2025 (1) TMI 1495 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - treatment of Foreign Exchange Loss and Premium on Forward Contracts - HELD THAT - A reading of the documents that have been filed before this Court which have been referred to supra indicates that all the informations that were required for completing the Assessments were furnished by the petitioner in response to specific notices issued to the petitioner u/s 143(2). Specifically information relating to Foreign Currency transactions and the loss based on which the expenses was claimed as the deduction under Section 37 of the Act was claimed was subject matter of the query by the Department pursuant to which Assessment Order came to be passed on 17.12.2018. Merely because no opinion is expressed in the Assessment Order would not mean that the Assessment was completed without forming any opinion on the queries raised by the Department before the Assessment was completed. The Courts have taken a categorical stand that it cannot be assumed that Assessments were completed without forming an opinion. Merely because opinion is not reflected in the Assessment that was completed earlier will not mean no opinion was formed earlier. If indeed no opinion was formed as has been stated the remedy to correct such order lies by way of revision u/s 263 of the Income Tax Act 1961. Therefore impugned order has to go as the issue was considered before the Assessment Order dated was passed. Therefore the impugned order is liable to be set aside. WP allowed.

ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the reopening of the assessment for the Assessment Year 2016-2017 under Section 148 of the Income Tax Act, 1961, based on the notice dated 26.03.2021, was justified or if it was merely a change of opinion by the tax authorities. The issue revolves around the treatment of Foreign Exchange Loss and Premium on Forward Contracts and Options as disclosed in the petitioner's financial statements.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework involves the provisions of the Income Tax Act, 1961, particularly Section 148, which deals with the reopening of assessments. The reopening of an assessment is permissible if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. However, it must not be based on a mere change of opinion.

Court's Interpretation and Reasoning

The Court examined whether the notice for reopening the assessment was based on any new material or merely a change of opinion. It noted that the petitioner had already furnished all necessary details regarding Foreign Exchange Loss and Premium on Forward Contracts and Options during the original assessment proceedings. The petitioner argued that the reopening was inspired by a change of opinion since these issues were already addressed and considered in the original assessment completed on 17.12.2018.

The Court emphasized that an assessment cannot be reopened merely because the Assessing Officer wants to review the same material again. If no opinion was formed initially, the appropriate remedy would be a revision under Section 263 of the Income Tax Act, 1961, rather than reopening the assessment.

Key Evidence and Findings

The key evidence included the petitioner's financial statements and the notes forming part of the Balance Sheet and Statement of Profit and Loss Account. Specifically, Note 19 disclosed expenses related to Foreign Exchange Loss and Premium on Forward Contracts and Options. The petitioner had responded to specific notices issued under Section 143(2) during the original assessment, providing detailed explanations and breakdowns of these expenses.

Application of Law to Facts

The Court applied the principle that reopening of an assessment must be based on tangible new material and not on a reconsideration of the same facts that were already scrutinized. The petitioner had adequately disclosed and explained the relevant expenses during the original assessment proceedings, and the Assessing Officer had the opportunity to form an opinion based on the information provided.

Treatment of Competing Arguments

The petitioner contended that the reopening was a result of a change of opinion, as all relevant information had been provided during the original assessment. The respondents argued that no opinion was formed on the other expenses during the original assessment, justifying the reopening. However, the Court sided with the petitioner, emphasizing that the absence of explicit mention of an opinion in the assessment order does not imply that no opinion was formed.

Conclusions

The Court concluded that the reopening of the assessment was unjustified as it was based on a change of opinion rather than new material. The impugned order and notice for reopening were set aside.

SIGNIFICANT HOLDINGS

The Court held that:

"Merely because, no opinion is expressed in the Assessment Order would not mean that the Assessment was completed without forming any opinion on the queries raised by the Department before the Assessment was completed."

This establishes the principle that the absence of explicit mention of an opinion in an assessment order does not imply that no opinion was formed. If the tax authorities believe that an assessment was completed without forming an opinion, the correct remedy is a revision under Section 263, not reopening under Section 148.

The final determination was that the impugned notice and order for reopening the assessment were invalid, and the writ petition was allowed.

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