TMI Blog2006 (1) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... of the alleged loss over and above the deduction of Rs. 73,01,184 allowed by the Assessing Officer u/s 80HHC in assessment year 1996-97 on the basis of mere receipt of import licences. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction u/s 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 have no grievance in that the learned Commissioner has simply asked the Assessing Officer to consider the claim of the assessee as per law. The assessee can neither contend nor expect that loss returned by it should be accepted by the Department without proper scrutiny and objective consideration of the issues by the Assessing Officer. Thus, it is mere failure on the part of the Assessing Officer to make the necessary inquiries or to examine the claim made by the assessee in accordance with law, which renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing more is required to be established in such a case. One would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 u/s 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 the aforesaid observations. Thus, the appeal filed by the assessee is dismissed. - HON'BLE K.C. SINGHAL, JUDICIAL MEMBER AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER For the Appellant : Sunil M. Lala and S.M. Sarang, Advs. For the Respondent : R.K. Rai, Adv. JUDGMENT D.K. Srivastava, Accountant Member. 1. 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsequently 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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. [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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-lax 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, 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 j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 323 and Malabar Industrial Co. Ltd.'s case. In Malabar Industrial Co. Ltd.'s case the Hon'ble Court has held as under: There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial 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. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 analyzing 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 permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot 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 Representative 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 hint was a possible view. In our view, the aforesaid submission of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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