Shri Laxmi Narayan, Near Khor Darwaja Mori Walon Ki Dhani,Amer Road, Jaipur v. Commissioner Of Income Tax, Jaipur Ii, New Central Revenuebuilding, Statue Circle, C-Scheme, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 20 / 2016 Shri Laxmi Narayan, Near Khor Darwaja Mori Walon Ki Dhani,Amer Road, Jaipur. ----Appellant Versus Commissioner of Income Tax, Jaipur II, New Central RevenueBuilding, Statue Circle, C-Scheme, Jaipur-302001. ----Respondent Connected With D.B. Income Tax Appeal No. 118 / 2017 Through L/H Shravan Lal Meena Late Sh. Bhagwanta Meena, S/o Shri Dungar, Village Bhankrota, Tehsil, Sanganer, Jaipur. ----Appellant Versus The Income Tax Officer, Ward 7(2), Jaipur ----Respondent D.B. Income Tax Appeal No. 136 / 2017 Sh. Mahadev Balai, Village-Narrottampura, Tehsil-Sanganer, District-Jaipur. ----Appellant Versus The Income Tax Officer, Ward 7(2), Behind Vidhan Sabha, Lal Kothi, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Gunjan Pathak with Ms Ishita Rawat For Respondent(s) : Mr. Prateek Kedawat and K.D. Mathur for Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 07/11/2017 1. In all these appeals common question of law and facts areinvolved hence they are decided by this common judgment. 2.By way of appeal no.20/2016, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal of the assessee. In appeal No.118/2017, the tribunalhas partly allowed the appeal filed by the assessee and in appealno.136/2017, the tribunal has partly allowed the appeal of theassessee. 3.This court while admitting the appeals framed followingsubstantial questions of law:- Appeal no.20/2016 admitted on 25.03.2017 “Whether the Income Tax Appellate Tribunal,Jaipur was justified in law in upholding the orderpassed by the respondent under Section 263,when the original assessment order was passedby the Assessing Officer under Section 143(3) ofthe Income Tax Act, 1961, after due verification ofall the documents on record which is merelychange of opinion and nothing else? Appeal No.118/2016 admitted on 17.05.2017 “Whether the Ld. ITAT was justified in disallowingthe exemption under Section 54B of the actwithout appreciating that the funds utilized for theinvestment for purchase of the property eligibleunder Section 54B belonged to the Appellant onlyand merely the registered document wasexecuted in the name of the wife and further, thewife had no separate source of income? Appeal No.136/2017 admitted on 19.5.2017 “Whether the Ld. ITAT was justified in disallowingthe exemption under Section 54B of the actwithout appreciating that the funds utilized for theinvestment for purchase of the property eligible under Section 54B belonged to the Appellant onlyand merely the registered document wasexecuted in the name of the wife and further, thewife had no separate source of income? “ Appeal No.136/2017 admitted on 19.5.2017 “Whether the Ld. ITAT was justified in disallowingthe exemption under Section 54B of the actwithout appreciating that the funds utilized for theinvestment for purchase of the property eligible under Section 54B belonged to the Appellant onlyand merely the registered document wasexecuted in the name of the wife and further, thewife had no separate source of income? “ 4.The facts of the case are that the assessee filed its return ofincome on 24.08.2009 declaring total income of Rs.2,18,610/-which includes income from long term capital gain on sale ofagricultural land at Rs.31,500/-. The assessment was completedu/s 143(3) dated 05.10.2011 at total income of Rs.3,87,830/- byassessing the income from long term capital gain at Rs.2,00,219/-. For enhancing the income under the head long term capital gain,the AO observed that (i) sales consideration of the land as per theprovision of section 50C is Rs.55,13,599/- as against Rs.55.00lacs claimed by the assessee (ii) the assessee has claimedbrokerage expenses of Rs.1 lacs but has failed to prove the sourceof it (iii) the assessee has claimed deduction u/s 54B atRs.43,50,000/- which includes Rs.11 lacs incurred on constructionof boring & pipe, rooms, boundary walls and stamp duty but hasproved the source of Rs.10,44,880/- only. The AO finally assessedtotal income at Rs. 3,87,330/- which includes salary income of Rs.2,12,340, capital gain of Rs. 2,00,219/- and income from othersources at Rs.47,817/-. The ld. CIT-II, Jaipur had examined theassessment and found that the order of the AO dated 5-10-2011is erroneous and prejudicial to the interest of Revenue. 5.Counsel for the appellant has taken us to the provisions ofSection 54B & 54F which reads as under:- 54B. (1) Subject to the provisions of sub-section(2), where the capital gain arises from thetransfer of a capital asset being land which, inthe two years immediately preceding the date onwhich the transfer took place, was being used bythe assessee being an individual or his parent, ora Hindu undivided family for agriculturalpurposes (hereinafter referred to as the originalasset), and the assessee has, within a period oftwo years after that date, purchased any otherland for being used for agricultural purposes,then, instead of the capital gain being charged toincome-tax as income of the previous year inwhich the transfer took place, it shall be dealtwith in accordance with the following