ACIT, New Delhi V. M/s. Fiem Industries Ltd., New Delhi

ITA 2048/DEL/2017

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 5863 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Tangible material; Speculation loss; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings; Speculative transactions
• Section: 143(3); 43(5); 13; 22; 147; 148; 6; 139

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI S UDHANSHU SRIVASTAVA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 2048 /DEL/201 7 (ASSESSMENT YEAR: 20 1 0 - 11 ) ACIT, CIRCLE - 9(1), NEW DELHI VS. M/S. FIEM INDUSTRIES LTD, D - 34, DSIDC PACKAGING COMPLES, KIRTI NAGAR, NEW DELHI 110 015. PAN : AAACF1034E (APPELLANT) (RESPONDENT) REVENUE BY : MS. ASHIMA NEB, SR. DR ASSESSEE BY: SHRI SALIL AGGARWAL, ADV DATE OF HEARING 31 / 1 0/20 19 DATE OF PRONOUNCEMENT 30 /01/2020 O R D E R PER PRASHANT MAHARISHI , A. M. : ITA. NO. 2048 (DEL) OF 2017 IS FILED BY THE ASS ISTANT COMMISSIONER OF INCOME TAX, CIRCLE 9 (1) NEW DELHI, AGAINST THE ORDER OF THE LEARNED CIT (A PPEALS ) - 3, NEW DELHI , FOR THE ASSESSMENT YEAR 2010 - 11 , RAISING THE ONLY ISSUE THAT THE LEARNED F IRST APPELLATE AUTHORITY HAS QUASHED THE RE - OPENING OF THE ASSESSMEN T. 2. THE BRIEF FACTS OF THE CASE SHOWS THAT ASSESSEE WAS ASSESSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) ON 19.12.2012 AT RS.9,89,25,030/ - . THE CASE OF THE ASSESSEE WAS RE - OPENED BY RECORDING THE REASONS WHICH ARE PLACED AT PAGE NOS. 7 & 8 OF THE PAPER BOOK . SUCH REASONS WERE RECORDED ON 9.01.2015. THE NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 9.01.2015. ON 19.01.2015 ASSESSEE SUBMITTED TO ACCEPT THE ORIGINAL RETURN FILED U/S 139 OF THE ACT ON 16.09.2010 TO BE RETURN IN RESPECT OF RE - OPENING NOTICE. ON 23.07.2015 ASSESSEE PAGE | 2 REQUESTED FOR THE REASONS FOR RE - OPENING WHICH WAS PROVIDED ON 3.08.2015. ON 26.11.2015 ASSESSEE OBJECTED TO THE REASONS. ASSESSING OFFICER DID NOT FIND THEM ACCEPTABLE AND PASSED A SPEAKING ORDER ON 10.02.2016 DISPOSING SUCH OBJECTIONS. THEREAFTER BASED ON THE REASONS RECORDED AO QUESTIONED THAT WHY RS.1,75,49,200/ - SHOULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. ASSESSEE MADE A DETAILED REPLY TO THAT BUT REJECTED. CONSEQUENTLY ASSESSMENT WAS PA SSED ON 18.03.2016 DETERMINING TOTAL INCOME OF THE ASSESSEE AT RS.11,64,74,230/ - . THE ASSESSING OFFICER MADE AN ADDITION OF RS.1,75,49,200/ - . 3. THE ASSESSEE AGGRIEVED WITH THAT ORDER CHALLENGED THE SAME BEFORE THE LEARNED CIT (APPEALS). THE MAIN CHALLENGE AGAINST THE RE - OPENING OF THE ASSESSMENT WAS MADE BY THE ASSESSEE. VIDE PARA NO. 7 OF THE ORDER THE LD. CIT (APPEALS) HELD THAT THERE IS A CHANGE OF OPINION AND NO TANGIBLE INFORMATION HAS COME INTO THE POSSESSION OF THE A SSESSING O FFICER PURSUA NT TO THE ASSESSMENT MADE U/S 143(3) OF THE ACT WHICH IS RATIONALE AND BEAR A DIRECT NEXUS TO THE MATERIAL ON WHICH RECENT BELIEF IS BASED. HE FOLLOWED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF KELVINA T OR OF INDIA LTD. VS. CIT 320 ITR 561 ( SC) . THUS HE QUASHED THE RE - ASSESSMENT PROCEEDINGS ANNULLING THE ORDER PASSED BY THE ASSESSING OFFICER. THUS, THE ASSESSING OFFICER IS AGGRIEVED BY HIS ORDER AND IS IN APPEAL BEFORE US. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY REF ERRED TO THE REASONS RECORDED BY THE LEARNED AO WHICH ARE PLACED AT PARA NOS. 2 AND 3 OF THE ASSESSMENT ORDER. SHE SUBMITTED THAT AS THERE IS NO DELIVERY OF ANY COMMODITY AND THE TRANSACTIONS ARE OTHERWISE SETTLED THEN BY WAY OF DELIVERY THE LOSS INCURRED BY THE ASSESSEE IS SPECULATIVE TRANSACTION. SHE, THEREFORE, STATED THAT THE REASONS RECORDED ARE VALID. PROPER OPPORTUNITY HAS BEEN GRANTED TO THE ASSESSEE AND OBJECTIONS OF THE ASSESSEE HAVE BEEN PROPERLY DISPOSED OFF. THUS, THE ORDER OF THE LEARNED C IT (APPEALS) IS NOT SUSTAINABLE. 5. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED A DETAILED PAPER BOOK WHEREIN IT IS SUBMITTED THAT IN THE ORIGINAL PROCEEDINGS UNDER SECTION 143(3) OF THE ACT ASSESSEE WAS ASKED THE QUERY WITH RESPECT TO THE ABOVE TRA NSACTION AND ASSESSEE SUBMITTED A DETAILED REPLY ON 11.12.2012. HE ALSO REFERRED TO NOTE PAGE | 3 NO. 15 OF THAT LETTER TO SHOW THAT LOSS ON ACCOUNT OF EXCHANGE VERIFICATION AND THE DERIVATIVES ARE PROPERLY EXPLAINED TO THE ASSESSING OFFICER ON THE ISSUE WHETHER THEY ARE SPECULATIVE TRANSACTION OR NOT. HE FURTHER REFERRED THAT THE ASSESSING OFFICER WAS ALSO SHOWN THE DECISION OF THE CO - ORDINATE BENCHES WHEREIN FOREIGN CURRENCY TRANSACTIONS ARE HELD TO BE NOT SPECULATIVE IN NATURE AS THERE EXIST A DIRECT AND PROXIMATE NEXUS BETWEEN THE LOSS ON ACCOUNT OF FOREIGN EXCHANGE DERIVATIVES. IT WAS ALSO POINTED OUT THAT IN ASSESSMENT YEAR 2009 - 10 SIMILAR CLAIM OF THE ASSESSEE WAS ACCEPTED IN ASSESSMENT UNDE R SECTION 143(3) OF THE ACT. HE REFERRED TO THE REASONS RECORDED BY THE ASSESSING OFFICER AND SUBMITTED THAT ON READING OF SUCH REASONS IT IS APPARENT THAT THE ASSESSING OFFICER PERUSED THE SAME MATERIAL WHICH WAS AVAILABLE BEFORE HIM DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND RE - OPENED THE ASSESSMENT. HE, THEREFORE, SUPPORTED THE ORDER OF THE LEARNED CIT (APPEALS) STATING THAT THERE IS A CLEAR - CUT CHANGE OF OPINION. HE THUS SUBMITTED THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LEAR NED CIT (APPEALS) 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDER OF THE LEARNED CIT (APPEALS). THE LEARNED CIT (APPEALS) FROM PARA NO. 2 OF HIS ORDER TO PARA NO. 8 OF THE ORDER HAS DEALT WITH THE ISSUE OF RE - OPENING OF THE ISSUE AS UNDER: - 1. THE GROUND NO. 1 HAS BEEN RAISED REGARDING THE JURISDICTION OF THE ASSES SING OFFICER FOR INITIATING THE REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT. THE SUBMISSIONS MADE BY THE COUNSEL OF THE APPELLANT ARE REPRODUCED HEREUNDER: A. 'THE REOPENING PROCEEDINGS HAVE BEEN INITIATED WITHIN A PERIOD OF 4 (FOUR) YEARS. THE ASSESSEE HAD DILIGENTLY DISCLOSED FULLY & TRULY ALL MATERIAL FACTS RELATING TO THE SAID ISSUE. MOREOVER NO NEW INFORMATION HAS BEEN UNEARTHED WHICH CAN BE SAID TO BE UNAVAILABLE EARLIER. B . THE REOPENING IS BASED ON THE OPINION FORMED BY THE LEARNED ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT PROCEEDINGS U/S 143(3) FOR A.Y. 2011 - 12 IN THE ASSESSEE'S OWN CASE IN WHICH LOSS ON FORWARD CONTRACTS ENTERED WITH THE BANKERS OF THE ASSESSEE COMPANY HAVE BEEN TREATED AS SPECULATIVE TRANSACTIONS & LOSS ARISING THEREFROM W AS OPINED TO BE SPECULATION LOSSES & NOT A BUSINESS LOSSES. THE SAID REASON ON THE BASIS OF WHICH THE SATISFACTION NOTE WAS PREPARED IS GROSSLY MISPLACED & IS CONTRARY TO THE FACTS & MATERIAL / DOCUMENTS FILED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS FOR A.Y. 2010 - 11 WHICH WERE COMPLETED U/S 143(3) VIDE ORDER DT. 19/12/2012. THE COMPLETE FACTS & DOCUMENTS ALONGWITH THE LEGAL POSITION REGARDING