PPN Power Generting Company Private Limited, CHENNAI V. CIT, CHENNAI

ITA 1788/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58089 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-03-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 08-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: HARIHARAN
• Keywords: Business income
• Section: 147; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER] I.T.A.NO.1788/MDS/2011 ASSESSMENT YEAR : 2001-02 M/S PPN POWER GENERATING COMPANY PVT. LTD JHAVER PLAZA, III FLOOR 1-A, NUNGAMBAKKAM HIGH ROAD CHENNAI 600 034 [PAN AABCP8131D] VS THE CIT - III CHENNAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARIHARAN RESPONDENT BY : SHRI R.B. NAIK, CIT/DR DATE OF HEARING : 13-03-2012 DATE OF PRONOUNCEMENT : 16-03-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSE SSEE AGAINST THE ORDER OF THE LD. CIT-III, CHENNAI, DATED 23.3.2011, PASSED U/S 263 OF THE ACT. 2. IN THIS APPEAL, THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT COULD NOT HAVE INVOKED THE PROVISIONS OF SE CTION 263 OF THE ACT WHEN THE ASSESSING OFFICER HAD LOOKED INTO THE FACT S AND CIRCUMSTANCES OF THE CASE AND CONSEQUENTLY, THERE C ANNOT BE ANY ERROR I.T.A.NO.1788/11 :- 2 -: IN THE ORDER MUCH LESS THE ERROR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE FILED RETURN OF INCOME DECLARING INCOME OF ` 4,13,950/-. THE RETURN WAS PROCESSED U/S 143(1)(A ) OF THE ACT. LATER ON, THE ASSESSING OFFICER INITIATED PROCEEDINGS U/ S 147 OF THE ACT FOR THE REASONS RECORDED AS UNDER: ON PERUSAL OF THE RECORDS IT IS FOUND THAT THE ASSESSEE-COMPANY HAD EARNED AN INCOME OF ` 1,06,22,000/- DURING THE TRIAL RUN PRODUCTION. IT WAS FURTHER NOTICED THAT THE ASSESSEE HAD SET OFF THIS INCOME AGAINST THE PREOPERATIVE EXPENDITURE AND THE NET INCOME WAS APPORTIONED TO THE COST OF THE FIXED ASSETS AND THEREBY INCOME OF ` 1,06,22,000/- HAD ESCAPED ASSESSMENT. I SOLICIT ADDL. COMMR.S APPROVAL IN THIS REGARD TO ISSUE NOTICE U/S 148 AS THE ASST IS COMPLETED U/S 143(1). 4. THE ASSESSEE, IN RESPONSE TO THE REOPENING OF ASSE SSMENT, SUBMITTED BEFORE THE ASSESSING OFFICER VIDE ITS LET TER DATED 2.6.2008, AS UNDER: THE INCOME TAX OFFICER(OSD) COMPANY CIRCLE V(2) CHENNAI 600 034 SIR, NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 196 1 A.Y 2001-02 I.T.A.NO.1788/11 :- 3 -: FURTHER TO DISCUSSIONS WE HAD DURING THE HEARING AT TENDED ON 25 TH APRIL 2008, WE PROVIDE HEREUNDER THE DETAILS OF BILLING ON INFIRM POWER AND THE RAW MATERIAL CONSUM PTION IN RESPECT THEREOF: MONTH UNITS AMOUNT ` (000S) FEB-01 1,405,090 3,217 MAR-01 2,985,817 7,404 TOTAL 10,622 RAW MATERIAL CONSUMED ( ` 000S) NAPHTHA HSD TOTAL MONTH MT ` MT ` ` FEB01 918 13,271 447 8087 21359 MAR01 423 6,246 383 6927 13174 TOTAL 1,341 19,518 829 15015 34,534 1. INFIRM POWER REPRESENTS ELECTRICAL ENERGY DELIV ERED TO TNEB DURING THE TESTING PERIOD AND PRIOR TO THE COMMENCEMENT OF COMMERCIAL OPERATION DATE. 2. THE RAW MATERIAL CONSUMED IS THE START UP FUEL, COST OF NAPHTHA AND HIGH SPEED DIESEL, WHICH WAS INCURRED DURING THE TESTING PERIOD BEFORE THE COMMENCEMENT OF COMMERCIAL OPERATIONS. 