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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Per Shri P.M. Jagtap:- These two appeals, one filed by the assessee being ITA No. 398/KOL/2008 and the other filed by the Revenue being ITA No. 537/KOL/2008, are cross appeals, which are directed against the order of the ld. Commissioner of Income Tax (Appeals)-XI, Kolkata dated 25.01.2008.
The assessee in the present case is a Company, which is engaged in the business of manufacture and sale of calcined petroleum coke and graphite electrodes. It is also engaged in the business of generation of power, which is consumed captively in the manufacture of Graphite Electrodes and Anodes as well as sold to outside customers. The return of income for the year under consideration was filed by it on 29.11.2000 declaring total income at NIL after claiming deduction, inter alia, under section 80IA and 80HHC. In the assessment originally completed under section 143(3) vide an order dated 31.03.2003, the total income of the assessee was determined by the Assessing Officer at Rs.3,26,30,395/- after allowing the claim of the assessee for deduction under section 80IA to the extent of Rs.13,86,09,898/-. Subsequently it was noticed by the Assessing Officer from the records that the deduction allowed to the assessee under section 80IA in the assessment completed under section 143(3) has been computed after taking into consideration the sale price in respect of power sold by the Company to outsiders at Rs.3.42 per unit and in respect of the powers transferred to other unit of the Company at Rs.4.35 per unit. He also noted that as per sub-section 8 of section 80IA, deduction in case of goods transferred to other business carried out by the assessee was required to be computed considering such transfer at the market value of such goods on the date of transfer. He, therefore, was of the view that by taking into consideration the rate of transfer of power
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at Rs.4.35 per unit instead of Rs.3.42 per unit in case of power transferred to other units of the assessee, excessive deduction was allowed to the assessee under section 80IA, which had resulted in escapement of income. He, therefore, reopened the assessment by issuing a notice under section 148 on 14.03.2005 and in the assessment completed under section 143(3) read with section 147 vide order dated 31.03.2006, the claim of the assessee for deduction under section 80IA was restricted by the Assessing Officer to Rs.3,51,52,890/-. In the said assessment, he also disallowed the claim of the assessee for deduction under section 80HHC and computed the total income of the assessee at Rs.17,04,72,490/-.
Against the order passed by the Assessing Officer under section 143(3) read with section 147, an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging therein the validity of the assessment made by the Assessing Officer under section 143(3) read with section 147 as well as disputing the additions made therein on account of disallowance of its claim for deduction under sections 80IA and 80HHC. After considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) did not find merit in the preliminary issue raised by the assessee challenging the validity of the assessment made by the Assessing Officer and dismissing the appeal of the assessee on this issue, he upheld the validity of assessment made by the Assessing Officer under section 143(3) read with section 147 for the following reasons given in his impugned order:- “Perusal of the assessment records shows that no queries were raised on the above issue. It was also never examined by the AO in any of the years of the assessee prior to passing order u/s 143(3) for this year. This issue was examined for the first time for AY 2003-04 in assessment order dated 28- 2-2006, and in ITAT decision for AY 1999-2000 and 2001-02 dated 06-12-2007 in orders made by the same AO but after the original order in this case. It is noteworthy that the CIT(A) and ITAT in above referred orders gave a finding that the price of power used for captive consumption should be at
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prices charged by the State Electricity Board (SEB) less the element of tax/duty element, which comes to Rs 0.20 paise per unit. It may or may not be acceptable by Revenue, but nothing turns on its acceptance. Since the assessee did not disclose the above facts in the annual accounts and return of income that the transfer price adopted for captive consumption of power included an element of duty/tax which it in fact did not pay or bear, the same was overstated at least to this extent. Perusal of the assessment order Para 17 shows the total number of units of power for captive use at 4,97,95,700 units on which duty/tax element @ Rs 0.20 paise comes to Rs.99,59,140/-. Although this calculation was not given by the AO in the reasons nor did he quantify the amount of income in the reasons, he was prima facie convinced that the amount of under-assessment was of sufficiently large Income to be covered as per the provisions for issue of notice u/s 48. In view of the above, I hold that the AO had sufficient reasons to hold a prima facie belief that income had escaped assessment within the meaning of section 147, and the same has been confirmed in the findings of the CIT(A) and ITAT in the assessee's own case. There is failure on the part of the assessee to disclose material fact in the return of income that SEB price used as indicator of realisable value of power included an element of tax/duty which it really did not have to pay. There is also no change of opinion by the AO as the issue was never touched upon in the orders of assessment or appeal”.
The ld. CIT(Appeals), however, allowed part relief to the assessee on the issues relating to the disallowance made by the Assessing Officer on account of its claim for deduction under section 80IA and 80HHC.
