TaxTMI 
TaxTMI 
2000 (1) TMI 148
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....------------------ "S. No. Name of the party Loan. 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. &n....
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.... companies incurred losses to the tune of Rs. 9,63,25,000 in the transaction. This was to reduce the long term capital gain earned by them from the sale of shares of ABB & Ingersol Rand Ltd. 6. The CIT further found that M/s. Kajriwal & Co. which was a conduit between the group companies and the assessee company in the transaction received Rs. 0.15 per share. The assessee company made payment on14/9/1994to M/s. Kejriwal & Co. This payment was made after obtaining loan of Rs. 14,32,10,000 from the group companies referred to in para 2. According to the CIT, the sole purpose to purchase these shares and to park with the assessee, was to accommodate the sister concern to book mirror losses and reduce the tax liabilities by colourful device. Accordingly, the CIT held that the interest of Rs. 1,33,11,190 paid to the group companies was a non-business expenditure. 7. Shri C.S. Aggarwal along with Shri Salil Aggarwal appeared on behalf of the assessee. Revenue was represented by Shri B. B. Nanawati. Relevant documents and papers were filed at the time of hearing. The learned counsel for the assessee contended that the conditions precedent for assuming jurisdiction under section 263 ....
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....her it was submitted that the amount of interest paid to group companies was duly assessed as income of each of the companies from whom the assessee borrowed the funds. 11. The learned counsel invited our attention on the decision of the Tribunal rendered in the case of Andhra Valley Power Supply Co. Ltd. v. Dy. CIT [1995] 55 ITD 24 (Bom.) wherein it was held that the Commissioner's action under section 263 must resemble that of a surgeon's knife. He cannot open the assessment wide and direct the Assessing Officer to consider everything afresh. Only errors which had crept into the assessment need to be corrected, Reference was also made to the case of CIT v. Shanti Lal Agarwalla [1983] 142 ITR 778/15 Taxman 107 (Pat.) wherein it was held that in order to invoke powers under section 263 the Commissioner of Income-tax must have material to show that in what respect there was under assessment and how the order was prejudicial to the interests of the Revenue. It is pertinent to note that the Hon'ble Patna High Court in this case distinguished the ratio laid down in the case of Rampyari Devi Saraogi v. CIT[1968] 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)....
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....f Revenue. Thus, cancellation of assessment was not proper. 13. The learned Departmental Representative, Shri B. B. Nanawati, submitted that the order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. As such, Commissioner of Income-tax rightly assumed jurisdiction under section 263 of the Act. 14. It is beyond dispute that under section 263, the CIT does have the power to set aside the assessment order and sent the matter for a fresh assessment if he is satisfied that further enquiry is necessary, and that the order of the Assessing Officer is prejudicial to the interests of the Revenue. 15. In order that the CIT may consider an order to be erroneous for the purposes of section 263, Shri Nanawati submitted that the error of law need not be apparent on the face of the order. The CIT may consider the order of the Assessing Officer to be erroneous not only if it contains some apparent error of reasoning or of law or of fact on the face of it, but also otherwise, if the order is stereo type. If the Assessing Officer blindly accepted what is stated in the return and fails to make necessary enquiries. In these circumstances the CIT can regard th....
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....t. TheApex Courthas held that the additional material only supported the original plank and did not constitute the bedrock on the basis of which the order was passed. The assessee had in no way suffered from the failure of the CIT to indicate the results of the enquiries. His order was in conformity with the cannons of natural justice. 19. Shri Nanawati also relied on the decision of the Rajasthan High Court rendered in the case of CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843 (Raj.). In this case the assessment was made under section 143(3) of the Act. It was found that the IAC did not apply his mind. He allowed depreciation at the enhanced value without considering the law. The order was found to be prejudicial to the interest of Revenue. In such a situation Hon'ble High Court has held that powers under section 263 was correctly exercised by the CIT. 20. Shri Nanawati laid emphasis on the point that it was a colourful device to evade tax liability. If totality of facts to be considered it will come out that the assessee was instrumental in reducing the tax liability of the associated companies. The purpose of all this planning was to avoid tax liability. In the given circu....
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....e of the shares was Rs. 17,68,20,206. Thus, the group companies incurred losses of Rs. 9,63,25,000 in the transaction. The CIT opined that this was to reduce the long term capital gain earned by them from the sale of shares to ABB & Ingerwoll Rand Ltd. It is, therefore, necessary to examine that whether this payment was made to defraud the Revenue or for the genuine needs of the business. 24. We have examined the order of assessment. It transpires from the perusal of the same that the Assessing Officer added the amount with the following narration :--- "Assessee had borrowed funds to acquire shares of M/s. Hindustan Development Corporation on which dividend of Rs. 45,61,069 was earned. It is clear that funds have been borrowed for earning this dividend and, therefore, interest is to be deducted from dividend income and not from business income. Hence, the same is added here to be considered separately." Thereafter the Assessing Officer added Rs. 1,33,11,190 and deducted the same out of the dividend income of Rs. 48,34,293 which was earned from the shares of the HDL purchased by the assessee out of the proceeds of loan transaction. 25. It was brought to our notice that t....