Commissioner Of Income-Tax v. M/S Alborz Industries

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Income-tax Appeal No. 14 of 2008 Reserved on: 9.9.2010. Date of decision: 7.1.2011 Commissioner of Income-tax Versus M/s Alborz Industries …Appellant. …Respondent. Coram The Hon’ble Mr.Justice Deepak Gupta, J. The Hon’ble Mr. Justice Sanjay Karol, J. Whether approved for reporting? For the appellant: Ms. Vandana Kuthiala, Advocate. For the respondent: Mr. Vishal Mohan with Mr. Goverdhan Sharma, Advocates. Per Deepak Gupta, J. 1. This Income-tax Appeal was admitted on some other questions of law but after hearing the parties we are of the considered opinion that the following questions of law arise questions of law but after hearing the parties we are of the considered opinion that the following questions of law arise in this appeal:- 1. What is the scope of the revisionary jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961 and whether in the present case the Commissioner exceeded the powers vested in him under the said section? the Commissioner under Section 263 of the Income-tax Act, 1961 and whether in the present case the Commissioner exceeded the powers vested in him under the said section? 2. 3. 2. Whether the Income-tax Appellate Tribunal was correct in holding that the Commissioner while passing the order under Section 263 had merely substituted his own judgement for that of the Assessing Officer without appreciating that the Assessing Officer had gone into the detailed facts of the case? This appeal has been filed by the revenue and is directed against the order of the Income-tax Appellate Tribunal, Chandigarh dated 13.08.2007 whereby it accepted the appeal of the assessee, set-aside the order of the Commissioner passed under Section 263 and consequently upheld the order of the Assessing Officer. The undisputed facts of the case are that the assessee firm is a partnership firm. The two partners are Shri Neeraj Aggarwal and his wife Smt. Anuradha Aggarwal, who reside at Delhi. The assessee had two units; one a trading unit at Delhi and the other a manufacturing unit at Baddi. The Government of India gave incentives for setting up of industries in certain areas in Himachal Pradesh and in terms of these incentives the manufacturing units based at Baddi were given income-tax benefits and were in fact exempted from payment of income-tax under Sections 80-1A & 80-1B of the Income-tax Act, 1961 (here-in-after referred to as the Act). 5. 6. For the assessment year 2001-02 the assessee declared total income of Rs.90,17,776/- and claimed deduction of this entire amount in terms of Section 80-1B. The case of the assessee was taken up for scrutiny in terms of Section 143 of the Act and notices were issued to the assessee calling upon it to give some information. The Assessing Officer vide his order dated 2.4.2003 accepted the explanation given by the assessee and came to the conclusion that the same was genuine and thereby accepted the return of the assessee. Thereafter, the Commissioner Income-tax issued notice to the assessee under Section 263 of the Act. According to the Commissioner, the assessing officer had accepted the assessee’s claim for deduction of the entire income without proper verification. As per the commissioner, the assessing officer had failed to investigate the genuineness of the abnormally high gross profit rates and net profit rates shown by the assessee firm. It was also alleged that the Assessing Officer had failed to look into the legal requirements of maintaining separate books of account laid down in Sections 80I(A) and 801(B) of the Act before allowing the deduction. The Commissioner was of the view that the order passed under Section 143(3) on 2.4.2003 was erroneous and prejudicial to the interest of the revenue. The show Thereafter, the Commissioner Income-tax issued notice to the assessee under Section 263 of the Act. According to the Commissioner, the assessing officer had accepted the assessee’s claim for deduction of the entire income without proper verification. As per the commissioner, the assessing officer had failed to investigate the genuineness of the abnormally high gross profit rates and net profit rates shown by the assessee firm. It was also alleged that the Assessing Officer had failed to look into the legal requirements of maintaining separate books of account laid down in Sections 80I(A) and 801(B) of the Act before allowing the deduction. The Commissioner was of the view that the order passed under Section 143(3) on 2.4.2003 was erroneous and prejudicial to the interest of the revenue. The show cause was replied to by the assessee firm. Various hearings took place and more information was asked for from the assessee but it appears that the assessee firm was not present at most of the hearings. When the assessee was directed to produce the books of accounts of the Baddi unit it reported that the books had been lost. Thereafter, the Commissioner after considering