Aggrieved by the order of the ld. CIT(Appeals), the assessee and Revenue both are in appeals before the Tribunal on the following grounds:- ITA No. 398/KOL/2008 (Assessee’s appeal) 1. That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified and grossly erred in not holding that reassessment proceedings u/s. 147/148 has been initiated in utter disregard of the express provision of the Act and thus the order passed u/s. 147 is bad in law.
2(a) That on the facts and in the circumstances of the case, Ld. CIT(Appeals) was not justified and erred in holding that
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tax or levy is not be included in the computation of "Transfer Price" of power for computation of deduction u/s. 80-IA in respect of power generating unit.
2(b) That on the facts and in the circumstances of the case, Ld. CIT(Appeals) failed to appreciate the fact that the "Transfer Price" of power adopted by the appellant for computation of deduction u/s. 80-IA in respect of power generating unit was in accordance with the provisions of section 80-IA(8) of the Income Tax Act, 1961.
3(a) That on the facts and in the circumstances of .the case, Ld. CIT(Appeals) erred in confirming further allocation of interest expenditure for Rs.3,24,00,000/- to the power undertaking without appreciating the fact that the appellant maintains separate books of account for both the power units as well as for other units and interest expenditure attributable to the power units has already been considered in the said accounts.
3(b) That on the facts and in the circumstances of the case, and without prejudice to ground no. 3(a) taken here-in-above, the Ld. CIT(Appeals) erred in quantifying relief granted for Rs.2.10 crore instead of relief actually granted for Rs.3.24 crore thereby resulting in excess disallowance of Rs.1,14,00,000/-.
4.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in confirming further allocation of common expenditure to the tune of Rs.37,17,127/- to the power undertaking without appreciating the fact that the said expenditure are not related to power units.
5(a) That on the facts and circumstances of the case, Ld. CIT(Appeals) was not justified and erred in holding that DEPB receipts which falls under section 28(iv) also needs to be reduced from the Profit of the Business in terms of Explanation (baa) to section 80HHC
5(b) That on the facts and circumstances of the case, and without prejudice to Ground No. 5(a) here-in above, the Ld. CIT(Appeals) was not justified in not considering the fact that only profits on transfer of DEPB falls within the ambit of section 28(iiid) of the Act.
6(a) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was wholly unjustified in holding that 90% of interest received is to be reduced from the 'Profits and
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Gains of Business and Profession’ to arrive at the 'profits of the business' for computation of deduction u/s 80HHC.
6(b) That on the facts and in the circumstances of the case, and without prejudice to ground no. 6(a) taken here-in-above, the Ld. CIT(Appeals) erred in reducing 90% of the gross income, instead of 90% of the net income received from interest income in order to compute 'profits of the business' for the purpose of computation of deduction u/s. 80HHC.
7.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the levy of interest u/s. 234A to the tune of Rs.4,88,884/- despite the fact that the return filed in pursuance to notice u/s. 148 was within the time limit as specified in the said notice.
ITA No. 537/KOL/2008 (Revenue’s appeal) 1. "Whether under the facts and in the circumstances of the case, Ld.CIT(A) was justified in allowing ‘Market Value' as defined in sec. 80IA(8) of the I.T. Act at the price at which power was purchased for KEB in place of the price at which the assessee sold surplus power to customers."
"Whether under the facts and in the circumstances or the case, Ld.CIT(A) was justified in reducing the interest expenditure allocated by the A.O. for the purpose of Computing profit for the purpose of deduction u/s. 80IA, assuming that accumulated profit from power division was retained in the power unit itself whereas in the accounts of the assessee company, such profit was not shown to have been separately retained."
"Whether under the facts and in the circumstances of the case, ld. CIT(A) was justified in allowing MAT credit before charging of interest u/s.234B when as per the prescribed return of income, the interest has to be charged before allowing the MAT credit”.
