Sri. Syed Saleha, Bangalore V. CIT, Bangalore

ITA 595/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89870 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI A K GANESH RAO CITII I
• Assessee Lawyers: V SRINIVASAN
• Keywords: Opportunity of being heard; Principle of natural justice; Speculation loss; Assessment record; Right to appeal
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAYPAL RAO, J M I.T.A. NO.595/BANG/2014 (ASSESSMENT YEAR 2008-09) SRI SYED SALEHA VS COMMISSIONER OF INCOME-TAX, #1666, PIPELINE ROAD BANGALORE-III, BANGALORE T. DASARAHALLI BANGALORE 560 057 PAN : AVNPS2555C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V SRINIVASAN, CA RESPONDENT BY : SHRI SHRI A.K.GANESH RAO, CIT-II I DATE OF HEARING : 09-04-2015 DATE OF PRONOUNCEMENT : 17-04-2015 O R D E R PER PRAMOD KUMAR, AM THIS APPEAL, FILED BY THE ASSESSEE, CALLS INTO QUE STION CORRECTNESS OF THE ORDER DATED 25 TH MARCH, 2015 PASSED UNDER SECTION 263 R.W.S. 143(3) OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2009- 10. 2. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSMENT UNDER SECTION 143(3) WAS C OMPLETED, IN THIS CASE, ON 28.12.2011. SUBSEQUENTLY, HOWEVER, LEARNED COMMISS IONER INITIATED THE REVISION PROCEEDINGS VIDE SHOW CAUSE NOTICE DATED 24 TH FEBRUARY, 2014 WHICH IS REPRODUCED BELOW:- OFFICE OF THE COMMISSIONER OF INCOME-TAX, BANGALOR E-III, IST FLOOR, C.R. BUILDING, QUEENS ROAD, BANGALORE-0 1. ITA NO.595/BANG/2014 2 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 CAS E FOR THE A.Y. 2009-10 ISSUE OF NOTICE CALLING FOR OBJ ECTIONS, IF ANY REG. ********** THE SCRUTINY ASSESSMENT ORDER U/S 143(3) IN YOUR C ASE, WAS PASSED ON 28.12.2011 FOR THE ASSESSMENT YEAR 2009-1 0. 2. ON PERUSAL OF THE ASSESSMENT RECORDS, IT IS SEE N THAT YOU HAVE ADVANCED AN AMOUNT OF RS.6.45 CRORES TO MR SHA KEER AHMED, PARTNER IN THE FIRM M/S S&S INC. AS PER THE AGREEM ENT THAT THE AMOUNT CONTRIBUTED / ADVANCED AS LOAN BY ANY PARTY SHALL B EAR INTEREST @12%. HOWEVER, THE INTEREST INCOME TO THE TUNE OF RS.77,4 0,000/- HAS NOT BEEN OFFERED TO TAX. 3. HENCE, THE ORDER PASSED BY THE ASSESSING OFFICE R ON 28.12.2011 FOR THE ASSESSMENT YEAR 2009-10, IS PROP OSED 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 Y OUR CLARIFICATIONS / OBJECTIONS, IF ANY, TO THE PROPOSE D ACTION ON OR BEFORE 06.03.2014. YOU ARE ALSO GIVEN AN OPPORTUNITY OF P ERSONAL HEARING BEFORE THE UNDERSIGNED AT HIS OFFICE AT CENTRAL REVENUE BU ILDING, 1 ST FLOOR, QUEENS ROAD, BANGALORE ON 06.03.2014 AT 11.30 AM. ITA NO.595/BANG/2014 3 YOURS FAITHFULLY, SD/- (D.C. SREEDHAR) COMMISSIONER OF INCOME-TAX, BANGALORE-III, BANGALORE 3. IN A SHORT REPLY TO THIS SHOW CAUSE NOTICE, THE ASSESSEE, VIDE LETTER DATED 24 TH MARCH, 2014, SUBMITTED AS FOLLOWS:- WITH REFERENCE TO THE ABOVE, UNDER INSTRUCTIONS FR OM THE ABOVE ASSESSEE, WE SUBMIT THE FOLLOWING FOR YOUR HONOURS KIND CONSIDERATION AND FAOVURABLE ORDERS: 1. IT IS TRUE THAT THE ASSESSEE HAS ADVANCED A SUM OF RS.6.45 CRORES TO MR. SHAKEEL AHMED AND THE AMOUNT IS REFLE CTED IN THE STATEMENT OF AFFAIRS OF THE ASSESSEE. HOWEVER, THE RE IS NO AGREEMENT BETWEEN THE ASSESSEE AND MR. SHAKEEL AHME D AS TO THE CHARGING OF INTEREST AT 12% ON THE ADVANCE MAD E BY THE ASSESSEE. THEREFORE, THE QUESTION OF TAXING THE AM OUNT OF RS.77,40,000/- BEING NOT CORRECT INTEREST CALCULATE D AT 12% ON THE AMOUNT ADVANCED TO MR. SHAKEEL AHMED, DOES NOT ARIS E. 2. IT IS ALSO SUBMITTED THAT THE ASSESSEE DOES NOT HAVE ANY FUNDS FOR WHICH INTEREST IS PAID AND CLAIMED AS A D EDUCTION AGAINST THE ASSESSEES INCOME FOR THE YEAR UNDER REFERENCE. THUS, THERE IS NO DIVERSION OF INTEREST BEARING BORROWINGS TOWARDS INVESTMENT, WHICH ARE NOT INCOME YIELDING. IN VIEW OF THE ABOVE, THE ASSESSMENT ORDER DATED 28 .12.2011 PASSED U/S 143(3) OF THE INCOME-TAX ACT, 1961 BY TH E LEARNED ASSESSING OFFICER IS NEITHER ERRONEOUS NOR IS PREJU DICIAL TO THE ITA NO.595/BANG/2014 4 INTEREST OF REVENUE AND THEREFORE WE REQUEST YOU HO NOUR TO KINDLY DROP THE PROCEEDINGS INITIATED U/S 263 OF THE INCOM E-TAX ACT, 1961. 4. ON 25 TH MARCH 2014, THE COMMISSIONER OF INCOME-TAX, REJECT ING THE SUBMISSIONS OF THE ASSESSEE, HELD THAT THE MATTER I S TO BE EXAMINED AFRESH BY THE ASSESSING OFFICER. WHILE HOLDING SO, THE COMMI SSIONER OF INCOME-TAX OBSERVED AS FOLLOWS:- 4. THE ASSESSEES SUBMISSIONS ARE CONSIDERED. THE ASSESSEE ACCEPTS VIDE HIS LETTER DATED 24.03.2014 THAT HE HA S NOT PRODUCED ANY OTHER EVIDENCE IN SUPPORT OF HIS CLAIM THAT HE HAS NOT DIVERTED INTEREST BEARING BORROWING TOWARDS INVESTMENT COULD NOT BE VERIFIED. THE ASSESSEE DIRECTLY AND CONCLUSIVELY COULD NOT PR OVE THAT HE HAS NOT DIVERTED INTEREST BEARING BORROWINGS TOWARDS IN VESTMENTS WHICH ARE NOT INCOME YIELDING. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE SAME AND DECIDE ACCORDINGLY. 5. IN VIEW OF THE FACTS OF THE CASE, THE ASSESSEES REQUEST FOR DROPPING THE PROCEEDINGS U/S 263 CANNOT BE CONSIDER ED. THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUST RIAL CO., LTD., VS COMMISSIONER OF INCOME-TAX 243 ITR 83 (SC) HELD THAT AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLI CATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOU S. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PR INCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. I T IS CLEAR FROM THE ASSESSMENT ORDER FOR A.Y 2009-10 THAT THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER FAILED TO APPLY HIS MIND TO THE CA SE IN ALL PERSPECTIVE AND THEREFORE, THE ORDER MADE BY HIM WI THOUT APPLICATION OF MIND IS ERRONEOUS. WHEN DUE TO AN E RRONEOUS ORDER ITA NO.595/BANG/2014 5 OF THE ASSESSING OFFICER, THE REVENUE IS LOSING TAX PAYABLE BY THE ASSESSEE, THE ORDER MADE IS CERTAINLY PREJUDICIAL T O THE INTEREST OF THE REVENUE. THE