Kerala High Court
Paul Mathews & Sons vs Commissioner Of Income Tax on 17 February, 2003
Equivalent citations: (2003)181CTR(KER)207, [2003]263ITR101(KER)
Author: P.R. Raman
Bench: G. Sivarajan, P.R. Raman
ORDERDeclaration made during survey not accepted by assessing officer in mechanical way--Evidentiary value of statement made during survey Catch Note: Assessee made certain disclosure during course of survey--Assessing officer while completing assessment did not mechanically accept disclosure made during course of survey but also considered other aspects of the matter--On the basis of admission made during survey by managing partner, assessing officer made addition of unexplained advances--As statement made during course of survey has no evidentiary value assessing officer completed assessment which was revised by commissioner holding same as erroneous and prejudicial to revenue--The Tribunal upheld order passed under section 263--Was not justified--Material collected during course of survey had been borne in mind by assessing officer, who was well aware of evidentiary value of statement, and after considering materials available on record, assessment was completed by assessing officer which could not be said to be erroneous or prejudicial to revenue--Order passed under section 263, therefore, set aside. Ratio: Material collected during course of survey had been borne in mind by assessing officer, who was well aware of evidentiary value of statement, and after considering materials available on record, assessment was completed by assessing officer which could not be said to be erroneous or prejudicial to revenue--Order passed under section 263 was, therefore, set aside. Held: Whatever statement recorded under section 133A of the Income Tax Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn in statement which alone has the evidentiary value as contemplated under law. Therefore, there is much force in the argument of the appellant that the statement, elicited during the survey operation has no evidentiary value and the Income Tax Officer was well aware of this. The Income Tax Officer has referred to the fact that consequent upon the survey, the assessee has filed a revised return offering 8 per cent of the contract receipt as net profit before allowing deduction of salary payment made to partners at Rs. 1,60,050. It can thus be seen that the Income Tax Officer has not accepted the income declared by the assessee in a mechanical way, but applied his mind to the various aspects of the matter before completing the assessment. The Income Tax Officer also found that during the course of hearing, certain details filed showed that the assessee had received an advance of Rs. 19 lakhs and the advance received from P of Rs. 10 lakhs has been explained. Regarding the advance of Rs. 9 lakhs received from M.D. E only three lakhs is found to be genuine. Hence, the balance of Rs. 6 lakhs is to be explained which is telescoped in the income already disclosed at Rs. 8,26,550. It was in such circumstances that no separate addition was made to the account. It was also found by the Income Tax Officer that accordingly on discussion, the total income of the assessee for the assessment year 1998-99 is determined at Rs, 8,26,550. Thus, the Income Tax Officer considered the factual aspects of the matter regarding the advance claimed to have been received from P and M.D. E and the balance of Rs. 6 lakhs out of the 19 lakhs was also telescoped in the income already disclosed. In the statement in the course of survey, the managing partner only stated that an amount of Rs. 19 lakhs was introduced towards advance for sale of land to MD confirmed only six lakhs. It was on this basis that the balance of Rs. 13 lakhs was offered for the assessment year 1998-99. That was confirmed by MD as Rs. 6 lakhs was found to be a mistake and the assessment orders in their case were also produced. The Income Tax Officer also verified the above aspects. Therefore, the assumption that what was offered in the statement of 43 lakhs is in addition to what has been assessed and on the basis that the statement has got evidentiary value is erroneous. The materials collected during the course of survey has been borne in mind by the assessing officer who was well aware of the evidentiary value of the statement. At the same time, such survey conducted unearthed certain income and the Income Tax Officer rightly, on the basis of the accounts and offer made and the admissions made before him, came to the conclusion that what was offered in the written offer made by the assessee is reasonable. The alleged admission contained in the answer to question No. 13 in the statement of the managing partner of the assessee obtained under section 133 