MUMBAI, DEC 11, 2012: THE issues before the Bench are - Whether when the deduction claimed u/s 80IA was subjected to appellate proceedings and finally settled in favour of the assessee, reassessment can still be initiated beyond four years and Whether in such a case the AO's order gets merged with the Tribunal's order and any proceedings u/s 147 are barred. And the verdict goes in favour of the assessee.

Facts of the case

Assessee is engaged in the business of generation and distribution of electricity. Originally the assessee was engaged only in the distribution of electricity in Mumbai. However, with effect from assessment year 1996-97 it commenced generation of electricity from its plant at Dahanu. As a consequence of establishing of plant for generation of electricity the respondent became entitled to deduction under Section 80IA of the Act. For the assessment year 2001-2002, the assessee had filed its return of income, which was assessed on 23.03.2004 under Section 143(3) of the Act. The Assessing officer by order dated 23.03.2004 determined the assessee's income under the normal provision at Rs.38.31crores and under Section 115JB of the Act at Rs.341 crores. The aforesaid income was determined after allowing a deduction of Rs.314 crores in respect of the activity of power generation at Dahanu. On 31.03.2008, a notice was issued by the appellant under Section 148 of the Act to the assessee seeking to reopen the assessment for the assessment year 2001-02.

The assessee resisted the reopening of the assessment. However, the objections raised by the respondent were disposed of by the Assessing Officer by an order dated 21.11.2008 and reopened assessment was done on merits by an order dated 31.12.2008. The Assessing Officer by an order dated 31.12.2008 besides holding that an amount of Rs.177.08 crores had escaped assessment in view of excess deduction claimed under Section 80IA of the Act in the regular proceeding also held that the reopening of assessment was justified.

On appeal, the Commissioner of Income Tax (Appeals) allowed the assessee's appeal by holding that the reopening of the assessment for the assessment year 2001-02 cannot be sustained. The Commissioner of Income Tax(Appeals) held that reopening of assessment was bad in law as the original order of assessment dated 23.03.2004 was a subject matter of appeal on the issue of deduction available under Section 80IA of the Act to its power generation business at Dahanu and disposed of by the Tribunal in its order dated 24.01.2008. Consequently reopening proceedings under Section 147 and 148 were barred. Further there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the Assessment Year 2001-02. This was particularly so as the order of MERC dated 01.07.2004 was passed after the completion of regular assessment under Section 143(3) of the Act. Further it was held that the issue of the claim for deduction under Section 80IA (8) or (10) of the Act was an issue of interpretation and therefore it was a mere change of opinion not warranting reopening of the assessment. On merits, it was held that the profits of the generating unit arising on the power transferred by it to its own distribution business had to be arrived at by applying provision of Section 80IA(8) of the Act and not on the basis of Section 80IA(10) of the Act as had been sought to be done in reopening proceedings. This was so as there were no two distinct persons involved in the generation and distribution of electricity.

On appeal, the Tribunal by its order dated 14.05.2010 upheld the order of the Commissioner of IncomeTax (Appeals) dated 02.06.2009 and held that the order dated 31.12.2008 of the Assessing officer was not justified on various counts.

On appeal, the HC held that,

++ we find that both the Commissioner of Income Tax (Appeals) as well as the Tribunal have arrived at a finding of fact that there has been no failure on the part of the respondent-assessee to disclose full and true particulars at the time of the original assessment leading to the order dated 23.03.2004. The assessment is sought to be reopened by a notice dated 31.03.2008 which is admittedly beyond 4 years from the end of assessment year 2001-02. Consequently, the first proviso to Section 147 is applicable and in the absence of failure to disclose fully and truly all material facts necessary for assessment it cannot be said that there has been any escapement for the assessment year 2001-02. The failure attributed to the respondent is the failure to disclose the MERC order in case No. 18 of 2003 which was passed on 01.07.2004 i.e. much after the assessment order dated 23.03.2004 passed in regular assessment under Section 143(3) of the Act;

+ in such circumstances, there could be no failure on the part of the respondent to disclose facts which are not in its possession during assessment proceeding leading to the order dated 23.03.2004. Besides, the order of MERC dated 01.07.2004 specifically deals with regard to fixing of the tariff rate at which power has to be supplied to the consumer. It is in the process of fixing of tariff rate for the consumer that 16% return on capital investments is to be taken into account as one of the ingredients to arrive at the tariff rate and has nothing to do with the actual profits which are earned by an activity of the power generation plant. As against that the deduction allowed under Section 80IA of the Act is on the actual profit earned by the power generation plant and has nothing to do with the fixing of the tariff rate for the supply of power to the consumer;

++ moreover the Tribunal has also correctly held that the jurisdiction to issue a reopening notice for the assessment year 200102 is absent in view of the fact that the profits earned as determined under Section 80IA of the Act with regard to its Dahanu generation plant was the subject matter of appeal before the Commissioner of Income Tax (Appeals) and the Tribunal leading to orders dated 02.08.2004 and 24.01.2008 respectively. Consequently, the original order of assessment dated 23.03.2004 had merged into the order of Appellate Authority interalia with regard to the profits earned from the power generation plant at Dahanu for the purposes of deduction claimed under Section 80IA of the Act. The jurisdiction to exercise powers of reopening and assessment is specifically barred in respect of any matter which has been a subject matter of appeal by the 3rd proviso to Section 147 of the Act. Further the issue of application of Section 80IA (10) of the Act instead of Section 80IA (8) of the Act to arrive at the profit for claiming deduction under Section 80IA of the Act is a mere change of opinion without any tangible material which would not warrant reopening of assessment. The material to reopen the assessment being relied on by the revenue seems to be the order of MERC dated 01.07.2004 which has nothing to the with arriving at profits for purposes of deduction under Section 80IA of the Act but deals with fixing of the power tariff for the consumer and for that purpose takes as one of the ingredients 16% return on investments. Therefore, no fault can be found with the order of the Tribunal dated 14.05.2010.

(See 2012-TIOL-985-HC-MUM-IT)