BAJAJ AUTO LTD., MUMBAI V. DCIT -LTU -1 , MUMBAI

ITA 3949/MUM/2019

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9807 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-08-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: WASANTI PATEL; KIRIT
• Keywords: Reopening of assessment; Capital asset converted into stock in trade; Business income; Rule of consistency; Tangible material; Difference of opinion; Change of opinion; TDS
• Section: 147; 148; 143(3); 142(1); 115JB; 37(1); 150(1); 143(2); 139(1); 43; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND MS. KAVITHA RAJAGOPAL, JM ITA No. 3949/Mum/2019 (Assessment Year: 2010-11) Ba j a j Au t o L im it e d 2 nd F lo o r , B a j a j Bh a wa n , 2 2 6 , Na r im a n Po in t , Mu m b a i-4 0 0 0 2 1 Vs. The Dy. Commissioner of Income-tax, Large Taxpayer Unit-1 Mumbai-400 005 (Appellant) (Respondent) PAN No. AADCB2923M Assessee by : Shri Percy Pardiwala, Sr. Adv. & Ms. Wasanti Patel, & Shri Kirit Kamdar, ARs Revenue by : Shri S Srinivasu, CIT DR Date of hearing: 28.08.2023 Date of pronouncement : 23.11.2023 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by Baja Auto Limited [assessee /appellant] against the appellate order passed by the Commissioner of Income-tax (Appeals)-1, Mumbai [ The Ld CIT (A) ] dated 5 th March, 2019, wherein the appeal filed by the assessee against the assessment order under Section 143(3) read with section 147 of the Income-tax Act, 1961 (The Act) dated 29 th December 2017, passed by the Dy. Commissioner of income- tax (LTU-1), Mumbai, (the learned AO), was party allowed. 02. The assessee has raised 20 grounds in this appeal as under:- “Validity of reopening of assessment: Page | 2 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) [the CIT(A)] erred in upholding the action of the Assessing Officer in reopening the assessment under section 147/ 148 of the Act. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that there was no failure on the part of the appellant to disclose truly and fully all material facts necessary for the assessment. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that all the necessary facts and related submissions/ notes were already filed by the appellant during the course of the original assessment proceedings under section 143(3), and there was no failure on the part of the appellant to disclose truly and fully all material facts necessary for the assessment. 4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that as per the reasons recorded for reopening of assessment, the reopening was based on the facts and submissions/ notes already on record during the course of the original assessment proceedings and there was no new tangible material on record for reopening the assessment. Addition in respect of marked-to-market gain on foreign exchange fluctuations: Rs.76,08,00,000; 5. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the addition of Rs. 76,08,00,000 on account of marked-to-market gain on Page | 3 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 foreign exchange fluctuations in respect of range forward contracts. 6. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the method of accounting consistently followed by the appellant is based on the concept of prudence which does not allow for recognition of marked-to-market gains. 7. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the concept of prudence has been recognised in Accounting Standard 1 issued by the Institute of Chartered Accountants of India and in the Income- tax Accounting Standard-1 issued by the Central Government under section 145(2) of the Act 8 On the facts and in the circumstances of the case and in law, the CIT(A) erred in observing that the appellant has followed inconsistent method of accounting to suit its needs and reduce the tax liability. 9 Without prejudice to the above, the appellant prays that that if the aforesaid amount is taxed in AY 2010-11, then the said amount ought to be allowed as a deduction in the subsequent year, i.e., AY 2011-12, i.e. the year in which the aforesaid gain has been reversed upon utilization/ cancellation of the forward contract without any corresponding debit in its books of account. Disallowance of expenditure incurred in respect of Omega project: Rs.1,77,69,266 and In respect of PV1500 project: Rs. 6,47,60,472: 10. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the disallowance of Rs. 1,77,69,266 being expenditure incurred in Page | 4 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 connection with the Omega project relating to development of auto-geared scooters. 11. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the disallowance of Rs. 6,47,60,472 being expenditure incurred in connection with the PV1500 project relating to development of four-wheeler goods carriers 12. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the expenditure in respect of the Omega project and the PV1500 project was incurred wholly and exclusively in connection with the business of the appellant of manufacture and sale of vehicles. 13. On the facts and in the circumstances of the case and in law, the CIT(A) erred in observing that the expenses incurred under the Omega project and the PV1500 project were for a new line of business and would give rise to a new source of revenue in the hands of the appellant. 14. On the facts and in the circumstances of the case and in law, the CIT(A) erred in observing that in the case of the appellant, it cannot be arrived that there could have been unity of control even for the new line of business. 15. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the expenditure incurred in respect of the Omega project and the PV1500 project comprises of revenue expenditure such as purchase of materials and components, labour cost, consumables, travelling, etc Allowability of expenditure incurred in respect of PV1500 project written-off during the year under consideration, Page | 5 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 claimed in the return of income filed in response to notice under section 148: Rs. 15,41,08,719: 16. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer in not granting deduction under section 37(1) in respect of the expenditure of Rs. 15,41,08,719 incurred in connection with the PV1500 project relating to development of four-wheeler goods carriers, which was written-off during the year under consideration 17. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the expenditure in respect of the PV1500 project was incurred wholly and exclusively in connection with the business of the appellant of manufacture and sale of vehicles. 18. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the expenditure incurred in respect of the PV1500 project comprises of revenue expenditure such as purchase of materials and components, labour cost, consumables, travelling, etc. 19. On the facts and in the circumstances of the case and in law, the CIT(A) erred in observing that the write-off of the above expenditure incurred in respect of the PV1500 project is against the accounting policy of the appellant of amortising the expenditure on technical know- how acquired equally over a period of six years 20. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that the aforesaid expenditure was written-off on account of change in design of four-wheeler goods carriers.” Page | 6 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 03. Brief facts of the case shows that assessee is a company manufacturing two wheelers and thee wheelers filed its return of income on 13 th October, 2010, at a total income of ₹2054,74,27,010/- under the normal provisions and book profit was computed at ₹2399,83,57,235/-. Assessment under Section 143(3) read with section 144C(3) of the Act was passed on 25 th February, 2014, determining the total income as per normal provisions of computation at ₹2215,16,11,976/- and book profit was computed at ₹2408,31,366/-. 04. Subsequently, the assessment was reopened under Section 147 of the Act by issuing notice under Section 148 of the Act on 29 th March, 2017. The assessee responded vide letter dated 19 th April, 2017, to provide reasons. Further, on 16 th May, 2017, it filed an acknowledgement copy filed on 27 th April, 2017. The reasons recorded by the learned Assessing Officer were supplied to the assessee on 19 th May, 2017, which are as under:- ”1. The original return of income has been filed electronically on 13.10.2010 declaring total income of Rs.2054,74,27,010/- under normal provision and Book Profit of Rs. 2399,83,57,235/- u/s 115JB of the IT Act, 1961. The case was selected for scrutiny and order u/s 143(3) r.w.s, 144C(3) was passed on 25.02.2014 determining total income of Rs.2215,76,11,976/- under normal provision and Rs.2408,00,31,366/- under section 115JB of the Act. 2. Change in the method of accounting for not including the valuation difference in Derivative Hedging Instruments amounting to Rs.76,08,00,000/-. 