Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: VAT Audit :: list of goods taxed at 4% :: Central Excise rule to resale the machines to a new company :: cpt :: VAT RATES :: TDS :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: articles on VAT and GST in India :: ACCOUNTING STANDARDS :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARD :: due date for vat payment :: form 3cd :: empanelment :: TAX RATES - GOODS TAXABLE @ 4%
 
 
From the Courts »
  Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 CIT vs. Greenfield Hotels & Estates Pvt. Ltd (Bombay High Court)
 IndiaBulls Financial Services Ltd vs. DCIT (Delhi High Court)
 Maharao Bhim Singh of Kota vs. CIT (Supreme Court)
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)

NTPC ltd. Vs.. commissioner of income tax-v
April, 18th 2014
*     IN THE HIGH COURT OF DELHI AT NEW DELHI
                                RESERVED ON: 13.03.2014
                              PRONOUNCED ON: 16.04.2014

+                       ITA 507/2013

NTPC LTD.                                   .....APPELLANT

                   Through : Mr. S.E. Dastur, Sr. Advocate with
                   Mr. R. Muralidhar and Mr. Ved Jain,
                   Advocates.

                            Versus

COMMISSIONER OF INCOME TAX-V              ....RESPONDENT

                   Through : Mr. Rohit Madan, Mr. P. Roy
                   Choudhary, Mr. Anshumaan Sahni & Mr.
                   Akash Vajpai, Advocates.

CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR


MR. JUSTICE S.RAVINDRA BHAT


1.    This is an assessee's appeal against the decision of the
Income Tax Appellate Tribunal (ITAT) dated 30.4.2012 in ITA
1438/Del/2009 for the assessment year 2005-06. The question of
law which arises for consideration in this case is whether the
Commissioner of Income Tax fell into error in invoking his power
under Section 263 of the Income Tax Act, 1961 ("the Act")
modifying the assessment order by withdrawing the additional




ITA 507/2013                                              Page 1
depreciation of Rs.187,55,77,000 and further directing the
Assessing Officer ("AO") to examine the allowance of Rs.938.80
crores on account of revision of sales afresh.
2.    The assessee (hereafter called "NTPC") filed its return of
income under the Act on 24.10.2005 and declared a total income of
Rs.1330,17,92,000/. The return was processed under Section
143(1) on 27.2.2006 at the same figure. Later, the case was
selected for scrutiny assessment and a notice under Section 143(2)
of the Act was issued on 23.3.2006; the AO had served a detailed
questionnaire upon NTPC under Section 142(1) of the Act. NTPC
in response furnished the necessary details whenever called for by
the AO. Upon analysis of various issues, the AO framed the
assessment order under Section 143(3) on 27.11.2006. He
determined the taxable income at Rs.3736,18,91,370/-.
3.    The Commissioner, after going through the assessment
order, felt that the AO allowed additional depreciation under
Section 32(1)(iia) of the Act for the sum of Rs.187,55,71,000/30
due to additional assets at the Ramagundam and Talcher Super
Power Plants, and that prima facie, this was not inadmissible. It
was stated that there was lack of deliberation by the AO on the
issue and, therefore, his order was erroneous as well as prejudicial
to the revenue's interest. The Commissioner also noted that NTPC
had raised the total sale bills to its customers of Rs.23066.03 crores
in terms of the earlier norms of Central Electricity Regulatory
Commission (CERC) and that the final order of CERC was not
made during the year; it was to be passed in the succeeding year.




