TaxTMI 
TaxTMI 
TaxTMI 
2011 (5) TMI 495
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....ct matter of appeal No.270 of 2010 and has given rise to the following substantial question of law: Whether the Tribunal was justified in setting aside the orders of the CIT passed under Section 263 of the Income Tax Act on the purported ground that the view taken by the Assessing Office in the scrutiny assessment was a plausible view? 2. We have accordingly heard the arguments on the aforesaid issue and proceed to decide the same. The issue which is involved in this appeal is limited to the treatment which has been given to the dividend income earned by the assessee in the relevant assessment year. Though it is treated as „income from other sources‟, the dispute is as to whether the assessee is justified in claiming set off of brought forward losses of previous years against this dividend income giving it the character of „business income‟ even though assessed as income from other sources. The moot question is as to whether the AO while allowing the aforesaid set off had considered this aspect or the CIT was justified in passing the orders under Section 263 of the Act on the premise that the issue was not appropriately dealt with by the AO. Before we deal ....
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....Assessee and also gone through the various judgments cited by the assessee. Ratio of the judgments is applicable to the cases where examination of the facts established that purchase of shares was with intention to keep them as stock-in-trade. In the cases where intention at the time of purchase of share was to make long-term investments, the ratio would not apply. In the case of Assessee Company, the Assessing Officer has failed to examine this crucial aspect as to what the nature of investments on which dividend was earned. As discussed in the preceding para, primafacie, the investments were held as long-term investment and no part of the investment was considered stock-in-trade by the Assessee. Therefore, the Assessing Officer had failed to conduct the required enquiry and also had failed in application of the provisions of Section 72 (1) of the I.T. Act. This rendered order passed by the AO erroneous inasmuch as prejudicial to the interest of Revenue to that extent. In the case of M/s. Gee Vee Enterprises 99 ITR 375, the jurisdictional High Court has categorically held that failure of the Assessing Officer to conduct the required enquiry and accepting the statement of the asse....
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.... down by the Hon‟ble Supreme Court in the case of Distributors (Baroda), referred to supra though the decision is in relation to the Income-tax Act, 1922 would apply in all force in relation to the Income-tax Act, 1961. A principle laid down by the Hon‟ble Supreme Court is to be followed and if this principle is applied to the facts of the present case, it is noticed that the view as taken by the AO in the scrutiny assessment is a plausible view. Further, it cannot be said that the AO has not applied his mind. This being so, we are of the view that the order of the CIT is bad in law insofar as the view taken by the AO is a plausible view. In the circumstances, the order of the CIT as passed u/s 263 on 07.03.2008 in the case of this assessee for AY 2003-04 is quashed." 6. The neat submission of the learned counsels for the Revenue is that the entire approach of the Tribunal was erroneous inasmuch as it discussed the matter from a wrong angle and thus, arrived at wrong conclusion. In this behalf, it was submitted that the AO had himself accepted the dividend income as income from other sources. However, without discussing as to whether it could assume the character of bu....
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.... "Income from other sources", namely :- (i) Dividends; (ia) Income referred to in sub-clause (viii) of clause (24) of section 2; (ib) Income referred to in sub-clause (ix) of clause (24) of section 2; (ic) Income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head "Profits and gains of business or profession"; (id) Income by way of interest on securities, if the income is not chargeable to income-tax under the head "Profits and gains of business or profession"; (ii) Income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head "Profits and gains of business or profession"; (iii) Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession"; (iv) Income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable to income-ta....
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....not cease to be part of income from business if the securities are part of trading assets. Gujarat High Court in the case of Additional Commissioner of Income Tax Vs. Laxmi Agents P. Ltd., 125 ITR 227 followed the aforesaid principles and summed up the legal position in the following manner: "In is thus clear that even though an item of income falls under a specific head, in spite of the fact that that item is earned for the purpose of business, for purposes other than the computation of income, the commercial character of that income can be taken into account. In the case before us, the commercial character of that income becomes helpful to us in determining whether the borrowing on which the interest is paid was for the purposes of business. We therefore, conclude on the second question that the Tribunal was right in holding that though the income from dividend has to be assessed under a separate head, payment of interest by the assessee on amounts borrowed for purposes of investments must be allowed as business expenditure, and not as expenditure incurred for earning dividends. This, therefore, settles question No. 2." 12. It would, therefore, be immaterial as to under ....
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.... totally silent and there is no discussion as to how this dividend income was to be given the character of business income for the purpose of set off under Section 72 of the Act. It was for this reason that the CIT held that the AO had not conducted any inquiry. The Tribunal, instead of appreciating these facts, went into the merits of the issue which the AO is supposed to deal with. It addressed the question as to whether dividend income could be given the character of business income and then observed that the view taken by the AO was plausible without appreciating that the AO had not even taken any view on this issue, it could not be said that the AO had not applied his mind. The entire reading of the assessment order clearly demonstrates that no such view is taken at all by the AO on this aspect. It is intriguing, in the circumstances, as to from where the Tribunal came to the conclusion that the view taken by the AO was plausible or that the AO had applied his mind. 14. The Tribunal failed to appreciate the limited scope of appeal before it, viz., the validity of the order passed by the CIT exercising his revisionary power under Section 263 of the Act. Order of the CIT ....