2007 (12) TMI 184 - HC - Income Tax

CIT in revision order directed AO to recompute the taxable income of the assessee by disallowing the expenditure on account of interest paid to partners AO had taken one view which was possble moreover, there whould be no tax effect as the interest income realised from the capital invested by partners was bound to be asessed in partner s hands - merely on the basis that another view is possible the Commissioner cannot acquire revisional jurisdiction

Summary

Issues:
1. Justification of canceling order under section 263 of the Income-tax Act by the Income-tax Appellate Tribunal.
2. Legality of canceling the order of the Commissioner of Income-tax under section 263 of the Income-tax Act.

Analysis:
1. The judgment addressed the appeal against the Income-tax Appellate Tribunal's decision canceling the order under section 263 of the Income-tax Act. The Tribunal had allowed the appeals and annulled the order of the Commissioner of Income-tax dated March 24, 2005. The Tribunal examined whether the Assessing Officer's order warranted revisional jurisdiction under section 263 of the Act. It was noted that the Assessing Officer had made inquiries regarding the applicability of section 14A during the assessment proceedings. The Tribunal found that the Assessing Officer had accepted the assessee's contentions and quoted previous judgments to support the view that the Commissioner lacked jurisdiction to set aside the assessment order if the Assessing Officer's view was a possible one not unsustainable in law. The Tribunal concluded that the order under section 263 lacked jurisdiction and canceled it.

2. The judgment further discussed the legal aspect of the Commissioner's power under section 263 of the Act. It emphasized that if the Assessing Officer's view was a possible one, the Commissioner could not disregard it in favor of his own view. Citing the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, it was reiterated that the Commissioner had no jurisdiction under section 263 if the Assessing Officer had accepted one of the possible views presented by the assessee. The Tribunal also highlighted that the assessee had not evaded taxation on the interest allowed as a deduction, as the partners had paid taxes on their individual assessments. Therefore, the Tribunal found no prejudice to the Revenue and annulled the Commissioner's order under section 263.

3. The judgment referenced the Supreme Court's decision in CIT v. Ralson Industries Ltd. to address the argument raised by the Revenue. It clarified that the Commissioner's revisional jurisdiction could still apply even after an order under section 154 of the Act. The Tribunal examined various reasons presented, including the Assessing Officer's scrutiny under section 147(3) of the Act, but ultimately dismissed the argument based on the Ralson Industries Ltd. case. The judgment concluded that if there were compelling reasons, the Commissioner would have revisional jurisdiction, which was the case here. Consequently, all appeals were rejected and dismissed by the Court.