A is only a qualified one and the assessee had clearly explained the same before the assessing officer by cogent materials and the same was accepted by the said officer. In such circumstances, the question as to whether the Commissioner could have invoked his power under section 263 of the Act to hold that the order of the Income Tax Officer is erroneous and prejudicial to the interest of the revenue is justifiable in law arises for consideration. On a reading of the Income Tax Officer's order that the view taken by the Income Tax Officer cannot be said to be unsustainable in law so as to call it an order passed erroneously. Further, in the light of the voluntary disclosure in the letter given in writing by the assessee the facts given by him have been verified with the books of account and it was only after consideration of the various aspects of the matter and related facts that the assessing officer accepted the offer made by the assessee. In such circumstances, the view taken by the Income Tax Officer cannot be said to be prejudicial to the revenue nor can it be said to be erroneous. There is nothing in the order of the Income Tax Officer to warrant a finding that it is unsustainable in law. For the above reasons, the Commissioner was not justified in law in invoking the powers under section 263 of the Income Tax Act as the twin conditions precedent to exercise the power have not been satisfied in this case. Besides the decision is also erroneous. Case Law Analysis: Malabar Industrial Co. Ltd. v. CIT (2000) 14 DTC 146 (SC) : (2001) 243 ITR 83 (SC) and Smt. Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC) relied on. Application: Also to current assessment year. Decision: In favour of assessee. Income Tax Act 1961 s.263 JUDGMENT P.R. Raman, J.
1. These three income-tax appeals relate to the asst. yrs. 1998-99, 1999-2000 and 2000-2001.
2. The assessee is a contractor. The assessment was completed under Section 143(3) of the IT Act for the asst. yr. 1998-99 on 7th Feb.. 2001 fixing the income at Rs. 10,08,090. For the asst. yr. 1999-2000 the assessment was completed on 8th Parch, 2001, fixing the income at Rs. 13,81,760, and for the asst. yr. 2000-2001 the assessment was completed on 8th March, 2001, fixing the income at Rs. 13,18,660. There was a survey operation under Section 133A of the IT Act on 23rd Jan., 2001, and a statement was also recorded from the managing partner Roy Mathew. It was admitted that there was some irregularities and discrepancies in the books of accounts, in that there was excess payment of cash over what is available as per cash book and also unaccounted investment in properties and suppression of receipt and inflation of expenses. In the course of such statement given by the managing partner he offered an amount of Rs. 43 lakhs as additional income for the three years i.e., for 1998-99 at Rs. 13 lakhs, for 1999-2000 at Rs. 10 lakhs and for 2000-2001 at Rs. 20 lakhs. The AO determined the business income for the asst. yr. 1998-99 at Rs. 8,26,550, taking the net profit at 8 per cent of the total receipt of Rs. 1,22,92,150. For the asst. yr. 1999-00 the business income was determined at Rs. 7,72,960, taking the net profit at 8 per cent of the total receipts of Rs. 1,14,41,748, and for the asst. yr. 2000-01 at Rs. 8,18,255, at the same rate of net profit from the total receipt of Rs. 1,22,46,673. But according to the CIT this was erroneous and prejudicial to the interest of Revenue. He also noted certain receipts other than transport receipts such as discount, interest, compensation, etc., shown by the assessee in the P&L a/c and considered by it for the computation had however, not been considered by the AO. Hence, he issued notice under Section 263 of the IT Act on 12th Dec., 2001, requiring the assessee to explain why the assessment orders should not be modified suitably. The assessee submitted that during the survey under Section 133A the managing partner stated that their income for the three years is around Rs. 43 lakhs and the total income fixed as per the assessment proceedings for the above three years also comes to Rs. 43,42,881. It was also contended that for the asst. yr. 1998-1999 an advance of Rs. 19 lakhs was received by the partners. The AO accepted the explanation for Rs. 13 lakhs and the balance Rs. 6 lakhs was allowed to be telescoped. In addition, the assessee had estimated an income of Rs. 12 lakhs before payment of salary to the partners for the asst. yr. 2000-2001 and remitted the advance tax also. It was submitted that the assessee had co-operated with the Department in the survey proceedings and for completion of assessment proceedings, there was no difference between the income offered for assessment and income finally assessed.
