This is appeal filed by assessee against order of CIT(A)-XIX, Ahmedabad, dt. 2nd Nov., 2004 for asst. yr. 2001-02 in matter of order passed under s. 143(3) of IT Act. following effective grounds have been taken by assessee: (i) Upholding decision of AO in respect of addition made by treating agricultural income of Rs. 24,448 declared by appellant as non- agricultural income from undisclosed sources, disregarding submissions made by appellant. (ii) Holding that revised return of income under s. 139(5) cannot be loss return, thus bearing character of return of income filed under s. 139(3). (iii) Holding that transactions of purchase and sale of units of Kothari Pioneer Mutual Fund are in nature of business transactions and not in nature of investment in capital assets. (iv) In applying ratio of Hon ble Supreme Court in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC), even though facts of appellant s case are clearly distinguishable from facts of case decided by Hon ble Supreme Court. He has also grievously erred in not considering post McDowell developments wherein Courts (including Supreme Court) have clearly held that McDowell does not apply in each and every case, when some tax benefits have accrued, and that was never intention of McDowell. (v) In holding that scope and ambit of s. 14A not only covers expenditure being claimed as deduction, while computing total income under Chapter IV, but also claim of set off/carry forward of capital loss suffered in due course of time. (vi) In upholding disallowance of expenditure of Rs. 15,329 on account of finance charges and of Rs. 11,000 on account of bank charges. (vii) learned CIT(A) has further erred in confirming additions after changing basis, which has been done without giving appellant reasonable opportunity of rebutting same." first grievance relates to treatment of agricultural income as income from undisclosed sources. Rival contentions have been heard and records perused. assessee is having agricultural land at Bagasara city and during year 2000-01, assessee has earned agricultural income amounting to Rs. 24,448. assessee has produced Form Nos. 7/12 and 8A, dt. 23rd Feb., 2001, duly signed by Talati of Bagasara City. assessee also produced before AO copy of bill of Ajay Trading Co., in respect of sale of agricultural product made by assessee and in view of this, it was submission of assessee that agricultural income shown by assessee is correct and should be treated as exempt accordingly. AO disbelieved claim of assessee regarding agricultural income at Rs. 24,448 for following three reasons: (a) income was shown for first time. (b) No details regarding expenditure incurred for cultivating land and earning agricultural income were shown. (c) As per sale bill produced by assessee from M/s Ajay Trading Co., agricultural produce is Tal whereas as per agricultural record, crops grown during year was Mandvi . By impugned order, CIT(A) confirmed action of AO. We have considered rival contentions, carefully gone through orders of authorities below and find from record that during course of assessment proceedings, assessee had submitted copy of land records in respect of agricultural land owned by it and sale bill of agricultural produce sold. From all these documents it was found that assessee had sold items produced on said land to M/s Ajay Trading Co. Therefore, growing of agricultural produce and its sales have not been denied nor fact that assessee was owning 1.3 acres of land for number of years. only allegation of AO is that for first time assessee had shown this income. AO was also of view that product sold by assessee does not resemble product shown in land records. Merely because assessee had shown agricultural income for first time and that land records show produce of different products cannot be reason for denying income earned out of agricultural activities. No material was brought on record by Department to effect that agricultural produce produced by assessee on land was not sold by assessee or that produce has not been purchased by M/s Ajay Trading Co. or that sales bill issued by M/s Ajay Trading Co. was bogus. Therefore it cannot be presumed that assessee has not cultivated any crop. As assessee has claimed net income as agricultural income which is very reasonable looking to area of agricultural land held by assessee, non-furnishing of details regarding expenditure incurred in cultivation cannot be ground for total disallowance of agricultural income. Even if it is assumed that expenditure on cultivation was more than what has been shown by assessee, will ultimately go to increase net agricultural income, which is tax-free. It is also not case of Revenue that production and sale of Tal was not there or that party, M/s Ajay Trading Co., has denied purchase of same from assessee. Moreover fact that assessee has for first time shown agricultural income cannot be ground for disallowance of agricultural income genuinely earned by assessee. In view of above and keeping in view totality of facts and circumstances of case we direct AO to treat Rs. 20,000 as agricultural income out of net agricultural income of Rs. 24,448 shown by assessee. next grievance of assessee relates to disallowance of short-term capital loss on sale of units of M/s Kothari Pioneer Mutual fund. From record we find that assessee purchased units of M/s Kothari Pioneer Mutual fund on 17th Jan., 2001 for Rs. 1,00,00,000. assessee earned dividend of Rs. 16,04,621 from said mutual fund on 18th Jan., 2001. On 19th Jan., 2001 said units were redeemed for Rs. 81,41,303. Thus, assessee incurred short- term capital loss of Rs. 18,58,697. It is submitted that loss of Rs. 18,58,697 has been disallowed by AO because this loss is suffered for earning tax-free dividend income and this is clearly colourable device for avoidance of tax within purview of judgment of Hon ble Supreme Court in case of McDowell & purview of judgment of Hon ble Supreme Court in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC). assessee relied on decision of Hon ble Gujarat High Court in case of Banyan & Berry vs. CIT (1996) 131 CTR (Guj) 127, wherein scope of applicability of Supreme Court decision came up for consideration before Hon ble Gujarat High Court. assessee has relied on following extracts in order of Hon ble Gujarat High Court in this case: "The Court nowhere said that every action or inaction on part of taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as device for avoidance of tax irrespective of legitimacy or genuineness of act; inference which unfortunately, in our opinion, Tribunal apparently appears to have drawn from enunciation made in McDowell s case (supra). Ratio of any decision has to be understood in context it has been made. facts and circumstances which led to McDowell s decision (supra) leaves us in no doubt that principle enunciated in above case has not affected freedom of citizen to act in manner of doing any trade, activity or planning his affairs with circumspection, within framework of law, unless same fall in category of colorable device which may properly be called device or dubious method or subterfuge clothed with apparent dignity." During course of scrutiny assessment, AO observed that in original return of income filed on 30th Oct., 2001 assessee disclosed total income at Rs. 1,39,829 comprising interest from firm Rs. 14,168, rent income Rs. 37,000 and other income Rs. 88,661. After service of notice under s. 142 on 29th Oct., 2002, revised return has been filed showing total income of Rs. 1,39,829 as per original return, agricultural income of Rs. 24,448 and net loss of Rs. 15,67,127 under head Capital gains as short- term capital loss. In working of short-term capital loss, assessee has shown short-term capital gain of Rs. 2,91,570 on sale of various shares and loss of Rs. 18,58,697 on purchase and sale of various shares of M/s Kothari Pioneer Mutual Fund. In addition to this, in revised return, assessee has shown dividend income of Rs. 16,04,621 from M/s Kothari Pioneer Mutual Fund and it is claimed as exempt. AO noted that assessee purchases shares worth Rs. 1 crore on 17th Jan., 2001 and on 19th Jan., 2001 said shares were sold for Rs. 81,41,302. Thus, assessee has incurred loss of Rs. 18,58,697. During course of assessment proceedings, it was explained that on payment of margin money of Rs. 5,17,754 assessee got loan of Rs. 1 crore on 17th Jan., 2001 from Birla Global Finance Ltd. for purchase of shares of M/s Kothari Pioneer Mutual Fund. On 18th Jan., 2001, dividend of Rs. 16,04,621 was declared by M/s Kothari Pioneer Mutual Fund which was shown as re-invested and on same day, shares of Rs. 1 crore were redeemed at Rs. 81,41,302 and shares of Rs. 16,04,621 on reinvestment of dividend were also redeemed for same price. In other words, loss of Rs. 18,58,697 is suffered for earning tax-free income and according to AO amounted to colourable device for avoidance of tax. For these reasons and for reasons discussed in para 9 of assessment order, claim of assessee relating to loss of Rs. 18,58,697 was not considered as genuine loss and to that extent of dividend income was ignored and only balance amount of Rs. 2,10,820 was allowed to be set off against other income under head Capital gain . By impugned order, CIT(A) confirmed action of AO for holding transaction as colourable device. CIT(A) also held that loss suffered as result of sale is nothing but expenditure, s 14A is applicable to case of assessee and, therefore, since this expenditure is in connection with earning of tax-free income, it cannot be allowed as deduction. It was vehemently argued by learned Authorised Representative Mr. B.R. Popat, that assessee is not hit by decision of McDowell as transaction entered into by assessee was in ordinary course of conducting business and according to law, he was entitled to do so and it cannot be branded as colourable device for avoidance of tax. It was further submitted that AO intended to make disallowance of loss by virtue of s. 94(7) of IT Act, 1961 but this section is effective w.e.f. 1st April, 2002. As regards applicability of s. 14A of IT Act, to case of assessee, it is submission of assessee that provisions of s. 14A are not applicable to case. Sec. 14A applies to any expenditure incurred by assessee and in case of assessee, he has suffered short-term capital loss and thus provisions of s. 14A are not applicable. learned Authorised Representative has further drawn our attention to order of Tribunal, Special Bench in case of Wallford Shares & Stock Brokers Ltd. vs. ITO (2005) 96 TTJ (Mumbai) (SB) 673: (2005) 96 ITD 1 (Mumbai)(SB), wherein it was held that such transaction cannot be considered s colourable device and assessee s claim for short-term capital