TMI Blog2011 (8) TMI 1144X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that in none of the decisions the Legislative Scheme emanating from conjoint reading of provisions of sections 14 56 of the Act have been considered. Having thus heard the parties, in so far as the question on which the Commissioner sought to reopen the assessment by exercising powers under section 263 of the Act is concerned, same permits no debate. Power u/s 263 can't be exercised when two views are possible - Appellate Tribunal did not appreciate the words 'erroneous and prejudicial to the revenue' as defined in the decision of the Hon'ble Supreme Court in the case of Malbar Industrial Co. Ld. v. CIT 243 ITR 83? - HELD THAT - In the case of MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Tribunal is right in not appreciating the words 'erroneous and prejudicial to the revenue' as defined in the decision of the Hon'ble Supreme Court in the case of Malbar Industrial Co. Ld. v. CIT 243 ITR 83? Short facts leading to the appeal are as follows: Respondent assessee is a partnership firm engaged in the business of running a hospital. For the assessment year 2004-05, the assessee filed its return of income. The Assessing Officer, accepted the return substantially except for making disallowance of 10% of the expenses of ₹ 5,54,324/- claimed by the assessee and framed the assessment on 21st September 2005. The said order of the Assessing officer dated 21.9.2005 was taken in revision by the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be exercised. He accordingly, restored the proceedings to the Assessing Officer for re-framing the assessment after hearing the assessee. To do so, he came to the following conclusions: The assessee has adduced evidence that the interest bearing borrowing funds were not utilized for setting up of the business but the same were utilized for expansion of the business in as much as that fixed assets of the assessee increased from ₹ 57,49,512/- to ₹ 1,32,36,268/-. The investment in building increased from ₹ 37,65,831/- to ₹ 65,13,410/- and investment in the plant and machinery incurred by ₹ 25,49,930/-. The assessee has not constructed a new hospital and has only added extra facilities in the existi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion that from the remainder of the profit, the assessee could have claimed deduction for the remuneration paid to the partners. In any case, the Tribunal was of the opinion that when two views are possible, powers under section 263 of the Act could not have been exercised. The Tribunal in this regard relied on the decision of the Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT, 243 ITR 83. The Tribunal also relied on the decision of the Karnataka High Court in the case of CIT v. S.K.Srigiri and Bros. (2008) 298 ITR 13 (Karn). The decision of this Court in the case of Fakir Mohmmed Haji Hasan v. CIT 247 ITR 290 (Guj) was distinguished on facts. On behalf of the Revenue, counsel submitted that the Tribunal committed grave er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that in any case, even if it is held that two views are possible, powers under section 263 of the Act should not be exercised. Having thus heard the learned counsel for the parties, in so far as the first question on which the Commissioner sought to reopen the assessment by exercising powers under section 263 of the Act is concerned, same permits no debate. It is by now well settled that interest on borrowed funds would be allowable deduction irrespective of whether such funds are utilized for incurring revenue or capital expenditure. Reference in this regard can be made right from the the decision of this Court in the case of CIT v. Khedut Sahakari Khand Udyog Mandli, 104 ITR 206. This view was reiterated by this Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any head not specified in section 14 of the Act. In the circumstances, there is no question of trying to read any conflict in the two judgments of this Court as submitted by the learned Counsel for the Revenue. In any case, we are convinced that the Tribunal was correct in holding that even if two views are possible, powers under section 263 of the Act could not and ought not to have been exercised. The Apex Court in the case of Malabar Industrial Co. Ltd. observed as under: The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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