3. WE SUMMARISE THE POSITION RELATING TO INFIRM POW ER HEREUNDER: REVENUE EARNED FROM SALE OF INFIRM POWER ` 1,06,22,000 FUEL CONSUMED TO GENERATE THE INFIRM POWER ` 3,45,34,000 NET REVENUE EARNED FROM SALE OF INFIRM POWER ` (2,39,12,000) 4. THE ASSESSEE COMPANY HAS THUS CONSIDERED THE NET COST OF FUEL CONSUMED OF ` 2,39,12,000 ONLY AS PART OF THE PRE-OPERATIVE EXPENDITURE THAT IS CAPITALIZED. I.T.A.NO.1788/11 :- 4 -: 5. HENCE THE QUESTION OF TREATING THE REVENUE EARNE D FROM INFIRM POWER AS INCOME FROM OTHER SOURCES DOES NOT ARISE AS THERE WAS NO NET INCOME AFTER CONSIDERING THE COST OF FUEL CONSUMED DURING THE ABOVE PROCESS. WITHOUT CONCEDING THE POINT THAT THERE IS NO INCOM E FROM OTHER SOURCES IN THE INSTANT CASE, INCOME DER IVED FROM SALE OF INFIRM POWER IS INHERENT TO THE MAIN BUSINESS OF POWER GENERATION OF THE COMPANY AS THIS WAS THE POWER DELIVERED DURING THE TESTING PERIOD I N ORDER TO COMMENCE THE COMMERCIAL OPERATIONS. THESE CANNOT THEREFORE, BE SEGREGATED FROM BUSINESS INCOM E AND TREATED AS INCOME FROM OTHER SOURCES. INCOME FROM OTHER SOURCES MEAN, INCOME CHARGEABLE TO INCOME TAX UNDER THE HEAD INCOME FROM OTHER SOURCE S IF ONLY IT IS NOT CHARGEABLE TO INCOME TAX UNDER AN Y OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO EXPENDITURE OF THE INCOME-TAX ACT, 1961. SINCE BOTH INFIRM POWER AND RAW MATERIAL COST ARE F OR THE PERIOD PRIOR TO THE COMMENCEMENT OF COMMERCIAL OPERATIONS, THEY ARE INCLUDED IN THE PRE-OPERATIVE EXPENDITURE UNDER THE HEADS, RECOVERY FROM SUPPLY OF POWER DURING TESTING PERIOD AND RAW MATERIAL CONSUMPTION DURING TESTING PERIOD RESPECTIELY FOLL OWING THE PRINCIPLES OF GENERALLY ACCEPTED ACCOUNTING PRACTICES. PREOPERATIVE EXPENDITURE IS CAPITALIZED AND GROUPED UNDER THE HEAD CAPITAL WORK IN PROGRESS. TRUST YOU WOULD CONSIDER OUR ABOVE REQUEST AND IN T HE MEANWHILE, SHOULD YOU REQUIRE ANY FURTHER INFORMATI ON IN THIS REGARD, WE ARE AT YOUR DISPOSAL. THANKING YOU, YOURS FAITHFULLY, FOR PPN POWER GENERATING COMPANY PRIVATE LTD. SD/- S.KRISHNAN FINANCIAL CONTROLLER I.T.A.NO.1788/11 :- 5 -: 5. CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER DROPPED THE PROCEEDINGS INITIATED U/S 147 OF THE ACT. THEREAFTER, THE LD. CIT INVOKED THE PROVISIONS OF S ECTION 263 OF THE ACT AND HELD AS UNDER: 4. THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN CAREFULLY CONSIDERED. ON A PERUSAL OF THE RECORDS, IT IS SEEN THAT THE AO HAS DROPPED THE PROCEEDINGS INITIA TED U/S 147 OF THE ACT WITHOUT A PROPER APPRECIATION OF THE FACTS OF THE CASE AND THE LEGAL POSITION. FULL DETA ILS RELATING TO THE ESTABLISHMENT OF THE PLANT, THE POWER PURCHASE AGREEMENT WITH THE TAMILNADU GOVERNMENT, THE DETAILS OF TESTS TO DETERMINE THE CAPACITY OF THE COMPANY TO PRODUCE ELECTRICITY CONSISTENTLY AND CONTINUOUSLY ETC. HAV E BEEN FILED DURING THE PROCEEDINGS BEFORE ME. THE RATIFIC ATION OF THE TEST RESULTS BY THE NTPC AND OTHER DETAILS HAVE ALSO BEEN EXPLAINED BEFORE ME. T HE AO HAD NOT EXAMINED THESE DETAILS AND ALSO THE DIRE CT COSTS OF THE TRIAL PRODUCTION. EVEN THE LEGAL POSIT ION HAS NOT BEEN ANALYSED CAREFULLY BY THE AO TO FIND OUT WHETHER THE RATIO OF THE DECISION OF THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CTT (227 ITR 172 ) WAS APPLICA BLE TO THE FACTS OF THE CASE OR NOT. 5. IN THIS CONNECTION, IT WOULD BE WORTHWHILE TO NO TE THAT THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF ADDL. CIT V. MUKUR CORPORATION (111 ITR 312) HAS HELD THAT IF THE A.O. HAD ALLOWED A CLAIM OF THE ASSESSEE WITHOUT PROBING INTO THE SAME, THE COMMISSIONER IS JUSTIFI ED IN INVOKING THE PROVISIONS OF SEC.263 OF THE I.T.ACT. 6. IN THE CIRCUMSTANCES, THE ORDER OF THE ACIT DT. 22.12.2008 DROPPING THE PROCEEDINGS INITIATED U/S 1 48 OF THE ACT, IS HEREBY SET ASIDE. THE AO IS DIRECTED TO EXAMINE THE AFORESAID ISSUE IN THE LIGHT OF THE EVI DENCE THAT THE ASSESSEE MAY PRODUCE TO PROVE ITS CASE. T HE AO WILL ALSO EXAMINE THE LEGAL POSITION IN THE LIGH T OF THE DECISIONS OF THE HON'BLE SUPREME COURT AND OTHE R COURTS AND PASS AN ORDER ACCORDING TO LAW. I.T.A.NO.1788/11 :- 6 -: 6. BEING AGGRIEVED BY THE ABOVE ORDER OF THE LD. CIT P ASSED U/S 263, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSI NG OFFICER DROPPED THE PROCEEDINGS AFTER CORRECTLY APPRECIATIN G THE FULL FACTS AND CIRCUMSTANCES OF THE CASE AND THE LD. CIT WAS NOT J USTIFIED IN CONSIDERING THE SAME AS ERRONEOUS AND PREJUDICIAL T O THE INTERESTS OF THE REVENUE. HE ALSO SUBMITTED THAT THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS & FERTILIZERS LTD VS CIT, 227 ITR 172, IS NOT APPLICABLE IN THE I NSTANT CASE AS THE REVENUE GENERATED IN THE INSTANT CASE IS ASSESSABLE UNDER THE HEAD BUSINESS INCOME. HE STATED THAT ON THE OTHER HAN D, THE CASE IS SQUARELY COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS BOKARO STEEL LTD, 236 ITR 315, WHICH WAS ALSO CITED BEFORE THE LD. CIT AND THE LD. CIT COULD NOT FIND ANY ERRO R THEREIN. 8. THE LD.CIT/DR SUPPORTED THE ORDER OF THE LD. CIT. 9. WE FIND THAT IT IS AN ESTABLISHED POSITION OF LAW T HAT PROVISIONS OF SECTION 263 CAN BE INVOKED ONLY WHEN THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AS WELL AS PR EJUDICIAL TO THE INTERESTS OF THE REVENUE. PROVISIONS OF SECTION 26 3 CANNOT BE INVOKED MERELY FOR MAKING A ROVING AND FISHING ENQUIRY. IN THE INSTANT CASE, WE FIND FROM THE SUBMISSIONS OF THE ASSESSEE FILED BEFORE THE I.T.A.NO.1788/11 :- 7 -: ASSESSING OFFICER THAT THE REVENUE GENERATED BY THE ASSESSEE FROM SALE OF INFIRM POWER WAS ` 1,06,22,000/- AND EXPENDITURE INCURRED FOR GENERATING OF SUCH POWER WAS ` 3,45,34,000/-. THUS, NO POSITIVE INCOME WAS DERIVED BY THE ASSESSEE FROM THE SALE O F POWER DURING THE YEAR UNDER CONSIDERATION AND CONSEQUENTLY, NO I NCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT FOR THE YEAR UNDER CO NSIDERATION. THE LD. CIT COULD NOT BRING ANY MATERIAL ON RECORD TO S HOW ANY ERROR IN THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD. FUR THER, THE LD. CIT HAS NOT COUNTERED THE SUBMISSIONS OF THE ASSESSEE THAT ITS CASE WAS COVERED BY THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF CIT VS BOKARO STEEL LTD(SUPRA) AND NOT BY THE DECIS ION IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD VS CIT (SUPRA). WE FIND THAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD VS CIT(SUPRA) IS NOT AP PLICABLE IN THE INSTANT CASE AS THE REVENUE RECEIVED IN THE INSTANT CASE IS ASSESSABLE UNDER THE HEAD BUSINESS INCOME AND NOT INCOME FROM O THER SOURCES. FURTHER, NO MATERIAL WAS BROUGHT ON RECORD BY THE L D. CIT TO SHOW THAT ANY INCOME WAS ACTUALLY EARNED BY THE ASSESSEE FRO M SALE OF POWER IN THE YEAR UNDER CONSIDERATION. THE LD. CIT HAS INVO KED THE PROVISIONS OF SECTION 263 FOR MERELY MAKING A ROVING AND FISHI NG ENQUIRY WHICH IS NOT PERMISSIBLE. WE, THEREFORE, SET ASIDE THE ORDE R OF THE LD. CIT U/S 263 OF THE ACT AND ALLOW THE APPEAL OF THE ASSESSE E. I.T.A.NO.1788/11 :- 8 -: 10. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 16-03-2012. SD/- SD/- (GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 16 TH MARCH, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR