TMI Blog2024 (1) TMI 1068X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of M/s. Phool Chand Bajrang 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'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current liabilities and current assets! stocks etc. whereas this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (INR) loan/liability (having comparatively higher interest rate) to foreign currency 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for capital expenditure and revenue expenditure. 12. In response, vide reply letter dated 24/11/2016, the Assessee again furnished Details of Net Loss/(Gain) on Foreign Currency transaction and translation along with statement of mark to market position of CCS till 31/03/2014. 13. Thereafter, vide reply letter dated 14/12/2016, the 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 Curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 Taxman.com 78 (Madras) held that whereas company utilized foreign loan for the purpose of capital equipment, loss incurred on said loan due to fluctuation in foreign exchange rate was to be regarded as capital in nature which could not be allowed as deduction. Thus, the claim of foreign exchange loss is of capital nature which required to be added back to the total income and hence the claim of the assessee on this account is improper and resulted in underassessment of income by Rs. 604,35,06,392/- 3. Considering 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions which led to loss on account of foreign exchange and the utilization of these loans whether for the revenue expenditure or capital expenditure were not found on record. Further, the currency swap loss was due to hedging activity which is speculative in nature. Such speculative currency swap contracts are derivatives and are not excluded from the clause (d) to the section 43(5) of the Income Tax Act but the assessee has not declared them as speculative or that it falls in the exception given by clause (d) of section 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the initiation of re-assessment proceedings by issue of notice under section 148 of the Act for A.Y. 2014-15 is in order. It is also to be noticed that as per section 147 of the I.T. Act, the Assessing Officer is expected to form only a prima facie opinion or belief regarding the applicability of the provision in question at the time of recording of reasons for reopening the assessment, and it is not necessary for Assessing Officer to conclusively establish that his belief or opinion is correct even on the merits. In view of the above discussion 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 reass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the nature of the loss as well as the nature of the transactions which led to loss on account of foreign exchange were not on record. As per the Deal Confirmation between the Indusind Bank Limited, and the Assessee, dated 11/07/2013, (filed during the assessment proceedings) the cross currency swap transactions were to be considered as a derivative transaction. This clearly showed that the Assessee had failed to make full true disclosure as the Assessee had classified/disclosed the transaction and the loss arising therefrom incorrectly. Reliance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of opinion on same set of facts and documents. 25. We have considered the rival submissions, perused the material on record, examined the position in law and taken into consideration the judicial precedents cited during the course of hearing. At the outset, we note that in the case before us the legality or the genuineness of the CCS was never in doubt as the same were entered into by the Assessee with the authorised banks in terms of the guidelines prescribed by the Reserve Bank of India. Therefore, reliance by the Revenue on the judgment of the Hon 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. (9) There can be no doubt that the duty of disclosing 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primary facts. Nondisclosure of other facts which may be termed as secondary facts is not necessary. In light of the above law, we shall deal with the facts of the present case. 33. In our view the assessee disclosed all the primary facts necessary for assessment of its case to the assessing officer. What the revenue urges is that the assessee did not make a full and true disclosure of certain other facts. We are of the view that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any 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. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontaining documents filed during the course of regular scrutiny assessment proceedings, we are of the considered view that there was no failure on the part of the Assessee to make full and true disclosure of the primary facts. Relying upon the judgment of Hon ble Supreme Court in the case of New Delhi Television Limited Vs. ACIT: 116 taxmann.com 151 (SC), the CIT(A) had concluded that the Assessee, having disclosed truly and fully the primary facts, was not under obligation to communicate to the Assessing Officer the possible inferences which could 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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