DCIT 1(1), MUMBAI v. RELIANCE ENERGY LTD, MUMBAI

ITA 4702/MUM/2009 | 2001-2002
Pronouncement Date: 14-05-2010 | Result: Dismissed

Appeal Details

RSA Number 470219914 RSA 2009
Assessee PAN AACCR7446Q
Bench Mumbai
Appeal Number ITA 4702/MUM/2009
Duration Of Justice 9 month(s) 3 day(s)
Appellant DCIT 1(1), MUMBAI
Respondent RELIANCE ENERGY LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 14-05-2010
Assessment Year 2001-2002
Appeal Filed On 11-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: MUMBAI BEFORE SHRI N V VASUDEVAN JUDICIAL MEMBER AND SHRI B RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO 4654/MUM/2009 (ASSESSMENT YEAR: 2001-02) ITA NO 4630/MUM/2009 (ASSESSMENT YEAR: 2003-04) M/S RELIANCE ENERGY LTD RELIANCE ENERGY CENTRE SANTACRUZ (E) MUMBAI -400 055 PAN : AACCR 7446 Q VS DCIT CIRCLE 1(1) R NO 529 AAYAKAR BHAVAN M K ROAD MUMBAI -400 020 APPELLANT RESPONDENT ITA NO 4702/MUM/2009 (ASSESSMENT YEAR: 2001-02) ITA NO 4703/MUM/2009 (ASSESSMENT YEAR: 2003-04) DCIT CIRCLE 1(1) R NO 529 AAYAKAR BHAVAN M K ROAD MUMBAI -400 020 VS M/S RELIANCE ENERGY LTD RELIANCE ENERGY CENTRE SANTACRUZ (E) MUMBAI -400 055 PAN : AACCR 7446 Q APPELLANT RESPONDENT APPELLANT BY: S/SHRI ARVIND SONDE/ JITENDRA SANGHAVI/DIVYESH BALA RESPONDENT BY: SHRI R V JHA ORDER PER B RAMAKOTAIAH AM THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSE E ARE AGAINST THE ORDER OF THE CIT (A)-I MUMBAI DATED 2.6.2009 FOR ASSESSMENT YEARS 2001-02 AND 2003-04. THE ISSUE IN THE APPEALS BY THE REVENUE IS WITH REF ERENCE TO THE ACTION OF THE CIT (A) IN HOLDING THAT THE INITIATION OF REASSESSMENT PROC EEDINGS U/S.147 OF THE ACT AS INVALID AND CONSEQUENT CANCELLATION OF REASSESSMENT PROCEEDINGS AS BAD IN LAW. THE ISSUES IN THE APPEALS BY THE ASSESSEE ARE ON MERITS OF THE ADDITIONS MADE BY THE ASSESSING OFFICER IN THE REASSESSMENT PROCEEDINGS. CONSEQUENT TO THE DECISION OF ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 2 THE CIT (A) HOLDING THAT THE INITIATION OF REASSESS MENT PROCEEDINGS U/S.147 OF THE ACT AS INVALID AND CONSEQUENT CANCELLATION OF REASSESSM ENT PROCEEDINGS AS BAD IN LAW HE DID NOT DEAL WITH MERITS OF THE ADDITION MADE IN THE REASSESSMENT PROCEEDINGS. THE ASSESSEE IN ITS APPEALS HAS PRAYED THAT EVEN ON MERITS THE ADDITIONS MADE BY THE ASSESSING OFFICER IN THE REASSESSMENT PROCEEDIN GS ARE UNSUSTAINABLE. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE APPEALS BY THE REVENUE. 2. THE FACTS AND CIRCUMSTANCES GIVING RAISE TO THE APPEALS BY THE REVENUE ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN BUSINE SS OF GENERATION AND DISTRIBUTION OF ELECTRICITY. ORIGINALLY THE COMPAN Y WAS ONLY IN DISTRIBUTION OF ELECTRICITY IN THE SUBURBS OF MUMBAI. SUBSEQUENTLY IN A.Y. 1996-97 IT HAD PUT UP A PLANT FOR GENERATION OF ELECTRICITY AT DAHANU. THE COMPANY WAS ENTITLED TO DEDUCTION U/S 80IA IN RESPECT OF INCOME FROM GENERATION OF EL ECTRICITY AT DAHANU. THE RELEVANT SECTION READS AS FOLLOWS: [ DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM IND USTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTU RE DEVELOPMENT ETC. 80-IA. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRIS E FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOWED IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSEC UTIVE ASSESSMENT YEARS. (2) TO (3). (4) (I) TO (III) ( IV ) AN UNDERTAKING WHICH (A) IS SET UP IN ANY PART OF INDIA FOR THE GENERATION O R GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS TO GENERATE POWE R AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL 1993 AND ENDING ON THE 31ST DAY OF MARCH 2011 ; ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 3 THE CLAIM FOR DEDUCTION U/S 80IA WAS MADE IN AY 200 0-01 AND SUBSEQUENT YEARS. WE HAVE ALREADY SEEN THAT THE ASSESSEE WAS DISTRIBU TING POWER PRIOR TO ITS COMMENCING THE BUSINESS OF GENERATION AND DISTRIBUT ION OF POWER. THE ACTIVITY OF DISTRIBUTION OF ELECTRICITY WAS NOT ENTITLED TO THE BENEFIT OF DEDUCTION U/S.80-IA(4) OF THE ACT. IN ITS BUSINESS OF DISTRIBUTION OF ELECTR ICITY PRIOR TO ITS ACTIVITY OF GENERATION AND DISTRIBUTION OF ELECTRICITY THE ASSESSEE WAS P URCHASING ELECTRICITY FROM TATA POWER COMPANIES (TPC) AND DISTRIBUTING IT. AFTER T HE COMMENCEMENT OF GENERATION OF ELECTRICITY AT DAHANU THE COMPANY CONTINUED TO PURCHASE THE ELECTRICITY FROM TPC AS THE GENERATION OF ELECTRICITY AT DAHANU WAS ONLY 500 MW WHEREAS THE SUPPLY IN MUMBAI REGION WAS MORE THAN 1200 MW. THE ASSESSEE D ID NOT SELL THE ELECTRICITY THAT IT GENERATED AT DAHANU TO OUTSIDERS BUT UTILIZED TH E ENTIRE GENERATION IN THE EXISTING BUSINESS OF DISTRIBUTION OF ELECTRICITY IN MUMBAI. THE COMPANY IN AY 2000-01 HAD COMPUTED THE PROFIT ON GENERATION OF ELECTRICITY AT DAHANU BY TAKING THE AVERAGE SELLING PRICE REALIZED FROM THE CONSUMERS IN MUMBAI . THE AVERAGE PRICE WAS ARRIVED AT BY DIVIDING THE TOTAL REVENUE BY THE ACTUAL POWE R CONSUMED BY THE CONSUMERS. THE ASSESSING OFFICER IN AY 2000-01 DID NOT ACCEPT THE ABOVE METHOD OF WORKING OF PROFIT OF DAHANU UNIT AS IN HIS VIEW THE COMPANY WA S NOT ENTITLED TO THE DEDUCTION U/S 80IA ON THE DISTRIBUTION ACTIVITY. THE ASSESSI NG OFFICER HELD THAT THE COMPANY WAS ENTITLED TO DEDUCTION ONLY IN RESPECT OF GENERA TION OF ELECTRICITY AT DAHANU AND THE PROFIT / LOSS IN RESPECT OF DISTRIBUTION ACTIVI TY FROM THE COMMON INTER CONNECT POINT OF ELECTRICITY ACQUIRED FROM DAHANU AND TPC T O THE POINT OF CONSUMERS WAS NOT ENTITLED TO THE BENEFIT. THE ASSESSING OFFICER ADO PTED THE AVERAGE PURCHASE PRICE PAID TO TPC BY THE ASSESSEE AS MARKET VALUE OF TH E GOODS SUPPLIED BY ELIGIBLE BUSINESS-GENERATION OF ELECTRICITY AT DAHANU TO ITS NON ELIGIBLE BUSINESS- DISTRIBUTION THEREOF. THE ASSESSING OFFICER APPLIED SECTION 80I A(8) WHICH PROVIDES THAT THE GOODS TRANSFERRED FROM ONE BUSINESS TO ANOTHER BUSINESS O F THE SAME ASSESSEE SHOULD BE AT ITS MARKET VALUE TO ASCERTAIN THE PROFIT ELIGIBLE F OR DEDUCTION U/S 80IA. THE PROVISIONS OF SEC.80-IA(8) READ AS FOLLOWS: SEC.80-IA ( 8) WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSI NESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GOODS OR SERVICES HELD FOR T HE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND IN EITHER CASE THE CONSIDERATION IF ANY FOR SUCH TRANSFER AS RECORDED IN ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 4 THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORR ESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRA NSFER THEN FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION THE PROFITS AN D GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER IN E ITHER CASE HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON TH AT DATE : PROVIDED THAT WHERE IN THE OPINION OF THE ASSESSING OFFICER THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBL E BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICU LTIES THE ASSESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAINS ON SUCH REASONAB LE BASIS AS HE MAY DEEM FIT. EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTION MARKET VALUE IN RELATION TO ANY GOODS OR SERVICES MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. IN WORKING OUT THE PRICE PAID TO TPC BY THE COMPANY THE ASSESSING OFFICER INCLUDED THE STANDBY CHARGES PAID TO THEM IN RESPECT OF ASSU RED UNINTERRUPTED SUPPLY OF ELECTRICITY. STAND BY CHARGES ARE NOTHING BUT AN EXTRA PAYMENT WHICH THE ASSESSEE MAKES TO TPC OVER AND ABOVE THE PRICE PAID FOR THE UNITS OF ELECTRICITY SUPPLIED BY TPC TO ENSURE THAT THE SUPPLY OF POWER BY TPC IS UN INTERRUPTED. HOWEVER THERE WAS A DISPUTE BETWEEN THE COMPANY AND TPC REGARDING THE AMOUNT PAYABLE AS STANDBY CHARGES. THE ASSESSING OFFICER INCLUDED UN DISPUTED STANDBY CHARGES IN WORKING OUT THE PRICE. THE COMPANY WAS CLAIMING TH AT THE DISPUTED PORTION OF STANDBY CHARGES SHOULD ALSO BE INCLUDED IN WORKING OUT THE MARKET PRICE. THE ABOVE ISSUE OF AVERAGE CONSUMER SELLING PRICE VS TPC PRIC E BEING THE MARKET VALUE AS PROVIDED IN SECTION 80IA(8) WAS DECIDED BY CIT (A) . THE CIT (A) HAD UPHELD THE ASSESSING OFFICERS ORDER AND REJECTED THE COMPANY S CONTENTION TO CONSIDER AVERAGE CONSUMER SELLING PRICE. THUS THE TPC PRICE WAS CON SIDERED AS MARKET PRICE FOR THE PURPOSE OF SECTION 80IA(8). HOWEVER THE ISSUE REG ARDING DISPUTED STANDBY CHARGES WAS APPEALED TO THE TRIBUNAL. WHEN THE APPEAL WAS PENDING THE MATTER WAS RESOLVED BETWEEN TPC AND THE COMPANY AND A COMPROMI SE WAS REACHED ON THE AMOUNT OF STANDBY CHARGES. THE TRIBUNAL IN AY 2000 -01 HELD THAT THE AMOUNT FINALLY SETTLED BETWEEN THE COMPANY AND TPC SHOULD BE INCLU DED FOR WORKING OUT THE AVERAGE PRICE PAID TO TPC AND THAT SHOULD BECOME TH E MARKET VALUE FOR COMPUTING PROFIT OF GENERATION UNIT AT DAHANU FOR THE PURPOSE OF DEDUCTION U/S 80IA. THE ASSESSMENTS IN THE LATER YEARS WAS ALSO COMPLETED O N THE SAME BASIS AS THE ASSESSEE COMPANY ACCEPTED THE CIT(A) ORDER ON THE ISSUE OF A DOPTING PRICE PAID TO TPC. THUS ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 5 THE AMOUNT ON WHICH THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S.80-IA(4) WAS THUS DETERMINED IN THE ASSESSMENT PROCEEDINGS U/S.1 43(3) OF THE ACT. 3. HOWEVER THE REVENUE AUDIT IN THEIR REPORT CONS IDERED THE REASONABLE RETURN WORKED OUT BY MERC AND OBSERVED THAT THE PROFIT ELI GIBLE FOR DEDUCTION U/S 80IA HAS TO BE WORKED OUT BASED ON REASONABLE RETURN. SINCE THE REASONABLE RETURN FIGURE WAS FOR THE COMBINED ACTIVITY OF GENERATION AND DISTRIB UTION AUDIT OBSERVED THAT THE PROFIT DETERMINED IN THE MERC ORDER SHOULD BE ALLOC ATED IN THE RATIO OF POWER GENERATED AT DAHANU AND TOTAL POWER SUPPLIED BY THE COMPANY. CONSEQUENT TO THE AUDIT OBJECTION THE ASSESSING OFFICER REOPENED THE ASSESSMENTS FOR THE ABOVE TWO IMPUGNED ASSESSMENT YEARS. IT WAS THE ASSESSEES O BJECTION THAT A SIMILAR ISSUE WAS CONSIDERED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER WHICH UNDERWENT THE PROCESS OF APPEAL BEFORE THE CIT (A) AND THE TRIBUNAL. MOREOVER FOR ASSESSMENT YEAR AY 2001-02 THE REOPENING WAS AFTER FOUR YEARS FROM THE END OF ASSESSMENT YEAR AND THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS THEREFORE THE REOPENI NG IS BAD IN LAW. FOR ASSESSMENT YEAR 2003-04 SINCE THE ISSUE WAS ALREADY DECIDED I N THE ORIGINAL ASSESSMENT IT WAS CONTENDED THAT THERE WAS ONLY A CHANGE OF OPINION WHICH CANNOT BE A BASIS FOR REOPENING OF THE ASSESSMENT. THE ASSESSING OFFICER HOWEVER REJECTED THE CONTENTIONS AND MADE REASSESSMENT INVOKING THE PROV ISIONS OF SECTION 80IA(10) AND RE-DETERMINED THE PROFIT ELIGIBLE FOR DEDUCTION U/S 80IA. 4. AGGRIEVED THE ASSESSEE CONTESTED THE ISSUE BEFO RE THE CIT (A) NOT ONLY ON MERITS BUT ALSO ON ISSUE OF REOPENING OF ASSESSMEN T. THE CIT (A) IN HIS ORDER FOR AY 2001-02 AGAINST THE RE-ASSESSMENT ORDER HAS UPHELD THE CLAIM OF THE COMPANY THAT RE-ASSESSMENT WAS BAD IN LAW ON FOLLOWING GROUNDS:- I. THE ASSESSMENT WAS REOPENED BEYOND 4 YEARS FROM THE END OF THE ASSESSMENT YEAR AND THAT THERE IS NO FAILURE TO FUR NISH OR DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. II. SECOND PROVISO TO SECTION 147 PERMITS THE ASSES SING OFFICER TO REOPEN THE ASSESSMENT IN A CASE OTHER THAN INCOME INVOLVIN G MATTERS WHICH ARE SUBJECT MATTER OF AN APPEAL REVISION ETC AND THAT THE ISSUE OF DETERMINING ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 6 PROFIT OF DAHANU UNIT FOR THE PURPOSE OF DEDUCTION U/S 80IA WAS A SUBJECT MATTER OF APPEAL BEFORE TRIBUNAL. III. THE NOTICE U/S 148 WAS ISSUED FOLLOWING THE OB JECTION RAISED BY AUDIT AND THAT AUDIT THE OBJECTION WAS NOT ACCEPTED BY TH E ASSESSING OFFICER STATING THAT THE INCOME WAS ASSESSED IN CORRECT MANNER. TH IS VIEW WAS ALSO CONFIRMED BY CIT. IV. THE ACTION OF THE ASSESSING OFFICER HAS INVOLVE D A CHANGE OF OPINION. IN THE RE-ASSESSMENT THE ASSESSING OFFICER HAS RELIED UPON SECTION 80IA(10) WHEREAS IN THE ORIGINAL ASSESSMENT THE ASSESSING OF FICER HAD APPLIED SECTION 80IA(8). FURTHER THE ASSESSING OFFICER HAS ESTIMAT ED THE PROFIT ON 16% ON CAPITAL AS AGAINST THE METHOD ADOPTED IN THE ORIGIN AL ASSESSMENT WHICH WAS THE MARKET PRICE OF THE POWER SUPPLIED BY THE THIRD UNRELATED PARTY. THUS THERE WAS CHANGE OF OPINION. 5. COMING TO AY 2003-04 THIS IS A CASE OF REOPENIN G WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. FACTS ARE SAME EXCEPT THAT THE ASSESSEE COMPANY HAD ACCEPTED THE ASSESSING OFFICERS METHOD OF WORKING IN AY 2000-01 OF ADOPTING PRICE PAID TO TPC AS THE MARKET VALUE OF ELECTRICITY GENE RATED AT DAHANU AND TRANSFERRED TO DISTRIBUTION BUSINESS. HOWEVER THE COMPUTATION OF PROFIT OF DAHANU UNIT CONTINUED TO BE A SUBJECT MATTER OF APPEAL AS THE ISSUE RELAT ING TO DISPUTED STANDBY CHARGES IN THE COMPUTATION OF PROFIT OF DAHANU UNIT AND ALSO T HE ISSUE OF ALLOCATION OF HEAD OFFICE EXPENSES WERE DECIDED BY TRIBUNAL. CIT (A) FOLLOWED HIS OWN ORDER FOR AY 2001-02. THE CIT (A) ALSO HAS STATED THAT THE ASSE SSING OFFICER HAS REOPENED THE ASSESSMENT APPLYING SECTION 80IA(10) WHICH IS APPLI CABLE TO TRANSACTIONS BETWEEN TWO PERSONS. HE ACCORDINGLY CANCELLED THE REASSESSM ENT PROCEEDINGS FOR THIS ASSESSMENT YEAR ALSO. 6. THE REVENUE IS AGGRIEVED ON THE CANCELLATION OF NOTICES U/S 148 BY THE CIT (A) WHEREAS THE ASSESSEE IS AGGRIEVED THAT THE ISSUE W AS NOT CONSIDERED ON MERITS AS WELL. ACCORDINGLY THERE ARE CROSS APPEALS IN THES E TWO ASSESSMENT YEARS. 7. INITIATING THE DISCUSSION THE LEARNED DEPARTMEN TAL REPRESENTATIVE REITERATED THE FACTS AND SUBMITTED THAT THE ASSESSMENT FOR AY 2001-02 WAS REOPENED AFTER END OF 4 YEARS BUT THERE WERE REASONS TO BELIEVE ON THE FACTS THAT THE ASSESSEE HAS NOT ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 7 INFORMED ABOUT THE APPLICABILITY OF ELECTRICITY ACT AND THE NOTIFICATIONS AND THE ORDERS OF THE MERC WERE ALSO NOT ON RECORD ACCORDING TO W HICH THE ASSESSEE WAS ENTITLED ONLY FOR REASONABLE RETURN OF 16% ON THE CAPITAL EM PLOYED AND THEREFORE THERE ARE REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSME NT AS THERE WAS FAILURE ON THE PART OF ASSESSEE TO DISCLOSE THE FACTS. IT WAS FUR THER SUBMITTED THAT THE ISSUE OF QUANTUM OF PROFITS WAS NOT SUBJECT MATTER OF ORIGIN AL ASSESSMENT. THE ISSUE OF PRICING OF POWER GENERATED WAS ISSUE DETERMINED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT WHEREAS IN THE REASSESSMENT ISS UE WAS OF QUANTUM OF PROFITS ALLOCATED TO THE ELIGIBLE UNIT WHICH ARE ENTIRELY DIFFERENT. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE JUDGMENT OF THE ALLAHA BAD HIGH COURT IN THE CASE OF M/S EMA INDIA LTD VS ACIT CENTRAL CIRCLE I IN CIVIL MIS CELLANEOUS WRIT PETITION NO 181 (TAX) OF 2004 DATED 16.9.2009 AND PARTICULARLY PARA 35 WHICH IS AS UNDER:- THE ASSESSEE DOES NOT DISCHARGE HIS DUTY BY MERELY PRODUCING THE BOOKS OF ACCOUNT OR OTHER EVIDENCE. HE HAS TO FURTHER BRING TO THE NOTICE OF THE ASSESSING OFFICER PARTICULAR ITEMS IN THE BOOKS OF ACCOUNT OR PORTIONS OF DOCUMENT WHICH ARE RELEVANT. EVEN IF IT IS ASSUMED THAT FROM THE BOOKS PRODUCED THE ASSESSING OFFICER COULD HAVE FOUND OU T THE TRUTH HE IS NOT ON THAT ACCOUNT PRECLUDED FROM EXERCISING THE POWER TO RE-ASSESS THE ESCAPED INCOME (SEE. KANTAMANI VENKATA NARAYANA & SONS VS A DDL ITO 1967 63 ITR 638 (SC); SOWDAGAR AHMED KHAN VS ITO (1968) 70 ITR 79 (SC); ITO VS LAKHMANI MEWAL DAS (1976) 103 ITR 437 445 445 (S C). 7.2 HE ADMITTED THAT THIS JUDGMENT WAS GIVEN IN THE CONTEXT OF A CASE PERTAINED TO REOPENING WITHIN FOUR YEARS BUT THE PRINCIPLES WILL EQUALLY APPLY. HE ALSO SUBMITTED THAT FOR THE ASSESSMENT YEAR 2003-04 THE FACTS ARE SIMILAR EXCEPT THAT THE REASSESSMENT IN THIS CASE WAS DONE WITHIN 4 YEARS A ND PARAMETERS FOR CONSIDERING THE ISSUE IN THIS YEAR ARE SLIGHTLY DIFFERENT FROM THAT OF AY 2001-02. 8 THE LEARNED COUNSEL FOR THE ASSESSEE MADE ELABORA TE ARGUMENTS REFERRED TO VARIOUS DOCUMENTS PLACED IN FOUR VOLUMES OF PAPER B OOK AND PROVISIONS OF THE ACT AND THE ORDERS IN ASSESSEE CASE BY THE AO CIT(A) A ND TRIBUNAL IN VARIOUS YEARS. BRIEFLY STATED HIS FIRST PROPOSITION WAS THAT ASSE SSING OFFICER HAS NO REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMEN T. THE MAIN CONTENTION IS THAT THE PROVISIONS OF SECTION 80IA(10) WHICH WAS HELD TO BE APPLICABLE TO THE ASSESSEE ARE NOT AT ALL APPLICABLE TO THE ASSESSEE. HE REFER RED TO THE PROVISIONS OF SECTION ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 8 80IA(10) MORE PARTICULARLY TO THE WORDING OF THE P ROVISIONS ITSELF WHERE IT APPEARS TO THE ASSESSING OFFICER THAT OWING TO THE CLOSE CO NNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SEC TION APPLIES AND ANY OTHER PERSON OR FOR ANY OTHER REASON THE COURSE OF BUSINESS BETWEEN THEM WAS SO ARRANGED........... IT WAS HIS SUBMISSION THAT TH IS PROVISION CAN BE INVOKED ONLY WHEN THERE WERE TRANSACTIONS WITH ANY OTHER PERSON . IN THE ASSESSEES CASE IT WAS SUBMITTED THAT TRANSACTIONS WERE NOT BETWEEN THE TW O DIFFERENT ORGANISATIONS BUT IS A CASE OF TRANSFER OF GOODS FROM ELIGIBLE BUSINESS TO OTHER NON-ELIGIBLE BUSINESS WITH IN THE ORGANISATION. THE ASSESSING OFFICER HAS ORIGI NALLY INVOKED THE PROVISIONS OF SUB- SECTION (8) AS THAT PROVISION WAS APPLICABLE. ACCO RDINGLY HIS SUBMISSION THAT REFERENCE TO SECTION 80IA(10) IN THE REASONS RECORD ED ITSELF WAS NOT CORRECT AND SO REASON TO BELIEVE BY THE ASSESSING OFFICER DOES N OT EXIST. 8.2 NEXT PROPOSITION MADE BY THE LEARNED COUNSEL FO R THE ASSESSEE IS WITH REFERENCE TO FAILURE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS. IT WAS HIS SUBMISSION THAT THE ASSESSEE HAS DISCLOSED ALL MATERIAL FACTS. NOTIFICATION NO. S 0152E DATED 30 TH MARCH92 ISSUED UNDER ELECTRICITY ACT 1948 BY THE MAHARASHTRA GOVERNMENT WAS PUBLISHED IN THE OFFICIAL GAZETTE AND THEREFORE T HIS NOTIFICATION IS AVAILABLE TO THE PUBLIC AT LARGE. ACCORDINGLY RELYING ON THE JUDGM ENT OF HONBLE P & H HIGH COURT IN THE CASE OF N S LUDHANIA VS STATE OF PUNJAB (2009) NTN (VOLUME 40) 342 IT WAS HIS SUBMISSION THAT THERE IS NO NEED FOR THE ASSESSEE T O SPECIFICALLY BRING TO THE ASSESSING OFFICERS KNOWLEDGE ABOUT NOTIFICATION PU BLISHED IN THE OFFICIAL GAZETTE WAY BACK IN 1992 AND ASSESSMENT OF SUBSEQUENT YEARS HAV E BEEN COMPLETED EARLIER ALSO. EVEN OTHERWISE THE NOTIFICATION DATED 20 TH MARCH92 PROVIDES THAT PARAMETERS OF CALCULATING TARIFF WHILE DISTRIBUTING THE ELECTRICI TY WHICH HAS NOTHING TO DO WITH THE CALCULATION OF PROFITS OF DAHANU UNIT ON GENERATION OF ELECTRICITY. THEREFORE THE NOTIFICATION WAS EVEN OTHERWISE NOT APPLICABLE FOR COMPUTING THE PROFITS OF THE GENERATION UNIT. AS REGARDS THE MERC ORDER THE SA ME WAS ISSUED ON 1.7.2004 WHEREAS THE ORIGINAL ASSESSMENT ORDER WAS PASSED O N 23.3.2004. THE ASSESSEE CANNOT BE EXPECTED TO DISCLOSE THE FACTS WHICH ARE NOT IN EXISTENCE EVEN BY THE TIME THE ASSESSMENT ORDER WAS PASSED LEAVE ALONE AT THE TIME OF FILING THE RETURN. ON THIS PROPOSITION THE LEARNED COUNSEL RELIED ON THE JUDGMENTS IN GRINDWELL NORTON LTD ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 9 V ACIT 267 ITR 673 (BOM) & BHAGWATI SAHAKARI SAKAR KARKHANA LTD V DCIT 269 ITR 186 (BOM). IT WAS HIS SUBMISSION THAT THE ASSESSEE CANNOT DISCLOSE FACTS WHICH ARE NOT IN ITS KNOWLEDGE AND THAT CANNOT BE A REASON FO R REOPENING THE ASSESSMENT. 8.3 CONTINUING THE ARGUMENTS THE LEARNED COUNSE L ALSO MADE A PROPOSITION THAT THE REASONS TO BELIEVE HAS TO EXIST BOTH AT THE TIM E OF REOPENING AS WELL AS AT THE TIME OF MAKING THE REASSESSMENT. REFERRING TO SECT ION 152(2) IT WAS HIS SUBMISSION THAT THE ASSESSING OFFICER SHOULD HAVE DROPPED THE PROCEEDINGS IN CASE HE HAS NO REASON TO BELIEVE OR AT LEAST WHEN THE ASSESSEE EXP LAINS THAT NO INCOME HAS ESCAPED THE ASSESSMENT. CONSEQUENTLY THE REASONS TO BELIE VE THAT INCOME HAS ESCAPED THE ASSESSMENT MUST EXIST AT THE TIME OF COMPLETION OF REASSESSMENT. REFERRING TO THE REPLIES GIVEN BY THE ASSESSING OFFICER AND BY THE C IT TO THE AUDIT PLACED IN THE PAPER BOOK AT PAGE 445 TO PAGE 455 IT WAS HIS SUBMISSIO N THAT SINCE ASSESSING OFFICER AS WELL AS CIT HAS NOT ACCEPTED THE AUDIT OBJECTION I T CANNOT BE STATED THAT THEY HAVE REASONS TO BELIEVE AT THE STAGE OF COMPLETION OF RE ASSESSMENT PROCEEDINGS. ON THIS PROPOSITION ALONE THE ASSESSMENT PROCEEDINGS ARE B AD IN LAW. 8.4 ANOTHER CONTENTION RAISED BY THE LEARNED COUNSE L IS THAT THE SECOND PROVISO TO SECTION 147 PREVENTS THE ASSESSING OFFICER FROM REOPENING THE ASSESSMENT IN RESPECT OF MATTERS WHICH ARE SUBJECT MATTER OF APP EAL. IT WAS HIS SUBMISSION THAT THE SUBJECT MATTER OF APPEAL IN THE ORIGINAL ASSESS MENT WAS DETERMINATION OF MARKET VALUE OF ELECTRICITY TRANSFERRED FROM DAHANU UNIT T O DISTRIBUTION NETWORK AND ARRIVING AT THE PROFIT ON GENERATION BY THE ELIGIBLE UNIT FO R THE PURPOSE OF DEDUCTION U/S 80IA. THE ASSESSING OFFICER HAS