TORRENT POWER SEC LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX

C/SCA/22991/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 22991 of 2005

FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================================ TORRENT POWER SEC LIMITED....Petitioner(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX....Respondent(s) ================================================================ Appearance: MR. B. S. SOPARKAR, LD. ADVOCATE for MRS. SWATI SOPARKAR, ADVOCATE for the Petitioner(s) No. 1 MR. NITIN K. MEHTA, LD. ADVOCATE for MS PAURAMIB SHETH, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 26/02/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Page 1 of 7

C/SCA/22991/2005 JUDGMENT 1. The petitioner has challenged notice of reopening dated   30th  March,   2005   for   reopening   the   assessment for Assessment Year 1998­1999. The original return was under   Section   143(1)   of   the   Income   Tax   Act,   1961, without scrutiny. The department supplied the reasons recorded for issuance of such notice which read as under:­ “During the year the assessee has claimed total depreciation of Rs.17,38,37,297/­as per Anx.5 enclosed along with the return of income, the assessee company has claimed deprecation of Rs.4,45,94,623/­ on meters and   capacitors.   The   depreciation   has   been   claimed   @ 100% of the cost. The issue of depreciation has been examined  during  the  course  of assessment  proceedings for A.Y.2002­03. The assessee is claiming depreciation @ 100% as per Rule 5 Appendix­I, Part­III, 3(iii) B (e)   to   the   I.T.   Rules   1962   on   the   ground   that   the meters   are   energy   saving   devices.   The   assessee   is further of the view that the meters installed for the purpose   of   reading   of   energy   consumption   of   the consumers also saves the energy. This   view   is   not   acceptable   for   the   reasons mentioned below The aforesaid rule start with the phrase “Energy saving devices being A. Specialized boilers and furnaces: B. Instrumentation   and   monitoring   system   for

monitoring  energy flows C. Waster heat recovery equipment D. Co­generation systems E. Electrical equipment: The assessee's view that the meters in themselves save   energy   and   are   energy   saving   devices   is   not acceptable   for   two   reasons:­   Firstly,   as   per   the aforesaid Rule, Instrumentation and monitoring system, which   are   energy   saving   device   and   includes   one   or Page 2 of 7

C/SCA/22991/2005 JUDGMENT more items mentioned in Para B would be eligible for higher   depreciation   rate,   if   any   instrumentation system is installed in existing energy flow system and that   instrumentation   system   gives   ways   and   means   to save the energy of an existing energy flow system, the equipments mentioned in Para B above are eligible for depreciation @ 100%. The Para B is different from Para E,   wherein   the   terminology   used   is   “electrical equipment.”   Therefore,   for   example   the   automatic voltage   controller   being   an   electrical   equipment, saves   the   energy,   it   would   be   entitled   for depreciation   @   100%c.   Therefore,   unless   and   until meters   and   capacitors   are   part   of   instrumentation system, which is used to save energy in the existing flow   system,   depreciation   @100%   is   not   allowable   on meters.

Secondly,   the   assessee   states   that   the   new electronic   meters   installed   in   the   premises   of   the consumer   save   energy   and   therefore   energy   saving device.  This  view  is not acceptable  for  the  reasons mentioned above. In this regard, opinion of an expert Shri Dhiru Pujara, Chartered Engineer also strengthens the viewpoint of the Department. Shri Dhiru Pujara is a Registered Chartered Engineer and Authorised Energy Auditor by the Government of Gujarat. Vide his opinion dated 24.3.2005, (received on 28.3.2005), opined  that the meters are simply used to measure the energy flow and   are   not   used   as   energy   saving   device.   The electronic  meters  save  .8W  which  comes  to Rs.30  per annum which is negligible amount compared to the cost of meter which is Rs.2000 on and average. During the course of assessment proceedings for A. Y. 2002­03, it was also noticed that the assessee has also installed conventional   meters   also   and   for   these   meters,   this logic is also not applicable. The detailed reading of rule 5 appendix I, Part III, 3(iii) has been made in body of the assessment order for A.Y. 2002­03. Further more, it is seen that the assessee has collected   meter   deposit   from   the   consumers   while installing the meters in their premises. The deposit is   roughly   34%   of   the   cost   of   meter.   This   is   non­ refundable   deposit   as   per   statute.   However,     the assessee   is   showing   this   as   refundable   deposits   and refunds   to   the   consumer   if   the   power   connection   is discontinued and meter is surrendered. The assessee is also   not   giving   interest   on   such   deposit.   The instances   of   claiming   the   refunds   are   very   rare. Therefore, the cost of meter should be reduced by the Page 3 of 7

