TaxTMI 
TaxTMI 
2006 (1) TMI 173
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....d 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 retur....
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....sues 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 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....
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....prise 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 submitte....
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....overnment 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 ....
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....d; 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 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 vis....
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.... 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....
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....he 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 enqui....
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.... 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 administration 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 ....
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....on 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. 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 ....
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....the assessee in the light of the 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 reasonin....
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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 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 docs 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 ....
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....lier 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, the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator ....