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2015 (4) TMI 761 - ITAT CHENNAI

2015 (4) TMI 761 - ITAT CHENNAI - TMI - Reopening of assessment - Treatment of Interest income before and after cancellation of NBFC certificate - Dis-allowance under section 14A of the Income Tax Act,1961 - Held that:- We notice that the NBFC certificate has been cancelled only on 7.3.2005. Hence in the financial year relating to the AY 2004-05 and in the substantial part of financial year relating to the AY 2005-06, the assessee was holding NBFC certificate. Hence, the reason of the Assessing .....

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the assessee that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Accordingly, we set aside the order of Ld CIT(Appeals) on the issue of re-opening of assessment for AY 2004-05 and 2005-06 and accordingly quash the assessment orders passed for the above said two years.

We further notice that the assessee has received interest income only from M/s South India Investments & Associates during the financial years rele .....

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the interest income as its business income. If the interest income is assessed under the head income from other sources, then the assessee would not be entitled to set off the brought forward business loss against the income declared under the head Income from other sources. In that case, the total income of the assessee would go up by the amount so set off. Hence, in our view, there was reason with the AO to believe about escapement of income in AY 2006-07. Accordingly we uphold the re-opening .....

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has intended to include all investments, the Ld A.R agreed to the same. Accordingly, this ground of the assessee is also dismissed. - Appeals filed by the assessee for Assessment years 2004-05 and 2005-06 are allowed and the appeals filed for AY 2006-07 and 2009-10 are dismissed. - ITA Nos. 52, 53, 54 & 55/Mds/2013 - Dated:- 11-3-2015 - Shri B.R. Baskaran And Shri Vikas Awasthy JJ. For the Appellant : Shri S. Sridhar, Advocate For the Respondent : Shri P. Radhakrishnan, JCIT 11.03.2015 ORDER Pe .....

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ive rise to following two issues:- (a) Validity of reopening of assessment under Section 147of the Income-tax Act, 1961. (b) Correctness of assessing the interest income under the head income from other sources instead of assessing the same as business income. 3. For assessment year 2009-10, following issues are urged:- (a) Correctness of assessing the interest income under the head income from other sources instead of assessing the same as business income. (b) Disallowance made under Section 14 .....

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e assessee to carry on the business of non-banking financial institution, subject to the conditions prescribed thereon. The Ld. Counsel submitted that the assessee has opted to exit from the NBFC regulations and has accordingly requested cancellation of certificate of registration issued by RBI. Accordingly, the RBI has cancelled the registration, vide its letter dated 07.03.2005. Accordingly, the earlier name of the company, viz., M/s South India House Investment Ltd , was changed into the pres .....

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completed under Section 143(3) of the Act, on 23.10.2006, accepting the interest income as business receipts of the assessee. The returns of income filed for AY 2005-06 and 2006-07 were accepted u/s 143(1) of the Act. 6. The assessing officer took up the return filed for AY 2009-10 for scrutiny. At that point of time, the Assessing Officer re-opened the assessments of AY 2004-05 to 2006-07 by issuing notices under Section 148 of the Act. He submitted that, in all these four years, the Assessing .....

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-opening of assessment for AY 2004-05, the Ld A.R submitted that the original assessment was completed u/s 143(3) of the Act and the notice for re-opening of assessment was issued after expiry of four years from the end of the relevant assessment year. He submitted that there is no allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Accordingly he submitted that, in view of the first proviso to sec. 147 of the Act, the re .....

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following the same he has reopened the assessment of other three years. He submitted that the Assessing Officer did not have any tangible material to entertain the reason to believe about escapement of income. Accordingly he submitted that the reopening of assessment for these two years is also bad in law. 9. On merits, he submitted that the assessee has all along been showing the interest income as its business income and the Assessing Officer has decided to assess the same as income from other .....

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bsidiaries only and not from outsiders. He further submitted that the assessee has surrendered its certificate as NBFC and hence the Ld CIT(Appeals) was justified in confirming the assessment of interest income as income from other sources. With regard to the re-opening of assessment, the Ld D.R submitted that the assessee has adjusted the brought forward losses against interest income, which the assessee was not entitled to. Accordingly he submitted that the said set off has resulted in escapem .....

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e that the assessee itself has filed application with the RBI for cancellation of Certificate as NBFC and accordingly, it was cancelled on 7.3.2005. We also notice that the assessing officer has decided to assess the interest income under the head Income from other sources , only for the reason that the NBFC status of the assessee has been cancelled. 12. With this back ground, we shall examine the validity of reopening of assessment of the AY 2004-05 and 2005-06. We have already noticed that the .....

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ares as investment separately. In the computation of income, dividend income earned was held by the assessee as exempt u/s 10(33) of the Income-tax Act, 1961. Excluding the dividend income, the assessee companyhad computed the taxable income asdetailed below: 77,81,402 Business Income Set off against business loss AY 1999-00 36,670 AY 2000-01 72,93,709 1,20,943 77,81,402 NIL Property Income 54,488 Or rounded to 54,490 According to the Profit & Loss account the business income included intere .....

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come from other sources 85,77,230 As carry forward business losses cannot be set off against income from other sources, the interest income of 85,77,230/- is required to be taxed separately under income from other sources as per the regular provisions of the Act. The Assessing Officer has recorded identical reasons for AY 2005- 06 and 2006-07 also. However we notice that the NBFC certificate has been cancelled only on 7.3.2005. Hence in the financial year relating to the AY 2004-05 and in the su .....

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he expiry of four years from the end of the assessment year after completion of assessment u/s 143(3) of the Act. There is no allegation on the assessee that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Accordingly, we set aside the order of Ld CIT(Appeals) on the issue of re-opening of assessment for AY 2004-05 and 2005-06 and accordingly quash the assessment orders passed for the above said two years. 13. We have earlier .....

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g a certificate of registration from the Reserve Bank of India in terms of Section 45-IA of the RBI Act, 1934. Hence, the assessee is prohibited from carrying on NBFC business after surrender of the NBFC certificate. Accordingly, the assessee has also changed its name to confirm to the activities carried on by it. All these facts cumulatively show that the assessee has stopped NBFC business from 7.3.2005 onwards. 14. We further notice that the assessee has received interest income only from M/s .....

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