THE TREATMENT OF THE LOSSES ON ACCOUNT OF SETTLEMENT OF FOREIGN CONTRACTS AS NORMAL BUSINESS LOSSES & NOT SPECULA TIVE LOSSES WERE DULY FILED / SUBMITTED BY THE ASSESSEE ALONGWITH ITS LETTER DT. 11/12/2012. THE SAME WERE PAGE | 4 DULY CONSIDERED BY THE LEARNED A.O. & NO ADVERSE INFERENCE WAS DRAWN WHILE COMPLETING THE ASSESSMENT. THE SATISFACTION NOTE RECORDED AMOUNTS TO A 'CH ANGE IN OPINION' AS THE ORIGINAL ASSESSMENT WAS COMPLETED BY THE LEARNED AO ONLY AFTER SATISFYING HIMSELF ON THE ISSUE OF TAXABILITY OF LOSSES INCURRED ON SETTLEMENT OF FORWARD CONTRACTS ENTERED BY THE ASSESSEE WITH MNC BANKS & AFTER VERIFYING THE COMPLETE DOCUMENTS INCLUDING HEDGING AGREEMENTS & ALSO BEING SATISFIED ABOUT THE CORRECT POSITION OF LAW. SINCE THE ORIGINAL ASSESSMENT WAS COMPLETED ON THE BASIS OF THE MATERIAL & EVIDENCE SUBMITTED & AFTER FORMING A CONSIDERED OPINION, THEREFORE THE PRESENT REAS SESSMENT PROCEEDINGS ARE CLEARLY VITIATED. C THE SATISFACTION NOTE DOES NOT DISCLOSE ANY FRESH OR TANGIBLE MATERIAL WHICH HAS COME TO LIGHT DURING THE PROCEEDINGS FOR A.Y. 2011 - 12 NECESSITATING THE RE OPENING OF THE ASSESSMENT. NO FRESH OR COGENT MATERIAL HAVING A LIVE LINK TO THE FACTS OF A.Y. 2010 - 11 HAS COME TO NOTICE FOR FORMATION OF THE BELIEF. THE SAME AMOUNTS TO A REVIEW OF THE ORIGINAL ASSESSMENT ORDER WHICH IS CLEARLY IMPERMISSIBLE UNDER LAW & INTENTION OF THE PROVISIONS OF SEC. 147. D THERE WAS NO OMISSION OR COMMISSION ATTRIBUTABLE TO THE ASSESSEE WHICH CAN LEAD TO A CONCLUSION THAT THERE WAS ANY ESCAPEMENT OF INCOME OR THERE WAS ANY FAILURE TO DISCLOSE FULLY & TRULY ALL MATERIAL FACTS NECESSARY FOR THE FORMATION OF THE CORRECT OPINIO N ON THIS ISSUE. E THE ASSESSEE HAD FURNISHED ALL THE MATERIAL FACTS BEFORE THE A.O. AT THE TIME OF THE ORIGINAL ASSESSMENT PROCEEDINGS WHICH WERE DULY CONSIDERED BY HIM & NECESSARY INFERENCES WERE DRAWN & NO ADDITION WAS MADE. F THE PARA 3 OF REASO NS OF BELIEF IS BASED ON TRANSACTIONS RELATING TO FORWARD CONTRACTS ENTERED WITH REFERENCE TO THE CONTRACTS DENOMINATED IN US DOLLARS (USD) - JAPANESE YEN (JPY) WHICH WERE CRYSTALLIZED/SETTLED IN A.Y. 2011 - 12. HOWEVER THE LOSS ON SETTLEMENT OF FORWARD CONT RACTS IN A.Y. 2010 - 11 PERTAIN TO CONTRACTS DENOMINATED USD - INR (INDIAN RUPEES). NO CONTRACTS DENOMINATED IN USD - JPY WERE SETTLED DURING THE YEAR. MOREOVER THE CONTRACTS WERE EXECUTED WITH 2 (TWO) BANKS & NOT 1 (ONE) BANK AS MENTIONED IN PARA 2 OF THE REAS ONS. THIS CLEARLY INDICATES THAT THE RE - OPENING HAS BEEN DONE IN A MECHANICAL MANNER WITHOUT APPRECIATING THE CORRECT FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION. G. THE SATISFACTION NOTE HAS BEEN PREPARED ONLY ON THE BASIS OF POSSIBILITY OF 'ALTERNATIVE INFERENCE FROM THE SAME DOCUMENTS & FACTS PLACED BEFORE THE A.O. DURING THE ASSESSMENT PROCEEDINGS. WE ARE ALSO SUPPORTED IN OUR AFOREMENTIONED CONTENTIONS BY THE FOLLOWING JUDGEMENTS: I . 348 ITR 299 (SC) ACIT & ORS. VS. ICICI SECURITIES PRIM ARY DEALERSHIP LTD. II . 320 ITR 561 (SC) KELVINATOR OF INDIA LTD. VS. CIT III . 356 ITR 209 (DELHI) MARUTI SUZUKI INDIA LTD. VS. CIT IV . 373 ITR 0596 (DELHI) PRABHU DAYAL RANGWALA VS. CIT V . 372 ITR 0762 (BOMBAY) CIT VS. JET SPEED AUTO (P) LTD. VI . 371 ITR 0179 (DELHI ) A. T. KEARNEY INDIA LTD. VS. ITO VII . 371 ITR 0087 (DELHI) DONALDSON S INDIA FILTERSYSTEM PVT. LTD. VS. DCIT VIII . 367 ITR 0165 (DELHI) MADHUKAR KHOSLA VS. ACIT IX . 348 ITR 452 (DELHI) ROSE SERVICE APARTMENTS PVT. LTD. VS. DCIT X . 320 ITR 471 (BOMBAY) ICICI PRU DENTIAL LIFE INSURANCE CO. LTD. VS. ACIT & OTHERS. XI . 323 ITR 570 (BOMBAY) AVENTIS PHARMA VS. ACIT & ORS. XII . 68 DTR 90 (BOMBAY) NYK LINE INDIA LTD. VS. DCIT. 3. AFTER PURSUING THE RECORDS OF THE ASSESSING OFFICER & THE SATISFACTION NOTE PAGE | 5 ALONG WITH THE SUBMISSIONS MADE BY THE ASSESSEE, IT EMERGES THAT THE ASSESSMENT HAS BEEN REOPENED WITHIN A PERIOD OF FOUR YEARS WHEREIN THE REASONS OF BELIEF WERE RECORDED ON THE BASIS OF THE OPINION FORMED BY THE A.O. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) FOR A.Y. 2011 - 12. THE SATISFACTION NOTE RECORDED BY THE ASSESSING OFFICER IS REPRODUCED BELOW : 'IN THIS CASE, THE ASSESSEE FILED RETURN OF INCOME ON 19/09/2010 DECLARING TOTAL INCOME OF RS.9,89,25,030/ - . ASSESSMENT IN THE CASE OF ASSESSEE WAS COMPLETED U/S 143(3) OF THE ACT ON 19/12/2012 AT TOTAL ASSESSED INCOME OF RS. 9,89,25,030/ - . I. IN THE RETURN, THE ASSESSEE CLAIMED EXPENSES AMOUNTING TO RS. 1,75,49,200/ - UNDER THE HEAD 'EXCHANGE VARIATION - DERIVATIVES' ON ACCOUNT OF LOSS ON FORWARD CONTRACTS ENTERED WITH STANDARD CHARTERED BANK. DURING THE COURSE OF ASSESSMENT PROCEEDING FOR THE AY 2011 - 12 IN ASSESSEE'S OWN CASE, NEW FACTS RELATING TO THESE TRANSACTIONS HAVE BEEN UNEARTHED WHICH REVEALED THAT THE EXCHANGE VARIATION ON DERIVATIVES CLAIMED BY THE ASSESS EE ARE SPECULATIVE TRANSACTION AND LOSS ARISING THERE FROM WAS A SPECULATION LOSS AND NOT A BUSINESS LOSS. II. THE FACTS UNEARTHED RELATING TO THESE TRANSACTIONS PROVIDES THAT THE ASSESSEE ENTERED INTO TWO TARGET REDEMPTION FORWARD CONTRACTS WITH STANDARD CHARTERED ON 9 OCTOBER 2007 AND 19 FEBRUARY 2008. THESE WERE COMPLEX DERIVATIVES OBLIGING STANDARD CHARTERED TO SELL TO THE ASSESSEE US DOLLARS 1,25,000 AT A SPECIFIED RATE IF THE REFERENCE US DOLLAR - JAPANESE YEN EXCHANGE RATE ON A SPECIFIED DATE WAS ABOVE THE AGREED STRIKE RATE AND ALSO OBLIGED THE ASSESSEE TO BUY US DOLLARS 2,50,000 AT A SPECIFIED RATE IF THE REFERENCE US DOLLAR - JAPANESE YEN EXCHANGE RATE ON A SPECIFIED DATE WAS BELOW THE AGREED STRIKE RATE . THE SPECIFIED DATE WAS THE 7 TH OF E VERY MONTH STARTING FROM THE MONTH OF THE CONTRACT AND ENDING 36 MONTHS LATER. THE BUY STRIKE RATE WAS FIXED AT 108 FOR THE CONTRACT DATED 09.10.2007 AND THE CONTRACT WAS TERMINATING ON 12 OCTOBER 2010. SIMILARLY THE STRIKE RATE WAS 101 FOR THE CONTRACT DA TED 19.02.2008 AND THE CONTRACT WAS TERMINATING ON 22 FEBRUARY 2011. THESE TARGET REDEMPTION FORWARD CONTRACTS WERE CLAIMED BY THE ASSESSEE TO HAVE BEEN ENTERED INTO IN ORDER TO HEDGE THE EXPORTS IN JAPANESE YEN ALTHOUGH THESE FORWARD CONTRACTS WERE BASED ON THE US DOLLAR - JAPANESE YEN EXCHANGE RATE. NO IMPORTS OF RAW MATERIAL, IN US DOLLARS, HAVE BEEN MADE BY THE ASSESSEE TO SUPPLY THE GOODS TO M/S ICHIKOH INDUSTRIES. THEREFORE ALL COSTS OF MANUFACTURE AND SALE OF THE SAID GOODS TO M/S ICHIKOH INDUSTRIES A RE IN RUPEES. III. THEREFORE, THE TRANSACTION RELATING TO EXCHANGE DIFFERENCE WAS FOR BUYING - SELLING US DOLLAR, AND THE SETTLEMENT WAS NOT BY WAY OF PHYSICAL DELIVERY BUT THROUGH MAKING PAYMENT OF THE DIFFERENCE IN EXCHANGE RATE PREVAILING ON THE SPECIF IED DATES. THE TRANSACTION WAS NOT FOR FORWARD PURCHASE OF RAW MATERIAL OR MERCHANDISE. SINCE THE CLAIM OF THE ASSESSEE FALLS WITHIN THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS AND PROFESSION, THE TEST