Commissioner Of Income Tax, Jaipur-Iii, Jaipur v. Shri Manoj Kumar Johari

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 47 / 2011 COMMISSIONER OF INCOME TAX, Jaipur-III, Jaipur ----Appellant Versus Shri Manoj Kumar Johari, Proprietor, M/S The Art Palace,Ramgarh Shekhawati, District Sikar. ----Respondent Connected With D.B. Income Tax Appeal No. 243 / 2011 Commissioner of Income Tax, Jaipur-III, Jaipur ----Appellant Versus Shri Manoj Kumar Johari Prop, The Art Palace, Ramgarh Shekhawati-Sikar ----Respondent D.B. Income Tax Appeal No. 275 / 2011 Commissioner of Income Tax, Jaipur-III, Jaipur ----Appellant Versus Shri Manoj Kumar Johari Prop, The Art Palace, RamgarhShekhawati-Sikar ----Respondent D.B. Income Tax Appeal No. 524 / 2011 Commissioner of Income Tax, Jaipur-III, Jaipur ----Appellant Versus Shri Manoj Kumar Johari Prop, The Art Palace, RamgarhShekhawati-Sikar ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer Jain with Mr. Daksh PareekFor Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERIHON'BLE MR. JUSTICE INDERJEET SINGHJudgment 29/08/2017 1.By way of these appeals, the department has challenged thejudgment and order of the tribunal whereby the tribunal hasdismissed the appeal of the department and confirmed the orderof CIT(A) and in other appeals, proceedings under Section 263 arequashed by the Tribunal. 2.This court while admitting the appeals has framed followingsubstantial questions of law:- D.B. Income Tax Appeal No.47/2011 admitted on 23.05.2013 “Whether on the facts and in the circumstancesof the case, the Hon’ble ITAT is justified in law inupholding the decision of CIT(A) setting asidethe fresh assessment order dated 27.07.2009passed u/s 263/143(3), even when the appealu/s 260A against ITAT’s order dated 25.02.2010in ITA No.589/JP2009 is pending before theHon’ble High Court? Whether the assessment order dated27.07.2009 passed in compliance to order dated16.2.2009 u/s 263 of the Act by theCommissioner can be treated as nullity andwithout locus standi inspite of the fact that thesame was passed prior to passing of ITAT orderdated 26.2.2010 and the fact of passing27.7.2009 order was not at all considered by theITAT?” D.B. Income Tax Appeal No.243/2011 admitted on 23.05.2013 “Whether the order of revision u/s 263 ofIncome Tax Act, 1961 can be declared aswithout jurisdiction, wrong and bad in law, whenthe basis of issuing the same are the evidencesrecovered during the course of survey u/s 133A and statements recorded u/s 131 of the Act,which categorically show that the order waserroneous and prejudicial to interest of revenue? Whether deduction of income u/s 80IB of the Actcan be granted to the assessee when the newbusiness as created by reconstruction splitting ofbusiness already in existence on the basis ofevidences recorded during survey provisionsSection 133A of the Act? D.B. Income Tax Appeal No.275/2011 and 524/2011 admitted on23.05.2013 “Whether the learned Tribunal was right in law insetting aside the Assessment Order for theAssessment Year 2003-04 by placing relianceupon their order for the A.Y. 2005-06 in theassesses own case wherein facts, grounds weredifferent and the Assessment order was passedu/s 263 of the I.T. Act, 1961? Whether the claim deduction u/s 80IB was rightin law when the essential requirements u/s80IB(2) were violated and the respondentassesses has renamed its business byrestructuring splitting etc of the erstwhilerunning business?” 3.Since, it is a group of matters, Mr. Sameer Jain has mainly argued from record of Appeal No.524/2011. He has contendedthat while passing the order, the A.O. has considered as under:- “5. Brief History of Assessee’s Case:- “Whether the learned Tribunal was right in law insetting aside the Assessment Order for theAssessment Year 2003-04 by placing relianceupon their order for the A.Y. 2005-06 in theassesses own case wherein facts, grounds weredifferent and the Assessment order was passedu/s 263 of the I.T. Act, 1961? Whether the claim deduction u/s 80IB was rightin law when the essential requirements u/s80IB(2) were violated and the respondentassesses has renamed its business byrestructuring splitting etc of the erstwhilerunning business?” 3.Since, it is a group of matters, Mr. Sameer Jain has mainly argued from record of Appeal No.524/2011. He has contendedthat while passing the order, the A.O. has considered as under:- “5. Brief History of Assessee’s Case:- For the initial year i.e. A.Y.2003-04 the assesseedeclared Income from his Proprietary businessnamed M/s The Art Palace, for the first time.Prior to that, for the A.Y.2002-03 dassessee hadIncome of Rs.88,240/- i.e. Rs.7,241 as interestand Rs.36,000/- as salary from M/s DeepakHandicrafts and Rs.45,100/- as income fromother sources. As per the Balance Sheet ofassessee for the A.Y.2002-03, assessee had loanof Rs.14,20,000/- from M/s Indian Art Palace.M/s Indian Art Palace is a family partnership firmhaving assessee’s brothers, uncles and cousins as partners. M/s Indian Art Palace was inexistence since long and was in the samebusiness as is the assessee even today. For theassessment year 2003-04 the