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TMI Blog2022 (10) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... t and were used for personal purposes other than relating to business. The assessing officer has categorically specified that the assessee firm had not carried out any business during the financial year relevant to the assessment year and huge drawings were seen made from the capital account. Thus, the assessee had diverted the interest bearing funds for non-business purposes. The partners, however, had paid interest of Rs.1,55,59,880/- for the drawings made from the capital account of the firm which was credited as interest income to P & L account. In addition to this the assessee had credited Rs.4,897/- towards "DPN interest received", and Rs.614 being Interest on Income Tax Refund". No other receipts credited during the year. The assessee had not carried out any business activities during the previous year relevant to the assessment year 2015-16 as per the assessment order. The only income, the assessee had admitted in its return is interest income as mentioned above. However, this income was not seen assessed under the head "income from other sources". 3. The Ld. CIT(A) observed that there was no proper enquiry with regard to the issue dealt by him. Hence, he directed the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r grounds that may be adduced at the time of hearnig, the appeal may be allowed in the grounds to the extent prayed for. 4. We have heard the rival submissions and perused the materials available on record. First, we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industries Co. Ltd., Vs. CIT (243 ITR 83) (SC), the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus'; 'erroneous, adj. Involving error, deviating from the law'. The word 'error' ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or nonapplication of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 4.3 Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT (67 ITR 84) (SC), Smt. Tara Devi Aggarwal v. CIT (88 ITR 323) (SC), and Malabar Industrial Co. Ltd's case ( 243 ITR 83) (SC). 4.4 In Malabar Industrial Co. Ltd. case the Hon'ble Court has held as under: "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocess of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge." 4.5 Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. 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