TMI Blog2011 (10) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of law which would satisfy the requirement of order being erroneous. - Revision of order by CIT upheld. Whether the Tribunal was right in holding that the income derived by the assessee from manufacturing of seeds and sale of the same would amount to agricultural income which would be exempted u/s. 10(1) of the Income-tax Act. - Held that:- Income earned by the assessee is not agricultural income. - Decided against the assessee. - ITA NOS. 1282 TO 1284 OF 2006 AND 71, 75 & 76 OF 2008 - - - Dated:- 24-10-2011 - MRS. MANJULA CHELLUR AND SHRI ARAVIND KUMAR, JJ. Represented By: Shri M.V. Seshachala for the Appellant. Shri A. Shankar and M. Lava for the Respondent. JUDGMENT 1. ITA Nos. 1282/2006, 1283/2006 and 1284/2006 are preferred by Revenue questioning correctness and legality of the order dated 29.3.2006 passed by ITAT, Bangalore Bench-B in ITA Nos. 664-666/BANG/2005 relating to assessment years 2000-01 to 2002-03. 2. The Assessing Officer gave effect to the order passed under section 263 by Commissioner of Income-tax and passed assessment order on 10.3.2006 which came to be set aside by the CIT (Appeals) in ITA Nos.2, 3 and 4/AC-II(1)/CIT(A) 1/06 07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income and claimed exemption u/s.80HHC. The Commissioner of Income-tax issued show cause notice and found that the amount claimed as agricultural income and exemption claimed u/s 10(1) of the Income-tax Act was not an agricultural income since the production of seeds is contract basis on the land belonging to contractors or in other words land not belonging to the assessee and since the agricultural products was not produced in the assessee's own and such exemption cannot be claimed as agricultural income and as such the Commissioner issued the show cause notice that order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. He would elaborately submit and contend that the Assessing Officer ought to have made inquiries and lack of inquiry resulting in prejudicial order to the Revenue being passed or resulting in loss of Revenue thereof would give rise for the Commissioner to exercise the Revisional Jurisdiction. In view of the same, he contends that the order of the Tribunal is erroneous and liable to be set aside. 9. Per contra, Sri Shankar, learned counsel appearing for respondent - assessee would support the order passed by the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is noticed by us that while admitting the appeals, the substantial questions of law as extracted herein above has been formulated for being adjudicated. However, the substantial question of law raised in the appeal memorandums filed by the Revenue on the issue of the Tribunal holding that order of the Assessing Officer cannot be termed as erroneous and prejudicial to the interests of the Revenue having not been formulated, we deem it just and proper to formulate the said substantial question of law also for being adjudicated and answer to the said substantial questions of law would have a bearing to consider other substantial questions of law. As such, by consent of learned advocates appearing for parties, same is formulated as under: "Whether the tribunal was correct in holding that the order passed by the Commissioner under section 263 of the Income-tax Act was not erroneous and prejudicial to the interests of the Revenue and the view taken by the Assessing Officer, being a possibility, exercise of jurisdiction was correct? 11. In order to answer the said substantial question of law, it would be necessary to extract the relevant provision namely Sec.263 of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 (Kar.) : TC 57R. 185, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 114 CTR (Bom.) 81 : [1993] 203 ITR 108 (Bom.) : TC 57R.213 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 127 CTR (Guj.) 333 : [1995] 215 ITR 81 (Guj.) : TC 57R.312 treated loss of tax as prejudicial to the interest of the Revenue. 6. ** ** ** 7. ** ** ** 8. In the instant case, the CIT noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the AO. Thus, there was no material to support the claim of the appellant that the said amount, represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under section 263 of the Income-tax Act. Case Laws: (2) The Supreme Court in the case of Malabar Industries Co. Ltd. v. CIT reported in 243 ITR 83 at page No.88 has held as follows: The phrase "prejudice to the interest of the revenue" has to be read in conjunction with erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order passed by the assessing officer cannot be treated as prejudicial to the interest of the revenue. For example, when an income tax officer adopts one possible view which the commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the income tax officer is unsustainable in law. (3) The Hon'ble Delhi High Court in the case of CIT v. Ansal Properties Ind (P.) Ltd. reported in 315 ITR 225 at page No.229 has held as follows: Considering the facts of the case in this light, we find when the commissioner had issued the notice on March 1, 2004 the commissioner of income tax (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open." (6) The Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. reported in 208 ITR 108 at page No. 114 has held as follows: From the aforesaid definition it is clear that an order cannot be termed as erroneous unless it is not in accordance with Law. If an income tax officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Case may be visualized where the income tax officer while making an assessment examinee the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The commissioner, on perusal of the records, may be of the opinion that the estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order being erroneous. The Supreme Court has also made it clear that the phrase "prejudicial to the interest of the revenue" has to be read in conjunction with an erroneous order passed by the assessing officer and that every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the Interest of the revenue. It was further emphatically stated that when an income tax officer adopts one of the courses permissible in law and has resulted in loss of revenue, or where two views are possible 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 interest of the revenue unless view taken by the income tax officer is unsustainable hi law. (9) The Hon'ble Bombay High Court in the case of CIT v. Design and automation Engineering P Ltd. reported in 323 ITR 632 at page No.637 has held as follows: We are in complete agreement with the decision of this court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and we reject the submission of the Revenue that the order of the Assessing Officer is erroneous or is passed without appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income tax Officer is unsustainable in law. According to the learned Additional Solicitor General, on an interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection, he has further submitted that in fact the 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word "profits" in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the CIT as to whether an order is erroneous insofar as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the CIT acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The CIT cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induces repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO 1977 CTR (SC) 32 : [1977] 106 ITR 1 (SC) at p. 10) . From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised as under: (1) The Commissioner of Income Tax can call for and examine the records of any proceedings under the Act if he is of the opinion that such order or acts taken has resulted in erroneous order, thereby it has caused prejudice to the interests of the Revenue and this exercise is a part of administration control and to exercise this power, he need not supplement with his reasons. (2) Till consideration and examination of such records by the Commissioner or administrator, question of assessee's appearance at that stage does not arise. (3) Once he examines the records and make such inquiries and considers that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue then he has to give an opportunity to the assessee of being heard and after considering the assessee's reply he may pass such orders as the circumstances of the case may justify by adhering to audi altrem partem. (4) The Commissioner can enhance or modify the assessment or cancel it and direct the fresh assessment. (5) The Commissioner who issues notice u/s 263 of the Income Tax Act can act on the basis of records and suggestions put up to him by his subor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultural income. The fact that assessee had declared the income as "business income" and claimed exemption u/s. 80HHC was not in dispute. It was also not in dispute that the assessee was not owning the agricultural land and had entered into contracts with the agricultural land owners and came to a conclusion as under: "After verification of facts brought on record by the assessee, the contention of the assessee that the income derived from the above activities is by performance of agriculture is accepted." 17. There was no discussion as to how the said conclusion was arrived at except extracting the contentions of the assessee. There was no consideration of the facts as pleaded by the assessee itself for the previous assessment years or the assessment years in question. Thus, there was an incorrect assumption of facts or incorrect application of law which would satisfy the requirement of order being erroneous. A perusal of the order of the Assessing Officer would not depict that he has chosen one from out of the two courses available or permissible. Thus on facts, the assesses himself having treated the income as "business income" had suddenly changed to the heading "agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X
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