C/SCA/22991/2005 JUDGMENT meter deposit in view of explanation 10 to section 43. This   has   not   been   done.   This   disallowance   on   this account would be Rs.1,51,30,000/­. In   view   of   the   above,   it   is   clear   that   the assessee is entitled for normal rate of depreciation, which   is   @25%.   Therefore,   the   assessee   has   claimed excess depreciation of Rs.3,34,45,967/­ on meters and capacitors, which is required to be disallowed. In   view   of   the   above   fact,   I   have   reason   to believe   that   income   has   escaped   assessment   to   the extend of Rs.3,34,45,967/­.” 2. Learned counsel for the petitioner submitted that the reasons were not recorded before issuing notice. He canvassed his contention on two factors. Firstly that the impugned notice was issued by one Shri Y. C. Surti, Assistant Commissioner of Income­tax, Circle­4, Surat.   The   reasons   were   recorded   according   to   the counsel   by   one   Shri   Sanjay   Pungalia,   Assistant Commissioner of Income­tax, Circle­4, Surat. Secondly that in the reasons recorded, there is a reference to assessment order for the   Assessment Year 2002­2003. Counsel pointed out that the order of assessment for the   Assessment   Year   2002­2003   was   passed   on   31st March,   2005.   These   are   two   grounds,   on   which,   he contended that the reasons were recorded later than issuance of notice. 3. In so far as the reasons recorded are concerned, the respondent, in the affidavit­in­reply, clarified that   Shri   Y.   C.   Surti,   who   was   the   Assistant Commissioner at the relevant time, had recorded the reasons   and   also   issued   the   notice,   both   on   30th March, 2005. It is further clarified that said Shri Page 4 of 7

C/SCA/22991/2005 JUDGMENT Surti was also the Assessing Officer of the petitioner for the Assessment Year 2002­2003 and he was in the process of framing an assessment order for the said year, where he recorded categorical finding that the assessee was entitled to 100% depreciation on meters and capacitors and therefore, though the actual notice was issued on 31st  March, 2005, the reasons recorded in   the   present   case   found   a   mention   to   the   said proceedings. 4. In our opinion, the revenue has met with both the grounds of the petitioner. Firstly, the original file containing the reasons recorded shown to us and also to the counsel for the petitioner, shows that such reasons were recorded by Shri Surti on         30th March, 2005. What was recorded at pages­30 to 32 are the reasons indicated by the predecessor of the said officer   and   hence,   contained   signature   of   Shri Pungalia. 5. Regarding   mention   of   assessment   proceedings   of the Assessment Year 2002­2003, since Shri Surti was also the Assessing Officer in that case and he had, during the course of assessment, addressed the issue of depreciation on meters and capacitors, reference to the   same   was   made   in   the   reasons   recorded.   Such statement cannot be read out of context and in any case as explained in the affidavit would not mean that the   reasons   were   not   recorded   before   issuance   of notice. 6. We may record that the original assessment was Page 5 of 7

C/SCA/22991/2005 JUDGMENT not framed after scrutiny. The issue of depreciation on meters and capacitors therefore was never examined by the Assessing Officer. The question of change of opinion therefore would not arise. As also as per the decision of the Supreme Court in case of  Assistant Commissioner of Income­Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd.  reported in  [2007] 291 ITR 500(SC), reopening in such a case would be permissible. 7. Counsel   for   the   petitioner   however   raised   two additional contentions. Firstly, in terms of Section 151 of the  Act, sanction of the Competent Authority was   not   obtained   before   issuing   notice   and   that subsequently, the issue of depreciation on meters and capacitors has been decided in favour of the assessee. However, neither of theses grounds find any place in the   petition.   The   legal   contentions   are   based   on factual matrix, foundation for which has not been laid in the petition. Under the circumstances, we have not examined   these   contentions.   This   is   not   to   suggest that if there is no sanction as required under section 151   of   the   Act,   the   reopening   would   still   be permissible. We have therefore dealt with the legal contentions   arising   from   the   petition   and   find   no reason to quash the impugned notice. 8. We leave it open to the petitioner to raise these additional contentions and in particular one regarding requirement of sanction by higher authority in terms of Section 151 of the Act before the Assessing Officer and also in further appeal, if any need arises. Page 6 of 7

C/SCA/22991/2005 JUDGMENT 9. Subject   to   above   observations,   petition   is disposed   of.   Rule   is   discharged.   Interim   relief   is vacated. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Chandrashekhar Page 7 of 7