Law:

Section:

Section 10(33), read with section 147, of the Income-tax Act, 1961 - Units of UTI/mutual funds (Income from retention/transfer) - Assessment year 2000-01 - Assessee earned dividend income from units of mutual funds and claimed exemption which was allowed during assessment - Assessing Officer initiated reassessment proceedings to disallow exemption for reason that assessee was trading in shares and, thus, dividend income was integral part of trading - In fact, dividend was received by virtue of fact that units of mutual fund were already held by assessee, and said dividend was not income earned on transfer of said units - Whether impugned dividend income was exempt - Held, yes - Whether, further, there was no allegation that assessee had failed to disclose truly and fully any material fact necessary for assessment, initiating reassessment proceedings was not justified - Held, yes [Paras 24, 26 & 29] [In favour of assessee] Circulars And Notifications - CBDT Circular No. 14/2001, dated 9-11-2001 FACTS â–  The assessee earned dividend income from units of mutual funds and claimed exemption thereon. It also suffered short term capital loss on sale of units of mutual fund. The assessment was completed under section 143(3) and exemption on dividend income was specifically allowed to the assessee. â–  Thereafter, the Assessing Officer initiated block assessment proceedings to disallow, loss suffered on sale of units of mutual funds. The Tribunal negated order of the Assessing Officer by following decision in case ofWallfort Shares & Stock Brokers Ltd. v. ITO [2005] 96 ITD 1 (Mum.) (SB). â–  After block assessment proceedings attained finality upto the stage of Tribunal, the Assessing Officer issued a notice for reassessment proceedings on ground that assessee wasn't entitled to exemption on dividend income since it had earned dividend income from transfer of units of mutual funds. The assessee was trading in shares and dividend income received was integral part of traded goods and could not be segregated from cost of shares. The Assessing Officer, accordingly, ordered that he had reason to believe that the dividend income of assessee had…