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2016 (3) TMI 271 - ITAT DELHI

2016 (3) TMI 271 - ITAT DELHI - TMI - Reopening of assessment - disallowance of deduction u/s 80- IA - Held that:- Perusal of reassessment order passed by the Assessing Officer goes to prove inter alia that he has reopened the assessment to examine the issue as to the admissibility of deduction claimed by the assessee u/s 80- IA which issue has been squarely decided by the Assessing Officer in original assessment vide order dated 31.05.2005 u/s 143(3) of the Act; that after reassessment, the Ass .....

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rs for purchasing the windmills manufactured by the assessee; that the Assessing Officer came to the conclusion that since the windmill was set up for display and not for power generation, the assessee is not entitled for deduction u/s 80-IA of the Act.

Following the law laid down by Hon'ble Supreme Court in the judgement cited as Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ), no doubt the Assessing Officer has the powers of reassessment after having reason to b .....

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ided by him in the original assessment order passed u/s 143(3), which is not permissible u/s 147 of the Act. - Decided in favour of assessee - I.T.A. No.1874/Del/2013 - Dated:- 28-1-2016 - SHRI G. D. AGRAWAL, HON BLE VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER For The Appellant : Shri K. Sampath, Adv. For The Respondent : Smt. Kesang Y Sherpa, Sr. DR ORDER PER KULDIP SINGH, JM: The appellant, RRB Energy Ltd. (hereinafter referred to as the assessee ), by filing the present appeal, soug .....

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the parameters envisaged under the proviso to section 147 of the Act; iii) in misconstruing the provisions of Section 80lA to deny the exemption there under; iv) in misreading the facts and accounts to disallow the alleged expenses and other set-offs against power generation income on erroneous grounds; v) in holding that a sum of ₹ 72,94,218/-was incurred on charges relatable to supervision, erection and commissioning on capital account instead of revenue. All the above actions being arb .....

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the proceedings from time to time. 3. The assessee company is into the manufacturing and installing of wind electric generators (WEGs) in India for harnessing power from wind at different locations in India and claimed deduction u/s 80-IA to the tune of ₹ 22,57,278/- for installation of 15 units of WEGs for power generation and the power generated therefrom was sold to Tamil Nadu Electricity Board (TNEB), which is shown at ₹ 3,52,77,308/-. The assessee claimed the gross income of the .....

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rying to claim deduction u/s 80-IA for such WEGs installed by it for the next ten consecutive Assessment Years. The assessee claimed that the plant has been set up for demonstration unit and this fact has also been observed from the audited report dated 28.10.2004 and the assessee gave primary reasons for installation of WEGs to promote their basic business. The Assessing Officer came to the conclusion that energy unit has been set up for educational or demonstration aids and not for the purpose .....

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the total income at ₹ 1,89,46,596/-. 5. The assessee carried the matter before Ld. CIT(A) who has dismissed the appeal. Feeling aggrieved, the assessee has come before the Tribunal by way of filing the present appeal. 6. Ld. A.R. challenging the impugned order contended inter alia that the Assessing Officer has committed error by reopening the assessment completed u/s 143(3) after a period of four years on the basis of change of opinion; that the assessee has disclosed all the material fa .....

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the Assessing Officer as well as Ld. CIT(A). 8. We have heard both the authorized representatives and perused the material on record in the light of the facts and circumstances of the case and orders of authorities below. 9. Grounds No.1 ,2 & 3: Undisputedly, the assessment of the assessee, on the basis of return of income filed qua the Assessment Year 2004-05 declaring income of ₹ 93,95,100/- was completed on 31.05.2005 u/s 143(3) of the Act. Thereafter, assessee was served upon a not .....

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f. the AY 1996-97. On perusal of records for the AY 2004-05, it is noted that the total receipts on which deduction on generation of the WEGs is claimed is as under. The assessee has given two alternate calculations by the assessee in the clause 22 of Form no. 10CCB Report with the qualification that the assessee "reserves a right to claim the benefit u/s 80-IA as per either of the two versions" These are reproduced as under: . Particulars RS. Rs. 1. Income from Power Generation 3,52,7 .....

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assessment ears. This is against the spirit of the section. The profits have to be computed as provided under the head business from section 28 to 43D and that includes depreciation as well. The above table also shows that the assessee is not even debiting notional maintenance charges. It may be noted that the assessee company cannot reserve the right to claim the benefit u/s 80-IA as per either of the two versions" as mentioned above. The assessee's claim is of deduction u/s 80-IA amo .....

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nowledging it because it suits him from tax angle not otherwise. Thus by not debiting the actual cost, the profits are getting inflated. The business of power generation also has its share of managerial and administrative expenses. The business is not run on thin air. 1.2.2. Moreover as per the requirement of the section the books of accounts are to be maintained separately. The assessee was asked to show the separate set of statement of accounts of power generation business during the course of .....

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AY 2004-05, the assessee should have been claiming depreciation amounting to ₹ 1,03,42,296/- against the WEGs installed for power generation activity (this would be over and above unabsorbed depreciation for earlier years which cannot be quantified at this stage, but would be well over the revenue from power generation, given the huge capital outlay involved in setting up WEGs.) The brought forward depreciation and business loss has to be set off as-per the provisions of Section 80IA(5) i .....

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tion of the receipts of power generation claimed u/s 80lA to the total receipts is to be worked out and then the expenses are to be worked out in same proportion. This working is required to be done as the assessee is not maintaining separate set of accounts as desired by the section 801A. 1.3.1. The receipts from power generation has to be treated at par with gross profit of the assessee, as assessee is selling WEG's, on which it earns profit. The gross sale is ₹ 2,51,49,79,456/- and .....

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4,435/-= ₹ 3,15,82,382/-) 1.4 Thus against the total receipts on account of power generation of ₹ 3,52,77,308/- the cost are working out to be ₹ 4,19,24,678/-(expenses of ₹ 3,15,82 382/- + depreciation of Rs.l,03,42,296/-) resulting in a net loss of ₹ 66,47,370/-. That means that assessee is actually incurring a loss on account of power generation and when there is no profit then where comes the question of deduction. Hence, the claim of deduction u/s 80lA of the as .....

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8/- to reduce and prevent losses and to ensure the guaranteed output in future, under the head 'Supervision erection and commissioning expenses'. Since this expenditure was incurred to have longtime benefits it was capital in nature and should have been disallowed. Section 37 of Income Tax Act, 1961, provides that any expenditure not being expenditure of capital nature laid out wholly or exclusively for the purpose of business is allowable as deduction in computation of the income charge .....

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ction 147. 4. In view of above facts, I have reason to believe that income chargeable to tax amounting to ₹ 95,51,496/- (Rs.22,57,278/- + ₹ 72,94,218/-) has escaped assessment in the 'case and the same is to be brought to tax under section: 147/148 of the I.T. Act. Sanction for issue of notice u/s 148 as prescribed u/s 151, to re-assess such income and also any other income chargeable to tax which has' escaped assessment and which comes to the notice subsequently during the c .....

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examined by the Assessing Officer at the time of original assessment on the basis of which order dated 31.05.2005 was passed u/s 143(3) of the Act. 10.2 Bare perusal of the assessment order dated 31.05.2005 passed by the Assessing Officer u/s 143(3) lying at page 147 of the Paper Book categorically proves that the assessee has claimed deduction u/s 80-IA to the tune of ₹ 22,57,278/- from power generation income of ₹ 3,46,77,308/- computed as per depreciation version shown in Form No .....

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3.1) The assessee has 15 units of WEG's installed for power generation and the power generated from them is sold to Tamilnadu Electricity Board the total power generation is shown at ₹ 3,52,77,308/-. The assessee has claimed deduction u/s 80IA on ₹ 22,45,332/- pertaining to income generated from the units installed in the year 1998·99, 2002-03 and of the earlier years. The gross income of these WEGs is ₹ 3,46,77,308/-, which have been claimed to be eligible by the as .....

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ate power. 3.3 The above analysis show that deduction is for an undertaking or an enterprise that means one such enterprise engaged in business eligible for deduction u/s 80-IA. The deduction is available for 10 consecutive assessment years beginning from the first year of claim. The assessee is engaged in power generation and qualifies as eligible business u/s 80-IA(4). The first year of claim in A.Y.1996- 97 as evident from form No.10CCS filed by the assessee). The ten consecutive years of the .....

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ear that it is available for an enterprise and then beginning from first year of claim continues for ten consecutive years. 3.5 Here it would be relevant to discuss the form No.10CCB (Audit report u/s 80-IA of the LT. Act). The auditors have remarked as per separate report vide clause 22 of form No.10CCB. The relevant portion is "The assessee does not deduct any expenditure/depreciation from the power generation income, while deducting the same from its gross income, on the ground that any .....

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uction of 100% of profits and gains derived from such business is to be allowed. This means that deductions under clause (ii) sub-section 4 of section 80- IA is available to the person who is in the business of generation and distribution of power. The assessee however is in the business of manufacturing of wind mills. As per assessee's own submission the power plant has been set up as a demonstration unit, as observed from auditors report dated 28.10.2004, wherein the assessee has stated th .....

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declared purpose of the assessee is not power generation then also' the assessee is not eligible for deduction u/s 8o-IA. Therefore the assessee is not eligible for deduction u/s 80IA on the basic consideration. 3.7 It may still be not out of place to mention here that one of the primary requirement for being eligible for deduction under section 80lA is that the boo's of account should be separately maintained Since the assessee does not do so this also disqualifies hi for availing any .....

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sment Year 2006-07, 2007-08 and returned findings in favour of the assessee. 10.5 Hon'ble Supreme Court in case cited as CIT Vs Kelvinator of India Ltd. (2010) 320 ITR 651 has settled the issue as to reopening of the assessment by the Assessing Officer by holding that the Assessing Officer is not empowered to reopen the assessment on the issue which has already been examined by him at the time of original assessment. Operative part of the judgement cited as Kelvinator of India Ltd. (supra) i .....

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here the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen .....

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ilt test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the wor .....

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reads as follows : "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in section 147.-A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well set .....

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he Assessing Officer goes to prove inter alia that he has reopened the assessment to examine the issue as to the admissibility of deduction claimed by the assessee u/s 80- IA which issue has been squarely decided by the Assessing Officer in original assessment vide order dated 31.05.2005 u/s 143(3) of the Act; that after reassessment, the Assessing Officer has withdrew the deduction earlier made available to the assessee u/s 80-IA on the ground that deductions are available under clause (ii) of .....

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ay and not for power generation, the assessee is not entitled for deduction u/s 80-IA of the Act. 10.7 Following the law laid down by Hon'ble Supreme Court in the judgement cited as Kelvinator of India Ltd. (supra), no doubt the Assessing Officer has the powers of reassessment after having reason to believe that the income has escaped assessment but it does not confer powers upon him to reopen the assessment on mere change of opinion. The Assessing Officer has powers to reopen an assessment .....

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