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Shri Ashok Mahindru, 511/2/1, Rajokri, New Delhi 110 038. Vs. Income Tax Officer, Ward-3, Ward- Gurgaon.
August, 27th 2014
                                  `A' : NEW DELHI
                     DELHI BENCH `A

                             VARKEY, JUDICIAL MEMBER
                 SHRI ABY T. VARKEY,

                       Nos.272/Del/2010 & 2233/Del/2004
                   ITA Nos
                        Assessment Year : 1999-

Shri Ashok Mahindru,            Vs.    Income Tax Officer,
511/2/1, Rajokri,                      Ward-3,
New Delhi ­ 110 038.                   Gurgaon.
     (Appellant)                           (Respondent)

                           ITA No.326/Del/2010
                       Assessment Year : 1999-

Income Tax Officer,             Vs.    Shri Ashok Mahindru,
Ward-2(2),                                     Jacubpura,
                                       351/15, Jacubpura,
New Delhi.                             Gurgaon,
                                       PAN : ABHPM8364M.
     (Appellant)                           (Respondent)

              Assessee by        :    Shri B.B. Bhagat, Advocate.
              Revenue by         :    Ms. Y. Kakkar, Sr.DR.


ITA No.2233/Del/2004 ­ Assessee's appeal :-

        This appeal by the assessee is directed against the order of
learned CIT(A), Panchkula dated 24th March, 2004 for the AY 1999-

2.      Since the grounds of appeal raised by the assessee were
argumentative, the assessee filed concise grounds of appeal.

3.      Ground No.1 of the concise grounds of appeal reads as under:-
                                           2               ITA-272/D/2010, 2233/D/2004 &

       "That on facts and circumstances of the case the learned
       CIT(Appeals) has erred in holding that notice issued u/s
       148 was a valid notice."

4.     We have heard the arguments of both the sides and perused
relevant material placed before us.               The reasons recorded for
reopening of assessment read as under:-

       "Reasons for the belief that income has escaped assessment in the
       case of Shri Ashok Mahendru, 351/15, Jacubpura, Gurgaon ­ Asstt. year

       1.       Computation of assessable income as on 31.3.1999 as worked
       out by the assessee is as under:-

Income from Salary :
Remuneration income from :
Advance Finvest (P) Ltd.             75,000.00
Advance Detergents Ltd.              75,000.00
Advance Coal Mgnt. & Mkt. Ltd.       75,000.00
Advance Design & Engg.Ltd.           75,000.00   3,00,000.00
Less : Standard Deduction                           20,000.00         2,80,000.00
Income from Business :
Commission Recd.

Interest Recd. From :
Advance Entertainment Network Ltd.                1,23,006.00
Advance Coal Mgmt. & Mkt.Ltd.                        6,600.00
Aureola Chemicals Ltd.                            7,39,703.00
Advance Detergents Ltd.                           1,07,685.00
Advance Finvest (P) Ltd.                          5,96,574.00
Bank Interest                                        2,993.24         15,76,561.24
Less : Interest paid to Depositors                                    32,44,070.50
Gross Total Income                                                      1,34,950.74
Less : Deduction under 80-L                            2,993.24
Net Assessable Income                                                    1,31,957.50
Rounded off to Rs.                                                       1,31,960.00
                                           3                    ITA-272/D/2010, 2233/D/2004 &

Gross Tax due                                                                  15,392.00
Less : Tax rebate u/s 88 20% of LIP of Rs.27106.10                               5,421.00
Net tax due
Less : TDS paid                                                               1,57,355.00
Refund due                                                                    1,47,384.00

       2.       It has been noticed that besides the above, the assessee has
       dividend income of Rs.17,62,200/- which has been claimed exempt u/s
       10(33) of the Act. A further perusal of the opening account reveals
       that the amounts invested in the shares of various companies from
       which dividend income of Rs.17,62,200/- has been shown is of the
       order of Rs.2 crore i.e. to be exact Rs.1,97,95,340/-.

       3.       From the computation of income, it is noticed that the assessee
       has claimed to have paid an interest of Rs.32,44,070/- to his creditors.
       It is further noticed that the major portion of the interest has been paid
       on the unsecured loans raised for making investment in the purchase
       of shares.    If this is properly examined, I am of the view that the
       interest attributable to the investment in shares which has resulted in
       exempted income of Rs.17,62,200/- will be much higher than the
       income declared on account of dividend. The possibility of there being
       a net loss of a few lacs under the head dividend is not ruled out. As
       the dividend income being exempt is not includible in the total income,
       similarly the loss arising therefrom cannot also be set off against the
       income under the heads salary, commission, interest etc. Dividend
       income being exempted u/s 10(33) of the Income tax act with effect
       from asstt. year 1998-99, neither any income from dividends can be
       included in the total income nor any loss therefrom can be adjusted or
       set off or carry forward against any income under any heads of

       4.       During the year the assessee has also sold jewellery worth
       Rs.62,09,189/- on which Long Term Capital Loss of Rs.8,18,972/- has
       been claimed.      The genuineness of this loss also needs to be
       examined. Moreover, the jewellery seems to be declared under VDIS
       1997. He is also having a plot worth Rs.2 lacs. The above facts create
       a suspicion that a man who earns an income of Rs.92,26,329/- is
       spending a sum of Rs.6,950/- as his personal expenses and he is also
                                           4                ITA-272/D/2010, 2233/D/2004 &

      not repaying back the unsecured loans. The household expenses are
      so low that it requires verification/scrutiny.

