These appeals of revenue are directed against respective orders of CIT(Appeals)-IX, Chennai. relevant assessment years involved in these appeals are 1996-97, 1997-98 and 1999-2000. 2. only common issue in all these appeals of revenue is, as to whether reopening of assessment under section 147 of Income-tax Act, 1961, is in violation of section 14A of Act or not in given facts and circumstances of case. 3. We have heard both sides and gone through case records. briefly stated facts of case are that assessee claimed deduction under section 80P(2)(e) of Act to extent of Rs. 53,15,566. While completing original assessments under section 143(3) of Act for all assessment years under consideration, Assessing Officer allowed entire deduction. Subsequently, Assessing Officer issued notice under section 148 of Act and in reassessment, he restricted deduction under section 80P(2)(e) to net receipts of Rs. 38,20,117 by reducing expenditure of Rs. 14,95,449 from gross receipts for assessment year 1996-97. Before Assessing Officer, assessee pleaded that in view of proviso to section 14A of Act, no reassessment under section 147 of Act or enhancement under section 154 of Act can be done for any assessment year beginning on or before 1st April, 2001. assessee pleaded before Assessing Officer that for relevant assessment year 1996-97, assessment was completed on 31st July, 1998 and provisions of section 14A of Act will not apply to completed assessments in view of proviso to said section. assessee has also relied on Board's Circular No. 11 of 2001, dated 23rd July, 2001. However, Assessing Officer relying on decision of Hon'ble Supreme Court in case of Baroda Distributors (P.) Ltd. v. Union of India [1985] 155 ITR 120 and provisions of section 80AB of Act, restricted deduction under section 80P(2)(e) of Act to net receipts by reducing expenditure from gross receipts in all these appeals. Aggrieved, assessee preferred appeal before CIT(Appeals). CIT(Appeals) relying on proviso to section 14A of Act and Circular No. 11 of 2001, dated 23rd July, 2001, deleted additions made by Assessing Officer and allowed deduction by holding that reopening is not possible in view of proviso to section 14A of Act. Aggrieved, revenue is in appeals before Tribunal. 4. First of all, we have gone through provisions of section 14A of Act including proviso which reads as under: '14A. Expenditure incurred in relation to income not includible in total income.-For purposes of computing total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of total income under this Act: Provided that nothing contained in this section shall empower Assessing Officer either to reassess under section 147 or pass order enhancing assessment or reducing refund already made or otherwise increasing liability of assessee under section 154, for any assessment year beginning on or before 1st day of April, 2001.' 5. We have also gone through Circular No. 11 of 2001, dated 23rd July, 2001 which reads as under: 'Restriction on reopening of completed assessments on account of provisions of section 14A-Clarification regarding.-The Finance Act, 2001, has inserted section 14A in Income-tax Act, 1961, wherein it was specifically provided that no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of total income under Act. amendment takes effect from 1st April, 1962. 2. Section 14A was introduced retrospectively in order to clarify and state position of law that any expenditure relatable to income which does not form part of total income cannot be set off against other taxable income. This section was not introduced with prospective effect, as that would have implied that before introduction of said provisions, expenditure incurred to earn exempt income was allowable. 3. Instances of reopening of old assessments, which had attained finality, after insertion of section 14A in Act, have come to notice of Board. Reopening of past completed assessments, having attained finality, on basis Reopening of past completed assessments, having attained finality, on basis of newly inserted provisions of section 14A is likely to cause hardship to large number of taxpayers and would result in increasing avoidable litigation. 4. Board have considered this matter and hereby directs that assessments where proceedings have become final before first day of April, 2001, should not be reopened under section 147 of Act to disallow expenditure incurred to earn exempt income by applying provisions of newly inserted section 14A of Act. 5. This may be brought to notice of all offices in your region immediately.' Further, Departmental Circular No. 8 of 2002, dated 27th August, 2002 was issued elaborating scope and effect of insertion of proviso to section 14A of Act by Finance Act, 2002 with effect from 11th May, 2001 and relevant circular reads as under: '23. Amendment of section 14A.