ITA 1/2005 BEFORE HON’BLE MR. JUSTICE AFTAB H. SAIKIA HON’BLE MR. JUSTICE HRISHIKESH ROY These appeals by the Revenue under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as the IT Act ) have been filed to challenge the common order dated 20.10.04 passed by the Income Tax Appellate Tribunal Guwahati Bench (hereinafter referred to as the Tribunal ). The Tribunal passed the impu gned order in a batch of 16 appeals, filed by the assessees, against the suo mot o Revisional Order passed under Section 263 of the I.T. Act, by the Commissione r of Income Tax (CIT), Guwahati-II, whereby the order of the CIT has been quashe d and the appeals were disposed of in favour of the assessees. 2. The main question for determination in these cases relate to the scope a nd ambit of the power of the Commissioner, to exercise suo-moto power of Revisio n under section 263(1) of the I.T. Act, 1961. 3. As all the Appeals have been heard analogously and the parties are repre sented by same counsels, they are being disposed off by this common order. 4. The facts in the case pertaining to M/S. Daga Entrade (P) Limited in ITA 117(Guwahati) of 2004 had been noted by the learned Tribunal, and since the re levant facts are not different for the other assesses, the necessary facts for a djudicating the present appeal reflected in this order, pertain to Income Tax Ap peal No. ITA 1/2005 (Commissioner of Income Tax Vs. M/S. Daga Entrade (P) Limit ed). 5. The assessee, M/S. Daga Entrade (P) Limited filed Return of Income on 30 .11.2000 showing total income of Rs. 11,400/-. The case was selected for scrutin y and process under Sections 142(1) and 142(2) were issued. 6. Following information gathered by the Department that M/s. S S Sipani & Co. is providing accommodation entries, search operations were made at Bangalore and in the office of Mr. D.K. Sipani C.A. at Guwahati. Following search, blank share certificates of 28 companies were found. This indicated that several finan ce companies have been floated to use them for providing accommodation entries. Accordingly, in the appraisal report prepared thereafter (Copy made available fo r perusal), it was recommended to the Assessing Officers in respect of assessees who have availed of the accommodation entries from such financial companies, to carry out detailed investigation and verification. 7. After assessment for the year 2000-2001 was made, the CIT initiated suo motu Revisional Proceeding under Section 263 of the I.T. Act against the respond ent companies. The proceeding was initiated on the ground that the Assessing Off icer (A.O.) while finalizing assessment, did not make any enquiry with regard to the appraisal report of the DDIT (Investigation) in the Sipani group of compani es and because of such omission, the assessment order has been rendered erroneou s and prejudicial to the interest of Revenue. Accordingly the order of assessm ent was set aside by the order dt. 1.7.2004 of the CIT and the Assessing Officer was directed to pass fresh order as per law, after apprising the respondents as sessee with the findings of the investigation and affording them an opportunity, to controvert the said findings. 8. The exercise of suo motu Revisional Power by the CIT under Section 263 o f the I.T. Act was challenged by the aggrieved assessees in the Tribunal, by fi ling separate appeals. 9. While considering the Appeals, the learned Tribunal found that the only ground for exercise of Revisional Powers, was non-consideration of the appraisal report of the DDIT (Investigation), by the Assessing Officer, while finalizing assessment. The Tribunal further found that the contents of the appraisal report have not been discussed by the CIT. Therefore the Judicial Member of the Tribun al declared that, he is not in a position to gather the basis on which, the CIT assumed jurisdiction to pass orders under section 263 of the IT Act. The Tribuna l concluded that the CIT’s order suffers from material defect and accordingly qu ashed the CIT’s order. 10. Mr. U. Bhuyan, learned standing counsel of the Income Tax Deptt. submits that there is no infirmity in exercise of suo motu Revisional Power by the CIT inasmuch as, it has been found by the CIT that the appraisal report, following t he search made by the DDIT (Investigation), have not been considered by the Asse ssing Officer at the time of making assessments. It is also pointed out that the said appraisal report prepared after search and seizure operation in the Sipani group of company’s office at Bangalore and the office of their chartered accoun tant Mr. D.K. Sipani at Guwahati, were very much available with the Assessing Of ficer. Yet the Assessing Officer did not make any enquiry with regard to the fin dings and recommendations in the said appraisal report, while finalizing the ass essments. Accordingly it is contended that because of this omission, the assessm ent orders have become erroneous and has also caused