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The Commissioner of Income Tax (LTU) , Mumbai Versus M/s Reliance Industries Ltd.

2016 (2) TMI 605 - BOMBAY HIGH COURT

Validity of reopening of assessment - eligibility of benefit under Section 80IA denied - change of opnion - jurisdiction of AO - Held that:- We are unable to understand how the mandate of the Act requiring the Assessing Officer to have reason to believe that income chargeable to tax has escaped assessment can be ignored on the altar of revenue collection. If such a submission is to be accepted, it would, be the beginning of the end of the Rule of Law. In fact, a Division Bench of this Court in I .....

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t that none of the other two conditions precedent viz. no change of opinion and failure to disclose all material facts are satisfied in this case to sustain reopening of the assessment for AY 2004-05.

So far as the change of opinion is concerned, both the CIT(A) as well as the Tribunal have rendered a finding of fact that there is a change of opinion. It is thus clear that necessary enquiry was made into the profits claimed by the eligible unit for the purpose of benefit under Section .....

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is only to disclose primary facts necessary for assessment. The application of law and the determination of the market value of the electricity sold by the eligible units under Section 80IA to the other units of the Respondent - Assessee is a subject matter of enquiry by the Assessing Officer while passing an order under Section 143(3) of the Act in regular assessment proceedings. Thus, there is no failure on the part of Respondent to disclose truly and fully all material facts which would warra .....

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ed order is a common order for AYs 2003-04, 2004-05 amd 2005-06. This Appeal relates to AY 2004-05. 2. Although the Revenue has formulated multiple questions of law for our consideration, the only question arising from the impugned order is as under :- "Whether on the facts and circumstances of the case, the Tribunal was correct in taking a view that the Assessing Officer did not have jurisdiction to issue the reopening notice dated 30th March 2010 seeking to reopen assessment for AY 2004-0 .....

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th November 2006 passed under section 143(3) of the Act inter alia allowed the benefit as available under Section 80IA of the Act. (b) On 30th March 2010, a notice under Section 148 of the Act was issued by the Assessing Officer seeking to reopen assessment for AY 2004-05. This notice for reopening of assessment beyond the period of four years from the end of the relevant assessment year was issued in view of Revenue's audit objection. This audit objection had been resisted to by the Assessi .....

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7; 16,46,57,20,196/- under normal provisions of the Income Tax Act 1961 and book profit of ₹ 5748,58,77,147/- u/s 115JB. Thereafter order u/s 250 dt. 29/01/2009 was passed to give effect to CIT(A) order dt. 31/10/2008 and total income was revised at ₹ 1060,60,50,316/- under normal provisions of the Income Tax Act 1961 and book profit of ₹ 5428,02,97,561/- u/s 115JB. 2. Sub-section (10) to 80IA provides that "where it appears to AI that owing to the close connection between .....

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be reasonably deemed to have been derived there from." Explanation to section B defines that Market value means the price that such goods or services would ordinarily fetch in the open market. The market value cannot be the purchase value of electricity but the price of the electricity, which the assessee can fetch in the open market. There was no open market for electricity during the period under review and regulatory bodies fixed the price of electricity during the period under. Regulat .....

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asis of the normative parameters determined by the Government of India under its Notification No.SO251(E) dt. 30th March 1992. The Tariff structures, both for the Central Sector and IPPs are on COST PLUS BASIS, Ministry 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 generat .....

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n 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 32,06,25,859 28,95,02,947 CPP VI 21,54,86,481 3,44,77,837 37,98,08,864 34,53,31,027 STG 61,52,73,587 9,84,43,774 46,34,67,685 36,50,23 .....

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e to disclose fully and truly all material facts necessary for its assessment, I have reason to believe that income chargeable to tax has escaped assessment for this assessment year, coming within the meaning of section 147 of the Income Tax Act 1961 on this issue. Thus, as above, total estimated income that has escaped assessment is ₹ 262,91,1,309/-. In view of the same, notice u/s 14B is issued after approval of CIT-LTU, vide CIT(LTU)/41/Reopening 147/2009-10/694 dt. 30/03/2010." (c .....

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that the Assessing Officer could never have reason to believe that income chargeable to tax has escaped assessment. This for the reason that he had himself resisted the Revenue's audit objection on the issue of market value of the power generated. Besides, holding that there was no failure to disclose all material facts necessary for assessment and that the Assessing Officer had applied his mind to the issue of Section 80IA, benefit claimed during the regular assessment proceedings. On appea .....

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irements to reopen an assessment are (i) the Assessing Officer must have reason to believe that the income chargeable to tax escaped assessment; (ii) the Assessing Officer in the regular assessment proceedings had not formed an opinion in regard to the issue on which the reopening notice is issued; and (iii) there has been a failure on the part of the Assessee to truly and fully disclose all necessary facts for the assessment. 5. In this case, the CIT (A) as well as the Tribunal have on consider .....

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e Respondent - Assessee had claimed the benefit of deduction under Section 80IA of the Act in respect of its captive power plants which were supplying power to other units of the Respondent - Assessee. The benefit of Section 80IA of the Act was in respect of its profits for the captive power plant units. The Assessing Officer during the regular assessment proceedings granted the benefit as claimed on examination of the record in an order passed under Section 143(3) of the Act. Thereafter, a quer .....

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ng 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." 6. Both the CIT(A) as well as the Tribunal, on the aforesaid basis came to the conclusion that in view of the .....

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s reason to believe that income chargeable to tax has escaped assessment. Thus, the impugned notice is not sustainable. In that view, the first condition precedent of reason to believe is that income chargeable to tax is escaped assessment being the primary requirement is not satisfied, the notice for reopening is without jurisdiction. 7. Mr Malhotra, learned counsel for the Revenue, supports the appeal by stating that once an audit objection had been raised, then the Assessing Officer is oblige .....

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end of the Rule of Law. In fact, a Division Bench of this Court in IL & FS Investment Managers Ltd. v/s Income Tax Officer, (Bom), reported in 298 ITR 32 has concluded the issue by pointing out that where the Assessing Officer in response to the query from the Revenue audit has opposed the reopening, it cannot be said that the Assessing Officer has formed his opinion that income has escaped assessment for the purpose of the reopening notice. In the above view, the question as framed does no .....

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