Real income and reopening limits shape tax treatment of sticky advances, dividends, development rebate, and revaluation loss.

Reassessment under section 147(b) requires post-assessment information and a bona fide belief of escapement; the reopening on audit and existing legal material was invalid. Interest on sticky advances credited to suspense account was treated on the real-income principle and was not taxable where recovery was doubtful. Dividend-related adjustments under section 80M and the Unit Trust of India receipt were examined under the dividend-tax framework, with the statutory treatment substantially upheld. Development rebate on banking assets depended on the asset's character and office-use restrictions, while revaluation loss on shares and securities held as stock-in-trade was allowable on commercial principles, with part of the rebate issue remanded for factual verification.

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Issues: (i) Whether reassessment under section 147(b) was valid on the basis of information said to have been received from audit and judicial decisions; (ii) whether interest on sticky advances credited to suspense account was taxable in the relevant years; (iii) whether the dividend-related adjustments under section 80M and the amount received from the Unit Trust of India were correctly treated; and (iv) whether development rebate and revaluation loss on certain assets were allowable.

Issue (i): Whether reassessment under section 147(b) was valid on the basis of information said to have been received from audit and judicial decisions.

Analysis: The reopening was founded on material said to have come through audit, but the record showed that the legal position on deduction under section 80M was already supported by binding Calcutta authority at the time of the original assessment. A reassessment under section 147(b) requires information received after the original assessment and a bona fide reason to believe that income had escaped assessment. Where the assessment was completed on the basis of then-existing legal material, and the later action only sought to revisit the same position, the jurisdictional requirement was not satisfied.

Conclusion: The reassessment under section 147(b) was illegal and is held against the Revenue.

Issue (ii): Whether interest on sticky advances credited to suspense account was taxable in the relevant years.

Analysis: The assessee followed a consistent treatment for sticky advances, and the interest credited to suspense account was not shown as realisable income. The decision turned on the real-income principle, the commercial realities of doubtful recoverability, and the binding effect of the then-operative CBDT circular dealing with interest kept in suspense. The material relied on by the Revenue did not displace the conclusion that no real income had accrued in the relevant years on such doubtful advances.

Conclusion: The interest on sticky advances credited to suspense account was not taxable, and this issue is decided in favour of the assessee.

Issue (iii): Whether the dividend-related adjustments under section 80M and the amount received from the Unit Trust of India were correctly treated.

Analysis: The assessee was not entitled to reduce dividend income by the proposed collection charge adjustment, and interest attributable to borrowed funds could not be excluded on the basis urged. The amount received from the Unit Trust of India was, on the statutory scheme of the Unit Trust of India Act, to be treated as dividend in the hands of the recipient. The combined statutory framework governing dividend income and the Unit Trust distribution mechanism supported the Revenue's treatment.

Conclusion: The dividend-related adjustments were upheld in substance, and this issue is decided against the assessee except to the extent the assessee's broader challenge failed.

Issue (iv): Whether development rebate and revaluation loss on certain assets were allowable.

Analysis: On the reassessment issue, the assessee was entitled to raise new claims in the reopened proceedings. Development rebate on assets used in the banking business had to be examined on the nature of the asset and the statutory restrictions on office appliances. Storewels were treated as plant, cupboards and counters were not, and typewriters and calculators required factual segregation between business premises and office use. On the separate question of revaluation loss, shares and securities held by a bank were treated as stock-in-trade and the loss on revaluation was allowable on commercial principles.

Conclusion: The matter of development rebate was partly allowed and partly remanded for fresh determination, while the revaluation loss issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeds in part for the assessee. The reassessment is invalid, the suspense-interest addition fails, dividend-related treatment is substantially sustained, development rebate is allowed only to the extent indicated and remanded for factual verification, and the revaluation-loss claim is upheld.

Ratio Decidendi: Reassessment under section 147(b) cannot be sustained unless the reopening is based on post-assessment information that objectively justifies a bona fide belief of escapement, and income can be taxed only when it has really accrued or materialised, not on a merely hypothetical or book-entry basis.

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