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TMI Blog2018 (7) TMI 2339X X X X Extracts X X X X X X X X Extracts X X X X ..... , wherein, the Department itself allowed the claimed deduction made under section 80IAB of the Act in accordance with law and identically in all earlier Assessment Year, such claim was accepted as capital receipt for which our attention was invited to page 242 of the paperbook. It was pointed out that for Assessment Year 2008-09, under section 148 notice was issued, which was quashed by the Ld. Commissioner 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 invi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance 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 [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Supreme Court in a case of the assessee or any other person. 2.5. If the aforesaid insertion, w.e.f. 01/06/2015, if kept in juxtaposition with the facts of the present appeal, it can be said that there is no violation of the insertion by the Assessing Officer because the assessment order was passed after considering the details and on examination/verification of the same and the relief was granted to the assessee after making due enquiry, therefore, so far 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 ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd total profit of Rs. 1.58 crores including import entitlements of Rs. 73.01 lakhs obtained by the assessee as a result of the exports made by it. The learned Commissioner noted that the entire profit including the value of import entitlements obtained by it was claimed by the assessee and allowed by the Assessing Officer as deduction under section 80HHC while processing the return under section 143(1) of the IT Act on 15-1-1997 for assessment year 1996-97. He further noted that the assessee 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the previous year relevant to the assessment year under consideration were altogether different from each other and that their admissibility depended upon the fulfilment of the statutory conditions laid down in that behalf. He submitted that the mere fact that the import licences had been taken into account while computing the deduction under section 80HHC in an earlier year would not ipso facto disentitle the assessee from claiming loss suffered on their sale in a subsequent year. According 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entitlements under section 80HHC on the basis of their mere receipt from the Government and without selling them. The assessee thereafter sold those licences and claimed loss of Rs. 13,90,096 on their sale in the assessment year under appeal. In other words, the assessee was claiming in the assessment year under appeal further deduction of Rs. 13,90,096 on account of the alleged loss over and above the deduction of Rs. 73,01,184 allowed by the Assessing Officer under section 80HHC in assessment year 1996-97 on the 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 lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed by the learned Commissioner with reference to the statutory conditions laid down in section 263. The scheme of the Income-tax 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 an erroneous order of the Assessing Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. As held in Malabar Industrial Co. Ltd.'s case (supra), the Commissioner can exercise revisional 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. Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 14. 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 motu 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 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 [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323and Malabar Industrial Co. Ltd.'s case (supra). In Malabar Industrial Co. Ltd.'s case (supra) 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 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 Legislatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness and ensures a degree of fairness in the process 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.' Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is called for in the circumstances of the case." 17. We shall now turn to the facts of the case to see whether the case before us is covered by the aforesaid principles. We have already reproduced earlier the entire assessment order. Perusal of the assessment order passed by the Assessing Officer does not show any application of mind on his part. It simply says in one line that the loss returned by the assessee is accepted. No greater evidence is required than the mere reproduction of the aforesaid line from the assessment order to establish that it is a case where the Assessing Officer mechanically 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. If the Assessing Officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the Assessing Officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing else is required to be established 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 vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed] 21. We have carefully gone through the aforesaid observations. "Adopting" one of the courses permissible in law necessarily requires the Assessing Officer to consciously analyse and evaluate the facts in the light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The Assessing Officer cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not say so. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne additional or different fact may make a world of difference between conclusions in two cases . . . ." Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd.'s case (supra) on which reliance has been placed by the learned counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident 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 will satisfy the requirement 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The line of difference between sections 263 and 264 is that while the former can be invoked to remove the prejudice caused to the State the later can be invoked to remove the prejudice caused to the assessee. The provisions of section 263 would loose significance if they were to be interpreted in a manner that prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of 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 satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further the deduction under section 80HHC allowed on the duty drawback received as per proviso to section 80HHC(3) was erroneously allowed. 