Law:

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Section 14A, read with sections 147 and 148, of the Income-tax Act, 1961 - Total income - Expenditure incurred in relation to income not includible in - Assessment year 2001-02 - Where notice under section 148 was based entirely on section 14A and same related to assessment year beginning on or before 1-4-2001, in view of proviso to section 14A reassessment proceedings were barred [In favour of assessee] In the return of income for the assessment year 2001-02, the assessee had claimed dividend income as exempt. The return was processed under section 143(1) and accepted as filed. The Assessing Officer (AO) vide notice dated 27-3-2008, reopened the assessment under section 147/148 inasmuch as he was of the view that on the aforesaid dividend income for which exemption was claimed by the assessee, proportionate expenses should have been disallowed under section 14A. Held that the proviso has been added to section 14A by the Legislature categorically providing that the Assessing Officer is not empowered to do reassessment under section 147 for assessment period beginning on or before 1-4-2001. In these circumstances, the court had to only examine as to whether the conditions stipulated in the proviso were fulfilled or not. When the matter was examined from this angle, it was clear that the conditions contained in proviso to section 14A were satisfied, inasmuch as: (a) the reassessment proceedings were initiated pursuant to the notice issued under section 147; (b) the notice was based entirely on section 14A. The Assessing Officer wanted expenditure purportedly incurred in relation to income earned from the dividend to be disallowed; and (c) the notice also related to the assessment year beginning on or before 1-4-2001. In view of the above mandate of the Legislature, it was clearly not permissible for the Assessing Officer to issue such a notice. CASE REVIEW CIT (Asst.) v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC) and Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173 (Delhi) distinguished. CASES REFERRED TO Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC)(para 6) andMahanagar…

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