TO BE APPLIED TO THE TRANSACTION IS PROVIDED IN S EC. 43(5). THE HON'BLE ITAT MUMBAI IN THE CASE OF M/S LONDON STAR DIAMOND COMPANY (I) PVT. LTD. (ITA NO. 6169/M/2012) HAS HELD THAT FORWARD CONTRACTS FOR FOREX ARE COMMODITIES. SINCE THERE IS NO DELIVERY OF COMMODITY AND THE TRANSACTION IS ULTIMATELY SETTL ED OTHERWISE THAN BY WAY OF DELIVERY, IT IS A SPECULATIVE TRANSACTION WITHIN THE MEANING OF PAGE | 6 SEC 45(3). THE TRANSACTION IS NOT COVERED BY THE EXCEPTIONS PROVIDED UNDER SEC 43(5). THE TRANSACTION IS HELD TO BE A SPECULATIVE TRANSACTION AND LOSS ARISING THERE FROM IS SPECULATION LOSS. IV. SINCE THE SPECIFIC PROVISIONS OF SECTION 43(5) DEFINE A 'SPECULATIVE TRANSACTION' FOR THE PURPOSE OF DETERMINING THE PROFITS AND GAINS OF BUSINESS AND PROFESSION, THERE IS NO ALTERNATIVE AVENUE FOR THE ASSESSEE TO CLAIM THE LOSS ARISING FROM SUCH TRANSACTION AS A BUSINESS LOSS. THE LAW DOES NOT PROVIDE ANY EXCEPTION FOR TREATING SUCH LOSSES AS BUSINESS LOSSES, OTHER THAN THE EXEMPTED TRANSACTION MENTIONED IN PROVISOS (A) TO (D) OF SEC 43(5). AND THE ASSESSEE'S CLAIM NOT M EETING THE TESTS OF THESE PROVISOS, IS A LOSS ARISING FROM A SPECULATIVE TRANSACTION. ' BASED ON THE ABOVE FACTS, I HAVE REASON TO BELIEVE THAT THE INCOME OF THE ASSESSEE TO THE EXTENT OF RS. 1,75,49,200/ - WHICH WAS CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE AY 2010 - 11 ON ACCOUNT OF FAILURE ON PART OF ASSESSEE TO DISCLOSE FULLY & TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. 4. THE ASSESSEE FILED THE OBJECTIONS AGAINST THE REASSESSMENT PROCEEDINGS VIDE LETTER DT. 26/11/2015 WHICH ARE REPRODUCED BELOW: A . 'THE REOPENING PROCEEDINGS HAVE BEEN INITIATED WITHIN A PERIOD OF 4 (FOUR) YEARS. THE ASSESSEE HAD DILIGENTLY DISCLOSED FULLY & TRULY ALL MATERIAL FACTS RELATING TO THE SAID ISSUE. MOREOVER NO NEW INFORMATION H AS BEEN UNEARTHED WHICH CAN BE SAID TO BE UNAVAILABLE EARLIER. B THE REOPENING IS BASED ON THE OPINION FORMED BY THE LEARNED ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT PROCEEDINGS U/S 143(3) FOR A.Y. 2011 - 12 IN THE ASSESSEE'S OWN CASE IN WHIC H LOSS ON FORWARD CONTRACTS ENTERED WITH THE BANKERS OF THE ASSESSEE COMPANY HAVE BEEN TREATED AS SPECULATIVE TRANSACTIONS & LOSS ARISING THEREFROM WAS OPINED TO BE SPECULATION LOSSES & NOT A BUSINESS LOSSES. THE SAID REASON ON THE BASIS OF WHICH THE SATI SFACTION NOTE WAS PREPARED IS GROSSLY MISPLACED & IS CONTRARY TO THE FACTS & MATERIAL / DOCUMENTS FILED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS FOR A.Y. 2010 - 11 WHICH WERE COMPLETED U/S 143(3) VIDE ORDER DT. 19/12/2012. THE COMPLETE FACTS & DOCUMENTS AL ONG WITH THE LEGAL POSITION REGARDING THE TREATMENT OF THE LOSSES ON ACCOUNT OF SETTLEMENT OF FOREIGN CONTRACTS AS NORMAL BUSINESS LOSSES & NOT SPECULATIVE LOSSES WERE DULY FILED / SUBMITTED BY THE ASSESSEE ALONGWITH ITS LETTER DT. 11/12/2012. THE SAME WER E DULY CONSIDERED BY THE LEARNED A.O. & NO ADVERSE INFERENCE WAS DRAWN WHILE COMPLETING THE ASSESSMENT. THE SATISFACTION NOTE RECORDED AMOUNTS TO A 'CHANGE IN OPINION' AS THE ORIGINAL ASSESSMENT WAS COMPLETED BY THE LEARNED AO ONLY AFTER SATISFYING HIMSELF ON THE ISSUE OF TAXABILITY OF LOSSES INCURRED ON SETTLEMENT OF FORWARD CONTRACTS ENTERED BY THE ASSESSEE WITH MNC BANKS & AFTER VERIFYING THE COMPLETE DOCUMENTS INCLUDING HEDGING AGREEMENTS & ALSO BEING SATISFIED ABOUT THE CORRECT POSITION OF LAW. SINCE T HE ORIGINAL