Apropos the issue raised in Ground No. 1 of the assessee’s appeal challenging the validity of assessment made by the Assessing Officer under section 143(3) read with section 147, the ld. Counsel for the assessee invited our attention to the copy of reasons recorded by the Assessing Officer as placed at page 71 of his paper book and pointed out
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that the assessment originally completed by the Assessing Officer under section 143(3) was reopened by the Assessing Officer on the basis of the same records as were available while completing the assessment originally under section 143(3). He contended that no new fact or new material had come to the possession of the Assessing Officer after completing the assessment originally under section 143(3), which formed the basis of reopening and thus the reopening of assessment by the Assessing Officer was clearly based on a mere change of opinion. As regards the observation made by the ld. CIT(Appeals) in his impugned order while upholding the validity of reopening that the issue relating to the assessee’s claim for deduction under section 80IA was not examined by the Assessing Officer in the original assessment, the ld. Counsel for the assessee invited our attention to the relevant audit certificate placed at page 1 of his paper book as well as other working details given at pages 22, 23, 26 and 27 of the paper book to show that all the material particulars relevant to its claim for the deduction under section 80IA were truly and fully furnished by the assessee. He also invited our attention to the copy of notice issued by the Assessing Officer under section 142(1) of the Act on 13.01. 2003 (copy placed at page 35 of the paper book) to show that the issue relating to the assessee’s claim for deduction under section 80IA was looked into and examined by the Assessing Officer with particular reference to the realisable market value of power. He contended that the reopening of assessment by the Assessing Officer on the same issue, which was examined during the original assessment without there being any new material coming to his possession thus was based on a change of opinion, which is not permissible in law as held, inter alia, by the Hon’ble Supreme Court in the case of CIT –vs.- Kelvinator of India Limited reported in 320 ITR 561 and by the Hon’ble Calcutta High Court in the case of Debashis Moulik –vs.- ACIT reported in 370 ITR 660. He also invited our attention to a letter dated 23.03.2006 issued by the Assessing Officer (copy placed at pages 73
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& 74 of the paper book) and submitted that even though the Assessing Officer has made an attempt to further support the reopening of assessment by giving additional reasons, the same is not permissible in law and there is nothing new even in the said letter to justify the reopening of assessment. He contended that the ld. CIT(Appeals) while upholding the validity of reopening has relied on the appellate orders passed in assessee’s own case subsequently, which is not in accordance with law. He contended that these orders were not referred to by the Assessing Officer in the reasons recorded for reopening and the same in any case having been passed subsequently were not available to the Assessing Officer at the time of recording the reasons.
The ld. D.R., on the other hand, submitted that the claim for deduction under section 80IA was made by the assessee in the return of income by taking into consideration the value of Power Unit transferred to its other business at the rate higher than the market rate in clear violation of the provisions of sub-section 8 of section 80IA and by allowing the said claim, there was a mistake that had been committed by the Assessing Officer in allowing excessive deduction to the assessee under section 80IA resulting in to escapement of income. He contended that there was thus a valid reason to believe that the income of the assessee had escaped assessment, which fully justified the reopening of assessment under section 147 read with section 148. Relying on the decision of the Hon’ble Supreme Court in the case of Kalyanji Mavji & Co. –vs.- CIT reported in 102 ITR 287, he contended that the tax payer cannot take advantage of the mistakes committed by the authority. He, therefore, strongly relied on the impugned order of the ld. CIT(Appeals) upholding the validity of assessment made by the Assessing Officer under section 143(3) read with section 147 and read out the reasons given by the ld. CIT(Appeals) in paragraphs no. 5 to 7 of his impugned order for upholding the validity of the order of the Assessing Officer.
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In his rejoinder, the ld. Counsel for the assessee submitted that the scope and requirement of section 147/ 148 are specific and every mistake committed by the Assessing Officer cannot be corrected by recourse of the said provision.
We have considered the rival submissions and also perused the relevant material available on record. In order to appreciate the stand taken by both the sides on the preliminary issue raised in this case regarding the validity of reopening of assessment by the Assessing Officer, it is relevant to refer to the reasons recorded by the Assessing Officer for reopening the assessment, which are as under:- “Vide the assessment order u/s. 143(3) for the captioned year, deduction u/s. 801A has been granted at Rs.13,86,09,898/- in computing the total income chargeable to tax under the regular provisions of the Act. From the records it can be seen that the said deduction has been computed considering the sale price in respect of power sold by the company' to outsiders at Rs.3.42 per unit and in respect of the power transferred to other unit of the company at Rs.4.35 per unit. Under the provisions of section 80IA(8) deduction u/s 80IA in case of goods transferred to other business carried out by the assessee has to computed considering such transfer at the market value of such goods on the date of transfer. By considering the rate of transfer of power at the Rs.4.35 per unit instead of Rs.3.42 Per unit in case of power transferred to other units of the assessee, the assessee has claimed higher deduction u/s. 80IA of the Act.
In view of the above, I have reasons to believe that the income chargeable to tax has escaped assessment in so far as deduction u/s. 80IA has been granted at a higher value than actually allowable as per Act. Hence, reassessment proceedings u/s. 147 has been initiated and notice u/s. 148 dated 14.03.2005 is issued”.
It is manifest from the reasons recorded by the Assessing Officer for reopening the assessment that the assessment originally completed under section 143(3) was reopened by the Assessing Officer on the basis of the same records as was available before him while completing the original
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assessment under section 143(3) and there was no new material that had come to his possession on the basis of which the assessment was reopened by him. The ld. CIT(Appeals) in his impugned order and the ld. D.R. at the time of hearing before us has not disputed this position. The ld. CIT(Appeals) while upholding the validity of reopening has relied on the assessment order passed in assessee’s own case for A.Y. 2003-04 as well as the order of the Tribunal passed in assessee’s own case for A.Ys. 1999-2000 and 2001-02 wherein the similar issue relating to the assessee’s claim for deduction under section 80IA was decided against the assessee on merit. However, as rightly pointed out by the ld. Counsel for the assessee, assessment order for A.Y. 2003-04 was passed on 28.02.2006, while the ITAT’s order for A.Ys. 1999-2000 and 2001-02 was passed on 06.12.2007 and the benefit of the same, therefore, was not available to the Assessing Officer while recording the reasons on 24.03.2005. The said order thus constituted exterior material that was not even available to the Assessing Officer at the time of recording the reasons for reopening and we find merit in the contention of the ld. Counsel for the assessee that the same could not be relied upon to uphold the validity of reopening of assessment made earlier on 24.03.2005.