loss was allowed as arising out of genuine business transaction. We have carefully gone through impugned order of Tribunal, Special Bench and found that following was observation of Special Bench: "The Revenue s argument B was that assessee purchased units of mutual fund during two assessment years just on eve of record date when amount of dividend declared had become foregone conclusion. It was argued that assessee bought units cum-dividend and sold units ex- dividend and, therefore, difference between sale price and purchase price should be treated as cost of earning dividend and not loss incurred by assessee on its transaction of purchase and sale of units. There is considerable difference between equity shares and mutual fund units. While shares of company are traded in stock exchange based on several factors impacting demand and supply for stock, units of mutual fund are traded on NAV of mutual fund. When amount of dividend declared by company in respect of its equity shares becomes known or reasonably well anticipated, factum and quantum of dividend is factored in by market in price of equity share around that time. price of unit of m u t u l fund depends on its NAV and not amount of dividend announced/declared. Therefore, amount of dividend announced by mutual fund would not affect price at which assessee purchased units. It was another matter that assessee s sale price was affected because of outflow of dividend distributed by mutual funds resulting into considerable lowering of NAV. Thus, as far as purchase price paid by assessee was considered, it could not be said that assessee paid higher price because units were pregnant with amount of dividend announced by mutual fund. At that point of time, assessee would have paid same price for those units, had there been no announcement of dividend by mutual funds. Therefore, it could not be said that assessee paid additional purchase price because of dividend declared by mutual funds. Dividend as return of investment is not regarded, as rule, recovery of purchase price. As corollary, dividend cannot be regarded as erosion of sale price. receipt of income on units of mutual funds by assessee did not represent one fixed time event. One should not reject time-tested method of computation of result of transaction of purchase and sale of income bearing asset to be computed on basis of difference between sale price and purchase price unaffected by returns on investment received in meantime. Revenue s argument related to provisions of s. 14A, which has been inserted by Finance Act, 2001 with retrospective effect from 1st April, 1962. On plain reading of provisions of s. 14A, it is clear that if any part of expenditure claimed by assessee as deduction against his income chargeable to tax is found or determined to have been incurred by assessee in relation to income received by assessee from mutual funds, expenditure claimed by assessee as deduction against his income chargeable to tax has to be disallowed to that extent. It does not appear to be correct to say that provisions of s. 14A impinge on provisions of s. 10(33). These provisions operate in relation to expenditure assessee claims in computation of his income chargeable to tax. Such expenditure if found to have been incurred in relation to income exempt under Chapter III shall be disallowed by virtue of provisions of s. 14A. In instant case, assessee had claimed expenditure on purchase of units of CMF and SMF against subsequent sale of those units. Those sale proceeds were income chargeable to tax under Chapter IV and were not exempt under any provision of Chapter III. Purchase price of units is expenditure to which disallowance provision of Chapter IV would squarely apply. Further there is no conflict between Chapter III and s. 14A and even if there is one, meaning of provisions of s. 14A being unmistakably clear, provisions meaning of provisions of s. 14A being unmistakably clear, provisions have to be given effect to by way of harmonious construction. Provisions of s. 14A cannot be considered defunct or redundant for reason only that these provisions should have been inserted in Chapter III and not Chapter IV. After all both Chapter III and Chapter IV are integral part of same enactment. Further, there was no expenditure incurred by assessee in respect of income from units. It could not also be accepted that provisions of s. 14A being special provisions and expression being in relation to , different conclusion should be arrived at. Therefore, amount of dividend received by assessee could not be adjusted for arriving at net result of computation in relation to assessee s transactions of purchase and sale of units of mutual funds. provisions of s. 94(7) have been brought on statute book by Finance Act, 2001 w.e.f. 1st April, 2002. In other words, Parliament did not deem it fit to intervene in transactions that had already taken place. It was open to resort to giving retrospective effect to provisions of s. 94(7), but Parliament had chosen not to do that. Further, provisions of s. 94(7) do not stipulate any cost in relation to income pay out by mutual fund. Further Circular No. 14 of 2001 [(2002) 172 CTR (St) 13] itself states that prior to promulgation of provisions of s. 94(7), it was legally permissible to claim losses in manner assessee had done. instruction issued by CBDT from F. No. 178/32/2003-ITA-I on 23rd Feb., 2004 did not support case of Revenue. It is clearly mentioned in said instruction that ordinarily disallowance of loss in similar circumstances in respect of assessment years prior to asst. yr. 2002-03 would amount to applying provisions of s. 94(7) retrospectively. Board, therefore, cautions its officers that such assessment should be made only after in-depth investigation and proper recording and marshalling of all relevant facts because provisions of s. 94(7) are prospective only. Therefore, assessee was entitled to have loss arising from these transactions set off against its income from any other transactions or source." As facts and circumstances of case under consideration are same, as per our considered view issue is squarely covered by decision o f Special Bench, as discussed above. transaction was not colourable device and no disallowance could be made under s. 94(7) which is effective from asst. yr. 2002-03 and s. 14A is also not applicable to instant case. We, therefore, allow this ground of assessee. With regard to filing of return under s. 139(5), learned Departmental Representative, Mr. A.K. Singh, argued that assessee did not disclose short-term capital loss and corresponding receipt of dividend while furnishing original return of income under s. 139(1) of Act. It was only at stage of revising return of income that short-term capital loss (and corresponding receipt of dividend, being exempt income) was claimed as having been incurred, so as to carry forward same to next assessment year. It was argument of learned Departmental Representative that scope of s. 139(5) is limited to revising return of income furnished under s. 139(1) and not in respect of return of loss which has not been furnished under s. 139(3). This being so, even revised return of income should bear character of return of income furnished under s. 139(1) and same cannot change its colours, so as to become return of negative income, being furnished under s. 139(3). As alternative argument, learned Departmental Representative kly contended that revised return was furnished after receipt of scrutiny notice issued by Department under s. 143(2) of Act, and after return of income was processed under s. 143(1). Attention was accordingly drawn to provisions of s. 139(5) of Act, as per which return can be revised at any time before expiry of one year from end of relevant assessment year or before completion of assessment, whichever is earlier. processing of return of income, in opinion of Departmental Representative, amounted to completion of assessment, albeit in summary manner, and return could not have been revised thereafter. It was also argued that powers of revising return of income are limited to rectifying only mistakes which are in nature of omission or any wrong statement made in original return of income, if discovered subsequently and same cannot be extended to cover situation under which assessee sought to revise return of income. claim of carry forward of short- term capital loss with corresponding disclosure of exempt income in nature of dividend in revised return of income was thus not permissible within statutory provisions of s. 139(5) and same cannot thus be allowed. With regard to validity of revised return, it was argued by learned Departmental Representative, Mr. Singh, that there are two separate, relevant sections for furnishing original return of income s. 139(1) for return of income showing positive income and s. 139(3) when assessee has sustained loss either under head "Income from business or profession" or "Capital gains". It was thus argued that s. 139(5) permits revising only those returns, which have been filed under s. 139(1) and not under s. 139(3). On other hand learned Authorised Representative Mr. B.R. Popat argued that original return of income was furnished on 30th Oct., 2001, disclosing total income at Rs. 1,39,829. As such, assessee was legally permitted to revise his return of income latest by 31st March, 2003 or before completion of assessment year, whichever is earlier. It was further submitted that assessment of case was completed as late as on 26th March, 2004, whereas return of income furnished originally was revised on 31st Oct., 2002. It was thus validly revised return of income, and cannot be ignored or objected on this ground. As per learned Authorised Representative, return of income having been revised after original return was processed under s. 143(1), processing of return of income is merely clerical act on part of Department and same cannot, therefore, be treated as assessment, within meaning of what has been specified in s. 139(5). In support of this, it w s further argued by Authorised Representative that prior to 1st June, 1999, s. 143(1)(a) of IT Act expressly permitted AO to carry out certain adjustments, as specified at first proviso to that section, at very stage of processing return of income, so as to practically re-calculate Income or loss declared by assessee, without subjecting return to scrutiny. Despite fact that AO could make several specified adjustments in return of income so furnished, Courts have held that such order or intimation passed under s. 143(1)(a) could not be treated as assessment. Reliance was placed on Pradeep Kumar Har Saran Lal vs. AO (1997) 141 CTR (All) 37: (1998) 229 ITR 46 (All), Peico Electronics & Electricals Ltd. & Anr. vs. (All) 37: (1998) 229 ITR 46 (All), Peico Electronics & Electricals Ltd. & Anr. vs. Dy. CIT (2000) 160 CTR (Cal) 365: (1999) 236 ITR 702 (Cal), Apogee International Ltd. vs. Union of India & Anr. (1997) 137 CTR (Del )93: (1996) 220 ITR 248 (Del), Mahanagar Telephone Nigam Ltd. vs. Chairman, CBDT & Anr. (2000) 162 CTR (Del) 554: (2000) 246 ITR 173 (Del), Gujarat Poly-Avx Electronics Ltd. vs. Dy. CIT (1996) 135 CTR (Guj) 141: (1996) 222 ITR 140 (Guj) and Lakhanpal National Ltd. vs. Dy. CIT (1996) 135 CTR (Guj) 150: (1996) 222 ITR 151 (Guj) in this regard. We have considered rival contentions carefully, gone through orders of authorities below and also deliberated on case laws cited by learned Authorised Representative and Departmental Representative at Bar in factual matrix of case. From record we find that original return of income was furnished on 30th Oct., 2001, disclosing total income at Rs. 1,39,829. As such, assessee was legally entitled to revise his return of income latest by 31st March, 2003 or before completion of assessment, whichever is earlier. In instant case, assessment of case was completed as late as on 26th March, 2004, whereas return of income furnished originally was revised on 31st Oct., 2002. It was thus validly revised return of income, and cannot be ignored or objected on this ground. So far as Departmental Representative s argument of filing of return after original return was processed under s. 143(1), we are of considered opinion that by Finance Act 1999, w.e.f. 1st June, 1999, s. 143(1)(a) has been substituted by new s. 143(1), whereby powers of AOs have been further restricted so as not to allow them even to carry out prima facie adjustments while processing return of income. Thus, when even order or intimation under s. 143(1)(a) is not being treated as assessment, processing of return of income under s. 143(1) could not be treated as assessment either and mere fact of return of income having been already processed cannot disentitle assessee from furnishing revised return of income, within otherwise prescribed time-limit. Jurisdictional High Court in case of S.R. Koshti vs. CIT (2005) 193 CTR (Guj) 518: (2005) 276 ITR 165 (Guj) clearly held that intimation issued under s. 143(1) for asst. yr. 2001-02, is not order of assessment and revised return can be filed even after issue of intimation under s. 143(1). Furthermore, it is only under two circumstances, as specified under s. 143(1)(i) and s. 143(1)(ii) that AO is required to send intimation of order under s. 143(1) to assessee. In all other situations, it has been provided in first proviso to s. 143(1) itself that acknowledgement of return of income shall be deemed to be intimation under this sub-section where either no sum is payable by assessee or no refund is due to him. Furthermore s. 139(5) clearly speaks of "any omission or any wrong statement", meaning thereby that omission or wrong statement may be of any type, and there cannot be any reservation or restrictions in meaning of these terms. purpose of s. 139(5) is to enable assessee to voluntarily and suo motu correct any omission or any wrong statement, so as not to damage person acting without mala fide intentions. only condition to be taken care of while doing this is that same can be done only before completion of assessment and within specified timeframe. very purpose of statute is thus to ensure that any admission of omission or wrong statement has to be voluntary one, within specified time-limit and must have been made before same has been detected by Department in assessment order. Nowhere in section, or anywhere else in IT Act for that matter, it has been provided that return of income to be revised must not bear character of return of which includes loss in it either from business or profession or from capital gain. Regarding contention of Departmental Representative as to nature of transaction being of business or profession, and not of capital gain, which has been discussed even by CIT(A), and taken by assessee as her third ground of appeal, we found that this treatment is completely against clear finding of AO, which is very much there on record. In para 9 of assessment order, AO disallowed short-term capital loss only to extent of corresponding dividend income, while clearly and in specific terms, allowed balance loss amounting to Rs. 2,10,820 to be carried forward as loss under head "Capital gain". When there is clear finding on part of AO as to this part of transaction being clearly in nature of capital gain, CIT(A) was not justified in treating balance part of same transaction as falling under head "Business or profession". After all, result of singular transaction cannot be divided into two parts, so as to have one fraction singular transaction cannot be divided into two parts, so as to have one fraction falling under one head and other into other head. From order of AO we found that he has not considered filing of loss return belatedly and, therefore, declining claim of carry forward of short- term capital loss. In interest of justice we restore issue of revised return which was of loss, but filed well within statutory provisions of s. 139(5), to file of AO for deciding de novo keeping in view our above observations and discussions. In result, appeal of assessee is allowed in part as indicated above. *** SMT. BHANUBEN CHIMANLAL MALAVIA v. INCOME TAX OFFICER