DETERMINED THE MARKET VAL UE ON THE BASIS OF PURCHASE PRICE OF TATA POWER CORPORATION (TPC) IN DETERMINING THE SALE PRICE OF THE GENERATED UNIT. THE ONLY ISSUE CONTESTED IS ALSO WITH REFERENCE TO THE SALE PRICE ON THE STANDBY CHARGES PAID TO TPC. BY THE TIME THE ORDERS WAS CON SIDERED BY THE ITAT IN AY 2000- 01 THE ASSESSEE AND TPC HAS SETTLED THE ISSUE OF S TANDBY CHARGES AND ACCORDINGLY THE TRIBUNAL HAS DIRECTED THE AO TO WORK-OUT AVERAG E PRICE PAID TO TPC WHILE COMPUTING THE PROFIT OF GENERATION UNIT AT DAHANU U NIT. IT WAS HIS SUBMISSION THAT THE ISSUE BEFORE ITAT WAS NOTHING BUT DETERMINATION OF PROFIT ON GENERATION OF ELECTRICITY BY THE DAHANU UNIT AND ASSESSING OFFICE R HAS CORRECTLY INVOKED SECTION ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 10 80IA(8) IN THE ORIGINAL ASSESSMENT WHICH WAS SUBJE CT MATTER OF APPEAL AND SO REOPENING ON THE BASIS OF NON-APPLICABLE OF SECTION 80IA(10) WAS NOT ONLY BAD IN LAW BUT ALSO PROHIBITED BY THE SECOND PROVISO TO SECTIO N 147. HE RELIED ON THE DECISION OF THE CIT VS NIRMA CHEMICALS WORKS PVT LTD 309 ITR 67 (GUJ) AND DECISION OF THE ITAT IN THE CASE OF SUJATA GROVER V DCIT 74 TTJ 347 AND MARICO INDUSTRIES LTD VS ACIT 115 TTJ (MUM) 497. THE LATTER TWO DECISIONS ARE GI VEN IN THE CONTEXT OF SECTION 263 BUT THE PRINCIPLES ARE EQUALLY APPLICABLE. 8.5 THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE REASSESSMENT IS NOTHING BUT CHANGE OF OPINION. REFERRING TO THE ARGUMENTS MADE EARLIER IT WAS HIS SUBMISSION THAT THE ASSESSING OFFICER HIMSELF HAS INVOKED SECT ION 80IA(8) AND WORKED OUT THE PROFITS OF THE DAHANU UNIT BY ADOPTING THE PRICE PA ID TO TATA POWER COMPANIES FOR PURCHASE OF ELECTRICITY. THIS VIEW WAS CONFIRMED B Y THE CIT (A) IN AY 2000-01 AND ALSO ACCEPTED BY THE ASSESSEE IN THE LATER YEARS ON THE BASIS OF WHICH THE ASSESSING OFFICER HAS RECOMPUTED THE PROFITS. ADOPTION OF A DIFFERENT METHOD NOW ON THE BASIS OF AUDIT OBJECTION IS NOTHING BUT CHANGE OF OPINION . FOR THIS PROPOSITION HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS KELVINATOR OF INDIA LTD 320 ITR 561 (SC) AND ALSO BOMBAY HIGH COURT JUD GMENTS IN THE CASE OF GERMAN REMEDIES LTD VS DCIT 285 ITR 26 (BOM) SIEMENS INFO RMATION SYSTEM LTD VS ACIT 295 ITR 333 (BOM) AND ASIAN PAINTS LTD VS DCIT 308 ITR 195 (BOM). IT WAS HIS SUBMISSION THAT THE ASSESSING OFFICER HAS CHANGED H IS OPINION ABOUT THE WORKING OF PROFITS AND SO THE ORDERS OF THE CIT (A) ON THIS IS SUE ARE TO BE UPHELD. 8.6 IN HIS SUBMISSIONS THE LEARNED COUNSEL ALSO ARGUED HOW THE PROVISIONS OF SECTION 80IA(10) ARE NOT APPLICABLE TO THE ASSESSEE S CASE ON MERITS AND REFERRED TO THE TARIFF ORDER IN EXPLAINING HOW TARIFF WAS FIXED FOR THE CONSUMER BY THE MERC AND WHY THE SUBMISSIONS MADE THEREIN CANNOT BE THE BASI S FOR DETERMINING THE PROFITS OF THE ASSESSEE. HE ALSO REFERRED TO THE VARIOUS WORK INGS GIVEN BY THE ASSESSEE TO THE MERC FOR FIXATION OF TARIFF AND EXPLAINED THE INTRI CACIES ABOUT THE FIXING OF TARIFFS TO THE CONSUMERS DEPENDING ON THE NATURE DOMESTIC/ IND USTRIAL CONSUMERS AND VARIOUS TARIFF RATES FOR VARIOUS CLASS OF PEOPLE WHICH HAS NO BASIS FOR DETERMINING THE PROFITS OF GENERATION UNIT. THE TARIFF RATES ARE APPLICABL E FOR DISTRIBUTION OF ELECTRICITY AND WHILE ARRIVING AT THE TARIFF THEY HAVE VARIOUS PAR AMETERS INCLUDING 16% REASONABLE ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 11 RETURN ON CAPITAL INVESTMENT. THIS IS ONLY ONE OF THE CONSIDERATION IN FIXING THE TARIFF BUT MERC ALSO TAKES INTO CONSIDERATION THE ACTUAL P ROFITS EARNED SO FOR AND POSSIBLE PROFITS IN FUTURE AND VARIOUS OTHER CONSIDERATIONS/ PARAMETERS IN DETERMINING THE TARIFFS WHICH HAS NO RELEVANCE AT ALL IN ARRIVING AT THE PROFITS OF THE GENERATION UNIT. HE ALSO MADE REFERENCE TO THE AUDIT OBJECTION REPL IES TO THE AUDIT OBJECTION PLACED IN THE PAPER BOOK TO SUBMIT THAT REOPENING PURSUANT TO AUDIT OBJECTION IS INVALID AND REFERRED TO THE HONBLE BOMBAY HIGH COURT JUDGEMENT IN IL & FS INVESTMENT MANAGERS VS ITO 298 ITR 32 (BOM) WHEREIN THE HONBL E BOMBAY HIGH COURT HAS CANCELLED THE REASSESSMENT WHERE AUDIT OBJECTIONS W ERE NOT ACCEPTED BY THE ASSESSING OFFICER BUT PROCEEDINGS WERE INITIATED. IT WAS HIS SUBMISSION THAT SIMILAR FACTS EXIST IN THE ASSESSEES CASE. HE ALSO REFERR ED TO THE CROSS APPEALS BY THE ASSESSEE ON MERITS HOLDING THAT THE ASSESSING OFFIC ER ORDER IN DETERMINING THE PROFITS OF THE DAHANU UNIT IS NOT ACCORDING TO THE PROVISIO NS OF THE ACT AND THE FACTS. HE SUPPORTED THE ORDERS OF THE CIT (A) WHO CANCELLED T HE REASSESSMENT PROCEEDINGS. HE ALSO SUBMITTED THAT ASSESSEES CROSS APPEALS DOES N OT REQUIRE ADJUDICATION SPECIFICALLY AS THE ISSUE WAS TO BE DECIDED IN THE REVENUE APPEALS WHEREIN MERITS OF THE ASSESSMENT ORDER WAS ALSO TO BE DISCUSSED ELABO RATELY AND RELIED ON FACTS EXPLAINED IN THE COURSE OF SUBMISSIONS. THE LEARNE D COUNSEL ALSO SUBMITTED THE FOLLOWING CHART REFERRING TO THE ORDERS IN VARIOUS ASSESSMENT ORDERS PLACED IN THE PAPER BOOK:- S N O ASSES- SMENT YEAR ASSESSING OFFICERS ORDER CIT (A)S ORDER TRIBUNAL ORDER PAGE NO PARA NO PAGE NO OF COMBINED PAPERBOOK PAGE NO PARA NO PAGE NO OF COMBIN- ED PAPER- BOOK PAGE NO PARA NO PAGE NO OF COMBINED PAPERBOOK 1 2000-01 25 TO 33 12 TO 12.11 25 TO 33 29 TO 32 9 TO 9.1 63 TO 66 21 TO 27 16 TO 16.5 87 TO 94 2 2001-02 20 TO 22 14 TO 14.3 122 TO 124 23 TO 24 GROUND NO.8 157 & 158 4 TO 7 8 TO 9.1 189 TO 192 3 2002-03 19 TO 21 11 TO 11.4 236 TO 238 11 TO 14 9 TO 9.3.3 257 TO 260 4 2003-04 32 TO 36 11 TO 11.4 306 TO 310 -- 9 TO 9.3.3 345 TO 347 7& 8 13 326 & 363 ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 12 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND EXAMINE D THE RECORD. IN ORDER TO APPRECIATE THE ISSUE IT IS NECESSARY TO REPRODUCE THE REASONS FOR REOPENING THE ASSESSMENT AS RECORDED BY THE ASSESSING OFFICER FO R ASSESSMENT YEAR 2001-02. SIMILAR REASONS WERE ALSO RECORDED FOR AY 2003-04. REASONS RECORDED FOR AY 2001- 02 ARE AS UNDER:- IN THIS CASE THE ASSESSEE HAS FILED THE RETURN OF INCOME FOR AY 2001-02 ON 31.10.2001 DECLARING TOTAL INCOME AT NIL AND TAX ABLE INCOME U/S 115JB AT RS 3 41 86 93 066/-. THE ASSESSMENT ORDER U/S 143(3) OF THE ACT HAS BEEN PASSED ON 23.03.2004 ASSESSING THE TOT AL INCOME UNDER NORMAL PROVISIONS OF THE ACT AT RS 38 31 48 980 AND U/S 115JB OF THE ACT AT RS 3 41 95 51 266. IN THE SAME ASSESSMENT O RDER THE ASSESSEE HAS BEEN ALLOWED THE DEDUCTION U/S 80IA OF THE ACT AT RS 1 46 72 642 (IN RESPECT OF PROFIT FROM ELASTIMOLD BUSINESS) AND ALSO AT RS 3 14 31 23 593 IN RESPECT OF PROFIT FROM GENERATION ACTIVITY. SECTION 80IA(10) OF THE I.T. ACT 1961 PROVIDES THA T WHERE IT APPEARS TO THE AO THAT OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SEC TION APPLIES AND ANY OTHER PERSON OR FOR ANY OTHER REASON THE COURSE O F BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BE TWEEN THEM PRODUCED TO THE ASSESSEE MORE