assessee startedhis business but he had no machinery of his own,no business premises of his own and no sufficientcapital of his own. All these business in-putswere contributed by M/s Indian Art Palace, theold existing family concern of the assessee. Hestarted his business in the same businesspremises where very old firm M/s Indian ArtPalace was carrying the business. He used thesame old machinery belonging to M/s Indian ArtPalace, for which he paid rent to that concern. Healso paid rent for the business premisesseparately to M/s Indian Art Palace. Assesseepurchased own machinery towards the end of theinitial year of his business which was after he hadstarted his business by using machinery of M/sIndian Art Palace. Assessee claimed 10%deduction of his profit u/s 80-IB for the A.Y.2003-04 as well as for the A.Y. 2004-05. As is evidentfrom the sequence of events, the same business,at the same place and with same machinery hadbeen going on for several years, in the name ofM/s Indian Art Palace.” 4.The finding arrived at by the CIT(A) is as under:- “3.1 On perusal of the records, I find that theidentical issues, as involved in this ground ofappeal, were also involved in the appellant’sappeal for the A.Y.2003-04. The said appeal hasbeen decided by me vide my order of even date,in ITA No.147/JPR/09-10, wherein as per detaileddiscussion in para 3.3 of that order, I have partlyallowed the appellant’s ground taken against thisdisallowances of the claimed deduction u/s 80-IBof the I.T. Act. Therefore, following may saidorder, this ground of appeal is;, similarly allowedin this year also. Accordingly, a disallowance of5% amounting to Rs.3,49,045/-, out of theclaimed deduction u/s 80-IB is confimed and thebalance disallowance is directed to be deleted.Consequently, this ground of appeal is treated aspartly allowed.” 5.While considering the matter, the tribunal has observed as 5.While considering the matter, the tribunal has observed as 9. We have heard rival submissions andconsidered them carefully. After consideringthe submissions and perusing the material onrecord including the order of the Tribunaldecided in ITA No. 589/JP/2009 for A. Y. 2005-06 vide order dated 25.02.2010, we find thatld. CIT (A) was correct in allowing thededuction claimed under section 80-IB forthese two years under appeal here before theTribunal. we have taken into considerationdetailed submissions ld. D/R which arementioned in this order and found that thesecontentions are not liable to be accepted. It isseen that while arguing the appeal against theorder under section 263 before the Tribunal,the department has made detailed argumentswhich are recorded by the Tribunal in paras 9to 11 at pages 8 to 11 of its order. Reliancewas placed on various case laws. Before that,argument of ld. D/R has been recorded in para8. It was stated that AO has passed a speakingorder after making enquiry in respect ofdeduction under section 80-B. The Tribunalafter taking into consideration the detailedargument of ld. D/R as well as of ld. Counsel ofthe assessee found that the AO has examinedthe issue in detail while completing theassessment under section 143(3) originally.The Tribunal has notedthat followingdocuments and information in support of itseligibility of exemption claimed under section80-IB of the Act were filed :- "(1)Copy of registration granted by DLCwhich clearly shows that thebusiness startged w.e.f. 26.08.2002 and is a new unit having SSIregistration No. 172307630 (P.B.Page 3). (2)It is a manufacturing unit notstarted by splitting up of existingunit. (3)New machinery has beeninstalled. Copies of machinerypurchases bills were submitted (P. BPage 18 24)installed. Copies of machinerypurchases bills were submitted (P. BPage 18 24) (4)The unit is manufacturingwooden and other handcrafts itemswhich are not covered by the list inthe Eleventh Schedule.wooden and other handcrafts itemswhich are not covered by the list inthe Eleventh Schedule. (5)Copy of Export License w.e.f.2.09.2002 issued by Ministry ofCommerce. Govt. of India bearingNo.ICE-1303006111dated2.9.2002. (P. B. Page1 ).2.09.2002 issued by Ministry ofCommerce. Govt. of India bearingNo.ICE-1303006111dated2.9.2002. (P. B. Page1 ). (6)Copy of registration certificategranted by CTO. Sikar bearing TINNo. 08971353204 w.e.f. 26.8.2002.granted by CTO. Sikar bearing TINNo. 08971353204 w.e.f. 26.8.2002. P. B. Page 4 ). (7)Copy of Muster roll register forpayment to labours.payment to labours. Thereafter, the Tribunal has recorded that AOexamined the above documents and evidencesfiled by the assessee as well as books ofaccount and further raised the followingqueries:- "(i)That it is not practically possible forthe assessee to carry out such hugemanufacturing activities for affectingsales worth Rs. 14,73,58,247/- with the help of a small plant of Rs. 2 lacsas shown by the assessee in hisbalance sheet. (ii) That as per details of purchases theassessee had made purchases ofready built furniture of Rs.16164420/- on Form H relates topurchases from out of state Rs.7,03,050/- and on Form B-17,purchases within state worth Rs.assessee had made purchases