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S.S. Kanwar (Huf) Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)4ITD120(Delhi)
AppellantS.S. Kanwar (Huf)
Respondentincome-tax Officer
Excerpt:
1. the assessee is a huf of which shri s.s. kanwar is the karta. the previous year for the assessment year 1971-72 ended on 31-3-1971. the assessee filed a return of income on 27-9-1971 declaring income at rs. 98,711. a revised return was filed on 14-3-1974 declaring income at rs. 1,00,490. the gross income from dividend amounted to rs. 92,638 and the income from the shares of bharat steel tubes amounted to rs. 49,066 in respect of which exemption was claimed under section 80k of the income-tax act, 1961 ('the act'). in the assessment made under section 143(3) of the act, on 25-3-1974, the ito allowed deduction under section 80k to the extent of rs. 49,066. the assessee had received interest of rs. 17,032 against which he claimed interest of rs. 31,327 out of which rs. 30,062 was paid to.....
Judgment:
1. The assessee is a HUF of which Shri S.S. Kanwar is the karta. The previous year for the assessment year 1971-72 ended on 31-3-1971. The assessee filed a return of income on 27-9-1971 declaring income at Rs. 98,711. A revised return was filed on 14-3-1974 declaring income at Rs. 1,00,490. The gross income from dividend amounted to Rs. 92,638 and the income from the shares of Bharat Steel Tubes amounted to Rs. 49,066 in respect of which exemption was claimed under Section 80K of the Income-tax Act, 1961 ('the Act'). In the assessment made under Section 143(3) of the Act, on 25-3-1974, the ITO allowed deduction under Section 80K to the extent of Rs. 49,066. The assessee had received interest of Rs. 17,032 against which he claimed interest of Rs. 31,327 out of which Rs. 30,062 was paid to First National City Bank and Rs. 1,265 was paid to Life Insurance Corporation. The assessee had purchased shares of the value of Rs. 3,07,350 of Bharat Steel Tubes by taking initial loans from Union Bank of India and Raunaq & Co. (P).

Ltd. These loans were repaid from year to year. During this year, the assessee took a fresh loan of Rs. 4,00,000 from First National City Bank and repaid the loans to the Union Bank of India and Raunaq & Co.

(P.) Ltd. The ITO did not allow interest paid to the First National City Bank because the income from dividends from the shares of Bharat Steel Tubes was exempt under Section 80K. The claim of interest paid to First National City Bank was also not considered to be admissible against income from other sources. According to the ITO, similar was the position of interest paid by the assessee to the Life Insurance Corporation. The ITO thus brought to tax the interest income of Rs. 17,032 and rejected the assessee's claim for allowance of interest of Rs. 31,327.

2. Against this assessment, the assessee filed an appeal to the AAC.The AAC disposed of the appeal by his order dated 7-7-1975 in Appeal No. 611 of 1974-75. According to the AAC, the correct approach of the ITO would have been to first reduce the dividend of Rs. 49,066 on the shares of Bharat Steel Tubes Ltd. by interest of Rs. 31,327 and then the balance sum of Rs. 17,739 should have been allowed as a deduction under Section 80K. According to the AAC, however, it did not make any difference so far as the net assessed income was concerned. The AAC also observed that interest could not be allowed as a deduction from the income other than the income from dividends from the shares of Bharat Steel Ltd. Thus, the disallowance of Rs. 31,327 was sustained.

No further appeal was filed to the Tribunal.

3. Subsequently proceedings were initiated under Section 147(a) of the Act, to bring to tax a sum of Rs. 4,043 being the value of perquisites on account of electricity and water charges from Raunaq & Co. (P.) Ltd., which were required to be taxed in the hands of the assessee under Section 17(2) of the Act. The notice under Section 148 was issued on 3-9-1979 and was served on 4-9-1979. The return of income was filed on 9-10-1979 declaring total income at Rs. 1,05,770. In this return the assessee declared the perquisite amount of Rs. 4,043 as income but claimed interest of Rs. 31,327. The ITO did not entertain the assessee's claim regarding the sum of Rs. 31,327 and observed that disallowance made in the original assessment, after the order of the AAC which had been accepted by the assessee, had become final. This assessment was completed on 26-6-1980 and the total income determined was Rs. 1,39,223, which included the originally assessed income at Rs. 1,35,180 and the value of perquisites amounting to Rs. 4,043.