ORDER OF ASSESSMENT IS NOT IN ACC ORDANCE WITH LAW AND HAS BEE MADE BY THE ASSESSING OFFICER WITHO UT APPLICATION OF MIND, IN CONSEQUENCE WHEREOF THE LAWFUL REVENUE DUE TO THE STATE HAS NOT BEEN REALIZED, AND THEREFORE, THE ORD ER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 6. THE ASSESSING OFFICER WHILE PASSING THE ASSESSME NT ORDER U/S 143(3) DATED 28.12.2011 FAILED TO VERIFY THE AB OVE ISSUE. THE ORDER PASSED BY THE ASSESSING OFFICER IS NOT IN ACC ORDANCE WITH LAW I THEREFORE HOLD THAT THE ASSESSMENT ORDER PAS SED U/S 143(3) DATED : 28.12.2011 BY THE ASSESSING OFFICER IS ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HENCE, THE A.O IS DIRECTED TO EXAMINE THE ASSESSEES CLAIM AND DECIDE ACCORDINGLY. UNDER SIMILAR CIRCUMSTANCES, THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS INFOSYS TECHNOLOGIES LTD., REPOR TED IN 341 ITR 293 HELD THAT SUCH ORDERS DEFINITELY CONSTITUTE AN ORDER NOT MERELY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF R EVENUE AND COMMISSIONER WOULD BE JUSTIFIED IN EXERCISING JURIS DICTION U/S 263. SIMILARLY, IN YET ANOTHER CASE THALI BAI F. JAIN VS ITO REPORTED IN 101 ITR 1 THE HONBLE KARNATAKA HIGH COURT HELD THA T CIT WAS JUSTIFIED IN REVISING ORDER U/S 263 OF THE ACT. 5. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFOR E US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF A PPLICABLE LEGAL POSITION. ITA NO.595/BANG/2014 6 7. A PLAIN LOOK AT THE SEQUENCE OF DEVELOPMENTS WOU LD SHOW THAT WHAT STARTED WITH A PROPOSED REVISION OF ASSESSMENT ORDE R ON THE GROUND THAT INTEREST INCOME TO THE TUNE OF RS.77,40,000 HAS NOT BEEN OFF ERED TO TAX ENDED WITH A DISCRETION TO THE ASSESSING OFFICER TO EXAMINE THE DIVERSION OF INTEREST BEARING FUNDS TOWARDS INVESTMENTS WHICH ARE NOT YIELDING AN Y INCOME AS THE ASSESSEE DIRECTLY OR CONCLUSIVELY COULD NOT PROVE THAT HE HA S NOT DIVERTED INTEREST BEARING BORROWINGS TOWARDS INVESTMENTS WHICH ARE NOT INCOME YIELDING. AS TO WHETHER SUCH A SHIFT IN THE STAND OF THE CIT, WHILE EXERCIS ING POWERS UNDER SECTION 263, WE FIND GUIDANCE FROM A CO-ORDINATE BENCHS DECISIO N IN THE CASE OF SYNERGY ENTREPRENEUR SOLUTIONS PVT LTD VS DCIT [13 ITR (TRI B) 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 R EVISION ORDER CLEARLY SHOWS THAT THE CONCLUSIONS DRAWN IN THE REVISION PROCEEDINGS A RE DIFFERENT FROM THE REASONS FOR REVISION PROCEEDINGS SET OUT IN THE SHOW-CAUSE NOTI CEEXTRACTS FROM WHICH ARE SET OUT IN THE REVISION ORDER ITSELF. IT IS IMPORTANT T O NOTE THE SHIFTING STAND OF THE CIT SO FAR AS REASONS FOR SUBJECTING THE ASSESSMENT ORDER TO REVISION PROCEEDINGS. AT P. 1, IN FIFTH SENTENCE OF THE IMPUGNED REVISION ORDER, LEAR NED CIT NOTES THAT THAT 'ON PERUSAL OF ASSESSMENT RECORD, IT WAS NOTICED THAT ASSESSMEN T ORDER WAS ERRONEOUS IN AS MUCH AS IT WAS PREJUDICIAL TO THE INTEREST OF THE R EVENUE AS THE DETAILS OF PURCHASE