9911796707
TMI Blog2024 (1) TMI 1068X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by the Assessee. CIT(A) had noted that specific queries were raised by the AO in relation to Foreign Exchange Loss/(Gain) in response to which the Assessee had provided relevant financial statements, documents, details and submissions. CIT(A) had further noted that in the reasons recorded the AO had drawn inference that income has escaped assessment on the basis of facts already on record and not on the basis of any new material which came in the possession of the Assessing Officer subsequent to the conclusion of the assessment proceedings. 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. We do not find any infirmity with the aforesaid conclusion drawn by the CIT(A). In our view, on the basis of the primary facts disclosed by the Assessee, the Assessing Officer drew inference in favour of the Assessee and accepted Assessee s claim for deduction for Net Loss/(Gain) on account of Foreign Currency Transaction Translation of INR 604.35 Crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajrang Lal [1993] 203 ITR 456 (SC), wherein it has been held that the Assessing Officer would have jurisdiction to reopen concluded assessment when the impugned transaction which led to reopening is not as per law and that mere disclosure of that transaction at the time of original assessment proceedings is not a true and full disclosure? 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in law in quashing the reassessment proceedings u/s 147 of the Income Tax Act, 1961 without appreciating the ratio of the Bombay High Court in the case of M/s. Consolidated Photo &Finvest Ltd. Vs. ACIT (2006) 151 Taxman 41 (Delhi) wherein it is held that action under section 147 was permissible even where the AO gathered his reasons to believe from the very same record as had been the subject matter of completed assessment proceeding? 4. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in law in quashing the reassessment proceedings u/s 147 of the Income Tax Act, 1961 without appreciating that the Hon'ble Apex Court has held in ALA Firm [1991] 55 Taxman 497 (SC)) and Hon'ble Gujarat High Court in PrafulChunilal Patel [1999] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s loss incurred by the assessee is on capital account" 3. The relevant facts in brief are that the Assessee is a private limited company engaged in the business of transportation of natural gas through cross country pipeline network. The Assessee filed its original return of income for the Assessment Year 2014-15 on 28/11/2014. The case of the Assessee was selected for regular scrutiny and the Assessing Officer completed the assessment under Section 143(3) of the Act vide order, dated 23/12/2016. Subsequently, after the lapse of 4 years from the end of the Assessment Year 2014-15, reassessment proceedings were initiated under Section 147 of the Act by issuance of notice dated 30/03/2021. In response, the Assessee filed return of income on 26/04/2021. Thereafter, on obtaining a copy of the reasons recorded for reopening assessment, the Assessee filed objections against initiation of reassessment proceedings which were rejected by the Assessing Officer, vide order dated 08/03/2022. The Assessing Officer, thereafter, proceeded to frame assessment under Section 147 read with Section 144B of the Act and vide order dated 29/03/2022 made addition of INR 602,95,70,778/- disallowing loss p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency liability (having comparatively lower interest rate linked to LIBOR but having attached foreign exchange fluctuation risk) for the purpose of reducing the finance cost burden. The net effect of CCS entered into by the Assessee with the counterparty-banks was that on one hand, the Assessee granted Indian Rupee loan to the counterparties (earning interest income to service Indian Rupee loan liability) while on the other hand, the Assessee borrowed USD equivalent of the aforesaid INR loan granted by the Assessee to the counterparties at a comparatively lower interest rates linked to LIBOR and in the process reduced the effective interest cost. Thus, the aforesaid transaction resulted in contractual assumption of rights and obligations by the Assessee and the counterparties without there being actual exchange of money representing the loan amount granted/taken. During the relevant previous year, the USD/INR movement was adverse to the Assessee and therefore, the Assessee debited loss of INR 602,95,70,778/- to the Profit & Loss Account which consisted of loss of INR 208,66,00,299/- incurred and paid by the Assessee upon settlement of CCS during the relevant previous year and loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee submitted that for the relevant assessment year INR 604.35 Crores has been charged to the Profit & Loss Account as 'Net Loss/(Gain) on Foreign Currency transaction and translation' (which includes unrealized Forex Loss on Currency Swap) and deduction has been claimed for the same as allowable expenditure. 14. Soon thereafter, vide letter dated 21/12/2016, the Assessee also placed on record copy of Deal Confirmation - CCS between the Assessee and IndusInd Bank Ltd, for the Currency Swap done on 11/07/2013 having maturity date as 07/07/2017 (placed at page 98 to 106 of the paper-book filed by the Assessee). 15. Thereafter, the Assessing Officer completed the regular scrutiny assessment under Section 143(3) of the Act, passing Assessment Order, dated 23/12/2016, accepting the claim for deduction for Net Loss/(Gain) on Foreign Currency transaction and translation of INR 604.35 Crores which included aggregate exchange loss of INR 602,95,70,778/- related to CCS consisting of the following: Nature of Expenses Amount (INR) Realised Exchange Loss - Currency Swap 208,66,00,299 Unrealised Forex Loss- Currency Swap 394,29,70,479 602,95,70,778 16. Subsequently, a revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the above, it is clear that the assessee company has not disclosed the full and true material in the return of income filed and therefore, the condition specified in the proviso to Sec 147 are fulfilled. It is pertinent to mention here that even though the assessee has e-filed the audited P&L Account and Balance Sheet or other details/schedules, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discover by the AO and could not have been discovered with due diligence. For the above reasons, it is not a case of change of opinion. Therefore, I am satisfied that the assessee had failed to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration. 