-23.1 Through Finance Act, 2001, new section namely 14A was inserted in Income-tax Act retrospectively with effect from 1st April, 1962 to clarify intention of Legislature that no deduction shall be allowed in respect of any expenditure incurred by assessee in relation to income which does not form part of total income under Income-tax Act. intention of inserting new section retrospectively was to set existing controversy on this issue at rest and not to unsettled cases by raising issue afresh. 23.2 Through Finance Act, 2002, proviso to section 14A has been inserted so as to clarify that Assessing Officer shall not reassess cases under section 147 or pass order enhancing assessment or reducing refund already made or otherwise increasing liability of assessee under section 154, for any assessment year beginning on or before 1st day of April, 2001. 23.3 This amendment takes effect retrospectively from 11th May, 2001, that is, date on which Finance Bill, 2001, received assent of President of India. (section 10).' In view of provisions of Act and circular issued by CBDT, it is clarified that whether expenditure incurred in relation to 'exempted income' is eligible for deduction or not. In this context, exempted income means, income which does not form part of total income under Income-tax Act, 1961. 6. Chapter III deals with income which does not form part of total income containing in sections 10 to 13A of Act. These are incomes which do not form part of total income and phraseology used in section 14A of Act is that for purpose of computing total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by assessee, in relation to incomes which do not form part of total income. Under this Act, only exempted income from provisions of Income-tax Act, is eligible for this section. provisions of section 14A of Act talks about income which does not form part of total income under this Act and not deductions. deductions are provided under Chapter VI-A from sections 80A to 80U of Act, etc. etc. Here, Chapter VI-A of Act talks about deduction in computing total income of assessee and not exempted income. In present case in hand, assessee claimed deduction under section 80P(2)(e) of Act on whole of gross receipts without deducting expenditure. It is to be noted that as to whether phraseology used in section 14A of Act can be compared with deductions to be made in computing total income as per provisions of section 14A of Act or not. provisions of section 14A of Act cannot be applied to provisions of Chapter VI-A (sections 80A to 80U) where deductions are to be made in computing total income and in no way, that can be compared with exempted income which does not form part of total income as provided in Chapter III containing in sections 10 to 13A of Act. right to exemption in respect of items listed under sections 10 to 13A of Act is absolute. For example, under section 10(33) of Act, dividend income was totally exempt from tax for assessment year 1998-99 in respect of any income by way of dividends referred to under section 115-O of Act. Here, expenditure incurred cannot be allowed against any other income. provisions of section 14A of Act is introduced retrospectively with effect from 1st April, 1962 by Finance Act, 2001 for purposes of computing total income under Chapter IV and no deduction shall be allowed in respect of expenditure incurred by assessee in relation to such exempted income. But provisions of section 14A of Act do not speak about deductions to be made in computing total income as per provisions of Chapter VI-A (sections 80A to 80U), even though as result of such deductions, taxable income is reduced wholly or partially. 7. In present case in hand, reopening was done as income escaped due to excess claim of deduction under section 80P(2)(e) of Act by allowing full by Assessing Officer in original assessment order passed under section 143(3) of Act. In given facts and circumstances of case, we fairly feel that reopening by Assessing Officer is perfectly within provisions of law. Accordingly, we feel that proviso to section 14A of Act and circulars cited above will not apply to claim of deductions as provided in Chapter VI-A from sections 80A to 80U of Act. Hence, we find that CIT(A) has erred in quashing reassessment proceedings under section 147/148 of Act by holding that proviso to section 14A of Act and circulars issued by Board will apply. Accordingly, CIT(A)'s order on jurisdiction is set aside but it is seen that CIT(A) has not passed any order on merits. Hence, we set aside issue to file of CIT(A) to decide afresh on merits after giving reasonable opportunity of being heard to assessee. 8. In result, revenue's appeals are allowed for statistical purposes. *** ASSISTANT COMMISSIONER OF INCOME TAX v. TAMIL NADU SILK PRODUCERS FEDERATION LTD.