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TMI Blog2005 (12) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), even though the facts of the appellant's case are clearly distinguishable from the facts of the case decided by Hon'ble Supreme Court. He has also grievously erred in not considering the post McDowell developments wherein the Courts (including the Supreme Court) have clearly held that McDowell does not apply in each and every case, when some tax benefits have accrued, and that was never the intention of McDowell. (v) In holding that the scope and ambit of s. 14A not only covers the expenditure being claimed as deduction, while computing the total income under Chapter IV, but also the claim of set off/carry forward of the capital loss suffered in due course of time. (vi) In upholding the disallowance of expenditure of Rs. 15,329 on account of finance charges and of Rs. 11,000 on account of bank charges. (vii) The learned CIT(A) has further erred in confirming the additions after changing the basis, which has been done without giving the appellant a reasonable opportunity of rebutting the same." 3. The first grievance relates to treatment of agricultural income as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been purchased by M/s Ajay Trading Co. or that the sales bill issued by M/s Ajay Trading Co. was bogus. Therefore it cannot be presumed that the assessee has not cultivated any crop. As the assessee has claimed the net income as agricultural income which is very reasonable looking to the area of agricultural land held by the assessee, non-furnishing of details regarding expenditure incurred in cultivation cannot be a ground for total disallowance of agricultural income. Even if it is assumed that expenditure on cultivation was more than what has been shown by the assessee, will ultimately go to increase the net agricultural income, which is tax-free. It is also not the case of the Revenue that production and sale of Tal was not there or that the party, M/s Ajay Trading Co., has denied the purchase of the same from the assessee. Moreover the fact that the assessee has for the first time shown agricultural income cannot be a ground for disallowance of agricultural income genuinely earned by the assessee. 7. In view of the above and keeping in view the totality of facts and circumstances of the case we direct the AO to treat Rs. 20,000 as agricultural income out of net agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income at Rs. 1,39,829 comprising interest from the firm-Rs. 14,168, rent income-Rs. 37,000 and other income-Rs. 88,661. After the service of notice under s. 142 on 29th Oct., 2002, a revised return has been filed showing total income of Rs. 1,39,829 as per the original return, agricultural income of Rs. 24,448 and net loss of Rs. 15,67,127 under the head 'Capital gains' as short-term capital loss. In the working of short-term capital loss, the assessee has shown short-term capital gain of Rs. 2,91,570 on sale of various shares and loss of Rs. 18,58,697 on purchase and sale of various shares of M/s Kothari Pioneer Mutual Fund. In addition to this, in the revised return, the assessee has shown dividend income of Rs. 16,04,621 from M/s Kothari Pioneer Mutual Fund and it is claimed as exempt. The AO noted that the assessee purchases shares worth Rs. 1 crore on 17th Jan., 2001 and on 19th Jan., 2001 the said shares were sold for Rs. 81,41,302. Thus, the assessee has incurred loss of Rs. 18,58,697. During the course of assessment proceedings, it was explained that on payment of margin money of Rs. 5,17,754 the assessee got loan of Rs. 1 crore on 17th Jan., 2001 from Birla Global Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B), wherein it was held that such transaction cannot be considered as colourable device and the assessee's claim for short-term capital loss was allowed as arising out of genuine business transaction. 13. We have carefully gone through the impugned order of the Tribunal, Special Bench and found that following was the observation of the Special Bench: "The Revenue's argument 'B' was that the assessee purchased units of mutual fund during the two assessment years just on the eve of record date when the amount of dividend declared had become a foregone conclusion. It was argued that the assessee bought units cum-dividend and sold units ex-dividend and, therefore, the difference between sale price and purchase price should be treated as cost of earning dividend and not a loss incurred by the assessee on its transaction of purchase and sale of units. There is considerable difference between the equity shares and mutual fund units. While shares of a company are traded in a stock exchange based on several factors impacting demand and supply for the stock, the units of a mutual fund are traded on the NAV of the mutual fund. When the amount of dividend declared by a company in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see