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TMI Blog2000 (1) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... the party Loan. Interest paid (in Rs.) (in Rs.) -------------------------------------------------------------------------------- 1. Lakshmangarh Estates & Trading Co. 2,60,00,000 22,41,127 2. Paramount Enterprises Ltd. 4,62,00,000 43,75,815 3. United General Finance Inds. Ltd. 1,28,10,000 13,10,544 4. Orient Bonds & Stock Ltd. 5,46,00,000 52,88,164 5. Hindustan Development Pvt. Ltd. 36,00,000 95,540 ----------- --------- Total 14,32,10,000 1,33,11,190" -------------------------------------------------------------------------------- 3. The issue on which Commissioner of Income-tax found that assessment was erroneous and prejudicial to the interest of Revenue was in regard to the payment of interest only. 4. The block assessment of Paramount Enterprises Ltd. [1/4/87to21/11/96] was completed on30-11-1996. There it was found that the said company along with other group companies purchased shares of their flagship company, HDL @, Rs. 97.42 per share on a single day i.e. on15-7-1994from M/s. C.R. Banshali Securities Ltd. 5. The bill was raised on 10-8-1994 i.e., after 26 days from the date of signing the contract and after the sale of these shares to M/s. Kejriwal & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no addition on account of the block assessment. There is absolutely nothing on record to indicate that the assessee purchased shares to accommodate group concerns. The shares were purchased from the stock and share broker, M/s. Kejriwal & Co. The assessee did not purchase shares to help the group companies. It was an honest and bona fide investment. 9. Our attention was invited on the decision of the Apex Court rendered in the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC). Hon'ble Supreme Court has held that the interest on moneys borrowed for investment and shares which had not yielded any dividend was admissible as deduction under section 57(iii) of the Act, in computing its income from dividend under the head "Income from other sources". 10. To buttress the point apropos the bona fide, learned counsel furnished details of various quotations of Calcutta Stock Exchange and Delhi Stock Exchange. It was pointed out that the shares were purchased at prevailing market price. At pages 170 to 182 of the paper book, an order of the Income-tax Appellate Tribunal in the case of Lakshmangarh Estates & Trading Co. Ltd. [see Hindustan Consultancy & Services Ltd.] in [I.T. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue administration. For this proposition, reliance was placed on the decision of Hon'ble Madras High Court rendered in the case of Venkata Krishna Rice Co. v. CIT[1987] 163 ITR 129/30 Taxman 528. 12. Our attention was further invited on the decision of CIT v. Smt. D. Valliammal [1998] 230 ITR 695 (Mad.) wherein it was held that the Commissioner of Income-tax cannot set aside assessment order under section 263 on the ground that verification of accounts was needed. Shri Aggarwal further placed reliance on the decision of CIT v. R. K. Metal Works [1978] 112 ITR 445 (Punj. & Har.). In this case an order of revision was passed by the CIT on the ground that the capital borrowed by the assessee firm was not used entirely for the purposes of the assessee's business. There was no indication in the order as to the basis on which CIT came to the prima facie conclusion that the capital borrowed by the firm was utilised for the purposes other than that of the firm's business. The Tribunal set aside the order of the Commissioner of Income-tax, On a reference Hon'ble High Court has held that the Tribunal was right in law in setting aside the order passed by the CIT under section 263 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obvious, The position and functioning of the Income-tax Officer is very different from that of aCivil Court. It simply gives decision on the basis of the pleadings and evidence which comes before it. The Income-tax Officer is not only an adjudicator, but also investigator. He cannot remain passive. If a return is apparently in order but calls for further enquiries, it is the duty of the I.T.O. to ascertain the facts, by making necessary enquiries. The word "erroneous" in section 263 also includes such passive acts on the part of the Assessing Officer of not making such enquiries when circumstances calls for it. 17. Shri Nanawati further submitted that section 263 can always be invoked for the purpose of setting right the distortions and prejudice caused to the interest of revenue. The prejudice that is contemplated under section 263 is prejudice to the Income-tax administration as a whole. He relied on the decision rendered in the case of Venkata Krishna Rice Co. Referring to this decision, Sri Nanawati raised a question that why the assessee made the borrowing? What was the motive behind it? The learned Departmental Representative contended that totality of circumstances transpi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of setting right distortions and prejudice to the interest of the revenue. Indisputably under section 263 the CIT does have the power to set aside the assessment order and restore the matter for a fresh assessment if he is satisfied that further enquiry is necessary and that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. 22. It is, sine qua non, for the CIT to put that in what manner he considered that the order of the Assessing Officer was erroneous and prejudicial to the interest of the Revenue and what the basis or material was for such conclusion. The CIT must give his own reasons for being satisfied that the conditions precedent for assuming jurisdiction under section 263 did exist in the facts and circumstances of the case. 23. Adverting to the facts of the present case, we find that the assessee raised loan amounting to Rs. 14,32,10,000. Admittedly this loan was raised to purchase shares of HDL. During the year under consideration the assessee paid interest of Rs. 1,33,11,190. The reason adduced in the impugned order for assuming jurisdiction under section 263 concerns only with the payment of interest amount to the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased at the prevailing market price. 26. Apex Courtin the case of Rajendra Prasad Moody has held that the interest on money borrowed for investment in shares which had not yielded any dividend was admissible as deduction under section 57(iii) of the Income-tax Act, 1961, in computing income from dividend under the head "income from other sources." In the present case, we find that the shares brought by the assessee yielded dividend to the tune of Rs. 48,36,293. 27. We have also noted that the assessee was assessed under section 158BC of the Act for the block period1-4-1987to22-11-1996. A copy of the assessment order was placed before us which runs at pages 44 to 46 of the paper book. As per the said order which is dated28-11-1997the undisclosed income for the block period was found to be NIL. The shares are reflected in the balance sheet as investment in Schedule VI at page 11 of the balance sheet. 28. We have also noted that the case of one of the group companies Lakshmangarh Estates & Trading Co. Ltd. had considered, the facts connected with the claim of deduction of Rs. 4,50,04,414 being the loss incurred on purchase and sale of shares of Hindustan Development Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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