While rejecting the contention raised on behalf of the assessee while challenging the validity of reopening on the ground that the same was based on a mere change of opinion, the ld. CIT(Appeals) in his impugned order has observed that the perusal of assessment records shows that no queries were raised by the Assessing Officer during the course of assessment proceedings on the issue relating to the assessee’s claim for deduction under section 80IA. However, as demonstrated by the ld. Counsel for the assessee at the time of hearing before us on the basis of relevant material placed on record in his paper book that the issue relating to the assessee’s claim for deduction under section 80IA was not only examined by the Assessing Officer but a specific query in this
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context was raised by him vide notice dated 13.01.2003 (copy placed at page no. 26 of the paper book) issued under section 142(1) of the Act requiring the assessee to explain the basis of realisable market value of power adopted by the assessee. In our opinion, it, therefore, cannot be said that no query was raised by the Assessing Officer on this issue. On the other hand, the relevant material placed on record by the assessee shows that this issue was specifically examined by the Assessing Officer and on such examination, the claim of the assessee was considered and allowed by the Assessing Officer in the assessment originally completed under section 143(3) partly.
In the case of CIT –vs.- Kelvinator of India Limited reported in 320 ITR 561 cited by the ld. Counsel for the assessee, the Hon’ble Supreme Court has held that after the amendment made in section 147 w.e.f. April 01, 1989, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. It was held that “the concept of “change of opinion” must be treated as an in-built test to check the abuse of power and hence the Assessing Officer even after April 01, 1989 has power to reopen an assessment, provided there is “tangible material” to come to the conclusion that there was escapement of income from assessment”.
In the case of Debashis Moulik –vs.- ACIT reported in 370 ITR 660, all information, documents and other records relating to the assessee for the relevant assessment year were placed before the Assessing Officer during the assessment proceedings under section 143(3) and the assessment completed under section 143(3) was sought to be reopened by the Assessing Officer on the basis of new facts discovered from the existing records and in these facts and circumstances of that case, it was held by the Hon’ble Calcutta High Court that the assessment was
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reopened by the Assessing Officer merely on the basis of change of opinion, which was not permissible in law.
As already noted by us, there was no new material that had come to the possession of the Assessing Officer and since the assessment originally completed under section 143(3) was reopened by him on the basis of same material, which was available at the time of completion of original assessment under section 143(3), we are of the view that the reopening of assessment made by the Assessing Officer merely on the basis of change of opinion was bad in law. As regards the decision of the Hon’ble Supreme Court in the case of Kalyanji Mavji & Co. (supra) cited by the ld. D.R., we find that the same actually supports the case of the assessee as it was finally held therein by the Hon’ble Supreme Court that “where the Income Tax Officer gets no subsequent information but merely proceeds to reopen the original assessment without any fresh fact or material, the reopening would bad in law”. As such taking into consideration the relevant facts of the case as well as the legal position emanating from the judicial pronouncements discussed above, we are of the view that the reopening of assessment by the Assessing Officer in the present case itself was bad in law and the assessment computed by him under section 143(3) read with section 147 in pursuance thereof is invalid, which is liable to be cancelled. We order accordingly and allow Ground No. 1 of the assessee’s appeal.
Keeping in view our decision rendered above on the preliminary issue holding that the assessment made by the Assessing Officer under section 143(3) read with section 147 is liable to be cancelled being bad in law, the other issues raised in the appeal of the assessee as well as in the appeal of the Revenue relating to the additions/ disallowances made in the said assessment have become infructuous and we do not consider it necessary or expedient to adjudicate upon the same.
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In the result, the appeal of the assessee is treated as allowed as indicated above and the appeal of the Revenue is dismissed.
Order pronounced in the open Court on January 08, 2016.
Sd/- Sd/- (S.S. Viswanethra Ravi) (P.M. Jagtap) Judicial Member Accountant Member Kolkata, the 8th day of January, 2016
Copies to : (1) Graphite India Limited, 31, Chowringhee Road, Kolkata-700 016
(2) Deputy Commissioner of Income Tax, Central Circle-II, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069
(3) Commissioner of Income-tax (Appeals)-XI, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File
By order
Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.