TaxTMI 
TaxTMI 
2018 (12) TMI 1320
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....ment originally completed u/s 143(3) of the IT Act 1961, by issue of the notice u/s 148 on 27.03.2014, not appreciating that the re-opening was bad-in-law (i) as the ld AO had re-opened the assessment without there being any valid reason to believe that any income chargeable to tax had escaped assessment and (ii) the re-opening was on account of change of opinion in respect of facts examined during original assessment proceedings 2. The Hon. CIT (A) erred in upholding addition of Rs. 51,13,894/- made u/s 69C of the IT Act 1961, on account of "loss on exchange fluctuation" debited to the profit and loss account. 3. The appellant craves leave to add, alter, amend and/or vary any of the grounds at any time before the decision of the appeal." 3. The brief facts of the case are that the assessee is re-sellers of Government lottery tickets and manufactures of moulds, dies and plastic goods. The assessee filed return of income on 18.09.2009, declaring total income of Rs. 2,02,77,250/- which was accepted by Revenue vide scrutiny assessment framed u/s. 143(3) of the Act vide assessment order dated 27.10.2011 wherein returned income was accepted by Revenue. Thereafter, provisions of....
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....trading, interest and rental income. There was not any foreign transaction reflects in the books therefore loss on exchange fluctuation cannot arise. In view of the above Please show cause why amount of Rs. 51,13,894/- should not be disallowed." 5. Thus it can be seen from the reasons recorded for reopening of the concluded assessment as well from notice issued u/s. 148 that the revenue was under an impression and belief that the assessee is a reseller of Government lottery tickets and there were no foreign currency transaction which could have been entered by the assessee which could have resulted in loss on account of foreign exchange rate fluctuation. The assessee had claimed that during original assessment proceedings conducted u/s 143(3) r.w.s. 143(2) , it submitted complete details as to loss on foreign exchange rate fluctuations and it is only after scrutinizing of the details submitted by the assessee as well after calling information u/s. 133(6) of the 1961 Act by the AO directly , the assessment order was framed by the AO dated 27.10.2011 u/s. 143(3) of the 1961 Act. The assessee claimed during the reassessment proceedings u/s 147 of the 1961 Act that it is wrong to say ....
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....e rate fluctuation of Euro vis-a-vis Indian Rupee , which foreign currency loan was earlier taken in AY 2006-07 from Vijaya Bank for import of machinery for manufacturing of moulds and dies. The AO rejected the contentions of the assessee and observed that the assessee was engaged in the business of reseller of government lottery ticket . The AO observed that during assessment proceedings , it was observed that the assessee had derived income from lottery trading, interest and rental income . The AO further observed that there was no foreign exchange transactions reflected in the books on which exchange fluctuation loss could have been claimed. The AO made additions to the tune of Rs. 51,13,894/- by invoking provisions of Section 69C of the Act, as an unexplained expenditure as in the opinion of the AO , the assessee has no basis for debiting Rs. 51,13,894/- as loss on foreign exchange rate fluctuation in the Profit and Loss Account , vide assessment order dated 21.01.2015 passed u/s 143(3) read with Section 147 of the 1961 Act. 6. The assessee being aggrieved by the assessment order dated 21.01.2015 passed by the AO u/s 143(3) read with Section 147 of the 1961 Act, filed first a....
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....e to time during the assessment proceedings, the learned AO issued an order under section 143(3) of the Act dated 27 October 2011 and allowed the deduction of exchange fluctuation loss which the learned AO's failed to appreciate in reopening the case. 5.1.1. The moot point for reopening the assessment itself is not correct and accordingly the reason to reopen is just based on the whims and fancies of the learned AO. In this connection, attention is drawn to the reasons for reopening as stated by the learned AO : "...it is observed that the assessment of the above assessee was done in a scrutiny manner in October 2011 determining total income at Rs. 20277250/-, It is observed from the profit and loss account that the assessee has debited Rs. 5113894 on account of loss exchange fluctuation. As assessee firm was engaged in the business of Reseller of Government Lottery Tickets and from profit and loss account it was seen that all income derived from the lottery trading, interest and rental income. There was no any foreign transaction reflects in the books, therefore, loss on exchange fluctuation cannot arise. In view of the above, the same should be disallowed and added back to ....
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....ief entertained by the AO must not be arbitrary or irrational, but it must be based on reasons which are relevant and material. The provision of section 147 of the Act states that in order to reopen the assessment, the AO must have 'reason to believe' and not the 'reason to suspect'. 5.1.2. In the facts of the present case, the Appellant respectfully submits that, there is no new tangible material available with the learned AO to come to the conclusion that there is escapement of income. As mentioned in Para 2.1 above, the relevant financial statements and the details of Exchange Fluctuation loss were already submitted at the time of original assessment, which were already examined by the AO while concluding the assessment under section 143(3) of the Act. Accordingly, no reason to belief for the escapement of income existed. Further, the financials and Tax Audit Report on record clearly indicates that the appellant is a Reseller of Lottery Tickets and also Manufacturer of Dies and Moulds. Accordingly, the very basis of reopening considered by the learned AO is incorrect, more so, when the learned AO has allowed the depreciation and additional depreciation on the P....