prejudice to the interest o f the Revenue and therefore, exercise of suo motu Revisional Power by the CIT un der Section 263(1) of the I.T. Act and directing of fresh assessments, was justi fied in law. 11. Learned counsel for the Revenue also contends that the CIT has held the Assessment order to be erroneous, since a very relevant investigating (appraisa l) report has not been considered by the Assessing Officer nor the assessees wer e confronted with the facts found in the said report. Because of such omission, the assessment orders cannot be said to have been passed after due consideration of all the relevant matters. Accordingly it is submitted the said assessment or ders have been rightly found to be erroneous and also prejudicial to the intere st of Revenue. 12. The following decisions of the Supreme Court and of different High Court s have been relied on by the learned counsel appearing for the Revenue to explai n the contour of the suo motu Revisional Power of the Commissioner, under Sectio n 263(1) of the I.T. Act , 1961 or the corresponding Section 33B of the earlier I.T. Act, 1922:- (1) 1968(67) ITR 84 (Rampyari Devi Saraogi vs. CIT) (2) 1970(78) ITR 728 (CIT vs. Panna Devi Saraogi). (3) 1973(88) ITR 323 (Smt. Tara Devi Agarwal vs. CIT) (4) 1978(111) ITR 312 (Addl. CIT vs. Mukur Corporation). (5) 1978(115) ITR 34 (Addl. CIT vs. Saraya Distillery) (6) 2000(243) ITR 83 (SC) (Malabar Industrial Co. Ltd. vs. CIT). (7) 1958(34) ITR 140 (CIT vs. Amritlal Bhogilal and Company). 13. Appearing for the assessees, Mr. V.K. Bhatra, learned counsel submits th at clear statutory limits on exercise of suo motu Revisional Powers under the In come Tax, 1961 has been imposed and merely because the assessment order is erron eous, unless prejudice to the interest of Revenue is established, exercise of su o motu Revisional Power would not be justified in law. 14. The learned counsel also contends that error of the Assessing Officer ha s to be in the nature of the jurisdictional error and in the instant case since there was no jurisdictional error committed by the A.O., exercise or suo motu Re visional Power by the CIT was not justified. Mr. Bhatra relies on the decisions of this Court in S.S. Agarwal vs. State of As sam reported in 2003(1) GLR 448 and also the decision in BRPL vs. Union of India in 2006 (287) ITR 120 in support of his submissions. 15. He further submits that in the instant cases, exercise of appellate pow er under Section 260-A, which can be exercised only on substantial questions of law, would not be justified as it could not be demonstrated as to how the Tribun al’s order raises a substantial question of law. To indicate the powers of the High Court to entertain appeals unde r Section 260-A, the learned counsel has relied upon the following decisions: 1) 2006 (286) ITR 126 (CIT vs. Mangilal Didwania) 2) 2006 (283) ITR 267 (Sangrur Vanaspati Mills Ltd. vs. CIT) . 3) 2005 (274) ITR 334 (CIT vs. S.V. Electricals Pvt. Ltd.). 16. On examination of the order passed by the Commissioner under Section 263 of the I.T. Act , it is seen that the assessment orders passed by the Assessing Officer were held to be erroneous on the ground that, the relevant information revealed through the appraisal report of the DDIT (Investigation) were not en quired into and appropriate verification required to be made, were also not made by the Assessing Officer. This appraisal report was taken to be a relevant docu ment, required to be considered by the Assessing Officer and yet it was found th at, the Assessing Officer disregarded the report and never confronted the assess ee with the facts revealed in the appraisal report and assessments have been com pleted, without giving cognizance to the enquiry made by the Investigation wing of the Income Tax Department and the assessees were also kept in the dark, about the report of the Investigation. This was considered to be adequate justificati on by the CIT, for treating the assessments as erroneous and since it had result ed in prejudice to the interest of Revenue, the CIT exercised his suo motu Revis ional Power, under Section 263(1) of the I.T. Act. 17. Notwithstanding the aforesaid findings and justification of the Revision al Authority, the Tribunal while considering the appeals filed by the assessees, took the view that the basis on which the CIT assumed jurisdiction to pass orde rs under Section 263 of the Act, was not decipherable. The learned Tribunal also took the view that the CIT while exercising Revisional Power on the ground of n on consideration of the appraisal report of the investigation team, should have referred to the contents of the report to substantiate that the assessment order s were erroneous. This was found to be sufficient justification by the learned T ribunal, to quash the orders passed by the CIT. 15. Before examining the submissions made by the learned counsels, i t would be appropriate for us to refer to some of the cited decisions, to unders tand the scope of suo motu Revisional Power of the CIT, by referring to the stat utory provisions and also interpretations, given by the courts, to the said stat utory provisions. 