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TMI Blog2013 (1) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any proper scrutiny. The assessment order 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 AO has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. Thus it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by the CIT. The assessee should have no grievance in the action of learned Commissioner in exercising the jurisdiction u/s. 263 as the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under Section 263. Second reason is that it is not taking of any view that will take the matter under the scope of Section 263 - against assessee. - IT APPEAL NO. 930 (HYD.) OF 2012 - - - Dated:- 19-10-2012 - C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent of Rs. 1.55 crores. The investments in M/s. Altra Spirits India Pvt. Ltd., and M/s. Malts Spirits India Pvt. Ltd., was for the purpose of business and no interest bearing funds were utilized for the purpose of making investment in equity shares and there was no need for the company as it had reserves in the form of capital and reserves for a sum of Rs. 2.51 crores. The investment in M/s. Malts Spirits India Pvt. Ltd., and M/s. Altra Spirits India Pvt. Ltd., was made for the purpose of expansion of the existing business. The principle laid down by the Supreme Court in the case of S.A. Builders v. CIT [2007] 288 ITR 1 applies to the facts of the case. He further submitted that a small portion of interest bearing funds could have been used for the purpose of investment in equity shares in the aforesaid companies. Still, the investment cannot be disallowed as the investment was made for the purpose of business. 6. The learned DR submitted that the assessee had debited a sum of Rs. 14,92,478 as finance charges to the P L account. During the previous year, the assessee had invested a sum of Rs. 1,72,97,822 in the share application money and equity shares of M/s. Malt Spirits Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entrusted with the task of reselling the land which was acquired through him during the previous year and in response thereto, he gave an advance of Rs. 1.55 crores. This fact was confirmed by him during the course of assessment proceedings. No development expenditure was incurred by him and the entire advance given by him ought to have been shown in the balance sheet, but a portion of it was accounted for in the land account. It has no impact on the profit. Sri S.V. Sriramulu did not transfer the land on behalf of the assessee during the previous year and the land was sold on 19.08.10 and the capital Gain arises in the asst. year 2011-12. The company will account for the Capital Gains in the year of transfer. He further submitted that the land value was properly accounted for in the books of account. There was no capital gains which accrued to the assessee during the previous year. 8. The DR submitted that the plea of the learned AR that the land acquired in the previous year was resold on 19.08.2010 for a sum of Rs. 59.85 lakhs. However, the assessee received a sum of Rs. 1.55 crores as advance from Shri S.V. Sriramulu, the facilitator. The Assessing Officer did not examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion." 10. At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus: "An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows: "Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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. 15. In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases: (i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it. (ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. (iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law." 20. We have carefully gone through the aforesaid observations. "Adopting" one of the courses permissible in law necessarily requires the Assessing Officer to consciously analyse and evaluate the facts in the light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The Assessing Officer cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not speak in that behalf. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not, in our view, help the assessee; and rather they are against the assessee. 21. In the case of Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC), the Hon'ble Supreme Court has held that "... There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Harrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases...." Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd's case (supra) on which reliance has been placed by the learned Counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee also. The line of difference between Sections 263 and 264 is that while the former can be invoked to remove the prejudice caused to the State the later can be invoked to remove the prejudice caused to the assessee. The provisions of Section 263 would lose significance if they were to be interpreted in a manner that prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inqu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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