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2023 (9) TMI 551 - KERALA HIGH COURTRevision u/s 263 - correct head of income - assessment of interest income -“business income” as against the head of “income from other sources” - whether the Principal Commissioner of Income Tax was justified in rendering findings on the merits of the claim for interest expenses while setting aside the assessment order and remanding the matter for fresh consideration of the said issue by the assessing authority? - HELD THAT:- As already noticed, the Principal Commissioner was of the view that the interest earned by the appellant, through lending the deposited amounts to its partners, could not be treated as the business income of the appellant but had rather to be assessed under the head of “income from other sources” and consequently no expenses could be set off against the said income earned by the appellant. However, on the Principal Commissioner deciding to remand the matter to the assessing authority for verification of the causal link between the expenses incurred by the appellant and the income earned by it by way of interest, he ought not to have rendered a finding that the appellant was not entitled to claim set off of the expenses against the said income. The effect of Annexure E order of the Principal Commissioner is to effectively preclude the assessing authority from enquiring into whether or not there was a causal link between the incurring of the expenditure and the earning of interest income that was assessed in the hands of the appellant during the year in question. In our view, this ought not to have been done, especially when, in the ultimate analysis, what the Principal Commissioner did, in the exercise of its powers under Section 263 of the Income Tax Act, was to set aside the assessment order on this issue and remand it to the assessing authority for a de novo consideration on merits. In the result, while we see no reason to interfere with the order of the Commissioner under Section 263 of the Income Tax Act to the extent it remands the matter to the assessing authority for determining the nature of the income - whether business income or income from other sources - we set aside those findings of the Commissioner in Annexure E order that decides the issue on merits and leaves, no scope for an enquiry by the assessing authority as regards the causal link, if any, between the incurring of expenditure and the earning of the interest income during the previous year in question. We are of the view that the assessing authority must determine the issue afresh based on the directions of the Principal Commissioner in Annexure E order but untrammeled by those findings in the said order that we have set aside in this judgment.
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