ITA 507/2013                                                    Page 2
NTPC company had provisionally revised the sales downward. As
on 31.3.2005, it reduced the sales provisionally to Rs.22128 crores
on an estimate basis, without issuing any corresponding credit
notes to its customers. In the opinion of the Commissioner, the AO
permitted NTPC to reduce sales by Rs.938.03 crores without
examining the issue, which rendered his order erroneous and
prejudicial to the revenue's interest.
4.    The Commissioner issued a show-cause notice under Section
263 of the Act, on 19.10.2007 seeking explanation of the assessee
why the assessment order should not be treated as erroneous and
prejudicial to the revenue's interest. The relevant portions of the
notice are as follows:

      "(a) "Additional Depreciation:

               During the year under consideration assessee
               company claimed additional depreciation of
               Rs.187,55,71,000 on account of addition of assets at
               Ramagundam and Talcher Super Power Plants u/s.
               32(1)(iia) of the Income-tax Act. This was the first
               year in which such claim was made: Section 32(iia) of
               the Income-tax Act reads as under: In the case of any
               new machinery or plant (other than ships and
               aircraft), which has been acquired and installed after
               the 31st day of March, 2005, by an assessee engaged
               in the business of manufacture of production of any
               article or thing, a further sum equal to twenty per cent
               of the actual cost of such machinery or plant shall be
               allowed as deduction under clause (ii). From plain
               reading of the Section 32(iia) of the Act, it is evident
               that benefit is available only to those undertakings
               which are engaged in the business of manufacture or
               production of any article or thing. Other businesses




ITA 507/2013                                                     Page 3
               are not eligible to claim the benefit. Generation of
               power cannot be equated with the production of
               article or thing. Article or thing in common parlance
               is known as something tangible, movable, etc.
               Generation of power is giving energy as output and
               therefore, activity is no way similar to the production
               of article or thing. In case of CIT vs. N.C. Budhiraja
               and Co. (1993), 204 ITR 412 (S.C), it was held that
               the expression 'manufacture' and 'produce' are
               normally associated with movables-articles and
               goods, big and small. Therefore, in light of the
               position of facts and law claim of additional
               depreciation has been erroneously allowed and to that
               extent order of the A.O. is erroneous is so far as it is
               prejudicial to the interest of revenue.

      (b) Provisional Revision of Sales

               In Schedule 28 of Annual Report of the company vide
               para 3(a) and (b) it is mentioned:

               3(a) The Central Electricity Regulatory Commission
               (CERC) has notified by regulation in March 2004, the
               terms and conditions for determination of tariff
               applicable with effect from Ist April, 2004 for a period
               of five years. Pending final determination of tariff for
               the period Ist April 2004 onwards, CERC has directed
               by notification that on provisional basis, the annual
               fixed charges as applicable on 31st March, 2004 shall
               be billed at target availability and variable charges
               based on norms of operation notified in Regulation,
               2004. The amount billed for the year on this basis is
               Rs.230,663 Million. Since the amount billed is subject
               to adjustment with effect from Ist April, 2004, pending
               final determination of the tariff by CERC, sales
               amounting to Rs.221,280 million for the year have
               been provisionally recognized on the basis of
               principles enunciated by the CERC in Regulation,
               2004.




ITA 507/2013                                                     Page 4
               3(b) ................further, in case of stations for which
               final tariff orders have been issued by the CERC for
               the period up to 31.3.2004, sales amounting to
               Rs.2768 million has been accounted for during the
               year. In the previous year there was a reduction
               effected in sales to the extent of Rs.9034 million
               relating to earlier years".

      In this matter assessee company has provisionally revised
      the sales downward as on 31.3.2005. Assessee company had
      raised the total sale bills of the customers of Rs.23066.3
      crores as per earlier norms of CERC. Final order of CERC
      was not passed during the year and same was to be passed
      in some succeeding years. There was no occasion to reduce
      the sales provisionally to Rs.22128 crores on estimated basis
      and that too without issuing any corresponding credit note to
      the customers. The determination of liability as on 31.3.2005
      is contingent upon the final order by the CERC. Therefore,
      the reduction in sale in this manner is against the law.
      Moreover, assessee company is again passing a final entry
      on receipt of CERC order as mentioned in para 3(b) of the
      Schedule 28. Assessee company cannot make any provision
      on estimated basis when final determination is a future
      event. In this manner, company has wrongly reduced sale by
      Rs.938.3 crores. Assessing Officer has failed to examine the
      issue. Therefore, in light of the position of facts and law
      provisionally entry reducing the sale has been erroneously
      allowed and to that extent order of the A.O. is erroneous in
      so far as it is prejudicial to the interest of revenue.

      You are requested to show cause as to why the order passed
      u/s. 143(3) be not revised on the issue of wrong allowance of
      additional depreciation and provisional revision of sales of
      energy...."

5.    The Commissioner, noting that NTPC generates power, and
that Section 32(1)(iia) of the Act provided additional depreciation
to undertakings engaged in manufacture or production of any







ITA 507/2013                                                        Page 5
article or thing, was of opinion that generation of power cannot be
equated with the production of article or thing because article or
thing in common parlance is known as something tangible and
moveable etc. The Commissioner was of the view that wherever a
deduction is granted for power generation undertaking, a separate
mechanism has been provided under the Act. He agreed that
Section 32(1)(vi) (as stood prior to 01.04.1998), provided for
additional depreciation but that it categorically specified both
businesses i.e. generation of power and manufacture of production
or an article or thing. He therefore held that additional depreciation
was inadmissible to NTPC. He also held that the AO incorrectly
allowed additional depreciation. He therefore set aside the AO's
order and directed the latter to withdraw the additional depreciation
of Rs.187,55,71,000. On the second issue, the Commissioner
observed that the CERC was tasked by law to regulate the tariff of
electricity generating companies owned or controlled by the
Central Government. NTPC had issued total sales bills of
Rs.23,066.30 crores to its customers in terms of CERC's existing
norms. CERC's final norm fixation order was not made during the
year. Yet NTPC revised the sales downwards to Rs.22,128 crores
and did not take into account a sum of Rs.938.30 crores. The AO
permitted this without any inquiry. On this score, the
Commissioner set aside the assessment order and remitted this
issue to the file of the Assessing Officer for fresh examination.
NTPC approached the ITAT.




ITA 507/2013                                                    Page 6
6.    By the impugned order, ITAT ruled against NTPC, inter
alia, observing that:

               "16. On due consideration of all these facts and
               circumstances, we are of the view that learned
               Assessing Officer has not put any query to the
               assessee about the reduction of the sales
               provisionally. As far as the reference to page No.90 is
               concerned, the assessee has given an explanation with
               regard to different issues wherein it has pointed out
               about the provisional revision of the sales, but
               Assessing Officer has not called for the information on
               this issue nor examined it. Even if the details are
               available on the record, there is no application of the
               mind at the end of the Assessing Officer. Thus, his
               order is erroneous. As far as the second condition i.e.
               whether any prejudice has been caused to the revenue
               or not is concerned, we find that Learned
               Commissioner has recorded a finding that permitting
               the assessee to reduce the sales without examining the
               issue, whether the assessee can reduce it or not would
               result a loss to the revenue, prima facie, there is an
               escapement       of    income.     Though       Learned
               Commissioner has not examined the issue on merit but
               the discussion prima facie indicates his formation of
               opinion about the loss of revenue. He remitted it to the
               file of the Assessing Officer after satisfying himself
               that the record cry for an inquiry on this issue.
               Hon'ble Delhi High Court in the case of Ashok Logani
               (supra) has specifically observed in paragraph 14 of
               the judgment that if the matter was relegated to the
               Assessing Officer to conduct an inquiry then ITAT
               itself should not take up that inquiry in its hands and
               adjudicated the issue on merit and thereafter judge the
               order of the Learned Commissioner. In such
               circumstances, ITAT has a very limited scope and it
               should focus its discussion on the proprietary of the