provisionsof this section, that is to say,— (i) if the amount of the capital gain is greaterthan the cost of the land so purchased(hereinafter referred to as the new asset), thedifference between the amount of the capitalgain and the cost of the new asset shall becharged under section 45 as the income of theprevious year; and for the purpose of computingin respect of the new asset any capital gainarising from its transfer within a period of threeyears of its purchase, the cost shall be nil; or (ii) if the amount of the capital gain is equal toor less than the cost of the new asset, the capitalgain shall not be charged under section 45; andfor the purpose of computing in respect of thenew asset any capital gain arising from itstransfer within a period of three years of itspurchase, the cost shall be reduced, by theamount of the capital gain. (ii) if the amount of the capital gain is equal toor less than the cost of the new asset, the capitalgain shall not be charged under section 45; andfor the purpose of computing in respect of thenew asset any capital gain arising from itstransfer within a period of three years of itspurchase, the cost shall be reduced, by theamount of the capital gain. (2) The amount of the capital gain which is notutilised by the assessee for the purchase of thenew asset before the date of furnishing thereturn of income under section 139, shall bedeposited by him before furnishing such return[such deposit being made in any case not laterthan the due date applicable in the case of theassessee for furnishing the return of incomeunder sub-section (1) of section 139] in anaccount in any such bank or institution as may bespecified in, and utilised in accordance with, anyscheme which the Central Government may, bynotification in the Official Gazette, frame in thisbehalf and such return shall be accompanied byproof of such deposit; and, for the purposes ofsub-section (1), the amount, if any, already utilised by the assessee for the purchase of thenew asset together with the amount so depositedshall be deemed to be the cost of the new asset : Provided that if the amount deposited under thissub-section is not utilised wholly or partly for thepurchase of the new asset within the periodspecified in sub-section (1), then,— (i) the amount not so utilised shall be chargedunder section 45 as the income of the previousyear in which the period of two years from thedate of the transfer of the original asset expires;and (ii) the assessee shall be entitled to withdrawsuch amount in accordance with the schemeaforesaid. '54F. Capital gain on transfer of certain. capitalassets not to be charged in case of investment inresidential house.—(1) Where, in the case of anassessee being an individual, the capital gainarises from the transfer of any long-term capitalasset, not being a residential house (hereafter inthis section referred to as the original asset), andthe assessee has, within a period of one yearbefore or after the date on which the transfertook place purchased, or has within a period ofthree years after that date constructed, aresidential house (hereafter in this sectionreferred to as the new asset), the capital gainshall be dealt with in accordance with thefollowing provisions of this section, that is to say,— (a) if the cost of the new asset is not less thanthe net consideration in respect of the originalasset, the whole of such capital gain shall not becharged under section 45; (b) if the cost of the new asset is less than thenet consideration in respect of the original asset,so much of the capital gain as bears to the wholeof the capital gain the same proportion as thecost of the new asset bears to the netconsideration, shall not be charged under section45: Provided that nothing contained in this sub-section shall apply where the assessee owns onthe date of the transfer of the original asset, orpurchases, within the period of one year aftersuch date, or constructs, within the period of three years after such date, any residentialhouse, the income from which is chargeableunder the head "Income from house property",other than the new asset. Explanation.—For the purposes of this section,—(i) "long-term capital asset" means a capitalasset which is not a short-term capital asset; (ii) "net consideration", in relation to the transferof a capital asset, means the full value of theconsideration received or accruing as a result ofthe transfer of the capital asset as reduced byany expenditure incurred wholly and exclusivelyin connection with such transfer. three years after such date, any residentialhouse, the income from which is chargeableunder the head "Income from house property",other than the new asset. Explanation.—For the purposes of this section,—(i) "long-term capital asset" means a capitalasset which is not a short-term capital asset; (ii) "net consideration", in relation to the transferof a capital asset, means the full value of theconsideration received or accruing as a result ofthe transfer of the capital asset as reduced byany expenditure incurred wholly and exclusivelyin connection with such transfer. (2) Where the assessee purchases, within theperiod of one year after the date of the transferof the original asset, or constructs, within theperiod of three years after such date, anyresidential house, the income from which ischargeable under the head "Income from houseproperty", other than the new asset, the amountof capital gain arising from the transfer of theoriginal asset not changed under section 45 onthe basis of the cost of such new asset asprovided in clause (a), or, as the case may be,clause (b), of sub-section (1), shall be deemed tobe income chargeable under the head "Capitalgains" relating to long-term capital assets of theprevious year in which such residential house ispurchased or constructed. (3) Where the new asset is transferred within aperiod of three years from the date of itspurchase or, as the case may be, its construction,the amount of capital gain arising from thetransfer of the original asset not charged undersection 45 on the basis of the cost of such newasset as provided in clause, (a) or, as the casemay be, clause (b), of sub-section (I) shall bedeemed to be income chargeable under the head"Capital gains" relating to long-term capitalassets of the previous year in which such newasset is transferred.'. 5.1He contended that in view of the decisions of different HighCourts:- 1. MALABAR INDUSTRIAL CO. LTD. vs.COMMISSIONER OF INCOME TAX (SC)(2000) 243 ITR 0083 5. To consider the first contention, it will be apt toquote 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, and ifhe considers that any order passed therein by theassessing 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 jurisdiction bythe Commissioner suo moto under it, is that theorder of the Income Tax Officer is erroneousinsofar as it is prejudicial to the interests of therevenue. The Commissioner has to be satisfied oftwin conditions, namely, (i) the order of theassessing officer sought to be revised iserroneous; and (ii) it is prejudicial to the interestsof the revenue. If one of them is absent - if theorder of the Income Tax Officer is erroneous but isnot prejudicial to the revenue or if it is noterroneous but is prejudicial to the revenue -recourse cannot be had to section 263(1) of theAct. 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 order beingerroneous. In the same category fall orderspassed without applying the principles of naturaljustice or without application of mind. 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 order beingerroneous. In the same category fall orderspassed without applying the principles of naturaljustice 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 conferred to loss of tax. The High Court of Calcutta inDawjee Dadabhoy & Co. v. S.P. Jain & Anr. :[1957] 31 ITR 872 (Cal) , the High Court ofKarnataka in CIT v. T. Narayana Pai : [1975] 98ITR 422 (KAR) , the High Court of Bombay in CITv. Gabriel India Ltd. : [1993] 203 ITR 108 (Bom)and the High Court of Gujarat in CIT v. Smt.Minalben S. Parikh : [1995] 215 ITR 81 (Guj)treated loss of tax as prejudicial to the interestsof the revenue. 2. Commissioner of Income Tax vs. GanpatRam Bishnoi ( RAJHC) (2008) 296 ITR 0292 11. Undoubtedly, the jurisdiction under Section263 is wide and is meant to ensure that duerevenue ought to reach the public treasury and ifit does not reach on account of some mistake oflaw or fact committed by the AO, the CIT cancancel that order and require the concerned AO topass a fresh order in accordance with law afterholding a detailed enquiry. But when enquiry infact has been conducted and the AO has reacheda particular conclusion, though reference to suchenquiries has not been made in the order of theassessment, but the same is apparent from therecord of the proceedings, in the present case,without anything to say how and why the enquiryconducted by the AO was not in accordance withlaw, the invocation of jurisdiction by the CIT wasunsustainable. As the exercise of jurisdiction bythe CIT is founded on no material, it was liable tobe set aside. Jurisdiction under Section 263cannot be invoked for making short enquiries orto go into the process of assessment again andagain merely on the basis that more enquiryought to have been conducted to find something. 3. Commissioner of Income Tax vs. SunbeamAuto Ltd. (DELHC) : (2011) 332 ITR 0167 12. We have considered the rival submissions ofthe counsel on the other side and have gonethrough the records. The first issue that arises forour consideration is about the exercise of powerby the Commissioner of Income Tax under Section263 of the Income Tax Act. As noted above, thesubmission of learned Counsel for the Revenuewas that while passing the assessment order, theAO did not consider this aspect specificallywhether the expenditure in question was revenueor capital expenditure. This argument predicateson the assessment order, which apparently does 3. Commissioner of Income Tax vs. SunbeamAuto Ltd. (DELHC) : (2011) 332 ITR 0167 12. We have considered the rival submissions ofthe counsel on the other side and have gonethrough the records. The first issue that arises forour consideration is about the exercise of powerby the Commissioner of Income Tax under Section263 of the Income Tax Act. As noted above, thesubmission of learned Counsel for the Revenuewas that while passing the assessment order, theAO did not consider this aspect specificallywhether the expenditure in question was