TaxTMI 
TaxTMI 
2006 (4) TMI 199
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....dend income [Exempt under s. 10(33) See Annexure for details] 3,44,173 Net assessable income (48,47,747) A note was made (Note No. 5) to the computation to the effect that the 'breakup of investments in capital assets and trading assets is enclosed (Annex. 2)'. The Annex. 1 showed dividend income of Rs. 3,44,173/- from shares in Max India Ltd. which, according to Annex. 2 were held as trading assets. It is also to be noted that Annex. 2 made a distinction between "capital assets" and "trading assets", the latter showing equity shares of Max India Ltd. at the value of Rs. 1,13,89,581/- as against shares of several other companies of Rs. 1,63,47,016/- held under the former category. 3. It would appear that the AO made an enquiry into the return in response to which the assessee filed the relevant details under cover of two letters, the first dt. 18th Sept., 2000 and the second dt. 18th Oct., 2000. It would further appear that the AO, satisfied with the details furnished in these letters, accepted the returned loss by an order passed under s. 143(3) on 18th Dec., 2000. 4. On 13th March, 2003, the CIT issued a notice under s. 263 of the Act proposing to revise....
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.... accepting the loss declared in the return and in permitting the assessee to carry forward the business loss of Rs. 48,47,747/- to the following years under s. 72. A plea was, therefore, made that the proceedings under s. 263 be dropped. 6. The CIT however found no merit in the arguments of the assessee. He held that the assessee did not carry on any business during the year and that the contention of the assessee to the contrary was untenable. According to him, the mere holding of trading assets (shares of Max India Ltd.) does not constitute business activity. He observed from the records that the "so-called trading assets are in fact investments of the assessee and the same nomenclature has been given in the audited balance-sheet filed by the assessee" and that "the assessee has not led any evidence to show that any business was carried out by it". In this view of the matter, he held that "the assessee is not entitled to any deduction on account of expenses under s. 36(1)(iii) of the IT Act". He accordingly set aside the assessment order with a direction that it may be reframed de novo in accordance with law. It may be added that the CIT did not pursue the proposal to revise t....
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....g the year and it does not matter that there was no specific mention of s. 36(1)(iii) in the show-cause notice, so long as the assessee was informed of the primary ground on which action under s. 263 was proposed to be taken. He has also filed written submissions which we have duly considered. 9. In our considered view, the contentions of Mr. Vohra should prevail. Apart from the orders of the Tribunal to which he has drawn our attention, there are two Judgments which support him. In CIT vs. G.K. Kabra (1995) 125 CTR (AP) 55 : (1995) 211 ITR 336 (AP), the Andhra Pradesh High Court was dealing with an application seeking reference under s. 256(2), inter alia, of the following question: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the CIT lacks initial jurisdiction, particularly when the conclusion made by the CIT in the order under s. 263 was on the basis of the information furnished in response to the initial notice?" While declining to refer the above question, the High Court held as under: "The necessary implication in the expression 'after giving opportunity of being heard' relates to the poi....
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....show-cause notice. The CIT had mentioned the ground in the show-cause notice viz., that the assessee did not carry on any business activity during the year, only for the purpose of disallowing the adjustment of the brought forward losses under s. 72 of the Act and not for the purpose of disallowing the interest under s. 36(1)(iii). It is no doubt true, as contended by the learned CIT-Departmental Representative, that both for the purpose of s. 72 and for the purpose of s. 36(1)(iii) it is a condition that the assessee should have carried on business during the relevant year, but that is not the only condition for the allowability of the interest. There are other conditions that are required to be fulfilled before the interest can be allowed as a deduction. Under s. 36(1)(iii), three conditions are to be fulfilled: (a) the assessee must have paid the interest; (b) he must have borrowed capital and (c) the capital must have been borrowed for the purpose of the business carried on by him in the relevant previous year. The CIT in the show-cause notice has mentioned only the ground that the assessee did not carryon any business activity during the year. From this, it does not follow tha....
