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M/s MEGHMANI ENERGY LTD Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE

2016 (9) TMI 819 - GUJARAT HIGH COURT

Reopening of assessment - deduction of a loss claimed on account of diminution of value of the derivatives - ascertained liability - Held that:- We are far more concerned about the question whether there was full and true disclosure in respect of such a claim. The answer would be available from the reasons recorded by the Assessing Officer itself. These reasons nowhere demonstrate that the assessee had failed to disclose true and full facts. In fact, to the contrary, the reasons would establish .....

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on such ground which was issued beyond a period of four years, would therefore not be valid.- Decided in favour of assessee. - Claim of deduction under section u/s. 80IA(4)(iv) of the Act in respect to sale of steam to its sister concern - Held that:- From the reply of the petitioner, it can be seen that the issue under discussion was precisely whether the petitioner was justified in claiming deduction on sale of steam. In this respect, the petitioner relied on a decision of Delhi bench of .....

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sequence as has been held by this Court in case of Gujarat Power Corporation Limited v. Asstt. Commissioner of Income Tax, reported in [2012 (9) TMI 69 - Gujarat High Court ]. - Thus egarding the second ground also, therefore, it can be seen that there was no failure on the part of the petitioner to disclose truly and fully all material facts. In fact, the claim was examined not only in the context of the petitioner's larger deduction under section 80IA(4)(iv) of the Act but, specifically to .....

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lenged the notice dated 30.03.2016, under which, respondent Assessing Officer, reopened the petitioner's assessment for assessment year 2010-11. Brief facts are as under. 2. Petitioner is a company registered under the Companies Act and is engaged in the business of generation and distribution of power. For the assessment year 2010-11, the petitioner filed the return of income on 20.09.2010, declaring 'Nil' income under normal provisions of the Income Tax Act, 1961 ('the Act' .....

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ng reasons: 1. In this case, the assessee Company engaged in the business of generation and distribution of energy filed its return of income for Asst. Year 2010-11 on 22.09.2010 declaring total income of Rs.Nil/. The return of income was processed u/s. 143(1) of the Act and subsequently the case of the assessee was picked up for scrutiny and the assessment was completed u/s. 143(3) of the Act on 05.03.2013 determining the total income at Rs. Nil. 2. On perusal of the profit and loss account for .....

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in derivatives was made on 07/06/2007 with maturity date of 06/06/2014 and the loss on account of diminution in value of the derivatives was classified as Mark to Market loss amounting to ₹ 1,88,41,214/- as on 31/0/2010. The loss was not an actual loss but an unascertained liability in view of explanation 1(c) of section 115JB of the Act. Such sort of liability was required to be added back to the income as per the provisions of section 1(c) of section 115JB of the Act. 3. On perusal of st .....

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the deduction on profit on sale of electricity and steam has been claimed. The steam generated is only a raw material which is used by the power plant to rotate the turbines. The steam which has low pressure is not able to rotate the turbines is sold by the assessee to its associate concerns Meghmani Industries Ltd and Meghmani Organics Ltd. Hence, steam generated is only an intermediate product and not a final product saleable in open market. The assessee is also not selling the same in open m .....

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f assessee's associate concern records for AY 2010-11 it is noticed that cost per unit of electricity produced was ₹ 4.67. By taking the cost per unit at ₹ 4.67, the total cost for producing 2,00,07,523/- units would be ₹ 9,34,35,132/- . The total manufacturing cost claimed by the assessee for both electricity and power was ₹ 14,39,26,376/- . Hence, after reducing the cost of electricity the manufacturing cost remained would be ₹ 5,04,91,245/- which was incurred .....

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lure on the part of the assessee to disclose fully and truly all material facts for Asst. Year 2010-11. 5. In view of the above, this is a fit case for reassessment by invoking provisions of section 147 of the Income Tax Act, 1961. 4. Upon being supplied with copy of the reasons, the petitioner, under a letter dated 14.06.2016, raised objections to the notice of reopening. These objections were however rejected by the Assessing Officer by an order dated 23.06.2013. Hence, this petition. 5. Takin .....