2.1 It is seen from the Schedule 14 in note 9/h) to the Annual Report of the assessee and the P&L account that, during the year assessee has entered into a range of Page | 7 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 forward contracts on Mark to Market (M2M) basis. These hedging contracts are stated to be entered to hedge future exports and to hedge highly probable forecast transactions. The market value of such derivative hedging instruments outstanding at the close of the year includes a gain of Rs.76,08,00,000/- on account of foreign exchange fluctuation. The assessee has not recognized this gain as income in the P&L account. It is however found from the assessee's P&L a/c that, in the immediately preceding year i.e. A.Y 2009-10, the assessee has recognized the valuation loss on such transactions as an expense Therefore, non inclusion of the gains for the year under consideration in the income/receipts in P&L account is not in accordance with the regularly followed accounting practices of the assessee. The deviation from the regularly followed method of accounting by assessee has resulted in not showing of the profits of the year amounting to Rs.76,08,00,000/-. Therefore this amount is required to be added to the income of the assessee as per the provisions of section 145(1) & (3) of the Act. This has resulted in under assessment of taxable income for the year of Rs.76,08,00,000/- and a resultant short levy of tax of Rs.23,50,87,200/-. 3. Project expenses and advances written off pertaining to PV1500 project and Omega Project wrongly claimed as revenue expense: 3.1 During the year under consideration, the assessee has claimed the following:- No. Project Nature of expense Amount in ₹ 1. Omega Project Prototype components 17769266 2. PV 1500 project Advances written off 64760472 Page | 8 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 Total 82529738 expenses as revenue expenses: 3.2 The very nature of these expenses clearly indicates that, this is a capital loss on account of capital expenses incurred and subsequently written off on account of non- commencement of the project. In fact, the assessee himself disallowed a sum of Rs.16.26 crores in the computation of income related to project PV1500 and there was no reason to differentiate these expenses not disallowed. Both these expenses are related to development of prototypes for the new projects which were ultimately abandoned. As per the provisions of section 37(1) of the IT act, any expenditure (not being in the nature of capital expenditure), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "profits and gains of business or profession. 3.3 In view of the above specific provisions, and the expenses written off being in the nature of capital expenses, the same is required to be disallowed u/s. 37(1) of the Act. This has resulted in under assessment of taxable income for the year of Rs.825,29,738/- and a resultant short levy of tax of Rs.280,51,858/-. 4. As there is a failure on part of assessee to disclose fully and truly all material facts necessary for its assessment during the year under consideration and considering the new credible information on record, I have reasons to believe that income of more than Rs.1 Lakh chargeable to tax has escaped assessment for this. assessment year i.e. A.Y. 2010-11, coming within the meaning of section 147 of the Income Tax Act, 1961. Page | 9 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 5. In view of the same, notice u/s 148 is issued after approval of CIT-LTU, vide letter No.CIT (LTU)/BAL/147/Approval/2016-17 dated 27.03.2017.” 05. The assessee raised an objection on 16 June 2017. The main objections were:- i. That, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. ii. There is no new tangible material coming into the possession of the learned Assessing Officer. iii. Reopening is made merely on the change of opinion. 06. The objections of the assessee were disposed of by an order dated 14 th November 2017, rejecting all the contentions raised by the assessee. Thereafter, notice under Section 143(2) of the Act was issued on 14 th November 2017. 07. During the assessment proceedings, the learned Assessing Officer noted that as per schedule 14 in note no. 9(b) of the annual report stated that assessee has entered into forward contract on mark to market basis which are stated to be hedging contracts, to hedge future exports. The market value of such hedging instruments at the close of the year included a gain of ₹76.08 crores on account of forex fluctuations. These were not recognized as income in the profit and loss account but found from the profit and loss account in immediately preceding previous year, where it is known that assessee has recognized the valuation loss on this transaction as an expense. Thus, losses incurred by assessee were claimed as deduction in subsequent year but gain was not offered for taxation in this year. Page | 10 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 08. Thus, the learned Assessing Officer was of the view that non- inclusion of the above gain in the profit and loss account has resulted into under stated profit. 09. The assessee submitted on 14 th November, 2017 as under:- “6.2 In response to the same, the assessee vide letter dated 28.12.2017 submitted as under:- Allowability of foreign exchange loss on range forward contracts: 2.1) In the reasons recorded for reopening of assessment, it has been stated as under: 2.1 It is seen from Schedule 14 that in note 9(8) to the Annual Report of the assessee and the P&L account that, during the year assessee has entered into range forward contracts on Mark to Market (M2M) basis. These hedging contracts are stated to be entered to hedge future exports and to hedge highly probable forecast transactions. The market value of such derivative hedging instruments outstanding at the close of the year includes a gain of Rs. 76,08,00,000/- on account of foreign exchange fluctuation. The assessee has not recognized this gain as income in the P&L account. It is however found from the assessee's PSL a/c that, in the immediately preceding year i.e. AY 2009-10, the assessee has recognized the valuation loss on such transactions as an expense. Therefore, non- inclusion of the gains for the year under consideration in the income/receipts in P&L account is not in accordance with the regularly followed accounting practices of the assessee. The deviation from the regularly forward method of accounting by assessee has resulted in not showing of the profits for the year amounting to Rs. 76,80,00,000/-. Therefore, this amount is required to be added to the Page | 11 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 income of the assessee as per the provisions of section 145(1) & (3) of the Act." 2.2) In this regard, it may be noted that BAL has huge portfolio of export receivables considering that almost 30% of the company's net sales during the year were in export markets. Considering a huge portfolio of foreign exchange receivables, the company obtains range forward contracts to hedge the foreign exchange fluctuation risk. These contracts are in the nature of highly probable forecast transactions since there is no one-to- one underlying asset at the time when the contracts are entered into, and instead they are based on the past performance of exports of the company as certified by the auditors, as per the requirements of the Reserve Bank of India. 2.3) In this regard, attention is invited to Note no. 9(b) of Schedule 14 "Notes forming part of financial statements" which mentions the facts as under: "The company has also entered into range forward contracts to hedge highly probable forecast transactions, where the export realizations of the company are protected below a minimum pre-determined foreign exchange rate whereas the realization advantages are available to the company does not benefit by rupee depreciating beyond the pre-determined foreign exchange rate. Though these instruments meet the management's Foreign exchange risk management objectives, they do not meet the test of effectiveness as per the principles of hedge accounting. The market value of instruments outstanding at the close of the year indicate a gain aggregating Rs. 760.8 million, which as a matter of produce has not been recognized, as against a loss Page | 12 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 provided for in the previous year aggregating Rs. 218 million which has now been written back." 2.4) It is submitted that the assessee's stand of not recognising the mark-to-market gain of Rs. 76.08 crores is based on the concept of prudence which is recognised in AS-1 issued by the Institute of Chartered Accountants of India (ICAI) as follows: "Prudence: In view of the uncertainty attached to future events, profits are not anticipated but recognised only when realised though not necessarily in cash. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information."