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2015 (6) TMI 315 - ITAT BANGALORE

2015 (6) TMI 315 - ITAT BANGALORE - TMI - Revision u/s 263 - the interest income to the tune of ₹ 77,40,000/- has not been offered to tax - Held that- What started with a proposed revision of assessment order on the ground that "interest income to the tune of ₹ 77,40,000 has not been offered to tax" ended with a discretion to the assessing officer to examine the diversion of interest bearing funds towards investments which are not yielding any income as "the assessee directly or conc .....

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n 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.

Even on merits there is nothing on record to show that the assessee was under any obligation to charge interest @ .....

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eedings 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. - Decided in favour of assessee. - ITA No. 595/Bang/2014 - Dated:- 17-4-2015 - Pramod Kumar, AM And Vijaypal Rao, JM,JJ. For the Appellant : Shri V Srinivasan, CA For the Re .....

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revision proceedings vide show cause notice dated 24th February, 2014 which is reproduced below:- "OFFICE OF THE COMMISSIONER OF INCOME-TAX, BANGALORE-III, IST FLOOR, C.R. BUILDING, QUEEN'S ROAD, BANGALORE-01. F.No.L.Rev.33/Syed Saleha/CIT/B-III/2013-14 Dated: 24.2.2014 To Sri Syed Saleha, No.1666, Pipeline Road, T. Dasarahalli, Bangalore - 560 057. Sir, Sub : Revision u/s 263 of the I.T. Act in your case for the A.Y. 2009-10 - issue of notice - calling for objections, If any - Reg. *** .....

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order passed by the Assessing Officer on 28.12.2011 for the assessment year 2009-10, is proposed to be treated a erroneous & prejudicial to the interest of revenue. I, therefore, propose to pass an appropriate order u/s 263 of the I.T. Act, 1961, for the assessment year 2009-10. 4. In this connection, you are requested to file your clarifications / objections, if any, to the proposed action on or before 06.03.2014. You are also given an opportunity of personal hearing before the undersigned .....

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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 .....

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we request you Honour to kindly drop the proceedings initiated u/s 263 of the Income-tax Act, 1961." 4. On 25th March 2014, the Commissioner of Income-tax, rejecting the submissions of the assessee, held that the matter is to be examined afresh by the Assessing Officer. While holding so, the Commissioner of Income-tax observed as follows:- "4. The assessee's submissions are considered. The assessee accepts vide his letter dated 24.03.2014 that he has not produced any other evidence .....

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me Court in the case of Malabar Industrial Co., Ltd., Vs Commissioner of Income-tax 243 ITR 83 (SC) held that "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind." It is clear from the assessment order for A.Y 2009-10 that the Assessing Officer in his assessment order failed to apply his min .....

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nd therefore, the order is prejudicial to the interests of the revenue. 6. The Assessing Officer while passing the Assessment Order u/s 143(3) dated 28.12.2011 failed to verify the above issue. The Order passed by the Assessing Officer is not 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 d .....

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vising 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 has not been offered to tax" ended with a discretio .....

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ns Pvt Ltd vs DCIT [13 ITR (Trib) 377] which has observed as follows: "4. We find that the impugned revision order is indeed not sustainable in law for more reasons than one. A plain reading of the impugned revision order clearly shows that the conclusions drawn in the revision proceedings are different from the reasons for revision proceedings set out in the show-cause notice-extracts from which are set out in the revision order itself. It is important to note the shifting stand of the CIT .....

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s". The extracts from show-cause notice, which have been reproduced in the impugned revision order at pp. 1 and 2, do not, however, even remotely support that stand. The stand taken in the show-cause notice is that, on merits, set off is not permissible in as much as show-cause notice states that "as per the provisions of s. 73 of the IT Act, any loss computed in respect of speculation business carried on by the assessee shall not be set off except against profits and gains of another .....

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ssment 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 t .....

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xercised in the impugned order are latter. As to whether such an exercise of revisional powers, on the grounds other than the grounds of revision as set out in the show-cause notice, could be held to be sustainable in law, we find guidance from the decisions of a Co-ordinate Bench in the case of Maxpak Investment Ltd. vs. Asstt. CIT (2006) 104 TTJ (Del) 881 : (2007) 13 SOT 67 (Del) which, inter alia, observes as follows : "………….In CIT vs. G.K. Kabra (1995) 125 CT .....

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the above question, the High Court held as under (pp. 339-340) : 'The necessary implication in the expression 'after giving opportunity of being heard' relates to the point on which the CIT considers the order to be erroneous and prejudicial to the interests of the Revenue. In other words, it is necessary for the Commissioner to point out the exact error in the order which he proposes to revise so that the assessee would have an adequate opportunity of meeting the error before the fi .....

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chosen to show these two points as the errors in making the final order and the final order under s. 263 refers only to the inference of hire charges being exigible to tax which was not mentioned at all in the show-cause, obviously the assessee had no opportunity to meet that point." (Emphasis, italicsed in print, supplied) 10. The ratio of the decision, clear from the above observation, is that if a ground of revision is not mentioned in the show-cause notice issued under s. 263, that gro .....

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e 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 fac .....

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ure or, in other words, the CIT has the exclusive jurisdiction under the Act to revise the order of the ITO if he considers that any order passed by him was erroneous insofar as it was prejudicial to the interests of the Revenue. Before doing so, he is also required to give an opportunity of being heard to the assessee. If after hearing the assessee in pursuance of the notice issued by him under s. 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thu .....

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all the more so, because the Revenue has not been given any right of appeal under the Act against an order of the CIT under s. 263(1) of the Act. . . . Under s. 263 of the Act it is only the CIT who has been authorized to proceed in the matter and, therefore, it is his satisfaction according to which he may pass necessary orders thereunder in accordance with law. If the grounds which were available to him at the time of the passing of the order do not find a mention in his order appealed agains .....

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