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TMI Blog2014 (4) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... al basis up to 31.03.2005 or till the approval of tariffs; such billing figures were to be subject to adjustment after final tariff determination - inherently there was a degree of uncertainty and incompleteness in the process - This was reflected in the return when the adjustment of the billing became necessary on account of the application of the CERC notification. NTPC’s argument that the tariff for power plants from 2004-09 was lower than the tariff norms for 2000-04 has not been disputed by the Revenue - Even a bare look at the later Tariff Regulations shows that the rate of return was revised downwards - NTPC submits that it accounted sales for electricity for Rs.2212.8 crores based upon the previous experience in tariff fixation orders of CERC - This was even though the billed amount was Rs. 2306.6 crores - The estimate was bona fide and made on a realistic assessment of sales estimation that could be realized in terms of accepted tariff notifications - There was nothing erroneous or prejudicial to Revenue’s interest in such estimate. Power generation companies owned or controlled by the Central Government are a sub-species of business entities for which a separate provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax fell into error in invoking his power under Section 263 of the Income Tax Act, 1961 ( the Act ) modifying the assessment order by withdrawing the additional depreciation of Rs.187,55,77,000 and further directing the Assessing Officer ( AO ) to examine the allowance of Rs.938.80 crores on account of revision of sales afresh. 2. The assessee (hereafter called NTPC ) filed its return of income under the Act on 24.10.2005 and declared a total income of Rs.1330,17,92,000/. The return was processed under Section 143(1) on 27.2.2006 at the same figure. Later, the case was selected for scrutiny assessment and a notice under Section 143(2) of the Act was issued on 23.3.2006; the AO had served a detailed questionnaire upon NTPC under Section 142(1) of the Act. NTPC in response furnished the necessary details whenever called for by the AO. Upon analysis of various issues, the AO framed the assessment order under Section 143(3) on 27.11.2006. He determined the taxable income at Rs.3736,18,91,370/-. 3. The Commissioner, after going through the assessment order, felt that the AO allowed additional depreciation under Section 32(1)(iia) of the Act for the sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or thing in common parlance is known as something tangible, movable, etc. Generation of power is giving energy as output and therefore, activity is no way similar to the production of article or thing. In case of CIT vs. N.C. Budhiraja and Co. (1993), 204 ITR 412 (S.C), it was held that the expression 'manufacture' and 'produce' are normally associated with movables-articles and goods, big and small. Therefore, in light of the position of facts and law claim of additional depreciation has been erroneously allowed and to that extent order of the A.O. is erroneous is so far as it is prejudicial to the interest of revenue. (b) Provisional Revision of Sales In Schedule 28 of Annual Report of the company vide para 3(a) and (b) it is mentioned: 3(a) The Central Electricity Regulatory Commission (CERC) has notified by regulation in March 2004, the terms and conditions for determination of tariff applicable with effect from Ist April, 2004 for a period of five years. Pending final determination of tariff for the period Ist April 2004 onwards, CERC has directed by notification that on provisional basis, the annual fixed charges as applicable on 31st March, 2004 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in manufacture or production of any article or thing, was of opinion that generation of power cannot be equated with the production of article or thing because article or thing in common parlance is known as something tangible and moveable etc. The Commissioner was of the view that wherever a deduction is granted for power generation undertaking, a separate mechanism has been provided under the Act. He agreed that Section 32(1)(vi) (as stood prior to 01.04.1998), provided for additional depreciation but that it categorically specified both businesses i.e. generation of power and manufacture of production or an article or thing. He therefore held that additional depreciation was inadmissible to NTPC. He also held that the AO incorrectly allowed additional depreciation. He therefore set aside the AO s order and directed the latter to withdraw the additional depreciation of Rs.187,55,71,000. On the second issue, the Commissioner observed that the CERC was tasked by law to regulate the tariff of electricity generating companies owned or controlled by the Central Government. NTPC had issued total sales bills of Rs.23,066.30 crores to its customers in terms of CERC s existing norms. CERC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n inquiry then assessment order can be termed as erroneous which ultimately caused a prejudice to the revenue and deserves to be set aside, then learned counsel for the assessee submitted that if hundred items are there in computation of income and no inquiry was conducted by the Assessing Officer on certain items then can the assessment order be erroneous. In our opinion if an verification of the record, Learned Commissioner formed an opinion that an issue available in the computation of income required verification and investigation at the end of Assessing Officer before its acceptance or rejection and such inquiry was not conducted than and an error has crept in the assessment order. If such an error caused a prejudice to the revenue than assessment order on such issue could be set aside. Therefore, in view of the above discussion, we are of the view that on reduction of sales Learned CIT has rightly taken cognizance u/s. 263 and has rightly remitted this issue to the Assessing Officer for fresh adjudication. 7. Relying upon the decision reported as Malabar Industrial Co. Ltd. v. CIT, 243 ITR 83, Mr. Dastur, the learned senior counsel for NTPC, argued that the term prejudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by CERC for the period 2004, sales upto Rs. 603 crores were accounted for this year. It was submitted that note 3(b) clearly stated that in the previous year, there was a reduction in the sales to the extent of Rs. 903.4 crores relating to earlier years. 9. Stressing that these aspects were taken into account by the AO after a detailed enquiry, scrutiny and proper application of mind, the learned senior counsel submitted that in the original paragraph 13 of the assessment order, the AO dealt with the issue of pre-commissioning scales, and referred to Schedule 28 to the note of account which included notes 3(a) and 3(b). 10. It is submitted that the NTPC is not free to charge any tariff for electricity generated but is subject to strict regulation by through the CERC s regulations. Thus, note A of the Annual Report brought out that in the year ending 31.03.2005 (A.Y. 2005- 06), the CERC had not finally determined the tariff chargeable. Instead, what happened was that NTPC was allowed to bill on the provisionally fixed charges applicable as on 31.03.2004. As this amount was not final and subject to change, the CERC notification clarified that if the billed amount was in exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce especially when pursuant to the final tariff the NTPC s stand was in fact vindicated. 13. On the other hand, learned counsel for the Revenue urged that the ITAT s order does not call for interference. Learned counsel states that the AO s order revealed that in fact no information was called for in question and that there was no meaningful examination. Stressing that there were no details available on the record in the assessment proceedings, learned counsel submitted that the AO s order was in fact erroneous and led to loss of revenue. It was, therefore, urged that there was in fact no occasion to reduce the sales provisionally of Rs. 2212.2 crores on estimated basis even though the total amount billed upon the NTPC s customers was Rs. 203.66 crores. The determination of liability as on 31.03.2005 was contingent upon final order of the CERC. The estimation, therefore, could not have been made in respect of final determination of the matter in future. Thus, NPTC had wrongly reduced the sale of Rs.938.3 crores. Learned counsel relied upon the ruling of this Court reported as CIT v. Regency Park Property Management Company Pvt. Ltd., ITA 1991/2010 decided on 05.01.2012 and submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... station and forms part of the approved financial package as set out in the techno-economic clearance accorded by the Authority or approved by an appropriate independent agency, as the case may be. XXXXXX XXXXX XXXXXX 15. On 30.04.2004, a notification was issued which stated that the terms and conditions for tariff determination with effect from 01.04.2004 were notified on 29.03.2004 to determination of tariff based upon revised terms was likely to take some time. The notification (of 30.04.2004), therefore, went on to direct as follows: 7/25(7)/2004-Legal Dated the 30th April, 2004 NOTIFICATION XXXX XX XXXXXX XXXXXX 2. It is, therefore, directed that with effect from 1.4.2004, the billing of charges shall be done on the following basis, for a period of 6 months, that is, up to 30.9.2004. Thermal Power Generating Stations The annual fixed charges as applicable on 31.3.2004 shall be billed at the target availability and variable charges based on norms of operation notified on 29.3.2004. Hydro Power Generating Stations Full recovery of annual fixed (capacity) charges as applicable on 31.3.2004 shall be billed and recovered based on capacity index notified on 29.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(iii) prescribed as follows: (iii) Return on Equity Return on equity shall be computed on the equity base determined in accordance with regulation 20@14% per annum. Provided that equity invested in foreign currency shall be allowed a return up to the prescribed limit in the same currency and the payment on this account shall be made in Indian Rupees based on the exchange rate prevailing on the due date of billing. Explanation The premium raised by the generating company while issuing share capital and investment of internal resources created out of free reserve of the generating company, if any, for the funding of the project, shall also be reckoned as paid up capital for the purpose of computing return on equity, provided such premium amount and internal resources are actually utilized for meeting the capital expenditure of the generating station and forms part of the approved financial package. 18. There is no dispute that Notes 3 (a) and 3(b) of the XXI Schedule to the Annual Report in this case disclosed all the facts, especially that initially the sales figures were Rs. 2683.01 crores; how there was a reduction in this on the basis of downward revision, du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. NTPC submits that it accounted sales for electricity for Rs.2212.8 crores based upon the previous experience in tariff fixation orders of CERC. This was even though the billed amount was Rs. 2306.6 crores. This estimate was bona fide and made on a realistic assessment of sales estimation that could be realized in terms of accepted tariff notifications. There was nothing erroneous or prejudicial to Revenue s interest in such estimate. 21. This Court finds that power generation companies owned or controlled by the Central Government are a sub-species of business entities for which a separate provision has been enacted by the Act. There is no dispute that the income of utilities, especially ones subject to stringent public control, are tightly regulated in terms of what are the accounting methods to be adopted, how depreciation is to be claimed, allowances rate of return on capital, etc. All these aspects are subject to CERC Regulations. At the relevant time, i.e. the transition between the old (2001) CERC Regulations, and the later ones (2004-2009), had not been fully worked out by the CERC as to what had to be recovered by NTPC and other entities. It therefore directed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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