TaxTMI 
TaxTMI 
2011 (2) TMI 1580
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....Act. In assessment order u/s.143[3] for A.Y 2002-2003, it was found that the assessee was paying interest expenses of Rs. 1635493/- against unsecured loan of Rs. 17544902/-. The entire loan was taken from two directors of the assessee company and interest amount of Rs. 14,28,063/- and Rs. 2,07,490/- were paid to Shri Anil Kumar Agarwal and Smt. Arati Agarwal respectively @ 12% per annum. This unsecured loan had been invested in acquiring the unquoted shares of subsidiary company M/s India Finance and Construction Co. Pvt. Ltd. (IFCCPL). The assessee invested Rs. 1,60,00,000/- [P.Y Rs. 1,10,00,000/-] in acquiring 20,000 shares of IFCCPL of Rs. 1000/- each Rs. 800/- paid up [face value of Rs. 1000 per equity shares]. The shares were declared as investment in the balance sheet. The borrowed fund had not been used for any business activities but for investment in shares. Dividend income, if any, is tax free u/s.10(33) of the I.T.Act. Therefore, interest claimed was disallowed u/s.14A of the I.T.Act after providing transaction wise nexus between the borrowed fund and investment. Alternatively, it was also held that interest expenses are capital expenditure to control i....
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....t order for A.Y 2002-2003 was passed on 23-3-2005. He argued that since the material on the basis of which assessment has been re-opened, is in turn based on the assessment for A.Y 2002-2003, therefore, AO could have very well selected the return for this year under scrutiny and issued notice u/s.143[2] whereas AO has ignored this provision and went on to reopen the assessment. 5. He then referred to the decision of the Hon'ble Bombay High Court in the case of Balkrishna Hiralal Wani 321 ITR 519 wherein it was clearly held that assessment could not be reopened if there was no tangible material before the AO. He particularly referred to the observations of the court at page 523 wherein it was clearly observed that even if there is no assessment order passed u/s.143[3], unless AO has a tangible material, the assessment could not be reopened. 6. On merits, he submitted that in assessee's own case the issue has already been decided in favour of the assessee in I.T.A.No.15/Mum/2006 for A.Y 2002-03. In that case an addition u/s.14A was deleted mainly because assessee did not have any income which was exempt, however, he admitted that this decision was rendered before the decision o....
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....wise nexus between the borrowed fund and investment. Alternatively, it was also held that interest expenses are capital expenditure to control interest in a subsidiary Group Company. The ld. CIT(A) dismissed the appeal against the additions. In A.Y 2004-2005, there was unsecured loan of Rs. 1,58,81,352/- and Rs. 152,77,108/- as on 31-03-2003 respectively. Investment of Rs. 1,60,00,000/- was also there. Therefore, this year also, the borrowed fund had not been used for any business activities but for investment in shares. The issue involved is same as that of issue for A.Y 2002-2003. Claimed interest expenses of Rs. 12,24,308/- should be disallowed u/s.14A. On this ground, income chargeable to tax of Rs. 12,34,308/- has escaped assessment as per section 147 of the Act. For previous year ending on 31-03-2004, the assessee has shown income of Rs. 12,30,720/- from share trading without showing any details of trade share. The assessee did not have any opening stock or closing stock. Therefore, share trading income is nothing but speculation profit. Business loss cannot be adjusted against speculation profit. On this ground, income chargeable to tax of Rs. 12,30,720/- h....
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....of a profession." Thus, in above case, it is clear the reopening was quashed on the basis that clause 35 had no application. We further find that the Hon'ble High Court has also made the following observations at page 523 which are as under: "Though in the present case, notice under section 148 has been issued within a period of four years of the expiry of the relevant assessment year and there is no order of assessment under section 143(3), nonetheless, in view of the well settled position of law, it is urged that the Assessing Officer must have tangible material on the basis of which he can have a reason to believe that income has escaped assessment. In the present case, it is submitted that there was a total absence of any tangible material to form a belief. The existence of belief must be tested on the basis of the reasons recorded." Thus, above observations clearly shows that the assessment cannot be reopened unless and until tangible material is available with the AO. In the case before us, this material came to the knowledge of the AO in the form of assessment order passed u/s.143[3] for A.Y 2002-03 on 23-3-2005. Even the Ld.counsel of the assessee accepted th....