per the assessment order 1819.05 (Department s method Grossing up of income): (Rs. in crores) Generation income as assessed by the AO 2493.31 Add: Amount of tax on generation income recoverable from the customer (the amount shown as recoverable in the balance sheet is lesser figure of Rs. 1345.50 crores worked out on a provisional basis at the time of finalizing the accounts) 1,560.85 Generation income to be taxed 4054.16 Normal rate of tax 38.50% Tax payable by NTPC on the generation income 1,560.85 Add: Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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