TMI Blog2012 (7) TMI 996X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-firm was completed u/s. 143(3) of the Act by the Assessing Officer on 29- 12-2007. On examination of the records, the Ld. CIT noticed that one of the partners named Shri Thomas George was paid interest on his current account to the tune of ₹ 2.05 crores, which was found to be computed under daily product method (Commonly known as product method ). The Ld. CIT took the view that the interest should have been calculated on the average amount of opening and closing balances instead of the product method adopted by the assessee. Interest amount calculated on the average amount of the opening and closing balances worked out to ₹ 1.59 crores. The Ld. CIT took the view that the assessee firm has paid interest in excess by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on average balance of opening and closing balances, is not a scientific method, since it does not take into account the transactions of receipts and payments in between the periods. He further submitted that the assessee-firm as well as the partner is paying income tax at the maximum marginal rate. Since the interest paid by the firm is assessed in the hands of the partner, any variation in the interest amount will not cause prejudice to the Revenue in view of the same rate of tax in the hands of both the firm and partner. Accordingly, he submitted that the order passed by Ld. CIT is liable to be set aside as she has failed to establish that the assessment order is both erroneous and prejudicial to the interests of the Revenue. 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner before passing a revision order u/s 263 of the Act is that he should show that the order passed by the AO is erroneous in so far as it is prejudicial to the interests of the revenue. The Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd Vs. CIT (243 ITR 83) has held as under:- A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income tax officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) The order of the Assessing officer sought to be revised is erroneous; and (ii) It is prejudicial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. 7. Now, we shall examine the facts relating to the issue under consideration. In the instant case, the Ld CIT has pointed out the difference in the amount of interest admissible on the Current account of a partner. There is no dispute with regard to the following items viz., (a) that the partner is entitled to receive interest from the firm. (b) that the payment of interest is authorised by the partnership deed. (c) that the rate of interest does not exceed the rate prescribed u/s 40(b) of the Act. The dispute, however, is with regard to the method adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 55.00 lakhs. Now the account of that person will show an opening balance of ₹ 10.00 lakhs and closing balance of ₹ 5 lakhs. According to the Ld. CIT, the interest should be calculated on the average amount of ₹ 10.00 lakhs and ₹ 5.00 lakhs, i.e., on ₹ 7.5 lakhs. We can notice that the amount of ₹ 55.00 lakhs was practically used throughout the year and according to the Ld. CIT, the interest is not payable on the above said amount of ₹ 55.00 lakhs, which view is liable to rejected on the face of it. In our view, the Ld CIT, instead of pointing out the error in the assessment order, has herself committed an error in directing the AO to adopt the unscientific method of calculation of interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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