4. In view of the above, it is a fit case for initiation of proceedings u/s 147 of the income Tax Act 1961, in order to frame proper assessment to bring to tax appropriate income attributable to the above, which has escaped assessment." (Emphasis Supplied) 18. The Assessee filed objections to reopening of assessment, vide letter dated 10/02/2022. It was contended on behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 43(5). Such speculative loss could not be adjusted against the normal business income as per the provisions of section 73(1) of the Income Tax Act. Thus, all these facts and documents would be checked during the re-assessment proceedings after giving opportunity to the assessee. As per the Deal confirmation between the Indusind Bank Limited, Mumbai and the assessee company dated 11.07.2013, such currency swap was considered to be a derivative transaction and its purpose has been defined on its page no. 6 as follows: xx xx The above clearly show that the transactions were not classified in the proper heads. Thus, the assessee was found to have not disclosed the true facts about the nature of the transactions but claimed loss on account of foreign exchange. Also, the reopening has been done on the basis of tangible material and facts on record. b) Regarding the objection of the assessee at Sr. No. 2 C, it is submitted that in the case of the assessee the issue is factual and there is tangible material on record on the basis of which the reasons to believe has been formed. Further it is not change of opinion as the Assessing officer has not asked for any specific detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussion regarding objections of the assessee, all the objections raised by the assessee vide above referred letter are hereby disposed off in the Preceding paras. During the course of re- assessment proceedings adequate opportunity will be afforded to explain the case and the resultant order will be passed as per law on an objective appraisal of all the facts and the evidences available". 20. The Assessing Officer, thereafter, proceeded to pass assessment order, dated 29/03/2022, under Section 147 read with Section 144B of the Act making an addition of INR 602,95,70,778/- by disallowing the Foreign Exchange Loss relating to CCS and reassessed income of the Appellant at INR 294,87,06,162/- as against returned loss of INR 308,08,64,616/-. 21. In appeal before the CIT(A), the Assessee challenged the validity of reassessment proceedings contending that the same have been initiated in violation of the provisions contained in Section 147 of the Act. The CIT(A) agreed with the Assessee and vide order, 30/03/2023, quashed the Assessment Order dated 29/03/2022, passed under Section 147 read with Section 144B of the Act holding the reassessment proceedings were initiated on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance was also placed in Explanation 1 to Section 147 of the Act to contend that mere filing of documents and details before the Assessing Officer did not amount to true and full disclosure. The belief that income has escaped assessment was formed on the basis of tangible material. Further, it was not a case of mere change of opinion as the Assessing officer had not asked for any specific details regarding the nature of loss being speculative in the nature. There was adequate material for forming a belief that income had escaped assessment and, therefore, the initiation of reassessment proceedings was as per law and in compliance with the provisions of Section 147 of the Act. 24. Per contra, the Learned Authorised Representative for Assessee contended that the duty of the Assessee was limited to placing on records the primary facts, which was discharged by the Assessee by making disclosures in the financial statements, and replying to the specific queries raised by the Assessing Officer relating to foreign exchange loss related to CCS during the assessment proceedings and placing on record relevant documents including financial statements (along with Notes to accounts), details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Supreme Court in the case Phool Chand Bajrang Lal Vs. ITO: [1993] 203 ITR 456 (SC) was misplaced. We further note that it is admitted position that Assessment Order under Section 143(3) of Act was passed on 23/12/2016 after regular scrutiny assessment wherein queries relating to Foreign Exchange Loss/(Gains) were raised by the Assessing Officer. The contention of the Revenue is that no specific queries relating to the nature of loss being capital and/or speculative in nature were raised by the Assessing Officer and that the Assessee had also not placed on record any material from which the nature of loss could be determined. On the other hand that Assessee contended that 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. Since regular scrutiny assessment had been framed on the Assessee under Section 143(3) of the Act, it was contended by the Assessee that as per the First Proviso to Section 147 of the Act, reassessment proceedings could have been initiated after the expiry of 4 years from the end of the relevant assessment year, only in case of default by the Assessee in making full & true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income- tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example -- "I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents." His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, will amount to "omission to disclose fully and truly all material facts necessary for his assessment." Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further assistance to the assessing officer by disclosure of other facts. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the present case the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No.1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee." (Emphasis Supplied) 27. The Hon'ble Supreme Court has, in the above judgment, held that the duty of the Assessee was limited to disclosure of primary facts and did not extend to communication/disclosure the inference drawn or to be drawn from the same. 28. In paragraph 7 to 15 above, we have already noted various disclosures made by the Assessee in the financial statements, and during the regular scrutiny assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been drawn from the primary facts disclosed. We concur with the aforesaid view taken by the CIT(A). Further, in our view Explanation 1 to Section 147 of the Act could be not attracted in the facts and circumstances of the case as the primary facts were apparent from the details and documents submitted by the Assessee. 31. We also note 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 on the basis of facts already on record and not on the basis of 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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