Tribunal allows appeals for illegality in assessment reopening, directs classification of income, upholds interest levy.

The Tribunal allowed the appeals for assessment years 1998-99 to 2001-02 due to the illegality of reopening assessments under section 148 as reasons for reopening were not communicated. For the assessment year 2002-03, the Tribunal directed the AO to classify interest income from Maneklal Bhandari as business income and allow disallowed business expenses. The levy of interest under section 234B was upheld as consequential to tax computation.

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Issues Involved:
1. Legality of reopening assessments under section 148.
2. Classification of interest income as "Income from other sources" vs. "Profits and gains of business or profession."
3. Disallowance of various business expenditures.
4. Levy of interest under section 234B.

Detailed Analysis:

1. Legality of Reopening Assessments under Section 148:
The appellant contended that the reopening of assessments under section 148 was illegal, null, and void, as the assessments for earlier years on similar issues were completed after thorough scrutiny, and the reasons for reopening were not communicated. The Tribunal observed that the assessee had requested the reasons for reopening through letters dated 14.04.2005 and 23.04.2005, which were not supplied by the revenue authorities. This non-supply of reasons vitiated the reassessment proceedings at the threshold, as per the Supreme Court decision in GKN Driveshafts (India) Ltd. vs CIT. Consequently, the Tribunal set aside the orders of the CIT(A) for assessment years 1998-99 to 2001-02 and restored the cases to the AO with directions to supply the reasons to the assessee and dispose of the objections before framing the assessment. Therefore, the appeals for these years were allowed for statistical purposes.

2. Classification of Interest Income:
For the assessment year 2002-03, the appellant argued that the interest income should be classified under "Profits and gains of business or profession" rather than "Income from other sources." The Tribunal noted that the appellant had passed a board resolution to embark on the housing finance business and obtained necessary clarification from the RBI. Despite this, the revenue authorities treated the interest income as "Income from other sources" because the appellant was primarily in the business of property development and not a Non-Banking Financial Company (NBFC). The Tribunal found that the interest received from Maneklal Bhandari should be treated as business income, while the interest on the Income Tax refund should be treated as income from other sources. Thus, the Tribunal set aside the order of the CIT(A) and directed the AO to treat the interest income from Maneklal Bhandari as business income.

3. Disallowance of Various Business Expenditures:
The appellant contested the disallowance of Rs. 11,85,083/- in business expenditures. The revenue authorities disallowed these expenses, arguing that there was no business activity related to housing development. However, the appellant provided audited accounts and details filed with the ROC to show that the business was ongoing, albeit slow. The Tribunal acknowledged that the business was being carried on and the expenses were genuine business expenses. Therefore, the Tribunal set aside the CIT(A)'s order on this issue and directed the AO to allow the expenses aggregating to Rs. 11,85,083/-.

4. Levy of Interest under Section 234B:
The appellant argued against the levy of interest under section 234B. The Tribunal stated that the levy of interest is consequential to the final outcome of the tax computation and directed the AO to charge interest as per law and judicial precedents.

Conclusion:
- Appeals for assessment years 1998-99 to 2001-02 were allowed for statistical reasons.
- Appeal for the assessment year 2002-03 was partly allowed, with the Tribunal directing the AO to treat interest income from Maneklal Bhandari as business income and to allow the disallowed business expenses. The levy of interest under section 234B was to be charged as per law.

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