2023 (10) TMI 136 - HC - Income Tax

Court quashes Income Tax Act order due to time limit breach and 'change of opinion'

The court quashed the order and notice issued under the Income Tax Act, 1961, as they were found to be beyond the prescribed period and based on a 'change ... Reopening of assessment u/s 147 - Reason to believe - notice beyond period of four years - transactions have resulted in net capital loss on foreign exchange derivatives, being notional and contingent in nature, it is not an allowable expenditure u/s 37(1) - HELD THAT:- A basis for issuance of notice was the fact that the requisite materials as noted in the reasons were embedded in such a manner that material evidence would not be discovered by the Assessing Officer and could have been discovered with due diligence and therefore, the provisions for Explanation-1 of Section 147 would attract. Having considered the submissions made by the learned counsels for the respective parties on reading the reasons recorded it is evident that it was for the Assessment Year 2014-15 and while recording the brief details of the assessment that fact is taken note of. Admittedly therefore, it is a case where the assessment or exercise of re-opening the assessment is beyond the period of four years and therefore, the petitioner would succeed only on this ground. Even otherwise, on the submission of the concept of “change of opinion” having considered the fact that for the very issue, when a notice under Section 142(1) of the Act, 1961 was given to the petitioner to which the petitioner responded on 13th November, 2017 and that very submission was the basis to have triggered the reassessment exercise, it is clearly an exercise which would tantamount to have undertaken on the basis of change of opinion. In light of the decision in case of Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT] the petition succeeds on this ground too. Issues involved: The issues involved in the judgment are the quashing of an order and notice issued under the Income Tax Act, 1961, based on objections raised by the petitioner regarding a net loss in foreign exchange derivatives and the re-opening of assessment beyond the prescribed period.Judgment Summary:Issue 1: Quashing of Order and NoticeThe petitioner filed a petition under Article 226 of the Constitution of India seeking to quash an order dated 9th November, 2021, disposing of objections raised by the petitioner, and an impugned notice issued on 31st March, 2021 under Section 148 of the Income Tax Act, 1961. The petitioner challenged the notice on grounds of being beyond the prescribed period of four years from the end of the Assessment Year and as a case of 'change of opinion.' The court found that the re-opening of assessment beyond four years was impermissible, and the notice and order were quashed and set aside.Issue 2: Reopening of AssessmentThe Revenue contended that the re-opening of assessment was justified under Explanation-1 of Section 147 of the Act, 1961, as material evidence could not have been discovered earlier. However, the court found that the assessment was reopened for the Assessment Year 2014-15, beyond the four-year limit, and therefore, the petitioner succeeded on this ground. Additionally, the court held that the reassessment exercise was based on a 'change of opinion,' as the basis for re-opening was the same information provided by the petitioner earlier. Citing precedent, the court ruled in favor of the petitioner on this ground as well.Conclusion:The petition was allowed, and the impugned notice dated 31st March, 2021, and the order rejecting objections dated 9th November, 2021 were quashed and set aside. The court made the rule absolute with no order as to costs.