THAN THE ORDINARY PRO FITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS THE AO SHALL IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION TAKE THE AMOUNT OF PR OFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. TARIFF FOR PURCHASE OF SALE OF POWER IS DETERMINED ON THE BASIS OF THE NORMATIVE PARAMETERS DETERMINED BY THE GOVT. OF IND IA UNDER ITS NOTIFICATION NO.SO 251(E) DATED 30.3.1992 ISSUED UN DER THE PROVISIONS OF ELECTRICITY ACT 1948. TARIFF SITUATES BOTH FO R THE CENTRAL SECTOR AND INDEPENDENT POWER PRODUCERS (IPPS) WERE DETERMINED ON COST PLUS PROFIT BASIS. PROFIT WAS DETERMINED ON THE RETURN ON EQUITY BASIS WHICH WAS TO BE COMPUTED ON THE PAID UP AND SUBSCRI BED CAPITAL RELATABLE TO THE GENERATING UNIT AT THE RATE OF 16 PER CENT OF SUCH CAPITAL. IN THIS CASE THE ASSESSEE HAS CLAIMED TH E DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF GENERATION OF POWER FROM I TS POWER FROM ITS POWER UNIT LOCATED AT DAHANU. WHILE FILING THE RET URN OF INCOME FOR AY 2001-02 THE ASSESSEE WAS AWARE THAT THE PROFIT SHO ULD NOT EXCEED THE 16% OF ITS CAPITAL DURING THE PY IN VIEW OF THE PRI NCIPLES WHICH ARE THE BASIS FOR THE FIXATION OF TARIFF. HOWEVER THE ASS ESSEE HAS CLAIMED THE DEDUCTION U/S 80IA OF THE ACT ON THE PROFITS OF DAH ANU UNIT WHICH EXCEEDED 16% OF ITS CAPITAL. TOUGH THE MERC ORDER IN CASE NO.18 OF ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 13 2003 WAS NOT PASSED TILL THE DATE OF PASSING OF THE ORDER U/S 143(3) OF THE ACT IN THE ASSESSEES CASE HOWEVER SINCE THE ASSESSEE WAS AWARE OF THE TARIFF REGULATION OF RESTRICTING ITS PROFITS TO 16% IN VIEW OF THE ACT (SUPRA) THE CLAIM OF DEDUCTION U/S 80IA SHOULD HAV E BEEN ACCORDINGLY RESTRICTED IN THE RETURN OF INCOME FILED BY THE ASS ESSEE AND THIS FACT SHOULD ALSO HAVE BROUGHT TO THE NOTICE OF THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS. THUS I AM OF THE VIEW THA T THE CLAIM OF EXCESS DEDUCTION U/S 80IA OF THE ACT IS BECAUSE OF FAILURE ON THE PART OF THE ASSESSEE BY NOT DISCLOSING THESE FACTS TRULY A ND FULLY. MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (MERC ) IN ITS ORDER IN THE CASE NO.18 OF 2003 CALCULATED CLEAR PROFIT OR REAS ONABLE RATE OF RETURN ON THE ASSESSEES CAPITAL FOR BOTH GENERATION AND D ISTRIBUTION OF POWER. ON PERUSAL OF ASSESSEES RECORDS FOR AY 2001-02 IT IS OBSERVED THAT INCORRECT COMPUTATION OF PROFITS WITHOUT TAKING INT O CONSIDERATION THE TARIFF REGULATION WHICH PROVIDES FOR CLEAR PROFIT A ND REASONABLE RATE OF RETURN ON CAPITAL BASE METHOD HAS RESULTED IN ESCAP EMENT OF INCOME TO THE EXTENT OF RS 177.08 CRORES WHICH IS WORKED OUT AS UNDER: RS IN CRS REASONABLE PROFIT ALLOWED BY MERC WHILE CALCULATING TARIFF 230 NET POWER TRANSFERRED FROM GENERATED UNIT 3231 TOTAL SALES IN LICENSE AREA 5415 PRORATE REASONABLE PROFIT 137.23 80IA DEDUCTION COMPUTED 480.41 80IA AVAILED AFTER RESTRICTING TO AVAILABLE TOTAL I NCOME 314.31 EXCESS 80IA DEDUCTION AVAILED 177.08 THEREFORE I HAVE REASON TO BELIEVE THAT IN THE CAS E OF THE ASSESSEE THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX TO THE EXT ENT OF RS 177.08 CRORES HAS ESCAPED THE ASSESSMENT FOR AY 2001-02. THIS ESCAPEMENT OF INCOME IS BY REASON OF THE FAILURE ON THE PART O F THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACT NECESSA RY FOR THE ASSESSMENT FOR THE ASSESSMENT YEAR 2001-02 ISSUE NOTICE U/S 148 OF THE ACT. 10. AS CAN BE SEEN FROM THE ABOVE THE ASSESSING OF FICERS REASON TO BELIEVE ARISES FROM THE INTERPRETATION OF SECTION 80IA(10) AND FUR THER THE DETERMINATION OF PROFITS ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 14 AS REASONABLE RATE OF RETURN ON CAPITAL ON THE BASI S OF ELECTRICITY ACT 1948 AND MERC ORDER WHICH ADMITTEDLY WAS ISSUED AFTER COMPLETION OF ASSESSMENT ORDER. THESE ISSUES ARE DEALT WITH AS UNDER 10.1 ISSUE OF APPLICABILITY OF SECTION 80IA(10) THE PROVISION OF SECTION 80IA(10) RELIED UPON BY TH E ASSESSING OFFICER IS AS UNDER:- 10. WHERE IT APPEARS TO THE ASSESSING OFFICER THAT OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELI GIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON OR FOR A NY OTHER REASON THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BU SINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINAR Y PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS THE AS SESSING OFFICER SHALL IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BU SINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION TAKE THE AMOUNT O F PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. 10.1.2 AS CAN BE SEEN FROM THE PROVISION THE ASSE SSING OFFICER CAN ONLY INVOKE THIS PROVISION ONLY WHEN THERE IS A CLOSE CONNECTIO N BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS AND ANY OTHER PERSON OR FO R ANY OTHER REASON THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSIN ESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PRO FITS. THIS SUB-SECTION POSTULATES THAT THERE SHOULD BE CLOSE CONNECTION BETWEEN THE A SSESSEE AND ANY OTHER PERSON. IN THIS CASE THE ASSESSEE IS GENERATING AND ALSO T RANSMITTING IN ITS BUSINESS ONLY. THERE ARE NO TRANSACTIONS WITH ANY OTHER PERSON. A S SUBMITTED BY THE LEARNED COUNSEL SECTION 80IA(10) HAS NO RELEVANCE TO THE A SSESSEES BUSINESS TRANSACTIONS IN GENERATION AND TRANSMISSION OF POWER. ACCORDINGLY WE ARE OF THE VIEW THAT INVOKING THE PROVISIONS OF SECTION 80IA(10) DOES NOT ARISE I N THIS CASE. AS ALREADY STATED ELSEWHERE IN THE FACTS OF THE CASE THE ASSESSING O FFICER ORIGINALLY HAS INVOKED SECTION 80IA(8) WHICH IS THE CORRECT PROVISION APPLICABLE T O THE TRANSACTIONS OF THE ASSESSEE. SECTION 80IA(8) IS AS UNDER: 8.WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF ANY OTHE R BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS A ND IN EITHER CASE THE CONSIDERATION IF ANY FOR SUCH TRANSFER AS RECORDE D IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRANSFER THEN FOR THE PURPOSES OF THE DEDUCTION ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 15 UNDER THIS SECTION THE PROFITS AND GAINS OF SUCH E LIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER IN EITHER CASE HAD BE EN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE : PROVIDED THAT WHERE IN THE OPINION OF THE ASSESSING OFFICER THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS I N THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES THE AS SESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAINS ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION MARKET VALUE IN RELATION TO ANY GOODS OR SERVICES MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. 