The Tax Publishers2013 TaxPub(DT) 0476 (Hyd-Trib) : (2013) 050 (II) ITCL 0444 : (2013) 055 SOT 0054

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial order Lack of enquiry vis-a-vis burden of proof--Assessee's assessment was completed under section 143(3) inter alia allowing commission paid to various parties. The Commissioner noticed that assessee had only finished confirmation letters of the parties and however, it had not furnished any details regarding the services rendered by the said parties. The assessing officer had in the opinion of Commissioner, allowed commission payment without making enquiry as regards to genuineness of services rendered by the parties. The thus set aside the order of assessing officer under section 263. Held: An order passed by assessing officer was not eroneous order but was stereo type order and enquiries which ought to have been made on facts of the case were not made and not because any thus wrong with the order if all the facts stated or claims made in the return are assumed to be convert, The order of assessing officer is therefore remanded back to examine entire facts.

An order passed by the assessing officer becomes erroneous and prejudicial to the interests of the revenue under section 263 in the following cases: (i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it. (ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. (iii) The order passed by the assessing officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case. [Para 25] Perusal of the assessment order passed by the assessing officer does not show any application of mind on his part. He simply accepted the income declared by the assessee. This is a case where the assessing officer mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry. The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the assessing officer. It is because of such non-consideration of the issues on the part of the assessing officer that the return filed by the assessee stood automatically accepted without any proper scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The assessing officer has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the assessing officer to pass a fresh order considering the issues raised by the Commissioner. The assessee should have no grievance in the action of Commissioner in exercising the jurisdiction under section 263. [Para 26] An order becomes erroneous because inquiries, which ought to have been made on the facts of the case, were not made and not because there is anything wrong with the order if all the facts stated or the claims made in the return are assumed to be correct. Thus, it is mere failure on the part of the assessing officer to make the necessary inquiries or to examine the claim made by the assessee in accordance with law, which renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing more is required to be established in such a case. One would not know as to what would have happened if the assessing officer had made the requisite inquiries or examined the claim of the assessee in accordance with law. He could have accepted the assessee's claim. Equally, he could have also rejected the assessee's claim depending upon the results of his enquiry or examination into the claim of the assessee. Thus, the formation of any view by the assessing officer would necessarily depend upon the results of his inquiry and conscious, and not passive, examination into the claim of the assessee. If the assessing officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the assessing officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing else is required to be established in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the revenue. [Para 27] We are unable to accept the submission of the learned Counsel for two other reasons also. First reason is that the view so taken by the assessing officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under section 263. Second reason is that it is not taking of any view that will take the matter under the scope of section 263. The view taken by the assessing officer should not be a mere view in vacuum but a judicial view. It is well established that the assessing officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee/revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. As already stated earlier, we are not able to appreciate on what material was placed before the assessing officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the assessing officer in this regard. Therefore mere allegation that the assessing officer has taken a view in the matter will not put the matter beyond the purview of section 263 unless the view so taken by the assessing officer is a judicial view consciously based upon proper inquiries and appreciation of all the relevant factual and legal aspects of the case. The judicial view taken by the assessing officer may perhaps place the matter outside the purview of section 263 unless it is shown that the view so taken by the assessing officer contains some apparent error of reasoning or of law or of fact on the face of it. [Para 28] Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the assessing officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the assessing officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order to apply the aforesaid observations to a given case, it must therefore first be shown that the assessing officer has 'adopted' a permissible course of law or, where two views are possible, the assessing officer has 'taken' one such possible view in the order sought to be revised under section 263. This requires the assessing officer to take a conscious decision; else he would neither be able to 'adopt' a course permissible in law nor 'take' a view where two or more views are possible. In other words, it is the assessing officer who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the assessing officer can be attributed to have 'adopted' a permissible course of law or 'taken' a view where two or more views are possible when the order passed by him does not speak in that behalf. Tribunal cannot assume, in order to provide legitimacy to the assessment order, that the assessing officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the Counsel, if accepted, would require us to form, substitute and read in the order of the assessing officer when the assessing officer himself has not taken a view. It could have been a different position if the assessing officer had 'adopted' or 'taken' a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us; the assessing officer has not at all examined as to whether only one view was possible or two or more views were possible and here, the question of his adopting or choosing one view in preference to the other does Hot arise, The aforesaid observations of the Hon'ble Supreme Court do not, in our view, help the assessee; and rather they are against the assessee. [Para 30] The assessing officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income Tax Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. As mentioned earlier, the assessee can have the prejudice caused to him corrected by filing an appeal; as also by filing a revision application under section 264. But the State Exchequer has no right of appeal against the orders of the assessing officer. Section 263 has therefore been enacted to empower the Commissioner to correct an erroneous order passed by the assessing officer which he considers to be prejudicial to the interest of the revenue. The Commissioner has also been empowered to invoke his revisional jurisdiction under section 264 at the instance of the assessee also. The line of difference between sections 263 and 264 is that while the former can be invoked to remove the prejudice caused to the State the later can be invoked to remove the prejudice caused to the assessee. The provisions of section 263 would lose significance if they were to be interpreted in a manner that prevented the Commissioner from revising the erroneous order passed by the assessing officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter productive as it would have the effect of promoting arbitrariness in the decisions of the assessing officer and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest taxpayers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of section 263. [Para 33] The Commissioner was of the opinion that there is no proper enquiry by the assessing officer. The assessing officer accepted the claim of payment of commission by placing reliance only on confirmation letters filed by the assessee firm without conducting further enquiry with regard to genuineness of the commission payments. The assessing officer not gathered any information regarding the genuineness of payments and evidence to suggest the nature of services rendered by these parties. It is incumbent on the part of the assessing officer to come to independent conclusion that the payments commensurate with the nature of services rendered by the parties. 'The assessing officer absolutely closed his eyes for extraneous reasons and accepted the commission payments just on the basis of confirmation letters. Confirmation letters themselves cannot prove the genuineness of the payments and nature of services rendered. Being so, it has to be examined thoroughly. At this point, we make it clear that the Commissioner though said in his order that there is no proper enquiry by the assessing officer, he, instead of directing the assessing officer to carry on further enquiry from the point where he has stopped, disallowed the entire commission payments. This is not proper. The Commissioner is required to cause enquiry himself regarding the genuineness of payments of commission or got it done from the assessing officer. In the present case, he failed on both the counts. Being so, in our opinion, it is appropriate to remit the entire issue back to the file of the assessing officer to carry further enquiry. Accordingly, the order of the Commissioner is modify to that extent and remit the entire issue to the file of the assessing officer to carry further enquiry as the case warrants regarding genuineness of the commission payments to the parties. The assessing officer is directed to examine the entire issue and if he finds the assessee has incurred any commission payments wholly and exclusively for the purpose of business commensurate with the services rendered by the respective parties, the same is to be allowed to that extent. [Para 35]

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