ASSESSMENT PAGE | 7 WAS COMPLETED ON THE BASIS OF THE MATERIAL & EVIDENCE SUBMITTED & AFTER FORMING A CONSIDERED OPINION, THEREFORE THE PRESENT REASSESSMENT PROCEEDINGS ARE CLEARLY VITIATED. C THE SATISFACTION NOTE DOES NOT DISCLOSE ANY FRESH OR TANGIBLE MATERIAL WHICH HAS COME TO LIGHT DURING THE PROCEEDINGS FOR A. Y. 2011 - 12 NECESSITATING THE RE - OPENING OF THE ASSESSMENT. NO FRESH OR COGENT MATERIAL HAVING A LIVE LINK TO THE FACTS OF A.Y. 2010 - 11 HAS COME TO NOTICE FOR FORMATION OF THE BELIEF. T HE SAME AMOUNTS TO A REVIEW OF THE ORIGINAL ASSESSMENT ORDER WHICH IS CLEARLY IMPERMISSIBLE UNDER LAW & INTENTION OF THE PROVISIONS OF SEC. 147. D THERE WAS NO OMISSION OR COMMISSION ATTRIBUTABLE TO THE ASSESSEE WHICH CAN LEAD TO A CONCLUSION THAT TH ERE WAS ANY ESCAPEMENT OF INCOME OR THERE WAS ANY FAILURE TO DISCLOSE FULLY & TRULY ALL MATERIAL FACTS NECESSARY FOR THE FORMATION OF THE CORRECT OPINION ON THIS ISSUE. E THE PARA 3 OF REASONS OF BELIEF IS BASED ON TRANSACTIONS RELATING TO FORWARD CONTRACTS ENTERED WITH REFERENCE TO THE CONTRACTS DENOMINATED IN US DOLLARS (USD) - JAPANESE YEN (JPY) WHICH WERE CRYSTALLIZED / SETTLED IN A.Y. 2011 - 12. HOWEVER THE LOSS ON SETTLEMENT OF FORWARD CONTRACTS IN A. Y. 2010 - 11 PERTAIN TO CONTRACTS DENOMINATED USD - INR (INDIAN RUPEES). NO CONTRACTS DENOMINATED IN USD - JPY WERE SETTLED DURING THE YEAR. MOREOVER THE CONTRACTS WERE EXECUTED WITH 2 (TWO) BANKS & NOT 1 (ONE) BANK AS MENTIONED IN PARA 2 OF THE REASONS. THIS CLEARLY INDICATES THAT THE RE OPENING HAS BEEN DONE IN A MECHANICAL MANNER WITHOUT APPRECIATING THE CORRECT FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION. F THE SATISFACTION NOTE HAS BEEN PREPARED ONLY ON THE BASIS OF POSSIBILITY OF 'ALTERNATIVE INFERENCE' FROM THE SAME DOCUME NTS & FACTS PLACED BEFORE THE A.O. DURING THE ASSESSMENT PROCEEDINGS. G IT IS PERTINENT TO NOTE THAT THE CORRECT CLAIM OF THE ASSESSEE HAS BEEN DULY UPHELD BY THE LEARNED CIT (APPEALS) IN APPELLATE PROCEEDINGS FOR A. Y. 2011 - 12 & A.Y. 2012 - 13 & IT HAS BEEN HELD THAT THE FORWARD CONTRACTS WERE NON - SPECULATIVE IN NATURE.' 5. THE OBJECTIONS WERE NOT FOUND TO BE ACCEPTABLE BY THE ASSESSING OFFICER & WERE DISPOSED OF BY HIM ON 10/02/2016 & ACCORDINGLY THE ASSESSMENT WAS COMPLETED ON 18/03/2016 B Y TREATING THE TRANSACTION ON ACCOUNT OF LOSS OF RS. 1,17,94,026/ - PERTAINING TO FOREIGN EXCHANGE FORWARD CONTRACTS AS A SPECULATIVE TRANSACTION U/S 43(5) OF THE ACT. ACCORDINGLY THE SAID AMOUNT WAS HELD TO BE A SPECULATION LOSS WHICH COULD NOT BE ADJUSTED AGAINST THE BUSINESS PROFITS. 6. THE COURTS HAVE CONSISTENTLY HELD THAT THE POWER TO REOPEN AN ASSESSMENT IS CONDITIONAL ON THE FORMATION OF REASON TO BELIEVE BASED ON SOME COGENT MATERIAL WHICH MAY HAVE COME TO THE NOTICE OF THE ASSESSING AUTHO RITY PAGE | 8 SUBSEQUENT TO THE COMPLETION OF THE SCRUTINY PROCEEDINGS. MOREOVER THE MATERIAL SHOULD BE TANGIBLE & SHOULD HAVE A LIVE LINK TO THE FACTS OF THE ORIGINAL ASSESSMENT. THE HON'BLE SUPREME COURT IN THE CASE OF THE CIT VS KELVINATOR OF INDIA LTD. - 320 ITR 561 HAS HELD AS UNDER : 'THE CONCEPT OF 'CHANGE OF OPINION' ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OPERATED AFTER THE SUBSTITUTION OF SECTION 147 OF THE INCOME TAX ACT 1961, BY THE DIRECT TAX LAW S (AMENDMENT) ACTS, 1987 8I 1989. AFTER THE AMENDMENT, THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES NOT IMPLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEP T OF 'CHANGE OF OPINION' MUST BE TREATED AS AN IN - BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE AFTER APRIL 1, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE WAS ESC APEMENT OF INCOME FROM ASSESSMENT. REASON MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF.' 7. AFTER GOING THROUGH THE ASSESSMENT RECORDS WHICH WERE REQUISITIONED BY MY OFFICE FROM THE ASSESSING OFFICER, IT IS CLEAR THAT THE PRIMARY / MATERIAL FACTS WER E DISCLOSED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS. FURTHER, THE SUBMISSIONS AND DOCUMENTS PERTAINING TO THE CLAIM OF THE ASSESSEE WERE CONSIDERED BY THE ASSESSING OFFICER IN THE SCRUTINY PROCEEDINGS & THE OPINI ON FOR ALLOWING THE CLAIM AS A BUSINESS LOSS INSTEAD OF SPECULATION LOSS WAS FORMED BY HIM. DURING THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS CLEARLY FAILED TO DEMONSTRATE THE AVAILABILITY OF ANY COGENT OR TANGIBLE MATERIAL ON THE BASIS OF WHI CH THE CASE COULD HAVE BEEN REOPENED. NO REASONS HAVE BEEN GIVEN BY HIM AS TO WHY HE HAS DEPARTED FROM THE EARLIER VIEW ADOPTED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. HE HAS SIMPLY RECORDED THE SATISFACTION NOTE ON THE BASIS OF THE OPINION FORMED FOR COMP LETION OF THE SCRUTINY ASSESSMENT PROCEEDINGS FOR THE A.Y. 2011 - 12. THIS CLEARLY AMOUNTS TO A CHANGE OF OPINION WHICH IS IMPERMISSIBLE UNDER THE LAW. THE POWER TO REOPEN THE ASSESSMENT IS CONDITIONAL ON THE FORMATION OF REASON TO BELIEVE THAT INCOME CHARGE ABLE TO TAX HAS ESCAPED ASSESSMENT. THE POWER IS NOT AKIN TO A REVIEW. THE NON - EXISTENCE OF ANY TANGIBLE MATERIAL WITH THE ASSESSING OFFICER CLEARLY INDICATES AN ARBITRARY EXERCISE OF POWER FOR REOPENING OF THE ASSESSMENT. THE ALLEGATIONS IN THE SATISFACTI ON NOTE ARE BASED ON THE ASSESSMENT PROCEEDINGS FOR THE A.Y. 2011 - 12. NO NEW FACTS HAVE BEEN UNEARTHED FOR GRANTING THE JURISDICTION FOR REOPENING THE ASSESSMENT PROCEEDINGS. THE HON'BLE SUPREME COURT IN CALCUTTA DISCOUNT CO. LTD. VS ITO (41 ITR 191) & CI T VS KELVINATOR OF INDIA LTD. (320 ITR 561) HAS EXPLAINED THAT THERE MUST BE A NEXUS BETWEEN THE MATERIAL PLACEMENT RECORD & THE DECISION ARRIVED BY THE ASSESSING OFFICER REGARDING RE - OPENING OF PAGE | 9 ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER HAS TO APPLY HI S MIND & TAKE A CONSCIOUS DECISION ON A PARTICULAR MATTER IN ISSUE. THE RE - OPENING OF THE ASSESSMENT HAS TO BE BASED ON SOME FRESH MATERIAL WHICH COMES TO HIS KNOWLEDGE SUBSEQUENT TO THE COMPLETION OF THE ORIGINAL ASSESSMENT WHICH HAS A LIVE LINK TO THE CO NCLUSION THAT THERE HAS BEEN SOME ERROR WHICH HAS LED TO THE ESCAPEMENT OF INCOME. MOREOVER, THE HON'BLE APEX COURT IN ANDHRA BANK LTD. V. CIT [1997] 225 ITR 447 (SC) HELD THAT ONCE THE INCOME - TAX OFFICER HAD PASSED AN ORDER AFTER TAKING INTO ACCOUNT THE R ELEVANT FACTS, IT WAS NOT OPEN FOR HIS SUCCESSOR TO REOPEN THE ASSESSMENT AT A LATER POINT OF TIME UNLESS INFORMATION COMES FROM AN EXTRANEOUS SOURCE. THE RELEVANT EXTRACT OF THE SAID DECISION READS AS UNDER: 'THE FACTS STATED ABOVE CLEARLY DISCLOSE THAT THE INCOME - TAX OFFICER ALLOWED THE CHANGE IN THE METHOD OF ACCOUNTING FOR THE ASSESSMENT YEARS CONCERNED HEREIN KNOWINGLY, IT WAS NOT A CASE OF AN INADVERTENT MISTAKE WHICH WAS DISCOVERED LATER ON AFTER COMPLETION OF THE ASSESSMENT OR OVERSIGHT. ONCE IT IS FOUND THAT THE CHANGE IN THE METHOD OF ACCOUNTING WAS KNOWINGLY ALLOWED BY THE INCOME - TAX OFFICER AFTER TAKING INTO ACCOUNT ALL THE RELEVANT FACTS IT IS NOT PER MISSIBLEFOR THE INCOME - TAX OFFICER , OR HIS SUCCESSOR, TO REOPEN THE ASSESSMENT AT A LATER POIN T OF TIME UNDER SECTION 147(B) OF THE INCOME - TAX ACT UNLESS ANY INFORMATION COMES FROM AN EXTRANEOUS SOURCE. FURTHER, WE FAIL TO SEE WHAT IS THE 'INFORMATION' AVAILABLE TO THE INCOME - TAX OFFICER IN THIS CASE ON THE BASIS OF WHICH HE IS SEEKING TO REOPEN TH E ASSESSMENTS UNDER CLAUSE (B) OF SECTION 147.' 