the matter came to certain findings. The Commissioner held that whereas the profit declared for the Baddi unit was abnormally high the loss declared for the Delhi unit was also not justified. According to him it appeared that the profits of the trading unit at Delhi had been transferred to the Baddi unit. The Commissioner came to the conclusion that the assessee had not maintained separate books of accounts of the Industrial Undertaking Baddi, which it was required to maintain in terms of Section 80-1A(7) of the Act. On the query of the Commissioner, copy of profit and loss account of the Baddi unit was filed, but the balance sheet was not furnished. The Commissioner also found that there were discrepancies in the rates of the evaluation of the opening stock and closing stock. Whereas the opening stock was valued at Rs.90 per kg. as on 1.4.2000 the closing stock was valued at Rs.235 per kg. as on 31.3.2001. According to the Commissioner, the assessee had overvalued the 8. stocks. One of the grounds which weighed with the Commissioner in setting aside the order of the Assessing Officer was the abnormally high gross profit and net profit rates. The Commissioner found that the gross profit rate varied from 93% in the first year of production to 58.17% in the relevant financial year and dramatically reduced to 5.51% in the assessment year 2002-03 and the assessee closed the unit in the year 2003-04. As per the incentive scheme the unit was to enjoy 100% deduction under Section 801A and 801B for the first five years and thereafter 75% of the profit were taxable and the assessee closed the unit without any apparent reason because if the unit was so profitable why should it have been closed. The Commissioner also found that on 22.10.2001 an Inspector of the Income-tax Office at Parwanoo had visited the factory premises which was locked and gave a deserted look. No work was being done and only one Chowkidar was found. The statement of the Chowkidar was recorded and he stated that no work was being done in the factory for the last two years and he did not know the name of Manager. During assessment proceedings this Chowkidar stated that he had made the statement in respect of the sister concern M/s B.R.Industries and not about the assessee firm. According to the Commissioner the assessing officer erred in accepting the statement of 9. Chowkidar without any verification. The Commissioner in Para 5.5. held as follows:- “5.5. Had the unit been genuinely in operation :- i)there would have been considerable activities when the Inspector visited the premises on 22.10.2001. Inspector visited the premises on 22.10.2001. ii)there would have been substantial amounts of stocks and machinery etc. and machinery etc. 9. Chowkidar without any verification. The Commissioner in Para 5.5. held as follows:- “5.5. Had the unit been genuinely in operation :- i)there would have been considerable activities when the Inspector visited the premises on 22.10.2001. Inspector visited the premises on 22.10.2001. ii)there would have been substantial amounts of stocks and machinery etc. and machinery etc. iii)The assessee would not have scaled down its operations and then closed the units also after the enquiries were initiated by the Department. operations and then closed the units also after the enquiries were initiated by the Department. iv)No reasons have been given for closing down the Unit particularly when it had been yielding very-very rich dividend to the assessee for the last 3-4 years. When it became known to the assessee that the fake nature of its operations had come to the deparment’s notice, it deemed it fit to show the unit as closed because it thought that it would not be able to survive the hard scrutiny its case will be put to.” particularly when it had been yielding very-very rich dividend to the assessee for the last 3-4 years. When it became known to the assessee that the fake nature of its operations had come to the deparment’s notice, it deemed it fit to show the unit as closed because it thought that it would not be able to survive the hard scrutiny its case will be put to.” On this basis the Commissioner found that the assessee was using the unit at Baddi as a façade to route his undisclosed income earned elsewhere. The Commissioner also found that the total plant and machinery at Baddi was of Rs.2,74,985/-. The assessee did not have even essential tools and equipments and on the basis of this small machinery such huge profits could not have been earned. The Commissioner also found that on comparison of the records of the assessee with that of the sister concern at Delhi the Electrical Stampings were 10. 11. sold at huge profit by the Baddi Unit but in case of the sister concerned these have been sold at a loss. The Commissioner, in fact, held that no manufacturing process was taking place at Baddi. In support of this the Commissioner stated that no raw material was available with the assessee on certain dates but huge manufacturing was shown in the plant. The Commissioner also found that the consumption of power in the unit was so low that no manufacturing could take place. The table relating to consumption of power vis-à-vis production is reproduced below:- 13. 14. The Commissioner also found that as per the record the assessee had claimed that he had engaged 10 to 11 workers at Baddi and manufacturing process was carried out through the whole year. The assessee did not file the details of the salary and wages paid to each worker. The total sum debited on account of wages was Rs.2,49,436/- per annum i.e. Rs.20,786/- per month and the salary of each worker would come only Rs.2,078/- per month, which was barely equal to the minimum wages. According to the commissioner, the chart prepared in this regard clearly indicated that sufficient number of workers were not engaged. The Commissioner also found that the assessee had availed a packing credit limit of Rs.40 lakhs but no interest expenditure had been debited in the profit and loss account of the Baddi unit. Since the credit had been raised for the unit at Baddi the interest could not have been debited to the Delhi unit. According to the Commissioner the assessee had artificially inflated the income of the Baddi unit and reduced the income of the Delhi unit. The Commissioner also found that in the profit and loss account the assessee firm had deposited a sum of Rs.23,71,100/- on account of foreign travel by only one person Shri Himanshu Singhal to various countries. Himanshu Singhal was shown as an employee of the Delhi 15. The Commissioner also found that the assessee had availed a packing credit limit of Rs.40 lakhs but no interest expenditure had been debited in the profit and loss account of the Baddi unit. Since the credit had been raised for the unit at Baddi the interest could not have been debited to the Delhi unit. According to the Commissioner the assessee had artificially inflated the income of the Baddi unit and reduced the income of the Delhi unit. The Commissioner also found that in the profit and loss account the assessee firm had deposited a sum of Rs.23,71,100/- on account of foreign travel by only one person Shri Himanshu Singhal to various countries. Himanshu Singhal was shown as an employee of the Delhi 15. unit and his salary was only Rs.2,000/- per month. According to the Commissioner it did not stand to reason that such a lowly paid employee could be entrusted with the task of visiting foreign countries and incurring a huge expenditure of Rs.23,71,100 on foreign tours. He also found that the export of the Baddi unit was only to UAE and therefore, the visit of Himanshu Singal who was a close relative of the partners to other foreign countries was not in connection with the business work. Hence, he disallowed this expenditure also. The Commissioner also found that whereas the assessee claimed more than 90% of his production was exported but no bills of lading, shipping evidence and the sale consideration was produced. According to the Commissioner, the assessee also had not claimed any deduction under Section 80HHC and had not filed Form No.10CCAC. The Commissioner of Income-tax thereby assessed the profit of the Baddi unit of Rs.25,48,805 and that of the Delhi unit at Rs.91,86,599/-. He also held that since the Baddi Unit is not a manufacturing unit the entire income was subject to income-tax. Aggrieved by this order the assessee filed an appeal to the Income Tax Appellate Tribunal (ITAT). The first objection of the assessee was that under Section 263 of the Act revisional proceeding could only be initiated if the order was erroneous and prejudicial to the interest of the revenue. It was urged that powers of Section 263 could not be invoked. The main argument of the assessee was that the Assessing Officer had dealt with all the facts and conducted a complete inquiry and once the Assessing Officer came to certain conclusion these could not be set-aside by the Commissioner in exercise of his power under Section 263. The Commissioner could not substitute his own judgement for that of the Assessing Officer. The Income-tax Appellate Tribunal held that an order can be considered to be erroneous under Section 263 if it is based on wrong or incorrect application of law. Even an order passed without proper application of mind or without making proper inquiry can also be said to be erroneous for the purposes of under Section 263. However, the Tribunal went on to hold that the Commissioner went into a searching and roving inquiry which was intended to overcome the stand of the Assessing Officer. The Tribunal was of the view that the first show cause notice did not show as to under what circumstances the Commissioner had inferred that the deduction allowed by the Assessing Officer had been granted without looking into the fulfillment of the necessary conditions. It also found that the Commissioner had made some erroneous findings. The Tribunal went on to hold that there was no material on 16. 