TMI Blog2011 (5) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... s restored, the impugned order dated 22.06.2009 and order dated 02.02.2010 passed by the CIT (A) and the AO are set aside and the matter is restored to the file of the CIT (A) to decide the appeal of the assessee on merits insofar as challenge of the assessee to orders dated 30.07.2008 passed by the AO under Section 143(3)/263 of the Act is concerned - Appeal is disposed of - ITA NO. 270 & 1345 OF 2010 - - - Dated:- 11-5-2011 - A.K. SIKRI M.L. MEHTA, JJ. JUDGMENT A.K. SIKRI, J. 1. The assessment order passed by the Assessing Officer (AO) in respect of Assessment Year 2003-04 was tinkered with by the Commissioner of Income Tax (CIT) in exercise of its powers under Section 263 of the Income Tax Act (hereinafter referred to as the Act‟). The CIT was of the opinion that the AO had not done his job properly while making the assessment inasmuch as in respect of certain items, the AO did not bestow any consideration or applied his mind leading to escapement of income. He, thus, restored the matter back to the file of AO for deciding the said issue afresh. This order of the CIT passed under Section 263 of the Act was successfully challenged by the assessee before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly allowed the set off of the brought forward losses against this income, which was not the income from business but the income from other sources. He observed that the provisions for carry forward and set off of business are provided under Section 72(1) of the Act which provides that losses of business and profession can be carried forward and set off against the profit from business and profession in the subsequent year and cannot be set off against the subsequent incomes falling under the head Income from Other Sources . He, thus, was of the opinion that allowing the set off of brought forward business loss to the extent of ₹ 44,51,317/- had resulted in the assessment which was erroneous and prejudicial to the interest of Revenue. Show cause notice was given to the assessee, who filed its reply contending that the assessee was engaged in the business of investment and was holding the shares of other companies of the same group. Investment was meant for control and management of investee companies. The shares constituted the business asset of the company and dividend earned from such investment was in nature of business income and this income was eligible for set off ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack to the file of AO for deciding the issue afresh. 5. The Tribunal while quashing the aforesaid order of the CIT examined the nature of the dividend income earned by the assessee and on application of certain case laws came to the conclusion that the said income could be treated as business income as dividend was earned from the shares and securities held in the other companies in the same group. The view of the AO was, therefore, a plausible view and it could not be said that the AO had not applied his mind. Relevant portion of the order of the Tribunal, which discussed this aspect is reproduced below: The CIT has held that the assessment order is erroneous insofar as prejudicial to the interest f revenue to the extent of allowing set off of brought forward of business losses against the dividend income without examination of facts and proper enquiry. it is further noticed that the Hon‟ble Supreme Court in the case of Distributors (Baroda Pvt., referred to supra has categorically held that the investment made by the assessee company in the shares in the managed company are essentially linked with its managing agency business. It is noticed that in the assessees case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excellent Commercial Enterprises and Investment Ltd. 282 ITR 42 (iv) Commissioner of Income Tax Vs. Amalgamations (P) Limited 226 ITR 188 (SC) Mr. Vohra also invoked the principles of consistency and referred to certain judgments in support of his submission. 8. We have considered the rival submission. It is an admitted fact that the assessee is a non-banking finance company engaged in the business of investment in shares, securities, other debt instruments and financing loans and providing guarantees. The income of the assessee comprises of receipts from interest on loans and securities, professional income as well as dividend income and entire income was shown under the head Income from Business and Profession‟, by the assessee. The CIT observed that the balance sheet of the assessee company shows that all the investments in shares of bodies corporate was grouped as long-term investment and no part of investment had been considered stock-in-trade and was not grouped as part of current assets. Section 14 of the Act stipulates different heads under which income is to be assessed. Dividend income is assessable under the head Income from other sources‟. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Incometax Act for computation. This principle was repeated by the Supreme Court in Cocanada Radhaswami Bank Ltd. (supra) . In that case, the facts situation was somewhat similar. The assessee had earned some interest income on the securities and the brought forward loss was sought to be set off against the income even computed under the head interest on securities . The Court opined that the assessee was entitled to set off the loss brought forward against the entire income not only the income computed under the head business‟ but also the interest and securities in succeeding years. Following observations in the said judgment give the rationale for permitting this course of action: The scheme of the Income-tax Act is that income-tax is one tax. Section 6 of the Income-tax Act, 1922, classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. Though, for the purpose of computation of the income, interest on securities is separately classified, income by way of interest from securities does not cease to be part of income from business if the securities are part of the trading assets. Whether a particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as income from business and not income from other sources. No distinctive features have been placed before us which could persuade the Court to take a view different than the one which has been taken in the above orders. Even otherwise, it would be a finding of fact based and referable to the records which were produced before the Income-tax Tribunal. Once it is held that the shares held by the assessed as a stock in trade and the income whether directly or incidentally for holding of such shares as stock-in-trade, would be business income then it cannot be said that the dividend income would fall as an income from other sources as contemplated under section 56 of the Act and that set off of under section 72 of the Act in subsequent year would not be permissible 13. So far so good. But the relevant question, which is the core one and led CIT to pass the order under Section 263, of the Act is as to whether the AO applied his mind to the issue as to whether the dividend income could be given the character of business income for the purpose of set off. We have already taken note of the order of the AO. He recorded that even a dividend income in question was shown as business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his revisionary jurisdiction to interfere with that order and referred to the judgment of the Punjab and Haryana High Court in the case of Commissioner of Income Tax Vs. Max India Ltd. 268 ITR 128 which is approved by the Supreme Court in the case of Commissioner of Income Tax Vs. Max India Ltd. 295 ITR 282 . However, this argument based on the aforesaid judgment \ is of no avail in the facts of the present case when it is found that the AO had not examined the issue at all and therefore, question of there being a plausible view does not arise. 16. We, thus, answer the question formulated above, in favour of the Revenue and against the assessee, as a result, the impugned order passed by the Tribunal is set aside. 17. However, there shall not be order as to costs. ITA No.1345/2010 18. Insofar as this appeal is concerned, after the CIT had passed the order under Section 263 of the Act, the AO in order to give effect to the same, passed order dated 30.07.2008 under Section 143(3)/263 of the Act. This order was challenged by the assessee before the CIT (A). Since the Tribunal had quashed the order of CIT under Section 263 of the Act vide de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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