Income Tax Appellate Tribunal - Mumbai
Maharashtra Airport Development, ... vs Pr Cit 3, Mumbai on 18 July, 2018
आयकर अपील य अ धकरण, मुंबई यायपीठ, 'बी',मुंबई।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'B' MUMBAI
ी जो ग दर संह, या यक सद य एवं
ी राजेश कुमार, लेखा सद य, के सम
Before Shri Joginder Singh, Judicial Member, and Shri Rajesh Kumar, Accountant Member ITA No.3741/Mum/2016 Assessment Year: 2011-12 M/s Maharashtra Airport Pr. CIT-3, Development Company बनाम/ 612, 6th Floor, Ltd. Aayakar Bhavan, Vs. 8th Floor, World Trade M. K. Road, Centre, Tower No.1, Mumbai-400020 Cuffe Parade, Mumbai-400005 ( नधा!"रती /Assessee) (राज व /Revenue) PAN. No. AADCM9623M नधा!"रती क ओर से / Assessee by Shri Salil Kapoor & Shri Sumit Lalchandani राज व क ओर से / Revenue by Shri Debashis Chande CIT-
DR ु वाई क& तार'ख / Date of Hearing :
सन 18/07/2018
आदे श क& तार'ख /Date of Order: 18/07/2018
2 ITA No.3741/ M u m / 2 0 1 6
Maharashtra Airport Development
Company Ltd.
आदे श / O R D E R
Per Joginder Singh (Judicial Member)
The assessee is aggrieved by the impugned order
dated 30/03/2016 of the Ld. Pr. Commissioner of Income Tax, Mumbai, invoking revisional jurisdiction under section 263 of the Income Tax Act, 1961 (hereinafter the Act).
2. During hearing of this appeal, the ld. counsel for the assessee, Shri Salil Kapoor along with Shri Sumit Lalchandani, contended that the assessee company Maharashtra Airport Development Company Ltd.
(hereinafter in short MADCL) is a wholly owned undertaking of the Govt. of Maharashtra was incorporated to carry out infrastructure development activities like setting up SEZ and developing international airport at Nagpur, the proposed airport is named Multi-model International Passenger and Cargo Hub Airport, Nagpur (MIHAN), 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 3 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 invited our attention to para-6 & 7 of the revisional order, wherein, it was claimed that there is contradiction in the finding of the Ld. Pr. Commissioner in the order itself.
4 ITA No.3741/ M u m / 2 0 1 6Maharashtra Airport Development Company Ltd.
2.1. On the other hand, Shri Debasis Chande, ld.
CIT-DR, strongly defended the impugned order by inviting our attention to the amendment made w.e.f. 01/06/2015 and Explanation-2, inserted therein. The crux of the argument is that the assessment was made without making due enquiry. Reliance was placed upon the decision of the Mumbai Bench of the Tribunal in ARVEE INTERNATIONAL v. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE 19(1), MUMBAI 101 ITD 495 (Mum. Trib.) Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (Supreme Court), COLORCRAFT KASHIMIRA CERAMIC COMPOUND v.
INCOME-TAX OFFICER, WARD-4(4), THANE (2017) 105 ITD 599 (Mum.), Commissioner of Income-tax v.
Amalgamations Ltd. [1999] 238 ITR 963 (MAD.), CIT v.
Neyveli Lignite Corporation Ltd 248 ITR 611 (Madras).
2.2. In reply, the ld. counsel for the assessee contended that such explanation has not been invoked by Ld. Pr. Commissioner, which cannot be applied now for which reliance was placed upon the decision (2016) 70 taxman.com 227 (Mum.) and another decision in ITA No.3205/Mum/2017) (Del. Trib.). It was also claimed that 5 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
on merit even the Ld. Commissioner of Income Tax (Appeal) has allowed the claim of the assessee later on.
2.3. We have considered the rival submissions and perused the material available on record. Before adverting further, now we shall and analyze the relevant provision and the amendment made by the Finance Act, 2015 w.e.f.
01/06/2015 along with the contention of the Ld. CIT-DR.
The provision of the Act is reproduced hereunder for ready reference:-
" 263. (1) The [Principal Commissioner or] 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 Assessing 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.
[Explanation 1.]--For the removal of doubts, it is hereby declared that, for 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;6 ITA No.3741/ M u m / 2 0 1 6
Maharashtra Airport Development Company Ltd.
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
[Explanation 2.--For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,--
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal,] the High Court or the Supreme Court.
Explanation.--In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
2.4. If the aforesaid insertion of Explanation -2 is analyzed the revisional jurisdiction can be invoked only when
(a) The order is passed without making enquiries or verification which should have been made 7 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
(b) The order is passed allowing any relief without enquiring into the claim
(c) The order has not been made in accordance with any order, direction or instruction issued by the Board u/s 119 or
(d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional high court 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 8 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
19(1), MUMBAI [2006] 101 ITD 495 (ITAT[Mum]), order dated 13/01/2006. The relevant portion of the order is reproduced hereunder:-
"The appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 on the following grounds :
"1. The order passed by the Ld. CIT under section 263 of the Income-tax Act, is bad in law.
2. The Ld. CIT erred in holding that loss of Rs. 13,90,096 incurred by the appellant on sale of import entitlement license is not admissible deduction.
3. The Ld. CIT failed to appreciate that appellant had shown the value of import entitlement at Rs. 73,01,184 in the closing stock of assessment year 1996-97 and after selling part of it in assessment year 1997-98 and making a profit, the appellant had sold the balance in assessment year 1998-99 in which loss of Rs. 13,90,096 was incurred and therefore, the same had been correctly allowed by the Assessing Officer as deduction.
4. The Ld. Commissioner failed to appreciate that whereas in assessment year 1996-97, the appellant was allowed deduction under section 80HHC, in assessment year 1998-99, business loss on sale of license has been allowed under section 37(1) and therefore, there had not been allowance of double deduction."
2. The facts of the case, in brief, are that the assessee, a partnership firm, was engaged, during the previous year relevant to the assessment year under appeal, in the business exporting pens and ball pens. It filed its return of income declaring loss of Rs. 11,32,829 on 30-10-1998 for the assessment year under appeal. The assessment was completed on 29-12- 2000 under section 143(3) of the IT Act accepting the loss shown by the assessee. The entire order of assessment passed by the Assessing Officer reads, in verbatim, as under :
"The assessee-firm filed its return of income for assessment year 1998-99 on 30-10-1998 admitting a net loss of Rs. 11,32,828. This return of income was processed under section 143(1)(a) without any prima facie adjustment on 31-3-1999. Subsequently, notice under section 143(2) of the IT Act was issued and served on the assessee.9 ITA No.3741/ M u m / 2 0 1 6
Maharashtra Airport Development Company Ltd.
In response to notice under section 143(2) of the IT Act, Mr. L.R. Bajaj, Advocate, attended from time to time, furnished the details called for and the case was discussed.
The loss returned by the assessee at Rs. 11,32,828 is accepted.
Assessed under section 143(3) of the IT Act, the above loss is allowed to be carry forward. Credit for prepaid taxes and tax payable is determined as per ITNS 150 separately. Demand notice and challan is issued accordingly."
3. The learned Commissioner of Income-tax called for the records of the assessee and found that the assessee had shown, in the assessment year 1996-97, export turn over of Rs. 2.36 crores and 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 under consideration was untenable. He was also of the view that there was failure on the part of the Assessing Officer in not examining the said claim of the assessee on merits and in accordance with law at the assessment stage with the result that the said claim of the assessee stood accepted without any objective consideration and evaluation of the issues involved by the Assessing Officer. He therefore formed the belief that the order mechanically passed by the Assessing Officer without application of mind was both erroneous and prejudicial to the interest of the revenue.
4. In view of the aforesaid, the Ld. Commissioner issued a show-cause notice under section 263 asking the assessee to explain as to why the order passed by the Assessing Officer for the assessment year under appeal should not be set aside for being made afresh as per law after giving a reasonable opportunity of hearing to the assessee. The assessee 10 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
submitted its reply to the show-cause notice which the learned Commissioner considered and, after consideration of the submissions made by the assessee, passed the impugned order setting aside the assessment made by the Assessing Officer with the direction to him to frame a fresh assessment as per law after giving a reasonable opportunity of hearing to the assessee. It is this order of the learned Commissioner, which is the subject-matter of appeal by the assessee before us.
