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TMI Blog2012 (7) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... by clause(d) of section 253(6) of I.T. Act. Accordingly, the filing fees is to be governed by the Residuary clause, i.e. section 253(6)(d) of IT Act. The objection raised by the Registry is therefore turned down and the appeal is admitted for adjudication. An another objection has also been raised that this appeal was belated filed by the assessee. Therefore, an appeal u/s.263 being an important appeal and substantial question of law involves therefore in the interest of natural justice, it is justifiable to admit this appeal by condoning the delay. 2.1. Though undisputedly the law of limitation is enshrined in the maxim "interest republica ut sit finis litium" (it is for general welfare that a period be put to litigation), but when substantial justice and technical consideration are pitted against each other; the cause of substantial justice deserves to be preferred. Otherwise also the primary function of a Court is to adjudicate the dispute between parties and to advance substantial justice. Hon'ble Courts have held that while exercising the discretion of sec.5 of Limitation Act a pragmatic approach should be made to be coupled with application of a rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the AO for considering the borrowed funds utilized and interest paid thereon. In view of the above, the assessment is held to be erroneous and prejudicial to the interest of revenue. The assessment is therefore set aside u/s.263 of I.T. Act with a direction to the A.O. to recompute the assessment after considering the following:- (i) The rate of interest earned on bank deposits and rate of interest paid to the partners on capital. (ii) The interest paid on borrowed funds utilized for acquisition of residential property." 5. From the side of the appellant-assessee ld.AR Mr.S.N.Soparkar appeared and argued that there was no fallacy in the assessment order because the same was completed after detailed scrutiny and hence u/s.143(3) of IT Act. In compliance of a notice, u/s.143(1) of IT Act, the assessee has furnished the details and the written submissions. The AO has specifically mentioned that those details were examined and cross-verified. Thereafter only, few disallowances have been made in respect of expenditure which according to AO was not related to the business activity of the assessee. As against the declared busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s argued before us, but such glaring feature of the balancesheet was not confronted to the assessee. Such an assessment which has been made without taking into account the position of the outstanding balances as shown in the balance-sheet and the related consequence on the profit disclosed as per the P&L account can give rise to an automatic suspicion that an erroneous order has been passed causing prejudice to the Revenue. Because of that reason, some of the Hon'ble Courts have even held that the word "erroneous" would also include a failure to make a specific enquiry which was necessary for completion of the assessment. Rather, it is incumbent on the AO to atleast investigate the facts as stated in the return of income. It is further incumbent upon the AO to study the Profit & Loss account as also the balance-sheet placed before him. If on the basis of the record available, ld.Commissioner has opined that any prudent AO would have enquired about the said discrepancy. If the Ld.CIT forms an opinion that the AO has not shown that prudence, then after assigning proper reason, the ld.Commissioner can invoke the revisional powers. In the present case, on examination of the records, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO contended that the appellant himself admits the purpose and nature of the building. The assessee has also confirmed that the partners stay regularly but the residential property is also used for the purpose of business. The AO further noticed that the appellant did not claim depreciation on the residential property and therefore, it is clearly evident that the investment in the residential property was an investment for nonbusiness purpose. The AO by giving an opportunity to the appellant asked the appellant to furnish specific evidence to have nexus of the borrowed funds vis-à-vis investment. Considering the totality of the facts, the AO disallowed the proportionate interest paid to the depositors, partners etc. for Rs.21,89,507/-. 8. Against that order of the AO, the assessee had gone in appeal and ld.CIT(A) has given his finding as under:- "4.3. FINDIG :- I have considered the written submission of the AR of the appellant as well as observation made by the AO in the assessment order. I found AO very rightly followed the direction given in the order passed by the C.I.T., Valsad u/s.263 of the Act. He has given sufficient opportunity to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing stay for partners. But simultaneously, this fact has also been brought on record that the said building was not treated as a business asset because the assessee has not claimed depreciation on the same. A plea has been raised from the side of the assessee that there were funds available which were interest-free of certain creditors to the tune of Rs.1,70,88,455/-, however, that fact was rightly rejected by the AO that the assessee was having closing stock of Rs.1,69,82,980/- as well as sundry debtors of Rs.41,18,920/-. The AO has rightly arrived at the conclusion that the firm had invested Rs.5,72,18,535/- towards non-business assets. The AO has thus established a nexus that the non-business assets have factually been funded from the current accounts of the partners. On the other hand, the assessee has not categorically denied the said finding of the AO by placing a direct evidence that none of the partners' capital had in fact been used for such non-business purposes. Rather, facts of the case have revealed that the assessee has not discharged its primary onus to prove that entire interest-bearing funds including partners' capital account were entirely used for the purposes of ..... 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