19. Section 263(1) of the IT Act, 1961 is accordingly extracted here inbelow : 263. (1) The Commissioner may call for and examine the record of any proc eeding 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 therein as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directi ng a fresh assessment. 20. From a reading of the statutory provisions, it is apparent that the Commissioner may call for and examine the records of any proceeding under th e I.T. Act and no reasons are required to be given by the Commissioner, for cal ling and examination of records of any proceeding. It is also provided that the Commissioner on scrutiny of any proceeding, may consider the order passed by the Income Tax Officer to be erroneous and prejudicial to the interest of the reven ue. Once the Commissioner concludes that an erroneous order has been passed whic h has caused prejudice to the interests of the revenue, he may exercise suo motu power of revision. Only at this stage of consideration, an appropriate opportunity to the assessee is required to be given and the assessee is required to be heard. There after the Commissioner can pass appropriate orders, including an order, modifyin g the assessment or canceling the assessment and directing fresh assessment. 21. The Supreme Court in Rampyari Devi Saraogi (supra) while examining the s cope of Revisional Power under section 33-B of the Income Tax Act, 1922, which i s identical as section 263(1) of the current Income Tax Act, held that it is not necessary for the Commissioner to embellish the short reasoning recorded, for d eciding to exercise suo motu Revisional Power since no prejudice would be caused to the assessee, who will have full opportunity to establish before the A.O., t hat the assessments, ordered to be by the C.I.T., was correctly made. 22. In a later case, the Supreme Court in Malabar Industrial Company Limited (Supra) held that pre requisite for exercise of suo-moto Revisional jurisdictio n by the Commissioner under Section 263 of the Income Tax Act is that, the order of Income Tax Officer is erroneous in so far as it is prejudicial to the intere st of the Revenue and if the twin conditions namely, (1) the order of Assessin g Officer sought to be revised is erroneous and (2) it is prejudicial to the int erests of the Revenue, the exercise of suo-moto Revisional Power under section 2 63(1) of the Act would be justified. 23. The Supreme Court in the case of Tara Devi Agarwal (Supra) held that even where an income has not been earned and is not assessable, merely bec ause the assessee wants it to be assessed in his or her hands in order to assist someone else, who would have been assessed for a larger amount, an assessment s o made can certainly be erroneous and prejudicial to the interest of revenue and in such a situation, the Commissioner has ample justification to exercise his R evisional Power to cancel the assessment and initiate proceedings for assessment against some other assessee who according to the Income Tax Authorities, is lia ble for the income thereof. 24. The Gujrat High Court in Mukur Corporation (Supra) has held that when th e I.T.O. at the stage of making assessment fails to make inquiry into relevant d etails, such assessment has to be considered as erroneous. If fresh assessment i s thereafter ordered by the Revisional Authority, the only proper course for the Revisional Authority would be to desist from expressing any final opinion on co ntroversial points. 25. On the submission made on behalf of the assessee that more detailed rea soning should have been indicated by the CIT, we find that it is nobody’s case t hat, the finding of the appraisal report of the Investigation team, following th e search and seizure made, were not relevant for making the assessments. It is also seen that the Assessing Officer was very much aware about the appraisal report indicting the assessee. Yet the materials revealed through the appraisal report were not considered by the Assessing Officer, while finalizing the assessments, nor the assessees were confronted and given opportunity to reb ut the findings of the appraisal report. The Assessing Officer merely stated tha t some loose sheets seized during the survey were not relevant for the period of assessment under consideration, without referring to the actual appraisal repor t or indicating any reason as to why the appraisal report ought not to be consid ered. Referring to the above circumstances, the Commissioner held that the ass essments have been finalized without reference to relevant materials and therefo re, the said assessment orders in our considered view, have been rightly held to have been erroneously passed by the revisional authority and the reasons indica ted by the Commissioner are found by us to be sufficient, without undue elaborat ion. 26. We are also of the view that non referring in detail to the contents of the appraisal report by the CIT has not resulted in any error, justifying interf erence by the learned Tribunal for allowing appeals filed by the assessee, since elaborate discussion of the controversy by the CIT, while exercising revisional power for remanding the matter for fresh assessment, could amount to directing the Assessing Officer to make assessments in a particular manner and such direct ion may amount to transgressing into jurisdictional arena of the Assessing Offic er. 27. The Calcutta High Court in Dawjee Dadabhoy & Co. v. S.P. Jain reported i n (1957) 31 ITR 872 at page 881 has explained the meaning of the expression pre judicial to the interest of the revenue in the following terms :- The words ’prejudicial to the interests of the revenue’ have not been defined, but it must mean that the orders of assessment challenged are such as not in acc ordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. It can mean nothing else. 28. Having regard to the above interpretation which is quoted with approval in several later cases, our view is that the assessment orders are erroneous for ignoring relevant materials. They are also prejudicial to the interest of Reven ue as is revealed by the appraisal report and accordingly we hold that the exerc ise of powers under Section 263 (1) of the I.T. Act by the CIT cannot be said to be wrongly exercised. 29. It is also submitted that suo moto Revisional Power by the CIT can only be exercised for assessment orders passed in error of jurisdiction. But on readi ng of section 263(1), we do not find that the power of the Commissioner is hedge d by any such additional conditions. Therefore we are unable to agree with the v iew taken by this court in BRPL (Supra) and in S.S. Agarwal (Supra). The later c ase, we may note was a case where Revisional Power under section 36(1) of the As sam General Sales Tax Act, 1993 was considered by the court. Our view that additional conditions cannot be read in is consistent with the Supreme Court’s decision in CIT vs. Amritlal Bhogilal reported in 1958(34) ITR 140 where the Apex Court held that: whether or not the revisional power can be exercised in a given case must be d etermined solely by reference to the terms of section 33-B itself. Courts would not be justified in imposing additional limitations on the exercise of said powe r on hypothetical consideration of policy or the extraordinary nature of the pow er. 30. When it is seen that relevant materials have been ignored at the time of making assessment, which has resulted in erroneous assessment, the exercise of suo motu Revisional Power was justified and we are of the considered opinion tha t, it was wrong on the part of the Tribunal to say that the basis for assumption of jurisdiction to pass orders under Section 263 of the I.T. Act, was not decip herable, in the Revisional order of the CIT. 31. The Assessing Officer did not consider the appraisal report at all, alth ough the said report was available with him at the time of making assessment. Th e appraisal report, which has been placed before us, in our view is very much re levant for the purpose of making assessment and as such the interference by the CIT is found by us to be justified. 32. We find in the present cases that, relevant materials were ignored by th e Assessing Officer while making the assessment. For non-consideration of releva nt materials while making assessment, the assessment orders have rightly been qu ashed by the CIT. Therefore the finding of the Tribunal that reasons are not dec ipherable is a perverse finding. As the finding of the learned Tribunal that no reasons are recorded by t he CIT is found by us to be a perverse finding, and such perverse finding cannot be allowed to cause prejudice to the Revenue, we are of the opinion that these appeals under section 260 A of the I T Act deserve to be allowed. Because of the above findings, we hold that these Appeals of the Revenue are maintenable and cannot be rejected on the basis of the ratio of the 3 cases i.e. Mangilal Didwania (supra), Sangrur Vanaspati (supra) and S. V. Electricals (supra) relied upon by Mr. Bhatra, as substantial questions of law, going into the very root of the Revisional Powers under Section 263(3), have been raised in the present batch of Appeals, filed under section 260 A of the I.T. Act, 1961. 33. In view of above, we allow these Appeals and set aside the common impugn ed order dated 20.10.04 passed by the learned Income Tax Appellate Tribunal, Guw ahati Bench. Accordingly, we sustain the order passed by the CIT under Section 2 63(1) of the I.T. Act and direct the A.O. to make fresh assessments, in terms of the directions issued by the Revisional Authority. 34. The appeals of the Revenue stands allowed accordingly.