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..... The AO has duly recorded reasons and the reasons recorded for reopening u/s 148 of the Act were provided to the appellant. On perusal of assessment order and the written submission submitted during appellate proceedings it is found that appellant challenged initiation of proceedings u/s 147 of the Act during assessment proceedings, thereafter, objection against the reopening of assessment u/s. 148 of the Act were duly considered and rejected on 16.10.2014. The AO has given sound reasoning as noted in para 1 to 4 of the assessment order. Hence, the AO has properly followed the procedure prescribed under the law to reopen the case as per the provisions of section 147/148 of the Act. 5.3. The position of law is well-settled in respect of reopening of case u/s 147/148 of the Act. Under two situations the AO has the right to reopen a completed assessment. In the first situation, a completed assessment can be reopened either, if there was omission or failure on the part of the assessee to disclose fully and truly all material and relevant facts and the AO must have in his possession, before he issues notice, some material from which he can reasonably form a belief that there has been....
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.... in that section. "There should be facts before the ITO that reasonably give rise to the belief. The belief held by him must of course be in good faith. It cannot be a mere pretence; but the facts on the basis of which he entertained the belief need not at this stage be irrebuttably conclusive to support his tentative conclusion. Where such an inference can be drawn, sufficiency of reasons cannot be questioned at the preliminary stage." [S. Narayanappa vs. CIT(1967) 63 ITR 219 (SC): TC51R.651AJ. 5.6. The aforesaid fact regarding under assessment of income was a tangible material, which gave the AO reason to believe that the income of the appellate has escaped assessment. What is important at the time of formation of belief by the AO regarding the escapement or under assessment of income is sufficiency of the reasons for re-opening of the assessment and not its accuracy that cannot be questioned at that time. Therefore objection of the appellant to the reopening of the case and stating the same as bad in law cannot be accepted. 5.7. In the case of Praful Chunilal Patel Vs. ACIT (1998) 148 CTR 62(Guj.): (1999) 236 ITR 832 (Guj), it has been held by the Hon'bie Gujarat High ....
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....o believe from a very same record as has been the subject-matter of the completed assessments proceedings. The argument that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts, must be rejected out of hand in the light of the provision of Explanation 1 according to which mere production of books of account or other evidence from which the Assessing Officer could have, with due diligence, discovered the material evidence, does not necessarily amount to a disclosure within the meaning of the proviso. The submission that even when the order of assessment does not record any explicit opinion on the aspects sought to be examined in reassessment, it must be presumed that those aspects were present in the mind of the Assessing Officer and have been held in the favour of the assessee, could not be accepted. There might be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy have been examined and been determined by the Assessing Officer. It is....
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....pellant constitute sufficient material in the possession of the AO to form the reason to believe regarding the escapement of income at the time of reopening of assessment, which escaped in the original assessment order. The facts of the case laws relied upon by the AR of the appellant are not identical to the facts of the instant case and therefore of no help. The ground of appeal, regarding the objection to the reopening of the case of the appellant for the year under consideration therefore, are not valid and dismissed. " 8. The challenge on merits of the issue of which additions were made by the AO were also rejected by Ld. CIT(A) ,vide appellate orders dated 29.07.2016, by holding as under:- "6.3 I have gone through the assessment order, re-assessment order and written submissions alongwith audit reports made by the appellant during appellate proceedings. The moot question is whether appellant is engaged itself only in the business of Reseller of Government lottery tickets during the year and/or also manufacturing business as well and suffered a loss on account of the loss on exchange fluctuation to the tune of Rs. 51,13,894/-. The appellant has vehemently argued that the fi....
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....r A.Y. 2007-08, Rs. 15,80,901/- for A.Y. 2008-09 and Rs. 13,43,766/- for A.Y.2009-10 @ 15% totalling to Rs. 1,14,61,057/- till the A.Y. under consideration. In addition to this the appellant has also claimed Rs. 5,87,452/- as interest paid to Vijaya Bank on the FLC loan for the year. Accordingly, it is presumed that the appellant has also claimed the interest paid to Vijaya Bank on this account for the preceding years too. 6.6. The issue of change / fluctuation in foreign currency rates for the capital assets is governed by section 43A of the Act, which is being reproduced as under: "Special provisions consequential to changes in rate of exchange of currency. 43A. Notwithstanding anything contained in any other provisions of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assesses as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of....
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....ian currency" have the meanings respectively assigned to them in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999). Explanation 2.-Where the whole or any part of the liability aforesaid is met, not by the assessee, but, directly or indirectly, by any other person or authority, the liability so met shall not be taken into account for the purposes of this section. Explanation 3.-Where the assessee has entered into a contract with an authorised dealer as defined in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999), for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the liability aforesaid, the amount, if any, to be added to, or deducted from, the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this section shall, in respect of so much of the sum specified in the contract as is available for discharging the liability aforesaid, be computed with reference to the rate of exchange specified therein.]" 6.7 B....
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....ould depend on the answer to the question, whether the loss was in respect of a trading asset or a capita! asset. In the former case, it would be a trading loss but not so in the latter. The test may also be formulated in another way by asking the question whether the loss was in respect of circulating capital or in respect of fixed capital" 6.9. Further observation made in above case that if the amount in foreign currency is utilized or intended to be utilized in the course of business or for a trading purpose or for effecting a transaction on revenue account, loss arising from depreciation in its value on account of alteration in the rate of exchange would be a trading loss, but if the amount is held as a capital asset, loss arising from depreciation would be a capital loss. 6.9.1. In case of CIT vs. V.S. Dempo & Co Pvt. Ltd (206 ITR 291) which has specifically laid down principles in order to decide whether loss/gain arising out of foreign exchange fluctuations is in nature of revenue or capital, of which at para 5 of said principles which says as follow: "loss resulting from depreciation of the foreign currency which is utilised or intended to be utilised in business and ....
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....ing payment by debiting the same to the Profit & Loss account. It was submitted that the assessee is engaged in business of reseller of government lottery ticket as well as in the business of manufacture of moulds & dies . It was also submitted that in addition , the assessee has income from rent and interest. It was submitted by ld counsel for the assessee that the assessee filed return of income on 18.09.2009 and assessment was framed u/s. 143(3) originally by revenue wherein claim of the assessee toward foreign exchange fluctuation to the tune of Rs. 51.13 lac was accepted by the revenue. The revenue invoked provisions u/s. 147 of the 1961 Act by reopening of the concluded assessment wherein the notice u/s. 148 was issued within four years from the end of the relevant assessment year. It was submitted that Ld. CIT(A) has accepted that the assessee is engaged in the business of reseller of government lottery ticket as well as manufacturing moulds & dies. Our attention was drawn to para 6.3 of ld. CIT(A) orders. It is also submitted that Revenue has not come in appeal against the said finding of learned CIT(A) nor CO was filed by Revenue and hence said finding of learned CIT(A) ha....
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....dings conducted by the AO u/s. 143(3) r.w.s. 143(2) of the 1961 Act, which notice dated 06.04.2011 is placed in paper book page no. 21 to 23 . It was submitted that detailed reply was submitted by the assessee to this notice in original assessment proceedings which is placed in paper book / page no. 24 to 30 which also included reply to losses incurred on foreign exchange fluctuation on account of adverse movement of Euro vis-a-vis Indian Rupee while making repayment of foreign currency loan taken for import of machinery. Our attention was also drawn to page no. 54 of the paper book which is computation of income which is filed along with income-tax return, wherein its is clearly stated that the assessee is reseller of government lottery tickets and manufacturers of moulds & dies. Our attention was also drawn to page no. 55 wherein tax-audit report dated 14.09.2009 in form no. 3CB certified by tax-auditors namely B R Modi, Chartered Accountants is placed whereas it is stated by tax-auditors that assessee‟s factory is situated at Plot no. 6, NH 8 Sativali, Vasai(East), Thane-410208. Our attention was also drawn to page no 60 /para 28(b) which is part of tax-audit report in for....
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....oceedings conducted u/s 143(3) read with Section 143(2) and it is merely a change of opinion which is not permissible within the mandate of Section 147 of the Act. 10. The Ld. DR on the other hand submitted that section 43A is applicable in the instant case . It was submitted by learned DR that the assessee has accepted and conceded that the assessee does not have any case on merits of the issue . Thus, it was submitted that the additions as were made by the AO needed to be confirmed on merits itself. It was submitted while reopening of the concluded assessment, the AO applied his mind and there is no reference to the audit objections . It was submitted that reopening of the concluded assessment u/s 147 was done within a period of four years from the end of the assessment and proviso to Section 147 is not applicable. Explanation 1 and 2 to Section 147 are applicable and hence reopening was validly done. It was submitted that the learned CIT(A) upheld the reopening of the concluded assessment u/s 147 of the 1961 Act. The learned DR rely on the appellate order passed by learned CIT(A). 11. The learned counsel for the assessee submitted in rejoinder that it is accepted that Section ....
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....siness of Reseller government Lottery tickets and from profit and loss account it was seen that all income derived from the lottery trading, interest and rental income. There was not any foreign transaction reflects in the books therefore loss on exchange fluctuation cannot arise., In view of above same should have been disallowed and added back to the income. However, this was not done. Omission resulted in under assessment of income by like amount with consequent short levy of tax of Rs. 1738212/- including surcharge and education cess. Interest u/s 234B of Rs. 538845/-is also leviable. In view of the above, I have reason to believe that the income of Rs. 5113894/- chargeable to tax has escaped assessment for the year under consideration within the meaning of Explanation 2(c) to the provisions of Section 147 of the Income Tax Act, 1961." The reasons recorded for reopening of the concluded assessment u/s 147 was duly furnished to the assessee as an enclosure to the notice dated 13.08.2014 issued u/s 142(1) of the 1961 Act(pb/page 38-39). The genesis to this reopening of the concluded assessment u/s 148 was audit objection dated 30.04.2013 raised by Senior Audit Officer/LAP-XV....
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....ottery trading, interest and rental income despite the contentions raised by the assessee that it is engaged in the business of manufacturing of dies and moulds apart from being government lottery reseller , wherein the AO held as under:- "It is noticed that the assessee has done in a scrutiny manner in October 2011 determining total income at Rs, 20277250/-. It was observed from the profit and loss account that assessee firm has debited Rs. 5113894 on account of loss exchange fluctuation. As assessee firm was engaged in the business of Reseller of Government Lottery tickets and from profit and loss account it was seen that all income derived from the lottery trading, interest and rental income. There was no any foreign transaction reflects in the books therefore loss on exchange fluctuation cannot arise. In view of the above same should have been disallowed and added back to the income. However, this was not done. In view of the above facts of the case I had a reason to believe that the in the order u/s. 143(3) the AO has given wrong treatment which resulted in under assessment chargeable tax has escaped assessment." Thus , despite the assessee replying elaborately again that....
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....her appellant is engaged itself only in the business of Reseller of Government lottery tickets during the year and/or also manufacturing business as well and suffered a loss on account of the loss on exchange fluctuation to the tune of Rs. 51,13,894/-. The appellant has vehemently argued that the firm is engaged in the business of reselling of Government Lottery tickets, Manufacturing of Moulds, Dies & Plastic Articles during the year. Though, at no point of time appellant has given bifurcation of sales as well as purchases to prove his point but the profit and loss account strongly indicates that business of manufacturing of Moulds, Dies & Plastic Articles is also conducted during the year when we see the nature of expenses claimed by appellant and allowed by the AO for example Wages, Stores Consumables, Contract Labour Charges, packaging material, designing charges, freight & forwarding, business promotion, Depreciation and additional depreciation on Plant & Machinery etc. Therefore, there is no nexus to the inference drawn by the learned AO that the appellant is only carrying out lottery business. Moreover, the AO has not brought on record any contrary evidence." This finding o....
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....lding machines, Lathe Machines, Milling Machines, Moulds, Grinders , Drilling Machines , sealing machines , tools etc owned by the assessee which is claimed to be used for manufacturing of moulds and dies.(page 72/pb) i) The assessee has also given details of sundry debtors of P. H. Polyplast which is claimed to be in the business of manufacturing of moulds and dies and is owned by assessee. The Revenue itself allowed depreciation on Plant and Machinery owned by the assessee‟s concern P H Polyplast . The assessee has also explained that part of the factory was rented out from which rent arose while the rest of the factory was used for manufacturing of moulds and dies and plastic containers and goods. These machineries were imported in AY 2006-07 to be utilised in manufacturing of moulds and dies . The foreign currency loan was availed in AY 2006-07 on which loss arose on account of foreign exchange fluctuation in rates of foreign currency Euro vis-a-vis Indian Rupee while making repayment in the impugned assessment year. Thus, the entire foundation of re-opening of the concluded assessment u/s 148 based on audit objections was on wrong footing based on the premise that the....
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....xistence of incriminating material which lead to formation of a bonafide belief leading to a live link/nexus between the incriminating material in possession of Revenue and formation of a belief that the income has escaped assessment is relevant , but if the entire belief that income has escaped assessment was built around wrong assumption of facts in the possession of the Revenue , then in that case the Revenue cannot be allowed to grope for the black cat in the dark which is not present otherwise if it is allowed, then in that case there will be no end to litigation and Revenue will get license to reopen concluded assessments based on frivolous and erroneous grounds which cannot be allowed as if it is allowed will lead to grave and irreparable prejudice to the tax-payers. The original assessment was framed by Revenue u/s 143(3) wherein returned income was accepted. The Revenue itself accepted while framing original assessment u/s 143(3) that the assessee is engaged in the business of resellers of government lottery tickets and manufacturers of moulds and dies , plastic containers and plastic goods. The Revenue made enquiries while framing original assessment u/s 143(3) as to the ....