8. RESPECTFULLY FOLLOWING THE JURISPRUDENCE LAID DOWN BY THE HON'BLE SUPREME COURT & ALSO THE PLETHORA OF JUDGMENTS AVAILABLE ON THE 'CHANGE OF OPINION', I AM OF THE CONSIDERED OPINION THAT THE R EOPENING IS BAD IN LAW & THE ASSESSING OFFICER HAS CLEARLY EXCEEDED HIS JURISDICTION AS THE LEGAL REQUIREMENT THAT 'THE REASON TO BELIEVE MUST BE PREDICATED ON TANGIBLE MATERIAL OR INFORMATION' AND THAT 'THE BELIEF MUST BE RATIONAL AND BEAR A DIRECT NEXUS TO THE MATERIAL ON WHICH SUCH A BELIEF IS BASED' WAS NOT FULFILLED. THUS, THE REASSESSMENT PROCEEDINGS UNDER SECTION 147 READ WITH SECTION 148 OF THE ACT WERE BAD IN LAW AND CONSEQUENTLY THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ANNULLED. 7. ON READING OF THE REASONS RECORDED IT IS APPARENT THAT RESORT TO SECTION 147 OF THE ACT HAS BEEN MADE WITHOUT ANY TANGIBLE MATERIAL, BUT ON PURSUANT OF THE SAME MATERIAL WHICH WERE AVAILABLE BEFORE THE ASSESSING OFFICER AT THE TIME OF FRAMING OF THE ORIGIN AL ASSESSMENT. THE LEARNED ASSESSING OFFICER WAS ALSO EXPLAINED DURING THE COURSE OF ORIGINAL ASSESSMENT VIDE LETTER DATED 11.12.2012 TO SHOW THAT SUCH LOSS IS NOT SPECULATIVE IN NATURE. FURTHER IT WAS ALSO POINTED OUT PAGE | 10 TO THE ASSESSING OFFICER THAT SIMIL AR CLAIM OF THE ASSESSEE WAS DULY ACCEPTED IN PROCEEDINGS UNDER SECTION 143(3) OF THE ACT FOR ASSESSMENT YEAR 2009 - 10. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT SHOW US ANY TANGIBLE MATERIAL. THE HON BLE SUPREME COURT IN THE CASE OF KELVINATO R OF INDIA LTD. VS. CIT (SUPRA) HAS HELD THAT EVEN THE CHANGE OF OPINION CAN BE ARRIVED FOR RE - OPENING PROVIDED THERE IS A BENEFICIAL MATERIAL COMING INTO THE POSSESSION OF THE ASSESSING OFFICER SHOWING THAT THERE WAS AN ESCAPEMENT OF INCOME FROM ASSESSMEN T AND SUCH TANGIBLE MATERIAL MUST HAVE AN ALIVE LINK WITH THE FORMATION OF THE BELIEF. IN THE PRESENT CASE SUCH CRITERIA IS ABSENT. THUS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) AND THE SAME IS CONFIRMED. HENCE , APPEAL OF THE ASSESSING OFFICER IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON : 30 / 01 / 2020 . SD/ - SD/ - ( S UDHANSHU SRIVASTAVA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 / 01 / 2020 . *MEHTA* COPY FORWARDED TO : 1 . APP ELLANT 2 . RESPONDENT 3 . CIT 4 . CIT (A PPEALS ) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI PAGE | 11 DATE OF DICTATION 27 .01.2020. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27 .01.2020. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 30 .01.2020. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS / PS 30 .01.2020. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT. 30 .01.2020. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS / PS 30 .01.2020. DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 3 0 .01.2020. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30 .01.2020. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER