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TMI Blog2015 (6) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... ase for revision on the ground that the AO did not make necessary verifications about the transactions. The reason given in the show-cause notice is former, while the reason for which revision powers are finally exercised in the impugned order are latter. Even on merits there is nothing on record to show that the assessee was under any obligation to charge interest @12% on the aforesaid advance. On the contrary, learned CIT has himself treated this advance as an investment which did not yield any income. As learned counsel points out that there is a mention about 12% interest p.a. in respect of firm's transactions with the partners and such a provision has no bearing on transactions between the partners inter se. Learned DR could not point out anything which even indicates charging of interest on such loans. The very foundation of the impugned revision proceedings was devoid of legally sustainable basis. As regards the question of disallowance of interest, we have noted that the assessee's uncontroverted stand is that no deduction has been claimed for any interest payment. When there is no claim for deduction, there is the question of disallowance of such deduction. - Decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R) Commissioner of Income-tax, Bangalore-III, Bangalore 3. In a short reply to this show cause notice, the assessee, vide letter dated 24th March, 2014, submitted as follows:- With reference to the above, under instructions from the above assessee, we submit the following for your Honour's kind consideration and faovurable orders: 1. It is true that the assessee has advanced a sum of ₹ 6.45 Crores to Mr. Shakeel Ahmed and the amount is reflected in the Statement of Affairs of the assessee. However, there is no agreement between the assessee and Mr. Shakeel Ahmed as to the charging of interest at 12% on the advance made by the assessee. Therefore, the question of taxing the amount of ₹ 77,40,000/- being not correct interest calculated at 12% on the amount advanced to Mr. Shakeel Ahmed, does not arise. 2. It is also submitted that the assessee does not have any funds for which interest is paid and claimed as a deduction against the assessee's income for the year under reference. Thus, there is no diversion of interest bearing borrowings towards investment, which are not income yielding. In view of the above, the assessment order dated 28.12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with law I therefore hold that the assessment order passed u/s 143(3) dated : 28.12.2011 by the assessing officer is erroneous and prejudicial to the interest of the revenue. Hence, the A.O is directed to examine the assessee's claim and decide accordingly. Under similar circumstances, the Hon'ble Karnataka High Court in the case of CIT Vs Infosys Technologies Ltd., reported in 341 ITR 293 held that such orders definitely constitute an order not merely erroneous but also prejudicial to the interest of revenue and Commissioner would be justified in exercising jurisdiction u/s 263. Similarly, in yet another case Thali Bai F. Jain Vs ITO reported in 101 ITR 1 the Hon'ble Karnataka High Court held that CIT was justified in revising order u/s 263 of the Act. 5. The assessee is aggrieved and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. 7. A plain look at the sequence of developments would show that what started with a proposed revision of assessment order on the ground that interest income to the tune of ₹ 77,40,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce again deviates from the stand so taken and concludes as follows : In view of the foregoing, the assessment order dt. 27th Dec., 2007 passed by the AO is considered to be erroneous and prejudicial to the interests of the Revenue. Since the AO has not taken the necessary details to verify whether the profits and loss from futures trading amounts to speculation profits or loss, the assessment order is set aside with a direction to obtain complete details and conduct necessary enquiries and examine the same for the assessment year under consideration. The AO shall provide adequate opportunity to the assessee before passing the assessment order. 5. It is thus clear that there has been shift in the stand of the CIT on whether it was a fit case for revision on the ground that the assessee was not eligible for set off of losses on speculative transactions or whether it was a case for revision on the ground that the AO did not make necessary verifications about the transactions. The reason given in the show-cause notice is former, while the reason for which revision powers are finally exercised in the impugned order are latter. As to whether such an exercise of revisional powers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be made the basis of the order passed under the section, for the simple reason that the assessee would have had no opportunity to meet the point. . 11. The other judgment which supports the case of the assessee is that of the Punjab Haryana High Court in CIT vs. Jagadhri Electric Supply Industrial Co. (1981) 25 CTR (P H) 94 : (1983) 140 ITR 490 (P H). The nature of the jurisdiction of the CIT under s. 263 and the powers of the Tribunal while dealing with an appeal against the order passed under that section were explained in that decision. The CIT had found the order of the AO allowing continuation of registration to the assessee-firm to be erroneous on the ground that the actual distribution of the profits was different from the ratio mentioned in the deed of partnership. The Tribunal set aside the order of the CIT but while doing so observed that there was a change in the number of partners from 10 to 11 which fact had not been taken into account by the AO when he granted registration for the firm for the asst. yr. 1966-67 and thus the grant of registration was erroneous. On the basis of this observation it was argued before the High Court on behalf of the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f based on the ground which he had earlier considered not fit for taking action under the section, will have to be set aside as not based on any ground which may justify his belief that the order passed by the AO was erroneous insofar as it is prejudicial to the interests of the Revenue. . 8. In any event, even on merits there is nothing on record to show that the assessee was under any obligation to charge interest @12% on the aforesaid advance. On the contrary, learned CIT has himself treated this advance as an investment which did not yield any income. As learned counsel points out that there is a mention about 12% interest p.a. in respect of firm's transactions with the partners and such a provision has no bearing on transactions between the partners inter se. Learned DR could not point out anything which even indicates charging of interest on such loans. The very foundation of the impugned revision proceedings was devoid of legally sustainable basis. 9. As regards the question of disallowance of interest, we have noted that the assessee's uncontroverted stand is that no deduction has been claimed for any interest payment. When there is no claim for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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