M/S WF ASIAN SMALLER COMPANIES FUND LIMITED, MUMBAI V. THE ASSISTANT COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION CIRCLE 4(3)(2), MUMBAI

ITA 459/MUM/2023

AI Insights

The case involves M/s. WF Asian Smaller Companies Fund Ltd, which appealed against the order of the AO reopening their assessment for AY 2013-14 under section 147 read with section 144C(13) of the Income Tax Act, 1961. The AO had reopened the assessment citing non-setting off of a brought forward long-term capital loss against the current year's long-term capital gains, which led to an alleged escapement of income. The Tribunal examined whether the reopening was justified and whether the additional conditions for reopening after four years were met. The Tribunal concluded that the AO's action constituted a 'change of opinion' and was not permissible under the law, leading to the quashing of the reopening notice.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299553 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 27-03-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 15-02-2023
• Other Referred Cases: Bharti Infratel Ltd Vs. DCIT, DCIT/ACIT Vs. Financial Software and System (P.) Ltd, JCIT Vs. Cognizant Technology Solutions India (P.) Ltd, Nomura India Investment Fund Mother Fund Vs. Addl. DIT (IT) Range-4, Mumbai, Raptakos Brett & Co. Ltd. vs. DCIT, United Investments vs. ACIT, ACIT vs. Shri Somnath Vaijanath Sakre, CIT vs. Hariprasad & Company Pvt. Ltd., Hindustan Lever Ltd. vs. ACIT, Kelvinator of India Ltd. vs. CIT, Usha International Ltd. vs. CIT, Royal Turf Club vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DEEPAK CHOPRAANKUL GOYAL
• Keywords: Reopening of assessment; Capital asset; Depreciation; Transfer pricing; International transaction; Earning of tax free income; Cost of acquisition; Difference of opinion; Reason to believe; Change of opinion; Capital Gains
• Section: 147; 148; 263; 139; 143(3); 244A; 2(14); 142(1); 143(2); 48; 73; 72; 13; 153; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI S. RIFAUR RAHMAN, AM आयकर अपील सं/ I.T.A. No.459/Mum/2023 (निर्धारण वर्ा / Assessment Years: 2013-14) M/s. WF Asian Smaller Companies Fund Ltd C/o Ankul Goyal, AZB & Partners A8, Sector-4, Noida 201301. बिधम/ Vs. ACIT, Circle-4(3)(2) Room No. 1611, 16 th Floor, Air India Building, Nariman Point, Mumbai- 400021. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AAACW5648R (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 28/03/2023 घोषणा की तारीख /Date of Pronouncement: 23/06/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order passed by the AO dated 19.01.2023 u/s 147 r.w.s 144C(13) of the Income Tax Act, 1961 (hereinafter “the Act”) pursuant to the direction issued by the Ld. Dispute Resolution Panel (DRP) for AY. 2013-14. 2. The assessee has raised the legal issue challenging the action of the AO to have reopened the original-scrutiny-assessment u/s 143(3) of the Act, after four (4) years [from the end of the relevant assessment year] without satisfying the additional condition precedent as prescribed in the proviso to Section 147(1) of the Act. Since the assessee has raised the legal issue assailing the jurisdiction of AO to have issued notice u/s 148 of the Act, proposing re-opening of the original assessment [framed under scrutiny under section 143(3) of the Act], we will adjudicate it first. For appreciating the legal issue, let us Assessee by: Shri Deepak Chopra/Ankul Goyal Revenue by: Shri Soumedu Kumar Dash (Sr. DR) ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 2 have a look at section 147 of the Act and the relevant section reads as under: - “147. Income escaping assessment. — If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Explanation 1.—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 foregoing proviso. ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 3 Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but— (i) income chargeable to tax has been under assessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income- tax authority, under sub-section (2) of section 133C, it is noticed ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 4 by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (d) where a person is found to have any asset (including financial interest in any entity) located outside India.” 3. The Ld. Counsel for Assessee, Shri Deepak Chopra has assailed the action of AO to have re-opened the original scrutiny assessment order inter-alia mainly on the grounds of viz (i) ‘change of opinion’ and (ii) on non-satisfaction of pre-condition contemplated in proviso to Section 147 of the Act. According to Ld. Counsel, it is well settled that AO can re-open an assessment only if he satisfies the essential conditions prescribed in section 147 of the Act, and then only he can assume jurisdiction to re-open an assessment by issue of notice u/s 148 of the Act. And according to him, in order to usurp jurisdiction AO must first of all have “reason to believe that income of assessee has escaped assessment,’’ which he must record before issue of notice u/s 148 of the Act. According to him, the expression “reasons to believe” postulates a foundation based on information and belief based on reason. After a foundation based on information, is made, there, still, must be some reason which should warrant holding of a belief that income chargeable to tax has escaped assessment. According to him, the expression “reasons to believe” is stronger than the words “is satisfied”. And according to him, it must be borne in mind that the belief entertained by AO must not be whimsical, arbitrary or irrational. ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 5 It must be reasonable; and the reasons must be based on relevant material. And the Ld Counsel fairly agreed that even though the courts/Tribunal, cannot investigate into the adequacy or sufficiency of the reason which have weighed with the AO in arriving at his belief, but the court/Tribunal can certainty examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice u/s 148 of the Act. And according to him, if there is no rational and intelligible nexus between the reasons and the belief, so that on such reason, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the AO could not have reason to believe that any part of the assessee’s income had escaped assessment. Further according to Ld. Counsel, if an assessment has already been scrutinized/framed u/s 143(3) of the Act for an assessment year, and if the AO proposes to reopen the same after the expiry of four (4) years from the end of the relevant assessment year, then an additional condition precedent has to be satisfied as per the first proviso to Section 147 of the Act i.e. only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment which caused the escapement of income; and this proviso need to be satisfied in the facts of the present case before AO could have re-opened the assessment. According to him, in the present case, the original assessment u/s 143(3) of the Act was framed by the AO on 23.02.2016; and four years had expired from the end of the relevant assessment year when the AO sought to reopen the ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 6 assessment of the assessee by issue of impugned notice u/s 148 of the Act dated 16.02.2021. Therefore, according to him, in the instant case, the first proviso to Section 147 of the Act needs to be satisfied before the AO successfully assumes jurisdiction to re-open and then re-assess the assessment year i.e. AY. 2013-14. The Ld. Counsel pointed out that the issue on which the AO had sought to reopen the assessment had been disclosed fully and truly in the return of income; and moreover, it has already been queried/inquired by the AO during the original assessment and the assessee has replied along with supporting documents, therefore according to him, question of any failure on the part of the assessee not to have disclosed fully and truly all relevant material regarding the issue on which the present AO proposed to re- open the assessment doesn’t arise. And therefore, according to Ld. Counsel, the first proviso to Section 147 of the Act having not been satisfied, the AO could not have validly reopened the assessment. However, according to Ld Counsel, even though the aforesaid facts and law was brought to the notice of AO while objecting to the re- opening, he rejected the same mainly on the specious plea that in the original assessment framed u/s 143(3) of the Act dated 23.03.2016, this issue was not discussed in it and he took the aid of Explanation-2 (c) (iv) of Section 147 of the Act to justify re-opening of assessment. The Ld. Counsel has brought to our notice the law clarified by the Hon’ble Delhi High Court in the case of Bharti Infratel Ltd Vs. DCIT (2019) 101 taxmann.com 285 (Del) albeit regarding applicability of Explanation-1 to proviso to section 147 of the Act, which came up ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 7 before their Lordship Hon’ble Justice Sanjiv Khanna (when his Lordship was at that time) explained the law regarding this issue as under: - “13. For the purpose of examining two contentions, we are primarily concerned with the main section, the proviso and Explanation 1. Proviso comes into operation when there is already an earlier assessment under Section 143(3), i.e., the Assessing Officer has earlier scrutinized and applied his mind on the return of income filed, the material facts stated therein, documents produced and the relevant facts ascertained and examined to pass the assessment order. Proviso stipulates that if re-assessment is initiated after expiry of four assessment years from the date of the relevant assessment year, an additional requirement in the form of satisfaction of one of the three preconditions; failure to file return under Section 139; failure to respond to notice under Section 142(1) or 148; or failure to disclose fully and truly material facts necessary for assessment, must be satisfied. First Explanation states that mere production of account books or other evidence before the Assessing Officer from which material evidence could have been discovered with due diligence by the Assessing Officer would not necessarily amount to disclosure within the meaning of the proviso. We would elaborate and discuss the effect of the Explanation 1 with the proviso. 14. Explanation 1 and proviso to Section 147 have to be interpreted harmoniously and are not to be treated as ante-thesis, to ensure that both the proviso and the Explanation 1 are applied and given effect to without negating or nullifying one of them and making one override the other. Proviso clearly states that no ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 8 action under Section 147 will be taken by the Assessing Officer unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee (i) to file a return under Section 139, (ii) to respond to notice under Section 142(1) or 148 and (iii) failure to disclose fully and truly material facts necessary for assessment for that year. Emphasis on the third part of proviso is on the assessee's failure to fully and truly disclose all material facts necessary for assessment. Therefore, when the proviso applies, the Assessing Officer must satisfy himself and state that there has been failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment or another jurisdictional preconditions. In absence of failure or lapse to disclose fully and truly all material facts or one of the other pre-conditions, re-opening is impermissible and barred under the statute. In such cases, it does not matter whether the Assessing Officer has applied his mind to the material facts stated, but had failed to draw legal or other factual inferences. Pertinently, the words used in the first Explanation are material evidence and not legal and factual inferences and conclusion predicated on the evidence/material on record. Explanation 1 has limited operation and would apply to cases where the assessee has produced account books or other evidence before the Assessing Officer, but the Assessing Officer had failed to discover 'material evidence' that was available or was inferable but was not examined or considered. In such cases, mere production of account books and other evidence would not necessarily amount to disclosure under the proviso. Such situations would arise in cases where the disclosure of material fact is not direct and apparent, albeit the Assessing Officer on exercise of due diligence could have deduced or ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 9 found out relevant material evidence. The expression 'material facts' refers to primary facts and it is in this context that Explanation 1 has been enacted to protect the interest of the Revenue for earlier judicial pronouncements had held that the assessee's duty to fully and truly disclose material facts would only relate to disclosing primary facts, which would mean and imply full and true disclosure and not duty to indicate or draw attention to factual, legal or other inferences which can be drawn from the primary facts disclosed. It is in this legal background we would have to examine whether or not the petitioner- assessee had disclosed the primary facts, reference to which has been made in the 'reasons to believe'. Secondly, we have to examine, whether this is a case of 'change of opinion', which as recorded above, is a different aspect and jurisdictional requirement for the law relating to reopening under Section 147 of the Act does not permit re-opening on 'change of opinion'. 15. Full Bench of this Court in majority judgment authored by one of us (Sanjiv Khanna, J.) in CIT v. Usha International Ltd. [2012] 348 ITR 485/210 Taxman 188/25 taxmann.com 200 (Delhi)(FB) had drawn distinction between cases where re- opening is done within four years of the end of the assessment year and cases where re-opening is post four years of the end of the assessment year. This distinction was drawn, as earlier Full Bench of this High Court in CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1/123 Taxman 433 (Delhi) and in appeal the Supreme Court of India in CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312/320 ITR 561 had held that re- opening is impermissible on 'change of opinion' and in that context had drawn distinction between disclosure/declaration of 'material fact' by an assessee and legal effect thereof when the ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 10 first proviso and Explanation 1 to Section 147 applies; and the principle of 'change of opinion'; in the following words:— "23. The said observations do not mean that even if the Assessing Officer did not examine a particular subject matter, entry or claim/deduction and therefore had not formed any opinion, it must be presumed that he must have formed an opinion. This is not what was argued by the assessee or held and decided. There cannot be deemed formation of opinion even when the particular subject matter, entry or claim/deduction is not examined. 24. Distinction between disclosure/declaration of material facts made by the assessee and the effect thereof and the principle of change of opinion is apparent and recognized. Failure to make full and true disclosure of material facts is a precondition which should be satisfied if the reopening is after four years of the end of the assessment year. The explanation stipulates that mere production of books of accounts and other documents, from which the Assessing Officer could have with due diligence inferred facts does not amount to full and true disclosure. Thus in cases of reopening after 4 years as per the proviso, conduct of the assessee and disclosures made by him are relevant. However, when the proviso is not applicable, the said precondition is not applicable. This additional requirement is not to be satisfied when re- assessment proceedings are initiated within four years of the end of the assessment year. The sequitor is that when the proviso does not apply, the re-assessment proceedings cannot be declared invalid on the ground that the full and true disclosure of material facts was made. In such cases, re-assessment proceedings can be declared invalid when there is a change of opinion. As a matter of abundant ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 11 caution we clarify that failure to state true and correct facts can vitiate and make the principle of change of opinion inapplicable. This does not require reference to and the proviso is not invoked. The difference is this; when proviso applies the condition stated therein must be satisfied and in other cases it is not a prerequisite or condition precedent but the defence/plea of change of opinion shall not be available and will be rejected. 25. Thus if a subject matter, entry or claim/deduction is not examined by an Assessing Officer, it cannot be presumed that he must have examined the claim/deduction or the entry, and therefore, it is the case of "change of opinion". When at the first instance, in the original assessment proceedings, no opinion is formed, principle of "change of opinion" cannot and does not apply. There is a difference between change of opinion and failure or omission of the Assessing Officer to form an opinion on a subject matter, entry, claim, deduction. When the Assessing Officer fails to examine a subject matter, entry, claim or deduction, he forms no opinion. It is a case of no opinion. 26. In 3i Infotech Ltd. v. Assistant Commissioner of Income Tax [2010] 329 ITR 257 (Bom.) it was observed that producing voluminous record before the Assessing Officer does not absolve the assessee and the assessee cannot be heard to say that if the Assessing Officer were to conduct a further inquiry, he would have come into possession of material evidence with the exercise of due diligence. Assessments can be complex and require examination of several subject matter, claims, entries or deductions. The Assessing Officer inspite of best efforts or intention can miss out and not examine and go into a ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 12 subject matter, claim, entry or deduction. An assessee cannot contend or state that in the reams and plethora of papers, notes and entries, entry, a statement was made, or claim or entry was explained and the principle of better be ware applies. When a subject matter, entry, claim or deduction remains hidden or unexamined by the Assessing Officer, be it for any reason, it is not a case of change of opinion." 4. Further, Shri Deepak Chopra brought to our notice that in the original assessment as afore-stated, the AO had asked specific query regarding the issue on which re-opening of assessment was proposed; and it was pointed out by the Ld. Counsel that the assessee pursuant to the query doing the original assessment had replied to the notice of the AO. Therefore, this tantamount to the AO conducting an inquiry (on the issue which was the basis for reopening) as investigator and forming an opinion as an adjudicator to accept the claim of assessee. Thus, according to him, once an AO during original assessment is satisfied on an issue after conducting enquiry, then any attempt by the new incumbent AO to reopen the very same assessment would tantamount to ‘change of opinion’ as held by the Hon’ble Supreme Court on 22.07.2022 in the case of DCIT/ACIT Vs. Financial Software and System (P.) Ltd reported in (2022) 447 ITR 370 (SC) wherein the Hon’ble Supreme Court has held as under: - “1. The re-opening of the assessment has been set aside by the High Court by specifically observing that the re-assessment proceedings were on change of opinion and after taking into consideration the fact that at the time of original assessment under section 143 of the Income-tax Act, 1961, specific queries were raised which were ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 13 answered by the Assessee and, therefore, thereafter it was not open for the Revenue to re-open the assessment proceedings on the same ground and thereafter when the re-assessment proceedings have been set aside, it cannot be said that the High Court has committed any error. The Special Leave Petition stands dismissed. 2. Pending application(s) shall stand disposed of.” 5. Countering the contention of the AO that since his predecessor AO while framing the original assessment u/s 143(3) of the Act has not discussed anything about this issue (in the assessment order) and it tantamount to forming “no opinion” on the issue, the Ld. Counsel brought to our notice the Hon’ble Supreme Court recent decision in the case of JCIT Vs. Cognizant Technology Solutions India (P.) Ltd. reported (2023) 45 taxmann.com 146 (SC) dated 03.01.2023 wherein the Hon’ble Supreme Court held as under: - “2. In view of the findings recorded by the High Court in re questions raised and answers given, before, the assessment order under section 143(3) of the Income-tax Act, 1961 was passed, we are not inclined to issue notice in the present special leave petition. The assessee has no role to play and is not the author of the assessment order and hence the manner and contents of the assessment order as framed is not determinative whether or not it is a case of change of opinion.” 6. In the light of the aforesaid case laws, Shri Deepak Chopra drew our attention to the reasons recorded by present AO to re-open the assessment which is found placed at page 84-87 of PB and brought to our notice the only issue on which the AO has alleged escapement of income was due to non-setting off of Long Term Capital Loss of Rs.1.94 crores against exempt income i.e, Long Term Capital Gain [LTCG] of Rs.7.39 crores u/s 70(3) of the Act, which according to AO ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 14 have resulted in the assessee claiming Rs 7.39 crores as exempt, whereas if assessee had set-off the earlier year loss of Rs 1.94 crores with this years LTCG, then assessee’s exempt income would have been only Rs.5,44,91,048/- in place of Rs 7.39 crores as claimed and allowed by the predecessor AO. And according to present AO, by non- setting-off of the brought forward Long Term Capital Loss with this year Long Term Capital Gain, has resulted in loss of Rs 1.94 cr being carried forward, which resulted in escapement of income and for finding so has taken the aid of Explanation 2- (c) (iv) to section 147 of the Act. On this issue, the Ld Counsel submitted that the present AO ignored the fact that this issue assessee had disclosed in its return of income viz, all the primary material facts necessary for the assessment on this issue had been disclosed in its return of income for AY. 2013- 14. For that, he drew our attention to page no. 1 of the PB wherein the return of income (ROI) is found placed from page no. 1 to 28 of the PB. The Ld. AR drew our attention to page one (1) and to item no. 1 of the return of income for AY. 2013-14, wherein the gross total income is shown as Rs.23,66,87,411/-. Thereafter, he drew our attention to page no. 21 of the PB wherein Schedule CYLA [i.e. details of income after Set off of current year loss] are disclosed wherein assessee has shown ‘Nil’; and thereafter drew our attention to page no. 22 of the PB wherein Schedule BFLA [i.e. details of income after set off of brought forward losses of earlier years] are disclosed wherein total brought forward loss set off is shown as Rs.3,77,66,337/-; and the current year income remaining after set off is shown Rs.23,66,87,411/-. Thereafter, ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 15 he drew our attention Schedule CFL in the same page 22 of PB wherein the details of losses to be carried forward to future years are disclosed. From a perusal of which at column no. (viii) Short Term Capital Loss (STCL) for AY. 2012-13 of Rs.3,77,66,337/- was carried forward and adjusted in this year as shown in column/item no. (x). And at column/item (xii) total loss carried forward to future year is shown as of Rs.1,94,00,000/-. According to Ld. Counsel on this issue the AO has re-opened the assessment, so according to him, it was disclosed. Thereafter, he drew our attention to page no. 25 of the PB, Schedule EI which is the details of exempt income (Income not to be included in total income) wherein against item no. 3 which is Long Term Capital Gain (LTCG) from transaction on which STT has been paid is shown as Rs.7,38,91,048/- (details of which the Ld. AR drew our attention to page no. 69 of the PB) which is the statement showing computation of total taxable income and tax liability wherein the balance Short Term Capital Loss carried forward is shown ‘nil’ and balance Long Term Capital Loss carried forward is clearly shown as Rs.19,4000,000/-. Thereafter, he drew our attention to the page no. 71 to 72 of the PB which is the “Notes to the computation” wherein on this issue it is disclosed at para no. 5.1 as under: - “4.1. Short-term capital gains During the financial year ended 31 March 2013, investments by WFASCFL in the Indian capital markets have resulted in short- term capital gains of Rs 320,862,607 and short-term capital loss of Rs 47,631,652. Based on the above, the net short-term capital gains for the financial year ended 31 March 2013 amounts to Rs 273,230,955. ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 16 5.1 Long-term capital gains Long-term capital gains amounting to Rs 73,891,048 on transfer of equity shares chargeable to STT have been claimed as exempt from income-tax based on the provisions of section 10(38) of the Act. Brought forward capital losses 5. Section 74 of the Act permits an assessee to carry forward its residuary short-term capital loss and long-term capital loss for set- off purposes for a maximum period of eight subsequent AYS immediately succeeding the AY for which the loss was firs computed. The short-term capital losses brought forward can be set-off against capital gains earned on any capital asset, whereas the long-term capital losses brought forward can be set-off against capital gains earned on any long-term capital asset. 6. WFASCFL has brought forward capital losses as follows: a) Short-term capital loss of Rs 37,766,337 from AY 2012-13; and b)Long-term capital loss of Rs 19,400,000 from AY 2010-11. 7. In accordance with the provisions of section 74, for the current year. WFASCFL has utilised its above short-term capital loss brought forward for setting-off its net short-term capital gains earned during the year amounting to Rs 273,230,955. The residuary short-term capital gains for the year amounting to Rs 235,464,618 has been offered to tax. Losses carried forward to AY 2014-2015 8. A total long-term capital loss amounting to Rs 19,400,000 (brought forward from AY 2010-11) is carried forward to the AY 2014-15, being eligible for set-off against taxable long-term capital gains of subsequent years.” 7. Thus, according to the Ld. AR, it is clearly discernable from the discussion (supra) that assessee had fully and truly disclosed about the issue proposed to be re-opened i.e. carried forward of Long Term ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 17 Capital Loss to the tune of Rs.1,94,00,000/- from AY. 2010-11. Moreover, according to the Ld. AR, the AO had sought the details of the same vide notice dated 06.07.2015 issued u/s 142(1) of the Act which is found placed at page no. 31 to 34 of the PB. And he drew our attention especially to page 32 & 33 of the PB question no. 17, 20, 21, 24, 28 & 30 which are reproduced as under: - “17. Year-wise bifurcation if long term and short term capital losses for the last four years if claimed and carried forward, supported by proof that the same were claimed in the respective years. 20. Give complete details of income from sources other than that of capital gain. 21. Give complete details of income claimed exempt and the basis of claim. 24. Details of set off claimed of B/F losses (if any) with supporting documents. Question no. 28. Details of loss arising out on account of purchase and sale of securities or units (referred to in sections 94(7) & 94(8) of the Act.) Question no. 30. Details of all Capital Gains (short term & long term separately) as per Table below: Date of acquisition Name of the company/Institution Details of purchase Details of sale STCG (Rs.) LTCG (Rs.) Type (equity/units etc.) Qty Cost of acquisitions (Rs.) STT (Rs.) Date of sale Qty Sale value STT 1 2 3 4 5 6 7 8 9 10 11 12 Totals 8. And brought to our notice that the assessee had duly replied to the same vide letter dated 17.07.2015 which is found placed at page no. 35 to 73 of the PB. And the reply to the relevant questions are found placed at page no. 38 which are as under: - ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 18 “13. Point no. 17, Year wise bifurcation of long- term capital losses and short-term capital losses for the last four years if claimed and carried forward and evidencing that the same were claimed in the respective years. The details of brought forward long-term/short-term capital losses from four years immediately preceding the AY 2013-14 are as under:- Particulars Long-term capital losses brought forward (INR) Short-term capital losses brought forward (INR) AY 2009-10 Nil Nil AY 2010-11 19,400,000 Nil AY 2011-12 Nil Nil AY2012-13 Nil 37,766,337 As requested, we have enclosed a copy of the acknowledgement of the return of income filed for AY 2010 11 and AY 2012-13 as Annexure 9 evidencing that the carry forward of losses were filed before the due date prescribed for filing the return of income. We wish to submit that the due date for filing the return of income for AY 2010-11 was extended from 30 September 2010 to 15 October 2010. A copy of the press release evidencing the same is enclosed as Annexure 10. Further, during the year ended 31 March 2013, WFASCF has fully utilised the brought forward short-term capital losses amounting to 37,766,337 against the short-term capital gains earned during the financial year 2012-13. However, the brought forward long-term capital losses amounting to Rs 19,400,000 has not been utilised for setting- off against the long-term capital gains earned during the year ended 31 March 2013. ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 19 14. Point No, 20: Complete details of income from sources other than that of capital gain We wish to submit that WFASCF has earned interest amounting to Rs 1,222,793 (under section 244A of the Act) on income tax refund of Rs 14,349,350 (the refund amount includes interest income of Rs 1,222,793) which has been offered to tax at the rate of 40% plus applicable surcharge and education cess Complete details of income claimed exempt and the basis of claim WFASCF has earned the following exempt income during the financial year ended 31 March 2013: -Long term capital gains amounting to Rs 73,891,048 claimed as exempt under section 10(38) of the Act. Dividend income amounting to Rs 38,953,498 claimed as exempt under section 10(34) read with section 115-0 of the Act. 17. Point no. 24: Details of set off claimed of brought forward losses We wish to submit that the details of set off claimed of brought forward losses has been provided in point 13 above. 19. Point no. 28: Loss arising on account of purchase and sale of securities or unit referred to in section 94(7) and 94(8) of the Act. 20. Point No. 30: Details of capital gains. Details of short term and long term capital gains and losses have been enclosed as Annexure 12.” 9. Thus, according to the Ld. AR, it can be seen that the AO has queried about the Long Term Capital Loss/Short Term Capital Loss ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 20 and carry forward of the same for last four years, which includes that of AY. 2010-11 wherein assessee has carry forwarded Rs 1.94crores. And the assessee has clearly brought to AO’s notice the details asked for and inter-alia about the brought forward capital losses of Rs.19,40,00,000/- from AY. 2010-11 which was not being set off against the capital gain earned for the current year i.e. AY.2013-14 Rs 7.39 Crores. And therefore, according to Ld. Counsel, the present AO’s attempt to re-open the assessment on this issue which was fully disclosed in return of income as well as enquired into by the earlier AO cannot be re-opened after four years from the end of the assessment year. According to him, the present AO erred by justifying his action of re-opening on the ground that the original assessment order is silent about this issue. Since the AO in the original assessment had raised specific query about the carry forward of losses and the assessee had replied to it (supra) and assessee has disclosed about the relevant material facts/primary facts in the return of income the assessee has fully and truly disclosed about the same. And hence, the re-opening after four (4) years from the end of the relevant assessment year is bad in law. 10. Per contra, the Ld. CIT-DR of the Department supported the action of the AO/Ld. DRP and submitted that mere production of the return of income or computation of income could not be sufficient to claim that the assessee had fully and truly disclosed relevant facts necessary for assessment as per Explanation-1 & 2, to the first proviso to Section 147 of the Act. According to the Ld. DR, a perusal of the ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 21 original assessment order would reveal that the AO has not discussed anything about the carry forward of Long Term Capital Loss when assessee was showing huge capital gain as exempt. Therefore, there is escapement of income and the AO rightly re-opened the assessment and framed the re-assessment accordingly. In his rejoinder, the Ld. Counsel for assessee submitted that even on merits the predecessor AO’s action of accepting the assessee’s claim not to adjust the Long Term Capital Loss with the Long Term Capital Gain and hence carried forwarded the Long Term Capital Loss is as per law and in line with the decision of this Tribunal in the case of Nomura India Investment Fund Mother Fund Vs. Addl. DIT (IT) Range-4, Mumbai (ITA. No. 8140/Mum/2010 dated 24.12.2019) wherein similar issue came up for adjudication and the Tribunal took note of the ground no. 2 & 3 which is relevant to the issue at hand; and the facts pertaining to that are as under: - “7. In ground nos. 2 and 3 the assessee has challenged the decision of the departmental authorities in setting off Long term capital loss against Long term capital gain. 8........... 9.......... 10......... 11........ 12. We have considered rival submissions and perused the material on record. We have also carefully applied our mind to the decisions relied upon. The issue arising for consideration is, whether long term capital loss arising on sale of shares can be set off against long term capital gain arising on sale of shares ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 22 claimed to be exempt u/s. 10(38) of the Act. It is the case of the Revenue that the expression “income” as used in section 10(38) of the Act also includes loss. However, on a reading of section 10(38) of the Act, it becomes clear that the exemption in respect of income derived from sale of shares is exempt in a case where STT has been paid. Therefore, it cannot be said that capital gain on sale of shares is generally exempt. Only on fulfillment of certain conditions, gain derived from sale of shares is exempt u/s. 10(38) of the Act. Thus, the income derived from sale of shares is not exempt at the source itself. The aforesaid view has been expressed by ITAT, Mumbai Bench in the case of Raptakos Brett & Co. Ltd. vs. DCIT (supra). The observations of the Bench in this regard is reproduced hereunder for ease of reference: “7. We have heard rival submissions and perused the relevant findings given in the impugned orders. The main issue before us is, whether Long term capital loss on sale of equity shares can be set off against Long term capital gain arising on sale of land or not, as the income from Long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT. First of all, Long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a Long term capital asset. Section 2(14) defines “Capital asset” and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the charging section for any profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 23 not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been enumerated from sections 48 to 55. Further sub section (3) of section 70 and section 71 provides for set off of loss in respect of capital gain. 8. From the conjoint reading and plain understanding of all these sections it can be seen that, firstly, shares in the company are treated as capital asset and no exception has been carved out in section 2(14), for excluding the equity shares and unit of equity oriented funds that they are not treated as capital asset. Secondly, any gains arising from transfer of Long term capital asset is treated as capital gain which is chargeable u/s. 45; thirdly, section 47 does not enlist any such exception that transfer of long term equity shares/funds are not treated as transfer for the purpose of section 45 and section 48 provides for computation of capital gain, which is arrived at after deducting cost of acquisition i.e. cost of any improvement and expenditure incurred in connection with transfer of capital asset, even for arriving of gain in transfer of equity shares; lastly, section 70 & 71 elaborates the mechanism for set off of capital gain. Nowhere, any exception has been made/ carved out with regard to Long term capital gain arising on sale of equity shares. The whole genre of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular “provision” of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 24 entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions. Section 10(38) provides exemption of income only from transfer of Long term equity shares and equity oriented fund and not only that, there are certain conditions stipulated for exempting such income i.e. payment of security transaction tax and whether the transaction on sale of such equity share or unit is entered into on or after the date on which chapter VII of Finance (No.2) Act 2004 comes into force. If such conditions are not fulfilled, then exemption is not given. Thus, the income contemplated in section 10(38) is only a part of the source of capital gain on shares and only a limited portion of source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of Long term capital asset and, further fulfils the conditions mentioned in subsection (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable. Section 10 provides that certain income are not to be included while computing the total income of the assessee and in such a case the profit or loss resulting from such a source of income do not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, the ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 25 income in respect of which is excluded in the computation of total income. For instance, if the assessee has income from Short term capital gain on sale of shares; Long term capital gain on debt funds; and Long term capital gain from sale of equity shares, then while computing the taxable income, the whole of income would be computed in the total income and only the portion of Long term capital gain on sale of equity shares would be removed from the taxable income as the same is exempt u/s 10(38). This precise issue had come up for consideration before the Hon’ble Calcutta High Court in Royal Turf Club, wherein the Hon’ble High Court observed that “under the Income tax Act 1961 there are certain incomes which do not enter into the computation of the total income at all. In computing the total income of a resident assessee, certain incomes are not included under s.10 of the Act. It depends on the particular case; where the Act is made inapplicable to income from a certain source under the scheme of the Act, the profit and loss resulting from such a source will not enter into the computation at all. But there are other sources which, for certain economic reasons, are not included or excluded by the will of the Legislature. In such a case, one must look to the specific exclusion that has been made.” The Hon’ble High Court was besieged with the following question “Whether under s.10(27) read with s.70 of the I.T.Act, 1961, was the assessee entitled to set off the loss on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head “Business” ” Their Lordships after analysing the provisions of section 70 and section 10(27) observed in the following manner: ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 26 “In this case it is important to bear in mind that set-off is being claimed under Section 70 of the 1961 Act which permits set off of any income falling under any head of income other than the capital gain which is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. We have noticed that in the instant case the exclusion has been conceded in computing the business income or the source of income from the head of business and in computing that business income, the loss from one particular source, that is, broodmares account and the pig account, had been excluded contrary to the submission of the assessee. The assessee wanted these losses to be set off. The Revenue contends that as the sources of the income are not to be included in view of the provisions of Clause (27) of s. 10 of the 1961 Act, the loss suffered from this source could also not merit the exclusion. Under the I.T. Act, there are certain incomes which do not enter into the computation of the total income at all. In this connection we have to bear in mind the scheme of the charging section which provides that the incomes shall be charged and s. 4 of the Act provides that the Central Act enacts that the incomes shall be charged for any assessment year and in accordance with and subject to the provisions of the 1961 Act in respect of the total income of the previous year or years or whatever the case may be. The scheme of " total income " has been explained by s. 5 of the Act which provides that subject to the provisions of the Act, the total income of the previous year of a person who is a resident includes all income from whatever source it is derived. In computing the total income, certain incomes are not included under s. 10 of the Act. It depends on the particular case where certain income, in respect of which the ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 27 Act is made inapplicable to the scheme of the Act, and in such a case, the profit and loss resulting from such a source do not enter into the computation at all. But there are other sources which for certain economic reasons are not included or excluded by the will of the Legislature. In such a case we must look to the specific exclusion that has been made. The question is in this case whether s. 10(27) is a source which does not enter into the computation at all or is a source the income in respect of which is excluded in the computation of total income. How this question will have to be viewed, has been looked into by the Supreme Court in several decisions to some of which our attention was drawn.” After discussing the various decisions of the Hon’ble Supreme Court specifically the decision of in the case of Karamchand Premchand (supra), the Hon’ble High Court came to the following conclusion: “cl.(27) of s.10 excludes in express terms only “any income derived from a business of live-stock breeding or poultry or dairy farming. It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. Therefore, the losses suffered by the assessee in the broodmares account and in the pig account were admissible deductions in computing its total income” Thus, the ratio laid down by the Hon’ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case. 9. Now coming to the argument of the learned DR and learned CIT(A) that income includes loss and if income is exempt then loss will also not be taken into computation of the income, and such an argument is with reference to the decision of Hon’ble Supreme Court in the case of CIT vs. Hariprasad & Company ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 28 Pvt. Ltd. (1975) 99 ITR 118. The Hon’ble Supreme Court, opined that, if loss was from the source or head of income not liable to tax or congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer under any obligation to compute or assess it much less for the purpose of carry forward. Further, the Hon’ble Supreme Court observed that "From the charging provisions of the Act, it is discernible that the words ' income ' or ' profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent ' plus income ' whereas losses represent 'minus income'. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6 classifies income under six heads, the main charging provision is Section 3 which levies income-tax, as only one tax, on the 'total income ' of the assessee as defined in Section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the ' total amount of income, profits and gains referred to in Section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." While concluding the issue their Lordships observed that “it may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set- off. Its sole purpose is to set off the loss against the profits of a subsequent year. It pre-supposes the permissibility and possibility of the carried forward loss being absorbed or set off against the profits and gains, if any, of the ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 29 subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such setoff is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be “carried forward”. Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable source.” The ratio and the principle laid down by the Hon’ble Apex Court would not apply here in this case, because the concept of income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon’ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon’ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon’ble Supreme Court and held that the same will not apply in such cases. Thus, in our conclusion, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 30 Long term capital gain on sale of land in accordance with section 70(3).” 13. Following the aforesaid decision of the Mumbai Bench, the Kolkata Bench in the case of United Investments vs. ACIT (supra), and Pune Bench in the case of ACIT vs. Shri Somnath Vaijanath Sakre (supra) have expressed identical views. It is relevant to observe, the decision of the Mumbai Bench of the Tribunal in case of Raptakos Brett & Co. Ltd. vs. DCIT (supra) has attained finality as the appeal preferred by the department against the said decision has been dismissed by the Hon’ble Jurisdictional High Court, though, due to non-prosecution. Therefore, following the consistent view expressed by different Benches of the Tribunal on identical issue, we hold that long term capital loss arising out of sale of shares cannot be set off against long term capital gain from shares subjected to STT and claimed exempt u/s. 10(38) of the Act. Accordingly, we direct the Assessing Officer to allow carry forward of long term capital loss as claimed by the assessee. Ground nos. 2 & 3 raised by the assessee are allowed.” 11. And therefore, according to Ld Adv Shri Deepak Chopra on merits also the action of the AO in the original assessment after investigation on this issue cannot be held to be erroneous. According to the Ld. AR, even if the present AO nurses a different view on the issue [change of opinion], he cannot review the order of his predecessor AO which power he does not enjoy. And according to him, even if, for argument sake if the department wanted to interfere with the action of earlier AO, the only power vested with them is revisional power of Ld. PCIT/CIT u/s 263 of the Act [subject to Ld ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 31 PCIT holding AO’s action erroneous as well as prejudicial to Revenue]. Therefore, the impugned action of the AO to reopen the assessment u/s 147 of the Act itself was null in the eyes of law. And therefore, needs to be quashed. 12. We have heard both the parties and perused the records and we note that in this case the relevant assessment year is AY 2013-14, which had already undergone scrutiny u/s 143(3) of the Act dated 23.02.2016; and the incumbent present AO has reopened the assessment by issuing notice u/s 148 of the Act dated 16.02.2021, which impugned action of the present AO is being assailed by the assessee as bad in law inter-alia for not satisfying the additional condition precedent as provided for in the proviso to section 147 of the Act. Before, we advert to the legal issue raised by the assessee, it would be gainful to re-visit the settled position of law on the issue of reopening especially after four years wherein proviso to section 147 of the Act is applicable. It has to be borne in mind that the concept of assessment is governed by the time-barring rule; and an assessee acquires a right as to the finality of proceedings. Quietus of the completed assessments can be disturbed only when there is information or evidence regarding undisclosed income or AO has information in his possession showing escapement of income as stipulated u/s 147 of the Act. As per Section 147 of the Act, if the AO intends to re-open the assessment, then first of all he has to record the reason to reopen the assessment, wherein he should record the “reason to believe, escapement of income”. It is settled principle of law that ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 32 “reason to believe” postulates a foundation based on information and belief based on reason. After a foundation based on information is there, still, there must be some reason which should warrant the holding of a belief that income chargeable to tax has escaped assessment. In other words, before the AO issues notice u/s 148 of the Act, he must have recorded the reason to believe escapement of income. It is no doubt true that this Tribunal cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the AO on the point as to whether action should be initiated for re-opening the assessment. At the same time, we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant or remote and far-fetched, which would warrant the formation of belief relating to escapement of income. It is well settled in law that reasons as recorded by AO for re-opening the assessment, are to be examined on a stand-alone basis. Neither anything can be added to the reasons so recorded, nor can anything be deleted from the reason so recorded. The Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. (2004) 268 ITR 332 (Bom) has inter alia observed that “......it is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded by him. He has to speak through the reasons”. ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 33 Their Lordship added “The reasons recorded should be self- explanatory and should not keep the assessee guessing for reason. Reason provide link between conclusion and the evidence...”. So as held by the jurisdictional High Court that while examining the jurisdiction of AO to have re-opened the assessment, we have to only consider the reasons recorded by the AO on a stand-alone basis and examine whether he satisfies in the reasons recorded, the condition precedent i.e, reason to believe escapement of income to validly reopen the assessment; and if four (4) years has elapsed from the end of the assessment year then proviso and Explanation-1 comes into play which also need to be satisfied by the AO before successfully usurping the jurisdiction to re-assess the assessee. As pointed out by the Ld. Counsel for assessee, his Lorship Justice Sanjiv Khanna (as his Lordship was then) has explained the legal principles about it in the case of Bharti Infratel Ltd. (supra) wherein the Lordship observed ‘..... Proviso comes into operation when there is already an earlier assessment under Section 143(3), i.e., the Assessing Officer has earlier scrutinized and applied his mind on the return of income filed, the material facts stated therein, documents produced and the relevant facts ascertained and examined to pass the assessment order. Proviso stipulates that if re-assessment is initiated after expiry of four assessment years from the date of the relevant assessment year, an additional requirement in the form of satisfaction of one of the three preconditions; ...............or failure to disclose fully and truly ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 34 material facts necessary for assessment, must be satisfied. First Explanation states that mere production of account books or other evidence before the Assessing Officer from which material evidence could have been discovered with due diligence by the Assessing Officer would not necessarily amount to disclosure within the meaning of the proviso. We would elaborate and discuss the effect of the Explanation 1 with the proviso. Explanation 1 and proviso to Section 147 have to be interpreted harmoniously and are not to be treated as ante-thesis, to ensure that both the proviso and the Explanation 1 are applied and given effect to without negating or nullifying one of them and making one override the other. Proviso clearly states that no action under Section 147 will be taken by the Assessing Officer unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee (i) to file a return under Section 139, (ii) to respond to notice under Section 142(1) or 148 and (iii) failure to disclose fully and truly material facts necessary for assessment for that year. Emphasis on the third part of proviso is on the assessee's failure to fully and truly disclose all material facts necessary for assessment. Therefore, when the proviso applies, the Assessing Officer must satisfy himself and state that there has been failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment or another jurisdictional preconditions. In absence of failure or lapse to disclose fully and truly all material facts or one of the other pre-conditions, re-opening is impermissible and barred under the statute. In such cases, it does not ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 35 matter whether the Assessing Officer has applied his mind to the material facts stated, but had failed to draw legal or other factual inferences. Pertinently, the words used in the first Explanation are material evidence and not legal and factual inferences and conclusion predicated on the evidence/material on record. Explanation 1 has limited operation and would apply to cases where the assessee has produced account books or other evidence before the Assessing Officer, but the Assessing Officer had failed to discover 'material evidence' that was available or was inferable but was not examined or considered. In such cases, mere production of account books and other evidence would not necessarily amount to disclosure under the proviso. Such situations would arise in cases where the disclosure of material fact is not direct and apparent, albeit the Assessing Officer on exercise of due diligence could have deduced or found out relevant material evidence. The expression 'material facts' refers to primary facts and it is in this context that Explanation 1 has been enacted to protect the interest of the Revenue for earlier judicial pronouncements had held that the assessee's duty to fully and truly disclose material facts would only relate to disclosing primary facts, which would mean and imply full and true disclosure and not duty to indicate or draw attention to factual, legal or other inferences which can be drawn from the primary facts disclosed. It is in this legal background we would have to examine whether or not the petitioner-assessee had disclosed the primary facts, reference to which has been made in the 'reasons to believe'. Secondly, we have to examine, whether this is a ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 36 case of 'change of opinion', which as recorded above, is a different aspect and jurisdictional requirement for the law relating to reopening under Section 147 of the Act does not permit re-opening on 'change of opinion'.’’ 13. In the light of the aforesaid legal principle, we need to examine as to whether there is merit in the contention of the Ld. Counsel Shri Deepak Chopra that the AO could not have issued notice u/s 148 of the Act after four (4) years without satisfying the additional condition precedent as specified under the proviso to section 147 of the Act. For examining the same, we may look at the reasons recorded by the AO for reopening of the assessment for AY. 2013-14 dated 16.02.2021 which reads as under: - “Reasons for reopening of the assessment in case of M/s. WF Asian Smaller Companies Fund Ltd. For AY. 2013-14 us/ 147 of the Income Tax Act. 1. The assessee is a foreign Company. The assessee has filed its return of Income for AY 2013-14 on 30.09.2013 declaring total income at Rs.23,66,87,410/-. The case was selected for scrutiny by issue notice u/s 143(2) of the Act dt. 05.09.2014. The assessment u/s 143(3) of the IT Act, 1961 has been completed on 23.02.2016 accepting the returned income at Rs.23,66,87,410. 2. During the year under consideration, the assessee has earned short term capital gains, long term capital gains and dividend Income. The assessee has also both brought forward short term capital loss and long term capital loss. It is seen that, whereas the assessee has set off the brought forward short term capital loss against the current year short term capital gains, the long term capital loss has not been set off against the current year ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 37 long term capital gains. The long term capital gains of the current year has been claimed exempt u/s 10(38) of the Act instead of being set off against the brought forward loss. 3. It is seen that first of all the brought forward long term capital loss of Rs.1,94,00,000/- ought to have been set off against the long term capital gains of Rs.7,38,91,048/- u/s 70(3) of the Act and the balance long term capital gains of Rs.5,44,91,048/- would have been treated as exempt u/s 10(38) of the Act. There would be no carry forward of the long term capital loss of Rs.1,94,00,000/-. However, it is seen that the assessee has claimed the entire current year long term capital gains as exempt u/s 10(38) of the Act and the brought forward long term capital loss of Rs.1,94,00,000/- has further been claimed as carried forward. This has resulted in excessive loss allowance under the Act within the meaning of Explanation 2. -(c) (iv) to section 147 of the Act. 4. Thus, the case of the assessee is deemed to be a case where income chargeable to tax has escaped assessment as per the provisions of Explanation 2 to section 147 of the Act. 5. Therefore, I have reason to believe that there is allowance of excess loss of Rs.1,94,00,000/- which constitute escapement of income chargeable to tax by reason of the failure on the part of the assessee to disclose fully and truly all material facts. The assessment being sought to be reopened falls beyond the period of four years from the end of the assessment year and the income escaping assessment is more than Rs.1 lakhs. Given the above narrated facts of the case, it is a fit case for issue of notice u/s.148 r.w.s.147 of the 1.T. Act for the A.Y.2013-14. ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 38 14. From a perusal of the aforesaid reasons recorded by the AO to justify the reopening of the assessment for AY 2013-14, it is noted that only issue which according to the AO has resulted escapement of income was due to non-setting off of brought forward Long Term Capital Loss of Rs.1.94 crores against Long Term Capital Gain of Rs.7.39 crores earned by assessee in the year u/s 70(3) of the Act, which omission on the part of assessee according to AO have resulted in the assessee claiming higher exempt income to the tune of Rs.7.39 crores whereas assessee could have claimed only exempt income of Rs.5,44,91,048/-. And by assessee’s omission of non-setting off the brought forward Long Term Capital Loss with this year Long Term Capital Gain has resulted in excessive loss being allowed. And for arriving at such a conclusion that income of assessee has escaped assessment, AO has taken the aid of Explanation 2- (c) (iv) to section 147 of the Act. On the strength of this reason recorded, AO thereafter issued notice u/s 148 of the Act intimating his desire to re-open the assessment. So we have to examine the “reasons recorded” by AO on a stand-alone basis to see whether AO has satisfied the pre-conditions required to successfully assume the jurisdiction to re-open escaped income. First condition precedent is that whether AO has “reason to believe escapement of income” and since the relevant assessment year has already undergone scrutiny assessment us/ 143(3) of the Act, and four (4) years has lapsed, the additional-condition need to be also satisfied ie. assessee failed to fully and truly disclose material facts necessary for assessment (in this case as noted original scrutiny ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 39 assessment u/s 143(3) of the Act was framed on 23.02.2016; and the issuance of notice u/s 148 of the Act dated 16.02.2021, i.e. after four years from the end of the assessment year). 15. According to assessee, the issue of brought-forward losses of Rs.1.94 crores pertaining to AY. 2010-11 was fully and truly disclosed in the Return of Income as well as the notes Tax Audit Report and also the issue had been enquired by the AO during the original assessment proceedings wherein after going through the reply of the assessee, the predecessor AO has accepted the action of assessee [wherein assessee has not set-off the brought forward loss of Rs.1.94 cr (of AY 2010-11) with the Long Term Capital Gain of Rs.7.39 cr (of current year which assessee claimed as exempt) as well as carried-forward loss of Rs.1.94 cr to subsequent year. To appreciate this contention of assessee, we have examined the return of income filed by assesses and find that in its return of income, assessee has clearly shown that the brought forward Long Term Capital Loss for the earlier year AY 2010-11 (Rs 1.94crores) is not being set off with the this years Long Term Capital Gain of Rs.7,38,91,048/- which facts we have discussed in detail at paragraph 6 & 8, ( refer, which is not repeated for the sake of brevity) wherein we find that assessee had clearly shown not to have set-off the brought forward loss of Rs.1.94 cr (of AY 2010-11) with the Long Term Capital Gain of Rs.7.39 cr (of current year which assessee claimed as exempt) and instead carried-forward loss of Rs.1.94 cr of AY 2010-11 to subsequent year. ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 40 16. Thus, we find that the assessee had disclosed in its return of income the material facts/relevant facts/primary facts on the issue of set off of brought forward Long Term Capital Loss of Rs 1.94 crs with this years Long Term Capital Gain of Rs 7.39 crs. Further, we find that the AO during the original assessment proceedings which culminated in the assessment order u/s 143(3) of the Act dated 23.02.2016, had inquired about issue which is discernable from the detailed queries raised in the notice dated 06.07.2015 u/s 142(1) of the Act (supra) as well as the reply given by the assessee on 17.07.2015 (supra) which we have reproduced and discussed in detail at paragraph 7 & 8 ( refer, which is not repeated for the sake of brevity), wherein we find that earlier AO had enquired about this issue and assessee had replied to it as noted supra. Thus we find that AO in-fact had enquired about the issue of (setting off of brought forward LTCL with this years LTCG and assessee carry forwarding the brought forward LTCL for AY 2010-11 of Rs 1.94 crs to subsequent years) by asking the relevant questions as well as the replies which shows that the AO had inquired about the claim of assessee regarding this years claim of exempt Long Term Capital Gain of Rs.7.39 cr as well as issue of assessee not setting off the brought forward Long Term Capital Loss of Rs.1.94 crores with the Long Term Capital Gain of Rs.7.39 crores; and carry forward of the brought forward losses of AY. 2010-11 (Rs.1.94 cr) to subsequent assessment year. Thus, we find that on this issue the assessee has disclosed fully and truly the material facts/relevant facts/primary facts necessary for the assessment of the assessee. ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 41 Therefore, we find that the additional condition stipulated in the proviso to section 147 of the Act for successfully usurping the jurisdiction u/s 147 of the Act has not been satisfied in the facts and circumstances of the case. And therefore, the action of the AO to reopen the assessment is held to be without jurisdiction and hence bad in law. And consequently, we hold that the notice issued by the AO u/s 148 of the Act dated 16.02.2021 is null in the eyes of law. And therefore, quashed. 17. For completeness, we note that the issue which was raised by the present AO i.e. assessee’s action of not setting off the Long Term Capital Loss with the exempt Long Term Capital Gain by the predecessor AO during original scrutiny assessment is a plausible view as held by this Tribunal in Nomura India Investment Fund Mother Fund (supra). Thus, we note that the present AO action to re-open this issue is not permissible because it tantamount to ‘change of opinion’ since AO doesn’t have the power to re-view his own order. So looking from any angle, the action of the AO is not-sustainable and so need to be quashed bad in law. 18. And further, the Explanation-2(c) (1) to section 147 of the Act does not come to the aid of AO because the assessee had disclosed the primary facts pertaining to the issue i.e. not setting off of LTCL of AY. 2010-11 to the tune of Rs.1.94 cr, with the exempt Long Term Capital Gain of Rs.7.39 crores earned during the year. As noted (supra) the assessee’s claim as well as predecessor AO’s action of accepting it is legally valid/plausible view in light of Tribunal decision ITA No.459/Mum/2023 A.Y. 2013-14 M/s. WF Asian Smaller Companies 42 in Nomura India Investment Fund Mother Fund (supra) so, the deeming fiction given under clause (iv) of Explanation-2 is not attracted in the facts of the case because no excessive loss or depreciation or allowance under the Act has been computed and allowed. 19. Since assessee succeeds in the legal issue, the other grounds on merits become academic and deserves no adjudication. 20. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 26/06/2023. Sd/- Sd/- (S. RIFAUR RAHMAN) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 26/06/2023. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai