2017 (2) TMI 1458 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - objection raised by the Revenue Audit regarding the allowability of loss on forward contract due to trade in foreign exchange derivatives - independent application of mind or not? - whether recording of the reasons and consequent issuance of notice u/s.148 was on the basis of an independent opinion of the Assessing Officer on the question of law and facts which may have been brought to her notice by the audit party ? - HELD THAT - There is no other material in the hands of AO to reopen the assessment after concluded the assessment u/s.143(3) of the Act and to issue of notice u/s.148 of the Act on 214.03.2014. It is well settled principle that the AO can form an independent opinion on an issue which may have been brought to his notice by Audit Party and seek to reopen the assessment provided it is AO s independent belief that income chargeable to tax has escaped assessment. Reference in this aspect may be made to the decision of Adani Exports 1998 (12) TMI 51 - GUJARAT HIGH COURT that though the audit objection may serve as information the basis of which the Income-tax Officer can act the ultimate action must depend directly and solely on the formation of belief by the Income- tax Officer on his own where such information passed on to him by the audit that income has escaped assessment. AO has explained before the Audit party that loss and cancellation of forward contract is an allowable expenditure ad not a speculation loss. Later on the same reason when the audit party did not accept the version of the AO the AO opted to reopen the concluded assessment. This is nothing but there is no independent formation of opinion by the AO and it is only on account of compulsion exerted by the Revenue Audit Party. It cannot be a reason for reopening of the assessment. In other words in the absence of independent belief of AO to hold that income chargeable to tax has escaped assessment no assessment can be re-opened at the instance of the audit party. See C. SESHACHALAM CHETTY (DECD) 1999 (11) TMI 49 - MADRAS HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening of assessment under section 147 of the Act.
2. Disallowance of loss on forward contract.

Analysis:

Issue 1: Validity of reopening of assessment under section 147 of the Act

The appeal was against the reopening of assessment for the assessment year 2009-10. The Revenue contended that the assessment was rightly reopened based on Audit Objections, citing legal precedents to support their argument. On the other hand, the assessee argued that all details and explanations were already furnished during the original assessment, making the reopening invalid. The Assessing Officer (AO) dismissed the objection raised by the assessee, stating that the issue of investment by the assessee in certain companies was not examined during the original assessment. The assessee maintained that the reopening was based on loss on forward contracts, not on the investment issue. The Tribunal held that the AO's decision to reopen the assessment solely based on audit objections, without forming an independent opinion, was unlawful. Citing legal precedents, the Tribunal concluded that the reassessment proceedings were void ab initio due to lack of an independent belief by the AO that income had escaped assessment.

Issue 2: Disallowance of loss on forward contract

The Revenue challenged the disallowance of loss on forward contract by the Commissioner of Income-tax (Appeals) in favor of the assessee. However, since the Tribunal annulled the reassessment order due to the invalid reopening of assessment, it did not delve into the merits of this issue. The Tribunal dismissed the appeal of the Revenue, upholding the decision to cancel the reassessment order.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing the importance of the AO forming an independent opinion before reopening an assessment. The Tribunal's decision was based on the principle that assessment cannot be reopened solely at the insistence of the audit party without the AO's independent belief that income has escaped assessment.