TaxTMI 
TaxTMI 
2013 (1) TMI 205
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.... 4. Brief facts of the issue are that the assessee invested an amount of Rs. 1,72,97,822 in shares during the year. This sum was brought into business through loans and money received back on sale of land earlier. According to the CIT instead of using borrowed funds for the purpose of business, the assessee diverted the same for the purpose of investment in shares and it has claimed an interest of Rs. 14,92,478 towards interest on loan. Further the assessee received Rs. 1.55 crores as advance from Sri S.V. Sriramulu towards the facilitator for the purchase of land. The Assessing Officer on this issue not examined whether there was any transfer in accordance with the provisions of section 2(47) of the Act. Being so, the CIT directed the Assessing Officer to examine these two issues afresh by invoking the provisions of section 263 of the Act. 5. At the outset, the AR challenged the validity of action of the CIT in exercising the jurisdiction u/s. 263 of the Act. The learned AR submitted that the assessee had invested a sum of Rs. 1,72,97,882/- in the equity shares of M/s. Malt Spirits India Pvt. Ltd., and M/s. Altra Spirits India Ltd. The entire investment was made out of share c....
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....the learned Authorised Representative it can be seen that a portion of investment in equity shares was made out of the borrowed funds. The learned Authorised Representative contended that investment in equity capital was made for the purpose of business. Considering the arguments of the learned Authorised Representative, the CIT set aside the assessment order passed by the Assessing Officer on 31.12.2009 with a direction to examine whether borrowed funds were diverted for the purpose of investment in equity shares of the associated concerns and examine whether any commercial expediency is involved m the investment in equity shares. The Assessing Officer was also directed to examine the applicability of section 14A of the IT Act. Thus, the CIT is justified in setting aside the assessment order passed by the Assessing Officer u/s. 143(3). 7. Regarding the second issue the AR submitted that the assessee intended to purchase 7 acres of land and gave a sum of Rs. 1.4 crores during the previous year as advance. Out of this advance of Rs. 1.4 crores, a sum of Rs. 70 lakhs was intended to be towards the cost of land and another sum of Rs. 70 lakhs was meant for the development of land. ....
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....ully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industrial Co. Ltd., v. CIT [2000] 243 ITR 83, the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is (i) erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus'; 'erroneous, adj. Involving error, deviating from the law'. The word 'error' has been defined at the same page in the same dictionary thus: 'error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false'. At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean- 'Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of ....
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....er to initiate suo moto 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 produced by the assessee before him. The scheme of assessment has undergone radical changes in r....
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.... Aggarwal v. CIT [1973] 88 ITR 323 (SC) and Malabar Industrial Co. Ltd.'s case (supra). 13. In Malabar Industrial Co. Ltd.'s case (supra) the Hon'ble Court has held as under: "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Com....
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....nd circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge." 14. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If ....
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.... Assessing Officer that the return filed by the assessee stood automatically accepted without any proper scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by the CIT. In our view, the assessee should have no grievance in the action of learned Commissioner in exercising the jurisdiction u/s. 263 of the IT Act. 17. It was however contended by the learned Counsel that the Assessing Officer had taken a possible view in accepting the return of the assessee and hence, the Commissioner was not justified in assuming the revisional jurisdiction under Section 263. We have given our though....
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....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 applicable law. As already stated earlier, we are not able to appreciate on what material was placed before the Assessing Officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not put the matter beyond the purview of Section 263 unless the view so taken by the Assessing Officer is a judicial view consciously based upon proper inquiries and appreciation of all the relevant factual and legal aspects of the case. The judicial view taken by the Assessing Officer may perhaps place the matter outside the purview of Section 263 unless it is shown that the view so taken by the Assessing Officer contains some apparent error of reasoning or ....
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....en" one such possible view in the order sought to be revised under Section 263. This requires the Assessing Officer to take a conscious decision; else he would neither be able to "adopt" a course permissible in law nor "take" a view where two or more views are possible. In other words, it is the Assessing Officer who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the Assessing Officer can be attributed to have "adopted" a permissible course of law or "taken" a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned Counsel, if accepted, would require us to form, substitute and read our view in the order of the Assessing Officer when the Assessing Officer himself has not taken a view. It could have been a different position if the Assessing Officer had "adopted" or "taken" a view after analysing the facts and deciding the....
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....for the reasons already explained in the foregoing paras of this order as the order, which is sought to be revised under Section 263 reflects no proper application of mind by the Assessing Officer and thus be amenable to revision under Section 263. In this case before us, the assessment order passed by the Assessing Officer lacks judicial strength to stand. It is not a case where the order is short but is not supported by judicial strength. It is in this view of the matter that we feel that the learned Commissioner has correctly exercised his revisional jurisdiction under Section 263. 23. In our opinion, the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. As mentioned earlier, the assessee can have the prejudice caused to him corrected by filing an appeal; as also by filing a revision application under Section 264. But the State Exchequer has no right of a....