Income Tax Appellate Tribunal - Hyderabad
Gvk Industries Ltd.,, Hyderabad vs Department Of Income Tax on 19 August, 2004
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER.
ITA No.1002/Hyd/04
(Assessment year 1999-2000)
&
ITA No.1556/Hyd2008
(Assessment year 2001-02)
Asst. Commissioner of Income- V/s. M/s. G.V.K. Industries Ltd.,
tax Circle 1(4), Hyderabad Secunderabad
( PAN - AAACG 7499 J )
(Appellant) (Respondent)
Appellant by : Shri D.Sudhakara Rao, DR
Respondent by : Shri V.Shiva Kumar
Date of Hearing 23.05.2013
Date of Pronouncement
ORDER
Per Bench:
These two appeals by the Revenue are directed against the orders of the CIT(A)-II, Hyderabad dated 19.08.2004 for assessment year 1999-2000; and of the CIT(A) III, Hyderabad dated 14.08.2008 for assessment year 2001-02. Since there are certain common features, these appeals were heard together, and are being disposed of with this common order for the sake of convenience.ITA No.1002/Hyd/2004 : Assessment year 1999-2000
2. Revenue has raised the following grounds in this appeal.
"1. The order of the CIT(Appeals) is erroneous in law and facts
2. The CIT(A) erred in excluding the sum of Rs.17,75,851/- as income derived from the business out of the other income of Rs.3,52,98,874/- for computation of book profit.2 ITA No.1002/Hyd/2004 & Anr.
M/s. G.V.K. Industries Ltd., Secunderabad
3. The decision of the ITAT, Delhi Bench in the case of Lalsons Entp. on which the learned CIT(A) relied, is not applicable to the facts of the assessee's case.
4. The CIT(A) erred in deleting an amount of Rs.3,10,20,000/-
while computing the income under regular provisions of the Act.
5. The learned CIT(A) also erred in deleting the impugned addition of Rs.9,36,09,75/- as derived from the business of power and grant the deduction u/s. 115JA(2)(iv).
6. The CIT(A) ought not to have held that the additional income derived is also only from the power business on the ground that the details of income earned on account of energy charge, foreign exchange variation recovery is also one of the components of income."
2. We have heard the learned Departmental Representative and the learned counsel in detail and the learned counsel has also placed on record, a paper-book containing 25 pages and also the annual report alongwith statement of details during the course of hearing. The issues involved in this appeal are considered and decided hereunder-
3. The issue in dispute in grounds No.2 and 3 is with reference to exclusion of an amount of Rs.17,75,851 shown as related to other income of Rs.3,52,98,874 from the computation of book profit. The Assessing Officer, while working out the deemed income under S.115JA treated an amount of Rs.3,52,98,854 shown as other income as not earned from business of power generation. It is the contention of the assessee that this income is part of the business of the assessee eligible for deduction under S.80IA, so that the same can be excluded from the provisions of S.115JA as well. The Assessing Officer did not agree and before the CIT(A), the same contentions were reiterated. However, it was also submitted that an amount of Rs.17,75,951 was earned on deposits made for procuring spares which has a direct nexus with the amount borrowed. Following the decision of the Special Bench of ITAT Delhi in the case of Lalsons Enterprises V/s. DCIT (89 ITD 25), the learned CIT(A) having found a direct nexus, directed the Assessing Officer to exclude the 3 ITA No.1002/Hyd/2004 & Anr. M/s. G.V.K. Industries Ltd., Secunderabad sum of Rs.17,75,851 and compute the book profit accordingly. The Revenue is aggrieved.
4. After considering the rival arguments, we do not see any reason to interfere with the order of the CIT(A). It is already on record that the amount of Rs.17,75,951 was earned from the deposits made from the borrowals on which interest was also paid. Therefore, there was a nexus with the interest paid to the interest earned, and therefore, we do not see any justification to interfere with the order of the CIT(A), who has relied on the Special Bench decision of the Tribunal (Delhi) in the case of Lalsons Enteprises (supra), the principle of which was confirmed by the Hon'ble Supreme Court in the case of ACG Associated Capsules P. Ltd. V/s. CIT(343 ITR 89). We do not see any reason to allow the Revenue's grounds on this issue. Accordingly, Revenue's grounds on this issue are rejected.
5. Ground No.4 pertains to deletion of an amount of Rs.3,10,20,000, while computing the income under the regular provisions of the Act. The assessee claimed deduction of Rs.3,10,20,000 being foreign exchange fluctuations offered as income in the earlier year, viz. assessment year 1998-99, and adjusted in the prior period expenditure, as an income wrongly offered. The assessee's contention with reference to this deduction was not accepted by the Assessing Officer on the reason that the assessee did earn on foreign exchange fluctuation and debt repayment to the account of APTRANSCO, and since the assessee had offered the same in the earlier year, the deduction this year cannot be allowed. The learned CIT(A), on noticing that the entries have been reversed and according to the PPA, the foreign exchange debt repayment has to be borne by the APSEB(Present AP Transco), any deficiency or gain on account of foreign exchange fluctuation would be to the account of APSEB only. Further, clarification given by the assessee that in the assessment year 2002-03, the assessee had accounted the gain derived on foreign exchange fluctuation as income in that year, which included the 4 ITA No.1002/Hyd/2004 & Anr. M/s. G.V.K. Industries Ltd., Secunderabad impugned addition of Rs.3,10,20,000, was also noticed by the CIT(A), who accordingly directed the Assessing Officer to delete the addition. Revenue is aggrieved.
6. After considering the rival contentions and examining the details on record, we notice that the original assessment in this case was completed under S143(3) by the order dated 30.03.2001, determining the loss of the assessee at Rs.9,37,00,379. The assessee has furnished the return admitting loss at Rs.9,91,61,190 in the re-assessment proceedings. It is also noticed that the assessment was reopened under S.148 issuing notice on 29.01.2003 for the purpose of bringing to tax the income under the MAT provisions of S.115JA. Since this issue of deduction of foreign exchange claim was also crystalised in the original assessment, and since it was not an issue for reopening the assessment, we are of the opinion that the order of the CIT(A) is justified. Further, the assessee has already offered the same amount as income in assessment year 2002-03. Therefore, we do not see any reason to interfere with the order of the CIT(A). This ground is rejected.
7. Grounds No.5 and 6 of the Revenue in this appeal pertain to non-allowance of deduction of an amount of Rs.9,36,09,750 under S.80IA while computing the income under S.115JA. The reason for Assessing Officer's disallowance of said amount was that it has offered the additional revenue on increased capital cost at Rs.9,36,09,850 as income under the head prior period adjustment and since it has not been credited to the Profit & Loss Account and also that the income has no direct nexus with the business of generation and distribution of power, the Assessing Officer did not allow the amount to be reduced under Clause (iv) of Explanation to S.115JA. Before the CIT(A), the details of recovery made and accounted as sale of energy to the tune of Rs.336.61 crores were filed and it was further submitted that the assessee has been accounting its income from generation of power on various components which include recovery of capital cost, taking cost of project at Rs.816 crores as approved by the 5 ITA No.1002/Hyd/2004 & Anr. M/s. G.V.K. Industries Ltd., Secunderabad Government. It was further submitted that the assessee has been contending that the project cost shall be enhanced to Rs.912 crores and pending enhancement, it was accounted as additional revenue from the increased project cost and since the amount which was to accrue in earlier years has been accounted under the head prior period adjustment, the same is part of sale of energy or generation of power. The learned CIT(A), after considering the submissions has decided as under-
"12. I have given careful consideration to the above. From the perusal of the asst. order, it is noticed that the discussion of the A.O. on this issue is very brief and except stating that the income is not derived form business of power, nothing worthwhile has been brought in the assessment order. From the details furnished by the appellant as discussed above, the fact is to be considered whether the additional income accounted for by the appellant in its books is derived from its power business or not? One of the major component of additional revenue is on account of foreign exchange variation on approved capital cost. I observe that in the details of income earned on account of energy charges, foreign exchange variation recovery is also one of the components of income. Thus, it could be seen that the additional income derived is also from power business. Therefore, it is to be held that the AO's view that the additional revenue is not from the business of power is misplaced. Therefore, the A.O. is directed to consider the impugned addition of Rs.9,36,09,750 as derived from business of power and grant the deduction u/s. 115JA(2)(iv) in addition to the deduction of Rs.62,55,35,166/- already allowed...."
8. After considering the rival submissions, we do not see any reason to interfere with the order of the CIT(A). It is the assessee's income which has various components for working out the purchase price of energy from the assessee by the AP Transco and one of the components was capital cost of the power project. Since the amount accounted for as income was component of the enhanced capital cost which is directly related to sale of energy, we do not see any reason to treat it as 'other income'. The Assessing Officer's objection that it has not been taken to Profit & Loss Account is not correct, as the assessee has adjusted under the head 'prior period adjustments' and has offered as income during the year. This was also accepted in the regular computation of income.
6 ITA No.1002/Hyd/2004 & Anr.M/s. G.V.K. Industries Ltd., Secunderabad Therefore, the order of the CIT(A) is upheld. Revenue's grounds on this issue are rejected.
9. In the result, Revenue's appeal for assessment year 1999- 2000 is dismissed.
ITA No.1556/Hyd/2008 : Assessment year 2001-0210. Revenue has raised the following grounds, which are material for consideration-
"1......,
2. The Hon'ble CIT(A) is not correct in holding that the assessee had furnished all material facts at the time of original assessment .
3. The learned CIT(A) ought to have noticed that neither assessee's letter dated 3.9.2003 nor Assessing Officer's notice dated 11.8.2003 shows that the assessee had furnished copy of P.P.A.
4. The learned CIT(A)'s presumpti8on that the discussion made at para 2.2 an 3.1 of original assessment order shows that the A.O. has considered the Power Purchase agreement is not correct, as much as neither the A.O. called for the copy of Power Purchase Agreement nor the assessee has furnished the same. Therefore it could not be held that the assessee had furnished all material facts necessary.
5. The CIT(A) ought to have noticed that the income tax reimbursable to the assessee is clearly a revenue receipt like sales tax collection and liable to tax as held by the CIT(A) himself in the subsequent yeas i.e. A.Y 2002-03 to 2005-06. Since it is not a case of change of opinion the CIT(A) ought to have upheld the order of the Assessing Officer.
6. The CIT(A) ought to have noticed that as per Explanation 1 u/s. 147 of the Act mere production of books of account or other material from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of Sec.147 of the Act.
7. ..."7 ITA No.1002/Hyd/2004 & Anr.
M/s. G.V.K. Industries Ltd., Secunderabad
10. Briefly stated, the assessee company is in the business of generation and sale of power. The return of income for assessment year 2001-02 was filed on 31.10.2001 claiming 'NIL' income under the normal provisions and book profit of Rs.68,54,75,430. The assessment under S.143(3) was completed on 24.12.2003. On the reason that income tax received or receivable, being reimbursable by TRANSCO as per clause 3.4 of the Power Purchase Agreement with the said company, the Assessing Officer was of the opinion that an amount of Rs.3,40,93,235 has not been offered as income nor credited to the sales revenue, thereby the same amount has escaped assessment. Accordingly, in order to bring the said amount to tax, the Assessing Officer recorded satisfaction to the extent of income-tax receivable of RsS.2.40,45,266 to be treated as income of the assessee, both under the normal provisions and also under S.115JB, a notice under S.148 was issued on 12.7.2006, i.e. after four years from the end of the assessment year.
11. While determining total income at Rs.nil, in the re-assessment, the Assessing Officer made an addition of Rs.3.40 crores to the returned income under the normal provisions on the reason that this amount has accrued in terms of power purchase agreement entered into with the TRANSCO
12. Before the learned CIT(A), it was contended that all the information regarding the income-tax receivable from AP Transco as per the agreement was very much there before the Assessing Officer, while completing the original assessment, and no new information has come into the possession of the Assessing Officer to hold that income has escaped assessment due to the failure of the assessee to disclose fully or truly all material facts necessary for completion of the assessment as required under proviso to S.147 of the Act. After considering the submissions, the learned CIT(A) upheld the same to hold that notice issued under S.148 8 ITA No.1002/Hyd/2004 & Anr. M/s. G.V.K. Industries Ltd., Secunderabad was invalid. The detailed reasons of the CIT(A) vide paras 2.3 to 2.7 are as under-
"2.3. I have duly considered the submissions of the appellant and the reasoning given by the AO for reopening the assessment. The assessment was completed u/ s. 143[3] on 24/12/2003 has been reopened after 4 years of the relevant assessment year and hence, the proviso to section 147 comes into play, which reads as under.
"Provided that where an assessment under sub section [3] of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year 2.4. The aforesaid provision stipulates that notice u/ s. 148 can be issued after the expiry of 4 years from the end of the relevant assessment year only if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. It is evident from record that the relevant material facts and evidence in respect of reimbursement of income tax paid by the appellant in accordance with the power purchase agreement with TRANSCO, was disclosed by the appellant to the AO during the course of original assessment proceedings. A copy of the said agreement was furnished to the AO which was considered by the AO as evident from his findings in para 2.2 and para 3.1 of the original assessment order u/ s~ 143[3] dated 24/12/2003. The appellant cannot be penalized for non consideration or non application of the relevant information furnished by the AO. The A.O. has not made out a case or indicated in any manner that the appellant had failed to disclose the material facts necessary for assessment during the original assessment proceedings. On these facts, re-opening of assessment beyond four years, when the original assessment is completed u/ s 143(3) of the I.T. Act, 1961, appellant cannot be upheld in law. The head note in the judgment delivered by the Hon'ble Supreme Court in the case of CIT vs Foramer France [264 ITR 566[SC1, reads as under:
"Reassessment--Limitation--Law applicable--No failure to file return or to disclose fully and truly all material facts--Notice for reassessment--Issued beyond seven years--Barred by limitation-Income-tax Act, 1961, ss. 143(3), 147, prov. (as amended by Direct Tax Laws (Amendment) Act, 1987).
Assessment - Pursuant to finding or order - Limitation - Extension of period- Direction or finding in order passed in appeal, reference or revision- Must be with respect to same assessee and same assessment year - Income-tax Act, 1961, s.153(3)(ii).9 ITA No.1002/Hyd/2004 & Anr.
M/s. G.V.K. Industries Ltd., Secunderabad Writ--Reassessment--Notice without jurisdiction--Existence of alternative remedy not a bar-- Income-tax Act, 1961, s. 148-Constitution of India, art. 226.
From the decision of the High Court (see [2001J 247 ITR 436) that (i) section 147 substituted in the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Act, 1987, had made a radical departure from the original section 147, inasmuch as clauses (a) and (b) had been deleted and under the proviso thereto notice for reassessment would be illegal if issued more than four years after the end of the assessment year, if the original assessment were made under section 143(3); (ii) section 153 related to the passing of an order of assessment and not to the issuing of a reassessment notice under section 147/148, (iii) the direction or finding contemplated by section 153(3)(ii) had to be a finding in relation to the particular assessee and the particular year and to be a finding it had to be directly involved in the disposal of the case; (iv) on the facts, the notices issued under section 148 on November 20, 1998, to the assessee for reopening the original assessments for the assessment years 1988-89, 1989-90 and 1990-91, on the basis of the Appellate Tribunal's decision rendered in the case of Builder Christian relating to the assessee's technicians deputed to India, the income of the assessee was to be treated as fee for technical services and not as business income as assessed in the original assessments for those assessment years, were without jurisdiction as they were barred by limitation in view of the proviso to section 147, as amended by the Direct Tax Laws (Amendment) Act, 1987, as that was the provision that was applicable on November 20, 1998, when the reassessment notices were issued, and admittedly there was no failur~ on the part of the assessee to disclose fully and truly all material facts for assessment; (v) on the facts, the notices were bad as they were only on the basis of a change of opinion and the law that an assessment could not be reopened on a change of opinion was the same before and after amendment by the Direct Tax Laws (Amendment) Act, 1987, of section 147, and (vi) as the notices were without jurisdiction, the assessee should not be relegated to the alternative remedy, the Department preferred appeals to the Supreme Court. The Supreme Court saw no reason to differ and dismissed the appeals.
Decision of the Allahabad High Court in Foramer v. CIT(2001) 247 ITR 436 affirmed.
2.5. From the above it is very clear that re-opening of assessment beyond four years in case of early scrutiny assessment when there was no failure on the part of the appellant to disclose fully and truly all material facts, cannot be held to be valid. The legal position is further explained in the recent decision of the Hon'ble Andhra Pradesh High Court in the case of Mahalaxmi Motors Ltd. vs DCIT reported in 265 ITR 53, wherein the Hon'ble High Court explaining the same principle has observed as under:
"As indicated above, in our considered view, the petitioner-assessee had furnished all material facts truly and fully before the assessing authority at the relevant point of time. When once all the information is furnished to the assessing authority, it is (or the assessing authority to decide what inference can reasonably be drawn and what legal inferences have to be drawn ultimately. It is to be noted, where full and true disclosure of facts was made by an assessee, the Department cannot reopen the assessment even if there is loss of revenue or even if legal inference drawn by the 10 ITA No.1002/Hyd/2004 & Anr. M/s. G.V.K. Industries Ltd., Secunderabad assessing authority was erroneous in the first place. Even mere change of opinion by the assessing authority is not enough for reopening the assessment. This view has been reiterated by the Supreme Court in the decisions in CIT v. Hemchandra Kar [1970] 77ITR 1; CIT v. Bhanji Lavji [1971] 79 ITR 582 and ITO v. Lakhmani Mewal Das [1976] 103 ITR
437."
2.6. Similar view was expressed by Hon'ble jurisdictional High Court in another decision in the case of G.B.Brothers and K.R.Chetty Beedy Factory (P) Ltd. Vs. ITO (267 ITR 774) wherein Hon'ble High Court, while dealing with the analogous provisions of Section 147 (a), effective before 1.4.89, observed as under:
" ....In the case of Parashuram Pottery Works Co. Ltd. Vs. ITO (1977) 106 ITR 1, the Supreme Court stated that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for re-opening assessments...."
As the provisions contained in the present proviso to Section 147 are similar to the earlier provisions of Section 147(1), the ratio of the above decision would be applicable to the cases reopened after 1.4.1989 also.
2.7 After considering the entire facts and circumstances of the case and the various judicial pronouncements, I hold that the reopening of the assessment in this case is not valid in view of express provisions contained in the proviso to Section 147 of the Income-tax Act, 1961 as effective form 1st April, 1989. Accordingly, I hold that the notice issued by the Assessing Officer u/s. 148 of the Income Tax Act, 1961 for A.Y. 2001-02 is invalid in law on the facts of the case."
13. The learned Departmental Representative before us reiterated the submissions that the assessee did not bring the income accrued to the assessee to the knowledge of the Assessing Officer, and relied on the explanation to the proviso, which states that production before the Assessing Officer, books of account or other evidence from which material evidence could, with due diligence, be discovered by the Assessing Officer, will not necessarily amount to disclosure within the meaning of the proviso. He reiterated the contentions as discussed by the Assessing Officer in the assessment order.
11 ITA No.1002/Hyd/2004 & Anr.M/s. G.V.K. Industries Ltd., Secunderabad
14. The learned counsel relied on the order of the CIT(A)
15. After considering the rival contentions, and perusing the paper-book placed before us containing pages 1 to 67 and the original assessment order of the Assessing Officer in this regard, we are of the opinion that the reopening of the assessment after four years from the end of the assessment year is bad in law, as held by the CIT(A). As seen from the satisfaction recorded for initiation of the proceedings, para 1 itself states that 'assessee company is having a Power Purchase Agreement with the TRANSCO'. As per clause 3.4 of the said PPA, the income-tax paid by the assessee company has to be reimbursed by the TRANSCO'. This entire para is on the basis of the PPA which is already on record, at the time of original assessment proceedings. The second para of the recording of the reasons is on the Note 9 of Schedule M to the Annual Accounts. This information is very much part of Schedule M of the Annual Accounts and based on the discussion made in the assessment year 2003- 04, the Assessing Officer comes to an opinion that this amount is taxable in this year. However, no new information has been brought on record and the entire information having been placed on record before the Assessing Officer in the course of original assessment, the opinion of the Assessing Officer now can only be considered as change of opinion based on the order for assessment year 2003-04. Since there is no failure on the part of the Assessing Officer in disclosing the material facts at the time of completion of assessment, the reopening after four years from the end of the assessment year, is certainly not as per the provisions of S.147, which empowers the Assessing Officer to reopen only if the conditions are satisfied. Since the proviso to S.147 is clearly applicable, we uphold the order of the CIT(A), and reject the grounds as raised by the Revenue in this appeal.
16. In the result, Revenue's appeal is dismissed.
12 ITA No.1002/Hyd/2004 & Anr.M/s. G.V.K. Industries Ltd., Secunderabad
17. To sum up, both the appeals of the Revenue are dismissed.
Order pronounced in the court on 31st May, 2013
Sd/- Sd/-
(Saktijit Dey) (B.Ramakotaiah)
Judicial Member Accountant Member
Dt/- 31st May, 2013
Copy forwarded to:
1. M/s. GVK Industries Ltd., Paigah House, 156-159, S.P. Road, Secudnerabad.
2. Asst. Commissioner of Income-tax Circle 1(4), Hyderabad
3. Commissioner of Income-tax(Appeals) II, Hyderabad
4. Commissioner of Income-tax(A)-III, Hyderabad.
5. Commissioner of Income-tax II, Hyderabad
6. Commissioner of Income-tax I, Hyderabad
7. Departmental Representative, ITAT, Hyderabad.
BVS