TaxTMI 
TaxTMI 
2011 (7) TMI 66
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.... Though the impugned order is related to Assessment Years (henceforth „AY for short) 1999-2000 to 2003-2004, but the challenge is in respect to the order relating to AY 1999-2000 and 2000-2001. The facts leading to filing of the present appeal, being relevant need to be narrated. 3. The assessee company entered into an agreement with AGIO Countertrade PTE Ltd., Singapore (hereinafter to be referred to as „the investing company) and Madhya Pradesh State Electricity Board (hereinafter to be referred to as „MPSEB). The Assessee company was established to set up a power plant in Madhya Pradesh. It participated in a bid which was called by MPSEB. As per the requirement of the bid process, a security deposit of Rs.11.65 crore was to be deposited with MPSEB on or before 17th August 1998. The assessee company requested the investing company to remit the requisite amount, but, the same could only be received on 18.08.1998, and due to delay in remittance, the assessee could not deposit the security amount with MPSEB on or before the stipulated date of 17th August 1998 and consequently the bid of the assessee was rejected. As per the arbitration agreement, the asse....
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....pondent is permitted to take away the remittance sum of Rs.6.77 crores out of India then its claim raised under the present proceedings shall be frustrated. Further the claimant is still pursuing legal proceeding shall be frustrated. Further the claimant is still pursuing legal proceeding shall be frustrated. Further the claimant is still pursuing legal proceedings to obtain rights to set up power plant in Madhya Pradesh and for which it might be necessary to take payment of security deposit. If the respondent's plea for retransfer of funds is allowed then claimant's bid to obtain these rights through judicial proceedings may also stand defeated. In these circumstance the respondent's plea for retransfer of funds is not acceptable at this stage of the proceedings. At the same time, however, I find that with the fears expressed by the respondent regarding diversion of funds by the claimant cannot be said to be misplaced. I, therefore, direct the claimant out of the remittance received from the respondent amounting to Rs.6.77 crore shall make fixed deposits for sum of Rs.6.77 crore with any of the scheduled bank or banks and the FDR's shall be kept in the safe custody. I, further, ac....
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.... from MPSEB on security deposit of Rs.5.22 crore. The balance amount of interest of Rs.45,15,408/- was earned by the assessee on FDs of Rs.7.00 crore. 6. The assessee filed Return of Income (ITR) on 28.12.1999 under Section 143(1) of the Act. Subsequently, the AO noted that the assessee had adjusted interest income of Rs.93,81,222/- against the pre-operative expenses. The AO being of the view that the interest income in pre-production stage was to be taxed as "Income from Other Sources" in view of the decision of the Supreme Court in the case of Tuticorn Alkali Chemicals & Fertilizer, 227 ITR 172 and CIT Vs. Cormondal Cement Ltd., 234 ITR 412, he formed reason to believe that interest income of Rs.93,81,222/- has escaped assessment. He also noted that on the same facts the interest income for the AY 2001-2002 was also charged to tax as "Income from Other Sources". The AO, therefore, issued a notice under Section 148 of the Act on 21.03.2003. In response to this notice, the assessee filed its return of income declaring Nil income on 25.04.2003. The AO issued a notice under Section 142(1) of the Act and also a questionnaire to the assessee, but the same remained un-replied.....
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.... repatriated to the investing company on 11.07.2002. 8. The AO accordingly assessed the interest income of Rs.45,15,408/- earned from FDs under the head "Income from Other Sources". Before the CIT(A) additional ground was taken by the assessee challenging the validity of the assessment alleging that no notice under Section 143(2) of the Act was served upon the assessee before the reassessment. The CIT(A) maintained the order of the AO on merits and also rejected the additional plea of invalidity of the assessment on account of non issuance of notice under Section 143(2) of the Act. Against this order of the CIT(A), the assessee preferred an appeal before the Tribunal which came to be allowed by the impugned order. 9. We have heard Mr. Sanjeev Sabharwal, Sr. Standing Counsel for the Revenue and Mr. Devashish Bharuka, learned counsel for the Assessee. 10. The reopening of the assessment under Section 148 of the Act has been challenged on two grounds. Firstly, it is alleged that the assessment could not be reopened under Section 148 of the Act as the assessee had given detailed note with the original return as to why interest income was not to be taxed, b....
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....147 are fulfilled, the Assessing Officer is free to initiate to proceed under Section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under Section 143(1) had been issued." 12. It is noted that the impugned assessment is in response to notice under Section 148 of the Act and the Act does not specifically provide that the assessment made under Section 147 of the Act will be after issue of the notice under Section 143(2) of the Act. In fact, AO has the basic jurisdiction to assess the income in terms of Section 147 and Section 148 of the Act where he has reason to believe that the income has escaped assessment. On the submissions of non issuance of notice under Section 143(2) of the Act, we are of the view that the findings of the Tribunal in this regard are not as per the scheme of the provisions of Section 147 and 148 of the Act. 13. Though no specific notice was required under Section 143(2) of the Act, as noted above, the questionnaires dated 11.11.2003 and 21.01.2004 provided the assessee specific opportunity to support his return by seeking documentar....
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....d not yet commenced. Thus, the investment in FD cannot be said to be connected with or incidental to setting up a power project. 16. In the case of Tuticorn Alkali Chemicals & Fertilizer (supra), the assessee company was incorporated on 03.12.1971 for the purpose of manufacturing heavy chemicals such as ammonium chloride and soda ash. The trial production of the factories of the company commenced on 30.06.1982. For the purpose of setting up of the factories, the company had taken term loans from various banks and financial institutions. That part of the borrowed funds which was not immediately required by the company was kept invested in short-term deposits with banks. Such investments were specifically permitted by the memorandum and articles of association of the said company. For accounting year ending on 30.06.1981 i.e. AY 1982-83, the company received total amount of interest of Rs.2,92,440/-. The company disclosed the said amount of Rs.2,92,440/- as income from other sources. It also disclosed business loss of Rs.3,21,801/-, after setting off the interest income, it was claimed by the company the benefit of carry forward of net loss of Rs.29,360/-. Later on revised ....