5. In support of the appeal, the Ld. Authorised Representative for the assessee took us through the relevant notices issued and orders passed by the Departmental authorities. He submitted that the Assessing Officer had accepted the profit as shown in Profit & Loss Account for assessment year 1996-97 as eligible for deduction under section 80HHC. He explained that the assessee had indeed suffered loss in the assessment year under appeal, i.e., assessment year 1998-99 as a result of sale of the entitlements and therefore, the assessee was entitled to claim the loss so suffered by it. He submitted that the Assessing Officer had considered all the relevant aspects of the case while passing the assessment order and it was only then that he decided to accept the loss in question as shown by the assessee. He argued that the claim of the assessee for deduction under section 80HHC in assessment year 1996-97 and its claim for allowance of business loss on sale of import entitlements 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 Steel Ltd. [1999] 236 ITR 315(SC)
3. United Phosphorus Ltd. v. Jt. CIT [2002] 81 ITD 553(Ahd.) 11 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
4. Asstt. CIT v. Premier Consolidated Capital Trust India Ltd. [2004] 4 SOT 793(Mum.)
5. Wallfort Shares & Stock Brokers Ltd. v. ITO [2005] 96 ITD 1(Mum.)(SB)
6. Order dated 16-5-2005 passed by "G" Bench Mumbai of the Tribunal in Red Rose Enterprise v. CIT [IT Appeal No. 117 (Mum.) of 2004] for assessment year 2000-01.
6. In reply, Shri Rai, the learned Departmental Representative supported the order passed by the learned Commissioner under section 263 of the Income-tax Act, 1961. He submitted that the Assessing Officer had not expressed any view in the assessment order and hence, there was no question of the Commissioner taking a different view in his order or substituting his own view for the view taken by the Assessing Officer. He submitted that the assessment order passed by the Assessing Officer was a non-speaking order, which did not reflect any application of mind on the part of the Assessing Officer. According to him, the Assessing Officer simply accepted mechanically what the assessee had claimed before him without any objective consideration or evaluation of the issues involved. He argued that mere passing of a mechanical and stereotyped order without any application of mind or objective evaluation of the relevant materials and issues by the Assessing Officer would render his order not only erroneous but also prejudicial to the interest of the revenue. Applying the aforesaid principles, the learned DR submitted that the learned Commissioner was, on the facts of the case, absolutely justified in exercising revisional jurisdiction under section 263 of the Income-tax Act. He supported the order of the learned Commissioner with reference to the decisions in CIT v. M.M. Khambhatwala [1992] 198 ITR 144(Guj.) and Malabar Industrial Co. Ltd. v. CIT [1992] 198 ITR 611(Ker.) affirmed by the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83.
7. We have considered the rival submissions. There is no dispute that the Assessing Officer had earlier taken into consideration and allowed deduction under section 80HHC with reference to the import entitlements of Rs. 73,01,184 in assessment year 1996-97 obtained by the assessee. Thus, the assessee first claimed and obtained, in assessment year 1996- 97, 100% deduction on the said import 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 12 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 thing's original cost exceeds its later selling price or when the dominion over the things are irretrievably destroyed or lost. An exporter does not pay any cost to the Government for obtaining the import licences and hence, there can be no loss to an assessee-exporter when he sells them. He always makes profit as and when he sells such licences. He however cannot make profit on the mere receipt of licences without selling them. Section 28(iii) of the Income-tax Act seeks to bring the "profits on sale of a licence" granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 to the charge of tax. Two aspects thus clearly emerge; one, there can only be profit (and, in no case loss) on sale of import licences obtained by the assessee directly from the Government as incentive on the basis of exports made; and two, the profits can accrue to the assessee only in the year in which such licences are sold and not before. It is fairly well- settled that an assessee cannot adopt a method of showing profit or loss contrary to law. The Assessing Officer ought to have, therefore, examined as to whether the assessee, in the first instance, was justified in law in showing a higher profit (without selling licences) in an earlier year in order to claim exemption, e.g., under section 80HHC and further thereafter in claiming loss in the year under consideration on the ground that the licences obtained earlier were sold without there being any actual loss to the assessee on such sale. He did not examine the aforesaid issues at all while making the assessment. We are not suggesting as to what view the Assessing Officer should have taken in the matter. We are simply highlighting the arbitrariness in the decision making of the Assessing Officer when the facts available on record should have provoked him to judicially inquire and examine the matter in accordance with law. We have therefore, no hesitation to hold that the assessment order mechanically passed by him without due application of mind was 13 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
not only erroneous but was also prejudicial to the interest of the revenue within the meaning of section 263 of the Income-tax Act.
9. Let us now examine the legality of the order 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. Ramanatha Aiyer's Law Lexicon (Reprint 2002), the term "error" has been defined to mean thus :
"Error. A mistake in judgment or deviation from the truth in matters of fact, and from the law in matters of judgment; . . . 'Error', is a fault in judgment, or in the process or proceeding to judgment or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullitie." (Termes de la Ley) "Something incorrectly done through ignorance or inadvertence (S. 99, C.P.C. and S. 215, Cr.P.C.)."
"Error, Fault. Error respects the act; fault respects the agent, an error may lay in the judgment, or in the conduct; but a fault lies in the will or intention."
12. 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 14 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
committed under a misapprehension or 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 disordered 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 judgment 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. (Smith, Syn. Dis)"
13. 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.
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 apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those 15 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 enquiry 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 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 16 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
category fall orders passed without applying the principles of natural justice or without application of mind."
15. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in 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. The underlying philosophy of section 263 is the removal of the prejudice caused to the revenue by the erroneous orders of the Assessing Officer. In CIT v. V.P. Agarwal [1993] 68 Taxman 236(All.), the Hon'ble Allahabad High Court has held as under :
"14. 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 :
'35. 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 17 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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. 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 judgment of the Hon'ble Madras High Court on which reliance was placed by the learned counsel for the assessee also points to the same direction. We have reproduced above the relevant portion of the observations made by the learned Judges. They have held that orders, which are subversive of the administra-tion 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 favour, though he may have sufficiently established his case."
16. In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudi- cial to the interest of the revenue under section 263 in the following cases :
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"(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 stereo-typed 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."
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 objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted the issue in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the assessee. In our view, the assessee should 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.
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18. It was however contended by the learned counsel that the Assessing Officer had taken a possible view in allowing the loss claimed by 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 enquiry 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.
19. We are unable to accept the aforesaid submission of the learned counsel for two other reasons also. First reason is that the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under section 263. Second reason is that it is not the taking of any view that will take the matter outside the scope of section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is well established that the Assessing Officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee/revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the 20 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
applicable law. In Gruh Finance Ltd. v. Jt. CIT [2000] 243 ITR 482 (Guj.), the argument against the initiation of proceedings under section 147/148 that the claim for depreciation has been considered and hence cannot be disallowed on mere change of opinion was rejected because there was no conscious consideration of the materials which were on record. As already stated earlier, no material was placed before the Assessing Officer at the assessment stage on the basis of which he could take any view. The assessee has also not been able 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.
20. The learned counsel has strongly relied upon the following observations made in Malabar Industrial Co. Ltd.'s case (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." [Emphasis supplied]
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 21 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 say so. 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 over the other does not arise. The aforesaid observations of the Hon'ble Supreme Court do not, in our view, help the assessee; rather they go against the assessee.
22. In Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147, 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 Herrington 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.
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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 the assessment order passed by the Assessing Officer was short would neither mean failure on his part in not examining the matter carefully nor would render his order erroneous so long as the view taken by him was a possible view. In our view, the aforesaid submission of the assessee must fail partly for the reasons already explained earlier in this order and partly for the reasons that it is not the size or the length of the order that matters in deciding upon its legality. It is quite possible that a long order, which is sought to be revised under section 263 may suffer from the same errors as pointed out above. It is equally possible that even a short order, which is sought to be revised under section 263 may reflect proper application of mind by the Assessing Officer and thus may not be amenable to revision under section 263. Therefore, it is not the length of the order but the judicial strength of the order that is material in deciding whether the order sought to be revised is erroneous and prejudicial to the interest of the revenue. In the 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 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.
24. As held in V.P. Agarwal's case (supra), 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 appeal as also by filing a revision application under section 264. But the State Exchequer has no right of appeal against the 23 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 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 satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of section 263.
25. Before we conclude the matter, we wish to clarify that the observations made by us in the preceding paragraphs are in the context of the provisions of section 263. They have been made in order to examine the legality of the impugned order passed by the learned Commissioner under section 263. The Assessing Officer is however free to decide the matter in the fresh round of assessment initiated as a result of the order of the learned Commissioner on merits and in accordance with law without being influenced by the aforesaid observations.
26. In view of the above, the appeal filed by the assessee is dismissed."
2.7. The next case relied upon by the Ld. CIT-DR is COLORCRAFT KASHIMIRA CERAMIC COMPOUND v.
INCOME-TAX OFFICER, WARD-4(4), THANE [2007] 105 24 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
ITD 599 (ITAT[Mum]), order dated 12/05/2006, which is also reproduced hereunder:-
"The assessee has preferred this appeal against the order of the Learned CIT under section 263 of the Income-tax Act, 1961 ('Act').
2. The brief facts giving rise to this appeal are these: The assessee filed its income-tax return for the year under consideration disclosing total income at Rs. 7,45,780 after claiming deduction under section 80HHC of the Act for Rs. 69,98,537. The original assessment under section 143(3) of the Act was made by the Assessing Officer on 31-3- 2003, determining the total income at Rs. 7,88,376. Subsequently, the Learned CIT received a proposal from the Assessing Officer to the effect that the assessment was erroneous and prejudicial to the interest of Revenue inasmuch as deduction under section 80HHC was allowed in excess. Further, no enquiry was carried out with reference to the genuineness of the loans as well as the transactions falling under section 40A(2)(b) of the Act. Accordingly, the Learned CIT issued notice under section 263 on the following grounds :
"1.In the order under section 143(3), deduction under section 80HHC of Income-tax Act of Rs. 70,46,582 was allowed. It is seen that the eligible business profits include duty draw-back of Rs. 20,64,833. As per the Supreme Court decision in the case of Sterling Foods, 237 ITR 579, the said amount was not derived from export activity and hence does not qualify for deduction under section 80HHC of Income-tax Act. 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 25 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
included in the total turnover, and (iii) that the central excise refund and sales tax set-off should have been excluded from the business profits as per clause (baa) of Explanation to section 80HHC. It was further held that there was lack of proper enquiry on the part of Assessing Officer for determining the genuineness of the loans as well as with reference to the transactions of purchase of Rs. 49,05,984 from the sister concern M/s. Mineral India International vis-a-vis section 40A(2)(b). Accordingly, it was held that order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. Consequently, the order of the assessment was set aside to the file of Assessing Officer for fresh adjudication after making necessary enquiries and after giving opportunity of hearing to the assessee. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal.
3. The Learned Counsel for the assessee has assailed the impugned order of the Learned CIT by raising various submissions. Firstly, it was submitted that there was no co-relation between the reason given by the Learned CIT in the show-cause notice and the reasons given in the impugned order vis-a-vis the deduction under section 80HHC for holding that the order of the assessment was erroneous. He drew our attention to the show-cause notice to point out that the reason given in the notice was that duty drawback could not be considered as profit derived from export activities in view of the Hon'ble Supreme Court judgment in the case of CIT v. Sterling Foods [1999] 237 ITR 579, while the reasons given in the impugned order are quite different for holding the order of assessment to be erroneous. Thus, the impugned order of the Learned CIT cannot be sustained in view of the judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT v. G.K. Kabra [1995] 211 ITR 336, and the decision of the Tribunal in the case of Sanco Trans Ltd. v. Asstt. CIT [1997] 61 ITD 317 (Mad.).
4. Proceeding further, it was submitted that all the details relating to the purchase transactions from sister concerns were supplied to the Assessing Officer. He drew our attention to the audit report to point out that all necessary details falling under section 40A(2)(b) were supplied as per Annexure-J to the audit report appearing at Page 26 of the Paper Book. Then he referred to the letter of assessee dated 26-12- 2002 addressed to the Assessing Officer to point out that date-wise details were furnished in respect of bills issued by the sister concern M/s. Mineral India International. This letter appears at Page 42 of the Paper Book. In view of the same, it was submitted that proper enquiry was made by the Assessing Officer and, therefore, the assessment order could not be said to be erroneous.
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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 Builders [2002] 256 ITR 360 for the proposition that if the loan is received by cheque, then the onus upon the assessee is said to be discharged and, therefore, it could not be said, in the present case, that proper enquiry was not made. He also relied on the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83for the proposition that even if two views are possible and the assessment order is in consonance with one of the views, then the order of assessment cannot be said to be erroneous.
7. On the other hand, the Learned D.R. has vehemently relied on the reasoning given by the Learned CIT. Further, he relied on the judgment of the Hon'ble Supreme Court in the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 and the judgment of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, for the proposition that lack of proper enquiry on the part of Assessing Officer would result assessment order to be erroneous and prejudicial to the interest of the Revenue. Proceeding further, it was submitted by him that mere collection of information is not sufficient. It is the duty of the Assessing Officer to apply his mind to the evidences so collected and ascertain whether such material is sufficient and in consonance with the provisions of the Act. He then drew our attention to the details filed by the assessee and reference to its claim under section 40A(2)(b). According to him, the details of bills issued by the sister concerns were not sufficient evidence for coming to the conclusion that expenditure incurred by the assessee is 27 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
reasonable to the market price. Since the Assessing Officer did not make further enquiries with reference to the reasonableness of the price paid by the assessee against the purchases made from the sister concerns, there was failure on the part of the Assessing Officer to make proper enquiries. Similarly, it was further submitted that mere confirmations and payment by cheque is not sufficient to prove the creditworthiness of the creditors and the genuineness of the loan transactions. According to him, it is the settled legal position that assessee is required to prove identity and capacity of the cash creditors as well as the genuineness of the transactions. It was pointed out by him that there was no evidence on record to prove the genuineness of 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 on different ground. If the Learned CIT intends to deviate from the reasons mentioned in the show-cause notice, then before taking any decision, he must confront to assessee fresh reasons which he may in his mind and then allow assessee a fresh opportunity. The opportunity to be granted must be effective and cannot be an empty formality. A person, who is required to show cause, must know the basis on which action is proposed. Obviously, therefore, the notice issued must indicate the reasons on which the order of assessment is considered to be erroneous and prejudicial to the interest of Revenue [Rawani Dal & Flour Mills v. CST [1992] 86 STC 409 (Ori.)]. This means, there must be nexus between the reasons given in the show-cause notice and the order of the Learned CIT under section 263. Consequently, in our opinion, it has to be held that order of the Learned CIT would be bad-
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in-law where such order is not passed on the reasons given in the show-cause notice.
9. The view taken by us is fortified by the judgment of the Hon'ble Andhra Pradesh High Court in the case of G.K. Kabra ( supra). In that case, the notice under section 263 related to the assessment of capital gain while the final order related to the inference of escapement of hire charges. The Tribunal held that the order of Learned CIT under section 263 was vitiated in law and, therefore, had to be cancelled. The Hon'ble High Court upheld the order of the Tribunal after making the following observations :
"Inasmuch as the Commissioner had not chosen to show these two points as the errors in making the final order and the final order under section 263 refers only to the inference of hire charges being exigible to tax which was not mentioned at all in the show-cause notice, obviously the assessee had no opportunity to meet that point. Moreover, a reading of the show-cause notice cannot give the assessee or even us, for that matter, any indication with reference to the hire charges which are sought to be assessed by the revision."
Similar view has been taken by the Tribunal, Madras Bench in the case of Sanco Trans Ltd. ( supra). The relevant portion of the same is reproduced as under :
"The Hon'ble Calcutta High Court in the case of CIT v. General Trade Agencies [1973] Tax LR 1383 held that where the show-cause notice did not fairly indicate the grounds used by the Commissioner in his order under 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 29 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
the Commissioner, in his order under section 263 dated 30-3-1990, the impugned order under section 263 cannot be sustained."
The Hon'ble Gujarat High Court, though rendered in penalty proceedings in the case of CIT v. Lakhdhir Lal Ji [1972] 85 ITR 77, cancelled the penalty by giving similar reasonings. The relevant portion of the judgment is quoted below :
"Held, that the penalty proceedings had been commenced against the assessee on a particular footing, viz. concealment of particulars of income but the final conclusion for levying the penalty was based on a different footing altogether viz. on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given reasonable opportunity of being heard before the order imposing the penalty was passed. The very basis for the penalty proceedings against the assessee initiated by the Income- tax Officer disappeared when the Appellate Assistant Commissioner held that there was no supervision of income by the assessee. The conclusion of the Tribunal that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty under section 271(1)(c) for concealment of income was correct." [As per Head Note] In the present case, the reason given in the show-cause notice was that duty drawback received by the assessee could not be considered as profit derived from export in view of the Supreme Court judgment in the case of Sterling Foods (supra) and, therefore, the said amount did not qualify for deduction under section 80HHC. However, the order under section 263 held the assessment order as erroneous on different grounds namely ( i) the Assessing Officer should have excluded the export incentives of Rs. 18,99,015 instead of Rs. 18,58,350, (ii) Central Excise refund and Sales Tax set-off should have been excluded from the business profits under clause (baa) of Explanation to section 80HHC, and (iii) Central Excise refund and Sales Tax set- off should have been included in the total turnover. However, there is no mention of the basis mentioned in the show-cause notice. This clearly shows that there was no nexus between the reasons given in the show cause and the reasons given in the impugned order for holding the order of Assessing Officer as erroneous qua deduction under section 80HHC. Therefore, following the reasons given by us in the preceding Paras, we quash the order of the Learned CIT (A) to the extent mentioned above.
10. The next question for our consideration 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 30 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 are fulfilled or not. The duty of the Assessing Officer is to collect the correct tax due from the assessee neither a penny more nor a penny less. Therefore, if he fails in performing in his duty, then his order can be considered as erroneous and prejudicial to the interest of Revenue. In our opinion, mere collection of material is not enough in discharging of such duty. It is also the duty of the Assessing Officer to evaluate the material or evidence collected and then ascertain whether such materials are enough to sustain the claim of the assessee.
11. In the above backdrop, let us examine the facts of the present case. Regarding the payments made by the assessee falling under section 40A(2)(b), the assessee had given details of sister concerns to whom the payments were made (Page 26 of the Paper Book). He also gave details of bills issued by M/s. Mineral India International (Pages 42 and 43 of Paper Book). This detail provides the dates and invoice numbers as well as the total amount of purchases. No other information was given by the assessee. In our opinion, this information by itself is not sufficient for holding that payments made to sister concern under section 40A(2)(b) was reasonable and not excessive. Whether the payment was excessive or not would depend upon the prevalent market prices. However, the Assessing Officer did not make any enquiry regarding prevalent market price of the goods purchased by the assessee from the sister concern. In the absence of such enquiry on the part of Assessing Officer, in our opinion, the assessment order became erroneous. Therefore, the order of the Learned CIT (A) has to be held to be valid in this regard.
12. Regarding the issue of unsecured loans, the audit report, vide Annexure-O, provides the details of loans, accepted by the assessee, 31 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
exceeding the limit prescribed in section 269SS of the Act (Pages 30 and 31 of the Paper Book). It also appears that the Assessing Officer asked the assessee to furnish the details of unsecured loans along with confirmation letters and the Permanent Account Numbers of the cash creditors (Page 39 of the Paper Book). In response to the same, the assessee had furnished the copies of the accounts of these cash creditors in the books of assessee on which such cash creditors had confirmed such accounts. Their addresses and Permanent Account Numbers are given on such certificates. 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). These cases are not on the point before us. The question before the Patna High Court was whether addition could be made where the assessee had disclosed the names of the creditors and the names of the Banks on which the cheques were drawn. The Court held that the assessee had discharged the primary onus and the onus shifted to the Department to verify the same. This itself shows that the Assessing Officer was required to make enquiry before rejecting the case of assessee. Similarly, in the case before the Gujarat High Court, Their Lordships referred to Supreme Court judgment in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 781and observed that where names and addresses of the creditors and GIR numbers are disclosed, then the burden shifted to the Department to establish the Revenue's case and in order to sustain the addition, the Revenue has to pursue the enquiry and to establish the lack of creditworthiness (Page 369 of 256 ITR). This judgment of the Supreme Court also shows that the Department is required to make enquiries to prove the lack of creditworthiness 32 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
before making any addition under section 68. Therefore, these two decisions relied upon by the assessee's counsel do not help the case of the assessee. In our opinion, the fact of creditworthiness must be established and the primary onus is on the assessee to establish the same. In the present case, no evidence was furnished regarding the creditworthiness of the parties. Even otherwise, in such situation, the Assessing Officer should have made enquiries in this regard before accepting the explanation of the assessee. Therefore, in our opinion, there was lack of enquiry on the part of Assessing Officer and the same rendered the assessment order to be erroneous and prejudicial to the interest of Revenue. The order of the Learned CIT(A) is, therefore, sustained on this issue.
14. In view of the above discussion, the order of the Learned CIT under section 263 is partly quashed. Consequently, the appeal of the assessee is partly allowed.
2.8. Another case relied upon is from Hon'ble Madras High Court in CIT vs Amalgamations Ltd. (1999) 238 ITR 963 (MAD). The relevant portion of the same is reproduced hereunder:-
"It was no doubt true that the value of the property was determined for 1972-73 and the same value was adopted for the assessment years in question. The Commissioner undoubtly 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 33 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
realise the rent more than the fair rent determined under the Rent Control Act. The Commissioner had not determined what would be the fair rental value of the property under the relevant rent control law of the State and on the basis of his own assumption that there was a steep increase in the rental value of the property, it was not possible for him to exercise the power of revision and direct the ITO to conduct further investigation and to determine the annual rental value of the same. The Commissioner should have some information or material to establish that the rental amount received by the assessee was too low than the fair rent of the properties. In the absence of any material to show that the said property would have fetched a higher rent, it was not possible for the Commissioner to exercise his power of revision. The Tribunal had found that there was no error of fact in the order of assessment. The ITO had completed the assessment after making due enquiry and after grant of certain deductions. The Commissioner had not indicated that there was any error in law in determination of the annual rental value of the property. He had also not indicated anywhere in his order that there was any error of law in determination of the rental value of the properties. In the absence of any material, the Commissioner had exercised his power of revision and set aside the order of the ITO and directed him to make further investigation in the matter and determine the annual rental value of the properties. The ITO, in the instant case, had taken the actual rent received from the two properties and had determined the annual rental value of the properties on the basis of the materials. Unless it was established that the materials relied upon by the ITO were not relevant and some irrelevant materials had been taken into consideration before determining the annual value of the properties, it could not be said that the determination of annual rental value of the properties made by the ITO was erroneous. Therefore, the Commissioner had exercised his power of revision on his own assumption and exercised his power without any material or any evidence on record. As rightly pointed out by the Tribunal the trend was that there was an increase in rental value of the properties in the city it could not be assumed that the ITO had overlooked or missed the upward trend in the valuation of the city properties. The Tribunal had come to the correct conclusion in holding that the determination of annual rental value of the 34 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
properties in respect of two assessment years made by the ITO had not been established to be erroneous in law and it could not be revised under 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 the revenue. The Commissioner's order, however, was set aside in appeal by the Tribunal which held that the reconditioned belt was the result of the process of manufacture, and that the assessee was, therefore, entitled to relief under section 80J.
3. At the instance of the revenue, the questions as to whether the precondition regarding prejudice to the revenue existed when the Commissioner exercised his revisional jurisdiction as also whether the Tribunal was right in taking the view that the reconditioned belt was a result of manufacture is correct, have been referred to us.35 ITA No.3741/ M u m / 2 0 1 6
Maharashtra Airport Development Company Ltd.
4. On the question as to whether the recondition of a conveyor belt can be regarded as the result of a process of manufacture, and as hav- ing brought into existence a new article, the counsel for the reve- nue referred us to the decision of this Court in the case of CIT v. Madurai Pandian Engg. Corpn. Ltd. [1999] 239 ITR 375 , wherein it was held in the context of a claim for investment allowance for a unit which retrea- ded tyres, that a retreaded tyre was not a new article, and that the pro- cess of retreading was not manufacture. It was emphasized by the Court that for claiming relief under section 80J a new article should emerge from the manufacture. The counsel submitted that reconditioning of a conveyor belt, the conveyor belt being made of rubber is qualitatively not different from the retreading of an old tyre and that the law laid down in that case would apply to the facts of this case as well.
5. Attention was also invited to the observations of the Apex Court in the case of Indian Hotels Co. Ltd. v. ITO [2000] 245 ITR 538 wherein the Court observed, inter alia, thus : "...The word 'manufacture' has various shades of meaning but unless defined under the Act it is to be interpreted in the context of the object and the language used in the sections. In the context of the provisions which deal with grant of investment allowance or deduction under section 80J it is apparent that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking. . . ." (p. 544)
6. According to the assessee's claim here, what it does is to recondition the old belts. The article remains a belt before and after such reconditioning. It becomes more useful after reconditioning. The belt, however, does not change its character 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 36 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 that the order of the ITO was prejudicial to the interests of the revenue.
8. We, therefore, answer the two questions referred to us, viz. :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the order of the Commissioner of Income-tax under section 263, holding that the assessee is eligible for deduction under section 80J ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the Income-tax Officer's order cannot be said to be prejudicial to the revenue for the assessment year 1977-78 as there is no tax effect ?"
in favour of the revenue and against the assessee. The revenue will be entitled to costs in the sum of Rs. 1,500."
2.10. So far as, the scope of revision u/s 263 of the Act is concerned, the Hon'ble Bombay High Court has enlightened us in its order dated 15/04/1993 in CIT vs Gabrial India Ltd. (1993) 203 ITR 108 (pages 9 to 15 of the paper book), wherein discussion was made at length and finally decided in favour of the assessee. The relevant portion of the order is reproduced hereunder:-
"7. We have heard learned counsel for the parties and carefully perused the orders of the Income-tax Officer, the Commissioner and the Tribunal. On perusal of the admitted facts, it appears 37 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
that the Income-tax Officer in the instant case had examined the allowability of the claim of the assessee for deduction of the above amount of Rs. 99,326. While doing so, he asked for an explanation from the assessee in regard to the nature thereof. The assessee furnished a detailed explanation, vide his letter dated September 19, 1975. It was on a consideration of the said explanation and on being satisfied that it was a revenue expenditure that the Income-tax Officer allowed the claim for deduction. It is, however, correct that in his order, he did not make any discussion in regard to the query made by him and the explanation submitted by the assessee thereto.
8. According to the commissioner of Income-tax, the order of the Income-tax Officer did not disclose any application of mind. He issued the notice as he felt that the expenditure in question might be a capital expenditure. But despite examining the matter at length and hearing the assessee, he could not come to any conclusion that the expenditure was not revenue expenditure but 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 38 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
assessment, or cancelling the assessment and directing a fresh assessment.
(2) No order shall be made under sub-section (1) -
(a) to revise an order of reassessment made under section 147, or
(b) after the expiry of two years from the date of the order sought to be revised. . . .
9. From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO ).
10. As observed in Sirpur Paper Mills Ltd. v. ITO by Raghuveer J. (as his Lordship then was), the Department cannot be permitted to begin fresh litigation because of new views they 39 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, "except when legal ingenuity is exhausted". To do so, is ". . . to divide one argument into two and to multiply the litigation".
11. The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein 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 acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while 40 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo moto revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo moto revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
13. As observed in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872 (Cat), at page 881, "the words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that 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 41 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Our aforesaid conclusion gets full support from a decision of Sabyasachi Mukharji J. (as his Lordship then was) in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT . In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated it is a quasi judicial power hedged in with limitation and has to be exercised subject 42 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination "to consider" or in other words, to form an opinion that the particular order is erroneous in so tar as it is prejudicial to the interests of the Revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded and controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner.
15. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income- tax Officer in this case had made enquiries in regard to the nature of the expenditure 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 for that reason that the Tribunal did not approve his action and set aside his order. We 43 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
do not find any infirmity in the above conclusion of the Tribunal.
16. In the light of the foregoing discussion, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue."
3. In the celebrated case of Malabar Industrial Company Ltd. vs CIT (243 ITR 83)(SC), it was held that for invoking jurisdiction u/s 263 by the ld. Commissioner, the order should be either erroneous and prejudicial to the interest of Revenue. In that case, the assessment was framed without making an enquiry by the Assessing Officer, in that situation, exercise of revisional jurisdiction by the CIT was held to be justified. However, in the present case, due enquiries was made by the Assessing Officer and the necessary details, filed by the assessee were examined, therefore, this judicial pronouncements supports the case of the assessee. Identical ratio was laid down in CIT vs Max India Ltd. (2007) 295 ITR 282, wherein, the decision of Malabar Industrial Company Ltd. was also considered and the appeal of the Department was dismissed. It is elementary, as was held by Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd Vs CIT [(2000) 243 ITR 83 (SC)], "Every loss of revenue as a consequence of an order 44 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
of Assessing Officer cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law". Learned Principal Commissioner was thus in error in holding that the ld. Assessing Officer did not made enquiries while framing the assessment and rendered the assessment order erroneous and prejudicial to the interest of the revenue, we find no such error, which can lead to the assessment order being subjected to the revision proceedings under section 263.
3.1. The case of the assessee is further fortified by the decision in Siddhi Real Estate Developers vs CIT (ITA No.2630 to 2635/Mum/2012) order dated 13/05/2014, wherein, various decisions like Mudhit Madanlal Gupta vs ACIT (51 DTR 217), DCIT vs Magapatta Township Development and Construction Company (141 ITD
682)(Pune), Rahul Construction Company vs ITO (ITA 45 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 Enterprises vs. Add!. CIT 1975 CTR (Del) 61 :
(1975) 99 ITR 375 (Del) 46 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
e. Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 (1997) 225 ITR 802 (SC) f. Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) 3.3. The Mumbai Bench of the Tribunal in M/s.
Simandhar Association vs Principal CIT (I.T.A. No. 789/Mum/2016) Order dated 21/03/2016 has discussed the scope of revisional jurisdiction u/s 263 of the Act. The relevant portion from the order is reproduced hereunder:-
"The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: "Section 263 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 that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that 47 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :
"The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as 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 passed by causing enquiries, then it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. The consideration of the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded."
3.4. The ratio laid down by the Ahmadabad Bench of the Tribunal in the case of Aditya medisales vs addl. CIT (ITA No.1334/Ahd/2015) order dated 16/02/2016 further 48 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
supports the case of the assessee, wherein, the revisional jurisdiction invoked u/s 263 of the Act was quashed. The relevant portion from the aforesaid order is reproduced hereunder for ready reference:-
" 7. We have noted that as on the time of passing the impugned revision order, the matter regarding disallowance under section 14 A was pending for I . T.A . No. 1334/Ahd/15 Assessment Year : 2010 -1 1 consideration before the CIT(A). The assessee had filed the appeal before the CIT(A) on 22nd March 2013 and even the written submissions were filed on 14th October 2013. Learned CIT(A) was thus in seisin of the question as to whether the disallowance under section 14A was correctly made, and let us not forget that the CIT(A) had all the powers, co terminus with the powers of the Assessing Officer, including the powers of enhancement. As to whether the learned Commissioner could have exercised his revision powers under section 263 at this point of time, we find guidance from Hon'ble Madras High Court's judgment, in the case of CWT Vs Sampathmal Chordia [(2002) 256 ITR 440 (Mad)], which observes, inter alia, as follows:
2. The revisional jurisdiction cannot be exercised in a manner which would result in depriving the appellate authority of the power to examine the correctness of the order under appeal, when an appeal, has, in fact, been filed in respect of those matters and was pending before the appellate authority. The Explanation 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.
49 ITA No.3741/ M u m / 2 0 1 6Maharashtra Airport Development Company Ltd.
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 of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.
xxxxxxxxxxxxxxxxxxxxx
10. In view of the above analysis, as also bearing in mind entirety of the case, we are of the considered view that the learned Commissioner was indeed in error in exercising his revision powers under section 263 on the facts and in the circumstances of this case. As learned CIT(A) was in seisin of the same matter, i.e. disallowance under section 14A, in the appellate proceedings, learned Commissioner could not have invoked his revision powers on the issue before the CIT(A). The view adopted by the learned Assessing Officer was after due examination of the matter and a considered view after taking into account all the relevant factor and even if a different view, on the same set of facts, was possible, the possibility of another view in favour of the assessee did not render the assessment erroneous and prejudicial to the interest of revenue so as to trigger revision under section
263. In any event, even on merits, the stand of the 50 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
Commissioner was incorrect and unsustainable in law. For all these reasons, we are not inclined to uphold the impugned order. Accordingly, the revision order stands quashed."
3.5. So far as, the contention of the Ld. DR that explanation-2 was inserted by the legislature w.e.f.
01/06/2015 is concerned, the ld. counsel for the assessee, invited our attention to the decision of the Mumbai Bench of the Tribunal in the case of Narayan Tatu Rane vs Income Tax Officer (2016) 70 taxman.com 227 (Mum. Trib.), therefore, the relevant portion of the aforesaid order is reproduced hereunder:-
"1. - Both the appeals filed by the assessee are directed against the common order dated 29-03-2016 passed by Ld Pr. CIT-27, Mumbai u/s 263 of the Act and they relate to the assessment years 2007-08 and 2008-
09. The assessee is challenging the validity of the revision orders passed by Ld CIT.
2. The facts relating to the issue are stated in brief. The assessee originally filed returns of income for both the years under consideration u/s 139(1) of the Act. Subsequently information was received from Bangalore office of Income tax that they had carried out search and seizure operations in the case of M/s R.N.S Infrastructure Ltd on 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 51 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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.
'2. . . . On perusal of records, the fo11owing issues were noticed in the aforesaid order u/s 143(3) r.w.s 147 of the Income-tax Act, 1961 dated 31.03.2015 for the A.Y. 2007-08:-
(1) The case was reopened for scrutiny to verify information received from the Investigation Wing during the course of search operations in the case of' M/s. R.N. S. Infrastructure Ltd. on 16/02/2012. During the course of the search operations, certain documents were found and seized, which indicated the payments made to several persons holding public office. As per the information received, Shri Naravan Tatu Rane is one of the recipients, which is reflected as per the notings given below:
Rane - CM 16.11.2006 10,00,000/- NAVEEN 09.03.2007 25,00,000/ KUDAL The notings have been made in a diary seized from the chamber of Shri Suni D. Sahasrabuddhe. Vice-President, Finance. R.N.S. Infrastructure Ltd.
and inventorised as A/RNS IL/ 17 dated 16/02/2012 (page 9). (2) On further scrutiny of the above mentioned sheet, the following points are notable which prove the fact that payments made to "Rane-CM" is to the same person Shri Narayan T. Rane, who is the Ex-Chief Minister of Maharashtra, and who has received the above payments i. An amount of 50 lakhs is shown to have been paid on 10/4/1999 against which birthday is mentioned. The date of birth of Shri Narayan Rane, Ex Chief-Minister of Maharashtra is 10thApril, 1952 which is the same as mentioned above.
ii. An amount of 50 lacs is shown to have been paid in March, 1999 (end of Mar). It is hereby pointed out that Shri Narayan T. Rane became the Chief Minister of Maharashtra in February, 1999. iii. Further, there are following entries on the same page in date-wise sequence:
3rd week September, 1999 50,00,000 Kudal
4th week September, 1999 50,00,000 Kudal
7/4/2003 5,00,000 Panch Elect. Vijaya
52 ITA No.3741/ M u m / 2 0 1 6
Maharashtra Airport Development
Company Ltd.
29/12/07 10,00,000 Election, Kudal
Similarly for the A.Y. 2008-09, similar payments were noticed as mentioned hereunder:
Rane - CM 14.3.2008 50,00,000/- NAVEEN 14.3.2008 17,00,000/- SITE The Assessing Officer did not examine and verify the above issues while completing the assessment u/s 143(3) r.w.s 147 of the Act for both the A.Ys.
and accepted the assessee's explanation that he did not have any transactions with M/s. R. N. S. Infrastructure Ltd. or Shri Sunil D. Sahastrabudhe, Vice 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 that the assessing officer has reopened the assessment of both the years for the specific purpose of assessing the income, if any, noticed in the incriminating documents. The assessee had objected to the reopening, but the AO has overruled the same by giving detailed reasoning. The assessing officer issued notice u/s 142(1) of the Act calling for various details. The assessee replied to all the queries raised by the assessing officer by giving a detailed reply, wherein the assessee had denied the entire transactions noted down in the incriminating documents. It was further submitted that the assessing officer was satisfied with the explanations and replies given by the assessee and accordingly he did not make any addition. The assessee further contended that the assessing officer has applied his mind on the incriminating documents, correctly appreciated the facts and has come to reasoned conclusion that no addition is required to be made to the income of the assessee. It was also submitted that the revision proceedings have been initiated for examining the very same issue on which the assessments were reopened. Accordingly it was contended that the revision proceedings initiated u/s 263 of the 53 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
Act is not valid in law. The assessee relied upon following case law in support of his contentions:--
(i) CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.)
(ii) CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi)
(iii) CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi)
(iv) CIT v. Arvind Jeweller [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.)
5. The Ld Pr. CIT was not convinced with the contentions of the assessee and accordingly held that the assessment order is erroneous and prejudicial to the interests of revenue. Accordingly he set aside the assessment orders of both the years under consideration and directed the AO to redo the assessment de novo. The Ld Pr. CIT also observed that the AO may pass the assessment order within six months under the guidance and after obtaining prior approval of the Jt. Commissioner of Income tax. For the sake of convenience, we extract below the operative portion of the revision order passed by Ld Pr. CIT.
"7. I have considered the facts of the case, the assessment records, show cause notice issued and appellant's submission and the case laws relied upon by the assessee. 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-lay- out 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 re- examine 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 before the Commissioner to vary that opinion and ask for fresh inquiry. In the case of the assessee, on the other hand, on examination of records as they exist now, it is evident that the Assessing Officer did not appreciate the full facts of the case and vital evidences being the date of birth, the date of assumption of the public office and the constitutency etc. which all linked the transactions in the seized document with the assessee 54 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
and thereby passed an order which is now held to be erroneous and prejudicial to the interests of the revenue. Hence, the decision is not applicable to the facts of the case of the assessee. In CIT v. Vikas Polymers [2012] 341 ITR 537, Hon'ble Delhi High Court held that the order of the Assessing Officer might be erroneous but how it was prejudicial to the interest of revenue had not been stated by the Commissioner as he did not deal with the explanation given by the assessee in the course of the proceedings under section 263. This decision also being distinguishable, is not applicable to the facts of the case of the assessee. Thus, all the decisions relied upon by the Ld A.R being distinguishable on facts are not applicable to the facts of the case of the assessee.
8. The objection of the assessee that the order is no erroneous for the purpose of section 263 of the Act is also not borne out from the facts of the case. The relevant facts of these cases relied upon are not similar to the facts of the case of the assessee as the Assessing Officer has not examined and verified the information with reference to the assessee. Secondly, the assessee has maintained silence on the issue in para no.3(2) of the show cause notice wherein it was mentioned that the payments were made to "Rane CM" who is the same person as Shri Narayan T Rane, the Ex-Chief Minister of Maharashtra. Kudal is the assembly constituency of Shri Narayan Rane which is also mentioned in the first two entries. The last entry indicates that the amount was paid to Shri Narayan Rane for the election expenses. Further, it is also observed that no notices u/s 133(6) were issued to M/s R.N.S Infrastructure Pvt Ltd and neither was any opportunity given to the assessee to cross examine the said person Shri Sunil Sahasrabudhe (VP - Finance) on the basis of whose statement the case was reopened. Merely on the basis of the assessee's submissions and arguments, the 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 55 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 strongly denied the transactions noted down in the document. The Ld A.R submitted that the assessing officer was satisfied with the explanations given by the assessee and hence did not make any addition. He submitted that the assessing officer has taken a possible view after due application of mind and hence the Ld Pr. CIT was not justified in holding that the assessment orders were erroneous, since the assessing officer did not make enquiries in the way the Ld CIT thought that it should have been done. He submitted that the Ld CIT has initiated the revision proceedings in respect of the very same issue, since he was of the view that the assessing officer should have conducted the enquiries in a particular manner and the enquiries made by the AO were not sufficient. Thus, the Ld CIT has initiated revision proceedings in order to carry out fishing and roving enquiries in the matters which have already been concluded, which is not permissible u/s 263 of the Act as held in the case of Gabriel India Ltd. (supra). He further submitted the Ld CIT is not entitled to initiate revision proceedings on the ground that the enquiry was not conducted in the manner thought by him. In this regard, he placed reliance on the decision rendered by the Hon'ble jurisdictional Bombay High Court in the case of CIT v. Development Credit Bank Ltd. [2010] 323 ITR 206/[2011] 196 Taxman 329. He further submitted that the provisions of sec. 263 do not visualise a case of substitution of the judgement of the Commissioner for that of the Income tax Officer who passed the order unless the decision is held to be erroneous, as held by Hon'ble Delhi High Court in the case of Sunbeam Auto Ltd. (supra).
8. He further contended that the assessment order cannot be considered to be prejudicial to the interests of the revenue, if the assessing officer has taken one of the possible views. He further submitted that the Ld Pr. CIT has not shown as to how the entries made in the incriminating document could translate into income in the hands of the assessee. He further submitted that the impugned incriminating document was a dumb document and even the official of M/s R.N.S. Infrastructure also did not implicate the assessee, when specific questions were put to him about the impugned incrimating document. Accordingly he submitted that the assessment order cannot be considered to be prejudicial to 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 56 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another......"
10. On the contrary, the Ld D.R submitted the assessing officer has simply extracted the explanations furnished by the assessee in the assessment order and he did not give his conclusion on the submissions made by the assessee. Accordingly he contended that the assessing officer has not taken any view at all and hence there is no justification in contending that the assessing officer has taken a possible view. He submitted that the incriminating document contained sufficient entries to indicate that the payment was made to the assessee only. He submitted that a part of sum was given to the assessee on his birth day and further, a reference is there as "Rane C M", which is nothing but "Rane Chief Minister". He submitted that the assessee has not rebutted this inference before the assessing officer. He further submitted that there is a reference to a place called "Kudal" and the said place happened to be the assembly constituency from where the assessee had won elections. He submitted that the assessing officer did not make enquires about these facts, which create link between the assessee and the incriminating document. He submitted that all these factual aspects clearly point out that the entries made in the impugned incriminating document are factually correct. Further he did not make any enquiries with M/s R.N.S Infrastructure, from whom the document was seized. He further submitted that the assessing officer should have made necessary enquires and should have provided opportunity to the assessee to cross examine them. Accordingly he submitted that the assessing officer has completed the assessment upon incorrect presumption of facts and without making proper enquiries and without taking a view. The Ld D.R placed reliance on the 57 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
decision rendered by Hon'ble Madras High Court in the case of CIT v. Amalgamations Ltd. [1999] 238 ITR 963 to contend that the incorrect assumption of facts renders the assessment order as erroneous. He further relied upon the 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 with regard to the impugned incriminating document, since the AO has reopened the assessment to examine the same only. He submitted that the alleged incriminating document was a dumb document and even the person from whom it was seized, did not implicate the assessee at all in the statement taken from him u/s 132(4) of the Act. He submitted that the assessing officer has accepted the explanations of the assessee by considering all these factual details and hence he did not make any addition. He further submitted that the assessment orders of the two years under consideration have been passed by two different assessing officers and both have taken the view that no addition was called for on the basis of the impugned incriminating document. The Ld A.R further submitted that the assessing officer has carried out necessary enquiries with regard to the impugned incriminating documents and was satisfied with the explanations given by the assessee. He submitted that, even though the Ld Pr. CIT was not satisfied with the scope of enquiry conducted by the AO, yet the Ld CIT himself has not conducted any enquiry to prove that the entries made in the document could be linked to the assessee, particularly in view of the fact that the official of M/s RNS infrastructure did not implicate the assessee in the statement taken with regard to the impugned document. He further submitted that the Ld CIT did not show as to how the entries made in the document could be considered as income in the hands of the assessee, even if it is taken for a moment that the entries made in the document did relate to the assessee. Accordingly the Ld A.R submitted that the Ld CIT has not brought on record any corroborative material to show that the said document 58 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
relates to the assessee and further there is any income element therein causing prejudicial to the interests of the revenue. Accordingly he submitted that the Ld CIT could not have taken support from the Explanation 2 inserted by Finance Act, 2015 prospectively. He submitted that the Ld Pr. CIT has thrust upon the assessing officer his views through this revision orders and hence the same are not sustainable.
12. We have heard rival contentions and perused the record. Before going into the merits of the issue, we would like to discuss about the legal position with regard to the power of Learned CIT to invoke revision proceedings under section 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 that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :
"The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as 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 59 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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.'
13. In the instant case, the assessing officer has reopened the assessment only to assess the income, if any, that has escaped the assessment for the years under consideration. The assessments have been reopened only on the basis of the impugned incriminating document found at the premises of M/s RNS infrastructure. We also notice that the search team has recorded a statement from VP - Finance of M/s RNS Infrastructure Ltd u/s 132(4) of the Act on 16.12.2012 and he was confronted with the impugned incriminating document. In the reply given by the VP - Finance, he has stated that the entries were made by him on the basis of information given to him over phone from its Kudal Maharashtra branch. With 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 in both the years.
15. However, the Ld Pr. CIT has taken the view that the assessing officer has completed the assessments without making proper enquiries with regard to the incriminating documents. According to Ld Pr. CIT, the AO should have made further enquiries in this matter. Accordingly he has passed the impugned revision order.
60 ITA No.3741/ M u m / 2 0 1 6Maharashtra Airport Development Company Ltd.
16. We have noticed earlier that the Ld Pr. CIT can revised the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as "erroneous" was explained by Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) as under:--
"From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. . . . There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation 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 61 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi), the Hon'ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/225 Taxman 133/44 taxmann.com 138 as under:--
"Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unstainable in law. In some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question...."
Similar view has been expressed by Hon'ble Madras High Court in the case of Amalgamations Ltd. (supra).
19. The law interpreted by the High 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 62 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
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 establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the 63 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.
21. In the instant case, as noticed earlier, 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 the facts and circumstances of the case. Even though the Ld Pr. CIT has drawn certain adverse inferences from the document, yet it can seen that they are debatable in nature. Further, as noticed earlier, the Ld Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the Ld Pr. CIT has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the AO. Hence we are of the view that the Ld Pr. CIT was not justified was not correct in law in holding that the impugned assessment orders were erroneous.
22. We have also seen that, in order to invoke the provisions of revisional proceedings, it is required to be shown that the assessment order was not only erroneous, but also prejudicial to the interests of the revenue. At the time of hearing, it was pointed out to Ld D.R that there are references to various names such as Mumbai Naveen, Ravi Mumbai, Vijaya Mum, Sanjeev Shetty etc. Further the entries are dated from March 99 to February, 2012. Under these set of facts, a specific question was asked to Ld D.R as to how these entries can translate into income in the hands of the assessee, since the same lists out payments made to various persons on various dates. Unless it is established that these payments can be taken as income in the hands of the assessee, they cannot be assessed in his hands. In that case, it cannot be said that these entries would cause any prejudice to the interests of the revenue, if they are not assessable in the hands of the assessee. The 64 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
Ld D.R replied that these aspects require examination at the end of the assessing officer. The said stand taken by the department clearly shows that they are also not sure as to whether these entries could be considered as income in the hands of the assessee. Further, we notice that the Ld Pr. CIT has not brought on record any material to show that these amounts were paid to the assessee or on his behalf. Even if it is considered for a moment that the assessee could be linked with it, without showing that the entries noted down in the impugned document results in income in the hands of the assessee, in our considered view, it cannot be said that the assessment orders 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 considered the following cases:-
i. CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (para 4), ii. CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (para 4), iii. CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi) (para 4), iv. CIT v. Arvind Jeweller [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.) (para 4), 65 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
v. CIT v. Development Credit Bank Ltd. [2010] 323 ITR 206/[2011] 196 Taxman 329 (Bom.) (para7), vi. Malabar Industrial Co. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) (para 8), vii. CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC) (para 8), viii. Central Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410 (para 9), ix. CIT v. Amalgamations Ltd. [1999] 238 ITR 963 (Mad.) (para 10), x. CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.) (para 10), xi. Grasim Industries Ltd. v. CIT [2010] 321 ITR 92/188 Taxman 327 (Bom.) (para 12), xii. CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi) (para 18), xiii. CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/225 Taxman 133/44 taxmann.com 138 (Delhi) (para 18) and xiv. Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) (para 19).
3.7. On consideration of the aforesaid cases, the Co-
ordinate Bench held as under:-
■ The assessments have been reopened only on the basis of the impugned incriminating document found at the premises of a concern named RNS. The search team has recorded a statement from VP - Finance and he was confronted with the impugned incriminating document. In the reply given by the VP he has stated that the entries were made by him on the basis of information given to him over phone from the Maharashtra branch. With regard to the entry made as 'Rane- CM' also, he simply stated that the information was received from the branch. Thus, in none of the answers given, the VP 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 66 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
consideration. [Para 13] ■ Commissioner, 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 Commissioner should 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 Assessing Officer. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to section 263, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. [Para 19] ■ Further, clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. This provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by the Commissioner cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the Assessing Officer vis- à-vis its reasonableness in the facts and circumstances of the case. Hence, what is relevant for clause (a) of Explanation 2 to section 263 is whether the Assessing Officer has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not.67 ITA No.3741/ M u m / 2 0 1 6
Maharashtra Airport Development Company Ltd.
It does not authorise or give unfettered powers to the Commissioner to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. It is the responsibility of the Commissioner to show that the enquiries or verification conducted by the Assessing Officer was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. [Para 20] ■ In the instant case, the Assessing Officer has accepted the explanations of the assessee, since there is no fool proof evidence to link the assessee with the document and RNS 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 sets of facts, the Assessing Officer appears to have been satisfied with the explanations given by the assessee and did not make any addition. [Para 21] ■ 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 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 the interests of the 68 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
revenue. At the time of hearing, it was pointed out to department that there are references to various names. Further the entries are dated from March 99 to February, 2012. Under these set of facts, a specific question was asked to department as to how these entries can translate into income in the hands of the assessee, since the same lists out payments made to various persons on various dates. Unless it is established that these payments can be taken as income in the hands of the assessee, they cannot be assessed in his hands. In that case, it cannot be said that these entries would cause any prejudice to the interests of the revenue, if they are not assessable in the hands of the assessee. The department replied that these aspects require examination at the end of the Assessing Officer. The said stand taken by the department clearly shows that they are also not sure as to whether these entries could be considered as income in the hands of the assessee. Further, the Commissioner has not brought on record any material to show that these amounts were paid to the assessee or on his behalf. Even if it is considered for a moment that the assessee could be linked with it, without showing that the entries noted down in the impugned document results in income in the hands of the assessee, it cannot be said that the assessment orders passed by the Assessing Officer could be taken as prejudicial to the interests of the revenue. Accordingly the revision orders passed by Commissioner falls on this ground also. [Para 22] ■ In view of the foregoing discussions, Commissioner 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 under section 263. In the instant case, Commissioner has failed to show that both the conditions exist in the instant case. Accordingly, there is merit in the contentions of the assessee that the revision orders passed by Commissioner for the years under consideration are beyond the scope of section 263 and hence not valid. Accordingly the revision orders passed by Commissioner for the two years under consideration are set aside. [Para 23] 69 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
3.8. Now, we shall analyze, 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, 70 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
during scrutiny proceedings were verified and found that the assessee reduced as sum of Rs.7,03,84,590/- from WIP and the sources of income etc. The Ld. Assessing Officer has also made discussion with respect to various interest income amounting to Rs.24,13,80,546/-, which were transferred to WIP and the assessee was asked to provide justification as to why the same should not be considered as income. The assessee was also asked to provide the working of 80IA of the Act and revised working of deduction under section 80IA considering the eligibility of interest income and deduction. Subsequently, the assessee was show cause as to why the income from other sources of Rs.2,04,90,596/- of SEZ unit should not be disallowed for working of profit of SEZ unit and taxed separately. In compliance, the Ld. Assessing Officer duly considered the reply of the assessee dated 27/01/2014 and the submission made therein. The Ld. Assessing Officer also considered the decision in the case of CIT vs Panian Chemicals Ltd. (262 ITR 278) (Supreme Court) with respect to the word 'derived from' Short term deposits made out of the funds available for the business of the assessee and 71 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
also from the advances given also the eligibility of claimed deduction under section 80IAB of the Act. Discussion has also been made about rent from building and lease premium of land located at SEZ and held that it was income from other sources, not eligible for deduction under section 80IAB of the Act. It was held that the amount of Rs.3,18,52,281/-, being interest on fixed deposits and Rs.3,85,32,309/-, being interest from contractor (total Rs.7,03,84,590/-) and income from other sources of SEZ unit of Rs.2,04,90,596/- was held to be taxed separately as income from other sources. Discussion has also been made with respect to disallowance under section 14A r.w. Rule-
8D of the Rules and thereafter calculation has been made.
Totality of facts, clearly indicates that the assessment was framed after examination/verification of facts and on application of mind, therefore, the contention of the Revenue that due verification was not made is not substantiated from facts.
3.9. To sum up the issue, admittedly, an incorrect assumption of fact or an incorrect application of law would satisfy the requirement of order being erroneous u/s. 263 72 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
of the Act. The phrase "prejudicial to the interest of the Revenue" u/s. 263 of the Act, has to be read in conjunction 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 73 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
that there is a "lack of enquiry" or prejudice has been caused to the Revenue, as we have discussed various case laws in earlier part of this order which are identical to the facts before us. It is also noted that while invoking the revisional jurisdiction, the ld. Principal Commissioner has kept in mind other factors/other buildings without taking into account the decision like Vandana Properties (supra) from Hon'ble jurisdictional High Court and even no exact error was pointed out in the assessment order, which can be said to be justified. Even if, there is any calculation mistake as has been pointed by the Ld. CIT-DR, it can be rectified under section 154 of the Act and such mistake cannot be a justification for invoking revisional jurisdiction under section 263 of the Act. So far as, the objections raised by the Ld. Pr. CIT, while invoking the revisional jurisdiction under section 263 of the Act are concerned, the ld. counsel for the assessee has duly explained the same before us and we are satisfied with the explanation of the assessee and even at a later date on the issues under hand, the Ld. Commissioner of Income Tax (Appeal) has already decided in favour of the assessee, therefore, even otherwise, 74 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
the claim of the assessee is further fortified by the same. So far as, the cases relied upon by the Ld. CIT-DR is concerned, these cases were decided on the facts of the respective case/appeal, therefore, mechanically cannot be applied to the facts of the present appeal, consequently, may not help the Revenue. Another argument advanced by Ld. CIT-DR was that explanation-2 to section 263 of the Act was not considered, it was replied by the ld. counsel for the assessee that no such explanation was invoked and the same cannot be applied now for which a case has already been discussed in earlier paras of this order. In view of these facts and the judicial pronouncements from Hon'ble Apex Court, various Hon'ble High Courts and various Benches of the Tribunal, we set aside the order of the ld.
Principal Commissioner invoking of revisional jurisdiction u/s 263 of the Act, being not within the parameters of the law, as the assessment was framed by the Assessing Officer after considering necessary details filed by the assessee and on examination of the same. It is not the case that the assessment was framed in a hasty manner or without considering the factual matrix/necessary details. The 75 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
jurisdiction u/s 263 of the Act could not be assumed merely stating that adequate enquiry was not made by the Assessing Officer. The decision from Delhi High Court in CIT vs Sunbeam Auto Ltd (supra) and the decision of the Tribunal in Vegesina Kamala vs ITO (2016) 66 taxman.com 280 (Vishakhapatnam) supports the case of the assessee, therefore, considering the totality of facts and the judicial pronouncement, the revisional order is quashed, the appeal of the assessee is allowed.
Finally, the appeal of the assessee is allowed.
This order was pronounced in the open court in the presence of the ld. representative from both sides at the conclusion of the hearing on 18/07/2018.
Sd/- Sd/-
(Rajesh Kumar) (Joginder Singh)
लेखा सद#य / ACCOUNTANT MEMBER या$यक सद#य /JUDICIAL MEMBER
मब
ुं ई Mumbai; (दनांक Dated : 18/07/2018
f{x~{tÜ? P.S //. न.स.
आदे श क %$त'ल(प अ)े(षत/Copy of the Order forwarded to :
1. अपीलाथ- / The Appellant (Respective assessee)
2. ./यथ- / The Respondent.
3. आयकर आय1 ु त(अपील) / The CIT, Mumbai.
4. आयकर आय1 ु त / CIT(A)- , Mumbai, 76 ITA No.3741/ M u m / 2 0 1 6 Maharashtra Airport Development Company Ltd.
5. 3वभागीय . त न ध, आयकर अपील'य अ धकरण, मब ुं ई / DR, ITAT, Mumbai
6. गाड! फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मब ुं ई / ITAT, Mumbai