TMI Blog2018 (7) TMI 2339X X X X Extracts X X X X X X X X Extracts X X X X ..... f income etc. AO has also made discussion with respect to various interest income which were transferred to WIP and the assessee was asked to provide justification as to why the same should not be considered as income. The assessee was also asked to provide the working of 80IA of the Act and revised working of deduction u/s 80IA considering the eligibility of interest income and deduction. Subsequently, the assessee was show cause as to why the income from other sources of SEZ unit should not be disallowed for working of profit of SEZ unit and taxed separately. Discussion has also been made about rent from building and lease premium of land located at SEZ and held that it was income from other sources, not eligible for deduction under section 80IAB - Discussion has also been made with respect to disallowance u/s 14A r.w. Rule- 8D of the Rules and thereafter calculation has been made. The assessment was framed after examination/verification of facts and on application of mind, therefore, the contention of the Revenue that due verification was not made is not substantiated from facts. To sum up the issue, admittedly, an incorrect assumption of fact or an incorrect application of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax (Appeal) and upheld by the Tribunal for which our attention was invited to page-97 to 104 of the paper book. The crux of the argument is that in all Assessment Years identical claim was accepted, therefore, the revisional jurisdiction under section 263 in the present Assessment Year cannot said to be justified. Reliance was placed upon the decision from Hon'ble Delhi High Court in the case of CIT vs Escorts Ltd. (2011) 338 ITR 435 (Del.). So far as, alleged calculation errors is concerned, the ld. counsel argued that it cannot be a subject matter of section 263, which can be rectified under section 154 of the Act. It was pleaded that even in Assessment Year 2008-09, the Tribunal accepted such claim as business income (ITA No.1223/Mum/2013). The ld. counsel invited our attention to para-6 7 of the revisional order, wherein, it was claimed that there is contradiction in the finding of the Ld. Pr. Commissioner in the order itself. 2.1. On the other hand, Shri Debasis Chande, ld. CIT-DR, strongly defended the impugned order by inviting our attention to the amendment made w.e.f. 01/06/2015 and Explanation-2, inserted therein. The crux of the argument is that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erformance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. [Explanation 2. For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, explanation-2(a) and (b) is concerned, consequently, on this count also, we find no merit in the assertion made on behalf of the Revenue. 2.6. Now, we shall deal with the cases relied upon by Ld. CIT-DR. One such case is ARVEE INTERNATIONAL v. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE 19(1), MUMBAI [2006] 101 ITD 495 (ITAT[Mum]), order dated 13/01/2006. The relevant portion of the order is reproduced hereunder:- The appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 on the following grounds : 1. The order passed by the Ld. CIT under section 263 of the Income-tax Act, is bad in law. 2. The Ld. CIT erred in holding that loss of Rs. 13,90,096 incurred by the appellant on sale of import entitlement license is not admissible deduction. 3. The Ld. CIT failed to appreciate that appellant had shown the value of import entitlement at Rs. 73,01,184 in the closing stock of assessment year 1996-97 and after selling part of it in assessment year 1997-98 and making a profit, the appellant had sold the balance in assessment year 1998-99 in which loss of Rs. 13,90,096 was incurred and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had subse- quently declared, in assessment year 1998-99, i.e., the assessment year under appeal, loss of Rs. 13,90,096 on sale of the aforesaid import licences on which it had earlier (in assessment year 1996-97) claimed and obtained deduction under section 80HHC with the result that it claimed a net loss of Rs. 11,32,829 in the return of income for the assessment year under appeal. The Ld. Commissioner was of the opinion that since the value of the aforesaid licences had already been considered while giving deduction under section 80HHC for assessment year 1996-97, the claim of the assessee for further deduction by way of loss of Rs. 13,90,096 on sale of the said licences during the year under consideration was untenable. He was also of the view that there was failure on the part of the Assessing Officer in not examining the said claim of the assessee on merits and in accordance with law at the assessment stage with the result that the said claim of the assessee stood accepted without any objective consideration and evaluation of the issues involved by the Assessing Officer. He therefore formed the belief that the order mechanically passed by the Assessing Officer without appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him, the assessee was entitled to both the claims in that it satisfied the requisite conditions prescribed for availing both of them. His alternative submission was that even if the issue was considered to be a debatable one, the learned Commissioner was not justified in assuming jurisdiction under section 263 as the Assessing Officer had taken a plausible view while making the assessment. According to him, the Ld. Commissioner was not at all right in law in substituting his own view for the view taken by the Assessing Officer in the matter. In support of his submissions, he relied upon the following orders: 1. CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144(SC) 2. CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315(SC) 3. United Phosphorus Ltd. v. Jt. CIT [2002] 81 ITD 553(Ahd.) 4. Asstt. CIT v. Premier Consolidated Capital Trust India Ltd. [2004] 4 SOT 793(Mum.) 5. Wallfort Shares Stock Brokers Ltd. v. ITO [2005] 96 ITD 1(Mum.)