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TMI Blog2013 (11) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961. 2. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not deciding the issue on merits in view of amended provisions of section 80A(6) inserted by Finance Act 2009 with retrospective effect from 01/04/2003. 3. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not appreciating that retrospectively amended section 80A(6) clearly has defined "market value" means "the price the goods/services would fetch if these were sold by the unit/undertaking in the open market subject to statutory regulations, if any and assessee had clearly violated this section. 4. The appellant prays that the order of the learned CIT (A) on the above ground be set aside and that of AO restored". ITA No.6745/Mum/2011, (AY 2004-05) Assessee Grounds "1. The learned CIT (A)-LTU, Mumbai (hereinafter referred to as CIT (A) erred in not adjudicating on the following grounds of appeal No.2(1) and 2(b) of the appellant, by holding that since re-assessment has been annulled and appellant succeeds on the preliminary issue itself it is not considered necessary to go into the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reopening the assessment. The reasons recorded were communicated to the assessee. The assessee objected to the re-opening on the ground that the assessment was re-opened merely on a change of opinion on the same sets of facts, which could not be a valid and legal ground justifying re-opening of the assessment. In support of its contention, the assessee relied on the following decisions :- i) CIT Vs Kelvinator of India Ltd. - 320 ITR 561 (SC) ii) Asian Paints Ltd. Vs DCIT 308 ITR 195 (Bom) The Assessing Officer did not find the objections raised by the assessee tenable. The reason given by the AO was that the income chargeable to tax had escaped assessment, for the year under consideration in view of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Reliance in this regard was placed by the AO on the following decisions:- i) Dr. Amin Pathology Laboratory 252 ITR 673 (Bom) ii) Praful Chunilal Patel/Vasant Chunilal Patel 236 ITR 832 (Guj.) iii) Rakesh Agarwal 225 ITR 496 It was further stated by the AO that various decisions had held that mere fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to the audit objections raised by the Revenue Audit Party and the same was taken on record by him. The ACIT (LTU) had vide her letter dt. 26/11/2009 forwarded the copy of audit objection (certified copy) and copy of AO's reply (certified copy) dt. 06/08/2007 to CIT-(A) relating to the A.Yrs. 2002-03( 2003-04 and 2004-05. On perusal of the audit objections it is seen that the Revenue Audit Party had raised an audit query that the assessee had so arranged its affairs so as to show extraordinary profits from generation of electricity to avail higher 80IA deduction than admissible. Revenue Audit had worked out the excess profit for the A.Y. 2004-05 from the power plants. Vide his letter dt.06/08/2007 (the Assessing Officer had furnished his reply on the said audit query wherein he had clearly stated that the audit objection was not acceptable. He had also categorically reiterated that the profit eligible for deduction under section 80IA had been rightly computed and allowed taking into account the market value of such goods as contemplated in section 80lA of the Act. He had also stated that section 80IA deduction has been claimed by RIL by taking into account the market value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice u/s 148 based upon observations of the audit party to which the AO did not agree to is clearly in violation of the decisions cited in 298 ITR 32 (Mum) and observations cited in 313 ITR 231, more particularly the decision of the Hon'ble jurisdictional High Court. Hence, the re-opening was not valid in law. In the appellate order for the A.Y. 2003-04 dt. 31/03/2010 he has held as follows :- "Looking into the totality of facts and circumstances of the case and the decisions of the Hon'ble jurisdictional High Court in the case of IL and FS Investment Managers Ltd. vs. ITO 298 ITR 32(Bom) and the observations of Hon'ble Rajasthan High Court in the case of CIT vs. Shree Rajasthan Syntex Ltd 313 ITR 231 on the ratio of "borrowed satisfaction" and approved I confirmed by the Hon'ble Supreme Court, as stated above, I am of the opinion that the issue of notice uls.1471148 of the I. T. Act in the present case based upon observations of the audit party to which the AO did not agree to is clearly in violation of the above two decisions and more particularly the decision of the Hon'ble Jurisdictional High Court in IL and FS Investment Managers Ltd. Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Corporation Bank Ltd. 254 ITR 791 (SC) v) Idea Cellular Ltd. 301 ITR 407 (Bom) vi) IL & FS Investment Managers Ltd. 298 ITR 32 (Bom) vii) M. J. Pharmaceuticals Ltd. 297 ITR 119 (Bom) I have considered the facts of the case, reasons recorded by the, Assessing Officer for re-opening the assessment and the submissions made by the assessee. Since the earlier assessment had been framed u/s 143(3) of the I.T. Act, 1961 for the assessment year under consideration, it will have to be seen as to whether the reopening is based on any tangible material which has come to the knowledge of the Assessing Officer subsequent to the framing of the earlier assessment or the same is merely a change of opinion on the part of the Assessing Officer. It will be useful to reproduce the reasons recorded by the Assessing Officer for reopening the assessment u/s 147 of the I.T. Act, 1961 which is as follows:- "Reasons for reopening under section 148 1. Assessee company filed return of income on 01/11/2004 declaring total income of Rs.898,19,32,151/- under normal provisions of the Income Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of power has fixed the 16% rate of return of investment as reasonable rate of return and 0.50% on loan funds. All regulatory bodies to fix tariff chargeable by State Electricity Boards as well as independent power suppliers follow this principle. Hence, the profit of the generating station cannot exceed the reasonable return of investment. Considering the above tariff policy adopted for fixing tariff for supply of electricity the profit cannot exceed 16 percent of the investment of capital base. It is seen from the records that the assessee has so arranged the affairs as to show extra ordinary profits from generation of electricity to avail higher 80IA deduction than admissible. The estimated excess profit shown was as follows :- Generation plant Capital base 16% return on capital base 80IA deduction claimed by assessee Excess deduction claimed by assessee u/s 80IA GTG1PG 6,67,64,153 1,06,82,264 38,62,84,451 37,56,02,187 GTG2PG 14,94,89,585 2,39,18,334 18,79,38,426 16,40,20,092 GTGAHD 21,96,29,982 3,51,40,797 14,63,32,788 11,11,91,991 CPP III/IV 40,41,19,289 6,46,59,086 104,30,98,240 97,84,39,154 CPP V 19,45,18,197 3,11,22,912 32,06,25,85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80IA claimed along with unit wise P&L A/c which was submitted by the assessee. The assessment was completed u/s 143(3) of the I.T. Act, 1961 wherein adjustments were made by the Assessing Officer to the deductions claimed by the assessee. In view of the above mentioned facts, I am of the view that this case is squarely covered by the decision of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra). The facts on record clearly show that the re-assessment proceedings were initiated merely on a change of opinion on the same set of facts. In his reply, to the Revenue Audit Party, the Assessing Officer has very categorically stated that "the power generating eligible undertaking of RIL has transferred the electricity at the rate which is well comparable at the rate which the electricity board sells to an industrial undertaking for its consumption. Under the circumstances the profit eligible for deduction under section 80IA has been rightly computed and allowed taking into account the market value of such goods as contemplated in section 80IA of the Act'". This clearly shows that the AO had examined the issue and applied his mind to the same. In the case of Kelvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fetch in the open market. Hence, absence of any "tangible material" for re-opening the assessment is clearly visible. Further, the decision of the jurisdictional Hon'ble Bombay High Court in the case of Asian Paints Ltd. (308 ITR 195) would also be clearly applicable to the facts of the present case. It is clear from the reasons recorded that the Assessing Officer has basically relied on the records already available with the Department to form reasons to believe that income had escaped assessment. In the case of Asian Paints Ltd. (supra), the question was whether the Assessing Officer could take recourse to the provisions of section1 47 for his own failure to apply his mind to the material which, according to him, is relevant and which was available on record. Hon'ble Bombay High Court, after considering the judgment of the Full Bench of Hon'ble Delhi High Court in the case of Kelvinator of India Ltd., has observed as follows:- "9. It is clear from the observations made above that the Full Bench of the Delhi High Court has taken a view that in a situation where according to the AO he failed to apply his mind to the relevant material in making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of goods at market value. In Form No. 10CC8, the auditors had disclosed the total amount of sales to related concerns, i.e. to any other business of the assessee. The notes to the accounts also categorically stated that the goods were transferred at fair market value. The Assessing Officer had asserted in his reply to the Audit that the profits eligible for deduction had been rightly computed and allowed taking into account the market value of such goods as contemplated in section 80IA of the Act. In any case, with all these disclosures, if the AO was not satisfied, it was for him to examine the issue further, both on facts and in law. It is not for the assessee to instruct the Assessing Officer on matters of law and, it is not the duty of the assessee to guide the AO as to how he should examine the facts. Even if it is assumed that the AO has drawn an erroneous inference, a mere change of opinion with regard to that inference would not justify reopening of the assessment. The Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) has held that the Assessing Officer has no power to review, he has the power to reassess. After 1/4/1989, Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were not decided by the CIT (A). 5. The learned DR referred to the issues and submitted that the learned CIT (A) had erred in cancelling the reopening of assessment and relied on the order of AO. The learned Counsel however, submitted that the reopening in this year was done after four years after the end of the assessment year and since the assessment under section 143(3) was completed and as there was complete disclosure of information, there is no failure on the part of assessee so as to attract the provisions of section 147. It was the submission that there was no non disclosure of material facts and relied on the decision in the case of General Insurance Corporation of India vs. DCIT 342 ITR 27 (Bom) and Aventis Pharma Ltd. Vs Assistant Commissioner of Income-tax (Bom) 323 ITR 570 for the proposition that on the same material it has to be considered as change of opinion. It also submitted that as seen from the reasons recorded for reopening the assessment, AO based his information on the material placed on record and there was no failure on the part of assessee to disclose any material. Since AO has already examined the issue and allowed deduction under section 80IA orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und No.1 of assessee regarding the issue on merits, we need not go into the examination of the issue on merits as similar issue is pending before the ITAT in another assessment year wherein this issue has to be examined. Assessee claimed deduction under section 80IA on self-utilized electricity produced in various generating units by taking the cost of sale at which it was procuring from various Electricity Boards and a note was accordingly left in the records. It was AO's contention that the cost of sale should be considered not at the price of purchase, but at the price at which it can be sold to others in the open market. For that he relied on the Regulatory Authority instructions to arrive at 16% yield on a capital basis. This issue requires detailed examination which can be done in the relevant assessment year. There is no need to give findings on that issue as re-assessment was annulled. Therefore, we are of the opinion that there is no need to adjudicate the issue on merits by the CIT(A) once the reopening of the assessment itself is considered bad in law. Consequently, the relevant grounds raised by the Revenue and assessee are treated as academic in nature and are accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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