AND SALE OF SHARE TRANSACTIONS IN FUTURES WERE NOT VERIFIED AS TO WHETHER THE PROFIT OR LOSS FROM THE FUTURES TRADING AMOUNTS TO SPECULATIO N GAIN OR LOSS'. THE EXTRACTS FROM SHOW-CAUSE NOTICE, WHICH HAVE BEEN REPRODUCED IN TH E 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 I S NOT PERMISSIBLE IN AS MUCH AS SHOW-CAUSE NOTICE STATES THAT 'AS PER THE PROVISION S 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 SPECULATION BUSINESS', AND, 'THEREFORE YOU (THE ASSESSEE) ARE NOT ALLOWED TO AD JUST THE SPECULATION LOSS'. THE ITA NO.595/BANG/2014 7 SHOW-CAUSE NOTICE, THEREFORE, CLEARLY REFERS TO DEC LINING WHAT THE CIT PERCEIVES AS A SET OFF OF SPECULATION LOSS AGAINST BUSINESS PROFIT S. THAT IS A CATEGORICAL DISENTITLEMENT OF SET OFF. IN THE FINAL CONCLUSIONS IN THE IMPUGNED REVISION ORDER, HOWEVER, THE CIT ONCE AGAIN DEVIATES FROM THE STAND SO TAKEN AND CONCLUDES AS FOLLOWS : 'IN VIEW OF THE FOREGOING, THE ASSESSMENT ORDER DT. 27TH DEC., 2007 PASSED BY THE AO IS CONSIDERED TO BE ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF THE REVENUE. SINCE THE AO HAS NOT TAKEN THE NECESSA RY DETAILS TO VERIFY WHETHER THE PROFITS AND LOSS FROM FUTURES TRADING A MOUNTS TO SPECULATION PROFITS OR LOSS, THE ASSESSMENT ORDER IS SET ASIDE WITH A DIRECTION TO OBTAIN COMPLETE DETAILS AND CONDUCT NECESSARY ENQUIRIES AN D EXAMINE THE SAME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AO SHA LL PROVIDE ADEQUATE OPPORTUNITY TO THE ASSESSEE BEFORE PASSING THE ASSE SSMENT ORDER.' 5. IT IS THUS CLEAR THAT THERE HAS BEEN SHIFT IN THE S TAND OF THE CIT ON WHETHER IT WAS A FIT CASE FOR REVISION ON THE GROUND THAT THE ASSESS EE WAS NOT ELIGIBLE FOR SET OFF OF LOSSES ON SPECULATIVE TRANSACTIONS OR WHETHER IT WA S A CASE FOR REVISION ON THE GROUND THAT THE AO DID NOT MAKE NECESSARY VERIFICATIONS AB OUT 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 LAT TER. 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 SUSTAINA BLE 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 (DE L) WHICH, INTER ALIA, OBSERVES AS FOLLOWS : '.IN CIT VS. G.K. KABRA (1995) 125 CTR (AP) 55 : (1995) 211 ITR 336 (AP) THE ANDHRA PRADESH HIGH COURT WAS DEALING WITH AN APPLICATION SEEKING REFERENCE UNDER S. 256(2), INTER ALIA OF THE FOLLOW ING QUESTION : WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE CIT LACKS INITIAL JURIS DICTION, PARTICULARLY WHEN THE CONCLUSION MADE BY THE CIT IN THE ORDER UNDER S. 26 3 WAS ON THE BASIS OF THE INFORMATION FURNISHED IN RESPONSE TO THE INITIAL NO TICE ? WHILE DECLINING TO REFER THE ABOVE QUESTION, THE HI GH 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 CONSID ERS THE ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. IN OTHER WORDS, IT IS NECESSARY FOR THE COMMISSIONER TO POINT OUT THE EXA CT ERROR IN THE ORDER WHICH HE PROPOSES TO REVISE SO THAT THE ASSESSEE WOULD HA VE AN ADEQUATE OPPORTUNITY OF MEETING THE ERROR BEFORE THE FINAL O RDER IS MADE. (EMPHASIS, ITALICSED IN PRINT, SUPPLIED) ITA NO.595/BANG/2014 8 IN THE CASE BEFORE THE HIGH COURT, THE SHOW-CAUSE N OTICE REFERRED TO TWO ISSUES TO WHICH THE ASSESSEE HAD GIVEN SATISFACTORY REPLIES. NO ACTION WAS TAKEN UNDER S. 263 IN RESPECT OF THESE TWO ISSUES. HOWEVER, IN THE SAI D ORDER THE CIT MENTIONED THE HIRE CHARGES AS THE GROUND FOR REVISING THE ASSESSMENT. THIS POINT HAD NOT BEEN MENTIONED AS A GROUND IN THE SHOW-CAUSE NOTICE. THE HIGH COURT HELD THAT IN AS MUCH AS THE CIT HAD NOT CHOSEN TO SHOW THESE TWO PO INTS 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 AL L IN THE SHOW-CAUSE, OBVIOUSLY THE ASSESSEE HAD NO OPPORTUNITY TO MEET THAT POINT.' (EMPHASIS, ITALICSED IN PRI NT, 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 GROUND CANNOT BE MADE THE BASIS OF THE ORDER PASSED UNDER THE SECTION, FOR THE SIMPLE REASON THAT THE ASSESSEE WOULD HAVE HAD NO OPPORTUN ITY TO MEET THE POINT. . 11. THE OTHER JUDGMENT WHICH SUPPORTS THE CASE OF T HE ASSESSEE IS THAT OF THE PUNJAB & HARYANA HIGH COURT IN CIT VS. JAGADHRI ELECTRIC S UPPLY & INDUSTRIAL CO. (1981) 25 CTR (P&H) 94 : (1983) 140 ITR 490 (P&H). THE NATURE OF THE JURISDICTION OF THE CIT UNDER S. 263 AND THE POWERS OF THE TRIBUNAL WHILE D EALING WITH AN APPEAL AGAINST THE ORDER PASSED UNDER THAT SECTION WERE EXPLAINED IN T HAT DECISION. THE CIT HAD FOUND THE ORDER OF THE AO ALLOWING CONTINUATION OF REGIST RATION TO THE ASSESSEE-FIRM TO BE ERRONEOUS ON THE GROUND THAT THE ACTUAL DISTRIBUTIO N 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 CH ANGE IN THE NUMBER OF PARTNERS FROM 10 TO 11 WHICH FACT HAD NOT BEEN TAKEN INTO AC COUNT BY THE AO WHEN HE GRANTED REGISTRATION FOR THE FIRM FOR THE ASST. YR. 1966-67 AND THUS THE GRANT OF REGISTRATION WAS ERRONEOUS. ON THE BASIS OF THIS OBSERVATION IT WAS ARGUED BEFORE THE HIGH COURT ON BEHALF OF THE REVENUE THAT THE TRIBUNAL OUGHT TO HA VE SUSTAINED THE ORDER OF THE CIT ON THAT GROUND. REPELLING THE CONTENTION, IT WAS HE LD BY THE HIGH COURT AS UNDER (PP. 502-3) : THE JURISDICTION VESTED IN THE CIT UNDER S. 263(1) OF THE ACT IS OF A SPECIAL NATURE OR, IN OTHER WORDS, THE CIT HAS THE EXCLUSIVE JURIS DICTION 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 T HE REVENUE. BEFORE DOING SO, HE IS ALSO REQUIRED TO GIVE AN OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. IF AFTER HEARING THE ASSESSEE IN PURSUANCE OF THE NOTICE ISS UED BY HIM UNDER S. 263(1) OF THE ACT, HE IS NOT SATISFIED, HE MAY PASS THE NECES SARY ORDERS. OF COURSE, THE ORDER THUS PASSED WILL CONTAIN THE GROUNDS FOR HOLD ING THE ORDER OF THE ITO TO BE ERRONEOUS, AS CONTEMPLATED UNDER S. 263(1) OF THE A CT. . . . THE TRIBUNAL CANNOT ITA NO.595/BANG/2014 9 UPHOLD THE ORDER OF THE CIT ON ANY OTHER GROUND WHI CH, IN ITS OPINION, WAS AVAILABLE TO THE CIT AS WELL. IF THE TRIBUNAL IS AL LOWED TO FIND OUT THE GROUND AVAILABLE TO THE CIT TO PASS AN ORDER UNDER S. 263( 1) OF THE ACT, THEN IT WILL AMOUNT TO A SHARING OF THE EXCLUSIVE JURISDICTION V ESTED IN THE CIT, WHICH IS NOT WARRANTED UNDER THE ACT. IT IS ALL THE MORE SO, BEC AUSE 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 AGAINST, T HEN IT WILL BE DEEMED THAT HE REJECTED THOSE GROUNDS FOR THE PURPOSE OF ANY ACTIO N UNDER S. 263(1) OF THE ACT. IN THIS SITUATION, THE TRIBUNAL, WHILE HEARING AN A PPEAL FILED BY THE ASSESSEE, CANNOT SUBSTITUTE THE GROUNDS WHICH THE CIT HIMSELF DID NOT THINK PROPER TO FORM THE BASIS OF HIS ORDER. WE RESPECTFULLY UNDERSTAND THIS JUDGMENT AS HOLDING , BY NECESSARY IMPLICATION, THAT IF THE CIT HAS NOT MENTIONED THE GROUND ON WHICH ACTIO N IS PROPOSED TO BE TAKEN UNDER S. 263 IN THE SHOW-CAUSE NOTICE, IT IS DEEMED THAT HE WAS NOT SATISFIED THAT IT WAS A FIT GROUND FOR TAKING ACTION UNDER THE SECTION, WITH TH E RESULT THAT THE FINAL ORDER, IF BASED ON THE GROUND WHICH HE HAD EARLIER CONSIDERED NOT F IT FOR TAKING ACTION UNDER THE SECTION, WILL HAVE TO BE SET ASIDE AS NOT BASED ON ANY GROUND WHICH MAY JUSTIFY HIS BELIEF THAT THE ORDER PASSED BY THE AO WAS ERRONEOU S INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. .' 8. IN ANY EVENT, EVEN ON MERITS THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE WAS UNDER ANY OBLIGATION TO CHARGE INTERES T @12% ON THE AFORESAID ADVANCE. ON THE CONTRARY, LEARNED CIT HAS HIMSELF TREATED THIS ADVANCE AS AN INVESTMENT WHICH DID NOT YIELD ANY INCOME. AS LEAR NED COUNSEL POINTS OUT THAT THERE IS A MENTION ABOUT 12% INTEREST P.A. IN RESPE CT OF FIRMS TRANSACTIONS WITH THE PARTNERS AND SUCH A PROVISION HAS NO BEARING ON TRANSACTIONS BETWEEN THE PARTNERS INTER SE . LEARNED DR COULD NOT POINT OUT ANYTHING WHICH EV EN INDICATES CHARGING OF INTEREST ON SUCH LOANS. THE VERY FOUND ATION OF THE IMPUGNED REVISION PROCEEDINGS WAS DEVOID OF LEGALLY SUSTAINABLE BASIS . ITA NO.595/BANG/2014 10 9. AS REGARDS THE QUESTION OF DISALLOWANCE OF INTER EST, WE HAVE NOTED THAT THE ASSESSEES UNCONTROVERTED STAND IS THAT NO DEDU CTION HAS BEEN CLAIMED FOR ANY INTEREST PAYMENT. WHEN THERE IS NO CLAIM FOR D EDUCTION, THERE IS THE QUESTION OF DISALLOWANCE OF SUCH DEDUCTION. 10. FOR THE REASONS SET OUT ABOVE, WE UPHOLD THE GR IEVANCE OF THE ASSESSEE AND QUASH THE IMPUGNED REVISION ORDER. 11. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 17 TH DAY OF APRIL, 2015. SD/- SD/- (VIJAYPAL RAO) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DT : 17 TH APRIL, 2015 PK/- COPY TO: 1. SRI SYED SALEHA, #1666, PIPELINE ROAD, T. DASAHA LLI, BANGALORE 560 057. 2. THE COMMISSIONER OF INCOME-TAX, BANGALORE-III, C .R. BUILDING, IST FLOOR, QUEENS ROAD, BANGALORE 560 001 3. THE ITO, WD.6(4), BANGALORE 4. THE DR, C BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, BANGALORE BENCHES