TaxTMI 
TaxTMI 
2009 (12) TMI 704
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....he following heads : Rs. (i) Business loss 84,73,766 (loss) (ii) Short-term capital gain (profit on sale of shares) 77,96,779 (iii) Other sources (dividend income) 27,28,435 In the computation of total income submitted along with the return of income filed originally on December 22, 1999 in which the business loss of Rs. 84,73,766 was claimed which was adjusted against the capital gain (short-term) declared Rs. 77,96,779 and the balance unabsorbed business loss of Rs. 6,76,987 was carried over to the subsequent year hence the return filed for the year under consideration had declared nil income. The income under the head "Other sources" was declared at Rs. 27,28,435-dividend income. This dividend income declared was claimed to be exempted under section 10(33) of the Income-tax Act, 1961. The heading of section 10 of the Income-tax Act, 1961 reads as under : "Incomes which do not form part of total income." In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-the opening line of section 10....
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.... income from other sources. The Assessing Officer also found that the assessee has taken unsecured loan of Rs. 1.03 crores. The Assessing Officer found that unsecured loan was taken in the form of inter-corporate deposit (ICD), the assessee was asked to give names and addresses of the parties who had advanced the ICD. On account of the assessee's failure to produce the parties who have advanced the ICD and also name and their address, the Assessing Officer added the same in the income of the assessee. Likewise, the addition was made on account of sundry creditors of Rs. 29.19 lakhs, as the assessee did not furnish address of the creditors nor produced them before the Assessing Officer in spite of his asking for the same. Aggrieved by these additions, the assessee approached to the Commissioner of Income-tax (Appeals). By the impugned order, the Commissioner of Income-tax (Appeals) held the assessment void ab initio and annulled the same by observing that only reason recorded by the Assessing Officer for reopening the assessment was the claim of interest income out of exempt income, and not the unsecured loans and other credit which were added by the Assessing Officer while frami....
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....ich was not reduced out of the exempt income and not on the other ground of unsecured loans and the creditors, therefore the Assessing Officer was not justified in making addition even in respect of items for which there was no reopening of assessment nor reasons were recorded. Further contention of the learned authorised representative was as under, as per the written submission placed on record : 1. The return filed declaring net loss at Rs. 6,76,987 under the following heads : Business loss (84,73,766) Short-term capital gain on (shares) 77,96,779 Dividend income claimed exempt under section 10(33) 6,76,987 27,28,435 2. The return was processed under section 143(1) at "nil" income. The case was not selected for scrutiny as no notice under section 143(2) was received. 3. Vide notice dated July 30, 2001 under section 148, the case was reopened by giving the following reasons: "July 30, 2001: In this case, the assessee-company has borrowed unsecured loan of Rs. 1.95 crores which have been utilised for making investments and from these investments the assessee has declared dividend income of Rs. 25,63,240 for the assessment year 1999-200....
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....n the body of the appellate order a reference has been made by the Commissioner of Income-tax (Appeals) that in view of the decision of the Punjab and Haryana High Court in the case of Vipan Khanna v. CIT [2002] 255 ITR 220 (P & H) other additions and disallowances, which are beyond the recorded reasons, do not survive. 7. Section 14A was introduced by the Finance Act, 2001 with retrospective effect from April 1, 1962 and after its introduction in the statute a Circular No. 11 of 2001 was issued by the Central Board of Direct Taxes on July 23, 2001, wherein the clarification regarding restriction on reopening of completed assessments on account of provisions of section 14A were given. It has been categorically stated in the circular that the assessments where the proceedings have become final before the 1st day of April, 2001 should not be reopened under section 147 to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted section 14A. The Assessing Officer recorded his reasons for reopening the assessment on July 30, 2001 in spite of the Board Circular which was binding on him. 8. Vide an amendment to section 14A by the Finance ....
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.... this count. We have considered the rival contentions, carefully gone through the orders of the authorities below and found that while framing the reassessment order, the Assessing Officer has clearly mentioned that income is always taxable after deducting the expenditure relating to the earned income. Earned income means after deducting the expenditure. Since interest expenditure on the loan taken for investment in exempt securities were not reduced out of dividend income, he reduced the interest income and allowed exemption under section 10(33) with respect to the net dividend income earned. Nowhere the Assessing Officer has invoked the provisions of section 14A for disallowing the interest expenditure. At the very same time, we also found that in the reasons recorded for reopening, the Assessing Officer has not stated the reasons with regard to escapement of income on account of unsecured loans and the creditors for which addition was made during the course of reassessment proceedings. The justification given by the Commissioner of Income-tax (Appeals) for annulling the assessment is not at all tenable, in so far as for reopening the Assessing Officer has never invoked the pr....