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lose full facts. II. Regarding ground no.2, counsel submitted that the claim of deduction under section 80IA(4)(iv) of the Act in respect of the sale of steam was examined by the Assessing Officer in the original assessment. Being satisfied that such claim was valid, she made no addition in the order of assessment. Merely because she did not record specific reasons in the order of assessment in this respect would be of no consequence. Counsel further submitted that in any case, there was full an .....

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y be in the nature of conjoint liability and such amount would be added back in terms of explanation 1(c) to section 115JB of the Act. She further submitted that the petitioner was not entitled to deduction under section 80IA(4)(iv) of the Act on sale of steam which cannot be categorized as generation of power. 7. As noticed, the impugned notice has been issued beyond the period of four years from the end of relevant assessment year. One of the prime requirements to be satisfied before the Asses .....

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son pertains to his objection to the assessee claiming deduction of a loss of ₹ 1.88 crores on account of diminution of value of the derivatives. From the record, it emerges that the assessee had entered into an agreement with ICICI bank concerning the investment in derivatives made on 07.06.2007 with a maturity date of 06.06.2014. During the year under consideration, the assessee claimed an expenditure of ₹ 1.88 crores on account of loss due to diminution in value of derivatives whi .....

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n 1 of section 115JB provides that for the purpose of the said section, booked profit would mean the net profit as shown in the profit and loss account as increased by (c) The amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. 9. In this regard, as noted, the case of the petitioner is that the said sum of ₹ 1.88 crores does not represent a provision made for meeting the liabilities which was not ascertained liability. Counsel argued .....

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and full facts. In fact, to the contrary, the reasons would establish that the Assessing Officer was referring to the material already on record to assert that the claim of expenditure of ₹ 1.88 crores was not in tune with the MAT provisions contained under section 115JB of the Act and in particular, explanation 1(c) thereto. Clearly therefore, the Assessing Officer did not have any additional or new material which did not form part of the original assessment proceedings to question the as .....

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bulk of such steam for its own generation of electricity through turbines. The petitioner sales a part of steam so generated to its sister concern. The petitioner claimed deduction under section 80IA(4)(iv) of the Act, both on sale of electricity generated by it, as well as on sale of steam as such. It is with respect to this later sale that the Revenue now has raised a dispute. According to the Assessing Officer, sale of steam would not qualify for deduction under section 80IA(4)(iv) of the Act .....

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1. In the context of the petitioner's claim of deduction under section 80IA(4)(iv) of the Act on sale of steam, there is no averment by the Assessing Officer that there was any failure to disclose true and full facts. Equally importantly, this claim was examined by the Assessing Officer during the original assessment. Under a notice dated 14.06.2012, the Assessing Officer had asked the assessee to supply various details. Multiple queries were raised, one of them, asking the assessee to justi .....

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e records and books of accounts for the said undertaking. (C) The Company has complied with all the conditions laid down in Sec. 80IA of the act. (D) In view of Sub. Sec.2 of Sec.80IA, the company has obtained to avail the benefit U/S 80IA of the Act for the A.Y.2010-11. 12. It appears that while processing such reply in connection with the assessee's claim under section 80IA(4)(iv) of the Act, the Assessing Officer had further questions to raise. Though these questions are not on record, pr .....

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refer here with a judgment of Income Tax Tribunal, Delhi Bench in case of DCIT Vs M/s SIAL SBEC BIOENERGY LTD 2008TIOL80ITATDEL which is relevant to our case also. In the instant case, the undertaking was generating low pressure steam in addition to the generation of electricity and had claimed tax holiday under section 80IA where in Tribunal had concluded that, The word 'power' has to be given a meaning which is common parlance means 'energy'. The energy can be of any form, be i .....

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