[Para 17(a)] 2.5) The aforesaid concept of prudence is also recognised by Accounting Standard (Income-tax) -1 issued by the CBDT as follows: "Prudence - Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information." [Para 4(i)] 2.6) In view of the above, it is submitted that the market- to-market gain of Rs. 76,08 crores ought not to be included in the total income of the year under consideration since the same is not in accordance with the concept of prudence recognised by the Accounting Standards issued by the ICAI and by the Income-tax Accounting Standards notified by the CBDT under section 145(2). Page | 13 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 2.7) Without prejudice to the above, it is submitted that if the aforesaid amount is taxed in AY 2010-11, then the said amount ought to be allowed as a deduction in the subsequent year, l.e. AY 2011-12, i.e. the year in which the aforesaid gain has been reversed upon utilization/cancellation of the forward contract, since in the year of utilization/ cancellation, the reversal of the aforesaid gain is not debited to the Profit and Loss Account." 010. The learned Assessing Officer did not accept the explanation of the assessee stating that when there was a derivative loss for A.Y. 2009-10, the assessee debited and claimed such loss as deduction but when there is a gain in this year; assessee did not credit the same to the profit and loss account and also did not offer it for taxation. Therefore, he held that assessee has not followed the method of accounting regularly resulting into the less profit by the above sum. 011. The learned Assessing Officer also found that assessee has claimed the revenue expenditure of its PV 1500 project and Omega Project, which shows that these are capital loss on account of capital expenditure. The learned Assessing Officer noted that with respect to Omega Project, the assessee has claimed deduction of ₹1,77,69,266/- as proto type components and further for PV 1500 project, ₹6,47,60,472/- advance written off. Both these expenditures are related to the proto type of the new project, which were ultimately abandoned. Assessee itself has also disallowed ₹16.26 crores related to project PV 1500. Therefore, the above expenditure is not allowable. 012. In response to query of the ld AO, assessee replied on 28 th December, 2017 as under:- Page | 14 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 “7.2 under:- In response to the same, the assessee vide letter dated 28.12.2017 submitted as under:- "3.2) In this regard, at the outset, attention is invited to the facts relating to the above projects/ expenses: (a) Expenses in respect of Omega project: Rs. 1,77,69,266: During FY 2009-10, the assessee had decided to relaunch auto-geared scooters. The said project was named "Omega project. In order to develop the prototype of the scooters, the assessee had raised purchase orders on several vendors for acquiring the components to be used for manufacturing of the prototype (copies of debit notes raised by the vendors for the components used in the prototype are enclosed as Annexure 1). However, before the development of the prototype, the assessee decided to scrap the project considering the lack of likeliness of demand for such scooters. Thus, the project I was scrapped at the concept stage itself, and the expenditure incurred on the aforesaid project was written off to the Profit and Loss account (under the head "Miscellaneous Expenses") in accordance with Accounting Standard 26 on "Intangible Assets", which reads as under: "4.1 No intangible asset arising from research (or from the research phase of an internal project) should be recognised. Expenditure on research (or on the research phase of an internal project) should be recognised as an expense when it is incurred. 4.2 This Standard takes the view that, in the research phase of a project, an enterprise cannot demonstrate that an intangible asset exists from which future economic Page | 15 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 benefits are probable. Therefore, this expenditure is recognised as an expense when it is incurred." The write-off of expenditure is therefore in accordance with the Accounting Standard issued by the Institute of Chartered Accountants of India. (b) Expenses in respect of PV1500 project: Rs. 6,47,60,472: During FY 2005-06, the erstwhile Bajaj Auto Limited had decided to enter into manufacturing of four-wheeler goods carrier under the project named "PV 1500". Under the said project, the assessee placed purchase orders with Genix Automotive Engineering Company Ltd., South Kora ('Genix) for acquiring prototype body-in-white (B/W) parts and fixtures and press tools. The BIW parts were delivered by Genix to BAL over a period ranging from October 2006 upto November 2008. The materials received from Genix were shown under "Development in progress" (Schedule 6 of the Annual Accounts). In FY 2009-10, the assessee decided to continue with the development of the four- wheeler goods carrier models with a modified design with little changes, and accordingly, the purchase orders for the balance BIW parts were cancelled. Accordingly, the advance payments made by the company in connection with the purchase orders, which were not refunded by Genix, were written off under the head "Miscellaneous Expenses. In this regard, we have enclosed herewith the following documents: (i) Copy of the approval dated 18 February 2010 granted by the Reserve Bank of India for write-off of the advance paid to Genix (Refer Annexure 2) Page | 16 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 (ii) Copy of the application filed by BAL with the Reserve Bank of India for write-off of the advance paid to Genix (Refer Annexure 3)" 013. The learned Assessing Officer stated that the above expenditure is capital in nature and does not accrue against business income. He further held that the above expenditure is pre operative and capital and therefore not allowable. 014. Accordingly, the assessment order under Section 143(3) read with section 147 of the Act was passed on 29 th December, 2017, computing the income as per normal provision at ₹2300,09,41,710/-, wherein the addition of ₹76,08,00,000/- on mark to market adjustment and of ₹8,25,29,738/- of disallowance of pre operative expenditure was made. 015. The assessee aggrieved with the assessment order preferred the appeal before the learned CIT (A), challenging the validity of reopening of the assessment as well as the addition and disallowance, both. Several other grounds were also raised on short credit of TDS and non granting of foreign tax credit. 016. The learned CIT (A) vide paragraph no.6.3 has upheld the validity of the reopening of the assessment as under:- “6.3 I have carefully considered the facts of the case, discussion of the AO in the assessment order, oral contentions and written submission of the appellant and material available on record. The assessee's submission in respect of the reasons recorded and whether there has been failure on its part to disclose fully and truly all material facts necessary for assessment are being analyzed here in under: Page | 17 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 6.3.1 In respect of the amount of Rs.76.08 crores on account of valuation difference in derivative hedging instrument: The appellant in their submission have primarily contended that the assessment has been reopened after the period of 4 years from the end of the relevant assessment year and assessment in this case was completed u/s 143(3) and further there being no failure on their part to disclose fully and truly all material facts necessary for assessment, the reopening done by the AO was bad in law. To support such contention, the appellant contends that they had submitted copy of the Annual Report to the AO where there is a specific reference relating to valuation difference at Note No.9(b) and that vide letter dated 19.09.2013 they had submitted a note in respect of claim deduction on foreign exchange valuation loss written back. In regard to such contention and submission of assessee it is stated that the explanation (1) of Sec.147 clarifies that production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso to Sec. 147 of the Act. Accordingly, merely submitting copy of Annual Report, where in the shape of some note, the assessee seeks to have disclosed the relevant and material fact towards the valuation difference on foreign exchange hedging cannot be considered to be acceptable as proper disclosure made. It would also be important to actually seen what the assessee has mentioned in its notes to accounts. It is seen that the assessee in their annual report for F.Y.2009-10 relevant to the assessment year under consideration have at sub-para (3) of para 9(b) has mentioned as under :- Page | 18 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 The company has also entered into range forward contracts to hedge highly probable forecast transactions, where the export realisations of the company are protected below a minimum pre-determined foreign exchange rate whereas the realisation advantages are available to the company therefrom up to a high pre- determined foreign exchange