2023 (4) TMI 993 - AT - Income Tax

Reopening of assessment u/s 147 - allowability of MTM loss/gain - assessee has conveniently recognizes the MTM losses in the P L account but also reverses the same whenever there is a MTM gain, while at the same time not recognizing the MTM gain as revenue, which is not a correct method and therefore, according to the AO there is an escapement of income - case of the assessee is that whenever there is MTM loss, debited to P L account and no claim was made and for MTM same was not brought into P L account and submitted that neither the assessee claimed the loss in the return of income nor gain was shown in the income computation HELD THAT - When the AO passed the assessment under section 143(3) of the Act, there was no material placed before him with regard to MTM gains. When there is no material before the AO with regard to MTM gains, there was no occasion for him to apply his mind. Therefore, change of opinion does not arise in this case. In our opinion, the AO has not examined the issue of MTM gains and therefore, the Assessing Officer has rightly issued notice u/s 148 and completed the assessment order under section 143(3) r.w.s. 147 which is a valid assessment order. So far as case law relied on by the assessee is concerned, we have gone through each and every case law and find no application to the facts of the present case and all are distinguishable. Case of the assessee is that the assessee was not claiming MTM loss and therefore, taxation of MTM gain is amounting to double taxation, which is not in accordance with law. The case of the Department is that the assessee was claiming MTM loss in P L account, but also reversing the same whenever there is MTM gain. In the appellate order, the ld. CIT(A) has not discussed the facts properly and simply deleted the addition made by the Assessing Officer without giving any reason on the basis of any supporting evidence. Under the above facts and circumstances, we set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer to consider the issue de novo in accordance with law. The assessee has raised in its Cross Objections that in case of MTM gain is taxed, the same may be allowed under section 10AA of the Act and also raised the issue of book profits. We direct the assessee to raise these issues before the AO for consideration and pass order in accordance with law. Both the appeal filed by the Revenue and the Cross Objections filed by the assessee are allowed for statistical purposes.

Summary

Issues involved:
- Reopening of assessment under section 147 of the Income Tax Act, 1961
- Treatment of MTM gains in the assessment year 2013-14

Reopening of Assessment under Section 147:
The appeal and cross objections were directed against the order of the Commissioner of Income Tax (Appeals) regarding the reopening of assessment under section 147 of the Income Tax Act, 1961 for the assessment year 2013-14. The assessee contended that the reopening of assessment was invalid, emphasizing that the issue of reopening goes to the root of the matter. The Assessing Officer had noted MTM gains that were not credited in the Profit & Loss Account, leading to the issuance of a notice under section 148 of the Act. The assessee argued against the reopening, citing consistency in accounting methods and legal instructions. The Assessing Officer added the MTM gain to the total income of the assessee, leading to an appeal and cross objections.

Treatment of MTM Gains:
The Assessing Officer reopened the assessment based on the treatment of MTM gains, which were not recognized as revenue by the assessee. The ld. CIT(A) upheld the reopening but directed the deletion of the addition concerning the merits of the case. The assessee argued that the notice under section 148 amounted to a change of opinion, referencing relevant legal cases. The Assessing Officer's decision to reopen was based on the MTM gains not being accounted for properly. The Tribunal found that the Assessing Officer had not examined the issue of MTM gains during the original assessment, justifying the validity of the reassessment. The Tribunal set aside the ld. CIT(A)'s order and directed the Assessing Officer to reconsider the issue in accordance with the law.

Conclusion:
The Tribunal allowed both the appeal by the Revenue and the Cross Objections by the assessee for statistical purposes. The decision emphasized the proper consideration of MTM gains and the need for the Assessing Officer to address the issue de novo. The assessee was directed to raise additional issues before the Assessing Officer for proper consideration and decision in accordance with the law.