17. record to conclude that the unit at Baddi was only a façade and there was no actual manufacturing and no export of goods. It went on to hold that the initiation of proceedings under Section 263 did not fulfill the various prerequisites of Section 263 and accordingly set-aside the order. To appreciate the rival contention of the parties, it would be apposite to refer to Section 263 of the Income- tax Act, relevant portion of which reads as follows:- 16. 17. record to conclude that the unit at Baddi was only a façade and there was no actual manufacturing and no export of goods. It went on to hold that the initiation of proceedings under Section 263 did not fulfill the various prerequisites of Section 263 and accordingly set-aside the order. To appreciate the rival contention of the parties, it would be apposite to refer to Section 263 of the Income- tax Act, relevant portion of which reads as follows:- “263. (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 Assessing 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 canceling the assessment and directing a fresh assessment.” The Bomaby High Court in Commissioner of Income-tax vs. Gabriel India Ltd., (1993) 203 ITR 108 held as follows:- “The power of suo motu revision under sub-section (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 sub-section, viz. (i) the order is 18. 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 expression “erroneous”, “erroneous assessment” and erroneous judgement” 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 judgement” 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.” The Apex Court in Commissioner of Income- tax vs. Shree Manjunathesware packing products and camphor works, (1998) 231 ITR 53, held as follows:- “Section 263 of the Income-tax Act, 1961 enables the Commissioner to call for and examine the record of any proceeding under the Act and pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or canceling the assessment and directing a fresh assessment, if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The section did not at first contain any Explanation. An Explanation was added to section 263(1) by the Taxation Laws (Amendment) Act, 1984. By the Finance Act, 1988, the said Explanation was substituted with effect from June 1, 1988. The Explanation was again amended by the Finance Act, 1989. By the amendments made by the Finance Acts of 1988 and 1989 a definition of the term “record” was provided. It has been provided that “record” shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Commissioner.” A Division Bench of the Madras High Court in Taxation Laws (Amendment) Act, 1984. By the Finance Act, 1988, the said Explanation was substituted with effect from June 1, 1988. The Explanation was again amended by the Finance Act, 1989. By the amendments made by the Finance Acts of 1988 and 1989 a definition of the term “record” was provided. It has been provided that “record” shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Commissioner.” A Division Bench of the Madras High Court in Mofussil Warehouse and Trading Co. Ltd. vs. Commissioner of Income-tax, (1999) 238 ITR 867 was dealing with a case where the assessee company paid amounts to the holding company by way of reimbursement in relations to the utilization of the service of the employees of the holding company. The Assessing Officer had not taken into consideration the exact nature of the claim or the unreasonableness thereof. The Madras High Court held that non performance of such a duty cast upon the Income-tax Officer entitled the Commissioner to invoke his power under Section 263. Relevant observation of the Madras High Court reads as follows:- “The non-performance of such a duty on the part of the Income-tax Officer culminated in distortions and prejudices to the Revenue. Such distortions and prejudices to the Revenue for being set right, the Commissioner of Income-tax invoked his power under Section 263 and in exercise of such power he 20. cancelled the assessment passed by the Income-tax Officer with a direction to him to make a fresh assessment, according to law.” The Apex Court in Malabar Industrial Co. Ltd. Vs. Commissioner of Income-tax, (2000) 243 ITR 83, has dealt with the revisional powers under Section 263 in detail. The Apex Court held as follows:- “A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Section 263(1) of the Act. 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 orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not conferred (confined) to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain, (31 ITR 872) : (AIR 1957 Cal 244), the High Court of Karnataka in Commissioner of Income-tax, Mysore v. T. Narayana Pai, (1975) 98 ITR 422, the High Court of Bombay in Commissioner of Income-tax v. Gabriel India Ltd., 203 ITR 108 : (1994 Tax LR 116) and the High Court of Gujarat in Commissioner of Income-tax v. Smt. Minalben S. Parikh, (1995) 215 ITR 81 treated loss of tax as prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not conferred (confined) to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain, (31 ITR 872) : (AIR 1957 Cal 244), the High Court of Karnataka in Commissioner of Income-tax, Mysore v. T. Narayana Pai, (1975) 98 ITR 422, the High Court of Bombay in Commissioner of Income-tax v. Gabriel India Ltd., 203 ITR 108 : (1994 Tax LR 116) and the High Court of Gujarat in Commissioner of Income-tax v. Smt. Minalben S. Parikh, (1995) 215 ITR 81 treated loss of tax as prejudicial to the interests of the revenue. Mr. Abaraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. Commissioner of Income-tax, (1987) 163 ITR 129 interpreting "prejudicial to the interests of the revenue". The High Court held, "In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration". In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order 21. 22. of 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. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi v. Commissioner of Income-tax, (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. Commissioner of Income-tax, (1973) 88 ITR 323 (SC).” The Kerala High Court has followed the judgement of the Apex Court in Paul Mathews and Sons vs. Commissioner of Income-tax, (2003) 263 ITR 101. The Rajasthan High Court in Commissioner of Income-tax vs. Ganpath Ram Bishnoi, (2008) 296 ITR 292, held that no presumption could be raised that the Assessing Officer had not applied his mind on the various aspect of the matter and therefore, jurisdiction under Section 263 could not be invoked. The relevant observation of the Rajasthan High Court are as follows:- “Undoubtedly, the jurisdiction under section 263 is wide and is meant to ensure that due revenue ought 23. The Kerala High Court has followed the judgement of the Apex Court in Paul Mathews and Sons vs. Commissioner of Income-tax, (2003) 263 ITR 101. The Rajasthan High Court in Commissioner of Income-tax vs. Ganpath Ram Bishnoi, (2008) 296 ITR 292, held that no presumption could be raised that the Assessing Officer had not applied his mind on the various aspect of the matter and therefore, jurisdiction under Section 263 could not be invoked. The relevant observation of the Rajasthan High Court are as follows:- “Undoubtedly, the jurisdiction under section 263 is wide and is meant to ensure that due revenue ought 23. to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the Assessing Officer, the Commissioner of Income-tax can cancel that order and require the concerned Assessing Officer to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the Assessing Officer has reached a particular conclusion, though reference to such enquiries has not been made in the order of assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the Assessing Officer was not in accordance with law, the invocation of jurisdiction by the Commissioner of Income-tax was unsustainable.” The Apex Court again dealt with the scope of Section 263 in Commissioner of Income-tax vs. Max India Ltd. (2007) 295 ITR 282 and held as follows:- “At this stage we may clarify that under paragraph 10 of the judgement in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 this court has taken the view that the phrase “prejudicial to the interests of the Revenue” under section 263 has to be read in conjunction with the expression “erroneous” order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest 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 24. 25. 26. an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law.” The Apex Court in Commissioner of Income-tax vs. Greenworld Corporation, (2009) 314 ITR 81, while dealing with Section 263 held as follows:- “jurisdiction under Section 263: The scope of the provisions of section 263 of the Act is no longer res integra. The power to exercise suo motu power of revision in terms of section 263(1) is in the nature of supervisory jurisdiction and same can be exercised only if the circumstances specified therein, viz., (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the Revenue, exist.” In Commissioner of Income-tax vs. Development Credit Bank Limited (2010) 323 ITR 2006 the Bombay High Court held that the Commissioner of Income-tax was not justified in invoking the provisions of Section 263 when the Assessing Officer after making an inquiry and getting a response from the assessee came to the conclusion that the assessee was entitled to depreciation on the value of securities held in trading account. From the reading of the aforesaid judgements, it is apparent that the powers conferred on the Commissioner under Section 263 are very wide. Two In Commissioner of Income-tax vs. Development Credit Bank Limited (2010) 323 ITR 2006 the Bombay High Court held that the Commissioner of Income-tax was not justified in invoking the provisions of Section 263 when the Assessing Officer after making an inquiry and getting a response from the assessee came to the conclusion that the assessee was