2.Purchases of Rs. 49,05,984 from M/s. Mineral India International were not verified in terms of section 40A(2)(b) of the Income-tax Act. 3.Loans appearing in the Balance Sheet and loans squared off during the year were not verified in terms of section 68 of the Income-tax Act." After considering the reply of the assessee, the Learned CIT held that excessive deduction was allowed under section 80HHC for three reasons namely (i) that the Assessing Officer should have excluded the entire export incentive of Rs. 18,99,015 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 refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order could not be said to be erroneous. 5. Proceeding further, it was submitted that necessary details in respect of each loan falling under section 269SS of the Act were furnished in Annexure-O to the audit report. Then he referred to Page- 39 of the Paper Book to point out that Assessing Officer had made enquiries vide letter dated 9-11-2001 by asking the assessee to furnish the details regarding unsecured loans along with the confirmation letters and Permanent Account Numbers of the creditors. According to him, such information was supplied to the Assessing Officer. Hence, according to him, such loans were accepted by the Assessing Officer after making proper 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 Build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transactions as well as the creditworthiness of the cash creditors. Thus, there was lack of proper enquiry on the part of Assessing Officer. In view of the above arguments, it was submitted by him that order of the Learned CIT be upheld. 8. Rival submissions of the parties have been considered carefully in the light of the material placed before us and the case law referred to. The first question for our consideration is whether the order of the Learned CIT under section 263 can be upheld where reasons given in the order for holding the assessment order as erroneous and prejudicial to the interest of Revenue are different from the reasons given in the show-cause notice 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 263, the assessee was deprived of fair opportunity to show cause against proposed action and in such a case, the revisional order of the Commissioner cannot be sustained. The same Calcutta High Court in the case of Bagsu Devi Bafna v. CIT [1966] 62 ITR 506, affirmed in Bagsu Devi Bafna v. CIT [1967] 63 ITR 333, held that the Commissioner must disclose in his notice to the assessee, the grounds on which he proposes to revise, to enable the assessee to show cause and to give him an opportunity of being heard. The Hon'ble Orissa High Court held in the case of Rawani Dal & Flour Mills v. CST [1992] 86 STC 409 that the opportunity to be granted must be effective, that it cannot be 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." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is whether there was lack of enquiry and non-application of mind on the part of Assessing Officer vis-a-vis the issue relating to unsecured loans and excessive allowance of expenditure vis-a-vis section 40A(2). There is no dispute that lack of enquiry would render the order of assessment as erroneous and prejudicial to the interest of Revenue as held by the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi [1968] 67 ITR 84 and in the case of Smt. Tara Devi Aggarwal ( supra). The lack of enquiry would include not only the situation where no enquiry is made but would also include the situation where no proper enquiry is made considering the facts of the case. Whenever expenditure is claimed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It also appears that the transactions were by cheques. So, the question is whether there was any lack of enquiry on the part of the Assessing Officer. It is the settled legal position that in the case of cash credits appearing in the books of assessee, the onus is on the assessee to prove the identity and creditworthiness of the cash creditors as well as the genuineness of the transactions. The evidence produced before the Assessing Officer nowhere provides the creditworthiness of the cash creditors. No doubt, the payments were by cheques but that by itself does not prove the creditworthiness of the assessee. Neither the Bank statement of cash creditors nor their Balance Sheet were examined. Even the 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y noticed the area of the building and the extent of the land occupied by the tenant, but there was no investigation or enquiry by him whether there was any actual increase in the rental value of the property and if so what was the extent of increase in the rental value of the properties. The Commissioner, on the basis of his own assumption that there was general increase in the rental value of the property, had directed the ITO to investigate further and determine the rental value of the property. It was undoubtly true that the two properties were let out to two sister concerns of the assessee-company, but the mere fact that they were let out to the sister concerns of the assessee-company would not render the 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 263. 