TMI Blog1996 (10) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... business income; (b) It was unjustifiably allowed deduction of Rs. 46,972 being machinery and equipment written off, (c) Its income from interest ought to have been assessed as income under the head 'Other sources'; and (d) partners' current account showed considerable debit balance but no proportionate disallowance of interest paid was disallowed to the extent interest hearing loans not utilised for the purposes of assessee's business. 3. On the above counts the learned CIT was prima facie of the view that action of the Assessing Officer was erroneous in so far as it was prejudicial to the interest of the revenue. The learned CIT accordingly issued a show-cause notice in response to which the assessee furnished its reply contesting the opinion formed by the learned CIT and submitted that the order of assessment was neither erroneous nor for that matter it was prejudicial to the interests of the revenue. The learned CIT on a consideration of assessee's submission found explanation furnished by the assessee with regard to points (b) and (c) as acceptable. However, he was not satisfied with the assessee's explanation on point Nos. (a) and (d), leading to passing of the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich no payment of interest was claimed. The assessee explained that approximately Rs. 2.70 crore out of these receipts stood credited in the C.C. A/c and partners' withdrawals were also made from these very accounts, in all aggregating to only about Rs. 27 lakhs. It was, thus, urged that on this count also the order of assessment was neither erroneous nor it was prejudicial to the interest of revenue. However, the learned CIT noted that the over draft account of the assessee showed debit balance throughout the year, as also partners' accounts. The learned CIT took the view that profits for a particular year is determined only after accounts are closed and balance-sheet drawn and the fact that assessee had receipts from contract as also other receipts on which it did not have to pay interest was not material. Therefore, the CIT held that Assessing Officer's order in not disallowing proportionate interest on advances made to partners and others was erroneous insofar as it was prejudicial to the interests of the revenue. He placed reliance on CIT v. Sridev Enterprises [1991] 192 ITR 165/59 Taxman 439 (Kar.) and Shankar Theatres v. CIT [1984] 146 ITR 547 [1983] 15 Taxman 225 (Bom.). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was legally bound to allow the loss, as declared subject of course to variation, if any, warranted on completion of assessment of the AOP, as contemplated under section 155(2). Thus, according to Shri Sharma, the basic condition which could legally entitle the CIT to assume jurisdiction under section 263 that the order of assessment should be erroneous insofar as it is prejudicial to the interest of the revenue is not satisfied. Shri Sharma also submitted that the order of assessment dated 31-12-1990 got merged with that of the learned CIT(A) passed on 29-5-1991 and, therefore, the notice of the learned CIT under section 263 dated 31-1-1992 is also without the authority of law. Shri Sharma submitted that in para 4 of his order the learned CIT(A) has also dealt with the disallowance of Rs. 42,692 out of the joint venture expenditure. 7. As regards point (d), Shri Sharma invited our attention to reply of the assessee in response to notice under section 263 and submitted that the view taken by the learned CIT that on this count also the order of assessment is erroneous insofar as it is prejudicial to the interest of the revenue is not justified. He submitted that undoubtedly the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC Account, from where the partners' withdrawals were only to the extent of Rs. 27 lakhs. As such there could be no question of any proportionate interest being disallowed by the Assessing Officer. 8. On the other hand, the learned Departmental Representative broadly supported the order of the learned Commissioner of Income-tax. The Departmental Representative placed reliance on Hindustan Aluminium Corpn. Ltd. v. CIT [1989] 178 ITR 74/[1986] 26 Taxman 475 (Cal.) and submitted that the doctrine of merger has no applicability on facts of assessee's case, inasmuch as the learned Commissioner of Income-tax (Appeals) was not seized of the issue relating to assumption of jurisdiction by the Assessing Officer to compute assessee's share of loss in the Association of Persons. He submitted that the amendment to section 263 w.e.f.June 1, 1988is explicit and, therefore, the doctrine of merger is not applicable in the case of the assessee. The D.R. also referred to judgment of Calcutta High Court in the case of Ganga Metal Refining Co. (P.) Ltd. v. CIT [1968] 67 ITR 771 and submitted that assessee was not entitled to set off of the loss suffered by it in the said joint venture against its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee to determine the share of loss of the assessee, in our opinion, did not render the action of Assessing Officer as without authority of law, thus, in turn rendering the order of assessment erroneous insofar as it is prejudicial to the interest of the revenue. As already mentioned, the assessee has disclosed its income/loss from all sources, including loss from the AOP and has claimed the same against its other business income. It is nobody's case that it is not entitled to claim the same. As rightly pointed out by Shri Sharma, the loss so returned could not have been ignored by the Assessing Officer as he could not have ignored profit, if any, which accrued to the assessee out of that joint venture. If the profit could be brought to charge without determining the assessee's share in the income of the AOP, by this very logic the assessee was entitled to claim the loss as suffered in that joint venture against its other income. Further, the provisions of section 155(2) clearly come to the rescue of the revenue in case the share of profit/loss returned by the assessee undergoes any change consequent to assessment of income/loss in the hands of the AOP. Admittedly ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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