rate. The company does not benefit by rupee depreciating beyond the pre-determined foreign exchange rate. Though these instruments meet the management's Foreign exchange risk management objectives, they do not meet the test of effectiveness as per the principles of hedge accounting. The market value of instruments outstanding at the close of the year indicate a gain aggregating Rs.760.8 million, which as a matter of prudence has not been recognized, as against a loss provided for in the previous year aggregating Rs. 218 million which has not been written back. [Bold for emphasis] Further, in schedule 14 of note forming part of financial statement for F.Y. 2008-09 of the annual report pertains to changes in the accounting policies, at sub-para(3) of Para 10(b), it has been mentioned as under :- The company has also, during the year, entered into range forward contracts to hedge highly probable forecast transactions, where the export realisations of the company are protected below a minimum pre-determined foreign exchange rate whereas the realisation advantages are available to the company therefrom up to a high pre-determined foreign exchange rate. Though these instruments meet the management's Foreign exchange risk management objectives, they do not meet the test of effectiveness as per the principles of hedge Page | 19 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 accounting. Hence valuation losses aggregating Rs. 218 million, have been recognised in the profit and loss account. [Bold for emphasis] It is seen that in the annual report for F.Y.2008-09 relevant to A.Y. 2009-10 the schedule 14 of notes forming part of the financial statement, clearly speak of changes in the accounting policy and at para 10(b) which has been reproduced herein above it has been mentioned that because the instrument in which the hedging has been done do not meet the test of effectiveness as per principles of hedge accounting, hence, the valuation loss aggregating to Rs.218 million have been recognised in the P&L Account. It is, however, curiously noted that precisely for the same reasoning and with the mention that the instrument in which the investments have been made for hedging do not meet the test of effectiveness as per the principles of hedge accounting, the gain aggregating to Rs.760.8 millions has not been recognised. It is noted and mentioned herein that assessee resorted to change in method of accounting in the accounting year 2008-09 to claim the loss on account of hedging to the tune of Rs.218 million and in the next year when there is a gain happened on account of similar transaction, the assessee has in its note to the final account, in its annual report has mentioned to have not recognised such gain. It clearly shows inconsistent method of accounting, resorted only to either claim the loss or not to offer gain to tax on account of its hedging transactions, in respective years. The assessee company tries to justify such accounting treatment on the basis of prudence. In regard to such submission of the assessee it is stated that there cannot Page | 20 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 be any justification for the prudence to be not there in year one and pressed into the service of second year. There cannot be any interpretation of any accounting standard which can have varied interpretation to suit the requirement of the assessee on a year to year basis. As long as the assessee remains consistent in its account and such accounting done, is in keeping with the relevant accounting standard, the same may be considered logical and correct. There cannot be differing interpretation on a year to year basis in respect of same/similar transaction as regards their treatment in the books of accounts is concerned. The assessee by resorting to the differing interpretation and mentioning them in some part of their notes to the account in the annual report cannot take recluse of the condition that it has made full and true disclosure of material facts necessary for completion of assessment especially in view of explanation (1) to Sec.147 of the Act. 6.3.2 The assessee also has contended that vide letter dated 19.09.2013 they had submitted note in respect of claim deduction on foreign exchange loss written back. In regard to such contention of the assessee it is stated that the copy of the said note has been submitted at page No.120 of the paper book. This note is on allowability of foreign exchange loss and is in reference to the notice dated 01.07.2014 issued u/s 142(1) by the AO to explain the allowability of foreign exchange loss. The appellant in the said letter has submitted that there was a loss of Rs.21.8 crores in the previous year relevant to A.Y. 2009- 10 which was debited in the P&L Account and which was disallowed in the assessment completed u/s 143(3) for A.Y. 2009-10 dated 18.04.2013. The appellant therein has further mentioned that they have filed appeal in respect of said issue before CIT (A) and that during the previous year Page | 21 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 relevant to the assessment year under consideration the said amount has been written back to the P&L Account and as such has been offered to tax as income. The submission thereof has been that the loss of Rs.21.8 crores since was disallowed in the assessment year 2009-10, the write back thereof ought not to be taxed as income for A.Y. 2009-10 as per Department's stand. It is accordingly seen in the said note submitted on 19.09.2013, there is absolutely no whisper regarding the valuation difference on account of derivative hedging instrument wherein the assessee has made a gain of Rs.76.08 crores, and which has formed one of reasons for reopening. It is further mentioned here that this gain on account of derivative- hedging Instrument pertain to assessment year under consideration whereas the note submitted to the AO in response to the notice u/s 142(1) pertains to the loss of foreign exchange claimed which assessee has explained that the loss was claimed earlier assessment year and that such loss has been written back during the year under consideration. The assessee in the said note also has not mentioned, for the reasons best known to them, as to why they have written back the said loss of Rs.21.8 crores pertaining to A.Y. 2009-10 in the year under consideration, despite the fact that the addition of the same has been disputed by the appellant in AY 2009-10. The only plausible reason for the same could be if they have had not done so, they would have also not been able to take a position of not offering the gain of Rs.76.08 crores on account of valuation difference in the derivative hedging instrument during the year under consideration. By doing so, the appellant has thus made an attempt to save taxes on the net (differential) amount of gain on derivative transaction of Rs.54.28 Crores (Rs. 76.08 Crores 21.80 Crores). Such facts as have been discussed herein above clearly point Page | 22 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 out to the aspect that the assessee but for mentioning a note at 9(b) of the annual report relating to the valuation difference has subsequently even on being asked, cautiously did not mention of the questioned gain of Rs.76.08 crores during the year under consideration in its note submitted to the AO on 19.09.2013. This clearly proves that there has been failure on the part of the assessee to disclose fully and truly the relevant facts or material during the assessment as for as the amount of Rs.76.08 crores on account of valuation difference in derivative hedging instrument is concerned. Therefore, on this count the contention of the appellant that the reopening is bad in law is not found to be acceptable. 6.3.3 In respect of expenses incurred for Omega project aggregating to Rs.1,77,69,266 and expenses incurred in connection with the PV1500 project aggregating to Rs 6,47,60,472: The assessee has also objected similarly for the issue regarding the expenses incurred for Omega Project and PV1500 project and has stated that note on the allowability of the same was submitted on 06.12.2013 to the AO and therefore there was no failure on their part to disclose fully and truly all material facts necessary for assessment. In regard tosuch contention and submission of the assessee it is stated that the note submitted on the allowability of the aforesaid expenses vide their letter dated 06.12.2013 have been enclosed from page 121 to 124 of the paper book. It is seen from their note that they have given the detail in respect of nature of expenses and justification for their allowability u/s 37(1) of the Act. However, it is stated that the PV1500 project was started by the assessee in 2005-06 and expenses up till F.Y. 2008-09 was incurred by the assessee to the tune of Page | 23 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 Rs.15.41 crores which the assessee had not claimed, in its original return of income u/s 139(1) of the Act. No reason what so ever or correlation was submitted by the assessee as to why expenses written off during the year to the extent of Rs.6,47,60,472/- were claimed on PV1500 project and why they had not claimed the expenditure done on the same project in the earlier years totaling to Rs.15,41,08,719/-. The lack of proper explanation and correlation of the claim made during the year with reference to the expenses incurred on the same project in earlier years have given rise to the situation where material facts necessary for assessment were not fully and truly disclosed by the assessee in this regard. Accordingly, in the facts and circumstances of the case it is arrived at that even on the second issue on which the assessment has been reopened, there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. 6.3.4 The assessee has also contended that reopening cannot be resorted to in the absence of new tangible material. In regard to such contention of the assessee and the reliance placed by the assessee in their submission, it is stated that this aspect would come into consideration only under the circumstances when all the material facts necessary for assessment were fully and truly disclosed by the assessee itself. If in the set of facts, it is held that the assessee has failed to truly and fully disclose all material facts necessary for assessment, so much portion of material which assessee has failed to fully and truly disclose would come within the ambit of "New tangible material" that has come to notice of the AO and reopening u/s 147 would be valid in respect of the same. In the foregoing discussion, it has been held that the assessee has failed to disclose truly and fully all the material facts Page | 24 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 necessary for assessment and therefore the issues on which reassessment has been initiated by recording of reasons wherein the assessee has failed to disclose fully and truly all material facts would have to be treated as new tangible material that has come to the possession of AO, validating the initiation of reassessment proceedings. 6.3.5 The assessee has also contended that reopening is invalid for mere change of opinion. In respect of such contentions and reliance placed by the assessee it is stated that for existence of the fact of change of opinion there has to be formation of opinion at the first place by the AO during the original assessment proceedings. As has been discussed hereinabove, the assessee had failed to disclose truly and fully all material facts in respect of not offering gain of Rs.76.08 crores on account of hedging as also in respect of claim of expenditure of Rs.647,60,472/- in respect of PV 1500 project the question of formation of opinion by the AO cannot not arise. Therefore by natural corollary it would be the case that the AO during the original proceedings did not have an occasion to form an opinion. 6.3.6 The appellant has also contended that despite their request to provide a copy of satisfaction recorded by the Commissioner in respect of reopening of the assessment, the same has not been provided till date. In regard to such submission of the assessee it is stated that the AO in the assessment order has clearly mentioned that approval of Ld. CIT(LTU), Mumbai was obtained on 27.03.2017 and notice u/s 148 of the Act dated 29.03.217 was issued and served on the assessee on the same day. In these facts there cannot be any reason to doubt the factum of granting of approval by the Ld. CIT(LTU), Mumbai as required u/s 150(1) of the Act. As per the procedure prescribed by the Hon'ble Supreme court in the case of Page | 25 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 GKN Driveshaft India Ltd. VS.ITO (259 ITR 19) what has been prescribed is that the assessee after filing the return in response to notice u/s 148 can ask for reasons for issue of such notice and the AO is obliged to supply such reasons within a reasonable time. Further, thereto the assessee can file his objections against the issue of notice and in such facts, the AO is bound to dispose off the same by passing a speaking order before proceeding the assessment. All these necessary procedural steps as prescribed by the Hon'ble Supreme Court in the aforesaid case has been scrupulously followed by the AO in this case. There is no requirement stipulated in such procedure by the Hon'ble Supreme Court that the satisfaction recorded by the Ld. CIT should also be provided to the assessee by the AO. Accordingly, such submission of the assessee is not found to be of any consequences. 6.3.7 In view of the facts and circumstances of the case and discussion herein above the contentions and submissions of the assessee are not found to be acceptable. The reopening resorted to by the AO by way of issue of notice u/s 148 within the meaning of Sec.147 of the Act is found to be valid and consequent assessment completed u/s143(3) r.w.s. 147 of the Act is found to be good in law. Accordingly, the ground No.1 raised by the assessee is dismissed.” 017. On the merits of the addition of ₹76.08 crores, he decided the issue against assessee as per paragraph no.7.3 as under:- “7.3 I have carefully considered the facts of the caso, discussion of the AO in the assessment order, oral contention and written submission of the assesseo and material available on record. The AO has made the addition observing that the assessco has adopted different accounting principles for different assessment years as per Page | 26 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 its convenience to reduce its profits and consequently, tax liability. Further, quoting the provisions of sec.145(1) the AO has observed that the assessee has not followed regularly employed accounting system in respect of the questioned amount of gain of Rs.76.08 crores. Accordingly, addition has been made. In the submission, the assessee primarily contends that it has followed the accounting standard 30. However, it is seen that the assessee while following AS 30 for F.Y. 2008-09 and F.Y. 2009-10 has despite making similar mentions in the notes forming part of its accounts in the annual report has taken completely contrary positions. For the sake of clarity the concerned note at part 10(b) of schedule 14 of F.Y. 2008- 09 and part 9(b) for the F.Y. 2009-10 are reproduced hereunder :- 1) F.Y. 2008-09 The company has also, during the year, entered into range forward contracts to hedge highly probable forecast transactions, where the export realisations of the company are protected below a minimum pre- determined foreign exchange rate whereas the realisation advantages are available to the company therefrom up to a high pre- determined foreign exchange rate. Though these instruments meet the management's Foreign exchange risk management objectives, they do not meet the test of effectiveness as per the principles of hedge accounting. Hence valuation losses aggregating Rs. 218 million, have been recognised in the profit and loss account. 2) F.Y.2009-10 The company has also entered Into range forward contracts to hedge highly probable forecast Page | 27 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 transactions, where the export realisations of the company are protected below a minimum pre- determined foreign exchange rate whereas the realisation advantages are available to the company therefrom up to a high pre-determined foreign exchange rate. The company does not benefit by rupee depreciating beyond the pre-determined foreign exchange rate. Though these instruments meet the management's Foreign exchange risk management objectives, they do not meet the test of effectiveness as per the principles of hedge accounting. The market value of instruments outstanding at the close of the year indicate a gain aggregating Rs.760.8 million, which as a matter of prudence has not been recognized, as against a loss provided for in the previous year aggregating Rs. 218 million which has not been written back. [Bold for emphasis] From the aforesaid portion of notes, more specifically the bold part, it can be seen that for the precisely similar reasoning and referring to the accounting standard 30, the assessee has taken contrary position to suit his requirement, i.e. in the accounting year 2008-09 to claim the loss of Rs.218 million and in the immediate next year i.e., in the accounting year 2009- 10 to not to offer a gain of Rs.760.8 million. It is further seen from the annual report of the appellant for accounting year 2008-09 that part 10 of schedule 14 deals with changes in the accounting policies. It clearly means that the assessee changed its accounting policies to claim loss arising out of hedging transaction of Rs.218 million. In the immediate next year despite it has gain, it has not offered the same to tax. The Page | 28 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 principle of consistency in the accounting shall warrant that on account of similar facts and underlying transactions, if in the immediately preceding year assessee has claimed loss then on the basis of same prudence it should offer the gain arising to it in the next accounting year to tax, which assessee has not done. This proves that the assessee has followed inconsistent method of accounting, to suit it's needs and reduce the tax liability. As per accounting standard 11, foreign exchange fluctuation gain on account of hedging contract, has to be stated in the final accounts of the assessee on the date of balance sheet on the prevailing exchange rate of currency on that date. It is further stated that if such restatement is on revenue account, then the corresponding gain also would be on revenue account. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Woodward Governer India (P) Ltd. dated 9th April, 2009 (312 ITR 254 SC) 7.3.1 In the submission the assessee has contended that since the AO has not allowed the loss claimed in the assessment year 2009-10 as also in A.Y. 2014-15, treating the same to be notional/ contingent in nature and therefore there should be no addition made in the year under consideration. In regard to such contention of the assessee it is stated that the AO may have taken such a position in the assessment but it is not the case that the assessee has accepted the same. It is submission of the assessee that they have filed appeal against such orders of the AO. What needs to be the case is that the stand of the assessee should not only be consistent from year to year, but also should be in line with the accounting standards and principles enshrined in accounting standards. Further thereto, Page | 29 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 such stand/action of the assessee should also be consistent with the prevailing jurisprudence on the issue. Viewed from this perspective, the treatment given by the appellant towards the gain arising on account of marked to market for the year under consideration, has been not only inconsistent on year to year basis, but also it has not been found to be consistent with the jurisprudence on the issue that the receivables or the transactions have to be restated at the year end and the corresponding gain or loss has to be recognised as revenue or capital, as the case may be in its books of accounts as per the decision of Hon'ble Supreme Court in the case of Woodward Governer (supra). In view of the facts and circumstances of the case and discussion hereinabove, the contentions and submissions of the assessee are not found to be acceptable and are therefore rejected. Ground no. 2 is accordingly dismissed.” 018. With respect to the disallowance of the expenditure of Omega project and PV1500 project, he decided the issue as per paragraph no.8.3 of the appeal against the assessee as under:- “8.3 I have carefully considered the facts of the case, discussion of the AO in the assessment order, oral contention and written submission of the assessee and material available on record. The expenditure in question are of the nature which were incurred by the assessee under Omega Project for development of proto type for relaunching of auto-geared scooters and under the project named PV 1500 for manufacturing four wheeler goods carrier. It is mentioned that the assessee primarily is into the business of two wheeler motor cycles and three wheelers. Neither it manufactures auto geared scooters Page | 30 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 nor four wheelers goods carrier. Therefore, essentially these expenses incurred under omega project as well as PV 1500 project were such which were for the new line of business and would have given rise to the new source of revenue in the hands of the assessee. Viewed from this perspective the expenses would have to be treated as capital in nature. The assessee essentially has contended that these expenses are revenue in nature and allowable u/s 37 of the Act. In regard to such contention of the assessee it is stated that for an expense to be allowable u/s 37 of the Act it should have been incurred only and exclusively for the purpose of business, should not be capital in nature and it should not be even personal in nature. As has been stated hereinabove that the expenses incurred under these projects essentially were for now lines of business for the assessee and thereby new source of revenue for the assessee, therefore, it can't be said that the said expenses have been incurred wholly and exclusively for the existing business of the assessee. Accordingly, neither such expenses have been incurred for the existing business of the assessee nor the same are revenue in nature as any such expenditure are required to be capitalized till any commercial production takes place. The assesse has placed reliance on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Graphite India Ltd. (Supra). In respect of such reliance it is mentioned that the fact in that case were that the assessee incurred expenditure in connection with the exploring the possibility of setting up a petro chemical project which did not materialise. In those facts, the question of coming into existence of new source of revenue or a new line of business itself did not arise. Therefore, the said reliance placed by the assessee is distinguishable on facts. The assessee further placed reliance on the decision of Hon'ble Page | 31 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 Calcutta High Court in the case of Binani Cement Ltd. vs. CIT (Supra) which was in respect of amount written being expenditure on construction/acquisition of new facility. In this case also there was no discussion or issue relating to such construction/acquisition of new facility being for a new line of business of the assessee giving rise to new source of revenue. Accordingly the decision is found to be distinguishable on facts. The appellant has further placed reliance on the decision of the Hon'ble Madras High Court in the case of Chemplast Sanmar Ltd. vs. ACIT (Supra). In that case the Hon'ble High Court has given a finding that despite assessee getting into a new line of business there was unity of control which would be decisive in the matter. In the facts of the assessee's case the same has not been demonstrated that if the new products giving rise to new line of business relating to auto gear scooters or four wheeler goods on commercial basis would have come into existence, then what would have been the holding structure and control over it. In the absence of such facts it cannot be arrived that there could have been unity of control even for those new lines of businesses. Accordingly, the said decision is also considered as distinguishable on facts. The assessee has also placed reliance on the decision in the case of Hon'ble High Court in the case of CIT vs. Woodcraft Products Ltd. (Supra). The assessee in that case was in the business of manufacturing and selling plywood and was exploring the possibility of expanding a portion of business by setting up a saw-cum-plywood factory at Kenya which did not materialize. It can be seen from said facts of the case that the expenditure was incurred for expanding the business operation and was in the same line of business as the assessee was earlier also manufacturing and selling ply wood, unlike the case of the assessee where separate line Page | 32 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 of business giving rise to separate source of revenue would have come into existence. The appellant has further placed reliance on the decision of Hon'ble Mumbai Tribunal In the case of Lawkim Ltd. vs. CIT (Supra). In the facts of this case, the assessee was engaged in the business of manufacture of electrical motors for refrigeration, air- conditioning and home appliances. The assessed therefore proposed to manufacture bypass motors to be used in wet and dry vacuum cleaners which was contemplated to be manufactured in future but were not manufactured. The project was abandoned. In that case, the Hon'ble Tribunal held that assessee was already producing motors for home appliances for other well known companies and was venturing into production of vacuum cleaners was nothing but expansion of existing business. It is based on these findings of facts that the expenditure was allowed as deductible. As has been mentioned herein above, In the case of the assessee the expenditure is such which would have gone for new line of business of the assessee giving rise to new sources of revenue and further thereto the expenses incurred on the same projects in the earlier years by the assessee, were capitalized by the assessee itself and therefore, there was no reasons as to why these should be allowed as revenue in nature. Lastly, the assessee has placed reliance on the decision of Excel Industries Ld. Vs. DCIT (Supra) wherein the assessee had written off advance given to its joint venture company promoted with the intention of creating manufacturing facilities to produce phosphorus and its compounds. The Hon'ble Tribunal placing reliance on the decision of Hon'ble Delhi High Court in the case of Indo Rama Synthetics (1) Ltd., allowed the expenditure as they were incurred for payment of salary, wages and other administrative expenses which were revenue in nature. However, facts in Page | 33 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 the instant case are different. The expenditure incurred are mix of material and components, drawing and design, tool development charges, technical consultancy etc. including some expenses incurred for labour and travelling. Accordingly, facts in this case are distinguishable. It is further stated that the assessee in their submission but for quoting the aforesaid case laws and extracting the some portion of decisions, have in no way discussed them as to how these case laws are applicable to the facts of the assessee's case. Under the facts and circumstances of the case, and in view of the discussion here in above, the contentions/submissions of the assessee are not found to be acceptable and are therefore rejected. This ground of appeal is accordingly dismissed.” 019. With respect to the foreign tax credit of ₹28,89,364/-, the same was already allowed by the learned Assessing Officer. Hence, it is dismissed. 020. With respect to the short grant of credit of TDS he directed the learned Assessing Officer to verify and grant the same. 021. Thus, appellate order resulted in to upholding reopening of assessment and charging of mark to market gain as income and disallowance of project expenditure. 022. Assessee aggrieved with the appellate order has preferred the appeal before us. 023. The learned Authorized Representative challenging the reopening of the assessment has categorically stated that the reopening made by the learned Assessing Officer is not valid for the reason that assessee during the course of assessment proceedings has made full and true disclosure. Page | 34 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 i. With respect to the first issue of taxability of ₹76.08 crores, he referred to the annual accounts of the assessee company and submitted that at page no.30 note no.9 (b), clearly disclose the complete facts of the case, he further referred that the amount of ₹218 million which has now written back are credited in the profit and loss account as valuation loss of derivative hedging instrument as exceptional items. He further referred to page no.35 of the paper book to show the statement of significant account policies at point no.7(d)(iii) clearly describes that what treatment is required to be given to such gains. He referred to the original assessment order dated 18 th April, 2013, and referred to paragraph no.4, wherein the addition of 218 million, was made holding it to be contingent and not allowable. He further referred to page no.37 of the Paper Book for the impugned assessment year and submits that the computation of total income made by the learned Assessing Officer starts with the total income as per return of income of ₹2,054 crores and in such computation has already taken care of all the disallowance. He further referred to the notice issued under Section 142(1) of the Act dated 1 st July, 2013, wherein in paragraph no.16, the allowability of foreign exchange loss was questioned, which was replied by letter dated 19 th September, 2013, wherein note on allowability of foreign exchange loss was explained. He referred to page no. 130, wherein such explanation was given. He therefore, submits that with respect to the foreign exchange gain, the complete details were available and full and true disclosure was made. ii. With respect to the second addition, he referred to page no.116 of the Paper Book which is part of the notice dated 1 st July, 2013, wherein as per paragraph no.45, Page | 35 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 details of miscellaneous expenses was asked. He referred to page no. 117, wherein as per annexure 9, details of miscellaneous receipt were shown. He further referred to page no.119, wherein Omega Project Development Expenditure of ₹1.77 crores and PV1500 project advances written off ₹6.47 crores were disclosed. He further referred to letter dated 16 th December 2013, wherein a note on allowability of ₹6.47 crores of advances written off on PV1500 project was explained. Such explanation was placed at page no.123 and 124. Therefore, he submits that the assessee has disclosed fully and truly complete facts about this issue. iii. He submits that as the learned Assessing Officer was satisfied about the claim, there is no disallowance made in the assessment order and therefore, there is also a change of opinion. iv. He further referred to the copy of the reasons recorded at page no.72 of the Paper Book and the objections raised against the reopening placed at page no.74 of the Paper Book stating that there is no new credible evidence available in form of tangible material for reopening of the assessment. v. He further submitted that reopening has been made merely on the basis of change of opinion. He submits that it is reappraisal of note at schedule 14. vi. He further referred to the decision of Hon'ble Bombay High Court in case of paragraph number 20 of Hindustan lever Ltd 2004 (268 ITR 332) (Bombay), paragraph number 8t – 11 of the decision of the honourable High Court in case of sesa Goa Ltd (2007) 294 ITR 101 and Ananta landmark private limited versus Deputy Commissioner Of Income Tax in Page | 36 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 writ petition number 2814 of 2019 dated 14 September 2021. The decision of the honourable Bombay High Court in case of 439 ITR 284 (Bombay) dated 30/9/2021 was also relied upon. vii. The learned authorized representative also referred to the factual paper book containing 147 pages and a case law compilation where 6 case laws were listed down. 024. The learned departmental representative vehemently submitted that impugned assessment year is 2010 – 11 and the reopening has been made by issue of notice under section 148 of the act on 29/3/2017. Therefore, naturally the notice is issued beyond four years from the end of the assessment year in which the income was first assessed. Therefore, in such circumstances when the income is originally assessed by order under section 143 (3) on 25/2/2014, only based on the failure on part of the assessee to fully and truly disclose the material facts with respect to the computation of total income reopening can be made. He specifically referred that in the reasons recorded the learned assessing officer in paragraph number 4 has categorically held that there is a failure on part of the assessee to disclose fully and truly all material facts necessary for its assessment during the year under consideration and considering the new credible information on record for reopening of the assessment. He submitted that in the reason itself it is categorically recorded that on perusal of the annual accounts for assessment year 2009 – 10 the assessee has recognized the valuation loss in such transaction as an expenses whereas for assessment year 2010 – 11 when there is again of ₹ 76.08 crores the assessee has not disclosed the same as its income. The learned assessing officer has also categorically noted that there is a change in the method of accounting employed by the assessee with respect to the disclosure and computation of foreign exchange derivative Page | 37 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 hedging instruments gain or loss. He further referred to the reasons recorded and stated that the assessment proceedings for assessment year 2009 – 10 wherein the assessee has claimed the expenditure but has not offered income for assessment year 2010 – 11 is the reason for reopening on this issue. He further referred to the paragraph number 6.3.1 of the learned CIT – A and submitted that merely production before the assessing officer of the account books or other evidences from which material evidences could, with due diligence, could have been discovered by the assessing officer will not necessarily amount of disclosure within the meaning of the proviso to section 147 of the act. Thereby merely reference to the note cannot be a full and true disclosure. Therefore, there is a failure on part of the assessee to fully and truly disclose for this issue. 025. With respect to the expenses incurred for Omega Project and expenses incurred in connection with the PV 1500 project he referred to paragraph number 6.3.3 of the order of learned CIT – A. He specifically submitted that there is no reason whatsoever or correlation was submitted by the assessee as to why the expenses written off during the year to the extent of ₹ 6.47 crores were claimed on the project and why they had not been claimed the expenditure done on the same project in the earlier years totalling to ₹ 15.41 crores. Therefore lack of proper explanation and correlation of the claim during the year with reference to the expenses incurred on the same project in earlier years have given rise to the situation where material facts necessary for assessment were not fully and truly disclose by the assessee. 026. With respect to the tangible material he referred to paragraph number 6.3.4 of the order of the learned CIT – A he specifically stated that that the issue of tangible material will come into play only when the assessee has fully and truly Page | 38 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 disclose all the facts material for the computation of total income. Even failure to disclose fully and truly falls within the ambit of new tangible material. 027. With respect to the argument of the change of opinion, he submitted that when the assessee has not offered any information with respect to the gain of ₹ 76.08 crore on account of hedging, there cannot be any opinion of the assessing officer during the course of original assessment proceedings. 028. Therefore, he supported the orders of the learned lower authorities on the issue of reopening of the assessment. 029. We have carefully considered the rival contention and perused the orders of the lower authorities. We have also considered the several judicial precedents relied upon by both the sides. Facts, at the cost of repetition, shows that the original return filed by the assessee on 13/10/2010 was assessed under section 143 (3) of the Act on 25/2/2014. The impugned assessment year is assessment year 2010 – 11. The reopening notice was issued under section 148 of The Income Tax Act on 29/3/2017. Therefore, naturally the reopening has been made after four years from the end of the assessment year but before six years. Therefore as per the first proviso to section 147 of the act, reopening could be done only if the assessee has failed to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1 also provides that production before the assessing officer of account books or other evidences from which material evidences could with due diligence have been discovered by the assessing officer will not necessarily amount to disclosure within the meaning of the above proviso. However, it is mandatory that for reopening of the assessment, the assessing officer must be in possession of a ‘tangible material’. Such is Page | 39 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 the requirement for reopening of the assessment whether within four years or within six years from the end of the assessment year. 030. For the first issue of reopening with respect to the not including the valuation difference in derivative hedging instrument amounting to ₹ 76.08 crores, the learned assessing officer has mentioned that it was found from the assessee’s profit and loss account that in the immediately preceding year i.e. assessment year 2009 – 10, the assessee has recognized the valuation loss on such transaction as an expenses. He also referred to schedule 14 in note number 9 (b) to the annual report of the assessee and the profit and loss account. The assessment for the impugned assessment year [AY 2010-11] under section 143 (3) was passed on 25/2/2014. The assessment for assessment year 2009 – 10 has been passed on 18 th /4/2013. Therefore, it is apparent that assessment for assessment year 2009 – 10 was already concluded when the assessment for assessment year 2010 – 11 was pending. 031. Honourable Supreme Court in New Delhi television Ltd versus Deputy Commissioner Of Income Tax (2020) 424 ITR 607 has categorically held that subsequent facts which come to the knowledge of the assessing officer can be taken into account to decide whether or not the assessment proceedings should be reopened. Thus, the information which comes to the notice of the assessing officer during the assessment proceedings for subsequent assessment year can definitely form tangible material with the assessing officer under section 147 of the act. 032. However the facts here shows that that the learned assessing officer is referring to the financial statements of assessment year 2009 – 10 which is already been assessed prior to the Page | 40 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 assessment in the case of the assessee for the impugned assessment year. Therefore we do not find any tangible material coming into the possession of the assessee after the completion of the assessment under section 143 (3) of the act for assessment year 2010 – 11. 033. It is in fact the reappraisal of the original material available before the assessing officer at the time of original assessment used by him for reopening of the assessment. There is no subsequent facts coming to the knowledge of the dl AO. 034. Honourable Supreme court in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd. MANU/SC/0047/2010 : 2010 (1) SCR 768 has held that after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. It is therefore, clear that the basis for a valid re-opening of assessment should be availability of tangible material, which can lead the AO to scrutinize the returns for the previous assessment year in question, to determine, whether a notice Under Section 147 is called for. Further, on careful reading of the above decision of Honourable supreme court and in Case New Delhi television limited, it is clear that such tangible material should come into the knowledge of the assessee only after completion of the original assessment proceedings; otherwise it would amount to reappraisal of the same material which was available with the assessing officer at the time of passing of the original assessment order. In the present case the assessment year 2009 – 10 was already completed by the assessing officer before completion of the assessment for assessment year 2010 – 11. The information of assessment year 2009 – 10 was already available before the assessing officer. Therefore, in the reasons recorded when the learned assessing officer has categorically stated that there is a difference in the treatment Page | 41 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 for assessment year 2009 – 10 and assessment year 2010 – 11, it was known to him at the time of making of the original assessment. Therefore, we do not find that there is any tangible material coming into the possession of the ld AO after completion of the original assessment year, which can lead to the reopening of the assessment with respect to changing the method of accounting for not including the valuation difference in derivative hedging instrument amounting to ₹ 76.08 crores. Therefore, the reopening is not valid on the first issue. 035. With respect to the second issue the claim of the learned assessing officer at the time of recording of the reason that that the expenditure of ₹ 8.25 crores of make-up project NPV 1500 project are capital loss on account of capital expenses incurred and subsequently return of on account of non- commencement of the project. In the original computation of income, assessee himself has disallowed a sum of ₹ 16.26 crores and therefore there is no reason to differentiate between those expenses and these expenses. Therefore, same are not allowable and therefore the reasons were recorded to reopen the assessment. On reading the reasons for this item, we do not find that the learned assessing officer has discussed any tangible material in possession of the learned AO for reopening of the assessment. It is clearly reappraisal of pre existing material available with him at the time of original assessment. 036. As on both these issues of reopening, we do not find that there is any tangible material in possession of the assessing officer, which has come to his knowledge subsequent to the passing of the assessment order, we do not find that the reopening of the assessment is sustainable. 037. Even the learned CIT – A has also categorically stated that mere failure to disclose fully and truly on part of the assessee Page | 42 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 becomes a tangible material, which gives the authority to the learned assessing officer to reopen the assessment. We failed to agree with the same for the simple reason that tangible material is required for reopening of the assessment irrespective of the time line of 4 years or 6 years. Thus, on the second issue of disallowance of expenditure whether capital revenue, the learned assessing officer has reappraised the same evidences, which were available before him at the time of originally assessing the income of the assessee. Therefore, we do not find any reason to uphold the order of the learned CIT – A to this extent. 038. In the result we find that in absence of tangible material, the reopening of assessment cannot be made. Accordingly, ground numbers 1 – 4 of the appeal of the assessee are allowed. 039. In view of our above decision with respect to the reopening of the assessment, ground numbers 5 – 20 are not required to be adjudicated. 040. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 23.11. 2023. Sd/- Sd/- (MS. KAVITHA RAJAGOPAL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 23.11. 2023 Sudip Sarkar, Sr.PS/ Dragon Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, Page | 43 ITA No.3949/Mum/2019 Bajaj Auto Ltd; A.Y. 2010-11 True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai