2024 (1) TMI 1068 - AT - Income Tax

Revenue's appeal dismissed as reassessment beyond 4 years invalid under Section 147 after full disclosure

Deputy Commissioner of Income Tax, Circle-3 (3) (1), Mumbai Versus East West Pipeline Private Limited

ITAT Mumbai dismissed Revenue's appeal challenging CIT(A)'s order quashing reassessment proceedings under Section 147. The assessee company had fully ... Validity of Reopening of assessment u/s 147 - proceedings initiated after the expiry of 4 years - reasons to believe - scope of change of opinion - loss claimed by assessee company towards foreign exchange loss on transaction and translation - HELD THAT:- As there was no failure on the part of the Assessee to make full and true disclosure of the primary facts. Relying upon the judgment of New Delhi Television Limited [2020 (4) TMI 133 - SUPREME COURT] the CIT(A) had concluded that the Assessee, having disclosed truly and fully the primary facts, was not under obligation to communicate to the Assessing Officer the possible inferences which could have been drawn from the primary facts disclosed. We concur with the aforesaid view taken by the CIT(A). Further, in our view Explanation 1 to Section 147 of the Act could be not attracted in the facts and circumstances of the case as the primary facts were apparent from the details and documents submitted by the Assessee. CIT(A) had noted that specific queries were raised by the AO in relation to Foreign Exchange Loss/(Gain) in response to which the Assessee had provided relevant financial statements, documents, details and submissions. CIT(A) had further noted that in the reasons recorded the AO had drawn inference that income has escaped assessment on the basis of facts already on record and not on the basis of any new material which came in the possession of the Assessing Officer subsequent to the conclusion of the assessment proceedings. CIT(A) had concluded that reassessment proceedings were initiated on re-appraisal and re-examination of the assessment records without bringing any tangible material to show that income has escaped assessment on account of failure on the part of the Assessee to furnish true and full facts. We do not find any infirmity with the aforesaid conclusion drawn by the CIT(A). In our view, on the basis of the primary facts disclosed by the Assessee, the Assessing Officer drew inference in favour of the Assessee and accepted Assessee’s claim for deduction for ‘Net Loss/(Gain) on account of Foreign Currency Transaction & Translation’ of INR 604.35 Crores’. Subsequently, reassessment proceedings were initiated on account of change of opinion formed on re-appraisal of the facts already on record and examined during the regular assessment proceedings which was contrary to the judgment of CIT Vs. Kelvinator India Ltd [2010 (1) TMI 11 - SUPREME COURT]. As have already concluded that there was no failure on the part of the Assessee to disclose the primary facts and therefore, in view of the provisions contained in First Proviso to Section 147 of the Act re-assessment proceedings could not have been initiated in the case of the Assessee after the expiry of 4 years for the end of relevant assessment years. CIT(A) was correct in quashing the Assessment Order passed u/s 147 read with Section 144B of the Act of the Act. Ground No. 1 to 4 raised by the Revenue are dismissed. Issues Involved:1. Quashing of reassessment proceedings under Section 147 of the Income Tax Act, 1961.2. Deletion of disallowance of currency swap loss.3. Deletion of disallowance of Mark-to-Market (MTM) losses.Summary:Issue 1: Quashing of Reassessment Proceedings under Section 147The Revenue challenged the order of the CIT(A) quashing the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961. The CIT(A) quashed the reassessment on the grounds that the proceedings were initiated on account of a mere change of opinion without any fresh tangible material and that the Assessee had made full and true disclosure of all material facts during the original assessment. The Tribunal upheld the CIT(A)'s order, noting that the Assessee had disclosed all primary facts necessary for the assessment, including details of foreign exchange losses related to Cross Currency Swap (CCS) contracts. The Tribunal concluded that the reassessment proceedings were initiated on re-appraisal of the facts already on record, which is contrary to the judgment of the Supreme Court in CIT Vs. Kelvinator India Ltd. The Tribunal also emphasized that there was no failure on the part of the Assessee to disclose primary facts, and therefore, reassessment proceedings could not have been initiated after the expiry of 4 years from the end of the relevant assessment year as per the First Proviso to Section 147.Issue 2: Deletion of Disallowance of Currency Swap LossThe Revenue contended that the currency swap loss incurred by the Assessee was speculative in nature and should not be allowed as a deduction against normal business income. The CIT(A) held that the currency swap loss was a revenue loss and not speculative in nature, thus allowing the deduction under Section 37(1) of the Act. The Tribunal did not adjudicate on this issue as the reassessment proceedings were quashed, rendering the grounds on merits academic and infructuous.Issue 3: Deletion of Disallowance of MTM LossesThe Revenue argued that the MTM losses related to CCS contracts were capital in nature and should not be allowed as a deduction. The CIT(A) allowed the deduction, relying on the Supreme Court's decision in the case of ONGC and Woodward Governor. The Tribunal did not adjudicate on this issue as well, as the reassessment proceedings were quashed, rendering the grounds on merits academic and infructuous.Conclusion:The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s order quashing the reassessment proceedings under Section 147 of the Act and rendering the grounds on merits academic and infructuous.Order pronounced on 05.01.2024.