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TMI Blog2009 (1) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1996-97 and Rs. 6,42,88,039 for assessment year 1997-98 was wrongly allowed under section 36(1)( iii ) of the Income-tax Act, 1961. The CIT issued show-cause notice dated 30-1-2001 giving full facts of the case which is reproduced from the order of CIT at page Nos. 1 2 are as under: "M/s. Pravin Navin Investment Trading Pvt. Ltd. is a Sterlite group investment company. Relevant to assessment year 1994-95, with the permission of the RBI under section 19(1)( d ) of FERA, one Maruitian company by the name of Twinstar Holding Co. Ltd. acquired effectively 99 per cent of the shares in the assessee company. During assessment year 1994-95, the Mauritian company invested section 3.13 crores, during assessment year 1995-96, it invested Rs. 15,67,99,600 and during assessment year 1996-97, it invested Rs. 4,70,54,600 in the shares of assessee company. In turn M/s. Pravin Navin Investment Trading Pvt. Ltd. with the share capital and loan funds kept on accumulating shares of the two operating companies in the group i.e., Sterlite Industries India Ltd. and Madras Aluminium Co. Ltd., on yearly basis. For assessment year 1994-95 to assessment year 1997-98, this company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-company engaged in the business of dealing in shares as well as making investment in shares for deriving investment income by dividend and interest income. It is further submitted that shares of Sterlite Industries (India) Ltd. (Sterlite) and the Madras Aluminium Co. Ltd. (MALCO) were held by the assessee-company during the previous years relevant to assessment years 1996-97 1997-98 with the intention or deriving trading income. Hence, these shares were held as its stock in trade . It was submitted that the assessee has rightly claimed interest expenditure under section 36(1)( iii ) as the borrowed money was employed in buying shares which has shown as stock in trade. During assessment year 1998-99, the assessee-company converted its stock of shares into investments which was also one of the business activity as it was an investment company. Therefore, interest paid on loans for purchasing of the shares was eligible for deduction. 5.1 Without prejudice to the above, the assessee-company submitted to the CIT that even if the investments were made for the purpose of securing controlling interest in Sterlite/MALCO, interest on borrowed funds for making such investments is eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd. [1993] 203 ITR 108, Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), and Anil Shah v. Asstt. CIT [2007] 162 Taxman 39 (Mum.)(Mag.). 8. The learned DR, on the other hand, has relied upon the order of the CIT and submitted that the orders of the Assessing Officer are erroneous and prejudicial to the interests of the revenue as the assessments made by the Assessing Officer were without examining the issue. 9. We have heard the learned representatives of the parties and record perused. The issue under consideration is pertaining to section 263 of the Income-tax Act. This section reads as under: "263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous insofar as it is prejudicial to the interests of the revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (1) the order is erroneous ; (2) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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