TMI Blog2011 (9) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Respondent ORDER R.T. Sood: These cross appeals are heard together and are being disposed of by this common order. 2. I.T.A. Nos. 6295 and 6296/M/10 (Revenue's appeals): In both these appeals, identical grounds have been raised by the Revenue which are as under: "1. On the facts and in the circumstances of the case as well as in law, the Ld.CIT(A) has erred in canceling the notice u/s. 148 and the assessment made u/s. 143(3) r.w.s. 147 of the Act holding that the re-assessment proceedings initiated based merely on change of opinion. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in law in not appreciating the fact that Explanation 2(c) to section 147 of the Act squarely applies to this case and the AO was justified in re-opening of the assessment. 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 fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricity Act, 1948. Tariff structures, both for the Central Sector and Independent Power Producer (IPPs,), were determined on COST PLUS PROFIT BASIS. Profit was determined on the 'return of equity' basis which was to he computed on the paid up and subscribed capital relatable to the generating unit at the rate of 16 percent of such capital. In this case, the assessee has claimed the deduction u/s.80IA of the Act in respect of generation of power from its power unit located at Dahanu. While filing the return of Income for A. Y. 2002-03, the assessee was aware that the profit should not exceed the 16% of its capital/during the previous year in view of the principles which are the basis for fixation of tariff. However, the assessee has claimed the deduction u/s.80IA of/he Act on the profits of Dahanu Unit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2001-02. Similar reasons were also recorded for AY 2003-04. Reasons recorded for AY 2001- 02 are as under:- In this case, the assessee has filed the return of income for AY 2001-02 on 31.10.2001 declaring total income at Nil and taxable income u/s.115JB at Rs. 3,41,86,93,066/-. The assessment order u/s 143(3) of the act has been passed on 23.03.2004 assessing the total income under normal provisions of the Act at Rs. 38,31,48,980 and u/s 115JB of the Act at Rs. 3,41,95,51,266. In the same assessment order, the assessee has been allowed the deduction u/s 80IA of the Act at Rs. 1,46,72,642 (in respect of profit from Elastimold business) and also at Rs.3,14,31,23,593 in respect of profit from generation activity. Section 80IA(10) of the I.T. Act, 1961 provides that 'where it appears to the AO 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 produced to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the AO shall, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has resulted in escapement of income to the extent of Rs. 177.08 crores, which is worked out as under: Rs. in crs Reasonable profit allowed by MERC while calculating Tariff 230 Net power transferred from generated unit 3231 Total sales in license area 5415 Prorate Reasonable profit 137.23 80IA deduction computed 480.41 80IA availed after restricting to available total income 314.31 Excess 80IA deduction availed 177.08 Therefore, I have reason to believe that in the case of the assessee, the income of the assessee chargeable to tax to the extent of Rs. 177.08crores has escaped the assessment for AY 2001-02. This escapement of income is by reason of the failure on the part of the assessee to disclose fully and truly all material fact necessary for the assessment for the assessment year 2001-02 Issue notice u/s 148 of the 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 E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, "market value, in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market. 10.1.3 In view of the clear provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirement and fixing the tariff for supply of electricity to various consumers groups. As per the provisions of the Electricity Act, as modified by the various provisions of State Act, the MERC has, for the first time issued a tariff order on 1st July 2004 which is applicable for financial year 2004-05. In determining the tariff, there are various parameters to be considered and in that one such parameter is the reasonable rate of return at 16% of the capital cost. However, there are various methodologies in arriving at various workings for determining the tariff and this is based on the provisions of the Act, various instructions and findings of the commission. As per the MOP Notifications investments made after 31.3.1999 are eligible for reasonable return of 16%. licencees were also entitled for 0.5% return on loans from approved institutions and on the investment allowances reserve. Further it indicates that on account 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-relation with the reasonable rate of return considered for tariff fixation under the Electricity Supply Act and the actual profits earned by the assessee company and the profits as determined by the Assessing Officer under the provisions of section 80IA(10). In fact, in the original assessment order, the assessee's claim of profit is on the actual average sale price to the customers, which was higher than what was as determined while basing the sale price on the power purchased from Tata Power Companies. Since the Assessing Officer has originally exercised the correct provisions of the Act in determining the profit of the eligible unit, the present Assessing Officer's exercise in re-determining the profit on the basis of the Tariff Fixation Order r. w. Electricity Supply Act has no basis at all. Accordingly, we are of the view that reference by the Assessing Officer to MERC's order and invoking provisions of section 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese two letters on the foreign remittance to be made abroad by the appellant had nothing to do with the amount of disallowances under the Income-tax Act. If any remittance of foreign exchange had been made in excess of the prescribed limit from January 1,1969, it was for the Reserve Bank or the Central Government to take action or to grant permission as may be provided under the Foreign Exchange Regulation Act, 1973. That, however, could not be a ground for the Income tax Officer to assume jurisdiction to start reassessment proceedings either under section 147(a) or section 147(b) of the Act on the ground that that it would be "in consequence of information in his possession in the shape of these two letters. Both the Acts-the Income-tax Act and the Foreign Exchange Regulation Act-operate in different fields. The two letters were wholly irrelevant and could not be treated as information to the Income-tax 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated at the level of the ITAT, the reopening on the same issue is to be considered as bad in law. We need not examine the various case law relied on this issue. Suffice to say that on facts and in law the issue having merged with the orders of ITAT was not amenable for reassessment. 10.5 Change of opinion It is one of the contentions of the assessee that Assessing Officer has changed his opinion in re-determining the profits. As discussed earlier, the Assessing Officer originally invoked section 80IA(8) in assessment year 2000-01 in re-determining profits and the same was followed in later years including the impugned years. Now, again re-determining the profits under 80IA(10) which is not applicable to the assessee at all, can only be considered as change of opinion. Accordingly, it was argued that change of opinion cannot be a basis for reopening of the assessments. In this regard 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 obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such circumstances, we are doubtful as to whether it can be said that the audit objection was not accepted when the notice u/s.148 was issued. We therefore do not agree with this submission made on behalf of the Assessee. 10.7. Before concluding, we have to discuss another contention raised by the Learned Counsel in the arguments that the Assessing Officer should have reason to belief not only at the time of assessment but also at the time of completion of assessment. This argument can't be accepted as the parameters for reopening on the basis of 'Reason to believe' has to examined only at the time of issue of notice u/s 147 r w s 148. In fact, the sufficiency of the material available with the Assessing Officer was called in question many a time, but there is consistent judicial opinion on this issue that sufficiency of material for 'reason to believe' that income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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