RRB ENERGY LTD.,NEW DELHI vs. ITO, NEW DELHI

This is an appeal filed by the assessee against the order of ld. CIT(A)- XVIII, New Delhi dated 21.01.2013 for the assessment year 2005-06 on the following grounds : On the facts and in the circumstances of the case and in law the authorities below erred : i). in invoking proceedings u/s. 147/148 of the Income tax Act, 1961 for reassessment without any rhyme or reason or material; ii). in rejecting the objections to the reopening of the assessment; iii) in acting u/s. 147 r.w.s. 143(3) of the Act to redo the assessment solely on the basis of change of opinion and in violation of the limitations envisaged under the proviso to section 147 of the Act; iv) in misconstruing the provisions of section 80IA to deny the exemption there-under; v) in misreading the facts and accounts to disallow the alleged expenses and other set offs against power generation income.

The brief facts of the case are that the assessee filed return of income on 29.10.2005 declaring income of Rs.19,06,86,240/-. The return was processed u/s. 143(1) of the IT Act. Later on, the Assessing Officer issued notice u/s. 148 of the Act on 30.03.2011 which was served upon the assessee after recording the reasons and taking approval from the competent authority. The reasons recorded were supplied to the assessee along with notice, which is at page No. 63 & 64 of the paper book. The appellant raised objections against the reopening of assessment on 25.04.2011 and 24.08.11, which are at page 65 to 68 of the paper book. These objections were disposed of by the Assessing Officer as per order dated 28.10.2011.

During the assessment year, the assessee had 16 units of Wind Electric Generation (in short WEGs) and the power generated from them was sold to Tamilnadu Electricity Board. The appellant has shown receipt from power generation at Rs.2,62,93,027/- and claimed deduction u/s. 80IA of Rs.1,51,46,477/- pertaining to the income generated from the units installed in the year 1998-99, 2002-03, 2005-06 and of the earlier years. The first year for claiming deduction u/s. 80IA was the year 1996-97, as is evident from Form No. 10CCB filed by the assessee which is at page 54 to 56 of the paper book. As per auditor’s report dated 25.10.2005, the power plant was set up as demonstration unit and the assessee has stated that the primary reason for installing WEGs was to promote their basic business. The purpose of demonstration units is to convince the prospective buyers for purchasing the wind mills manufactured by the assessee. The AO asked the assessee to submit separate books of account maintained as required u/s. 80IA, but the appellant could not produce the same. For the total power generation receipts of Rs.2,62,93,027/-, the appellant claimed notional expenses of Rs.6,40,000/- for total 16 units ,i.e., Rs.40,000/- per unit and depreciation was claimed of Rs.1,05,06,550/-. He claimed total deduction u/s. 80IA of Rs.1,51,46,477/- without setting off of unabsorbed depreciation for the assessment year 2004- 05. A year-wise chart for power generation units has been provided by the appellant before the Assessing Officer which is as under:

Grounds Nos. (i), (ii) & (iii) raised by the appellant challenge the validity of action taken u/s. 147/148 of the Act. The assessee’s contention has been that the proceedings u/s. 147 initiated by the Assessing Officer were barred by limitation; that the assessee had disclosed fully and truly all material facts necessary for assessment; that there was no fresh material / information in the possession of the AO either with regard to the facts of the case or even as to the scope and sweep of clause (iv) of section 80IA(4) of the Act so as to form the belief of escapement of income. It was, therefore, contended that the reopening of the case was not sustainable having been based on the change of opinion. Reliance is placed on the following decisions in support of the assessee’s contentions : (i). RRB Consultants And Engineers (P) Ltd vs. DCIT, 342 ITR-127 (Del.) (ii). CIT vs. Kelvinator of India Ltd. 187 Taxman 312 (SC) (iii). RRB Energy Ltd. vs. ITO (ITAT Delhi Bench-ITA No. 1874/Del./2013-AY. 2004-05- dated 28.01.2016).