entitled to depreciation on the value of securities held in trading account. From the reading of the aforesaid judgements, it is apparent that the powers conferred on the Commissioner under Section 263 are very wide. Two conditions have to be met before the Commissioner can exercise his powers under this section. The order sought to be reviewed should be erroneous and should also be prejudicial to the interest of the revenue. In Malabar Industrial Co. Ltd. Vs. Commissioner of Income-tax (supra), the Apex Court held that both the conditions must be satisfied and if only one of the conditions is satisfied recourse cannot be had to Section 263. It is also apparent that recourse to Section 263 cannot be taken to correct every small error or mistake committed by the Assessing Officer. However, if the order itself is erroneous the provisions of the section would be attracted. The Apex Court has made it clear that even incorrect assumption of facts would satisfy the requirement of order being erroneous. In case the orders are passed without applying the principle of natural justice or without application of mind then also the Commissioner can exercise his revisional powers. It is important to note that the Apex Court in Malabar Industrial Co. Ltd. Vs. Commissioner of Income-tax (supra) further held that the expression prejudicial to the interest of the revenue has very vide connotation and was not confined to loss of tax. If the Assessing Officer adopts one or two courses available under law and it result in loss of revenue then the order cannot be said to be erroneous or prejudicial to the interest of revenue within the meaning of Section 263 but where the view taken by the Income-tax Officer is unsustainable then the orders passed by the Assessing Officer is not only erroneous but also prejudicial to the interest of revenue. We shall now deal with the facts of the present case in the light of law laid down by the Apex Court. The Assessing Officer no doubt issued notice to the assessee on various issues and came to the conclusion that the process which was taking place at Baddi amounted to manufacture. He also held that the gross profit and net profit shown by the assessee had been verified from the books and came to the conclusion that in most of the cases information received from the assessee tallied by the accounts supplied by it. As regard to the report of the Income-tax Officer, Parwanoo dated 22.10.2001 wherein the said officer reported that the factory premises gave a deserted look and it appeared that no work had been conducted, the Assessing Officer only relied upon the statement of the Chowkidar to the effect that he had been working with the assessee for the last five years. This Chowkidar was confronted by the statement recorded by Shri R.P.Chandel, in which the same Chowkidar had stated that the factory was lying closed for two years. The Assessing Officer has merely accepted the report of the Chowkidar but has given no reasons to discard the statement of Shri R.P.Chandel. The perusal of the order of the Assessing Officer shows that it is not at all a well reasoned or detailed order. The Assessing Officer has made very general observations in para 6 and 7 of his order whereby he has just accepted everything which the assessee produced before him without making any attempt to find out whether the records produced by the assessee were correct or not. This was a case where the return was being examined under Section 143(1). We feel that the Assessing Officer was required to go into the matter in much greater detail. It is true that the Assessing Officer is not required to pass a very detailed order but his order must show that he has dealt with various aspect of the matter and should not be a general order as in the present case. Coming to the order of the Commissioner we find that it is a very detailed order. The Commissioner has gone into each and every aspect of the matter in detail. True it is that there are one or two errors in the order of the Commissioner especially with regard to his finding that despite no raw material being available a large amount of electrical stamping was allegedly manufactured and exported on 12.09.2000. However, we must observe that the assessee itself is to blame for the errors in the order of 29. the Commissioner. The record shows that the assessee was avoiding to put in appearance before the Commissioner. The Commissioner has given a list of dates as Annexure A-1 to his order and as many as 20 dates were fixed. Only on three occasions the assessee was represented. The Tribunal in its order has blown out the proportion the mistake in the order of the Commissioner only on the ground that the entire record had been filed before the Assessing Officer. When the Commissioner was adjourning the case and sending letters to the assessee and putting specific queries to the assessee, was it not the duty of the assessee to answer such queries and assist the Commissioner? The assessee’s