2007 (1) TMI 209 - AT - Income Tax

Summary

Issues Involved:
1. Validity of action taken u/s 147/148 of the IT Act.
2. Disallowance of claim of deductions u/s 80-IA of the IT Act.
3. Netting of interest income.

Summary:

1. Validity of action taken u/s 147/148 of the IT Act:
The assessee challenged the initiation of proceedings u/s 147 and the subsequent notice u/s 148 on three grounds. Firstly, the reassessment proceedings initiated on the basis of audit objection were invalid, citing case laws such as Indian & Eastern Newspaper Society vs. CIT. Secondly, the original return was processed within the permissible period, and thus, the AO had no power to issue notice u/s 148, supported by the case of Vipin Khanna vs. CIT. Thirdly, it was argued that there was a change of opinion by the AO, making the notice u/s 148 invalid. The Departmental Representative countered these arguments by citing cases like New Light Trading Co. vs. CIT and N. Sandeep Reddy vs. Asstt. CIT, asserting that reopening based on audit objections is permissible. The Tribunal concluded that since the return was processed summarily u/s 143(1)(a) without an order u/s 143(3), the AO had not applied his mind, and thus, there was no change of opinion. The proceedings u/s 147 and the notice u/s 148 were held valid.

2. Disallowance of claim of deductions u/s 80-IA of the IT Act:
The assessee's claim for deduction u/s 80-IA on interest from Vikas cash certificates was disallowed by the AO, treating it as "income from other sources" rather than "business income." The CIT(A) upheld this decision, referencing several judicial pronouncements, including K. Ravindernathan Nair vs. Dy. CIT and Cambay Electric Supply Industrial Co. Ltd. vs. CIT. The Tribunal agreed with the CIT(A), stating that the interest earned on Vikas cash certificates does not have a direct nexus with the industrial undertaking and thus cannot be considered as profits and gains derived from the business. The Tribunal upheld the disallowance of the deduction u/s 80-IA.

3. Netting of interest income:
The assessee's alternative plea for netting of interest income was also rejected. The CIT(A) and the Tribunal both held that since the interest income was assessed under "income from other sources," only expenses directly incurred to earn that interest could be set off, which was not evidenced by the assessee. The Tribunal cited the Supreme Court's decision in CIT vs. Dr. V.P. Gopinathan and other relevant case laws to support this conclusion. Consequently, the benefit of netting of interest was not allowed.

Conclusion:
The appeal of the assessee was dismissed, upholding the validity of the proceedings u/s 147/148, the disallowance of the deduction u/s 80-IA, and the rejection of the netting of interest income.