2.9. The Ld. CIT-DR also relied upon the decision from Hon'ble Madras High Court in CIT vs Neyveli Lignite Corporatoin Ltd., order dated 06/11/2000, [2001] 118 Taxman 230 (Madras)/[2001] 248 ITR 611 (Madras)/[2001] 171 CTR 154 (Madras). The relevant portion of the same is reproduced hereunder:- "The assessment year with which we are concerned in this matter is 1977-78. The assessee had set up in the year 1977, a belt reconditioning plant designed for retreading of conveyor belts. The process involved cleaning, inspection, peeling, drying, reconditioning, buffing, vulcanizing and trimming, etc. The life of the belt after such processing was 75 per cent, of a new belt, while the cost of reconditioning 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter as a belt as a result of the reconditioning. It cannot, therefore, be said that any new article comes into existence when the old belt is reconditioned and made fit for use for some more time. The life of a reconditioned belt is not the same as that of a new belt. The purpose which a reconditioned belt is to serve is the same as the purpose that the belt before reconditioning was serving. We must, therefore, hold that the Tribunal was not right in taking the view that a new article came into existence as a result of reconditioning of the old belt. 7. As regards the other question, the relief claimed under section 80J once allowed, would continue to be available to the assessee for a period of seven years. The fact that as 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure of capital nature. He referred the matter back to the Income-tax Officer to examine the same and to decide afresh. The Tribunal did not approve such action of the Commissioner. Therefore, the question that arises for consideration is whether the Commissioner without arriving at a finding that the order in question was erroneous can set aside the assessment in exercise of power under section 263 of the Act. It may be expedient at this stage to set out section 263 of the Act. Section 263, so far as relevant, runs as follows : "263. Revision of orders prejudicial to Revenue. - (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if 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, 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. It can mean nothing else". The aforesaid observations were also applied by the Gujarat High Court in Addl. CIT v. Mukur Corporation [1978] 111 ITR 312. We are of the opinion that the aforesaid interpretation given by the Calcutta High Court to the expression "prejudicial to the interests of the Revenue" is the correct interpretation. 14. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agapatta Township Development and Construction Company (141 ITD 682)(Pune), Rahul Construction Company vs ITO (ITA No.1250/Pn/2009), CIT vs Vandana Properties (2012) 353 ITR 36 (Bom.) and various decisions were considered and finally decided in favour of the assessee. 3.2. Hon'ble Delhi High Court in CIT vs Sunbeam Auto Ltd. (2011) 332 ITR 167 order dated 11/09/2009, after considering various decisions, made an elaborate discussion and decided in favour of the assessee by holding that there is distinction between "lack of enquiry" and "inadequate enquiry" and hold that if there is an enquiry, even inadequate, that would not by itself give occasion to the CIT to pass order us/ 263, merely because he has a different opinion in the matter. This judicial pronouncement squarely defends the case of the assessee. While 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 Enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment 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 prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it 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 interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation to s. 25(2) in cl. (c) thereof, after its amendment by the Finance Act of 1989 makes this abundantly clear. That provision sets out that where the order sought to be revised is one passed by the AO and had been made the subject-matter of an appeal, the power of the CWT will extend to such matters as had not been considered and decided in such appeal. 8. The provisions of Explanation (c) to Section 25(2) to the Wealth Tax Act and Explanation c to 263(1) of the Income Tax Act are exactly the same. For the sake of completeness, however, these two provisions are reproduced below: (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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 16.02.2012 and during the course of the search, certain documents indicating payments made to persons holding public office were seized. One of the said documents contained certain payment details under the heading "Rane C M". Based on this information, the assessing officer reopened the assessment of both the years under consideration by issuing notices u/s 148 of the Act. The AO completed the assessments u/s 143(3) r.w.s. 147 of the Act, accepting the explanations of the assessee that the said incriminating document do not relate to him. Thus the assessing officer completed the assessment without making any addition, i.e., accepting the income returned by the assessee. 3. On examination of the assessment records, the Ld Pr. CIT took the view that the assessing officer did not examine and verify the issues by correlating the evidences found during the course of search conducted in 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. &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce President, Finance and had not received any cash from him and assessed the total income at Rs. 21,18,945 and Rs.13,68,103/- respectively without examining and correlating the evidences found in the course of the search, which resulted in incorrect computation of income for both the years as the amounts shown to be received were not been added to the total income by the Assessing Officer. For the said reasons, the assessment order made by the Assessing Officer was found to be erroneous in so far as it was prejudicial to the interest of the revenue. Hence, a notice u/s 263 of the Act dated 1.3.2016 was issued to the assessee as the order was found to be erroneous & prejudicial to the interest of the revenue within the meaning of section 263 of the Income-tax Act. 1961 and the assessee was allowed an opportunity of being heard and to show cause as to why an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. In CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.), the assessee had claimed a deduction of Rs.99,326 under the head plant 're-layout expenses' which was allowed by the Assessing Officer while the CIT was of the view that it was a capital expenditure. Hon'ble Bombay High Court held that the Commissioner could not be vested with the power to reexamine the accounts and determine the income himself at a higher figure. The claim was allowed by the Assessing Officer on being satisfied with the explanation of the assessee and such decision cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. The decision is distinguishable on facts as in the instant case the issue is not the nature of expenditure being capital or revenue but failure to conduct inquiries and examine the evidence found in the course of the search in which transactions relating to the assessee were mentioned. Hon'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings u/s 148 were completed. It is, therefore, evident that the information was not verified properly. Thus it is held that the requisite inquiry and verification was not carried out before passing the orders u/s 143(3) r.w.s. 147 of the Act as the Assessing Officer did not make necessary enquiry on this issue and accordingly, in view of clause (a) of Explanation 2 below sub section (1) of section 263 of the Income tax Act, 1961, the order passed by the Assessing Officer is deemed to be erroneous and prejudicial to the interests of revenue." 6. Aggrieved by the common order passed by Ld CIT, the assessee has filed these appeals before us. 7. The Ld A.R submitted that the assessing officer had reopened the assessment of both the years under consideration on the basis of the incriminating documents found during the course of search conducted in the hands of M/s R.N.S infrastructure in order to assess the income escaped in the hands of the assessee. He submitted that 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 str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the revenue. He further submitted that the Ld Pr. CIT has also not shown as to how the assessment order is erroneous one. He further submitted that the Ld CIT can initiate revision proceedings only if both the conditions specified in sec. 263 of the Act is satisfied, viz., the assessment order was erroneous and it was prejudicial to the interest of the revenue. For this proposition he placed strong reliance on the decisions rendered by Hon'ble Supreme Court in the case of Malabar Industrial Co. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) and CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC). 9. On merits, the ld A.R submitted that the impugned incriminating document was a dumb document and hence the tax authorities could not place any reliance on it. In this regard, he placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Central Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410 and more particularly to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision rendered by Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) to contend that non-application of mind on the part of the AO on the facts collected would render the assessment order erroneous. He further submitted that omission on the part of the assessing officer to consider various factual aspects such as the date of birth of the assessee, date of assumption of public officer, constituency form which he won election etc. has led the AO to frame the assessment in an arbitrary manner and hence the said assessment order is liable for revision as held in the case of CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.). He further submitted that the Explanation 2 given under sec. 263(1), which was inserted by the Finance Act 2015 w.e.f. 1.6.2015, provides that the order passed without making inquiries or verification which should have been made shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. He submitted that the 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 263 of the Act. 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 [2010] 321 ITR 92/188 Taxman 327 by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: 'Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the entry made as "Rane-CM" also, he simply stated that the information was received from the branch. Thus, we notice that in none of the answers given, the VP - finance has implicated the assessee. In spite of these facts, the investigation wing has passed on these documents and information to the assessing officer and accordingly he has also reopened the assessments of the two years under consideration. 14. The assessing officer has also furnished to the assessee the reasons for reopening of the assessments and the assessee has also objected to the reopening. The assessing officer has specifically addressed those objections and has also rejected the same. In the notice issued u/s 142(1) of the Act, the assessing officer has asked the assessee to clarify about the impugned incriminating document and also to give explanations as to why the amounts mentioned therein should not be added back to the total income of the assessee. In response thereto, the assessee has filed a reply, wherein he has denied 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpretation a lesser tax than what was just has been imposed." The Hon'ble High Court has considered the definitions given to the words "erroneous", "erroneous assessment" and "erroneous judgment" in Black's Law Dictionary and accordingly held that an order cannot be termed as erroneous unless it is not in accordance with law. An order can be termed as "erroneous" only if it is not in accordance with the law. 17. The Hon'ble Delhi High Court has also followed the above said view in the case of Sunbeam Auto Ltd. (supra). The Hon'ble Delhi High Court has also extracted following observations made by the Tribunal:- "38. Still further, the Hon'ble Supreme Court in Malabar Industrial Co. (2000) 243 ITR 83 has held that when two views are possible and the Assessing Officer has taken one of the possible view, then the order cannot be held to be prejudicial to the interest of the Revenue. Since the Commissioner of Income tax could not come to a definite finding that the expenditure in question was a capital expenditure 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 CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has accepted the explanations of the assessee, since there is no fool proof evidence to link the assessee with the document and M/s RNS Infrastructure Ltd, from whose hands it was seized, also did not implicate the assessee. Thus, the assessee has been expected to prove a negative fact, which is humanely not possible. No other corroborative material was available with the department to show that the explanations given by the assessee were wrong or incorrect. Under these set of facts, the AO appears to have been satisfied with the explanations given by the assessee and did not make any addition. We have noticed that the Hon'ble Supreme Court has held in the case of Central Bureau of Investigation (supra) that the entries in the books of account by themselves are not sufficient to charge any person with liability. Hence, in our view, it cannot be held that the assessing officer did not carry out enquiry or verification which should have been done, since the facts and circumstances of the case and the incriminating document was not considered to be strong by the AO to implicate the assessee. Thus, we are of the view that the assessing officer has taken a plausible view in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers passed by the AO could be taken as prejudicial to the interests of the revenue. Accordingly we are of the view that the revision orders passed by Ld Pr. CIT falls on this ground also. 23. In view of the foregoing discussions, we are of the view that the Ld Pr. CIT has failed to show that the impugned assessment orders passed by the assessing officer were not only erroneous but also prejudicial to the interests of the revenue. It is a well established proposition that both the above said conditions are required to be satisfied before invoking the revisional powers given u/s 263 of the Act. In the instant case, we are of the view that the Ld Pr. CIT has failed to show that both the conditions exist in the instant case. Accordingly we find merit in the contentions of the assessee that the revision orders passed by Ld Pr. CIT for the years under consideration are beyond the scope of sec. 263 and hence not valid. Accordingly we set aside the revision orders passed by Ld CIT for the two years under consideration. 24. In the result, both the appeals filed by the assessee are allowed." 3.6. We find that in the aforesaid case, while coming to a particular conclusion, the Bench cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have shown that the view taken by the Assessing Officer is unsustainable in law. In the instant case, the Commissioner has failed to do so and has simply expressed the view that the Assessing Officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Commissioner is not in accordance with the mandate of the provisions of section 263. The Commissioner has taken support of the newly inserted Explanation 2(a) to section 263. Even though there is a doubt as to whether the said Explanation, which was inserted by Finance Act 2015 with effect from 1-4-2015, would be applicable to the year under consideration, yet it is observed that the said Explanation cannot be said to have over ridden the law interpreted by Delhi High Court. If that be the case, then the Commissioner 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 Assessing Officer to conduct the enquiries in the manner preferred by the Commissioner, thus prejudicing the independent application of mind of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer did not carry out enquiry or verification which should have been done, since the facts and circumstances of the case and the incriminating document was not considered to be strong by the Assessing Officer to implicate the assessee. Thus, the Assessing Officer has taken a plausible view in the facts and circumstances of the case. Even though the Commissioner had drawn certain adverse inferences from the documents, yet it can be seen that they were debatable in nature. Further, Commissioner had 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, it is observed that the Commissioner 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 Assessing Officer. Hence the Commissioner was not justified in law in holding that the impugned assessment orders were erroneous. [Para 21] ■ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, whether the assessment was framed without application of mind and also whether the assessment order, so framed, is erroneous as well as prejudicial to the interest of Revenue. We find that in the assessment order, the Ld. Assessing Officer has mentioned declaration total loss of Rs.5,04,68,884/- and book loss under section 115JB of the Act at Rs.1,80,88,280/- in its return filed on 29/09/2011, which was processed under section 143(1) of the Act. Later on the case of the assessee was selected for scrutiny under CASS, therefore, statutory notice under section 143(2) and thereafter notice under section 142(1) along with questionnaire were issued to the assessee. The assessee attended the proceedings from time to time and furnished the necessary details and the same were examined and placed on record. The Ld. Assessing Officer has also mentioned the nature of activities done by the assessee and has also mentioned disallowance of interest income on FD from Banks amounting to Rs.3,18,52,281/- and interest on advances given to the contractor in para-5.1 of the assessment order, it has been mentioned that the details furnished by the assessee, during scrutiny proceedings were verified a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with the expression "erroneous" order by the Assessing Officer. Every loss of Revenue as a consequence of assessment order cannot be termed as prejudicial to the interest of Revenue, meaning thereby, "prejudice" must be prejudice to the Revenue administration. At the same time, if another view is possible revision is not permissible. Our view is fortified by the decision from Himachal Pradesh Financial Corpn. (186 Taxmann 105)(HP), Bismillah Trading Co. (248 ITR 292)(Ker.) and CIT vs. Green World Corpn. (314 ITR 81)(SC). For invoking revisional jurisdiction u/s. 263 the assessment order must contain grievous error which is subversive of the administration of Revenue. Further, exact error must be disclosed by the Commissioner as was held in CIT vs. G.K. Kabra (211 ITR 336)(AP). Totality of facts, clearly indicates that assessment u/s. 143(3) of the Act was framed by the Assessing Officer after obtaining necessary details from the assessee and further the same were examined by him. Therefore, even if, the same has not been spelt elaborately in the assessment order it cannot be said that there is a "lack of enquiry" or prejudice has been caused to the Revenue, as we have discussed v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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