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....ed under s. 263(1) of the Act. ... The Tribunal cannot uphold the order of the CIT on any other ground which, in its opinion, was available to the CIT as well. If the Tribunal is allowed to find out the ground available to the CIT to pass an order under s. 263(1) of the Act, then it will amount to a sharing of the exclusive jurisdiction vested in the CIT, which is not warranted under the Act. It is all the more so, because the Revenue has not been given any right of appeal under the Act against an order of the CIT under s. 263(1) of the Act..... Under s. 263 of the Act it is only the CIT who has been authorized to proceed in the matter and, therefore, it is his satisfaction according to which he may pass necessary orders thereunder in accordance with law. If the grounds which were available to him at the time of the passing of the order do not find a mention in his order appealed against, then it will be deemed that he rejected those grounds for the purpose of any action under s. 263(1) of the Act. In this situation, the Tribunal, while hearing an appeal filed by the assessee, cannot substitute the grounds which the CIT himself did not think proper to form the basis of his order." ....
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....r as it affected the jurisdiction of the AO to reopen an assessment by a valid service of notice under s. 34. The Supreme Court, having held that s. 33B did not in terms require a notice to be served on the assessee, proceeded also to hold that the section "merely requires that an opportunity of being heard should be given to the assessee and the stringent requirement of service of notice under s. 34 cannot, therefore, be applied to a proceeding under s. 33B of the Act". That opportunity had been given to the assessee in the cited case. The judgment of the Supreme Court in CIT vs. Hukumchand Mohanlal does not deal with s. 263 at all and is therefore not relevant to the issue raised. We however find that in CIT vs. Ramendra Nath Ghosh 1974 CTR (SC) 131 : (1971) 82 ITR 888 (SC) the Supreme Court did hold that if the service of notices under s. 33B was not in accordance with the law, it could not be said that the assessee had been given a proper opportunity to put forward their case as required by the section. Thus, the position in law appears to be that the jurisdiction of the CIT to invoke s. 263 is not dependent on a valid service of the notice of show cause. However, it is incumbe....
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....ssessee also submitted the year-wise assessment details about the loss allowed to be adjusted under s. 72 of the Act (asst. yrs. 1993-94 to 97-98) apparently in an attempt to show to the AO that there was no disallowance of the claim made by the assessee in those years because the Department itself has accepted the fact that the assessee was carrying on business in share-dealing (investment company). The above facts and the claim for allowance of interest under the head "Business" were reiterated in the second letter dt. 18th Oct., 2000. It is not in dispute that these letters form part of the record of assessment. It is reasonable to infer that only on the basis of these letters the AO has accepted the claim for allowance of interest. It is not necessary that the assessment order should reproduce the letters and the basis of the claim so as to demonstrate application of mind. Normally, when the AO accepts a claim or contention of the assessee he does not record it in any detail. For that reason alone it cannot be said that the order passed by him is erroneous and prejudicial to the interests of the Revenue. If it can be shown on the basis of the record that he had enquired into th....
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....t was held that there should be some material change in the facts or distinguishing features to justify a departure from the position accepted in the past assessments. In the present case, it is an unchallenged fact over the past several years that business losses were allowed to be adjusted under s. 72 of the Act, which means that the Department has acted on the footing that the assessee did carryon business activities in the year in which the losses were adjusted. The profits/losses in share dealing were assessed under the head "Business" and the dividend income was taxed as "Income from other sources" because of the specific requirement of the Act, though in fact it was the business income of the company. Considering the past record, it would defeat the rule of consistency if a departure is allowed to be made for the year under consideration. 16. Thirdly, it may not be correct to state that the assessee did not carryon any business activity during the year. It was holding the shares of Max India Ltd. as trading assets even during the year. It was from these shares that the assessee was deriving dividend of Rs. 3,44,173/- during the year (Annex. 1 to the return of income). The....