4. Against this assessment the assessee filed an appeal to the Commissioner (Appeals) and on the basis of the judgment in V.Jaganmohan Rao v. CIT [1970] 75 ITR 373, claimed that once the assessment was reopened the original assessment was set aside and the whole assessment proceedings started afresh and, therefore, the asscssee's claim for interest should have been allowed. According to the assessee, the necessity for re-agitating the claim of interest had arisen in view of the judgment of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243. The assessee also relied on the judgment in CWT v. Subakaran Gangabhishan [1980] 121 ITR 69 (AP) (FB), wherein it had been held that a reassessment proceeding under Section 17(1) of the Wealth-tax Act wipes out the original assessment and the reassessment can be in respect of not only the items that escaped assessment but also the entire assessment for the year. In support of the submission that claim for deduction of interest which was disallowed in the original assessment, could still be claimed in the reassessment, reliance was also placed on the judgment in CST v.H.M. Esufali H.M. Abdulali [1973] 90 ITR 271 (SC). Reference was also made to the judgment in Sun Engineering Works (P.) Ltd. v. CIT [1978] 111 ITR 166 (Cal.). It was also pointed out that similar claim of interest had been allowed in the assessment year 1970-71 and also in the assessment years 1972-73 to 1974-75 and this was the only assessment in which the claim was not allowed. The Commissioner (Appeals) did not accept the assessee's submissions. He observed that the judgments in V. Jaganmohan Rao (supra) and Sun Engineering (supra) were authorities for the proposition that once proceedings under Section 147 were validly initiated to assess some items of income which had escaped assessment, then other items of income which may have also escaped assessment could also be brought to tax in the revised assessment. According to the Commissioner (Appeals), these judgments did not support the assessee's claim regarding allowance of interest in Section 147 proceedings when such interest had been disallowed in the original proceedings under Section 143(3) and those proceedings had become final. According to the Commissioner (Appeals) the judgment in Cloth Traders (supra) did not help the assessee so far as this year was concerned. He was also of the view that the mere fact that a similar claim had been allowed by the Tribunal in the assessee's case for the assessment year 1970-71 and subsequent assessment years 1972-73 to 1974-75 would not provide any basis for allowing the said claim in this year also, as the rejection of the assessee's claim had become final after the order of the AAC dated 7-7-1975 against which no appeal was filed by the assessee. The assessee is aggrieved by this order of the Commissioner (Appeals).

5. The learned counsel for the assessee submitted that the assessee's claim for interest of Rs. 31,327 should have been allowed in the reassessment proceedings initiated under Section 147(a). He submitted that this claim should be allowed in the light of the judgments in Cloth Traders (supra) and CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC). He first submitted that for determining the issue involved it would not make any difference whether the assessee had made any claim in respect of interest in the original assessment or whether a claim made was disallowed either by the assessing authority or by the appellate authority. He then submitted that when a reassessment was made the previous assessment stood set aside and once it was accepted that on reopening of an assessment under Section 147, the previous assessment was set aside or vacated, all consequences of setting aside an order must necessarily follow either way. He submitted that when the original assessment was set aside by the appellate authority with a direction to the ITO to make a fresh assessment according to law, then a revised return could be filed before the ITO. In such a revised assessment, the ITO, according to him, could change the pattern of income. For example, he could change the head of income in respect of a particular item of income. He then posed a question as to why the ITO should not adopt the same basis when he himself reopened the assessment under Section 147, as there was nothing in law which prevented him from allowing an item of expenditure which was legally admissible but had not been allowed in the original assessment. He referred to the judgment in V. Jaganmohan Rao (supra) wherein it has been held as under: ... Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(6) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. (p. 380) He first submitted that on the basis of the aforesaid judgment it should be held that the previous assessment was set aside and the whole assessment proceedings started afresh by issue of a notice under Section 148. He then submitted that when proceedings were validly initiated under Section 147, the jurisdiction of the ITO was not restricted to the portion of the income on the basis of which a belief was formed that income had escaped assessment, then the same ratio should be applied to the claim in respect of interest paid by the assessee. He submitted that even in an assessment under Section 147, the ITO had to issue a notice under Section 143(2) and when such a notice was issued, it was open to the assessee to make the claim in respect of an expenditure which was legally admissible but it was not allowed in the original assessment. He referred to the judgment in Dy.

