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

ITAT Mumbai dismissed Revenue's appeal challenging CIT(A)'s order quashing reassessment proceedings under Section 147. The assessee company had fully disclosed primary facts regarding foreign exchange loss claims during original assessment, where AO accepted deduction of INR 604.35 crores. Reassessment was initiated after 4 years based on reappraisal of same facts without new material, constituting impermissible change of opinion. ITAT held that since assessee made full disclosure and no failure existed, reassessment beyond 4 years was invalid under First Proviso to Section 147. The tribunal upheld CIT(A)'s decision quashing the assessment order.

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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 147

The 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 Loss

The 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 Losses

The 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.

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