TaxTMI 
TaxTMI 
2012 (7) TMI 996
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....the issue are stated in brief. The assessment in the hands of the 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 Rs. 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 Rs. 1.59 crores. The Ld. CIT took the vi....
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.... Ld CIT, Viz., the method of calculating interest 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 prejudi....
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....n to be complied with by the Administrative Commissioner 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 rev....
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....and the Income-tax Officer has taken one view with which the Commissioner does 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 rat....