                                                                (R.A. Mittal)
                                                          Income Tax Officer
                                                          Ward-1, Gurgaon."

5.    From a perusal of the above reasons, it is evident that paragraph
1 is only the reproduction of the computation of assessable income
furnished by the assessee. In paragraph 2 & 3, the Assessing Officer
has pointed out that since the dividend income is exempt under
Section 10(33), the proper working of dividend income is required and
possibility of there being net loss under the head dividend is not ruled
out. Such loss cannot be adjusted against the other income because
dividend income is exempt.             In paragraph 4, the Assessing Officer
observed that the long term capital gains shown by the assessee
require verification and the household expenses disclosed by the
assessee also require verification.            That the preliminary requirement
for reopening under Section 147 is the satisfaction of the Assessing
Officer with regard to escapement of income chargeable to tax. In the
reasons recorded, except in the heading mentioning that the "reason
for the belief that income has escaped assessment", there is no finding
in the reasons recorded for escapement of income. The entire finding
is with regard to requirement of verification and reworking of dividend
income, verification and reworking of capital loss and the verification of
household expenses. In our opinion, Section 148 cannot be invoked
only for the purpose of verification of certain income or expenses.
Section 143(2) reads as under:-

      "[(2) Where a return has been furnished under section 139,
      or in response to a notice under sub-section (1) of section
      142, the Assessing Officer shall,--

      (i) where he has reason to believe that any claim of loss,
      exemption, deduction, allowance or relief made in the
                                    5                ITA-272/D/2010, 2233/D/2004 &

      return is inadmissible, serve on the assessee a notice
      specifying particulars of such claim of loss, exemption,
      deduction, allowance or relief and require him, on a date to
      be specified therein to produce, or cause to be produced,
      any evidence or particulars specified therein or on which
      the assessee may rely, in support of such claim:

       Provided that no notice under this clause shall be served
      on the assessee on or after the 1st day of June, 2003;]

      (ii) notwithstanding anything contained in clause (i), if he
      considers it necessary or expedient to ensure that the
      assessee has not understated the income or has not
      computed excessive loss or has not under-paid the tax in
      any manner, serve on the assessee a notice requiring him,
      on a date to be specified therein, either to attend his office
      or to produce, or cause to be produced, any evidence on
      which the assessee may rely in support of the return:

       Provided that no notice under clause (ii) shall be served on
      the assessee after the expiry of six months from the end of
      the financial year in which the return is furnished.]]."

6.    From the above, it is evident that the Income-tax Act empowers
the Assessing Officer to issue notice under Section 143(2) to verify the
correctness of the income or loss disclosed by the assessee.                The
Assessing Officer has to issue the notice under Section 143(2) within
the time limit specified in the said Section.    If the Assessing Officer
failed to issue the notice under Section 143(2) within the time limit
specified in that Section, he cannot issue the notice under Section 148
just for the purpose of ensuring the correctness of the income
disclosed or the loss disclosed or to scrutinize certain income or
expenses. In view of the above, we are of the opinion that reopening
of assessment by the Assessing Officer for the purpose of scrutiny of
dividend income, capital loss or household expenses is not permissible.
Therefore, the notice issued under Section 148 is quashed and
consequentially, the assessment order framed in pursuance to the
notice under Section 148 is also quashed.
                                      6                  ITA-272/D/2010, 2233/D/2004 &

7.    Since we have quashed the impugned assessment order, the
other grounds of appeal which are with regard to additions made under
various heads do not survive and therefore, do not require any
separate adjudication.

ITA Nos.326/Del/2010 & 272/Del/2010 :-

8.    These cross appeals are against the levy of penalty under
Section 271(1)(c) of the act which was partly sustained by the learned
CIT(A). The assessee is in appeal against the penalty sustained while
the Revenue is in appeal against the relief allowed by the learned

9.    Since,   while     deciding    the    assessee's      appeal        in     ITA
No.2233/Del/2004, we have quashed the assessment order dated 31st
March, 2003 passed under Section 143(3)/148, any penalty levied on
the basis of the addition made in that assessment order does not
survive because the addition itself does not survive.            Therefore, the
assessee's appeal against the penalty sustained by the CIT(A) is
allowed and Revenue's appeal against the penalty deleted by the
CIT(A) is dismissed.

10.   In the result, assessee's appeals vide ITA No.2233/Del/2004 &
272/Del/2010    are      allowed    and    Revenue's      appeal       vide      ITA
No.326/Del/2010 is dismissed.
      Decision pronounced in the open Court on 22nd August, 2014.

                  Sd/-                                      Sd/-
           (ABY T. VARKEY)                             AGRAWAL)
                                                 (G.D. AGRAWAL)
          JUDICIAL MEMBER                        VICE PRESIDENT

Dated : 22.08.2014
                                  7                ITA-272/D/2010, 2233/D/2004 &

Copy forwarded to: -

1.   Appellant      Shri Ashok Mahindru,
                  : Shri
                    351/15, Jacubpura,
                    Gurgaon, Haryana.

2.   Respondent : Income Tax Officer,
                  Ward-2(2), New Delhi.
3.   CIT
4.   CIT(A)
5.   DR, ITAT

                             Assistant Registrar
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