1983 (2) TMI 104 - AT - Income Tax

Issues Involved:
1. Deduction of interest paid to First National City Bank.
2. Reassessment proceedings under section 147(a) of the Income-tax Act.
3. Finality of original assessment and the impact of reassessment on it.
4. Applicability of judicial precedents on reassessment proceedings.

Issue-wise Detailed Analysis:

1. Deduction of interest paid to First National City Bank:
The assessee, a Hindu Undivided Family (HUF), claimed a deduction of Rs. 31,327 paid as interest to First National City Bank and Life Insurance Corporation against the income from dividends. The Income Tax Officer (ITO) disallowed this claim, reasoning that the income from dividends was exempt under section 80K of the Income-tax Act, 1961. The Appellate Assistant Commissioner (AAC) upheld this disallowance, stating that interest could not be allowed as a deduction from income other than the income from dividends. The Tribunal, however, held that the interest should be allowed as a deduction under section 57 of the Act, following the Supreme Court judgments in Cloth Traders and Rajendra Prasad Moody.

2. Reassessment proceedings under section 147(a) of the Income-tax Act:
The reassessment proceedings were initiated to bring to tax the value of perquisites amounting to Rs. 4,043. The assessee argued that once the assessment was reopened, the original assessment was set aside, and the entire assessment proceedings started afresh. This argument was supported by several judicial precedents, including V. Jaganmohan Rao v. CIT, which held that once an assessment is reopened, the previous under-assessment is set aside, and the whole assessment proceedings start afresh. The Tribunal agreed with this view, stating that the correct total income must be determined in the reassessment, and all legitimate deductions should be allowed.

3. Finality of original assessment and the impact of reassessment on it:
The Commissioner (Appeals) argued that the original assessment order, which had become final, could not be disturbed in the reassessment proceedings. However, the Tribunal found that the reassessment wipes out the original assessment, and the whole assessment proceedings start afresh. This view was supported by several judicial precedents, including Subakaran Gangabhishan and Assam Oil Co. Ltd., which held that once an assessment is reopened, the previous assessment is set aside, and the whole assessment proceedings start afresh.

4. Applicability of judicial precedents on reassessment proceedings:
The Tribunal referred to several judicial precedents to support its decision. In V. Jaganmohan Rao v. CIT, the Supreme Court held that once an assessment is reopened, the previous under-assessment is set aside, and the whole assessment proceedings start afresh. In Cloth Traders, the Supreme Court held that the entire income from dividends should be exempted under section 80K. The Tribunal also referred to judgments in Dr. Ravishanker Tapa v. CIT and CIT v. Assam Oil Co. Ltd., which supported the view that reassessment wipes out the original assessment, and the whole assessment proceedings start afresh.

Conclusion:
The Tribunal allowed the assessee's appeal and directed that the sum of Rs. 31,327 should be allowed as a deduction under section 57 of the Income-tax Act. The Tribunal held that once an assessment is reopened, the previous assessment is set aside, and the whole assessment proceedings start afresh. Consequently, the correct total income must be determined, and all legitimate deductions should be allowed.

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