ofready built furniture of Rs.16164420/- on Form H relates topurchases from out of state Rs.7,03,050/- and on Form B-17,purchases within state worth Rs. 1,54,61,370/-. Thereafter, the AO passed a speaking order bywhich deduction claimed under section 80IBwas allowed on 90% sales made by assessee.After examining all these evidences anddocuments and taking into consideration theorder of AO as well as order of ld. CIT passedunder section 263, the following findings weregiven by the Tribunal which are recorded atpages 15 & 16 of its order :- 1,54,61,370/-. Thereafter, the AO passed a speaking order bywhich deduction claimed under section 80IBwas allowed on 90% sales made by assessee.After examining all these evidences anddocuments and taking into consideration theorder of AO as well as order of ld. CIT passedunder section 263, the following findings weregiven by the Tribunal which are recorded atpages 15 & 16 of its order :- " Before us the ld. A/R has reiteratedthose explanation furnished by theassessee before the AO as discussedabove. The ld. A/R has successfully beenable to demonstrate before us that M/sArt Palace, a proprietary concern of theassessee was not set up in samebusiness premises as that of M/s IndianArt Palace, the assessee was never apartner or employee in the firm and hadno connection with the said firm M/sIndian Art Palace, the concerne M/s ArtPalace is sole proprietary concern of theassessee, the assessee on this newthose explanation furnished by theassessee before the AO as discussedabove. The ld. A/R has successfully beenable to demonstrate before us that M/sArt Palace, a proprietary concern of theassessee was not set up in samebusiness premises as that of M/s IndianArt Palace, the assessee was never apartner or employee in the firm and hadno connection with the said firm M/sIndian Art Palace, the concerne M/s ArtPalace is sole proprietary concern of theassessee, the assessee on this new premises set up his unit with effect from28.8.2002 which place is havingseparate approach, the unit of IndianArt Palace was working at differentlocation since 1984 as shown in the mapplaced at page 11 supported by anaffidavit placed at page 12 of the paperbook, the Indian Art Palace carried onbusiness of manufacturing and sale tillfinancial year 2002-03 i.e. even afterassessee set up its unit and commencedbusiness, more over manufacturingwork of unit of assessee was got doneon job basis, statements recorded incourse of survey in financial year 2008-09 from employee of factory cannot berelied upon as recorded behind the backof assessee. The assessee had alsopurchased machinery in financial year2002-03 to 04-05 (purchase bills placedat pages 18 to 24), the manufacturingof wooden handicraft in which assesseedeals required mostly manual handworkand no heavy machinery or plant isrequired, the assessee hired some handtools and small machinery from M/sIndian Art Palace but the same cannotbe termed transferred to a new businessor plant previously used for anypourpose. We thus find that theallegations, on the basis of which the ld.CIT had held the assessment order inquestion on the issue as erroneous andprejudicial to the interest of revenuedislodged by the ld. A/R as discussed above, have not been specificallyrebutted by the ld. D/R before us. Underthese circumstances, we are of the viewthat the ld. CIT was not justified intreating the assessment order inquestion as erroneous and prejudicial tothe interest of the revenue. We are alsoof the view that a revisional orderpassed under section 263 of the Actcannot also be justified, on the because,ld. CIT while setting aside the issue tothe file AO for fresh consideration on theissue has given opportunity to theassessee to represent its case beforethe AO unless the above statedrequirements of the provisions are fulfil.We thus while setting aside therevisional order in question, allow thegrounds in favour of the assessee. 14. In the result appeal is allowed. above, have not been specificallyrebutted by the ld. D/R before us. Underthese circumstances, we are of the viewthat the ld. CIT was not justified intreating the assessment order inquestion as erroneous and prejudicial tothe interest of the revenue. We are alsoof the view that a revisional orderpassed under section 263 of the Actcannot also be justified, on the because,ld. CIT while setting aside the issue tothe file AO for fresh consideration on theissue has given opportunity to theassessee to represent its case beforethe AO unless the above statedrequirements of the provisions are fulfil.We thus while setting aside therevisional order in question, allow thegrounds in favour of the assessee. 14. In the result appeal is allowed. 