claims in the computation of his income chargeable to tax. Such expenditure if found to have been incurred in relation to income exempt under Chapter III shall be disallowed by virtue of the provisions of s. 14A. In the instant case, the assessee had claimed expenditure on purchase of the units of CMF and SMF against subsequent sale of those units. Those sale proceeds were income chargeable to tax under Chapter IV and were not exempt under any provision of Chapter III. Purchase price of units is an expenditure to which disallowance provision of Chapter IV would squarely apply. Further there is no conflict between Chapter III and s. 14A and even if there is one, the meaning of the provisions of s. 14A being unmistakably clear, the provisions have to be given effect to by way of harmonious construction. Provisions of s. 14A cannot be considered defunct or redundant for the reason only that these provisions should have been inserted in Chapter III and not Chapter IV. After all both Chapter III and Chapter IV are an integral part of the same enactment. Further, there was no expenditure incurred by assessee in respect of the income from units. It could not also be accepted that pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt of dividend while furnishing the original return of income under s. 139(1) of the Act. It was only at the stage of revising the return of income that the short-term capital loss (and the corresponding receipt of dividend, being the exempt income) was claimed as having been incurred, so as to carry forward the same to the next assessment year. It was the argument of the learned Departmental Representative that the scope of s. 139(5) is limited to revising the return of income furnished under s. 139(1) and not in respect of the return of loss which has not been furnished under s. 139(3). This being so, even the revised return of income should bear the character of the return of income furnished under s 139(1) and the same cannot change its colours, so as to become the return of negative income, being furnished under s. 139(3). As an alternative argument, the learned Departmental Representative strongly contended that the revised return was furnished after the receipt of the scrutiny notice issued by the Department under s. 143(2) of the Act, and after the return of income was processed under s. 143(1). Attention was accordingly drawn to the provisions of s. 139(5) of the Act, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clerical act on the part of the Department and the same cannot, therefore, be treated as assessment, within the meaning of what has been specified in s. 139(5). In support of this, it was further argued by the Authorised Representative that prior to 1st June, 1999, s. 143(1)(a) of the IT Act expressly permitted the AO to carry out certain adjustments, as specified at the first proviso to that section, at the very stage of processing the return of income, so as to practically re-calculate the Income or the loss declared by the assessee, without subjecting the return to the scrutiny. Despite the fact that the AO could make several specified adjustments in the return of income so furnished, Courts have held that such an order or the intimation passed under s. 143(1)(a) could not be treated as an assessment. Reliance was placed on Pradeep Kumar Har Saran Lal vs. AO (1997) 141 CTR (All) 37 : (1998) 229 ITR 46 (All), Peico Electronics & Electricals Ltd. & Anr. vs. Dy. CIT (2000) 160 CTR (Cal) 365 : (1999) 236 ITR 702 (Cal), Apogee International Ltd. vs. Union of India & Anr. (1997) 137 CTR (Del) 93 : (1996) 220 ITR 248 (Del), Mahanagar Telephone Nigam Ltd. vs. Chairman, CBDT & Anr. (200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. In all other situations, it has been provided in the first proviso to s. 143(1) itself that the acknowledgement of the return of income shall be deemed to be an intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him. 19. Furthermore s. 139(5) clearly speaks of "any omission or any wrong statement", meaning thereby that the omission or the wrong statement may be of any type, and there cannot be any reservation or restrictions in the meaning of these terms. The purpose of s. 139(5) is to enable the assessee to voluntarily and suo motu correct any omission or any wrong statement, so as not to damage a person acting without mala fide intentions. The only condition to be taken care of while doing this is that the same can be done only before the completion of the assessment and within the specified timeframe. The very purpose of the statute is thus to ensure that any admission of omission or wrong statement has to be voluntary one, within the specified time-limit and must have been made before the same has been detected by the Department in the assessment order. Nowhere in the section, or anywhere else in the IT Act for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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