10.1.3 IN VIEW OF THE CLEAR PROVISIONS OF SECTI ON 80IA(8) APPLICABLE TO THE ASSESSEES BUSINESS WHERE THERE ARE TRANSACTIONS B ETWEEN ELIGIBLE BUSINESS AND ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE (GENERALL Y CALLED NON-ELIGIBLE BUSINESS) THE ASSESSING OFFICER HAS TO DETERMINE THE MARKET V ALUE OF GOODS AND SERVICES IN ARRIVING AT THE PROFITS. THIS ASPECT WAS TAKEN CAR E BY THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMENT FROM AY 2000-01 AND ONW ARDS AND SO THE ASSESSING OFFICERS OPINION IN INVOKING THE PROVISIONS OF 80I A(10) IS NOT ACCORDING TO THE LAW AND FACTS. 10.2 TARIFF DETERMINED IN THE MERC ORDER ANOTHER REASON FOR REOPENING IS THE ORDER FOR DETER MINATION OF TARIFF FOR SALE OF POWER ISSUED BY THE MAHARASHTRA REGULATORY COMMISSI ON FOR FINANCIAL 2004-05 IN ASSESSEE CASE OF 18 OF 2003 DATED 1.7.2004. AS AD MITTED BY THE ASSESSING OFFICER HIMSELF IN THE REASONS RECORDED THIS ORDER WAS NOT AVAILABLE AT THE TIME OF COMPLETION OF ORIGINAL ASSESSMENT THEREFORE THE A SSESSEE CANNOT BE CONSIDERED TO HAVE NOT DISCLOSED FULL FACTS WHEN THE SAID ORDER I TSELF WAS NOT AVAILABLE AND EVEN THE PROCEEDINGS HAVE NOT BEEN INITIATED FOR ANY OF THE ASSESSMENT YEARS UNDER CONSIDERATION. AS CAN BE SEEN FROM THE ORDER OF TH E MERC THE ORDER ITSELF INDICATES THAT IT IS IN A MATTER OF APPROVAL OF M/S BSES LTD) (NOW A RELIANCE ENERGY LT D)S ANNUAL REVENUE REQUIREMENTS FOR FINANCIAL YEAR 2003 -04 AND 2004-05 AND DETERMINATION OF TARIFF FOR FY 2004-05 . THE ISSUE BEFORE THE MERC UNDER THE ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 16 ELECTRICITY ACT 2003 VIDE POWERS VESTED IN SECTION 61 & 62 IN THE MERC WAS FOR DETERMINATION OF THE TARIFF FOR SUPPLY OF ELECTRICI TY TO VARIOUS CATEGORIES OF CONSUMERS. IN ITS DETAILED ORDER THE MERC HAS TAKEN INTO CONS IDERATION VARIOUS FACTORS OBJECTIONS AND ALSO THE DETAILS PARTICULARLY THE STATEMENTS SUBMITTED BY THE BSES OBJECTIONS FROM THE GENERAL PUBLIC AND ULTIMATELY M ADE VARIOUS ADJUSTMENTS TOWARDS CAPITAL COST FUEL ADJUSTMENT REVENUE PROJECTIONS REQUIREMENT OF FUNDS IN NEXT FEW YEARS PAST PROFITS OF THE COMPANY IN THE DETAILED ORDER. THE FIRST PART OF THE ORDER CONSIST OF BRIEF HISTORY OF TARIFF DETERMINATION S ECOND PART CONTAINS VARIOUS OBJECTIONS RAISED AND THE ISSUES AND THE FINDINGS ON THE ISSUE S AND THIRD PART COMPRISES COMMISSIONS ANALYSIS AND ITS DECISIONS ON BSES SUBM ISSIONS ARR AND TARIFF OBJECTIONS FOR FY 2003-04 AND 2004-05 AND COMMISSI ONS REASONING IN ARRIVING AT ACCEPTABLE FIGURES WITH REFERENCE TO THE FIGURES FU RNISHED BY BSES. THE LAST PART CONTAINS THE DETERMINATION OF TARIFF FOR VARIOUS CA TEGORIES IN FINANCIAL YEAR 2004-05. THIS INDICATES THAT ENTIRE EXERCISE OF THE REGULATO RY COMMISSION WAS WITH REFERENCE TO DETERMINING ANNUAL REVENUE REQUIREMENT AND FIXING T HE TARIFF FOR SUPPLY OF ELECTRICITY TO VARIOUS CONSUMERS GROUPS. AS PER THE PROVISIONS OF THE ELECTRICITY ACT AS MODIFIED BY THE VARIOUS PROVISIONS OF STATE ACT THE MERC HA S FOR THE FIRST TIME ISSUED A TARIFF ORDER ON 1 ST JULY 2004 WHICH IS APPLICABLE FOR FINANCIAL YEAR 2 004-05. IN DETERMINING THE TARIFF THERE ARE VARIOUS PARAMETERS TO BE CONS IDERED AND IN THAT ONE SUCH PARAMETER IS THE REASONABLE RATE OF RETURN AT 16% O F THE CAPITAL COST. HOWEVER THERE ARE VARIOUS METHODOLOGIES IN ARRIVING AT VARI OUS WORKINGS FOR DETERMINING THE TARIFF AND THIS IS BASED ON THE PROVISIONS OF THE A CT VARIOUS INSTRUCTIONS AND FINDINGS OF THE COMMISSION. AS PER THE MOP NOTIFICATIONS I NVESTMENTS MADE AFTER 31.3.1999 ARE ELIGIBLE FOR REASONABLE RETURN OF 16%. LICENCEE S WERE ALSO ENTITLED FOR 0.5% RETURN ON LOANS FROM APPROVED INSTITUTIONS AND ON THE INVE STMENT ALLOWANCES RESERVE. FURTHER IT INDICATES THAT ON ACCOUNT OF COMMISSION S PHILOSOPHY IN REDUCING THE RESERVES TO MATCH THE SHORTFALL IN CLEAR PROFIT ON YEARLY BASIS STATED CAPITAL BASE WAS HIGHER THAN THE CAPITAL BASE PROJECTED BY THE BSES. ACCORDINGLY THE RESTATED LEVEL OF REASONABLE RETURNS FOR THE PERIOD FY 2002-03 TO FINANCIAL YEAR 2004-05 HAS BEEN GIVEN IN DETAIL IN PAGE 117 OF THE ORDER. AS SEEN FROM THE ORDER AND THE TABLE THERE ARE VARIOUS RATES OF RETURN FOR INVESTMENTS MADE BY THE ASSESSEE COMPANY FROM CAPITAL BASE ON 31 ST MARCH 1965 TO 1 ST APRIL 1999 AND AT VARIOUS PERCENTAGES OF ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 17 REASONABLE RETURN. THE PROBABLE REASONABLE RETURNS WERE ESTIMATED BY THE MERC. THE PROJECTIONS ALSO INDICATE THAT THE ASSESSEE SUB MITTED THAT THE REASONABLE RETURN AT RS 337.37 CRORES WHEREAS MERC ARRIVED AT 256.66 CRORES. LIKEWISE CLEAR PROFITS WERE DISCUSSED IN PARA 21 AND AT THE END OF THE DIS CUSSION THE COMMISSION HAS LEFT THIS NOTE THUS THE REVISED NET SURPLUS BETWEEN CLEAR PROFIT AND THE REASONABLE RETURN IN FINANCIAL YEAR 2004-05 BASED ON THE EXIST ING TARIFF AND THE COMMISSIONS PROJECTIONS OF EXPENSES WORKS OUT TO 309.4 CRORES WHICH WAS ADJUSTED BY THE REVISING TARIFF TO DIFFERENT CATEGORIES BASED ON TH E COMMISSIONS TARIFF PHILOSOPHY DISCUSSED IN THE NEXT SECTION . 10.2.2. ALL THIS INDICATES THAT UNDER THE ELECTRICI TY ACT MERC IS EMPOWERED TO DETERMINE THE TARIFF AT WHICH THE ASSESSEE CAN SUPP LY THE ELECTRICITY TO THE CONSUMERS AND IN DOING SO THE MERC WAS GIVEN VARIOUS GUIDELI NES INCLUDING CONSIDERING THE RATE OF RETURN AT 16%. THE ENTIRE EXERCISE AS CAN BE S EEN IS ONLY TO DETERMINE THE TARIFF AT WHICH THE ELECTRICITY CAN BE SUPPLIED BUT THAT DOES NOT MEAN THAT ASSESSEE CANNOT EARN MORE PROFIT THAN THAT. IN FACT THE COMMISSIO N ALSO ACKNOWLEDGES THAT THE ACTUAL PROFITS ARE MORE THAN CLEAR PROFITS DETERMIN ED AND THE SURPLUS WAS ADJUSTED TO THE RESERVES FOR FUTURE ADJUSTMENTS IN TARIFFS. TH E ENTIRE ORDER IS FOR FIXING THE TARIFF ONLY AND NOWHERE THERE IS ANY RESTRICTION THAT THE ASSESSEE CANNOT EARN MORE THAN THE REASONABLE RATE OF RETURN THAT WAS PROJECTED B Y EFFICIENT PLANT LOAD FACTOR DECREASE IN TRANSMISSION LOSSES BENEFITS IN INTERE ST SAVINGS AND FUEL COSTS ETC WHICH HAVE BEEN PROJECTED AT A FIXED RATE IN THE ELECTRIC ITY ACT UNDER VARIOUS GUIDELINES AND NOTIFICATIONS AND SCHEDULES. SINCE EXERCISE OF MER C IS ONLY FOR FIXING THE TARIFF THAT TOO APPLICABLE FROM FINANCIAL YEAR 2004-05 WE ARE NOT IN A POSITION TO UNDERSTAND HOW THE ORDER OF MERC ISSUED FOR FIXATION OF TARIFF FROM FINANCIAL YEAR 2004-05 HAS ANY RELEVANCE IN ARRIVING AT THE PROFITS OF THE GEN ERATION UNIT DETERMINED ALREADY BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF THE A CT. THERE IS NO CO-RELATION WITH THE REASONABLE RATE OF RETURN CONSIDERED FOR TARIFF FIX ATION UNDER THE ELECTRICITY SUPPLY ACT AND THE ACTUAL PROFITS EARNED BY THE ASSESSEE C OMPANY AND THE PROFITS AS DETERMINED BY THE ASSESSING OFFICER UNDER THE PROVI SIONS OF SECTION 80IA(10). IN FACT IN THE ORIGINAL ASSESSMENT ORDER THE ASSESSE ES CLAIM OF PROFIT IS ON THE ACTUAL AVERAGE SALE PRICE TO THE CUSTOMERS WHICH WAS HIGH ER THAN WHAT WAS AS DETERMINED ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 18 WHILE BASING THE SALE PRICE ON THE POWER PURCHASED FROM TATA POWER COMPANIES. SINCE THE ASSESSING OFFICER HAS ORIGINALLY EXERCISE D THE CORRECT PROVISIONS OF THE ACT IN DETERMINING THE PROFIT OF THE ELIGIBLE UNIT THE PRESENT ASSESSING OFFICERS EXERCISE IN RE-DETERMINING THE PROFIT ON THE BASIS OF THE TA RIFF FIXATION ORDER R. W. ELECTRICITY SUPPLY ACT HAS NO BASIS AT ALL. ACCORDINGLY WE AR E OF THE VIEW THAT REFERENCE BY THE ASSESSING OFFICER TO MERCS ORDER AND INVOKING PROV ISIONS OF SECTION 147 FOR REASSESSMENT IS NOT CORRECT AND HAS NO BASIS AT ALL . 10.3 FAILURE TO FURNISH FULLY AND TRULY ALL MATER IAL FACTS FOR THE ASSESSMENT YEAR 2001-02 THE AS SESSMENT WAS REOPENED AFTER 4 YEARS FROM THE END OF THE ASSESSMENT YEAR. AS PER THE FIRST PROVISO TO SECTION 147 THE ASSESSING OFFICER CANNOT REOPEN THE ASSESSMENT UNLESS THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. AS RIGHTLY SUBMITTED BY THE LEARNED CO UNSEL THE ELECTRICITY ACT 1948 AND ITS NOTIFICATION ISSUED WAY BACK IN 1992 ARE IN THE PUBLIC DOMAIN AND THERE IS NO NEED TO SPECIFICALLY FURNISH THEM TO THE ASSESSING OFFICER. MOREOVER THE ASSESSEE IS ALSO ASSESSED FROM SO MANY YEARS AND IS IN THE BUSI NESS OF SUPPLY OF TRANSMISSION OF ELECTRICITY INITIALLY AND POWER GENERATION AND TRAN SMISSION IN THE RECENT PAST AND IT CANNOT BE STATED THAT THE ACT NOTIFICATIONS WHICH ARE IN PUBLIC DOMAIN CANNOT BE CONSIDERED AS NON-DISCLOSURE OF MATERIAL FACTS NECE SSARY FOR HIS ASSESSMENT. EVEN THE MERC ORDER RELIED UPON BY THE ASSESSING OFFICER WAS NOT EVEN IN THE KNOWLEDGE OF THE ASSESSEE AS THEY HAVE FOR THE FIRST TIME APP ROACHED THE MERC IN YEAR 2003 ONLY AND THE ORDER WAS PASSED AFTER OBTAINING PUBL IC OBJECTIONS AND AFTER EXAMINATION OF FACTS ON 1.7.2004. RELYING ON VARIO US PRINCIPLE ESTABLISHED IN THE CASE LAWS STATED IN THE ARGUMENTS ABOVE ON THIS PRO POSITION WE ARE OF THE OPINION THAT THERE IS NO FAILURE ON THE PART OF THE ASSESSE E TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT AND CON SEQUENTLY THE REOPENING AFTER THE END OF 4 YEARS FROM THE ASSESSMENT YEAR IS BAD IN LAW. 10.3.2 FURTHER THE ORDER OF MERC CAN NOT BE A BAS IS FOR REOPENING. IN THE CASE OF COCA-COLA EXPORT CORPORATION VS ITO & ANOTH ER 231 ITR 200 THE HONBLE ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 19 SUPREME COURT HAS CONSIDERED SIMILAR FACTS WHERE TH E LETTERS WERE ISSUED BY THE GOVERNMENT OF INDIA RELATING TO REMITTANCE OF FORE IGN EXCHANGE UNDER THE PROVISIONS OF FOREIGN EXCHANGE REGULATION ACT AND ON THE BASIS OF THOSE LETTERS THE ASSESSMENTS IN THE ABOVE SAID WHOLLY OWNED SUBSIDIARY OF COCA-C OLA CORPORATION WAS REOPENED FOR DISALLOWING THE FOREIGN EXCHANGE LOSS AROSE TO THE SAID ASSESSEE. ON THESE FACTS IT IS HELD AS UNDER: ..ALLOWING THE APPEALS THAT THE TWO LETTERS IN QU ESTION WERE ISSUED UNDER THE PROVISIONS OF THE FOREIGN EXCHANGE REGULATION ACT A ND DEALT WITH REMITTANCE OF FOREIGN EXCHANGE OUTSIDE INDIA. ANY CONTRAVENTION OF THESE LETTERS WOULD ENTAIL PROSECUTION UNDER SECTION 56 OF THE FOREIGN EXCHANGE REGULATION ACT 1973 AND UNDER SECTION 23 OF THE FOREIGN EXCHANGE REGULATION ACT 1947. THE EMBARGO SO PLACED BY THESE TWO LETTERS ON THE F OREIGN REMITTANCE TO BE MADE ABROAD BY THE APPELLANT HAD NOTHING TO DO WITH THE AMOUNT OF DISALLOWANCES UNDER THE INCOME-TAX ACT. IF ANY REM ITTANCE OF FOREIGN EXCHANGE HAD BEEN MADE IN EXCESS OF THE PRESCRIBED LIMIT FROM JANUARY 1 1969 IT WAS FOR THE RESERVE BANK OR THE CENTRAL GO VERNMENT TO TAKE ACTION OR TO GRANT PERMISSION AS MAY BE PROVIDED UNDER THE FO REIGN EXCHANGE REGULATION ACT 1973. THAT HOWEVER COULD NOT BE A GROUND FOR THE INCOME- TAX OFFICER TO ASSUME JURISDICTION TO START REASSES SMENT PROCEEDINGS EITHER UNDER SECTION 147(A) OR SECTION 147(B) OF THE ACT O N THE GROUND THAT THAT IT WOULD BE IN CONSEQUENCE OF INFORMATION IN HIS POS SESSION IN THE SHAPE OF THESE TWO LETTERS. BOTH THE ACTS-THE INCOME-TAX AC T AND THE FOREIGN EXCHANGE REGULATION ACT-OPERATE IN DIFFERENT FIELDS. THE TW O LETTERS WERE WHOLLY IRRELEVANT AND COULD NOT BE TREATED AS INFORMATION TO THE INCOME-TAX OFFICER TO INITIATE REASSESSMENT PROCEEDINGS. THEREFORE THER E WAS INHERENT LACK OF JURISDICTION IN THE INCOME-TAX OFFICER TO ISSUE NO TICES UNDER SECTION 148 OF THE ACT ON THE BASIS OF ANY INCOME OF THE APPELLANT ESC APING ASSESSMENT EITHER UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 147 OF T HE ACT. ALL THE NOTICES UNDER SECTION 148 OF THE ACT WERE LIABLE TO BE QUASHED. IN THIS CASE ALSO WE ARE OF THE OPINION THAT THE ME RC ORDER GIVEN SUBSEQUENTLY FOR FIXATION OF TARIFF ON THE BASIS OF ELECTRICITY SUPP LY ACT AND ITS NOTIFICATIONS OPERATE IN DIFFERENT FIELD AND HAS NO BEARING FOR DETERMINATIO N OF PROFITS UNDER THE IT ACT. 10.4 MERGER OF THE ORDER IT WAS ALSO ONE OF THE CONTENTION THAT THE ISSUE OF QUANTIFICATION OF DEDUCTION UNDER SECTION 80IA IN RESPECT OF THE DAHANU PLANT B Y THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER HAS MERGED WITH THE ORDER S OF THE CIT (A) AND ITAT AND THEREFORE THE RE-COMPUTATION THEREOF BY ADOPTING A DIFFERENT METHOD OF WORKING OF ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 20 PROFIT ELIGIBLE FOR DEDUCTION U/S 80IA WAS BEYOND T HE POWERS OF THE ASSESSING OFFICER. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED THAT THE ISSUE IN ORIGINAL ASSESSMENT WAS ENTIRELY DIFFERENT. WE ARE NOT IN A POSITION TO ACCEPT THE CONTENTION. THE ISSUE IN ORIGINAL ASSESSMENT WAS D ETERMINATION OF PROFIT FOR THE PURPOSE OF DEDUCTION U/S 80IA ON THE DAHANU GENERAT ION PLANT. THE CLAIM OF PROFIT AS DETERMINED BY THE ASSESSEE ON THE BASIS OF AVER AGE SALE PRICE TO THE CUSTOMERS WAS NOT ACCEPTED AND THE ASSESSING OFFICER RE-DETER MINED THAT PROFIT BY INVOKING THE PROVISIONS OF SECTION 80IA(8) AND DETERMINED ON THE BASIS OF AVERAGE PURCHASE PRICE FROM TATA POWER COMPANIES. THE ITAT ORDER IN THE AY 2000-01 INDICATES THAT THE ISSUE IN APPEAL WAS A QUANTUM OF PROFIT GENERATED B Y THE DAHANU UNIT. SINCE THIS QUANTUM OF PROFIT IS BEING RE-DETERMINED AT 16% ON THE BASIS OF REASONABLE RETURN CONSIDERED WHILE FIXATION OF TARIFF BY THE MERC WE ARE OF THE OPINION THAT THE ISSUE BEING SIMILAR THE ORDERS OF THE AO MERGED WITH THA T OF ITAT AND ACCORDINGLY THE ASSESSING OFFICER LOOSES HIS JURISDICTION TO REOPEN THE ASSESSMENT AS SECOND PROVISO TO SECTION 147 IS CLEARLY APPLICABLE. SINCE THE IS SUE OF PROFIT FOR DEDUCTION UNDER SECTION 80IA HAVING BEEN MADE SUBJECT MATTER OF AP PEAL BEFORE THE CIT (A) AND THE ITAT THE SAID ISSUE OF DETERMINATION OF PROFIT FOR THE PURPOSE OF 80IA(10) HAS MERGED WITH THE ORDER OF THE APPELLATE AUTHORITIES AS A WHOLE AND HENCE IT WAS NO LONGER AMENABLE TO THE REASSESSMENT PROCEEDINGS U/S 147 BY VIRTUE OF SECOND PROVISO TO SECTION 147. ON THIS PRINCIPLES ALSO S INCE IN BOTH THE ASSESSMENT YEARS THE ISSUE WAS ORIGINALLY CONSIDERED AND AGITATED AT THE LEVEL OF THE ITAT THE REOPENING ON THE SAME ISSUE IS TO BE CONSIDERED AS BAD IN LAW. WE NEED NOT EXAMINE THE VARIOUS CASE LAW RELIED ON THIS ISSUE. SUFFICE TO SAY THAT ON FACTS AND IN LAW THE ISSUE HAVING MERGED WITH THE ORDERS OF ITAT WAS NOT AMENABLE FOR REASSESSMENT. 