10.After going through the above finding of theTribunal, it is clearly seen that the Tribunal hasexamined the issue on merit also. It has beenclearly mentioned that ld. A/R has successfullybeen able to demonstrate before us that M/sArt Palace, proprietary concern of the assesseewas not set up at the same business premisesas that of M/s Indian Art Palace, the assesseewas never a partner or employee in the firmand had not connection with the said firm M/sIndian Art Palace. The concern M/s Art Palaceis sole proprietary concern of the assessee. Theassessee on this new premises set up his unitw.e.f. 28.2.2002 which place is having separateapproach. The unit of M/s Indian Art Palace was working at different location since 1984 asshown in the map place at page 11 supportedby an affidavit placed at page 12 of the paperbook, the Indian Art Palace carried on businessof manufacturing and sale till financial year2002-03 i.e. even after assessee set up its unitandcommencedbusiness,moreovermanufacturing work of the unit of assesseewas got done on job basis, statementsrecorded in course survey in financial year2008-09 from employees of factory cannot berelied upon as recorded behind the back of theassessee. It has been further observed by theTribunal that assessee has also purchasedmachinery in financial year 2002-03 and 04-05. These observation are finding of Tribunalclearly shows that Tribunal has examined theissue on merit also. Therefore, it has held thatthe AO has passed a speaking order afterexamining all the evidences for gettingsatisfied himself for allowing deduction undersection 80-IB. Therefore, it cannot be said thatthe criminal has merely quashed the orderunder section 263 and has not given anyfinding on merit. The Tribunal has examinedthe fact that for financial year 2002-03 and 04-05 relevant to assessment year 2003-04 to 05-06 the assessee has purchased new machinery.Therefore, it can be easily held that evenTribunal has examined the details for A.Y.2003-04 and 04-05 also. We further noted thateven the ld. CIT (A) has taken intoconsideration the detailed submissions of theassessee in respect to deduction under section80-IB. These have been reproduced in the order. Thereafter, the ld. CIT (A) has given afinding that the facts are identical in the yearunder consideration to the assessment year2005-06 and the Tribunal has already given afinding for A.Y. 2005-06. Therefore, the claimof the assessee for these two years wasallowed by ld. CIT (A). This is also not indispute that the facts are identical for A.Y.2003-04 to 05-06. Deduction under section 80-IB has already been granted by the order ofthe Tribunal for A.Y. 2005-06. Therefore, weare of the considered view that ld. CIT(A) wascorrect in allowing the appeal of the assesseefor these two years in respect to deductionclaimed under section 80-IB. Accordingly, theorder of the ld. CIT (A) are confirmed. order. Thereafter, the ld. CIT (A) has given afinding that the facts are identical in the yearunder consideration to the assessment year2005-06 and the Tribunal has already given afinding for A.Y. 2005-06. Therefore, the claimof the assessee for these two years wasallowed by ld. CIT (A). This is also not indispute that the facts are identical for A.Y.2003-04 to 05-06. Deduction under section 80-IB has already been granted by the order ofthe Tribunal for A.Y. 2005-06. Therefore, weare of the considered view that ld. CIT(A) wascorrect in allowing the appeal of the assesseefor these two years in respect to deductionclaimed under section 80-IB. Accordingly, theorder of the ld. CIT (A) are confirmed. 6.In that view of the matter, learned counsel for the appellantcontended that the Tribunal has seriously committed an error indismissing the appeal. He has also taken us to the AppealNo.243/2011 where it has been pointed out that the AO haspassed the order on 29.11.2006. The order passed under Section263 was taken on 16.02.2009 and after the remand on27.07.2009 and tribunal has passed an order subsequently,therefore the order of Tribunal will not be implemented sinceproceedings under Section 263 is exhausted in the order ofCIT(A). 7. In that view of the matter, the order of the Tribunal has nolegal validity in view of the order passed by the CIT(A). 8.He has also contended that:- “After receiving the proposal on 13.01.2009, ashow cause notice u/s 263 of the IT Act wasissued to the assessee for AY 2005-06 vide thisofficeletterNo.CIT.III/JPR/ITO(T&J)/2008-09/2445 dated 14.01.2009. The assessee wasasked to explain as to why the order passed forAY 2005-06 on 29.11.06 may not be revised andthe deduction u/s 80IB of the IT Act allowed inexcess to the extent of Rs.1,35,17,406 may notbe ordered to be withdrawn. The hearing in thismatter was fixed on 30[th] January, 2009. This condition is not fulfilled because thebusiness of assessee is only an extension of avery old existing business in the name of M/sIndian Art Palace. M/s Indian Art Palace was anold partnership firm in which family members ofassessee were partners. In nutshell, the samebusiness continued in the name of M/s The ArtPalace, as proprietary concern of the assessee.The features characteristic of the continuance ofthe old business is that: i. The business was started in the same business premises and is stillcontinuing, primarily in the samepremises. ii. The business was started withthe same machinery and is stillusing the old machinery of the oldconcern M/s Indian Art Palace,with routine addition to the oldmachinery every year. iii. Many of the workers andemployees who worked with M/sIndian Art Palace continued andare still working with the assesseeconcern, M/s. The Art Palace. iv. There was no change in thenature of business and its modusoperandi except slight change inbrand name from M/s Indian ArtPalace to M/s Art Palace.” 9. He has also relied upon Para 11 and 12 of the Tribunal which reads as under:- "11. In the result, appeals of the department aredismissed. 12. The order is pronounced in the open court on25.03.2011." 10.He has also taken us to the order which came to be passedon 23.09.2011 whereby the miscellaneous application wasrejected since it was not found to be maintainable. He has alsotaken us to the proceeding which has taken place on 24.09.2008where the statement of the brother-father and other persons whowere connected with the business of The Indian Art Palace wererecorded and has strongly relied upon those statements. 11. Counsel for the appellant has further relied upon the decisionrendered by the Allahabad High Court in the case of SanjeevAgarwal Vs. Income Tax Settlement Commissioner reported in(2015) 56 taxmann.com 214 (Allahabad) wherein it has held asunder:- 12. The order is pronounced in the open court on25.03.2011." 10.He has also taken us to the order which came to be passedon 23.09.2011 whereby the miscellaneous application wasrejected since it was not found to be maintainable. He has alsotaken us to the proceeding which has taken place on 24.09.2008where the statement of the brother-father and other persons whowere connected with the business of The Indian Art Palace wererecorded and has strongly relied upon those statements. 11. Counsel for the appellant has further relied upon the decisionrendered by the Allahabad High Court in the case of SanjeevAgarwal Vs. Income Tax Settlement Commissioner reported in(2015) 56 taxmann.com 214 (Allahabad) wherein it has held asunder:- “9. In Pullangode Rubber Produce Co. Ltd. v.State of Kerala, (1973) MANU/SC/0386/1971 :91 ITR 18, the Supreme Court held that anadmission is a piece of evidence though it is notconclusive. Consequently, a statement madevoluntary under Section 133A of the Act cannotbe retracted unless the asses-see files evidenceto show that the admission made in thestatement at the time of survey was wrong andagainst the material on record. The mere factthat the Commissioner of Income Tax in hisreport has held that the statement given by thepetitioner was on oath and therefore, it cannotbe retracted is immaterial in the context of whatwe have said aforesaid. 10. No doubt, Sections 132(4) and 133A of theAct are distinct and different. Under Section133A of the Act, there is no provision toadminister oath and to take a sworn statementwhereas under Section 132(4) of the Act there isno provision to examine a person on oath. But itdoes not mean that a statement under Section133A of the Act can be retracted at the whim and fancy of the assessee. In the light of theaforesaid, the assertions made by the learnedcounsel for the petitioner cannot be accepted. 11. On the question of charging Rs. 82/- per kg.on betel nuts we find from a perusal of therecord that the price of betel nuts ranged fromRs. 25/- to Rs. 192/- per kg.. The Commissionhas taken an average of Rs. 82/- per kg., inwhich we do not find any error. Further, noevidence has been filed by the petitioner toindicate that he had purchased the betel nuts atthe rate of Rs. 45/- per kg.. This being a purefinding of fact, no interference can be made bythis Court in a writ jurisdiction.” 12. He has relied upon the decision rendered by the Bombay HighCourt in the case of Dr. Dinesh Jain Vs. Income Tax Officerreported in (2014) 363 ITR 210(Bom) wherein it has held asunder:- 5. To consider the first contention, it will be aptto quote section 263(1) which is relevant for ourpurpose : "263. Revision of orders prejudicial to revenue -(1) The Commissioner may call for and examinethe record of any proceeding under this Act, andif he considers that any order passed therein bythe assessing officer is erroneous insofar as it isprejudicial to the interests of the revenue, hemay, after giving the assessee an opportunity ofbeing heard and after making or causing to bemade such inquiry as he deems necessary, passsuch order thereon as the circumstances of thecase justify, including an order enhancing ormodifying the assessment, or cancelling theassessment and directing a fresh assessment. Explanation - * * *" A bare reading of this provision makes it clearthat the prerequisite to exercise of jurisdictionby the Commissioner suo moto under it, is thatthe order of the Income Tax Officer is erroneousinsofar as it is prejudicial to the interests of therevenue. The Commissioner has to be satisfiedof twin conditions, namely, (i) the order of theassessing officer sought to be revised iserroneous; and (ii) it is prejudicial to the Explanation - * * *" A bare reading of this provision makes it clearthat the prerequisite to exercise of jurisdictionby the Commissioner suo moto under it, is thatthe order of the Income Tax Officer is erroneousinsofar as it is prejudicial to the interests of therevenue. The Commissioner has to be satisfiedof twin conditions, namely, (i) the order of theassessing officer sought to be revised iserroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them isabsent - if the order of the Income Tax Officer iserroneous but is not prejudicial to the revenueor if it is not erroneous but is prejudicial to therevenue - recourse cannot be had to section263(1) of the Act. There can be no doubt that the provision cannotbe invoked to correct each and every type ofmistake or error committed by the assessingofficer, it is only when an order is erroneous thatthe section will be attracted. An incorrectassumption of facts or an incorrect application oflaw will satisfy the requirement of the orderbeing erroneous. In the same category fallorders passed without applying the principles ofnatural justice or without application of mind. The phrase 'prejudicial to the interests of therevenue' is not an expression of art and is notdefined in the Act. Understood in its ordinarymeaning it is of wide import and is not conferredto loss of tax. The High Court of Calcutta inDawjee Dadabhoy & Co. v. S.P. Jain & Anr.MANU/WB/0263/1956 : [1957] 31 ITR 872 (Cal), the High Court of Karnataka in CIT v. T.Narayana Pai MANU/KA/0017/1974 : [1975] 98ITR 422 (KAR) , the High Court of Bombay inCIT v. Gabriel India Ltd. MANU/MH/0220/1993 :[1993] 203 ITR 108 (Bom) and the High Courtof Gujarat in CIT v. Smt. Minalben S. ParikhMANU/GJ/0177/1994 : [1995] 215 ITR 81 (Guj)treated loss of tax as prejudicial to the interestsof the revenue. 6. Mr. Abraham relied on the judgment of theDivision Bench of the High Court of Madras inVenkatakrishna Rice Company v. CITMANU/TN/0138/1981 : [1987] 163 ITR 129(Mad) interpreting "prejudicial to the interests ofthe revenue". The High Court held, "In thiscontext, it must be regarded as involving aconception of acts or orders which aresubversive of the administration of revenue.There must be some grievous error in the orderpassed by the Income Tax Officer, which mightset a bad trend or pattern for similarassessments, which on a broad reckoning, theCommissioner might think to be prejudicial tothe interests of Revenue Administration". In ourview this interpretation is too narrow to meritacceptance. The scheme of the Act is to levy andcollect tax in accordance with the provisions of the Act and this task is entrusted to therevenue. If due to an erroneous order of theIncome Tax Officer, the revenue is losing taxlawfully payable by a person, it will certainly beprejudicial to the interests of the revenue. 13.Counsel for the appellant has referred to Section 263 (1)(b) which reads as under:- 263 (1) (b)" record" shall include and shall bedeemed always to have included] all recordsrelating to any proceeding under this Actavailable at the time of examination by theCommissioner; 14.Counsel for the respondent has relied upon the decision rendered by the Supreme Court in the case of Commissioner ofIncome Tax Vs. Max India Ltd. Reported in (2000) 213 CTR 0266wherein it has been held as under:- the Act and this task is entrusted to therevenue. If due to an erroneous order of theIncome Tax Officer, the revenue is losing taxlawfully payable by a person, it will certainly beprejudicial to the interests of the revenue. 13.Counsel for the appellant has referred to Section 263 (1)(b) which reads as under:- 263 (1) (b)" record" shall include and shall bedeemed always to have included] all recordsrelating to any proceeding under this Actavailable at the time of examination by theCommissioner; 14.Counsel for the respondent has relied upon the decision rendered by the Supreme Court in the case of Commissioner ofIncome Tax Vs. Max India Ltd. Reported in (2000) 213 CTR 0266wherein it has been held as under:- 4. “We find no merit in the said contentions.Firstly, it is not in dispute that when the order ofthe Commissioner was passed there were twoviews on the word "profits" in that section. Theproblem with Section 80HHC is that it has beenamended eleven times. Different views existedon the day when the Commissioner passed theabove order. Moreover, the mechanics of thesection have become so complicated over theyears that two views were inherently possible.Therefore, subsequent amendment in 2005 eventhough retrospective will not attract the provisionof Section 263 particularly when as stated abovewe have to take into account the position of lawas it stood on the date when the Commissionerpassed the order dated March 5,1997, inpurported exercise of his powers under Section263 of the Income Tax Act.” 15.He has also relied upon the decision rendered by theSupreme Court in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax reported in (2000) 159 CTR 0001wherein it has been held as under:- 5. To consider the first contention, it will be aptto quote section 263(1) which is relevant for ourpurpose : "263. Revision of orders prejudicial to revenue -(1) The Commissioner may call for and examinethe record of any proceeding under this Act, andif he considers that any order passed therein bythe assessing officer is erroneous insofar as it isprejudicial to the interests of the revenue, hemay, after giving the assessee an opportunity ofbeing heard and after making or causing to bemade such inquiry as he deems necessary, passsuch order thereon as the circumstances of thecase justify, including an order enhancing ormodifying the assessment, or cancelling theassessment and directing a fresh assessment. Explanation - * * *" A bare reading of this provision makes it clearthat the prerequisite to exercise of jurisdictionby the Commissioner suo moto under it, is thatthe order of the Income Tax Officer is erroneousinsofar as it is prejudicial to the interests of therevenue. The Commissioner has to be satisfiedof twin conditions, namely, (i) the order of theassessing officer sought to be revised iserroneous; and (ii) it is prejudicial to theinterests of the revenue. If one of them isabsent - if the order of the Income Tax Officer iserroneous but is not prejudicial to the revenueor if it is not erroneous but is prejudicial to therevenue - recourse cannot be had to section263(1)oftheAct. There can be no doubt that the provision cannotbe invoked to correct each and every type ofmistake or error committed by the assessingofficer, it is only when an order is erroneous thatthe section will be attracted. An incorrectassumption of facts or an incorrect application oflaw will satisfy the requirement of the orderbeing erroneous. In the same category fallorders passed without applying the principles ofnatural justice or without application of mind. The phrase 'prejudicial to the interests of therevenue' is not an expression of art and is notdefined in the Act. Understood in its ordinary The phrase 'prejudicial to the interests of therevenue' is not an expression of art and is notdefined in the Act. Understood in its ordinary meaning it is of wide import and is not conferredto loss of tax. The High Court of Calcutta inDawjee Dadabhoy & Co. v. S.P. Jain & Anr.MANU/WB/0263/1956 : [1957] 31 ITR 872 (Cal), the High Court of Karnataka in CIT v. T.Narayana Pai MANU/KA/0017/1974 : [1975] 98ITR 422 (KAR) , the High Court of Bombay inCIT v. Gabriel India Ltd. MANU/MH/0220/1993 :[1993] 203 ITR 108 (Bom) and the High Courtof Gujarat in CIT v. Smt. Minalben S. ParikhMANU/GJ/0177/1994 : [1995] 215 ITR 81 (Guj)treated loss of tax as prejudicial to the interestsof the revenue. 6. Mr. Abraham relied on the judgment of theDivision Bench of the High Court of Madras inVenkatakrishna Rice Company v. CITMANU/TN/0138/1981 : [1987] 163 ITR 129(Mad) interpreting "prejudicial to the interests ofthe revenue". The High Court held, "In thiscontext, it must be regarded as involving aconception of acts or orders which aresubversive of the administration of revenue.There must be some grievous error in the orderpassed by the Income Tax Officer, which mightset a bad trend or pattern for similarassessments, which on a broad reckoning, theCommissioner might think to be prejudicial tothe interests of Revenue Administration". In ourview this interpretation is too narrow to meritacceptance. The scheme of the Act is to levy andcollect tax in accordance with the provisions ofthe Act and this task is entrusted to therevenue. If due to an erroneous order of theIncome Tax Officer, the revenue is losing taxlawfully payable by a person, it will certainly beprejudicial to the interests of the revenue. 7. The phrase 'prejudicial to the interests of therevenue' has to be read in conjunction with anerroneous order passed by the assessing officer.Every loss of revenue as a consequence of anorder of assessing officer cannot be treated asprejudicial to the interests of the revenue, forexample, when an Income Tax Officer adoptedone of the courses permissible in law and it hasresulted in loss of revenue; or where two viewsare possible and the Income Tax Officer hastaken one view with which the Commissionerdoes not agree, it cannot be treated as anerroneous order prejudicial to the interests of the revenue unless the view taken by theIncome Tax Officer is unsustainable in law. Ithas been held by this court that where a sumnot earned by a person is assessed as income inhis hands on his so offering, the order passed bythe assessing officer accepting the same as suchwill be erroneous and prejudicial to the interestsof the revenue. Rampyari Devi Saraogi v. CITMANU/SC/0177/1967 : [1968] 67 ITR 84 (SC)and in Smt. Tara Devi Aggarwal v. CITMANU/SC/0339/1972 : [1973] 88 ITR 323(SC) . 16.He has also relied on the decision of the Madras High Courtin the case of Commissioner of Income Tax Vs. S. Khader KhanSon reported in (2008) 300 ITR 0157 which was confirmed by theSupreme Court (2013) 352 ITR 480 (SC). Para 4 and 5.3 reads as under:- the revenue unless the view taken by theIncome Tax Officer is unsustainable in law. Ithas been held by this court that where a sumnot earned by a person is assessed as income inhis hands on his so offering, the order passed bythe assessing officer accepting the same as suchwill be erroneous and prejudicial to the interestsof the revenue. Rampyari Devi Saraogi v. CITMANU/SC/0177/1967 : [1968] 67 ITR 84 (SC)and in Smt. Tara Devi Aggarwal v. CITMANU/SC/0339/1972 : [1973] 88 ITR 323(SC) . 16.He has also relied on the decision of the Madras High Courtin the case of Commissioner of Income Tax Vs. S. Khader KhanSon reported in (2008) 300 ITR 0157 which was confirmed by theSupreme Court (2013) 352 ITR 480 (SC). Para 4 and 5.3 reads as under:- “4. In the instant case, there was a surveyoperation conducted under Section 133A of theAct in the assessee's premises and a statementwas recorded from one of the partner. Assumingthere were discrepancies and irregularities inthe books of accounts maintained by theassessee, an offer of additional income for therespective assessment years was made by thepartner of the firm. But, such statement, inview of the scope and ambit of the materialscollected during the course of survey actionunder Section 133A shall not have anyevidentiary value, as rightly held by theCommissioner and the Tribunal, since suchstatement was not attached to the provisions ofSection 133A of the Act. It could not be saidsolely on the basis of the statement given byone of the partner of the assessee-firm that thedisclosed income was assessable as lawfulincome of the assessee. Since there was nomaterial on record to prove the existence ofsuch disclosed income or earning of suchincome in the hands of the assessee, it couldnot be said that the Revenue had lost lawful taxpayable by the assessee. 5.3. A power to examine a person on oath isspecifically conferred on the authorities onlyunder Section 132(4) of the Act in the course ofany search or seizure. Thus, the Income TaxAct, whenever it thought fit and necessary toconfer such power to examine a person onoath, has expressly provided for it, whereasSection 133A does not empower any IncomeTax Officer to examine any person on oath.Thus, in contradistinction to the power underSection 133A, Section 132(4) of the Income TaxAct enables the authorised officer to examine aperson on oath and any statement made bysuch person during such examination can alsobe used in evidence under the Income Tax Act.On the other hand, whatever statementrecorded under Section 133A of the Act is notgiven an evidentiary value, vide a decision ofthe Kerala High Court in Paul Mathews and Sonsv.CommissionerofIncomeTaxMANU/KE/0184/2003 : [2003]263ITR101(Ker).” 17.We have heard counsel for the parties. 18.Before proceeding with the matter, whether the Tribunal was right in setting aside the order under Section 263 which has beenpassed by the CIT(A), that question has been considered by theTribunal in Appeal No.243/2011 and the same was argued by Mr.Sameer Jain. The Tribunal while discussing the issue has reliedupon different decisions of the High Court and after considering in detail has come to the conclusion that while invoking theprovisions under Section 263 of the Act, the assessment order isprejudicial to the interest of revenue. The subsequent proceedingswhich took place on 24.09.2008 could not be relied upon. Takingsupport of Section 263 (1)(b), the concept of record is the recordwhich was available with the A.O. at the time of assessment. Ifthe contention which has been raised by Mr. Jain is taken into right in setting aside the order under Section 263 which has beenpassed by the CIT(A), that question has been considered by theTribunal in Appeal No.243/2011 and the same was argued by Mr.Sameer Jain. The Tribunal while discussing the issue has reliedupon different decisions of the High Court and after considering in detail has come to the conclusion that while invoking theprovisions under Section 263 of the Act, the assessment order isprejudicial to the interest of revenue. The subsequent proceedingswhich took place on 24.09.2008 could not be relied upon. Takingsupport of Section 263 (1)(b), the concept of record is the recordwhich was available with the A.O. at the time of assessment. Ifthe contention which has been raised by Mr. Jain is taken into consideration, no assessee will be assessee. If the subsequentevents to the assessment order is taken into consideration thenthe scope of Section 263 will be enlarged. In that view of thematter, we are of the opinion that the record which was availablewith the A.O. is required to be taken into consideration and thetribunal while considering the matter has taken into considerationthe seven documents, more particularly D.L.C. Certificate whichcould be procured easily and the other documents like exportlicence which has been granted w.e.f. 02.09.2002 and registrationcertificate granted by C.T.O. w.e.f. 26.08.2002. He has alsoproduced the muster roll register. 19.In that view of the matter, the tribunal has considered thecomplete facts in detail. It will not be appropriate to re-appreciatethe facts, more particularly when the tribunal has observed thatthe discussion which has been done by the A.O. have not beenspecifically rebutted by the Department. 20.In that view of the matter, we are of the opinion that theview taken by the Tribunal is just and proper. The issue is requiredto be answered in favour of the assessee against the department. 21.The appeals stand dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. Pdaiya/ JyotiItem No.121-124