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Issues Involved: Challenge to the validity of revision proceeding u/s 263 of the Act for assessment year 2005-06 regarding calculation of interest on partner's current account.
Summary: 1. The appeal challenges the revision proceeding initiated by the Ld. CIT u/s 263 of the Act for the assessment year 2005-06, concerning the calculation of interest on a partner's current account. 2. The Ld. CIT found that interest on the partner's current account was computed using the "product method," resulting in an excess payment of interest by the firm. The Ld. CIT held the assessment order as erroneous and prejudicial to revenue, directing the Assessing Officer to re-do the assessment accordingly. 3. The assessee argued that the "product method" used for interest calculation is scientific and widely accepted, considering the partner's frequent transactions. The Ld. CIT's method of calculating interest on average balances was deemed unscientific and not reflective of actual transactions, thus not prejudicial to revenue. 4. The Ld. DR supported the Ld. CIT's order, highlighting discrepancies in the partner's current account balances and endorsing the Ld. CIT's method of interest calculation. 5. The Ld. A.R. clarified that the apparent differences in balances were due to netting off multiple current accounts, which the Ld. CIT overlooked. 6. The Tribunal noted that for a revision u/s 263, the order must be both erroneous and prejudicial to revenue. Citing the Malabar Industrial Co. Ltd case, it emphasized that errors must be substantial and not every mistake warrants revision. 7. The dispute centered on the method of interest calculation, with the assessee using the "product method" based on actual transactions, while the Ld. CIT advocated for average balance calculation. The Tribunal upheld the scientific "product method" over the Ld. CIT's approach. 8. The Tribunal rejected the Ld. CIT's directive to adopt an unscientific interest calculation method, emphasizing that the Ld. CIT's view was legally unsustainable. Consequently, the impugned order was set aside, and the appeal was allowed. Judgment: The Tribunal ruled in favor of the assessee, setting aside the Ld. CIT's order and allowing the appeal on 27-07-2012.
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