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2012 (8) TMI 1166

..... espondent. ORAL JUDGMENT Mr. Vijay Manohar Sahai 1. Learned counsel for the parties stated that though this matter is listed for admission and since the affidavits have been exchanged, the writ petition may be finally decided on merit today. We have accepted the request and taken the writ petition for final hearing today. 2. Rule. Mr. Sudhir M. Mehta, learned counsel for the respondent waives service of Rule. 3. The short question which arises for consideration in this writ petition is whether after expiry of 4 years the Assessing Officer can re-open the assessment on the ground that income chargeable to tax had escaped assessment, in spite of the fact that query raised by the Assessing Officer was replied by assessee, and thereafter, the Assessing Officer passed an assessment order under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act for short ). 4. The petitioner is a partnership firm engaged in manufacturing and export of diamonds. The petitioner filed original return of income for the assessment year 200506 declaring a total income of ₹ 4,04,7,190/- during the assessment proceedings under section 139(1) of the Act. Thereafter, notices under .....

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..... led otherwise than by the actual delivery or transfer of the commodity or scripts: Provided that of the purposes of this clause: (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss whichmay arise in the ordinary course of his business as such member; (or) (d) an eligible transaction in respect of trading in derivatives referred to in clause 2(ac) of section 2 of the Securities contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange; shall not be deemed to be a speculative transaction. ....... On perusal of the profit and loss account, it is observed th .....

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..... ally or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts; subject to provisions appended to the sections treating certain transactions not to be a speculative transaction. 10.1 It is clear from above that transaction does not fall in any of the exception mentioned in the above clause. Clause (a) is for raw material or merchandise where such business is of manufacturing or trading of that raw material or merchandise, whereas you are manufacturer and trader of cut & polished diamonds. Similarly, clause (b) is for trader/investor of shares, clause (c) is for member of forward market or stock exchange and clause (d) is for trading in derivative as defined in clause (ac) of Section 2 of the Securities Contracts (regulation) Act, 1956 carried out in recognized stock exchange. Ultimately, the additions and disallowables made in the assessment order including on account of foreign exchange contract loss treated as speculative loss which was discussed in the body of the order. 6. In the above context, the grounds for reopening and the reasons recorded may be required to be considered. The reasons recorded dated 28.03.2011 reopening of asse .....

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..... s without jurisdiction, and no action could be taken against the petitioner beyond the period of four years. 11. Mr. Sudhir Mehta has urged that in the original assessment order the Assessing Officer has not given any reason explaining the provisions for exchange difference on PCFC loan, being exchange difference on PSCFC loan. Therefore, he urged that income chargeable to tax has escaped assessment, and the Assessing Officer was justified in the re-opening the assessment in view of the explanation 1 to section 147 of the Act. 12. It is not disputed by learned counsel for the Revenue that the original assessment order is sought to be re-opened after the expiry of period of four years from the end of the relevant assessment order, i.e. 2005-06. From the record it is shown that the provisions for exchange difference on PCFC loan and provisions for exchange difference on PSCFC loan were mentioned in the balance sheet of the petitioner. The Assessing Officer has raised specific queries with regard to the aforesaid two items, which were replied by the assessee along with other necessary evidence. The Assessing Officer had considered the reply to the queries given by the petitioner. If h .....

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..... ' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words 'reason to believe; the Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. 14. In view of the aforesaid decision, the law is clear that it is not open to the Assessing Officer to change his opinion unless there is some new tangible material available with the Assessing Officer, on the basis of which he has reason to believe that income chargeable to tax has escaped assessment. It is not open to the Assessing Officer to change his opinion so as to review his original assessment order. That is not permissible. So far as the argument of learned counsel for the Revenue that Explanation 1 to section 147 would apply to the facts of this case, and therefore, the Assessing Officer was justified in re-opening the assessment is concerned, we have gone through Explanation 1 to section 147 of the Act, and we find that the argument of learned counsel for the Revenue has no substance. The provision of Explanation 1 cannot apply to t .....

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