CCT v. H.R. Sri Ramulu [1977] 39 STC 177 (SC), wherein it has been held that if an order of assessment is made under Section 12A of the Mysore Sales Tax Act, 1957, the starting point for computing the period of four years mentioned in Section 21(3) of the Act, for the exercise of the powers of revision under Section 21(2), is the order made under Section 12A and not the initial assessment order. The reason for that is that once an assessment is reopened, the initial order for assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. He submitted that for determining the total income of the assessee there had to be only one order and there could not legally be two orders for determining the total income of an assessee for the same year. He also referred to the judgment in Subakaran Gangabhishan (supra), wherein it has been held that a reassessment proceeding under Section 17(1) of the Wealth-tax Act, wipes out the original assessment and the reassessment can be in respect of not only the items that escaped assessment but also the entire assesssment for the year. He further referred to the judgment in Dr. Ravishanker Tapa v. CIT [1983] 139 ITR 862 (MP) wherein also it has been held that a reassessment proceeding wipes out the original assessment and the reassessment can be in respect not only of the items that escaped assessment for the year. He also referred to the judgment in CIT v. Permanand Bhai Patel & Smt. Jyotsnadevi [1982] 10 Taxman 307 (MP). He then referred to the judgment in Addl. CIT Kanta Behan [1983] 140 ITR 187 (Delhi) where in it has been observed as under: Learned counsel then tried to achieve the same result by contending that, on a proper construction of the various provisions of the Act, a reassessment is nothing but a fresh assessment and that when a reassessment is made the entire matter is completely opened up and redone. It is pointed out that, in response to a notice under Section 148 of the 1961 Act an assessee is required to furnish a return of income. Thereafter, the ITO may issue a notice under Sections 142(1) and 143(2) and (3) and ask evidence to be led.

Thereafter, when the reassessment is completed, the total income and sum payable thereon have to be ascertained under Section 147 read with Section 153 of the Act. A reassessment order thus passed results in nullifying the original assessment order. In support of this contention, learned counsel invited our attention to Dy. CCT v. H.R. Sri Ramulu [1977] 39 STC 177 (SC). In that case, the Supreme Court while dealing with a similar question as to the starting point of computing the period of limitation for exercise of the revisional powers by the Dy. Commr. under Section 21 of the Mysore Sales Tax Act, 1957, when a reassessment under Section 12A had taken place, observed (p. 179): The short question which arises for determination in these appeals is that in the event of an order having been made under Section 12A of the Act, what is the starting point for computing the period of four years, mentioned in Section 21(3), for the exercise of the powers under Section 21(2). ls it the initial assessment order or is it the order made under Section 12A In the context of the present case, the question to be answered is as to whether the period of four years is to be calculated from March 21,1963, when the initial assessment orders were, made, or from June 8, 1966, when the orders under Section 12A of the Act were, made. So far as this question is concerned, we are of the opinion that the period of four years should be calculated from June 8, 1966, i.e., the date on which orders under Section 12A of the Act were made. The reason for that is that once an assessment is reopened, the initial order for assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment.

In coming to the above conclusion the Supreme Court relied, inter alia, upon its earlier decision in International Cotton Corporation (P.) Ltd. v. CTO [1975] 35 STC 1 (SC), wherein it had been held that once an assessment order had been rectified, the period of limitation with regard to further rectification would commence not from the date of the original assessment order but from the date of the earlier rectification order. Even before these two decisions in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373, the Supreme Court had opined in an income-tax case that once proceedings are validly initiated under Section 34 of the 1922 Act, the jurisdiction of the ITO is not restricted only to the portion of the income that had escaped assessment.

