Delhi High Court
Rrb Consultants And Engineers Pvt Ltd vs Deputy Commissioner Of Income Tax on 8 December, 2011
Author: Sanjiv Khanna
Bench: Sanjiv Khanna, R.V. Easwar
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: December 08, 2011
+ W.P.(C) 7313/2010
RRB CONSULTANTS AND ENGINEERS PVT LTD..... Petitioner
Through: Mr. S.Krishnan with
Mr. Nishank Singh, Advs.
versus
DEPUTY COMMISSIONER OF INCOME TAX
..... Respondent
Through: Mr. Kamal Sawhney, Sr. Standing
Counsel
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR
1. Whether Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporters or not ?
3. Whether the judgment should be reported in the Digest?
SANJIV KHANNA,J: (ORAL)
RRB Consultants and Engineers Pvt. Ltd. now known as Eco RRB
Infra (P) Ltd. has filed the present writ petition for issue of writ of certiorari
for quashing of notice dated 26.3.2010 issued by Deputy Commissioner of
Income Tax, the respondent herein, under Section 148 of the Income Tax
Act, 1961 (Act, for short). The petitioner has also prayed for quashing of
order dated 28.9.2010 passed by the respondent dismissing their objections
to the re-opening of assessment under Section 147/148 of the Act.
WP(C) 7313/2010 Page 1
2. The petitioner is engaged in the business of consultancy in renewable
and non-conventional sources of energy and also has income from power
generation. Petitioner has set up demonstration units of Wind Energy
Generators (WEGs) in Tamil Nadu. These WEGs began generating
electricity and the electricity so generated was sold to the State Electricity
Board. The petitioner it is admitted had been claiming benefit under Section
80IA of the Act in respect of income earned from power generation from the
assessment years 2000-2001 onwards.
3. For the assessment year 2003-04, the assessee had filed its return of
income on 25.11.2003 and thereafter assessment order under Section
143(3)(c) of the Act was passed on 30.1.2006. The assessee was allowed
deduction under Section 80IA to the extent of Rs.1,17,71,062/-.
4. It appears that there was an audit note/objection. The copy of the said
audit note has not been placed on record and is also not available on the
original file/record produced by the Revenue before us. However, reference
to the audit note/objection is made in the counter affidavit.
5. After the audit note/objection, the Assessing Officer recorded the
following reasons before issue of notice under Section 148 of the Act:-
"11. Reasons for the belief that income has escaped
assessment:
WP(C) 7313/2010 Page 2
During the year the assessee filed its return of income
for A.Y. 2003-04 declaring an income of Rs. 1,10,17,156/-
wherein the assessee company has claimed deduction u/s
80IA of Rs. 1,18,71,062/- (1,22,78,960 - 4,07,898). The
case was completed u/s 143(3) of I.T. Act. at an income of
Rs. 1,11,17,200/- wherein the claim u/s 80IA of Rs.
1,17,71,062/- (1,22,78,960 - 5,07,898) was allowed to the
assessee company.
A perusal of records reveals that the main source of
income of the assessee company is earning commission by
sale of wind mills from its principal. This is substantiated
by the company itself vide submission filed on 10 th Jan.
2006 during assessment proceedings, wherein it has been
submitted that the power plant has been set up as a
demonstration unit. The purpose of the demonstration unit
is to convince the prospective buyers for purchasing WEGs.
This implies that this undertaking has not been set up for
power generation and therefore not eligible deduction u/s
80IA.
The deduction under clause (IV) sub-section 4 of section
80IA is available to the assessee who is in the business of
generation and distribution of power. Further, section 80IA
(5) states that for the purpose of determining the quantum of
deduction u/s 80IA(1). The same has to be computed as if
such eligible in the only source of income of the assessee
during the year, which is not in the case of assessee
company. Thus the assessee has failed to disclose all
material facts truly and fully that were necessary for
assessment. Here it is relevant to mention the explanation 1
in section 147 that states that "production before the AO of
account books or other evidence from which material
evidence could with the diligence have discovered by the
AO will not necessarily amount to disclosure with the
meaning of the foregoing proviso.
WP(C) 7313/2010 Page 3
In view of above facts, I have reason to believe that income
chargeable to tax amounting to Rs.1,17,71,082/- has
escaped assessment in the case and the same is to be
brought to tax under section 147/148 of the I.T. Act.
Sanction for issue of notice u/s 148 as prescribed u/s 151, to
re-assess such income and also any other income chargeable
to tax which has escaped assessment and which comes to
the notice subsequently during the course of assessment
proceedings, may kindly be accorded."
6. As the reasons were recorded after the four years of the end of the
assessment years the Assessing Officer also took approval of the
Jurisdictional Commissioner, which was granted on 26.3.2010.
7. The learned counsel for the petitioner submits that the jurisdiction pre-
conditions for issue of re-assessment year under Section 148 prescribed
under Section 147 are not satisfied in the present case. It is stated that the
issue of deduction under Section 80IA was examined at the time of original
assessment and when assessment order dated 30.1.2006 was passed.
Secondly, it is submitted that in the present case proviso to Section 147 is
applicable and, therefore, re-assessment proceedings can be initiated, if there
was failure or omission on the part of the assessee to disclose material facts.
It is stated that in the present case material facts were disclosed at the time of
original assessment.
8. We find merit in the contentions raised by the petitioner. As per the
WP(C) 7313/2010 Page 4
original assessment records, the Assessing Officer vide notice dated
20.12.2004 had asked the petitioner to submit a note on admissibility of
deduction under Section 80IA in respect of power generation unit and give
complete evidence in this regard. The assessee was asked to file separate
balance sheet, profit and loss account for the claim under the said section.
The original records for the assessment year 2003-04 reveal that the
assessment order for the first year i.e. 2000-01 in which the claim for
Section 80IA was examined and allowed and is placed on the record. In the
assessment order for the assessment year 2000-01 it is recorded that the
petitioner continues to derive income from consultancy and power
generation which was claimed to be exempt under Section 80IA. The
assessee, thereafter, submitted a letter dated 22.11.2005 giving details of
power generation income. This letter is available on the assessment records
and the relevant portion reads as under:-
"5. Details of Power Generation Income Rs.12278960/-.
The monthly details of Power generation income HTSC
wise are enclosed herewith. The assessee has availed a
deduction of Rs. 11871062/- in it's computation of income
after deduction incidental expenses of Rs. 407898/- on
account of Insurance of Wegs amounting to Rs. 169243/-
and Repair and Maintenance of Wegs amounting to Rs.
238655/-.
WP(C) 7313/2010 Page 5
The said expenses have been deducted in view of the stand
taken by your predecessor vide Ass. Order for the year
2000-01.
However, the assessee, operating in India as technical
consultant of Vestas Danish Wind Technology A/S,
Denmark, in the field of wind energy, had been claiming
above expenses from it's composite income, in earlier years,
on the grounds that it had installed wind electric generators
to demonstrate and promote sales of wind electric
generators in India and earn commission thereon.
However, as the version of assessee is under appeal, the
assessee without prejudice to its claim has computed its
income as per above said version of the department."
9. Thereafter, the assessee has filed another letter dated 10.01.2006
which goes into 12 pages. Substantial portion of the letter deals with the
claim under Section 80IA and the computation. In the said letter the
assessee has specifically mentioned and stated as under:-
"The assessee during the course of it's business came across
a lot of enquiries about the functioning, generating and
other technical aspects of wind electric generators. Since
the concept of wind turbine was new in India, and as such,
considerable amount of finance was required to be invested
in it's purchase by the prospecting buyers, they wanted to
have a detailed information about the product. They also
wanted to know as to how, the Vestas product was a better
bargain over other manufacturer' product, in terms of it's
yield and life.
WP(C) 7313/2010 Page 6
The assessee company thought it fit to install it's own
turbines to demonstrate them to it's prospecting buyers,
which was also very much within the main objects as
defined in the Memorandum of Association of the
Company.
The installation of the above said demo units resulted
positively, as this step yielded rich dividends to the
assessee, resulting into much enhanced income thereafter.
There is also no denying a fact, that the assessee's basic and
original source of income is earning commission on the sale
of wind electric generators, and there is a clear cut nexus
between the above said expenditure incurred ( which relates
to business promotion activity of the assessee) and the
purpose of business carried on by the assessee. Hon'able
Delhi High Court in CITV Dalmia Cement (B) Ltd. (2002)
254 ITR 377 ( Delhi) observing the importance of nexus
between the expenditure and the purpose of business
remarked in it's judgment that once it is established that
there was nexus between the expenditure and the purposed
of business, the Revenue cannot decide how much is
reasonable expenditure, and as such no businessman can be
compelled to maximize his profits - The judgments
followed in this regards were CITV Walchand and Co. P.
Ltd. (1967) 65 ITR 381 (SC). J.K. Woolen Manufactures
VC IT (1969)72 ITR 612 (SC), Aluminum Corporation of
India Ltd. VC IT (1972) 86 ITR 11 (SC) and CIT V Panipat
Woolen and General Mills Co. Ltd. (1976) 103 ITR 66
(SC)."
10. In this letter it is repeatedly emphasized that the petitioner had
legitimate claim to claim benefit under Section 80IA on installation of the
WP(C) 7313/2010 Page 7
"demo" WEGs which had resulted in a separate business activity and income
was earned from sale of electricity generated by the WEGs. It was pointed
out that installation of the "demo" WEGs turned out to be an advantageous
proposition and the revenue earner for the petitioner. It became a source of
business income earned by the petitioner. It was stated in this letter as
under:-
"It is rather blessing in disguise, that the demo wind electric
generators also yields income by way of power generation
to the assessee, which is an advantageous proposition not
only to the assessee, but also to the revenue in long run. As
such, the assessee like all other business expenses is
justifiably entitled to claim expenses incurred on demo wind
electric generators from its principal sources of income i.e.
Consultancy fee provided in the field of wind electric
generators itself. As mentioned above it is only an added
advantage that with the installation of wind electric
generator, a new industrial unit giving a different sources of
income from business by way of power generation has
emerged, which incidentally enjoys tax holiday to a certain
period under section 80-1A."
11. The Assessing Officer thereafter passed an assessment order dated
30.1.2006 and has specifically dealt with the claim of deduction under
Section 80IA in respect of power generation income produced from WEGs.
The Assessing Officer went into the question whether the computation of
WP(C) 7313/2010 Page 8
deduction under the said section was not proper and reduced the said claim.
The petitioner thereafter filed an appeal before the CIT (A) and it has been
held that the deduction under Section 80IA as claimed by the petitioner
company in the return should be allowed. It is, therefore, clear from the
aforesaid facts that at the time of original assessment the question whether or
not the assessee was not entitled to deduction under Section 80IA was
specifically considered and examined by the Assessing Officer. The
assessee was asked to give details and justify the deduction under the said
section.
12. It is now well settled that the Assessing Officer cannot re-open
assessment on issues which have been examined and considered at the time
of original assessment. The Supreme Court in the case of Commissioner of
Income Tax v. Kelvinator of India Ltd., (2010) 320 ITR 561 (SC) has held
as under:
"On going through the changes, quoted above, made to section
147 of the Act, we find that, prior to the Direct Tax Laws
(Amendment) Act, 1987, reopening could be done under the
above two conditions and fulfilment of the said conditions
alone conferred jurisdiction on the Assessing Officer to make a
back assessment, but in section 147 of the Act (with effect
from 1st April, 1989), they are given a go-by and only one
condition has remained, viz., that where the Assessing Officer
has reason to believe that income has escaped assessment,
confers jurisdiction to reopen the assessment. Therefore, post-
1st April, 1989, power to reopen is much wider. However, one
WP(C) 7313/2010 Page 9
needs to give a schematic interpretation to the words "reason
to believe" failing which, we are afraid, section 147 would
give arbitrary powers to the Assessing Officer to reopen
assessments on the basis of "mere change of opinion", which
cannot be per se reason to reopen. We must also keep in mind
the conceptual difference between power to review and power
to reassess. The Assessing Officer has no power to review ; he
has the power to reassess. But reassessment has to be based on
fulfilment of certain pre-conditions and if the concept of
"change of opinion" is removed, as contended on behalf of the
Department, then, in the garb of reopening the assessment,
review would take place. One 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, the
Assessing Officer has power to reopen, provided there is
"tangible material" to come to the conclusion that there is
escapement of income from assessment. Reasons must have a
live link with the formation of the belief. Our view gets
support from the changes made to section 147 of the Act, as
quoted hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only deleted the
words "reason to believe" but also inserted the word "opinion"
in section 147 of the Act. However, on receipt of
representations from the companies against omission of the
words "reason to believe", Parliament reintroduced the said
expression and deleted the word "opinion" on the ground that
it would vest arbitrary powers in the Assessing Officer."
13. In the present case, the assessee has not failed or omitted to disclose material
facts either deliberately or intentionally. On the other hand, full and true
information and details were furnished and given during the course of the original
assessment proceedings. The relevant and germane facts were truly and fully
disclosed. As per the case of the Revenue, the Assessing Officer made an error of
judgment and did not form a proper legal opinion. A wrong legal inference was
WP(C) 7313/2010 Page 10
drawn from the facts stated by the assessee and on record. Once primary facts
have been disclosed then, it is for the Assessing Officer to draw proper legal
conclusion and apply the provisions of the statute. In the present case, it is not
alleged that any fact or factual detail was embedded in the evidence/books of
accounts which the Assessing Officer could have uncovered but had failed to do
so. The letter written by the assessee dated 10th January, 2006, spelt out and in
categorical terms had stated truly and fully the material facts. Nothing remained to
be discovered or unearthed.
14. This being the position the jurisdiction pre-conditions required for re-
opening of the assessment order are not satisfied in the present case.
15. The writ petition is allowed, notice of certiorari is issued quashing the notice
dated 26.3.2010 and order dated 28.9.2010. No order as to costs.
SANJIV KHANNA, J.
R.V.EASWAR, J. DECEMBER 08, 2011 mm WP(C) 7313/2010 Page 11