The ld. DR on the other hand relied on the orders of the authorities below and submitted that the objections of the assessee raised on reopening of assessment had already been decided by the Assessing Officer and the issue of validity of reopening has also been addressed by ld. CIT(A) elaborately in the impugned order. The intimation u/s. 143(1)(a) is not an assessment, rather it is issued on the basis of information supplied by the assessee in the income-tax return. Therefore, no question of change of opinion exists in the instant case. The ld. DR relied on the decision of Hon’ble Supreme Court in the case of DCIT vs. Zuari Estate Development and Investment Co. Ltd. in Civil Appeal No. 6758 of 2004 – 2015 TIOL-91-SC-IT. It was submitted that in the attending facts of the present case, the case laws relied by the ld. AR of the assessee are not applicable to the case in hand.

After hearing the rival contentions and perusing the material available on record, we find that the reopening proceedings taken u/s. 147/148 by the AO are legally valid. It is notable that in the instant case no assessment u/s. 143(3) was made by the AO, but the return was processed u/s. 143(1)(a) of the Act, which cannot be equated with the assessment u/s. 143(3) of the Act. The processing of return is made on the basis of information supplied by the assessee in its return and no opinion is formed by the Assessing Officer therein. Therefore, in our considered opinion, there is no question of change of opinion in the facts of the present case. This view stands fortified by the decision of Hon’ble Supreme Court in the case of DCIT vs. Zuari Estate Development and Investment Co. Ltd. (supra). As far as the point of limitation is concerned, admittedly, the income which escaped assessment was more than Rs.1 lacs. Therefore, the case of the assessee shall be governed by the provisions of section 149 of the Act which reads as under : Time limit for notice. 149. (1) No notice under section 148 shall be issued for the relevant assessment year,—

Adverting to the merit of the case, the ld. AR vehemently contended that the disallowance of depreciation and administrative expenses are not justified as the appellant has made correct claim. The appellant is entitled for deduction u/s. 80IA for 10 consecutive assessment years from the initial year of claim u/s. 80IA, which is 1996-97. It is submitted that section 80IA(5) is an independent section. A plain reading of section 80IA(5) clearly indicates that the said clause is operative for determining the quantum of deduction for the assessment year next to initial assessment year and thereafter and it is for these purposes only that such eligible business should be considered as the only business. It nowhere says that the depreciation against the assets in eligible business cannot be set off against income of non-eligible business if not absorbed by its income in the initial year of claim. Moreover, section 70 of the IT Act also clearly permits and does not deny to set off of loss from one source against income from another source under the same head of income. He also submitted that the AO has not seen Form 10CCB for deducting depreciation on WEGs. The depreciation of WEGs amounting to Rs.1,05,06,550/- has been duly deducted from the power generation income, which is at paper book page No. 56. At page No. 57 of the Paper Book, the appellant has calculated the deduction amount u/s. 80IA of Rs.1,51,46,477/- and this claimed amount has been considered in the computation of taxable business income.

Regarding administrative expenses charged of Rs.40,000/- per unit, it has been submitted that the AO has accepted the same amount in the past assessment year 2002-03 and subsequent assessment year 2006-07 and in 2007-08, the ld. CIT(A) itself has accepted the same in his order (ITA No. 199/09-10) dated 21.01.2011, available at page No. 90 of the paper book. The Assessing Officer has framed the order for the assessment year 2005-06 u/s. 147/143(3) on 30.12.2011, in which he has not followed the order of the ld. CIT(A) on similar issue for charging of administrative expenses @ Rs.40000/- per unit. It was also submitted that Wind Energy Generation Units do not require which expenses such as raw material, maintenance etc. like other manufacturing units. Therefore, administrative expenses charged @ Rs.40,000/- per unit is quite appropriate and justified.

Regarding wrong claim of depreciation, the depreciation has been calculated as per the effect of the earlier assessment year as shown in the depreciation chart at page No. 85, sl. No. 9 of the paper book. The assessee has correctly calculated the depreciation. Reliance is placed on the following decisions : (i). Velayudhaswamy Spinning Mills (P) Ltd., 21 Taxman.com 95 (Mad). (ii). CIT vs. Mewar Oil and General Mills Ltd., 216 CTR 65 (Raj.) (iii). CIT vs. M/s. Emerald Jewel Industry P. Ltd. (Mad. HC order dt. 10.08.2010 in Appeal No. 715 of 2010.

The ld. DR, on the other hand, relied on the orders of the authorities below and submitted that they have made good orders and the same need no interference. The appellant has not maintained separate books of accounts for the units entitled for deduction u/s. 80IA as required under the said section. In absence of this requirement, correct profit cannot be ascertained for the purpose of deduction u/s. 80IA of the Act. The effect of brought forward loss in the assessment year 2004-05 from power generation of WEGs has not been given for calculating eligible amount.

In regard to notional charging of administrative expenses of Rs.40000/- per unit, the ld. DR submitted that it is not correct. The appellant should have maintained separate books of accounts, in absence of which amount of administrative expenses calculated by the Assessing Officer is correct. It was also submitted that the appellant has violated the provisions of section 80IA(5) and claimed wrong depreciation. Therefore, the appeal of the assessee is liable to be dismissed.

After hearing both the parties and perusing the materials available on record, we find that the assessee was engaged in the manufacturing of wind mills. The WEGs units were set up as a demonstration units as also reveals from the auditor’s report dated 25.02.2005 placed at page No. 54 to 56 of the paper book wherein the assessee has stated that the primary reason for installing WEGs was to promote their basic business. The purpose of demonstration units is to convince the prospective buyers for purchasing the wind mills manufactured by the assessee. The power generated through such demonstration unit was, however, being sold by assessee to Tamilnadu Government. Therefore assessee was engaged in eligible business of supply of electricity for the purpose of claiming deduction u/s. 80IA of the Act. In view of the facts and circumstances of the case in the light of material on record, we find that the assessee is entitled for deduction u/s. 80IA of the Act as he was deriving income from such business which is eligible for such deduction. The receipts from sale of electricity has direct nexus with the basic business of the assessee, as these WEGs units were set up to boost such basic business. The ld. AR has relied on the decision of Hon’ble Delhi High Court in the case of RRB Consultants (P) Ltd. vs. CIT, 342 ITR 127 (Del.). We have gone through this decision. In this case, the Hon’ble Delhi High Court has only decided the question of validity of re-assessment order u/s. 147 on jurisdictional issue in favour of the assessee. The facts, attending to that case on jurisdictional issue though are not applicable to the present case, but on going through the factual matrix of that case on merits, we find, in that case also, WEGs units were installed for demonstration in order to promote the basic business and electricity generated from such WEGs was made to Govt. Deptt., on which deduction 80IA was claimed by the assessee. The Assessing Officer reduced the claim. But the ld. CIT(A) allowed the claim of the assessee in toto. Therefore, we find that the facts of the present case are quite identical from the facts attending to the case of RRB Consultants, wherein the Revenue authorities had allowed the identical claim of the assessee. Therefore, the ld. Authorities below were not justified in denying the exemption u/s. 80IA on technical consideration that the WEGs were installed for demonstration only and not for the purpose of power generation business. In fact it was only an added advantage that with the installation of WEGs, a new industrial unit giving a different source of income from business by way of power generation was emerged which incidentally enjoys tax holiday to a certain period u/s. 80IA of the Act. From page No. 57 & 58 of the paper book, it is clear that the assessee has correctly computed the eligible business profit from power generation units and deducted the same u/s. 80IA from gross business income. The eligible business profit deducted by the assessee as per section 80IA is, therefore, in consonance with the auditor’s report in form No. 10CCB available on record. The objection of the Assessing Officer that assessee has not produced separate accounts books for the generation units is also not tenable in view of the fact that the Revenue has already allowed deduction in the similar circumstances in the assessment years 2002-03, 2006-07 and 2007-08. The assessee has got auditor’s report in Form No. 10CCB which is duly certified by Chartered Accountant, placed at pages 54 to 56 of the paper book and depreciation has also been claimed as per IT Rules, which has been deducted from the total revenue receipts from electricity sold. Therefore, in the facts of the case, the ld. Authorities below were not justified in denying the claim of deduction u/s. 80IA of the assessee on this count.

In regard to the notional administrative expenses claimed by the assessee of Rs.40000/- per unit, we find that the Revenue has accepted the similar claim of same amount in previous assessment year 2002-03 and subsequent assessment years 2006-07 and 2007-08. The Revenue has failed to establish that there is any change in the circumstances during the year under consideration. Once, the Revenue authorities have accepted such expenditure of Rs.40000/- per unit in previous and subsequent years, we do not find any justification to discard the same claim of the assessee regarding notional administrative expenditure of Rs.40000/- per unit made for the year under consideration. Accordingly, the order of the ld. CIT(A) is set aside on this count. Accordingly, the appeal of the assessee deserves to be allowed.