The above decisions, prima facie, seem to support the contention of the learned counsel for the assessee ... (pp. 194-95) He then referred to the judgment in CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204 (Cal.), wherein also it has been held that once an assessment is reopened the previous assessment is set aside and the whole assessment proceedings start afresh and in such a case the ITO has not only the jurisdiction but also the duty to levy tax on the entire income that had escaped assessment. He particularly relied on the following observations: ...It appears to us that in view of the scheme of Income-tax Act, once a reopening is made, the entire assessment is set aside and the income which has escaped assessment, even though there is nothing to show the escapement of assessment, it should be examined and even in a case where the assessee is entitled to any deduction which was not granted in the original assessment, the assessee would be so granted the deduction. This view was also reiterated by the Calcutta High Court in the case of Sun Engineering Works (P.) Ltd. v. CIT [1978] 111 ITR 166. The Supreme Court in a sales tax case, in the case of Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 278 at p. 280, expressed the same view as also in the case of State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd. [1977] 39 STC 340 (SC). The Andhra Pradesh High Court in the case of CWT v. Subakaran Gangabhishan [1980] 121 ITR 69 (FB) applied the sales tax principle in the case of a wealth-tax case ... (p. 220) 6. He also relied on the Special Bench order of the Tribunal in the case of Bela Singh Pabla v. ITO [1982] 1 ITD 370 (Bom.) and interveners Shakti Trading Co. (P.) Ltd. [IT Appeal No. 2252 (Bom.) of 1977-78] and Frick India Ltd. [IT Appeal No. 4676 (Delhi) of 1977-78] dated 30-5-1982 wherein, it has been held that the provisions of Section 144B of the Act, apply to the proceedings under Section 147 also. He pointed out that for the purposes of Section 144B the variation in the income returned and the income proposed to be assessed was required to be considered in the light of the return of income filed under Section 148 of the Act. This order, in particular, according to the learned counsel for the assessee, helps the assessee in claiming the amount of interest in reassessment proceedings though such claim was rejected in the original assessment proceedings.

7. He finally submitted that even if two views were possible on the point in issue, the view favourable to the assessee should be followed.

8. The learned counsel for the assessee himself submitted that In Hiralal v. CIT [1980] 121 ITR 89 (Raj.), it had been held that where a reassessment is made under Section 147, in respect of income which has escaped tax, the jurisdiction of the ITO under the section is confined to 'such income', i.e., the income which has escaped tax and does not extend to revising, reopening or reconsidering the whole assessment.

The words 'such income' in the section refer only to the entire escaped income. He submitted that this judgment is against the judgment in V.Jaganmohan Rao (supra) and should not, therefore, be followed.

9. The learned departmental representative first submitted that if the assessee's claim for allowance of interest of Rs. 31,327 was accepted, the net result would be that the net income will be reduced to Rs. 1,07,896 and this would be lesser than the income originally assessed at Rs. 1,35,180. He submitted that Section 147 was meant for the benefit of the revenue and was intended to bring to tax the income which had escaped assessment. According to him, this section could not be utilised for granting some relief to the assessee which relief was specifically disallowed in the original proceedings. He submitted that it was only in the event of some income escaping assessment that the notice under Section 148 was issued. The issue of a notice under Section 148, the filing of return thereafter and the further issuance of a notice under Section 143(2) or the provisions of Section 144B would not entitle the assessee to claim the relief which was specifically examined and disallowed in the original proceedings. He referred to the judgments in CIT v. A.D. Shroff [1957] 31 ITR 284 (Bom.), Kevaldas Ranchhoddas v. CIT [1968] 68 ITR 842 (Bom.) and Sir Shadi Lal & Sons v. CIT [1973] 92 ITR 453 (All.) for the submission that in the revised proceedings, the deduction in respect of interest which was specifically disallowed in the original proceedings could not be allowed. He then referred to the judgments in CIT v. Rao Thakur Narayan Singh [1965] 56 ITR 234 (SC), CIT v. Hem-chandra Kar [1970] 77 ITR 1 (SC) and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), for the submission that the finality of the original assessment order could not be disturbed. According to him, the judgments relied on behalf of the revenue mentioned at pages 172, 173, 174 and 175 in the judgment in Sun Engineering (supra) help the revenue's case. He also relied on the commentary at pages 895 and 906 by Kanga & Palkhivala on The Law and Practice of Income-tax, 7th edition, volume 1. At page 895 the learned authors have observed that "The fact that an assessment had become 'final' in appeal would not preclude the ITO from exercising his powers under this section. But the finality of an order cannot be disturbed unless the requirement of the law are satisfied." At page 906 the learned authors have observed that "where a reassessment is made under this section in respect of income which has escaped tax, the ITO's jurisdiction under this section in confined to such income which has escaped tax and does not extend to revising, reopening or reconsidering the whole assessment. In proceedings under this section the assessee cannot reagitate questions which had been decided in the original assessment, nor can the ITO make a reassessment inconsistent with the original assessment in respect of matters which are not the subject-matters of proceedings under this section." He submitted that the words 'such income' mentioned in Section 147 would only mean the income which had escaped assessment. He relied on the judgment in Hiralal (supra).

10. In reply, the learned counsel for the assessee submitted that the judgments in A.D. Shroff (supra) and Kevaldas Ranchhodas (supra) were rendered before the Supreme Court judgment in V. Jaganmohan Rao (supra) and thus these judgments were not required to be followed. He then submitted that the judgment in Sir Shadi Lal (supra) was opposed to the judgment of the Supreme Court in V. Jaganmohan (supra). According to him, those were not good authorities because the point in issue was not considered in those authorities. He also submitted that the judgments in Rao Thakur (supra), Hemchandra Kar (supra) and Lakhmani Mewal Das (supra) were not relevant for the issue involved in this case.

11. We have carefully considered the rival submissions. In the case of V. Jaganmohan (supra) the Supreme Court has held that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 of the 1922 Act, the previous under-assessment is set aside and the whole assessment proceedings start afresh. In H.M. Esufali (supra), the Supreme Court has dealt with the reassessment made under Section 19(1) of the M.P. General Sales Tax Act, 1958 and it was held that when reassessment is made under Section 19, the former assessment is completely reopened and in its place fresh assessment is made. In Ramulu (supra) which is a judgment under the Myso e Sales Tax Act, 1957, also it has been held that once an assessment is reopened, the initial order of assessment ceases to be operative. The effect of reopening the assessment is to vacate or set, aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for assessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment. In Subakaran Gangabhishan (supra), the Full Bench of the Andhra Pradesh High Court has held that, a reassessment proceeding under Section 17(1) of the Wealth-tax Act wipes out the original assessment and the reassessment can be in respect of not only the items that escaped assessment but also the entire assessment for the year. The Calcutta High Court in Assam Oil (supra) has also held that once an assessment is reopened, the previous assessment is set aside and the whole assessment proceedings start afresh, In such a case, the ITO has not only the jurisdiction but also the duty to levy tax on the entire income that had escaped assessment. The Madhya Pradesh High Court also in Dr. Ravishanker (supra) and Permanand Bhai Patel (supra) has similarly held that once the assessment is reopened, the original assessment is substituted by the new assessment. In the light of these authorities it must be held that once the assessment is reopened, the previous assessment is set aside and the whole assessment proceedings start afresh.

12. The crux of the matter in the present case is whether in a reassessment proceeding the assessee can make a claim for a deduction which was not allowed in the original proceedings both by the ITO and the AAC and against which the assessee did not file any appeal. The learned counsel for the assessee submitted that there was no direct authority so far on this ticklish issue. The authority which comes nearest to the issue involved is the authority of the Calcutta High Court in Assam Oil (supra), wherein it has been held that: "It appears to us that in view of the scheme of the Income-tax Act, once a reopening is made, the entire assessment is set aside and the income which has escaped assessment, even though there is nothing to show the escapement of assessment, it should be examined and even in a case where the assessee is entitled to any deduction which was not granted in the original assessment, the assessee would be so granted the deduction." Though the learned counsel for the assessee had referred to the judgment in Kanta Behan (supra), but the issue involved was not examined in that judgment. In our opinion, the assessee's claim should be allowed because when the entire assessment proceedings start afresh and even those items of income can be brought to tax which do not appear in the reasons recorded for bringing to tax certain escaped income, there is no reason why the assessee's claim for deduction, if it is legitimate, should not be allowed. The words used in Section 147(a) are "... income chargeable to tax has escaped assessment for that year . . ." Explanation 1 to Section 147 deems certain cases where income chargeable to tax has escaped assessment. One of the items mentioned therein is (a) where income chargeable to tax has been under-assessed. The income chargeable to tax is the total income of the previous year which is mentioned in Section 4 of the Act. Once an original assessment has been set aside and reassessment is substituted, then the correct total income has to be determined and when such correct total income is determined, whatever deductions which are admissible have to be allowed while making the assessment under Section 147. The judgment in A.D. Shroff (supra) and Kevaldas (supra), relied on by the learned departmental representative are before the judgment of the Supreme Court in V. Jaganmohan Rao (supra), and, therefore, these judgments cannot be relied upon. The ratio of the judgment in Sir Shadi Lal (supra) with great respect, appears to be against the ratio of the judgment in V. Jaganmohan Rao (supra). The judgments in Rao Thakur (supra), Hemchandra Kar (supra) and Lakhmani Mewat Das (supra) do no touch upon the issue involved in this case. Thus, we would hold that in a reassessment when a fresh assessment is to be made, the correct total income is to be determined and such correct total income may be more or less as compared to the original assessment depending on the circumstances in each case. Even in equity, we feel that the deduction claimed by the assessee should be allowed on the basis of the Supreme Court judgments in the cases of Cloth Traders (supra) and Rajendra Prasad (supra). Such deduction has already been allowed in the assessment year 1970-71 and even in the assessment years 1972-73 to 1974-75.

13. The learned departmental representative has relied on the provisions of Section 152(2) of the Act for the submission that the proceedings under Sections 143(3) and 147 were separate proceedings, and when the claim for interest had been examined and disallowed in Section 143(3) proceedings, the same claim should not be considered again in Section 147 proceedings which would have the effect of reducing the total income in Section 147 proceedings as compared to the total income assessed in Section 143(3) proceedings. Section 152(2) deals with a limited question in that it lays down that if an assessment is reopened under Section 147(6) and if any part of the original assessment was not challenged, either under Sections 246 to 248 or under Section 264 of the Act, then the proceedings under Section 147 shall be dropped on the assessee's showing that he had been assessed on an amount or to a sum not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account. The only inference that can be drawn from this section is that if original assessment was neither challenged in appeal nor in the revision and if the assessment was reopened under Section 147(6), then an adjustment will be made only in respect of that part of the expenditure which may not have been allowed earlier and which if allowed, would show that there would be no escapement of income even if the income alleged to have escaped assessment had been taken into account. Section 152(2) does not deal with a controversy under Section 147(a), which is directly involved in this case.

14. Even on the basis of the order of the AAC dated 7-7-1975 we feel that while making the reassessment the ITO should have allowed the interest of Rs. 31,327. The reason is that the finding of the AAC was that the ITO should first reduce the dividend income of Rs. 49,066 on the shares of Bhart Steel Tubes Ltd. by interest of Rs. 31,327 and then allow balance of Rs. 17,739 as dividend exempt under Section 80K. The judgment in Cloth Traders (supra) is the authority for the proposition that the entire sum of Rs. 49,066 included in the income of the assessee by way of dividend from Bharat Steel Tubes Ltd. is required to be exempted under Section 80K. The order of the AAC dated 7-7-1975 has to be read in the light of the Supreme Court judgment in Cloth Traders (supra) and it would be patent that in the light of the Supreme Court judgment the sum of Rs. 49,066 has to be exempted under Section 80K and in the light of the AAC's own order the sum of Rs. 31,327 has to be allowed. The judgment in Rajendra Prasad (supra) supports the order of the AAC for allowing the deduction of Rs. 31,327. As already stated, similar deduction has been allowed in earlier and later years and we see no reason why the assessee's claim which is similar to other years, should be denied only on the ground that these proceedings are reassessment proceedings under Section 147(a).

15. We may state that regarding the quantum of Rs. 31,327 no arguments were advanced on behalf of the revenue.

16. For the aforesaid reasons, we direct that the sum of Rs. 31,327 should be allowed as a deduction under Section 57 of the Act.


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