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Issues Involved:
1. Reopening of assessment under section 147. 2. Assessment of interest income under the head "Income from other sources." 3. Setting off bank interest paid against the interest earned. 4. Deduction under section 10B for interest income earned on FDRs. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147: The first issue pertains to the reopening of assessment under section 147 of the Income-tax Act, 1961. The assessee, a 100% export-oriented unit, filed a return for the assessment year 2000-01 declaring NIL income after claiming a deduction under section 10B. The Assessing Officer (AO) issued a notice under section 148, citing that income from bank FDRs, taxable as "Income from other sources," had escaped taxation. The Tribunal admitted the additional ground raised by the assessee, challenging the validity of the reopening under section 147, citing the lack of fresh material. The assessee argued that the reopening was merely to circumvent the issuance of notice under section 143(2). The Tribunal, however, upheld the reopening, stating that the AO had relevant material to form a belief of income escapement and that the sufficiency of reasons is not a matter for judicial scrutiny. The Tribunal concluded that the reopening was justified as the AO had not formed any opinion under section 143(1), and thus, the question of change of opinion did not arise. 2. Assessment of Interest Income under the Head "Income from Other Sources": The second issue involved the assessment of interest income earned on FDRs. The AO assessed the interest income under "Income from other sources" and not as business income, which was upheld by the CIT (Appeals). The Tribunal referred to various judicial pronouncements, including the decision in the case of Shri Ram Honda Power Equip., which provided guidelines on when interest income should be assessed under "Other sources." The Tribunal noted that the nature of interest income was not examined by the AO and remanded the matter back to the AO to re-examine the nature of interest income in light of judicial guidelines. 3. Setting Off Bank Interest Paid Against the Interest Earned: The third issue was whether the bank interest paid could be set off against the interest earned while computing "Income from other sources." The AO did not allow the set-off, and the CIT (Appeals) upheld this decision. The Tribunal referred to the decision in Shri Ram Honda Power Equip., which allowed netting of interest if there was a direct nexus between the interest paid and interest earned. The Tribunal remanded the matter back to the AO to examine the nexus between the interest paid and interest earned and to allow netting if a direct nexus was established under section 57(3). 4. Deduction under Section 10B for Interest Income Earned on FDRs: The fourth issue involved the deduction under section 10B for interest income earned on FDRs for the assessment years 2001-02 and 2002-03. The Tribunal noted that the language of section 10B was amended with effect from 1-4-2001, changing the scope of eligible income for deduction. Prior to the amendment, any profits and gains derived from a 100% export-oriented undertaking were eligible for exemption, requiring a direct nexus between the income and the industrial undertaking. Post-amendment, the profits should be derived from the export of articles or things or computer software. The Tribunal remanded the matter back to the AO to re-examine the claim of the assessee for exemption under section 10B in light of the amended provisions applicable from 1-4-2001. Conclusion: - The appeal regarding the reopening of assessment under section 147 was dismissed, upholding the AO's jurisdiction. - The issue of assessing interest income under "Income from other sources" was remanded for re-examination. - The matter of setting off bank interest paid against interest earned was remanded to examine the direct nexus. - The deduction under section 10B for interest income earned on FDRs was remanded for assessment under the amended provisions effective from 1-4-2001. The appeals were partly allowed for statistical purposes, with specific directions for re-examination by the AO.
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