(SB) 6. Order dated 16-5-2005 passed by G Bench Mumbai of the Tribunal in Red Rose Enterprise v. CIT [IT Appeal No. 117 (Mum.) of 2004] for assessment year 2000-01. 6. In reply, Shri Rai, the learned Departmental Representative supported the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of mere receipt of import licences. 8. The facts available on record clearly show that the assessee was not engaged in the business of purchase and sale of import licences during the relevant period. Import licences accrue to an exporter as incentive on the basis of exports made. Licences are neither sold by the Government nor are they purchased by the exporters. It is not a commodity but a licence or permit granted by the Government to the exporters as incentive to enable them to import the things specified therein. Such licences are also transferable. It therefore follows that an exporter cannot theoretically or otherwise suffer any loss on sale of import licences as he obtains them from the Government as incentive on the basis of exports made without paying separately any price for purchasing them. Loss is caused only when a thing s original cost exceeds its later selling price or when the dominion over the things are irretrievably destroyed or lost. An exporter does not pay any cost to the Government for obtaining the import licences and hence, there can be no loss to an assessee-exporter when he sells them. He always makes profit as and when he sells such licences. He ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction under section 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. 10. The word erroneous has not been defined in the Income-tax Act. It has however been defined at page 562 in Black s Law Dictionary (Seventh Edition) thus : erroneous, adj. Involving error; deviating from the law. The word error has been defined at the same page in the same Dictionary thus : error. N. 1. A psychological state that does not conform to objective reality; a belief that what is false is true or that what is true is false. 11. At page 649/650 in P. Ramanatha Aiyer s Law Lexicon (Reprint 2002), the term error has been defined to mean thus : Error. A mistake in judgment or deviation from the truth in matters of fact, and from the law in matters of judgment; . . . Error , is a fault in judgment, or in the process or proceeding to judgment or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullitie. (Termes de la Ley) Something incorrectly done through ignorance or inadvertence (S. 99, C.P.C. and S. 215, Cr.P.C.). Error, Fault. Error respects the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto 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 before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision 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 orders passed without applying the principles of natural justice or without application of mind. 15. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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. 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. It is settled law that while making assessment on assessee, the ITO acts in a quasijudicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgment of the Hon ble Madras High Court on which reliance was placed by the learned counsel for the assessee also points to the same direction. We have reproduced above the relevant portion of the observations made by the learned Judges. They have hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echanically accepted what the assessee wanted him to accept without any application of mind or enquiry. No evidence has been placed before us that the claim made by the assessee was objectively examined or considered by the Assessing Officer either on record or in the assessment order. It is because of such non-consideration of the issues on the part of the Assessing Officer that the loss claimed by the assessee stood automatically allowed without any scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted the issue in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the assessee. In our view, the assessee should ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the revenue. 19. We are unable to accept the aforesaid submission of the learned counsel for two other reasons also. First reason is that the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under section 263. Second reason is that it is not the taking of any view that will take the matter outside the scope of section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is well established that the Assessing Officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee/revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. In Gruh Finance Ltd. v. Jt. CIT [2000] 243 ITR 482 (Guj.), the argument against the initiation of proceedings under section 147/148 that the claim for depreciation has been considered and hence cannot be disallowed on mere cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the Assessing Officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the Assessing Officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order to apply the aforesaid observations to a given case, it must therefore first be shown that the Assessing Officer has adopted a permissible course of law or, where two views are possible, the Assessing Officer has taken one such possible view in the order sought to be revised under section 263. This requires the Assessing Officer to take a conscious decision else he would neither be able to adopt a course permissible in law nor take a view where two or more views are possible. In other words, it is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the order being erroneous and prejudicial to the interest of the revenue. If the order sought to be revised under section 263 suffers from any of the aforesaid vices, it cannot be said that the Assessing Officer has adopted , in such an order, a course permissible in law or taken a view where two or more views are possible. 23. It was next contended by the learned Authorised Representa- tive that the Assessing Officer had considered all the relevant aspects of the case carefully while passing the order. According to him, the mere fact that the assessment order passed by the Assessing Officer was short would neither mean failure on his part in not examining the matter carefully nor would render his order erroneous so long as the view taken by him was a possible view. In our view, the aforesaid submission of the assessee must fail partly for the reasons already explained earlier in this order and partly for the reasons that it is not the size or the length of the order that matters in deciding upon its legality. It is quite possible that a long order, which is sought to be revised under section 263 may suffer from the same errors as pointed out above. It is equally possible th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of section 263. 25. Before we conclude the matter, we wish to clarify that the observations made by us in the preceding paragraphs are in the context of the provisions of section 263. They have been made in order to examine the legality of the impugned order passed by the learned Commissioner under section 263. The Assessing Officer is however free to decide the matter in the fresh round of assessment initiated as a result of the order of the learned Commissioner on merits and in accordance with law without being influenced by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 from the business profits instead of Rs. 18,58,350 being 90 per cent of the export incentives, (ii) that the central excise refund and sales tax set-off should have been included in the total turnover, and (iii) that the central excise refund and sales tax set-off should have been excluded from the business profits as per clause (baa) of Explanation to section 80HHC. It was further held that there was lack of proper enquiry on the part of Assessing Officer for determining the genuineness of the loans as well as with reference to the transactions of purchase of Rs. 49,05,984 from the sister concern M/s. Mineral India International vis-a-vis section 40A(2)(b). Accordingly, it was held that order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. Consequently, the order of the assessment was set aside to the file of Assessing Officer for fresh adjudication after making necessary enquiries and after giving opportunity of hearing to the assessee. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal. 3. The Learned Counsel for the assessee has assailed the impugned order of the Learned CIT by raising various submissions. Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper enquiries. 6. Proceeding further, he also relied on the judgment of the Hon ble Bombay High Court in the case of CIT v. Gabrial India Ltd. [1993] 203 ITR 108, for the proposition that no adverse inference can be drawn merely because that elaborate discussion is not made in the assessment order. He also referred to the judgment of the Hon ble Patna High Court in the case of Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244 and the judgment of the Hon ble Gujarat High Court in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 for the proposition that if the loan is received by cheque, then the onus upon the assessee is said to be discharged and, therefore, it could not be said, in the present case, that proper enquiry was not made. He also relied on the judgment of the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83for the proposition that even if two views are possible and the assessment order is in consonance with one of the views, then the order of assessment cannot be said to be erroneous. 7. On the other hand, the Learned D.R. has vehemently relied on the reasoning given by the Learned CIT. Further, he relied on the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice issued to the assessee. In our opinion, the answer is in the negative for the reasons given hereafter. The provisions of section 263 itself provide that an opportunity is to be provided to the assessee before passing an order. That means, that assessee is required to reply to the reasons given by the Learned CIT in show-cause notice. Consequently, the order of the Learned CIT must be confined to reasons given in the show-cause notice and, therefore, order of the Assessing Officer cannot be held to be erroneous on different ground. If the Learned CIT intends to deviate from the reasons mentioned in the show-cause notice, then before taking any decision, he must confront to assessee fresh reasons which he may in his mind and then allow assessee a fresh opportunity. The opportunity to be granted must be effective and cannot be an empty formality. A person, who is required to show cause, must know the basis on which action is proposed. Obviously, therefore, the notice issued must indicate the reasons on which the order of assessment is considered to be erroneous and prejudicial to the interest of Revenue [Rawani Dal Flour Mills v. CST [1992] 86 STC 409 (Ori.)]. This means, there mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an empty formality, that a person who is required to show cause must know the basis on which the action is proposed and that obviously, therefore, the notice issued must indicate as to on what grounds the order is considered erroneous insofar as it is prejudicial to the interests of the Revenue. Since the under section 263 dated 22-3-1990 did not indicate the ground used by the Commissioner, in his order under section 263 dated 30-3-1990, the impugned order under section 263 cannot be sustained. The Hon ble Gujarat High Court, though rendered in penalty proceedings in the case of CIT v. Lakhdhir Lal Ji [1972] 85 ITR 77, cancelled the penalty by giving similar reasonings. The relevant portion of the judgment is quoted below : Held, that the penalty proceedings had been commenced against the assessee on a particular footing, viz. concealment of particulars of income but the final conclusion for levying the penalty was based on a different footing altogether viz. on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given reasonable opportunity of being heard before the order imposing the penalty was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed by the assessee as deduction, the onus is on the assessee to prove its genuineness. However, where payment is made to the persons mentioned in section 40A(2), then it is the duty of the Assessing Officer to make proper enquiry to ascertain whether such expenditure is reasonable with reference to the prevailing market price. Similarly, where any receipt is claimed to be exempt from taxation, it is the duty of Assessing Officer to ascertain whether conditions for allowing expenditures are fulfilled or not. The duty of the Assessing Officer is to collect the correct tax due from the assessee neither a penny more nor a penny less. Therefore, if he fails in performing in his duty, then his order can be considered as erroneous and prejudicial to the interest of Revenue. In our opinion, mere collection of material is not enough in discharging of such duty. It is also the duty of the Assessing Officer to evaluate the material or evidence collected and then ascertain whether such materials are enough to sustain the claim of the assessee. 11. In the above backdrop, let us examine the facts of the present case. Regarding the payments made by the assessee falling under section 40A(2)(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer had not made any enquiry from the concerned Assessing Officers with whom they were assessed. Therefore, in our opinion, the Assessing Officer failed to make proper enquiries before accepting explanation of assessee. Thus, there was lack of proper enquiry on the part of the Assessing Officer. 13. The Learned Counsel for the assessee has relied on the two decisions of High Courts namely (i) Bahri Bros (P.) Ltd. s case (supra ) and (ii) Rohini Builders case (supra). These cases are not on the point before us. The question before the Patna High Court was whether addition could be made where the assessee had disclosed the names of the creditors and the names of the Banks on which the cheques were drawn. The Court held that the assessee had discharged the primary onus and the onus shifted to the Department to verify the same. This itself shows that the Assessing Officer was required to make enquiry before rejecting the case of assessee. Similarly, in the case before the Gujarat High Court, Their Lordships referred to Supreme Court judgment in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 781and observed that where names and addresses of the creditors and G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property as not tenanted one. Under the Rent Control Act of the State, there is a procedure for the determination of the fair rental value of the properties and it is not possible for the assessee to realise the rent more than the fair rent determined under the Rent Control Act. The Commissioner had not determined what would be the fair rental value of the property under the relevant rent control law of the State and on the basis of his own assumption that there was a steep increase in the rental value of the property, it was not possible for him to exercise the power of revision and direct the ITO to conduct further investigation and to determine the annual rental value of the same. The Commissioner should have some information or material to establish that the rental amount received by the assessee was too low than the fair rent of the properties. In the absence of any material to show that the said property would have fetched a higher rent, it was not possible for the Commissioner to exercise his power of revision. The Tribunal had found that there was no error of fact in the order of assessment. The ITO had completed the assessment after making due enquiry and after grant of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioning was about 50 per cent of the cost of a new belt. 2. The assessee claimed relief under section 80J of the Income-tax Act, 1961 as a new industrial undertaking. That relief was granted by the ITO who also found that the assessee's taxable income for that year was 'nil'. The order of the ITO was revised by the Commissioner in exercise of his powers under section 263, as he thought that the order was erroneous and was also prejudicial to the interests of the revenue. The Commissioner's order, however, was set aside in appeal by the Tribunal which held that the reconditioned belt was the result of the process of manufacture, and that the assessee was, therefore, entitled to relief under section 80J. 3. At the instance of the revenue, the questions as to whether the precondition regarding prejudice to the revenue existed when the Commissioner exercised his revisional jurisdiction as also whether the Tribunal was right in taking the view that the reconditioned belt was a result of manufacture is correct, have been referred to us. 4. On the question as to whether the recondition of a conveyor belt can be regarded as the result of a process of manufacture, and as ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of the ITO's order, the tax leviable was 'nil' does not mean that the assessee was incapable of making profits in future years on which tax could have been levied. The Commissioner is not expected to be an astrologer being capable of foretelling future events to note as to what the commercial success of failure of the assessee would be at a later point of time. The Commissioner was, therefore, well within his jurisdiction in holding that the order of the ITO was prejudicial to the interests of the revenue. 8. We, therefore, answer the two questions referred to us, viz. : 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the order of the Commissioner of Income-tax under section 263, holding that the assessee is eligible for deduction under section 80J ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the Income-tax Officer's order cannot be said to be prejudicial to the revenue for the assessment year 1977-78 as there is no tax effect ? in favour of the revenue and against the assessee. The revenue will be entitled to costs i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. (2) No order shall be made under sub-section (1) - (a) to revise an order of reassessment made under section 147, or (b) after the expiry of two years from the date of the order sought to be revised. . . . 9. From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue . It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer in fixing the amount of valuation of the property. Similarly, erroneous judgment means one rendered according to course and practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles . 12. 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 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 visualise a 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. Cases may be visualised where the Income-tax Officer while making an assessment examines 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 made by the officer concerned was on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal. 16. In the light of the foregoing discussion, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue. 3. In the celebrated case of Malabar Industrial Company Ltd. vs CIT (243 ITR 83)(SC), it was held that for invoking jurisdiction u/s 263 by the ld. Commissioner, the order should be either erroneous and prejudicial to the interest of Revenue. In that case, the assessment was framed without making an enquiry by the Assessing Officer, in that situation, exercise of revisional jurisdiction by the CIT was held to be justified. However, in the present case, due enquiries was made by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coming to this conclusion, the Hon ble Court duly considered the following decision a. Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30 (2007) 291 ITR 500 (SC) b. CIT vs. Mysore Spun Concrete Pipe (P) Ltd. (1991) 97 CTR (Kar) 117 (1992) 194 ITR 159 (Kar) c. CIT vs. Seshasayee Paper Boards Ltd. (2000) 242 ITR 490 (Mad) d. Gee Vee Enterprises vs. Add!. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del) e. Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 (1997) 225 ITR 802 (SC) f. Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) 3.3. The Mumbai Bench of the Tribunal in M/s. Simandhar Association vs Principal CIT (I.T.A. No. 789/Mum/2016) Order dated 21/03/2016 has discussed the scope of revisional jurisdiction u/s 263 of the Act. The relevant portion from the order is reproduced hereunder:- The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: Section 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282. The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind to the issues. If the assessment order has been passed by causing enquiries, then it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. The consideration of the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on 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 Commissioner 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 Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded. 3.4. The ratio laid down by the Ahmadabad Bench of the Tribunal in the case of Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys to have extended to such matters as had not been considered and decided in such appeal. [Explanation c to Section 25(2)] (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal. xxxxxxxxxxxxxxxxxxxxx 10. In view of the above analysis, as also bearing in mind entirety of the case, we are of the considered view that the learned Commissioner was indeed in error in exercising his revision powers under section 263 on the facts and in the circumstances of this case. As learned CIT(A) was in seisin of the same matter, i.e. disallowance under section 14A, in the appellate proceedings, learned Commissioner could not have invoked his revision powers on the issue before the CIT(A). The view adopted by the learned Assessing Officer was after due examination of the matter and a considered view after taking into account all the relevant factor and even if a diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of R.N.S. Infrastructure. Accordingly he held that the assessment orders passed for both the years under consideration is erroneous and prejudicial to the interests of revenue. The relevant observations made by Ld Pr. CIT in this regard are extracted below, for the sake of convenience. '2. . . . On perusal of records, the fo11owing issues were noticed in the aforesaid order u/s 143(3) r.w.s 147 of the Income-tax Act, 1961 dated 31.03.2015 for the A.Y. 2007-08:- (1) The case was reopened for scrutiny to verify information received from the Investigation Wing during the course of search operations in the case of' M/s. R.N. S. Infrastructure Ltd. on 16/02/2012. During the course of the search operations, certain documents were found and seized, which indicated the payments made to several persons holding public office. As per the information received, Shri Naravan Tatu Rane is one of the recipients, which is reflected as per the notings given below: Rane - CM 16.11.2006 10,00,000/- NAVEEN 09.03.2007 25,00,000/ KUDAL The notings have been made in a diary seized from the chamber of Shri Suni D. Sahasrabuddhe. Vice-President, Finance. R.N.S. Infrastructure Ltd. and inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h assessment within the meaning of Section 263 of the Income Tax Act, 1961 may not be passed in his case. Similar notice was issued for A.Y. 2008-09 as well with minor modifications.' 4. The assessee contended before the Ld Pr. CIT that the assessing officer has reopened the assessment of both the years for the specific purpose of assessing the income, if any, noticed in the incriminating documents. The assessee had objected to the reopening, but the AO has overruled the same by giving detailed reasoning. The assessing officer issued notice u/s 142(1) of the Act calling for various details. The assessee replied to all the queries raised by the assessing officer by giving a detailed reply, wherein the assessee had denied the entire transactions noted down in the incriminating documents. It was further submitted that the assessing officer was satisfied with the explanations and replies given by the assessee and accordingly he did not make any addition. The assessee further contended that the assessing officer has applied his mind on the incriminating documents, correctly appreciated the facts and has come to reasoned conclusion that no addition is required to be made to the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167, also held that the opinion of the Assessing Officer in treating the revenue expenditure was plausible and thus, there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. In the case of the assessee, on the other hand, on examination of records as they exist now, it is evident that the Assessing Officer did not appreciate the full facts of the case and vital evidences being the date of birth, the date of assumption of the public office and the constitutency etc. which all linked the transactions in the seized document with the assessee and thereby passed an order which is now held to be erroneous and prejudicial to the interests of the revenue. Hence, the decision is not applicable to the facts of the case of the assessee. In CIT v. Vikas Polymers [2012] 341 ITR 537, Hon'ble Delhi High Court held that the order of the Assessing Officer might be erroneous but how it was prejudicial to the interest of revenue had not been stated by the Commissioner as he did not deal with the explanation given by the assessee in the course of the proceedings under section 263. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the objection raised by the assessee for reopening of the assessment was overruled by the AO. Thereafter the assessee has cooperated fully with the assessing officer by furnishing necessary details and has strongly denied the transactions noted down in the document. The Ld A.R submitted that the assessing officer was satisfied with the explanations given by the assessee and hence did not make any addition. He submitted that the assessing officer has taken a possible view after due application of mind and hence the Ld Pr. CIT was not justified in holding that the assessment orders were erroneous, since the assessing officer did not make enquiries in the way the Ld CIT thought that it should have been done. He submitted that the Ld CIT has initiated the revision proceedings in respect of the very same issue, since he was of the view that the assessing officer should have conducted the enquiries in a particular manner and the enquiries made by the AO were not sufficient. Thus, the Ld CIT has initiated revision proceedings in order to carry out fishing and roving enquiries in the matters which have already been concluded, which is not permissible u/s 263 of the Act as held in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the following observations made by Hon'ble Apex Court: 37. In Beni v. Bisan Dayal (AIR 1925 Nag 445: 89 IC 371), it was observed that entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another...... 10. On the contrary, the Ld D.R submitted the assessing officer has simply extracted the explanations furnished by the assessee in the assessment order and he did not give his conclusion on the submissions made by the assessee. Accordingly he contended that the assessing officer has not taken any view at all and hence there is no justification in contending that the assessing officer has taken a possible view. He submitted that the incriminating document contained sufficient entries to indicate that the payment was made to the assessee only. He submitted that a part of sum was give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Explanation 2 is clarificatory in nature and hence the same should be applied retrospectively. 11. In the rejoinder, the Ld A.R submitted that the assessing officer has made due enquiries with regard to the impugned incriminating document, since the AO has reopened the assessment to examine the same only. He submitted that the alleged incriminating document was a dumb document and even the person from whom it was seized, did not implicate the assessee at all in the statement taken from him u/s 132(4) of the Act. He submitted that the assessing officer has accepted the explanations of the assessee by considering all these factual details and hence he did not make any addition. He further submitted that the assessment orders of the two years under consideration have been passed by two different assessing officers and both have taken the view that no addition was called for on the basis of the impugned incriminating document. The Ld A.R further submitted that the assessing officer has carried out necessary enquiries with regard to the impugned incriminating documents and was satisfied with the explanations given by the assessee. He submitted that, even though the Ld Pr. CIT was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted . The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression prejudicial to the interests of the Revenue , the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any connection with the incriminating document. The assessing officer was satisfied with the said explanations and accordingly did not make any addition to the total income in both the years. 15. However, the Ld Pr. CIT has taken the view that the assessing officer has completed the assessments without making proper enquiries with regard to the incriminating documents. According to Ld Pr. CIT, the AO should have made further enquiries in this matter. Accordingly he has passed the impugned revision order. 16. We have noticed earlier that the Ld Pr. CIT can revised the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as erroneous was explained by Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) as under: 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 income tax officer acting in accordance with the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the proceedings under section 263, in our opinion, the order of the assessing officer could not be held to be erroneous. 18. In the case of CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi), the Hon'ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/225 Taxman 133/44 taxmann.com 138 as under: Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong by the AO to implicate the assessee. Thus, we are of the view that the assessing officer has taken a plausible view in the facts and circumstances of the case. Even though the Ld Pr. CIT has drawn certain adverse inferences from the document, yet it can seen that they are debatable in nature. Further, as noticed earlier, the Ld Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the Ld Pr. CIT has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the AO. Hence we are of the view that the Ld Pr. CIT was not justified was not correct in law in holding that the impugned assessment orders were erroneous. 22. We have also seen that, in order to invoke the provisions of revisional proceedings, it is required to be shown that the assessment order was not only erroneous, but also prejudicial to the interests of the revenue. At the time of hearing, it was pointed out to Ld D.R that there are references to various names such as Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee are allowed. 3.6. We find that in the aforesaid case, while coming to a particular conclusion, the Bench considered the following cases:- i. CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (para 4), ii. CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (para 4), iii. CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi) (para 4), iv. CIT v. Arvind Jeweller [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.) (para 4), v. CIT v. Development Credit Bank Ltd. [2010] 323 ITR 206/[2011] 196 Taxman 329 (Bom.) (para7), vi. Malabar Industrial Co. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) (para 8), vii. CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC) (para 8), viii. Central Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410 (para 9), ix. CIT v. Amalgamations Ltd. [1999] 238 ITR 963 (Mad.) (para 10), x. CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.) (para 10), xi. Grasim Industries Ltd. v. CIT [2010] 321 ITR 92/188 Taxman 327 (Bom.) (para 12), xii. CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi) (para 18), xiii. CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Commissioner, thus prejudicing the independent application of mind of the Assessing Officer. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to section 263, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. [Para 19] ■ Further, clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. This provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by the Commissioner cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the Assessing Officer vis- -vis its reasonableness in the facts and circumstances of the case. Hence, what is relevant for clause (a) of Explanation 2 to section 263 is whether the Assessing Officer has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order was not only erroneous, but also prejudicial to the interests of the revenue. At the time of hearing, it was pointed out to department that there are references to various names. Further the entries are dated from March 99 to February, 2012. Under these set of facts, a specific question was asked to department as to how these entries can translate into income in the hands of the assessee, since the same lists out payments made to various persons on various dates. Unless it is established that these payments can be taken as income in the hands of the assessee, they cannot be assessed in his hands. In that case, it cannot be said that these entries would cause any prejudice to the interests of the revenue, if they are not assessable in the hands of the assessee. The department replied that these aspects require examination at the end of the Assessing Officer. The said stand taken by the department clearly shows that they are also not sure as to whether these entries could be considered as income in the hands of the assessee. Further, the Commissioner has not brought on record any material to show that these amounts were paid to the assessee or on his behalf. Even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee, during scrutiny proceedings were verified and found that the assessee reduced as sum of Rs.7,03,84,590/- from WIP and the sources of income etc. The Ld. Assessing Officer has also made discussion with respect to various interest income amounting to Rs.24,13,80,546/-, which were transferred to WIP and the assessee was asked to provide justification as to why the same should not be considered as income. The assessee was also asked to provide the working of 80IA of the Act and revised working of deduction under section 80IA considering the eligibility of interest income and deduction. Subsequently, the assessee was show cause as to why the income from other sources of Rs.2,04,90,596/- of SEZ unit should not be disallowed for working of profit of SEZ unit and taxed separately. In compliance, the Ld. Assessing Officer duly considered the reply of the assessee dated 27/01/2014 and the submission made therein. The Ld. Assessing Officer also considered the decision in the case of CIT vs Panian Chemicals Ltd. (262 ITR 278) (Supreme Court) with respect to the word derived from Short term deposits made out of the funds available for the business of the assessee and also fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been caused to the Revenue, as we have discussed various case laws in earlier part of this order which are identical to the facts before us. It is also noted that while invoking the revisional jurisdiction, the ld. Principal Commissioner has kept in mind other factors/other buildings without taking into account the decision like Vandana Properties (supra) from Hon ble jurisdictional High Court and even no exact error was pointed out in the assessment order, which can be said to be justified. Even if, there is any calculation mistake as has been pointed by the Ld. CIT-DR, it can be rectified under section 154 of the Act and such mistake cannot be a justification for invoking revisional jurisdiction under section 263 of the Act. So far as, the objections raised by the Ld. Pr. CIT, while invoking the revisional jurisdiction under section 263 of the Act are concerned, the ld. counsel for the assessee has duly explained the same before us and we are satisfied with the explanation of the assessee and even at a later date on the issues under hand, the Ld. Commissioner of Income Tax (Appeal) has already decided in favour of the assessee, therefore, even otherwise, the claim of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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