TMI Blog2000 (1) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... oan. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e funds were borrowed for earning the dividend, therefore, interest is to be deducted from the dividend income and not from the business income. 8. It was further submitted that the block assessment was completed in the case of the assessee and no material was found during the search. There was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive or as a review of the subordinate's order in exercise of the supervisory power, but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of and in the interest of Revenue 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries before cancelling the assessment order of the Income-tax Officer. The CIT can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further enquiries before accepting the statements made by the assessee in his return. The reason is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 263. The scope of interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. The prejudice that is contemplated under section 263 is prejudice to the Income-tax administration as a whole. Section 263 is to be invoked for the purpose 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 amounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer was intimated vide letter dated5-11-1995appended at page 30 of the paper book. We find that the assessee also furnished the contract notes and bills in regard to the purchase of shares of HDL. The quotation of the stock exchange were also placed before the Revenue authorities to indicate that the shares were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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