Case Law Details
IN THE ITAT HYDERABAD BENCH ‘B’
Mahalakshmi Liquor Promoters (P.)Ltd.
Versus
Commissioner of Income-tax
IT APPEAL NO. 930 (HYD.) OF 2012
[ASSESSMENT YEAR 2007- 08]
OCTOBER 19, 2012
ORDER
Chandra Poojari, Accountant Member – This appeal by the assessee is directed against the order of the CIT dated 26.3.2012.
2. At the outset, we have noticed that there was a delay of 7 days in filing this appeal for which the assessee filed a petition explaining reasons for delay and we are satisfied with the explanation given by the assessee for such delay of 7 days. The delay is condoned and the appeal is admitted for adjudication on merit.
3. The assessee’s grievance in this appeal is with regard to invoking the provisions of section 263 of the Income-tax Act, 1961 by the CIT though there was consideration of entire issue by the Assessing Officer during the scrutiny proceedings and has taken one of the view possible in law.
4. Brief facts of the issue are that the assessee invested an amount of Rs. 1,72,97,822 in shares during the year. This sum was brought into business through loans and money received back on sale of land earlier. According to the CIT instead of using borrowed funds for the purpose of business, the assessee diverted the same for the purpose of investment in shares and it has claimed an interest of Rs. 14,92,478 towards interest on loan. Further the assessee received Rs. 1.55 crores as advance from Sri S.V. Sriramulu towards the facilitator for the purchase of land. The Assessing Officer on this issue not examined whether there was any transfer in accordance with the provisions of section 2(47) of the Act. Being so, the CIT directed the Assessing Officer to examine these two issues afresh by invoking the provisions of section 263 of the Act.
5. At the outset, the AR challenged the validity of action of the CIT in exercising the jurisdiction u/s. 263 of the Act. The learned AR submitted that the assessee had invested a sum of Rs. 1,72,97,882/- in the equity shares of M/s. Malt Spirits India Pvt. Ltd., and M/s. Altra Spirits India Ltd. The entire investment was made out of share capital and reserves of the company. In the course of assessment proceedings, the Assessing Officer had considered the applicability of provisions of section 14A and it is only a change of opinion by the CIT in the revision proceedings. Further, the assessee had received an advance for sale of the land to the extent of Rs. 1.55 crores. The investments in M/s. Altra Spirits India Pvt. Ltd., and M/s. Malts Spirits India Pvt. Ltd., was for the purpose of business and no interest bearing funds were utilized for the purpose of making investment in equity shares and there was no need for the company as it had reserves in the form of capital and reserves for a sum of Rs. 2.51 crores. The investment in M/s. Malts Spirits India Pvt. Ltd., and M/s. Altra Spirits India Pvt. Ltd., was made for the purpose of expansion of the existing business. The principle laid down by the Supreme Court in the case of S.A. Builders v. CIT [2007] 288 ITR 1/158 Taxman 74 applies to the facts of the case. He further submitted that a small portion of interest bearing funds could have been used for the purpose of investment in equity shares in the aforesaid companies. Still, the investment cannot be disallowed as the investment was made for the purpose of business.
6. The learned DR submitted that the assessee had debited a sum of Rs. 14,92,478 as finance charges to the P&L account. During the previous year, the assessee had invested a sum of Rs. 1,72,97,822 in the share application money and equity shares of M/s. Malt Spirits India Pvt. Ltd., and M/s. Altra Spirits India Pvt. Ltd. The issue in dispute is whether borrowed funds were used for the purpose of investment in equity capital of associated concerns or not. The assessee has share capital and reserves including share application money for a sum of Rs. 2.45 crores. During the previous year, it had also taken unsecured loans to the tune of Rs. 45 lakhs. The learned Authorised Representative has incorrectly stated that a small portion of investment which according to him could be in the range of Rs. 20 lakhs was made out of the borrowed funds. The Assessing Officer did not examine the applicability of section 14A of the IT Act. The AO has also not examined whether the interest of Rs. 14.92 lakhs was incurred for the purpose of business. As the Assessing Officer did not verify the sources of investment in equity.shares, and from the submissions of the learned Authorized Representative it can be seen that a portion of investment in equity shares was made out of the borrowed funds. The learned Authorized Representative contended that investment in equity capital was made for the purpose of business. Considering the arguments of the learned Authorized Representative, the CIT set aside the assessment order passed by the Assessing Officer on 31.12.2009 with a direction to examine whether borrowed funds were diverted for the purpose of investment in equity shares of the associated concerns and examine whether any commercial expediency is involved m the investment in equity shares. The Assessing Officer was also directed to examine the applicability of section 14A of the IT Act. Thus, the CIT is justified in setting aside the assessment order passed by the Assessing Officer u/s. 143(3).
7. Regarding the second issue the AR submitted that the assessee intended to purchase 7 acres of land and gave a sum of Rs. 1.4 crores during the previous year as advance. Out of this advance of Rs. 1.4 crores, a sum of Rs. 70 lakhs was intended to be towards the cost of land and another sum of Rs. 70 lakhs was meant for the development of land. The advance was given to Sri S.V. Sriramulu who was the facilitator for the purchase of land and the facilitator could not purchase the land to the extent the assessee desired. He could purchase the land on behalf of the assessee company to the extent of 5.34 acres for a sum of Rs. 59 lakhs. Sri S.V. Sriramulu was entrusted with the task of reselling the land which was acquired through him during the previous year and in response thereto, he gave an advance of Rs. 1.55 crores. This fact was confirmed by him during the course of assessment proceedings. No development expenditure was incurred by him and the entire advance given by him ought to have been shown in the balance sheet, but a portion of it was accounted for in the land account. It has no impact on the profit. Sri S.V. Sriramulu did not transfer the land on behalf of the assessee during the previous year and the land was sold on 19.08.10 and the capital Gain arises in the asst. year 2011-12. The company will account for the Capital Gains in the year of transfer. He further submitted that the land value was properly accounted for in the books of account. There was no capital gains which accrued to the assessee during the previous year.
8. The DR submitted that the plea of the learned AR that the land acquired in the previous year was resold on 19.08.2010 for a sum of Rs. 59.85 lakhs. However, the assessee received a sum of Rs. 1.55 crores as advance from Shri S.V. Sriramulu, the facilitator. The Assessing Officer did not examine whether there was any transfer in accordance with the provisions of section 2(47) of the IT Act. It is strange to know that the advance was given in the previous year 2005-06 and the conveyance deed was executed in the previous year 2010-11. The Assessing Officer did not verify whether there was any transfer in terms of section 2(47) of the IT Act.
9. We have carefully considered the rival submissions in the light of material placed before us and also gone through all the judgements cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industrial Co. Ltd., v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC), the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is (i) erroneous; and also (ii) prejudicial to the interests of the revenue. The word ‘erroneous’ has not been defined in the Income Tax Act. It has been however defined at page 562 in Black’s Law Dictionary (seventh Edition) thus’;
‘erroneous, adj. Involving error, deviating from the law’.
The word ‘error’ has been defined at the same page in the same dictionary thus:
‘error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false’.
At page 649/650 in P. Ramanatha Aiyer’s Law Lexicon Reprint 2002, the word ‘error’ has been defined to mean-
‘Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement ‘error’ is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie” (termes de la ley).
Something incorrectly done through ignorance or inadvertence S.99 CPC and S.215 Cr.PC.
‘Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention.”
10. At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus:
“An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived.”
11. In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of “errors” if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue.
12. 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 suomoto 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 inquiry. 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 assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an inquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries 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 323 (SC) and Malabar Industrial Co. Ltd.’s case (supra).
13. 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 the orders passed without applying the principles of natural justice or without application of mind.
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 the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon’ble Supreme Court as follows:
“Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness 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.”
14. 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 Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favor, though he may have sufficiently established his case.
15. In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases:
(i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it.
(ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
(iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case.
16. We shall now turn to the facts of the case to see whether the case before us is covered by the aforesaid principles. Perusal of the assessment order passed by the Assessing Officer does not show any application of mind on his part. He simply accepted the income declared by the assessee. This is a case where the Assessing Officer mechanically accepted what the assessee wanted him to accept without any application of mind or inquiry. The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the Assessing Officer. It is because of such non-consideration of the issues on the part of the Assessing Officer that the return filed by the assessee stood automatically accepted without any proper 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 to examine the issues 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 considering the issues raised by the CIT. In our view, the assessee should have no grievance in the action of learned Commissioner in exercising the jurisdiction u/s. 263 of the IT Act.
17. It was however contended by the learned Counsel that the Assessing Officer had taken a possible view in accepting the return of the assessee and hence, the Commissioner was not justified in assuming the revisional jurisdiction under Section 263. We have given our thoughtful consideration to the aforesaid submissions. As already stated earlier, an order becomes erroneous because inquiries, which ought to have been made on the facts of the case, were not made and not because there is anything wrong with the order if all the facts stated or the claims made in the return are assumed to be correct. 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 not know as to what would have happened if the Assessing Officer had made the requisite inquiries or examined the claim of the assessee in accordance with law. He could have accepted the assessee’s claim. Equally, he could have also rejected the assessee’s claim depending upon the results of his inquiry or examination into the claim of the assessee. Thus, the formation of any view by the Assessing Officer would necessarily depend upon the results of his inquiry and conscious, and not passive, examination into the claim of 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.
18. We are unable to accept the 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 taking of any view that will take the matter under 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 favor 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. As already stated earlier, we are not able to appreciate on what material was placed before the Assessing Officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not put the matter beyond the purview of Section 263 unless the view so taken by the Assessing Officer is a judicial view consciously based upon proper inquiries and appreciation of all the relevant factual and legal aspects of the case. The judicial view taken by the Assessing Officer may perhaps place the matter outside the purview of Section 263 unless it is shown that the view so taken by the Assessing Officer contains some apparent error of reasoning or of law or of fact on the face of it.
19. The learned Counsel has strongly relied upon the following observations made in the case of Malabar Industrial Co. Ltd. (supra) and submitted that the learned Commissioner was not justified in substituting his view for that of 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.”
20. 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 speak in that behalf. 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 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 the Assessing Officer who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the Assessing Officer can be attributed to have “adopted” a permissible course of law or “taken” a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned Counsel, if accepted, would require us to form, substitute and read our view in the order of the Assessing Officer when the Assessing Officer himself has not taken a view. It could have been a different position if the Assessing Officer had “adopted” or “taken” a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the Assessing Officer has not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise. The aforesaid observations of the Hon’ble Supreme Court do not, in our view, help the assessee; and rather they are against the assessee.
21. In the case of PadmasundaraRao v. State of Tamil Nadu [2002] 255 ITR 147 (SC), the Hon’ble Supreme Court has held that
“… There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Harrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one 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.”
22. It was next contended by the learned Authorized 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 him was a possible view. In our view, the aforesaid submission of the assessee must fail for the reasons already explained in the foregoing paras of this order as the order, which is sought to be revised under Section 263 reflects no proper application of mind by the Assessing Officer and thus be amenable to revision under Section 263. In this case before us, the assessment order passed by the Assessing Officer lacks judicial strength to stand. It is not a case where the order is short but is not supported by judicial strength. It is in this view of the matter that we feel that the learned Commissioner has correctly exercised his revisional jurisdiction under Section 263.
23. In our opinion, the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. As mentioned earlier, the assessee can have the prejudice caused to him corrected by filing an appeal; as also by filing a revision application under Section 264. But the State Exchequer has no right of appeal against the orders of the Assessing Officer. Section 263 has therefore been enacted to empower the Commissioner to correct an erroneous order-passed by the Assessing Officer which he considers to be prejudicial to the interest of the revenue. The Commissioner has also been empowered to invoke his revisional jurisdiction under Section 264 at the instance of the assessee also. 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 lose 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 satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263.
24. On merit also, we have gone through the argument of the assessee’s counsel. As we have held in earlier para, there was no inquiry by the Assessing Officer on the issues raised by the CIT in his order u/s. 263 of the Act. The lack of inquiry or inadequate inquiry by the Assessing Officer could be very much reason for assuming jurisdiction u/s. 263 of the Act. In the present case, as there is no inquiry by the Assessing Officer while passing assessment order u/s. 143(3) of the Act, the CIT issued a show-cause-notice and passed order u/s. 263 of the Act to make an inquiry on the issues raised by him in his order. The Assessing Officer has ignored the entire issue while making the assessment. For non-consideration of relevant materials while making the assessment, the assessment order has rightly been set aside to consider the two issues raised by the CIT in his order. Therefore, the finding of the CIT cannot be said a perverse finding and the finding given by the CIT cannot cause any prejudice to the Assessing Officer and the same is confirmed.
25. In the result, appeal of the assessee is dismissed.
