Reopening Of Assessment Inspired From 'Review' & 'Change Of Opinion' By Subsequent AO Is Deprecated: Madras HC

While setting aside the order disposing of assessee's objection for re-opening of assessment pursuant to the issue of notice u/s 148 of the Income tax Act, 1961 and the consequent reassessment order, the Madras High Court held that there is no scope for re-opening of the assessment, since the reasons cited for same was inspired from change of opinion of the Assessing officer.

A Single Judge Bench of Justice C. Saravanan observed that “there is no case made out for reopening the Assessment that was completed earlier. Reopening of the Assessment was inspired from a review and a change of opinion by the subsequent officer. Such practice has been deprecated and frowned upon by the Courts” (Para 35)

The Single Judge elaborated that although the petitioner / assessee has resorted to window dressing of the statement of actual of statements filed along with the Statement of Profit and Loss for the year ended 31st March 2014, it cannot be said that the petitioner has not disclosed material.

Thus, the Bench opined that there is a complete disclosure by the petitioner along with the regular returns filed under Section 139, as the petitioner has also uploaded the hard copy of the same in response to a notice issued under Section 143(2).

As per the brief facts of the case, the assessee company, filed its return for AY 2014-15, which was subjected to scrutiny and assessment order was passed. However, later on, the Department issued reassessment notice under Section 148 against the assessee, citing failure of assessee to make a true & full disclosure pertaining to unrealized foreign exchange loss. Even though the assessee objected to reasons for reopening, the Department disposed of the same and passed reassessment order. The assessee challenged the same before the High Court.

The petitioner argued that the petitioner was following a mercantile system of accounting and the assets / liabilities on revenue account denominated in foreign currency and outstanding at the year-end were revalued taking into account the rate of exchange prevailing on closing date. The petitioner thus contended that where the loss is suffered by the assessee in respect of a revenue liability on account of exchange difference in the balance sheet would be an item of expenditure allowable under Section 37(1) in the year of accrual.

Opposing the same, the Department submitted that none of the documents were filed by the petitioner indicating that the petitioner had given a break-up of the amount that was claimed as loss incurred by the petitioner from the foreign exchange transactions and what was declared by the Income Tax authority at the time of filing of the return together with the profit and loss account and the balance sheet only to show the net income from the foreign exchange was for a sum of Rs.3,80,17,01/- after deleting a sum of Rs.1,43,82,361/- from Rs.5,23,99,372/-.

The Bench perused the independent auditor's report stating that the petitioner does not have any accumulated losses at the end of the financial year and also did not incur any cash losses in the financial year and in the immediately preceding financial year. The Bench therefore observed that there is a disclosure in the audited balance sheet that was filed in compliance with the notice under Section 143(2).

The Bench accepted that the return that was uploaded by the petitioner on Nov 28, 2014 contained all the information that was required for the Assessing Authority to pass an appropriate Assessment Order.

However, at the same time, the Bench found that the petitioner has subsequently furnished all the information in the form of a hard copy together with computation of taxable income consisting of the copy of the Audited Profit and Loss Account, Balance Sheet together with Auditor's Report for Financial Year 2013-2014.

Thus, the High Court quashed the reassessment as well as the notice issued under Section 274 r/w Section 271(1)(c) of the Income Tax Act, 1961.

Counsel for Tax Payer: N. V. Balaji

Counsel for Department: B. Ramana Kumar & Prabhu Mukunth Arunkumar

Case Title: BNY Mellon Technology Private Limited Vs Additional / Joint / Deputy / Assistant Commissioner of Income Tax

Citation: 2024 LiveLaw (Mad) 12

Case Title - W.P.Nos.6635, 27428 & 27432 of 2022 

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