Torrent Power Sec Ltd. vs Assistant Commissioner of Income Tax

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Akil Abdul Hamid Kureshi, J.—The petitioner has challenged the notice of reopening dated March 30,2005, for reopening the assessment for the assessment year 1998-99. The original return was under section 143(1) of the Income-tax Act, 1961, without scrutiny. The Department supplied the reasons recorded for issuance of such notice which read as under:

"During the year, the assessee has claimed the total depreciation of Rs. 17,38,37,297 as per annexure 5 enclosed along with the return of income, the assessee-company has claimed depreciation of Rs. 4,45,94,623 on meters and capacitors. The depreciation has been claimed at 100 per cent, of the cost. The issue of depreciation has been examined during the course of the assessment proceedings for the assessment year 2002-03. The assessee is claiming depreciation at 100 per cent, as per rule 5, Appendix-I, Part III, 3(iii) B (e) to the Income-tax Rules, 1962, on the ground that the meters are energy saving devices. The assessee is further of the view that the meters installed for the purpose of reading of energy consumption of the consumers also saves the energy.

This view is not acceptable for the reasons mentioned below.

The aforesaid rule start with the phrase ''energy saving devices'' being:

A. Specialized boilers and furnaces:

B. Instrumentation and monitoring system for monitoring energy flows

C. Waste heat recovery equipment

D. Cogeneration systems

E. Electrical equipment.

The assessee''s view that the meters in themselves save energy and are energy saving devices is not acceptable for two reasons : Firstly, as per the aforesaid Rule, instrumentation and monitoring system, which are energy saving device and includes one or more items mentioned in Para B would be eligible for higher depreciation rate, if any instrumentation system is installed in existing energy flow system and that instrumentation system gives ways and means to save the energy of an existing energy flow system, the equipment mentioned in paragraph B above are eligible for depreciation at 100 per cent. Paragraph B is different from paragraph E, wherein the terminology used is ''electrical equipment''. Therefore, for example, the automatic voltage controller being an electrical equipment, saves the energy, it would be entitled for depreciation at 100 per cent. Therefore, unless and until meters and capacitors are part of instrumentation system, which is used to save energy in the existing flow system, depreciation at 100 per cent, is not allowable on meters.

Secondly, the assessee states that the new electronic meters installed in the premises of the consumer save energy and, therefore, energy saving device. This view is not acceptable for the reasons mentioned above. In this regard, the opinion of an expert, Shri Dhiru Pujara, chartered engineer, also strengthens the viewpoint of the Department. Shri Dhiru Pujara is a registered chartered engineer and authorised energy auditor by the Government of Gujarat. Vide his opinion dated March 24, 2005 (received on March 28, 2005), opined that the meters are simply used to measure the energy flow and are not used as energy saving device. The electronic meters save 8W which comes to Rs. 30 per annum which is negligible amount compared to the cost of meter which is Rs. 2,000 on and average. During the course of the assessment proceedings for the assessment year 2002-03, it was also noticed that the assessee has also installed conventional meters also and for these meters, this logic is also not applicable.

The detailed reading of rule 5, Appendix I, Part III, 3(iii) has been made in body of the assessment order for the assessment year 2002-03. Furthermore, it is seen that the assessee has collected meter deposit from the consumers while installing the meters in their premises. The deposit is roughly 34 per cent, of the cost of meter. This is non-refundable deposit as per statute. However, the assessee is showing this as refundable deposits and refunds to the consumer if the power connection is discontinued and meter is surrendered. The assessee is also not giving interest on such deposit. The instances of claiming the refunds are very rare. Therefore, the cost of meter should be reduced by the meter deposit in view of Explanation 10 to section 43. This has not been done. This disallowance on this account would be Rs. 1,51,30,000.

In view of the above, it is clear that the assessee is entitled for normal rate of depreciation, which is at 25 per cent. Therefore, the assessee has claimed excess depreciation of Rs. 3,34,45,967 on meters and capacitors, which is required to be disallowed.

In view of the above fact, I have reason to believe that income has escaped assessment to the extend of Rs. 3,34,45,967."

Learned counsel for the petitioner submitted that the reasons were not recorded before issuing notice. He canvassed his contention on two factors. Firstly, that the impugned notice was issued by one Shri Y.C. Surti, Assistant Commissioner of Income-tax, Circle 4, Surat. The reasons were recorded, according to the counsel by one Shri Sanjay Pungalia, Assistant Commissioner of Income-tax, Circle 4, Surat. Secondly, that in the reasons recorded, there is a reference to the assessment order for the assessment year 2002-03. Counsel pointed out that the order of assessment for the assessment year 2002-03 was passed on March 31, 2005. These are two grounds, on which, he contended that the reasons were recorded later than issuance of notice.

In so far as the reasons recorded are concerned, the respondent, in the affidavit in reply, clarified that Shri Y.C. Surti, who was the Assistant Commissioner at the relevant time, had recorded the reasons and also issued the notice, both on March 30, 2005. It is further clarified that said Shri Surti was also the Assessing Officer of the petitioner for the assessment year 2002-03 and he was in the process of framing an assessment order for the said year, where he recorded a categorical finding that the assessee was entitled to 100 per cent, depreciation on meters and capacitors and, therefore, though the actual notice was issued on March 31, 2005, the reasons recorded in the present case found a mention to the said proceedings.

In our opinion, the Revenue has met with both the grounds of the petitioner. Firstly, the original file containing the reasons recorded shown to us and also to the counsel for the petitioner, shows that such reasons were recorded by Shri Surti on March 30, 2005. What was recorded at pages 30 to 32 are the reasons indicated by the predecessor of the said officer and, hence, contained signature of Shri Pungalia.

Regarding mention of assessment proceedings of the assessment year 2002-03, since Shri Surti was also the Assessing Officer in that case and he had, during the course of assessment, addressed the issue of depreciation on meters and capacitors, reference to the same was made in the reasons recorded. Such statement cannot be read out of context and in any case as explained in the affidavit would not mean that the reasons were not recorded before issuance of notice.

We may record that the original assessment was not framed after scrutiny. The issue of depreciation on meters and capacitors, therefore, was never examined by the Assessing Officer. The question of change of opinion, therefore, would not arise. As also as per the decision of the Supreme Court in case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., reopening in such a case would be permissible.

Counsel for the petitioner, however, raised two additional contentions. Firstly, in terms of section 151 of the Act sanction of the competent authority was not obtained before issuing notice and that subsequently, the issue of depreciation on meters and capacitors has been decided in favour of the assessee. However, neither of theses grounds find any place in the petition. The legal contentions are based on factual matrix, foundation for which has not been laid in the petition. Under the circumstances, we have not examined these contentions. This is not to suggest that if there is no sanction as required under section 151 of the Act, the reopening would still be permissible. We have, therefore, dealt with the legal contentions arising from the petition and find no reason to quash the impugned notice.

We leave it open to the petitioner to raise these additional contentions and in particular one regarding requirement of sanction by the higher authority in terms of section 151 of the Act before the Assessing Officer and also in further appeal, if any need arises. Subject to above observations, the petition is disposed of. Rule is discharged. Interim relief is vacated.