revenueor capital expenditure. This argument predicateson the assessment order, which apparently does not give any reasons while allowing the entireexpenditure as Revenue expenditure. However,that by itself would not be indicative of the factthat the AO had not applied his mind on the issue.There are judgments galore laying down theprinciple that the AO in the assessing order is notrequired to give detailed reason in respect of eachand every item of deduction, etc. Therefore, onehas to see from the record as to whether therewas application of mind before allowing theexpenditure in question as revenue expenditure.Learned Counsel for the assessee is right in hissubmission that one has to keep in mind thedistinction between "lack of inquiry" and"inadequate inquiry". If there was any inquiry,even inadequate that would not by itself giveoccasion to the Commissioner to pass ordersunder Section 263 of the Act, merely because hehas different opinion in the matter. It is only incases of "lack of inquiry" that such a course ofaction would be open. In Gabriel India Ltd.(Supra), law on this aspect was discussed in thefollowing manner: xxx.... From a reading of Sub-section (1) ofsection, it is clear that the power of suo moturevision can be exercised by the Commissioneronly if, on examination of the records of anyproceedings under this Act, he considers that anyorder passed therein by the Income Tax Officer is"erroneous in so far as it is prejudicial to theinterests of the Revenue". It is not an arbitrary orunchartered power. It can be exercised only onfulfilment of the requirements laid down in Sub-section (1). The consideration of theCommissioner as to whether an order iserroneous in so far as it is prejudicial to theinterests of the Revenue, must be based onmaterials on the record of the proceedings calledfor by him. If there are no materials on record onthe basis of which it can be said that theCommissioner acting in a reasonable mannercould have come to such a conclusion, the veryinitiation of proceedings by him will be illegal andwithout jurisdiction. The Commissioner cannotinitiate proceedings with a view to starting fishingand roving enquiries in matters or orders whichare already concluded. Such action will be againstthe well-accepted policy of law that there must bea point of finality in all legal proceedings, thatstale issues should not be reactivated beyond aparticular stage and that lapse of time mustinduce repose in and set at rest judicial and quasi-judicial controversies as it must in otherspheres of human activity. (See ParashuramPottery Works Co. Ltd. v. ITO : [1977] 106 ITR 1(SC) at page 10). x x x quasi-judicial controversies as it must in otherspheres of human activity. (See ParashuramPottery Works Co. Ltd. v. ITO : [1977] 106 ITR 1(SC) at page 10). x x x From the aforesaid definitions it is clear that anorder cannot be termed as erroneous unless it isnot in accordance with law. If an Income TaxOfficer acting in accordance with law makes acertain assessment, the same cannot be brandedas erroneous by the Commissioner simplybecause, according to him, the order should havebeen written more elaborately This section doesnot visualise a case of substitution of thejudgment of the Commissioner for that of theIncome Tax Officer, who passed the order unlessthe decision is held to be erroneous. Cases maybe visualised where the Income Tax Officer whilemaking an assessment examines the accounts,makes enquiries, applies his mind to the facts andcircumstances of the case and determines theincome either by accepting the accounts or bymakingsomeestimatehimself.TheCommissioner, on perusal of the records, may beof the opinion that the estimate made by theofficer concerned was on the lower side and left tothe Commissioner he would have estimated theincome at a figure higher than the onedetermined by the Income Tax Officer. That wouldnot vest the Commissioner with power to re-examine the accounts and determine the incomehimself at a higher figure. It is because theIncome Tax Officer has exercised the quasi-judicial power vested in him in accordance withlaw and arrived at conclusion and such aconclusion cannot be termed to be erroneoussimply because the Commissioner does not feelsatisfied with the conclusion. x x x There must be some prima facie material onrecord to show that tax which was lawfully eligiblehas not been imposed or that by the applicationof the relevant statute on an incorrect orincomplete interpretation a lesser tax than whatwas just has been imposed. x x x We may now examine the facts of the presentcase in the light of the powers of theCommissioner set out above. The Income TaxOfficer in this case had made enquiries in regard to the nature of the expenditure incurred by theassessee. The assessee had given detailedexplanation in that regard by a letter in writing.All these are part of the record of the case.Evidently, the claim was allowed by the IncomeTax Officer on being satisfied with the explanationof the assessee. Such decision of the Income TaxOfficer cannot be held to be "erroneous" simplybecause in his order he did not make an elaboratediscussion in that regard.