3. However, the CIT rejected the above contention as according to him, these are factually incorrect. According to him, the income declared at the time of survey amounting to Rs. 43 lakhs was in addition to the income already assessed for the three years under consideration. According to the CIT, this was offered as additional income on investment and expenditure and credits which were not reflected in the books of account and was out of the business activity of the assessee. According to him, it cannot be clubbed with the capital gain which is not out of business activity of the assessee. Hence, excluding the capital gains for the three years the income assessed under the head "business or profession" came to Rs. 24,17,774, only as against the disclosed income of Rs. 43 lakhs. Hence, according to the CIT, the additional income disclosed for each year should have been taken into account separately while making the assessment. Hence, he set aside the assessment and directed the AO to reframe the assessment afresh taking into consideration the omissions/mistakes pointed out. The assessee, aggrieved thereby, appealed to the Tribunal.
4. The assessee contended before the Tribunal, that there is no error in law in the order of the AO and, therefore, the action of the CIT amounts to illegal exercise of jurisdiction vested in him under Section 263 of the Act and that the AO has correctly exercised the judicial discretion vested in him while estimating the income of the appellant and hence interference with such judicial exercise of powers of the AO under Section 263 of the Act amounted to unlawful exercise of the jurisdiction conferred on the CIT, as the order of the AO is neither erroneous nor prejudicial to the Revenue. The conditions, therefore, for invoking Section 263, according to the assessee, is not satisfied in the case and accordingly, the order in revision of the CIT has to be held not sustainable in law.
5. The Tribunal pointed out that the CIT has entirely relied on the depositions made during the course, of survey under Section 133A on 23rd Jan., 2001, and virtually brushed aside everything which the AO considered subsequent thereto in the course of the assessment proceedings. The declaration with regard to the sum of Rs. 13 lakhs made in the Section 133A statement was on mistaken understanding of facts and the real fact stood proved much before the survey as the Department had already held the payment of Rs. 19 lakhs as genuine in the hands of the creditor (M.O. Devassy alias Pappu).
6. The Tribunal after consideration of the submissions on both sides however held that the order of the CIT is in the right direction and has to be upheld. According to the Tribunal, the submission reproduced in the statement of the assessee showed that what the assessee offered was in addition to the returned income. Even otherwise, according to the Tribunal, the CIT was right in holding that the AO has taken capital gains to reach the assessed figures. It was also held that the AO did not go into the implication of the answer to question No. 13. According to the Tribunal, the failure of the AO to make proper enquiry itself gives jurisdiction to the CIT to invoke the provisions of Section 263. Accordingly, the appeals were dismissed.
7. Challenging the said order passed by the Tribunal, confirming the view of the CIT, the assessee has filed the above appeals inter alia, contending that the CIT has no jurisdiction under Section 263 of the IT Act in the facts and circumstances as according to the assessee, the twin conditions required for invoking the said provision has not been satisfied in this case. It is also contended that the ITO has applied his mind and that only after discussions with the assessee and his representatives and after satisfying that what is offered is reasonable income that the AO accepted the offer made by the assessee while making the additions and completing the assessments. It is also contended that the ITO has no jurisdiction to take any sworn statement in the course of the survey under Section 133A of the IT Act and as such any statement so taken has no evidentiary value and is non est and is not binding on the appellant.
8. According to the learned counsel P.G.K. Warriyar, appearing on behalf of the appellant, even the Board cannot issue specific directions to dispose of a case in a particular manner even under Section 119 of the IT Act whereas in the present case, the CIT while invoking Section 263 of the IT Act on completion of the income-tax assessment has exceeded his jurisdiction virtually directing the AO to reframe the assessment in a particular manner. He also drew a distinction between the provisions for search under Section 132(4) of the IT Act and survey under Section 133A of the said Act. According to him, under Section 133A of the IT Act, there is no provision to administer oath or to take any sworn in statement. He also contended that a mere admission or an acquiescence cannot be a foundation for an assessment and that any statement given during a survey has no effect as an 'admission' nor can it be a statement on oath. According to him, the assessee's statement during the survey with reference to any books of accounts can hardly be the basis for any assessment. According to him, after the perusal of the accounts, the assessee himself has volunteered to make a disclosure as per Annexure-D, letter dt. 6th Feb., 2001, addressed to the Addl. CIT and the ITO was perfectly justified in considering the disclosure so made. According to him, the entire account books were seized and were before the ITO and it was after several discussions held with the ITO that the assessments were finally completed. The exercise of the judicial discretion made by the ITO is, therefore, not liable to be interfered with under Section 263 of the IT Act by the CIT. He thus, justified the order of assessment and contended that the order passed by the CIT and the Tribunal confirming the same are unsustainable in law.
9. On the other hand, the learned senior counsel P.K. Raveendranatha Menon, appearing for the Revenue, supported the order of the Tribunal and justified the interference made by the CIT. According to him, the CIT was justified in interfering under Section 263 of the IT Act, insofar as the order passed by the ITO is erroneous in law, adversely affecting the interest of the Revenue and thus satisfied the twin conditions under Section 263. He also contended that the statement made during the course of the survey are voluntarily made and any information so gathered have, therefore, evidentiary value and nothing prevents the IT Department in relying on those statements. He also contended that at any rate, the CIT only directed the ITO to reframe the assessment order afresh after taking into consideration the omissions/mistakes pointed out in the order of the CIT.
10. In this case, what is relied on by the CIT to hold that the order of the ITO is erroneous and prejudicial to the Revenue is an alleged admission in a statement obtained from the managing partner of the assessee-firm during the course of survey by the ITO under Section 133A of the IT Act. Section 133A of the IT Act, deals with the power of survey which reads as follows :
"133A Power of Survey--(1) Notwithstanding anything contained in any other provision of this Act, an, IT authority may enter :
(a) any place within the limits of the area assigned to him, or
(b) any place occupied by any person in respect of whom he exercises jurisdiction, or
(c) any place in respect of which he is authorised for the purposes of this section by such IT authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession--
(i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place
(ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and
(iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act."
11. The provision also enables the IT authority to impound and retain in his custody for such period as he thinks of any books of account or other documents inspected by him, provided the authority records his reasons for doing so and also shall not retain the books of account for a period not exceeding 15 days. Section 133A(3)(iii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Section 133A however, enables the IT authority only to record any statement of any person which may be useful, but does not authorize for taking any sworn in statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under Section 132(4) of the IT Act in the course of any search or seizure. Thus, the IT Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas Section 133A does not empower any ITO to examine any person on oath. Thus, in contra-distinction to the power under Section 133A, Section 132(4) of the IT Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement recorded under Section 133A of the IT Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn in statement which alone has the evidentiary value as contemplated under law. Therefore, there is much force in the argument of the learned counsel for the appellant that the statement, elicited during the survey operation has no evidentiary value and the ITO was well aware of this.
12. At the same time, the assessee having found that there are some omissions on his part, offered certain amounts as additional income for the years in question and gave a written offer to the Addl. CIT as evidenced by Annexure-D. It was after verifying the account books and various materials gathered in the survey and after considering the offer made by the assessee that the ITO has exercised a judicial discretion in the matter while completing the assessment. According to the learned counsel for the assessee Section 263 of the IT Act enables the CIT to call for and examine the records only when he considers that any order passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. According to him, the order passed by the AO is not erroneous nor prejudicial to the interest of the Revenue and the twin conditions for invoking the power under Section 263 is not satisfied.
13. We have perused the statement made by the managing partner of the assessee during the course of the survey. According to the CIT, the assessee has stated during the course of survey to question No. 13 that there were unaccounted investments in properties and suppression of receipts and inflation of expenses and has offered an additional income of Rs. 43 lakhs (Rs. 13 lakhs for the asst. yr. 1998-99. Rs. 10 lakhs for the year 1999-2000 and Rs. 20 lakhs for 2000-2001). While completing the assessment, the AO did not take this aspect into consideration and determined the business income at Rs. 8,26,550 for the asst. yr. 1998-99, taking the net profit at 8 per cent of the total receipt of Rs. 1,22,92,150, at Rs. 7,72,960 taking the net profit at 8 per. cent of the total receipts of Rs. 1,14,41,748 for the asst. yr. 1999-2000 and for the asst. yr. 2000-2001 at Rs. 8,18,255 at the same rate of net profit from the total receipt of Rs. 1,22,46,673. According to him, this is a mistake or omission in the assessment order and hence he has considered this order to be erroneous insofar it is prejudicial to the interest of the Revenue. The assessee specifically raised a contention before the CIT that the managing partner, during the survey under Section 133A, has stated that their income for the three years i.e., 1998-99, 1999-2000 and 2000-2001 is around Rs. 43 lakhs and as per the assessment proceedings for the above three years also, the total income determined is 43,42,881 as worked out below :
Rs.
Asst. yr. 1998-99 Net profit before salary to partners 9,83,870 Capital gain 1,81,536 11,64,906 Asst. yr. 1999-2000 Net income before salary to partners 9,15,430 Add Interest on capital debited in the account 1,73,615 Capital gain 6,08,800 16,97,845 Asst yr. 2000-01 Net income before salary to partners 9,79,730 Capital gain 5,00,400 14,80,130
14. According to the assessee, for the asst. yr. 1998-99 out of an amount of Rs. 19 lakhs received by the partners, the assessing authority had accepted the explanation for Rs. 13 lakhs and balance six lakhs was telescoped and they have estimated an income of Rs. 12 lakhs before payment of salary to partners for the asst. yr. 2001-02 and remitted the advance tax also. Thus, they have cooperated with the Department. According to the assessee, there is no difference between the income offered for assessment and income finally assessed. The CIT, however, did not accept the above contention. According to him, the income declared at the time of survey amounting to Rs. 43 lakhs is the additional income i.e., in excess of the income already declared for the three years. He has referred to the answer to question No. 13 of the statement dt. 23rd Jan., 2001, for this purpose. According to him, if the capital gain for all the three years are taken out, the income assessed under the head 'business' or 'profession' comes to Rs. 24,17,774 as against the disclosed income of Rs. 43 lakhs. This is the basis on which he has invoked his powers under Section 263 of the IT Act.
15. Question No. 13 referred to above and the answer thereto are extracted hereunder:
On. No. 13 : As per the material found at your premises and the admissions made in this sworn statements there are various omissions and shortcomings on your part. With all these infirmities how do you propose to settle your tax matters ?
Ans : I do admit that we have not disclosed our true income in the returns filed for the asst. yrs. 1998-99, 1999-2000 and 2000-2001. In this connection I would like to state that we had introduced Rs. 19,00,000 towards advance for sale of and through the capital/current account of all the three partners during the previous year relevant to the asst. yr. 1998-99. However, we understand that the amount advanced by the parties namely, M.A. Pappu and Estappan, were since confirmed only Rs. 6,00,000. In order to purchase peace and with a view to co-operate with the Department, we offer the balance amount of Rs. 13,00,000 for asst. yr. 1998-99. Similarly, to cover up all the shortcomings and possible omissions, we offer an additional income of Rs. 10,00,000 for asst. yr. 1999-2000 and Rs. 20,00,000 for asst. yr. 2000-2001. The abovesaid amount of Rs. 43,00,000/(13+10+20+) is in addition to the income already declared for assessment for the respective years. We express our willingness to make addition of Rs. 13,00,000 as offered above in the assessment for the asst. yr. 1998-99 which is pending now. The revised return of income for asst. yrs. 1999-2000 and 2000-2001 shall be filed by 20th March, 2001 after paying tax under Section 140A........".
16. It can be seen that the 13 lakhs offered for the asst. yr. 1998-99 is credit from M.A. Pappu and Esthappan (from out of the advance of Rs. 19 lakhs received) and this submission was made according to the appellant, as the deponent was made to believe that only 6 lakhs has been accounted by creditors but it was found that another sum of Rs. 7 lakhs was found to be genuine by the AO. According to him, it is pertinent to note that the entire sum of Rs. 19 lakhs was considered in the block assessment completed as early as on 28th Oct., 1999, in the case of M.O. Devassy alias Pappu much before the survey on 23rd Jan., 2001, and such block assessment orders were also produced before the Tribunal. Thus, according to him, these facts clearly prove that the purported offer of the appellant 'for the asst. yr. 1998-99 of a sum of Rs. 13 lakhs is one imposed upon him and one made by the appellant on the mistaken understanding of facts. Similarly, the purported offer for Rs. 10 lakhs and Rs. 20 lakhs for the asst. yrs. 1999-2000 and 2000-2001 are also not based on any material and does not represent the true income of the appellant. Therefore, subsequent to the survey, the case was posted several times and the AO had discussions with the appellant and its representatives. Finally, since the AO could not determine the true and correct profits of the appellant on the basis of the books of accounts and other materials which came to his notice during the course of the survey, the AO, during the assessment proceedings, agreed for adopting the income at 8 per cent of the total contract receipts and the appellant had also agreed vide their letter dt. 6th Feb., 2001, addressed to the AO for the same. According to him, the appellant is having 20 lorries and the estimated income thereon is worked out in accordance with the provisions of Section 44AE even if Section 44A is not applicable to the appellant, the total income that could be estimated will be Rs. 4,80,000 per year and the estimate agreed at 8 per cent of the turnover for all the years is almost double this amount. Thus, the estimate at 8 per cent is reasonable and the AO has exercised his powers vested in him in a judicious manner while completing the assessment. Thus, according to him, Section 263 was not available to him to be invoked in this case since there is a provision which could be invoked only as an exception to the general rule that a superior authority cannot unless in an appeal or revision require the ITO to make a reassessment in a particular manner.
17. The ITO has referred to the fact that consequent upon the survey, the assessee has filed a revised return offering 8 per cent of the contract receipt as net profit before allowing deduction of salary payment made to partners at Rs. 1,60,050. It was also found that the 8 per cent profit disclosed is deemed to have been arrived after allowing depreciation and interest on capital paid to the partners. It was found that Rs. 4,798 towards PF and Rs. 454 towards ESI were the amounts for which the disallowance was made. Under Section 43B, the amount covered by Section 43B(b) shall be allowed as deduction while computing the income only in the year in which such sum is actually paid, provided, it is paid on due date. It was further found that the assessee has not paid the amount of ESI on due date and accordingly, that amount and the amount of PF were disallowed and added to the total income of the assessee. However, the amount of PF was allowed as deduction in the asst. yr. 2001-2002.
18. It can thus be seen that the ITO has not accepted the income declared by the assessee in a mechanical way, but applied his mind to the various aspects of the matter before completing the assessment. The ITO also found that during the course of hearing, certain details filed showed that the assessee had received an advance of Rs. 19 lakhs (from M.O. Pappu, Rs. 10 lakhs and from M.D. Esthappan Rs. 9 lakhs) and the advances received from Pappu of Rs. 10 lakhs has been explained. Regarding the advance of Rs. 9 lakhs received from M.D. Esthappan only three lakhs is found to be genuine. Hence, the balance of Rs. 6 lakhs is to be explained which is telescoped in the income already disclosed at Rs. 8,26,550. It was in such circumstances that no separate addition was made to the account. It was also found by the ITO that accordingly on discussion, the total income of the assessee for the asst. yr. 1998-99 is determined at Rs. 8,26,550. Thus, the ITO considered the factual aspects of the matter regarding the advance claimed to have been received from M.O. Pappu and M.D. Esthappan and the balance of Rs. 6 lakhs out of the 19 lakhs was also telescoped in the income already disclosed. In the statement in the course of survey, the managing partner only stated that an amount of Rs. 19 lakhs was introduced towards advance for sale of land to Pappu and Esthappan confirmed only six lakhs. It was on this basis that the balance of Re. 13 lakhs were offered for the asst. yr. 1998-99. That was confirmed by Pappu and Esthappan as Rs. 6 lakhs was found to be a mistake and the assessment orders in their case were also produced. The ITO also verified the above aspects. Therefore, the assumption that what was offered in the statement of 43 lakhs is in addition to what has been assessed and on the basis that the statement has got evidentiary value is erroneous. The materials collected during the course of survey has been borne in mind by the AO who was well aware of the evidentiary value of the statement. At the same time, such survey conducted unearthed certain income and the ITO rightly, on the basis of the accounts and offer made and the admissions made before him, came to the conclusion that what was offered in the written offer made by the assessee is reasonable. According to us the alleged admission contained in the answer to question No. 13 in the statement of the managing partner of the assessee obtained under Section 133 A is only a qualified one and the assessee had clearly explained the same before the AO by cogent materials and the same was accepted by the said officer. In such circumstances, the question as to whether the CIT could have invoked his power under Section 263 of the Act to hold that the order of the ITO is erroneous and prejudicial to the interest of the Revenue is justifiable in law arises for consideration.
19. In Malabar Industrial Co. Ltd. v. CIT (2001) 243 ITR 83 (SC) the apex Court considered the meaning of "prejudicial to Revenue" and it was held thus that the word "prejudicial to Revenue" must be read in conjunction with an erroneous order. Dealing with the matter, the apex Court held that :
"A bare reading of Section 263 of the IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interest of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the Revenue. If one of them is absent--if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to Section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the 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 ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO 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."
20. In the decision Smt. Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC) the apex Court considered the meaning of the word "prejudicial to the interest of the Revenue". It was held that :
"Where an assessee is assessed on an income voluntarily returned, it is not prejudicial to the interests of the Revenue only if it is found that the assessment was made on the basis that the income had been earned by the assessee which was assessable. Where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist some one else who would have been assessed to a larger amount, an assessment so made will be erroneous and prejudicial to the Revenue and the CIT has jurisdiction under Section 33B of the Indian IT Act, 1922, to cancel the assessment and proceedings for assessment may be initiated under the provisions of the Act against some other assessee who according to the IT authorities would be liable for the income thereof."
Applying the above principles, we find on a reading of the ITO's order that the view taken by the ITO cannot be said to be unsustainable in law so as to call it an order passed erroneously. The ITO has seized books of accounts and elicited certain answers which has no evidentiary value. However, making also these figures and finding that there was certain omissions and remissions on the part of the assessee, the assessee has voluntarily offered certain amounts to be treated as additional income for the assessment years in question and certain statements made during the course of such survey especially regarding the advance received from M.O. Pappu and Esthappan. But the same has been explained by the assessee, which explanation was accepted after referring to the records and the assessment orders passed in their case. The ITO was satisfied about the actual amount received towards advance and only an amount of Rs. 6 lakhs out of the balance was to be further explained and they were telescoped. The entire sum of Rs. 19 lakhs was considered for the block assessment completed as early as on 28th Oct., 1999, in the case of M.O. Devassy alias Pappu much before the survey. In these circumstances, the statement of the assessee that the amount of Rs. 13 lakhs offered by him in the statement during the course of survey is only a mistake of fact cannot be brushed aside. Further, in the light of the voluntary disclosure in the letter given in writing by the assessee the facts given by him has been verified with the books of accounts and it was only after consideration of the various aspects of the matter and related facts that the AO accepted the offer made by the assessee. In such circumstances, the view taken by the ITO cannot be said to be prejudicial to the Revenue nor can it be said to be erroneous. We find nothing in the order of the ITO to warrant a finding that it is unsustainable in law. For the above reasons, we hold that the CIT was not justified in law in invoking the powers under Section 263 of the IT Act as the twin conditions precedent to exercise the power has not been satisfied in this case. Besides the decision is also erroneous. Hence, we set aside the order of the Tribunal and the CIT and confirm the order of the ITO.
We answer the question in the affirmative i.e., in favour of the assessee and against the Revenue.