attitude towards the Commissioner was virtually contemptuous and it did not make any attempt to assist the Commissioner and did not appear before it. When thousands of pages of record had been filed the Commissioner could not have, without the assistance of the assessee, gone through the entire record. The assessee failed to assist the Commissioner and therefore, as pointed out above one or two minor mistakes have crept in but in our view these do not detract us from the main issue. The main issue in this case was whether the unit at Baddi was just a façade and cover up operation to divert profits from other places to Baddi so that it became exempted from tax. There are certain important findings of the Commissioner in this regard which the Tribunal has not even considered or dealt with. First of all we take up the issue of consumption of power. We have already produced the table of consumption here-in-above. The total consumption in 13 months is 6873 units, which works out to 529 units per month or little more than 17 units a day. Surprisingly, out of this consumption almost little more than half i.e.3,457 units were consumed during the period March, 2000 to August, 2000 when there was neither any consumption of raw material nor any production. This shows even when there was no production there was electricity consumption of about 576 units per month. Interestingly, for the months of September 2000 to March, 2001 when huge production took place the total consumption of electricity is 3,416 units which works out to bare 488 units per month. This clearly shows that the electricity was not being consumed for manufacturing any article. According to the information supplied by the assessee there was a night watchman as well as a day watchman. About 500 units of electricity would be used by a watchman for one electricity connection and one heater to be used about 10 hours a day especially during winter month of January and February when the electricity consumption was only 890 31. 32. and 1159 units. The electricity consumption also has no correlation with the raw material consumed or the production. In January, 2001 when only 390 Kg. of raw material was consumed the electricity consumed was 890 units whereas in November, 2000 when 33136 Kg. of material was consumed the electricity utilized was only 325 units. Thus, it is clear that the consumption of electricity had no correlation with the production. The consumption is in fact so low that even in a normal household where two people reside in a room the consumption in the hilly State is more than the consumption in the entire Baddi unit of the assessee. This clearly shows that there was no manufacturing process going on at Baddi. This aspect of the matter has been totally glossed over by the Income Tax Appellate Tribunal. The next very important factor is with regard to the number of workers working at Baddi. To get benefit of the provisions of Sections 80-1A and 80-1B in a unit which conducted the manufacturing process with the aid of power a minimum of 10 workers were required to be engaged. In case, the unit did not utilise power then 20 workers were to be engaged. In this behalf reference may be made to Sections 80-1A to (v) and 80-1A to (iv). We are dealing here with a case where according to the assess itself on a total turn over of Rs.2,59,69,820/- it has earned a net profit of Rs.1,23,08,053/- i.e. 58.17% profits in the relevant year. The wages shown in the books of account for the manufacture of goods worth Rs.2,59,69,820/- are only Rs.2,49,436/- or less than 1% of the total turn over. This is an extremely low figure and not commensurate with the production. Even more surprising is the fact that according to the assessee it had engaged the workers on daily waged basis. A chart of the workers employed by the assessee was filed by the assessee and as per this chart it is clear that throughout the year 24 different persons worked intermediately. Other than the watchman Naresh Kumar, there are only two other workers who had worked regularly for 12 months. The other workers had worked for few days off and on. This also shows that no person was regularly employed by the assessee firm. If the working days by adding the work of all these workers is taken then during the assessment year in the month of April there were 192 working days, May 218, June 193, July 241, August 328, September 213, October 191, November 235, December 230, January 242, February 347 and March 411. If we exclude the months of February and March, in all other months the number of working days if 10 employees were employed comes to between 19 to 20 days. No factory works for only 19 and 20 days in a month. The employment of the workmen is also not in accordance with the production. Whereas in October, 2000 and November 2000 the production was 28,398 Kg and 33,136 Kg. total number of mandays are only 191 and 235. In the months of April and June when there was nil production the mandays were 192 and 193. Therefore, it is apparent that these records have been cooked up. Even the parentage or the addresses of the workmen are not given anywhere. employment of the workmen is also not in accordance with the production. Whereas in October, 2000 and November 2000 the production was 28,398 Kg and 33,136 Kg. total number of mandays are only 191 and 235. In the months of April and June when there was nil production the mandays were 192 and 193. Therefore, it is apparent that these records have been cooked up. Even the parentage or the addresses of the workmen are not given anywhere. Though the assessee had tried to show that it had engaged 10 workers during each month, in April, May, June and July, some of these workers worked for less than 15 days in a month. To take benefit under Section 80-1A to (v) the industrial undertaking should employ at least 10 or more workers in a manufacturing process carried on with the aid of power and 20 and more workers carried on without the aid of power. Even as per the chart supplied by the assessee 10 or more workers were not working for the purpose of manufacturing. If the watchman is excluded who was not directly engaged in the manufacturing process, then the number of workers in most of the months will fall below 10. It would also be important to mention that the assessee while giving the list of workers has not given the post against which the workers were employed except in the case of the day watchman. In a factory there has to be a Manager, a Supervisor and a Foreman, if manufacturing process is to be carried on. Who were these people? There is no material on record in this regard. These employees at the higher level would have got much higher salary than the minimum wages which has been shown to be paid by the assessee. This clearly shows that the list of workers supplied by the assessee is a fabricated one since the list does not show the parentage of the workers and it does not reflect what were the posts against which workers worked. The assessing officer totally ignored these provisions of law. Similar provisions exist in Section 80-1B to (iv). When we take into consideration the electricity consumption and also take into consideration the list of workers filed, it does not in any way correlate with the total amount of electrical stamping manufactured during the period. It is obvious that if more electrical stamping had to be produced more employees should have been employed but in the present case the number of employees hardly varies. Most importantly, in the present case, the assessee cannot even urge that all the employees were permanent employees because the chart filed by the assessee himself shows that the workers were working off and on for a few days and 24 workers were engaged throughout the year and as pointed out earlier only three of them have worked for the entire year. The only inference which one can be drawn is that no manufacturing process was going on at Baddi. In addition to these two important factors which clearly show that no manufacturing process was being carried on at Baddi, the total non application of mind by the assessing officer is also apparent from the fact that the assessing officer failed to notice that whereas the opening stock on 1.4.2000 was valued at Rs.90 per kg. and at the end of the year the same raw material was valued at Rs.235/- per kg. The assessee led no evidence to show why there had been such a dramatic rise in the cost of raw material. The assessing officer noticed the rate of profits but even these have not been properly noted by him. He has worked out the net profit 7.54%, whereas the Commissioner has rightly noted that the gross turn over was of Rs.2,59,69,820/- and net profit was of Rs.1,23,08,053, which works out to 58.17%. The calculations of the assessing officer are apparently wrong because if the net sales had been Rs.11,95,72,283/- the net profit would have been much much higher. This also shows that there is total non application of mind and he has not actually verified the books of account of the assessee. Another important factor is why the assessee had closed the unit immediately after five years if it was earning such high profits. The unit was closed at the end of the five year when benefits of Section 80-1A and 80-1B were to be reduced. No explanation worth the name has been given by the assessee for closing the unit. The assessing officer had in our opinion totally misdirected himself in accepting the statement of the Chowkidar made before him. Here is a Chowkidar who made a different statement before the Income-tax Officer and a different statement before the Assessment Officer. The Income-tax Officer is an educated person and in his report he had clearly indicated that the factory was having a deserted look and it appeared that it was lying closed for a long time. Every factory has some name plate or sign board in and around the factory. Can the assessee who is earning profit of crores of rupees claim