… xxx 13. When we examine the matter in the light ofthe aforesaid principle, we find that the AO hadcalled for explanation on this very item, from theassessee and the assessee had furnished hisexplanation vide letter dated 26.09.2002. Thisfact is even taken note of by the Commissionerhimself in Para 3 of his order dated 03.11.2004.This order also reproduces the reply of therespondent in Para 3 of the order in the followingmanner: The tools and dies have a very short life andcan produce upto maximum 1 lakh permissibleshorts and have to be replaced thereafter toretain the accuracy. Most of the partsmanufactured are for the automobile industrieswhich have to work on complete accuracy at highspeed for a longer period. Since it is an ongoingprocedure, a company had produced 10,75,000sets whose selling rates is inclusive of thereimbursement of the dies cost. The purchaseorders indicating the costing includes thereimbursement of dies cost are being producedbefore your honour. Since the sale rate includesthe reimbursement of die cost and to have thematching effect, the cost of the dies has beenclaimed as a Revenue Expenditure. The tools and dies have a very short life andcan produce upto maximum 1 lakh permissibleshorts and have to be replaced thereafter toretain the accuracy. Most of the partsmanufactured are for the automobile industrieswhich have to work on complete accuracy at highspeed for a longer period. Since it is an ongoingprocedure, a company had produced 10,75,000sets whose selling rates is inclusive of thereimbursement of the dies cost. The purchaseorders indicating the costing includes thereimbursement of dies cost are being producedbefore your honour. Since the sale rate includesthe reimbursement of die cost and to have thematching effect, the cost of the dies has beenclaimed as a Revenue Expenditure. 14. This clearly shows that the AO hadundertaken the exercise of examining as towhether the expenditure incurred by the assesseein the replacement of dyes and tools is to betreated as revenue expenditure or not. It appearsthat since the AO was satisfied with the aforesaidexplanation, he accepted the same. The CIT in hisimpugned order even accepts this in the followingword: AO accepted the explanation without raisingany further questions, and as stated earlier,completed the assessment at the returnedincome. 15. Thus, even the Commissioner conceded theposition that the AO made the inquiries, elicitedreplies and thereafter passed the assessmentorder. The grievance of the Commissioner wasthat the AO should have made further inquiriesrather than accepting the explanation. Therefore,it cannot be said that it is a case of 'lack ofinquiry'. 16. Having put the records straight on this aspect,let us proceed further. Is it a case where theCommissioner has concluded that the opinion ofthe AO was clearly erroneous and not warrantedon the facts before him and, viz., the expenditureincurred was not the revenue expenditure butshould have been treated as capital expenditure?Obviously not. Even the Commissioner in hisorder, passed under Section 263 of the Act, is notclear as to whether the expenditure can betreated as capital expenditure or it is revenue innature. No doubt, in certain cases, it may not bepossible to come to a definite finding andtherefore, it is not necessary that in all cases theCommissioner is bound to express final view, asheld by this Court in Geevee Enterprise [supra].But, the least that was expected was to record afinding that order sought to be revised waserroneous and prejudicial to the interest of therevenue. [see Sashayee Paper(supra)]. No basisfor this is disclosed. In sum and substance,accounting practice of the assessee is questioned.However, that basis of the order vanishes in thinair when we find that this very accountingpractice, followed for number of years, had theapproval of the income tax authorities.Interestingly, even for future assessment years,the same very accounting practice is accepted. 18. Let us look into the matter from anotherangel. What was the material/informationavailable with the AO on the basis of which heallowed the expenditure as revenue? It wasdisclosed to him that the assessee is amanufacturer of car parts. In the manufacturingprocess, dyes are fitted in machines by which thecar parts are manufactured. These dyes are thusthe components of the machines. These dyesneed constant replacement, as their life is notmore than a year. The assessee had alsoexplained that since these parts are manufacturedfor the automobile industry, which have to workon complete accuracy at high speed for a longerperiod, replacement of these parts at short 18. Let us look into the matter from anotherangel. What was the material/informationavailable with the AO on the basis of which heallowed the expenditure as revenue? It wasdisclosed to him that the assessee is amanufacturer of car parts. In the manufacturingprocess, dyes are fitted in machines by which thecar parts are manufactured. These dyes are thusthe components of the machines. These dyesneed constant replacement, as their life is notmore than a year. The assessee had alsoexplained that since these parts are manufacturedfor the automobile industry, which have to workon complete accuracy at high speed for a longerperiod, replacement of these parts at short intervals becomes imperative to retain accuracy.Because of these reasons, these tools and dyeshave a very short span of life and it could producemaximum one lakh permissible shorts. Thereafter,they have to be replaced. With the replacement ofsuch tools and dyes, which are the components ofa machine, no new assets comes into existence,nor is their benefit of enduring nature. It does noteven enhance the life of existing machine ofwhich these tools and dyes are only parts. Noproduction capacity of the existing machines isincreased either. The Tribunal, in thesecircumstances, relied upon the judgment ofMysore Spun Concrete Pipe Pvt. Ltd. (supra),wherein Karnataka High Court held that thereplacement of moulds was not in the nature ofreplacement of a capital machinery, but in thenature of replacement a part of the machinerywhich in turn was in the nature of maintenance ofmachinery installed in the factory. Such anexpenditure was treated as revenue expenditure.With this position in law, it is clear that view takenby the AO was one of the possible views andtherefore, the assessment order passed by the AOcould not be held to be prejudicial to the revenue.Such an order thus has rightly been set aside bythe Tribunal. 21. Thus, from whatever the matter is to belooked into, the conclusion would be that theorder of the Tribunal does not call for anyinterference as the question of law has rightlybeen decided. We, thus, answer this question infavour of the assessee and against the Revenue,consequence whereof this appeal is dismissedwith cost. 4. Commissioner of Income Tax vs.Associated Food Products P. Ltd. and PopularBread Factory (MPHC) (2006) 280 ITR 0377 8. On a scanning of the anatomy of the saidprovision, it is demonstrable that certain statutorysatisfactions are to be arrived at on acceptableparameters before exercise of the saidjurisdiction. As the provision stipulates the orderpassed by the Assessing Officer should appear tobe grossly erroneous and at the same timeprejudicial to the interests of the Revenue, boththe things should exist together and they shouldnot be considered in an isolated manner; and thatthe time gap between the act and invocation ofjurisdiction and passing of the order has to betaken into consideration. The said provision has been considered on many occasions. In the caseofCITv.GabrielIndiaLtd.:[1993]203ITR108(Bom) a Division Bench of theBombay High Court has expressed the view asunder (page 113) : 8. On a scanning of the anatomy of the saidprovision, it is demonstrable that certain statutorysatisfactions are to be arrived at on acceptableparameters before exercise of the saidjurisdiction. As the provision stipulates the orderpassed by the Assessing Officer should appear tobe grossly erroneous and at the same timeprejudicial to the interests of the Revenue, boththe things should exist together and they shouldnot be considered in an isolated manner; and thatthe time gap between the act and invocation ofjurisdiction and passing of the order has to betaken into consideration. The said provision has been considered on many occasions. In the caseofCITv.GabrielIndiaLtd.:[1993]203ITR108(Bom) a Division Bench of theBombay High Court has expressed the view asunder (page 113) : From a reading of Sub-section (1) of Section 263,it is clear that the power of suo motu revision canbe exercised by the Commissioner only if, onexamination of the records of any proceedingsunder this Act, he considers that any order passedtherein by the Income Tax Officer is 'erroneous inso far as it is prejudicial to the interests of theRevenue'. It is not an arbitrary or uncharteredpower. It can be exercised only on fulfilment ofthe requirements laid down in sub-section (1).The consideration of the Commissioner as towhether an order is erroneous in so far as it isprejudicial to the interests of the Revenue, mustbe based on materials on the record of theproceedings called for by him. If there are nomaterials on record on the basis of which it canbe said that the Commissioner acting in areasonable manner could have come to such aconclusion, the very initiation of proceedings byhim will be illegal and without jurisdiction. TheCommissioner cannot initiate proceedings with aview to starting fishing and roving enquiries inmatters or orders which are already concluded.Such action will be against the well-acceptedpolicy of law that there must be a point of finalityin all legal proceedings, that stale issues shouldnot be reactivated beyond a particular stage andthat lapse of time must induce repose in and setat rest judicial and quasi-judicial controversies asit must in other spheres of human activity, (seeParashuram Pottery Works Co. Ltd. v. ITO :[1977]106ITR1(SC) ). As observed in Sirpur Paper Mills Ltd. v. ITO :[1978]114ITR404(AP) by Raghuveer J. (as hisLordship then was), the Department cannot bepermitted to begin fresh litigation because of newviews they entertain on facts or new versionswhich they present as to what should be theinference or proper inference either of the factsdisclosed or the weight of the circumstances. Ifthis is permitted, litigation would have no end,'except when legal ingenuity is exhausted'. To doso, is '. . . to divide one argument into two and tomultiply the litigation '. The power of suo motu revision under Sub-section (1) is in the nature of supervisory As observed in Sirpur Paper Mills Ltd. v. ITO :[1978]114ITR404(AP) by Raghuveer J. (as hisLordship then was), the Department cannot bepermitted to begin fresh litigation because of newviews they entertain on facts or new versionswhich they present as to what should be theinference or proper inference either of the factsdisclosed or the weight of the circumstances. Ifthis is permitted, litigation would have no end,'except when legal ingenuity is exhausted'. To doso, is '. . . to divide one argument into two and tomultiply the litigation '. The power of suo motu revision under Sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only ifthe circumstances specified therein exist. Twocircumstances must exist to enable theCommissioner to exercise power of revision underthis Sub-section, viz., (i) the order is erroneous ;(ii) by virtue of the order being erroneousprejudice has been caused to the interests of theRevenue. It has, therefore, to be consideredfirstly as to when an order can be said to beerroneous. We find that the expressions'erroneous','erroneousassessment'and'erroneous judgment' have been defined in Black'sLaw Dictionary. According to the definition,'erroneous' means 'involving error ; deviatingfrom the law'. 'Erroneous assessment' refers to anassessment that deviates from the law and is,therefore, invalid, and is a defect that isjurisdictional in its nature, and does not refer tothe judgment of the Assessing Officer in fixing theamount of valuation of the property. Similarly,'erroneous judgment' means 'one renderedaccording to course and practice of court, butcontrary to law, upon mistaken view of law, orupon erroneous application of legal principles'. The Division Bench proceeded further to state asunder (page 116) : We, therefore, hold that in order to exercisepower under Sub-section (1) of Section 263 of theAct there must be material before theCommissioner to consider that the order passedby the Income Tax Officer was erroneous in so faras it is prejudicial to the interests of the Revenue.We have already held what is erroneous. It mustbe an order which is not in accordance with thelaw or which has been passed by the Income TaxOfficer without making any enquiry in unduehaste. We have also held as to what is prejudicialto the interests of the Revenue. An order can besaid to be prejudicial to the interests of theRevenue if it is not in accordance with the law inconsequence whereof the lawful revenue due tothe State has not been realised or cannot berealised. There must be material available on therecord called for by the Commissioner to satisfyhim prima facie that the aforesaid two requisitesare present. If not, he has no authority to initiateproceedings for revision. Exercise of power of suomotu revision under such circumstances willamount to arbitrary exercise of power. It is well-settled that when exercise of statutory power isdependent upon the existence of certain objective facts, the authority before exercising such powermust have materials on record to satisfy it in thatregard. If the action of the authority is challengedbefore the court it would be open to the courts toexamine whether the relevant objective factorswere available from the records called for andexamined by such authority. Our aforesaidconclusion gets full support from a decision ofSabyasachi Mukharji J. (as his Lordship then was)in Russell Properties Pvt. Ltd. v. A. Chowdhury,Addl. CIT : [1977]109ITR229(Cal) . In ouropinion, any other view in the matter will amountto giving unbridled and arbitrary power to therevising authority to initiate proceedings forrevision in every case and start re-examinationand fresh enquiries in matters which have alreadybeen concluded under the law. As already statedit is a quasi-judicial power hedged in withlimitation and has to be exercised subject to thesame and within its scope and ambit. So far ascalling for the records and examining the same isconcerned, undoubtedly, it is an administrativeact, but on examination 'to consider' or in otherwords, to form an opinion that the particularorder is erroneous in so far as it is prejudicial tothe interests of the Revenue, is a quasi-judicialact because on this consideration or opinion thewhole machinery of re-examination andreconsideration of an order of assessment, whichhas already been concluded and controversywhich has been set at rest, is set again in motion.It is an important decision and the same cannotbe based on the whims or caprice of the revisingauthority. There must be materials available fromthe records called for by the Commissioner. 9. In view of the aforesaid pronouncement of lawand taking into consideration the languageemployed under Section 263 of the Act, it is clearas crystal that before exercise of powers tworequisites are imperative to be present. In theabsence of such foundation exercise of a suomotu power is impermissible. It should not bepresumed that initiation of power under suo moturevision is merely an administrative act. It is anact of a quasi-judicial authority and based onformation of an opinion with regard to existenceof adequate material to satisfy that the decisiontaken by the Assessing Officer is erroneous aswell as prejudicial to the interests of the Revenue.The concept of "prejudicial to the interests of theRevenue" has to be correctly and soundlyunderstood. It precisely means an order which has not been passed in consonance with theprinciples of law which has in ultimate eventuateaffected realisation of lawful revenue either by theState has not been realised or it has gone beyondrealisation. These two basic ingredients have tobe satisfied as sine qua non for exercise of suchpower. On a perusal of the material brought onrecord and the order passed by the Commissionerit is perceptible that the said authority has notkept in view the requirement of Section 263 ofthe Act inasmuch as the order does not reflectany kind of satisfaction. As is manifest the saidauthority has been governed by a singular factorthat the order of the Assessing Officer is wrong.That may be so but that is not enough. What wasthe sequitur or consequence of such order quaprejudicial to the interest of the Revenue shouldhave been focussed upon. That having not beendone, in our considered opinion, exercise ofjurisdiction under Section 263 of the Act is totallyerroneous and cannot withstand scrutiny. Hence,the Tribunal has correctly unsettled and dislodgedthe order of the Commissioner. 5. Commissioner of Income Tax vs. DeepakMittal (PHHC) (2010) 324 ITR 0411 5. Commissioner of Income Tax vs. DeepakMittal (PHHC) (2010) 324 ITR 0411 3. The Assessing Officer has given a categoricalfinding that the assessee is engaged in theprocess of manufacturing of products andaccordingly he has granted concession underSection 80-IB of the Act. The Tribunal has placedreliance on a Judgment of the hon'ble theSupreme Court in the case of Textile MachineryCorporation Ltd. v. CIT : (1977) 107 ITR 195. Inthat case the assessee was engaged in themachining of raw-casting, heat treatment of raw-crank shaft and polishing of raw casting etc. andis therefore it has been held that the assessee isengaged in manufacturing or production ofarticles. Similar view was taken by the MadrasHigh Court in the case of CIT v. Perfect Liners :(1983) 142 ITR 654. The claim of the asses-seehas been found to be genuine as the assessee hasexplained the various processes after thecomponents are received from M/s. AutoComponents Indl. Corporation, Baddi (Solan). Itshows that after the receipt of components, thefirst operation undertaken by the assessee-respondent is the vertical machining centre onCNC machine which has been explained as under: One this CNC machine drilling, reaming,chamfering, pad milling operation are being done,with respect to dowel hole on next machineboring machine/and tapping. After the above operation, rear cover will beready for further assembly. In assembly, few important parts like ramcylinder, response ball, rock shaft etc. are fitted tocomplete the sub assembly. It is in respect of twotype of rear covers received after receivingmachine from Baddi. In respect of differential housing and reductionunit, different sets of machines are there forfurther operation to make the component readyfor assembly. As at present, these twocomponents are not in stock, as such the workingof the same cannot be shown. 4. Likewise major process is completed by theassessee-respondent and the same has beenexplained in answer to various questions. All critical machinery operation of chassis partsi.e., rear cover, differential housing and reductionunit are being done at M/s ITL, Hoshiarpur onprecision sophisticated CNC and other specialpurpose machines. 5. The Assessing Officer has also examined thevarious workers of the assessee and have thenrecorded the finding which answer the provisionsof Section 80-IB(4) of the Act. 6. Having heard the Learned Counsel at aconsiderable length, we are of the view that theorder of the Tribunal does not suffer from anylegal infirmity or give rise to any such substantivequestion of law which may warrant admission ofthe appeal. The exercise of revisional jurisdictionby the Commissioner of Income Tax is whollywithout any justification. It has rightly been heldthat change of opinion by reappraising theevidence is not within the parameter of revisionaljurisdiction of the Commissioner of Income Taxunder Section 263 of the Act. Therefore, theappeal fails and the same is dismissed. 6. CIT vs. International Travel House Ltd.,(2012) 344 ITR 0554 (Del) 13. It has to be kept in mind that while exercisingpower under Section 263 of the Act, theCommissioner has to be satisfied that the order isprejudicial to the interest of the revenue and 6. CIT vs. International Travel House Ltd.,(2012) 344 ITR 0554 (Del) 13. It has to be kept in mind that while exercisingpower under Section 263 of the Act, theCommissioner has to be satisfied that the order isprejudicial to the interest of the revenue and there are materials available on record whichrequire the Commissioner to satisfy him in aprima facie manner that the order is not onlyprejudicial to the interest of the revenue but alsoerroneous in nature. In the absence of any of thefactors being satisfied, he does not assumejurisdiction to initiate a suo motu power ofrevision. The exercise of such a power isdependent on the conditions precedent beingsatisfied. The Commissioner does not haveunfettered power to initiate proceeding byrevision, re-e