10.5 CHANGE OF OPINION IT IS ONE OF THE CONTENTION OF THE ASSESSEE THAT ASSESSING OFFICER HAS CHANGED HIS OPINION IN RE-DETERMINING THE PROFITS. AS DISCU SSED EARLIER THE ASSESSING OFFICER ORIGINALLY INVOKED SECTION 80IA(8) IN ASSESSMENT YE AR 2000-01 IN RE-DETERMINING PROFITS AND THE SAME WAS FOLLOWED IN LATER YEARS IN CLUDING THE IMPUGNED YEARS. NOW AGAIN RE-DETERMINING THE PROFITS UNDER 80IA(10) WH ICH IS NOT APPLICABLE TO THE ASSESSEE AT ALL CAN ONLY BE CONSIDERED AS CHANGE O F OPINION. ACCORDINGLY IT WAS ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 21 ARGUED THAT CHANGE OF OPINION CANNOT BE A BASIS FOR REOPENING OF THE ASSESSMENTS. IN THIS REGARD RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR INDIA LTD 320 ITR 561(SC). I N THE PRESENT CASE WE FIND THAT THERE WAS AN AUDIT OBJECTION BASED ON WHICH THE ASS ESSMENT PROCEEDINGS WERE REOPENED. THOUGH THE ASSESSING OFFICER DID NOT ACC EPT THE AUDIT OBJECTION LATER AFTER INITIATION OF REASSESSMENT PROCEEDINGS YET THE FAC T REMAINS THAT THERE WAS SOME MATERIAL BASED ON WHICH HE ISSUED NOTICE U/S.148 OF THE ACT. IN THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR IND IA LTD. (SUPRA) IT HAS BEEN CLARIFIED THAT EVEN AFTER 1ST APRIL 1989 ASSESSING OFFICER HAS POWER TO RE-OPEN PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO TH E CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. THE FOLLOWIN G OBSERVATIONS OF THE HONBLE SUPREME COURT HIGHLIGHT THIS ASPECT. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENC E BETWEEN POWER TO REVIEW AND POWER TO RE-ASSESS. THE ASSESSING OFFICE R HAS NO POWER TO REVIEW; HE HAS THE POWER TO RE-ASSESS. BUT RE-ASSESSMENT HA S TO BE BASED ON FULFILLMENT OF CERTAIN PRE-CONDITION AND IF THE CON CEPT OF 'CHANGE OF OPINION' IS REMOVED AS CONTENDED ON BEHALF OF THE DEPARTMENT THEN IN THE GARB OF RE- OPENING THE ASSESSMENT REVIEW WOULD TAKE PLACE. ON E MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE AFTER 1ST APRIL 1989 AS SESSING OFFICER HAS POWER TO RE-OPEN PROVIDED THERE IS 'TANGIBLE MATERIAL' TO C OME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REAS ONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. WE ARE THEREFORE UNABLE TO ACCEPT THE ARGUMENT OF T HE LEARNED COUNSEL FOR THE ASSESSEE. SINCE THE VALIDITY OF INITIATION OF REAS SESSMENT HAS BEEN HELD TO BE NOT VALID ON OTHER GROUNDS WE ARE OF THE VIEW THAT THI S ASPECT WILL NOT MAKE ANY DIFFERENCE TO THE ULTIMATE CONCLUSION IN THE CASE. 10.6 BASIS OF AUDIT OBJECTION NOT ACCEPTED THE ASSESSEE ALSO CONTENDED THAT REOPENING ON THE BASIS OF AUDIT OBJECTION WHICH WAS NOT ACCEPTED BY THE REVENUE AUTHORITIES WAS ALSO BAD IN LAW. RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF IL & FS I NVESTMENT MANAGERS LTD VS ITO ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 22 298 ITR 32 (BOM) WHEREIN IT WAS CONSIDERED THAT THE STAND TAKEN BY THE ASSESSEE WAS ACCEPTED BY THE REVENUE ON MERITS AND HELD THAT AFTER DISAGREEING WITH THE AUDIT OBJECTION REOPENING THE ASSESSMENT HAS NO BA SIS AND SO WAS NOT VALID. IN THIS CASE HOWEVER THE ASSESSING OFFICER ISSUED NOT ICE U/S.147 ON RECEIPT OF THE AUDIT OBJECTION AND LATER ON THE ASSESSING OFFICER AS WEL L AS THE CIT DID NOT ACCEPT THE AUDIT OBJECTION. THEY HOWEVER PROCEEDED TO COMPLET E THE REASSESSMENT. IN SUCH CIRCUMSTANCES WE ARE DOUBTFUL AS TO WHETHER IT CAN BE SAID THAT THE AUDIT OBJECTION WAS NOT ACCEPTED WHEN THE NOTICE U/S.148 WAS ISSUED . WE THEREFORE DO NOT AGREE WITH THIS SUBMISSION MADE ON BEHALF OF THE ASSESSEE . 10.7. BEFORE CONCLUDING WE HAVE TO DISCUSS ANOTHER CONTENTION RAISED BY THE LEARNED COUNSEL IN THE ARGUMENTS THAT THE ASSESSING OFFICER SHOULD HAVE REASON TO BELIEF NOT ONLY AT THE TIME OF ASSESSMENT BUT ALSO AT THE TIME OF COMPLETION OF ASSESSMENT. THIS ARGUMENT CANT BE ACCEPTED AS THE PARAMETERS FOR REOPENING ON THE BASIS OF REASON TO BELIEVE HAS TO EXAMINED ONLY A T THE TIME OF ISSUE OF NOTICE U/S 147 R W S 148. IN FACT THE SUFFICIENCY OF THE MAT ERIAL AVAILABLE WITH THE ASSESSING OFFICER WAS CALLED IN QUESTION MANY A TIME BUT THE RE IS CONSISTENT JUDICIAL OPINION ON THIS ISSUE THAT SUFFICIENCY OF MATERIAL FOR REASO N TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT HAS TO BE EXAMINED AT THE TIME OF INITIA TION OF THE PROCEEDINGS. EVEN THOUGH THE ASSESSING OFFICER WAS EMPOWERED TO DROP PROCEEDINGS INITIATED U/S 147 BY VIRTUE OF PROVISIONS OF SECTION 152(2) THERE IS NO RESTRICTION IN CONCLUDING THE PROCEEDINGS HAVING BEEN INITIATED VALIDLY. HOWEVE R THIS ISSUE BECOMES ACADEMIC AS PROCEEDINGS U/S 147 ARE HELD TO BE BAD IN LAW BY VIRTUE OF FIRST PROVISO TO SECTION 147 FOR ASSESSMENT YEAR 2001-02 AND IN BOTH THE YEA RS IT INVOLVED MERGER OF THE ORDERS OF THE HIGHER AUTHORITIES AND SECOND PROVISO TO SECTION 147 LIMITS THE JURISDICTION OF AO AND ALSO ON THE BASIS OF CHANGE OPINION AND OTHER REASONS AS DISCUSSED IN DETAIL ABOVE. ACCORDINGLY WE ARE OF THE OPINION THAT CIT (A)S ORDERS IN CANCELLING THE PROCEEDINGS U/S 147 ARE TO BE UPHELD . THE REVENUES GROUNDS ARE ACCORDINGLY DISMISSED. 11. THE CROSS APPEALS BY THE ASSESSEE ARE WITH REFE RENCE TO THE MERITS OF RE- DETERMINATION OF PROFITS OF THE ELIGIBLE BUSINESS. SINCE WE DISCUSSED THE MERITS OF THE ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 23 VARIOUS ISSUES WHILE CONSIDERING THE REVENUE APPEAL S WE ARE OF THE OPINION THAT THE ASSESSING OFFICER WAS NOT CORRECT IN INVOKING THE P ROVISIONS OF SECTION 80IA(10) AS WELL AS RE-DETERMINING THE PROFITS ON THE BASIS OF TARIFF ORDER OF MERC WHICH WAS ALTOGETHER FOR THE DIFFERENT PURPOSE. EVEN OTHERWI SE QUANTUM OF DETERMINATION OF PROFITS HAVING BEEN CONTESTED IN APPEAL AND GOT CON CLUDED IN THE ORIGINAL ASSESSMENT PROCEEDINGS THE RE-DETERMINATION BY THE ASSESSING OFFICER IN REASSESSMENT PROCEEDINGS IS NOT CORRECT. THERE IS NO NEED TO CO NSIDER THE ISSUE ON MERITS AGAIN SINCE THE REASSESSMENT PROCEEDINGS ARE HELD TO BE B AD IN LAW AND SO THE ISSUES RAISED IN ASSESSEES APPEAL BECOMES THE ACADEMIC IN NATURE AND ACCORDINGLY THESE APPEALS ARE ALSO CONSIDERED DISMISSED FOR STATISTIC AL PURPOSES. 12. IN THE RESULT THE APPEALS BY THE REVENUE AND A SSESSEE ARE ACCORDINGLY DISMISSED. ORDER PRONOUNCED ON 14TH DAY OF MAY 2010. SD/- (N V VASUDEVAN) JUDICIAL MEMBER SD/- (B RAMAKOTAIAH) ACCOUNTANT MEMBER MUMBAI DATE: 14TH MAY 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-IV MUMBAI. 4) THE CIT -4 MUMBAI. 5) THE D.R. D BENCH ITAT MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T. MUMBAI ITA 4654/M/09 ITA 4630/M/09 ITA 4702/M/09 ITA 4703/M/09 RELIANCE ENERGY LTD 24 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 3/6.5.2010 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 4/7.5.2010 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/A M 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER .