1994 PLP 659 (PTD)

The Commissioner, however, did not accept the contention of the assessee. He observed that the order of the Income Tax Officer did not contain discussion in regard to the allow ability of the claim for deduction which indicated non-application of mind. According to the Commissioner, the claim of the assessee required examination as to whether the expenditure in question was a revenue or capital expenditure. In that view of the matter, he cancelled the order of the Income Tax Officer in this regard and directed him to make a fresh assessment on the lines indicated by him. Against the order of the Commissioner, the assessee went in appeal to the Income Tax Appellate Tribunal ("the Tribunal"). The Tribunal, after elaborate discussion, came to the conclusion that the action of the Commissioner was not in conformity with the requirements of section 263 of the Act. The Tribunal was of the opinion that in order to set aside any order of the Income Tax Officer, the Commissioner must himself come to a finding that the order in question is erroneous and only after arriving at such a finding, he can set aside the order. As, according to the Tribunal the Commissioner had not done so, the order passed by him under section 263 of the Act was held to be not tenable in law. Aggrieved by the order of the Tribunal, the Commissioner has come to this Court by way of reference of the question set out above under section 256(1) of the Act. 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 that the Income Tax Officer in the instant case had examined the allow ability 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 19th September 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 far 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. 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 assessment, or cancelling the assessment and directing. a fresh assessment. (2) No order shall be made under subsection (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..." From a reading of subsection (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 subsection (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 state 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 (1977) 106 ITR 1(SC), at page 10). As observed in Sirpur Paper Mills Ltd. v. ITO (1978)114 ITR 404, 407 (AP) by Raghuveer, J. (as his Lordship then was), the Department cannot be permitted to begin fresh litigation because of new views they 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". 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 subsection, 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". 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 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 a 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 motu 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 motu 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. As observed in Dawjee Dadabhoy and Co. v. S.P. Jain (1957) 31 ITR 872 (Cal.), 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 Additional CIT v. Mukur Corporation (1978) 111 ITR

312. We are of the opinion that the aforesaid interpretation given by the Calcutta High Court to the expression "prejudicial to the interests of the Revenue" is the correct interpretation. We, therefore, hold that in order to exercise power under subsection (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 (1977) 109 ITR 229 (Cal.). 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 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 far 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. 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. Icy 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 do not find any infirmity in the above conclusion of the Tribunal. 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. Under the facts and circumstances of the case, we make no order as to costs. M.B.A./148/T.F.????????????????????????????????????????????????????????????????????????????????? Reference answered.