2015 (2) TMI 4 - AT - Income Tax

Reopening of assessment - reason to believe - Held that - Non supplying of the reasons for reopening has vitiated the entire reassessment proceedings at the threshold, as per the decision of the Hon ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs CIT reported in (2002 (11) TMI 7 - SUPREME Court). In such a case we set aside the order of the CIT(A) and restore the case to the file of the AO, with a direction that the AO shall supply the reasons to the assessee and on receipt of the objections, he shall first dispose off the objections of the assessee and then proceed to frame the assessment. - Decided in favour of assessee for statistical purposes. Receipt of interest income - business income v/s income from other sources - Held that -We cannot accept the reasoning of the revenue authorities wherein they have simply ignored the documents produced before them because the requisite documents were produced before the revenue authorities. We are of the opinion that interest received from Maneklal Bhandari at ₹ 8,99,120/- is to be treated as business income. However, interest on Income tax refund at ₹ 44,241/- is to be treated as income from other sources. We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to treat the receipt of interest income from Mr. Maneklal Bhandari as business income (Rs. 8,99,120/- ). - Decided partly in favour of assessee. Disallowance of expenses - AO disallowed the expenses because there was no business of the business with regard to housing development - Held that - It is a fact that there was a slowness in the business of the assessee but the assessee, as we have observed in the previous GOA, had diversified its business to housing finance and was maintaining its business premises and business modus. This clearly shows that the assessee was carrying on the business and the expenses being incurred were business expenses. It is also a fact that there is no claim of the revenue authorities to hold the expenses to be non genuine. In such a circumstances, we are inclined to accept the arguments and GOA of the assessee to allow the expense, as disallowed. - Decided in favour of assessee.

Issues Involved:
1. Legality of reopening assessments under section 148.
2. Classification of interest income as "Income from other sources" vs. "Profits and gains of business or profession."
3. Disallowance of various business expenditures.
4. Levy of interest under section 234B.

Detailed Analysis:

1. Legality of Reopening Assessments under Section 148:
The appellant contended that the reopening of assessments under section 148 was illegal, null, and void, as the assessments for earlier years on similar issues were completed after thorough scrutiny, and the reasons for reopening were not communicated. The Tribunal observed that the assessee had requested the reasons for reopening through letters dated 14.04.2005 and 23.04.2005, which were not supplied by the revenue authorities. This non-supply of reasons vitiated the reassessment proceedings at the threshold, as per the Supreme Court decision in GKN Driveshafts (India) Ltd. vs CIT. Consequently, the Tribunal set aside the orders of the CIT(A) for assessment years 1998-99 to 2001-02 and restored the cases to the AO with directions to supply the reasons to the assessee and dispose of the objections before framing the assessment. Therefore, the appeals for these years were allowed for statistical purposes.

2. Classification of Interest Income:
For the assessment year 2002-03, the appellant argued that the interest income should be classified under "Profits and gains of business or profession" rather than "Income from other sources." The Tribunal noted that the appellant had passed a board resolution to embark on the housing finance business and obtained necessary clarification from the RBI. Despite this, the revenue authorities treated the interest income as "Income from other sources" because the appellant was primarily in the business of property development and not a Non-Banking Financial Company (NBFC). The Tribunal found that the interest received from Maneklal Bhandari should be treated as business income, while the interest on the Income Tax refund should be treated as income from other sources. Thus, the Tribunal set aside the order of the CIT(A) and directed the AO to treat the interest income from Maneklal Bhandari as business income.

3. Disallowance of Various Business Expenditures:
The appellant contested the disallowance of Rs. 11,85,083/- in business expenditures. The revenue authorities disallowed these expenses, arguing that there was no business activity related to housing development. However, the appellant provided audited accounts and details filed with the ROC to show that the business was ongoing, albeit slow. The Tribunal acknowledged that the business was being carried on and the expenses were genuine business expenses. Therefore, the Tribunal set aside the CIT(A)'s order on this issue and directed the AO to allow the expenses aggregating to Rs. 11,85,083/-.

4. Levy of Interest under Section 234B:
The appellant argued against the levy of interest under section 234B. The Tribunal stated that the levy of interest is consequential to the final outcome of the tax computation and directed the AO to charge interest as per law and judicial precedents.

Conclusion:
- Appeals for assessment years 1998-99 to 2001-02 were allowed for statistical reasons.
- Appeal for the assessment year 2002-03 was partly allowed, with the Tribunal directing the AO to treat interest income from Maneklal Bhandari as business income and to allow the disallowed business expenses. The levy of interest under section 234B was to be charged as per law.

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