Reassessment Proceedings Initiated On Account Of Change Of Opinion Merits To Be Quashed: Mumbai ITAT

While confirming the CIT(A)'s order quashing the reassessment order, the Mumbai ITAT held that the 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.

The Division Bench comprising B.R. Baskaran (Accountant Member) and Rahul Chaudhary (Judicial Member) observed that “the CIT(A) had noted that specific queries were raised by the Assessing Officer in relation to Foreign Exchange Loss/(Gain) in response to which the Assessee had provided relevant financial statements, documents, details, and submissions. The CIT(A) had further noted that in the reasons recorded the Assessing Officer had drawn inference that income has escaped assessment based on facts already on record and not based on any new material which came in the possession of the Assessing Officer subsequent to the conclusion of the assessment proceedings. The 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”. (Para 31)

As per the brief facts of the case, the assessee company, engaged in the business of transportation of natural gas through cross country pipeline network, filed its return. During scrutiny assessment, the Assessee disclosed loss on account of foreign exchange on CCS and unrealized mark to market loss. The AO completed the assessment, accepting Assessee's claim for deduction for net loss/(gain) on foreign currency transaction which included aggregate exchange loss related to Cross Currency Swap (CCS) Contracts. Subsequently, based on an audit objection that there has been a short levy of potential tax on account of incorrect allowance of foreign exchange loss, the Assessee was served with a reassessment notice u/s 148. Later, the reassessment was completed by disallowing loss pertaining to CCS Contracts. Later, the CIT(A) quashed the reassessment order holding that the proceedings were initiated without satisfying the requirements of Section 147.

The Bench noted Assessee's contention that as per first proviso to Section 147, reassessment proceedings can only be initiated after the expiry of 4 years from the end of the relevant AY only in case of default by the Assessee in making full & true disclosure, however all primary facts were disclosed by the Assessee and there was no default on the part of the Assessee in making full and true disclosure, thus the re-opening of assessment is not valid.

The Bench stated that the legality or the genuineness of the CCS was never in doubt as the same were entered into by the Assessee with the authorised banks in terms of the guidelines prescribed by the Reserve Bank of India.

The Bench found that the Assessee had placed on record the financial statements showing that it had debited net loss/(gain) on account of foreign currency transaction including aggregate realized/unrealized foreign exchange loss, and had furnished details of the mark to market losses booked in respect of CCS, both, settled and outstanding, till the end of the relevant AY.

Thus, finding that there was no failure on the part of Assessee to make full and true disclosure of the primary facts, the Bench opined that 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.

The Bench noted that the AO has drew inference that income has escaped assessment, based on facts already on record and not based on any new material which came in the possession of the Revenue subsequent to the conclusion of the assessment proceedings.

Therefore, the ITAT dismissed the Revenue's appeal and concluded that Explanation 1 to Section 147 could be not attracted in the facts and circumstances of the present case.

Counsel for Appellant/ Department: Biswanath Das

Counsel for Respondent/ Taxpayer: Madhur Agrawal

Case Title: Deputy Commissioner of Income Tax Verses East West Pipeline Private Limited

Case Number: ITA No. 1999/MUM/2023

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