ITA 507/2013                                                     Page 7
               order of the Learned Commissioner. At the time of
               hearing, we have confronted the learned counsel for
               the assessee that if the Assessing Officer failed to
               conduct an inquiry then assessment order can be
               termed as erroneous which ultimately caused a
               prejudice to the revenue and deserves to be set aside,
               then learned counsel for the assessee submitted that if
               hundred items are there in computation of income and
               no inquiry was conducted by the Assessing Officer on
               certain items then can the assessment order be
               erroneous. In our opinion if an verification of the
               record, Learned Commissioner formed an opinion
               that an issue available in the computation of income
               required verification and investigation at the end of
               Assessing Officer before its acceptance or rejection
               and such inquiry was not conducted than and an error
               has crept in the assessment order. If such an error
               caused a prejudice to the revenue than assessment
               order on such issue could be set aside. Therefore, in
               view of the above discussion, we are of the view that
               on reduction of sales Learned CIT has rightly taken
               cognizance u/s. 263 and has rightly remitted this issue
               to the Assessing Officer for fresh adjudication."
7.    Relying upon the decision reported as Malabar Industrial
Co. Ltd. v. CIT, 243 ITR 83, Mr. Dastur, the learned senior counsel
for NTPC, argued that the term "prejudicial to the interests of the
Revenue" in Section 263 is not defined under the Act; in the sense
that it is understood ordinarily it has wide implications and is not
confined to loss of tax. It is stated that the Supreme Court ruled
that every loss of revenue as a consequence of the order of the
Assessing Officer (AO) cannot be treated as prejudicial to the
Revenue's interest. Thus, when an Income Tax Officer adopts one
of the courses permissible in law which results in loss of revenue




ITA 507/2013                                                    Page 8
or where two views are possible with which the Commissioner is
not in agreement, the matter cannot be treated as one amounting to
an error or prejudicial to the Revenue's interest. Learned counsel
also submitted that the Division Bench ruling in Commissioner of
Income Tax. v. Leisure Wear Exports Limited, 341 ITR 166 is
decisive in that the revisional power under Section 263 cannot be
invoked to merely correct an error by the ITO which is prejudicial
to the Revenue's interest. Only those orders which are based on an
incorrect assumption of facts or based on wrong application of law
or which betray non-application of mind can be termed erroneous.
It was also argued that the order of the CIT to the extent that it
directed the AO to investigate the matter without describing how
such investigation is to be carried-out would itself be erroneous. In
other words, the CIT has to go into the merits to decide how the
AO's order is prejudicial or erroneous. If he does not do so, his
order itself would be outside jurisdiction and, therefore, contrary to
law.
8.     It was submitted that paragraphs 3(a) and 3(b) of the 21 st
Schedule to the Annual report of 20.04.2005, placed on record, at
the time of the original assessment reveal that pending finalization
of tariff for the period 01.04.2004 onwards, CERC directed that on
provisional basis, the annual fixed charges applicable as on
31.03.2004 had to be applied for billing at target availability and
variable charges were to be charged on operation notified in the
Regulations of 2004. The sum of `2683.01 crores was billed for the
year and was subject to adjustment with effect from 01.04.2004 till




ITA 507/2013                                                    Page 9
a final determination was made by the CERC. Consequently, the
sum of `257.179 crore was provisionally recognized based on the
principles enunciated by the CERC in the 2004 Regulations. In
case of circumstances for which final tariff orders were made by
CERC for the period 2004, sales upto ` 603 crores were accounted
for this year. It was submitted that note 3(b) clearly stated that in
the previous year, there was a reduction in the sales to the extent of
` 903.4 crores relating to earlier years.
9.    Stressing that these aspects were taken into account by the
AO after a detailed enquiry, scrutiny and proper application of
mind, the learned senior counsel submitted that in the original
paragraph 13 of the assessment order, the AO dealt with the issue
of pre-commissioning scales, and referred to Schedule 28 to the
note of account which included notes 3(a) and 3(b).
10.   It is submitted that the NTPC is not free to charge any tariff
for electricity generated but is subject to strict regulation by
through the CERC's regulations. Thus, note A of the Annual
Report brought out that in the year ending 31.03.2005 (A.Y. 2005-
06), the CERC had not finally determined the tariff chargeable.
Instead, what happened was that NTPC was allowed to bill on the
provisionally fixed charges applicable as on 31.03.2004. As this
amount was not final and subject to change, the CERC notification
clarified that if the billed amount was in excess of final tariff, such
excess had to be returned by the company to the consumer.
Arguing further, it is urged that the record reveals that the tariff
norms fixed by the NTPC for power plants from 2004-09 were




ITA 507/2013                                                    Page 10
lower than the tariff norms for 2000-04. The NTPC had accounted
sales for electricity for ` 2212.8 crores based upon the previous
experience in tariff fixation orders of CERC. This was even though
the billed amount was ` 2306.6 crores. This estimate was bona fide
and made on a realistic assessment of sales estimation that could be
realized in terms of accepted tariff notifications. Thus, it is urged
that there was nothing erroneous or prejudicial to Revenue's
interest in such estimate.
11.   Learned counsel also emphasized that NTPC's stand was
vindicated because the final tariff orders issued in Financial Years
2006-07 and 2007-08 fixed the tariff at a lower rate than what was
previously billed by it. Consequently, NTPC was obliged to return
the excess collected to the consumers in the form of credit notes.
However, it was argued that wherever final tariff rates determined
by the CERC are higher than the sales recorded by NTPC even
though lower than the amounts billed to its consumers, such excess
has been invariably offered to tax. It was thus stated that during
A.Y. 2007-08, an additional amount of tax of ` 46.40 crores on
account of such tariff finalized for previous years was offered to
tax. It was submitted, therefore, that there was no escapement of
income or prejudice to the Revenue and there was no error calling
for exercise of revisional jurisdiction.
12.   Relying upon the decisions reported as Saurashtra Cement
and Chemicals v. CIT, 1995 (213) ITR 523 and Bharat Earth
Movers v. CIT, 245 ITR 428 (SC), it was submitted that so long as
the estimate is based upon reasonable certainty though actual




ITA 507/2013                                                  Page 11
quantification may not be possible, such exercise should not be
rejected. Likewise, it was submitted ­ based upon the decision in
CIT v. Shoorji Vallabhdas and Co., 1962 (46) ITR 144 that what is
to be seen is whether the substance of the matter is really income
and that if income does not result, there cannot be a tax even
though a big entry is made about a hypothetical income which does
not materialize. It was submitted, therefore, that the downward
revision based upon an estimate and past experience, could not be
said to have caused prejudice especially when pursuant to the final
tariff the NTPC's stand was in fact vindicated.
13.   On the other hand, learned counsel for the Revenue urged
that the ITAT's order does not call for interference. Learned
counsel states that the AO's order revealed that in fact no
information was called for in question and that there was no
meaningful examination. Stressing that there were no details
available on the record in the assessment proceedings, learned
counsel submitted that the AO's order was in fact erroneous and
led to loss of revenue. It was, therefore, urged that there was in fact
no occasion to reduce the sales provisionally of ` 2212.2 crores on
estimated basis even though the total amount billed upon the
NTPC's customers was ` 203.66 crores. The determination of
liability as on 31.03.2005 was contingent upon final order of the
CERC. The estimation, therefore, could not have been made in
respect of final determination of the matter in future. Thus, NPTC
had wrongly reduced the sale of `938.3 crores. Learned counsel
relied upon the ruling of this Court reported as CIT v. Regency




ITA 507/2013                                                    Page 12
Park Property Management Company Pvt. Ltd., ITA 1991/2010
decided on 05.01.2012 and submitted that failure to conduct
necessary enquiry and investigation would render the Assessing
Officer's orders erroneous as he is required to act as an
investigator. Such an order would also be prejudicial to Revenue's
interest. It was also submitted that this decision is an authority on
the question that the CIT can require the AO ­ in the proper
exercise of his authority under Section 263 ­ to carry-out further
enquiry and investigation with a view to making an appropriate
order.

Analysis and findings

14.      Before proceeding to deal with the rival merits of the
contentions of the parties, it would be necessary extract some of the
relevant CERC Regulations. On 26.03.2001, CERC Regulations of
2001 were brought into force with effect from 01.04.2001 for three
years. Para 2.7 of these Regulations of 2001 reads as follows:

         "2.7 Payment of Capacity (Fixed) Charges
               The Capacity Charges shall be computed on the
         following basis and its recovery shall be related to
         Availability.


         (a)   Interest on loan capital
               Interest on loan capital shall be computed on the
         outstanding loans, duly taking into account the schedule of
         repayment, as per the financial package approved by the




ITA 507/2013                                                  Page 13
      Authority or an appropriate independent agency, as the case
      may be.


      (b)      Depreciation:
      (i)    The value base for the purpose of depreciation shall
      be the historical cost of the asset.


      Depreciation shall be calculated annually as per straight
      line method at the rate of depreciation as prescribed in the
      Schedule attached to this notification as Appendix-II.





      Provided that the total depreciation during the life of the
      project shall not exceed 90% of the approved original cost.
      The approved original cost shall include additional
      capitalization on account of foreign exchange rate variation
      also.


      XXXXXX                        XXXXXX                     XXXXXX
      (c)      Return on Equity:
            Return on equity shall be computed on the paid up and
            subscribed capital and shall be 16 percent of such
            capital.
            Explanation:-
            Premium raised by the Generating Company while
            issuing share capital and investment or internal
            resources created out of free reserve of the existing
            utility, if any, for the funding of the project, shall also be
            reckoned as paid up capital for the purpose of computing
            the return on equity, provided such premium amount and
            internal resources are actually utilized for meeting the




ITA 507/2013                                                       Page 14
          capital expenditure of the generating station and forms
          part of the approved financial package as set out in the
          techno-economic clearance accorded by the Authority or
          approved by an appropriate independent agency, as the
          case may be.


          XXXXXX                 XXXXX               XXXXXX"
15.   On 30.04.2004, a notification was issued which stated that
the terms and conditions for tariff determination with effect from
01.04.2004 were notified on 29.03.2004 to determination of tariff
based upon revised terms was likely to take some time. The
notification (of 30.04.2004), therefore, went on to direct as follows:

      "7/25(7)/2004-Legal               Dated the 30th April, 2004
                            NOTIFICATION
      XXXX XX                    XXXXXX              XXXXXX
      2.     It is, therefore, directed that with effect from 1.4.2004,
      the billing of charges shall be done on the following basis,
      for a period of 6 months, that is, up to 30.9.2004.
               Thermal Power Generating Stations
                 The annual fixed charges as applicable on
                 31.3.2004 shall be billed at the target availability
                 and variable charges based on norms of operation
                 notified on 29.3.2004.
                 Hydro Power Generating Stations
                 Full recovery of annual fixed (capacity) charges as
                 applicable on 31.3.2004 shall be billed and
                 recovered based on capacity index notified on
                 29.3.2004. Similarly, primary/secondary energy




ITA 507/2013                                                    Page 15
                rates shall be computed based on the terms and
                conditions notified on 29.3.2004.
                Transmission System
                Annual transmission charges shall be billed as
                applicable on 31.3.2004 and recovered based on
                Target Availability notified on 29.3.2004.
          3. The development surcharge as applicable up to
          31.3.2004 shall not be billed.
          4. The billing of charges as directed above shall be on
          provisional basis and shall be further subject to
          adjustment after final determination of tariff by the
          Commission in accordance with the revised terms and
          conditions notified on 29.3.2004, for which the petitions
          shall be filed by the utilities latest by 30.6.2004."
16. Likewise, on 11.06.2004, a clarification was issued that since
there were certain doubts with regard to payment of charges other
than those specified in the notification of 30.04.2004, all respective
terms of tariff of 29.04.2004 were applicable but that billing of
charges of main component specified on 30.04.2004 would be
regulated in terms of that notification only on provisional basis till
determination of tariff in individual cases, was published. On
01.10.2004, the CERC notified as follows:

      "CENTRAL       ELECTRICITY                     REGULATORY
   COMMISSION NEW DELHI
          L-7/25(7)/2004-Legal         Dated the 1st October, 2004
                               NOTIFICATION
                It is hereby directed that the billing of charges in
          terms of the Commission's notification No.L-
          7/25(7)/2004-Legal dated 30.4.2004, read with the




ITA 507/2013                                                   Page 16
           notification of even number dated 11.6.2004, shall be
           continued on provisional basis for a period up to
           31.3.2005 or till disposal of the applications made by the
           utilities for approval of tariff, whichever is earlier, and
           shall be subject to adjustment after final determination of
           tariff by the Commission based on such applications.
           2. It is further directed that the applications shall be
           made by the utilities by 31.10.2004 failing which the
           Commission may consider to reduce the provisional tariff
           presently allowed for generating stations or the
           transmission assets, as the case may be, in respect of
           which the applications are not made by that date.
                                                     (A.K. SACHAN)
                                                       SECRETARY"


17.   The 26.03.2004 Regulations ­ notified on 29.03.2004 ­
which were referred to in the above two notification and which
contained the terms that were operationalized after the tariff rates
were fixed and finalized, by paragraph 21(iii) prescribed as
follows:

      "(iii) Return on Equity
      Return on equity shall be computed on the equity base
      determined in accordance with regulation 20@14% per
      annum.
      Provided that equity invested in foreign currency shall be
      allowed a return up to the prescribed limit in the same
      currency and the payment on this account shall be made in
      Indian Rupees based on the exchange rate prevailing on the
      due date of billing.
      Explanation




ITA 507/2013                                                   Page 17
             The premium raised by the generating company while
      issuing share capital and investment of internal resources
      created out of free reserve of the generating company, if any,
      for the funding of the project, shall also be reckoned as paid
      up capital for the purpose of computing return on equity,
      provided such premium amount and internal resources are
      actually utilized for meeting the capital expenditure of the
      generating station and forms part of the approved financial
      package."

18.   There is no dispute that Notes 3 (a) and 3(b) of the XXI
Schedule to the Annual Report in this case disclosed all the facts,
especially that initially the sales figures were ` 2683.01 crores;
how there was a reduction in this on the basis of downward
revision, due to the CERC Regulations, resulting in the final figure
­ shown in the return being ` 903.4 crores less. Therefore, NTPC
could not be accused of withholding information or material
information, or providing incomplete facts. The question therefore
is whether the absence of a specific discussion on this aspect in the
assessment order resulted in an error of law by the AO, and
whether that resulted in prejudice to the revenue.

19.   The narrative and discussion of facts in the previous part of
this judgment has showed that there was some tentativeness in the
CERC Regulations about the tariff rates and conditions that were to
be applied for the period 01-04-2004 onwards. The previous Tariff
Regulations ­ framed in 2001 ­ were to end on 31.03.2004; yet by
the latter date, even though the conditions for tariff applicability
had been more or less finalized, the final tariff order, notifying the
rates and some final principles, had not been brought into force. In




ITA 507/2013                                                   Page 18
these circumstances, the CERC directed that the existing conditions
were to be applied till 30.9.2004. The notification of 01.04.2004
thereafter directed corporations like NTPC in the following terms:

      "... It is hereby directed that the billing of charges in terms
      of the Commission's notification No.L-7/25(7)/2004-Legal
      dated 30.4.2004, read with the notification of even number
      dated 11.6.2004, shall be continued on provisional basis for
      a period up to 31.3.2005 or till disposal of the applications
      made by the utilities for approval of tariff, whichever is
      earlier, and shall be subject to adjustment after final
      determination of tariff by the Commission based on such
      applications."
20.   NTPC thus had no choice in the matter but to carry on
billing in terms of the previous notification on a provisional basis
up to 31.03.2005 or till the approval of tariffs; such billing figures
were to be subject to adjustment after final tariff determination.
Thus, inherently there was a degree of uncertainty and
incompleteness in the process. This was reflected in the return
when the adjustment of the billing became necessary on account of
the application of the CERC notification. NTPC's argument that
the tariff for power plants from 2004-09 was lower than the tariff
norms for 2000-04 has not been disputed by the Revenue. Even a
bare look at the later Tariff Regulations shows that the rate of
return was revised downwards. NTPC submits that it accounted
sales for electricity for `2212.8 crores based upon the previous
experience in tariff fixation orders of CERC. This was even though
the billed amount was ` 2306.6 crores. This estimate was bona fide
and made on a realistic assessment of sales estimation that could be




ITA 507/2013                                                   Page 19
realized in terms of accepted tariff notifications. There was nothing
erroneous or prejudicial to Revenue's interest in such estimate.

21.   This Court finds that power generation companies owned or
controlled by the Central Government are a sub-species of business
entities for which a separate provision has been enacted by the Act.
There is no dispute that the income of utilities, especially ones
subject to stringent public control, are tightly regulated in terms of
what are the accounting methods to be adopted, how depreciation
is to be claimed, allowances rate of return on capital, etc. All these
aspects are subject to CERC Regulations. At the relevant time, i.e.
the transition between the old (2001) CERC Regulations, and the
later ones (2004-2009), had not been fully worked out by the
CERC as to what had to be recovered by NTPC and other entities.
It therefore directed that the previous regime be followed.
Apparently for a portion of previous accounting periods,
provisional figures were being indicated as income estimates, and
depending on how the final figures were worked out at times,
higher figures would be offered as amounts received in excess of
the sum estimated and reported during other periods. An example
cited is one for 2006-2007 when an excess figure of over Rs. 46
crore was reported and brought to tax. Furthermore, the revision
downward ­ in the present instance ­ was based on past
experience, whenever revision of tariff had taken place. If
downward revision were not undertaken, there would have been a




ITA 507/2013                                                   Page 20
likelihood of the higher figure not being realized after tariff
finalization.

21.   There is authority, in the form of Supreme Court judgments
in Shree Sajjan Mills Ltd v. CIT, (1985) 156 ITR 585, Bharat
Earth Movers Ltd v. CIT, (2000) 245 ITR 428 and Metal Box
Company of India Ltd v. Their Workmen, (1969) 73 ITR 53, that a
provision made on a reasonable basis, it would be in the nature of
an ascertained liability and that in a mercantile system of
accounting, provision for liability ascertained during the course of
the relevant accounting period, which is payable at a future is
permissible.

22.   The expression "error of law" resulting in prejudice to the
interests of the revenue are not to be given wide connotation, as is
sought to be urged by the Revenue here. Where two views are
possible, the Commissioner should not exercise his power under
Section 263; Leisure Wear (supra) aptly summarizes this power as
not enabling a revisional interdict on the mere existence of another
view which conflicts with what was adopted by the Income Tax
Officer; so long as the latter's opinion is a plausible one, exercise
of power would be unwarranted. The fulfillment of both
preconditions, i.e. error of law, and prejudice to revenue is
essential, else the revenue would have wide ranging powers to
oversee and re-open almost every assessment order. In the present
case, the court is satisfied that the AO's order was made after
appropriate inquiry; the absence of discussion regarding downward




ITA 507/2013                                                  Page 21
revision of sales figures in this case did not make it any less
vulnerable to correction under Section 263. The view taken by him
is one which is endorsed by law, as the CERC Regulations left the
NTPC with little choice to make such revision awaiting a final
determination in regard to the whole period after the expiry of the
assessment in that instance.

23.   This Court is of the opinion that the question of law framed
in this appeal has to be answered in favour of the assessee. The
Commissioner acted erroneously in exercising revisional power
under Section 263. The orders of the Commissioner and the ITAT
are hereby set aside. The order of the AO dated 27.11.2006 is
restored. However the merits of that order, on aspects other than
what has been discussed here and pending in appeal, are not being
touched upon. The appeal is allowed in the above terms.




                                           S. RAVINDRA BHAT
                                                (JUDGE)


                                                R.V. EASWAR
                                                  (JUDGE)
APRIL 16, 2014




ITA 507/2013                                                Page 22

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Integrated Software Solutions Integrated Software Development Integrated Software Services Integrated Software Solutions India Integrated Softw

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions