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Facts
The assessee filed its return for AY 2013-14 and the assessment was completed under Section 143(3). Later, the AO sought to reopen the assessment based on a claim of "loss on cancellation of forward contract", considering it a speculative loss.
Held
The Tribunal held that the reassessment proceedings were initiated without any fresh tangible material and were based on a mere change of opinion, amounting to a review of the earlier assessment. Therefore, the assumption of jurisdiction was invalid.
Key Issues
Whether the reassessment proceedings under Section 147 were validly initiated based on fresh tangible material or merely a change of opinion by the Assessing Officer.
Sections Cited
147, 143(3), 43(5), 73(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI M. BALAGANESH & SHRI S.S. VISWANETHRA RAVI
O R D E R
PER M. BALAGANESH, AM :
This appeal by the assessee is filed against the order of the learned Commissioner of Income Tax (Appeal), NFAC, Delhi, (in short Ld.CIT(A) for the assessment year 2013-14, vide order dated 21.05.2025.
The preliminary issue raised by the assessee is challenging the validity of assumption of jurisdiction for reopening the assessment in the instant case.
We have heard the rival submissions and perused the materials available on record. The assessee is a partnership firm and had filed its ITA. No:2059/Chny/2025 return of income for the assessment year 13-14 electronically on 20-11- 2013 declaring total income of Rs 7,73,06,830/-. The scrutiny assessment was completed under section 143(3) of the Act on 22-3-2016. Subsequently, this assessment was sought to be reopened by the Learned AO on the ground that assessee had claimed ‘loss on cancellation of forward contract’ in the sum of Rs 81,93,973/- which in the opinion of the Learned AO was to be construed as speculative loss and not allowable as deduction. The reasons recorded by the Learned AO for reopening the assessment are as under:- “In the profit and loss account, you had claimed Rs 81,93,973/- as expenditure in “Loss on cancellation of forward contract”. However, as per section 43(5) of the I.T Act, 1961, the loss on cancellation of forward contract is a speculation loss and as per section 73(1) of the I.T Act, 1961 such loss cannot be set off against profits and gains if any, except against profits or gains from another speculation business only. Hence, it is not an allowable expenditure and hence it is proposed to be disallowed. You are required to file your objection on or before 1-11-2019”.
On perusal of the aforesaid reasons, it could be seen that the learned AO had formed a belief that income of the assessee had escaped assessment only on perusal of the profit and loss account which is already placed on record.This goes to prove that there is absolutely no fresh tangible material that had come into the possession of the learned AO post the completion of original scrutiny assessment under section 143(3) of the Act, warranting him to reopen the case of the assessee under section 147 of the Act.In the absence of fresh tangible material, the formation of belief vanishes, as it would only be reappraisal of the already available materials on record. Admittedly, the profit and loss account was filed by the assessee during the course of original scrutiny assessment proceedings itself. Hence, it could be safely concluded that there was no fresh tangible material available with the assessing officer while forming a belief that income of the assessee had escaped assessment. The learned AR rightly placed reliance
Page 2 of 6 ITA. No:2059/Chny/2025 on the decision of Hon’ble Jurisdictional High Court in the case of ACIT vs Indian Syntans Investments Private Limited in Writ Appeal No. 220 of 2021 dated 19-06-2025. The relevant operative portion of the said order is reproduced here under:- “….8. In any case, the reasons recorded are ambiguous and vague, and as held in Hindustan Lever Ltd vs. R.B.Wadkar, the reasons recorded must disclose the officer's mind because the reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons, and it has to provide link between the conclusion and evidence.
Admittedly, the notice issued is beyond the period of four years. The return of income filed by assessee was accompanied by financials that contained a note explaining the lease transaction and a perusal of the reasons for re- assessment make it clear that the reasons are based entirely upon the documentation accompanying the return. No material extraneous to that already on record or new has been discovered by the Assessing Officer indicating income that had escaped taxation. It applies equally to lease income as well as the claim of administrative expenses. A full and true disclosure has been made insofar as all materials germane to the computation of income and it forms part of return of income. In such circumstances, escapement of income, if any, cannot be attributed to the EB COPY assessee.
More over, the Apex Court in Kelvinator India Ltd., (supra) considered the case of reassessment that has been initiated within four years. Reasons for reopening merely reiterated materials that was already on record, as a result that the Bench came to the conclusion that the proceedings were not one of reassessment but one of review, impermissible under the Act. Relevant portion reads as under: "On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989), they are given a go- by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition and if the concept of 'change of opinion' is removed, as Page 3 of 6 ITA. No:2059/Chny/2025 contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer, Hence, 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. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words? reason to believe? but also inserted the word 'opinion' in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words 'reason to believe', Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression reason to believe in Section 147. -- A number of representations were received against the omission of the words 'reason to believe- from Section 147 and their substitution by the 'opinion of the Assessing Officer. It was pointed out that the meaning of the expression, reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression ‘has reason to believe- in place of the words 'for reasons to be recorded by him in writing, is of the opinion-. Other provisions of the new section 147, however, remain the same." For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs. (emphasis supplied) 11. The settled proposition therefore is that change of opinion is an in-built test to check abuse of power by the Assessing Officer. In the garb of reopening the assessment, review would take place.
Therefore, it is clear, a reassessment made within four years or beyond four years has to be based on tangible material de hors that is available on record that has come to the notice of the Assessing Officer. Recourse to proceedings for reassessment is available only if the Department comes into possession of materials, apart from that already available as part of its records or if primary particulars reveal discrepancies that are not explained or resolved by the accompanying documentation. This is subject, therefore, to the assessee having placed on record all materials necessary for the appreciation of issues arising for assessment including financials and annexures along with its return of income at the first instance.
Page 4 of 6 ITA. No:2059/Chny/2025 13. Even the Hon'ble Delhi High Court in Commissioner of Income Tax-V vs. Orient Craft Ltd has held that reopening of assessment made under Section 143(1) of the Act is without jurisdiction, in the absence of any tangible material available with the Assessing Officer to form the requisite belief regarding escapement of income. The Court held that in the absence of any tangible material, there will be a review in the guise of reopening.
In the present case, the reasons disclose that the Assessing Officer reached the belief that there was escapement of income, on going through the return of income filed by assessee after it was accepted under Section 143(1) of the Act, without scrutiny and nothing more. Therefore, this is nothing but a review of the earlier proceedings. There is no whisper in the reasons recorded, of any tangible material which came to the possession of Assessing Officer subsequent to the issue of the intimation. It reflects arbitrary exercise of the power conferred under Section 147 of the Act.
In the circumstances, the appeal stands dismissed. There will be no order as to costs. Consequently, the interim application also stands disposed of….”
In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above, we have no hesitation to quash the entire reassessment proceedings as the assumption of jurisdiction is to be declared invalid and void abinitio. Since the entire reassessment is quashed, the other legal and factual grounds raised
by the assessee need not be gone into as adjudication of the same would become academic in nature and they are left open.
6. In the result, the appeal of the assessee is allowed.
Order pronounced in the court 16th , October, 2025 at Chennai.