I.A. Ansari, J.
1. The material facts and various stages giving rise to this writ petition are not in dispute and may, therefore, be set out, in brief, as follows:
(i) Petitioner No. 1 is a company incorporated under the Companies Act, 1956, represented by one of its directors as petitioner No. 2. The petitioner-company is engaged in the business of manufacture and sale of tea. The return for the assessment year 1995-96 was filed by the petitioner-company on November 24, 1995. The Deputy Commissioner of Income-tax (Assessment), Special Range-II, completed on March 11, 1998, the petitioner company's assessment for the assessment year 1995-96 under Section 143(3) of the Income-tax Act, 1961. While making the said assessment, the petitioner company's claim in respect of deduction from income on account of bonus was allowed under Section 43B of the Act. After completion of this assessment, the Joint Commissioner of Income-tax, issued a notice, dated April 6, 1999, to the petitioner-company for rectification of mistake under Section 154/155 of the Income-tax Act. The petitioner company, on being asked to submit a written reply to the said notice, submitted its reply on May 3,1999, wherein the petitioner-company pointed out that the deduction, on account of bonus, was claimed by the petitioner company on the basis of Section 43B, which allows deduction of bonus on the basis of payment of bonus made. The petitioner-company also produced documents and papers before the Joint Commissioner of Income-tax to show that the deduction, on account of bonus, was claimed in conformity with the provisions of Section 43B of the Act.
(ii) While the proceeding, so initiated by the Joint Commissioner, Income-tax, under Section 154/155 of the Income-tax Act, was still pending, the Commissioner, Income-tax, issued a show-cause notice, dated January 24, 2000, to the petitioner-company under Section 263 of the Income-tax Act asking it to show cause as to why the order of assessment, dated March 11,1998, for the assessment year 1995-96, shall not be revised on the ground that the deduction allowed on account of bonus paid, was more than what was legally permissible rendering thereby the order of assessment erroneous and prejudicial to the interests of the Revenue. Both the said proceedings, that is, the proceeding under Section 154/155 as well as the proceeding under Section 263, were initiated on the basis of an audit report submitted by the departmental auditors.
(iii) The petitioner-company submitted a reply on February 28, 2000, to the notice dated January 24, 2000, aforementioned. In its reply, the petitioner-company pointed out that a rectification proceeding, under Section 154 of the Act, was still pending before the Joint Commissioner of Income-tax. The petitioner-company also pointed out, in its reply, that in view of the pendency of the proceeding under Section 154 of the Act, another proceeding under Section 263 of the Act was not permissible. The petitioner-company further submitted that deduction, on account of bonus, was only to the extent it was paid by the petitioner-company and that the words 'short provisions' do not denote any provision as had been interpreted by the auditors. The petitioner-company asserted that the conclusions reached by the audit party were incorrect. The petitioner-company accordingly requested for dropping of the proceeding initiated under Section 263 of the Act.
(iv) However, the Commissioner of Income-tax passed an order on March 28, 2000, setting aside the order of assessment dated March 11, 1998, aforesaid so far as the same allowed deduction on account of bonus, for the Commissioner was of the opinion that it was necessary to have all the facts and figures to arrive at a correct conclusion on the question as to whether the total claim of bonus, was allowable or not and-that in the absence of the necessary figures and details, the Assessing Officer could not have satisfied himself that the amount debited, in the assessment year 1995-96, had been allowed on payment basis in the assessment year 1994-95. The Commissioner, therefore, directed the Assessing Officer to recompute the total income as per law after allowing, in this regard, reasonable opportunity to the petitioner-company. The Commissioner, in his order dated March 28, 2000 aforementioned, also pointed out that initiation of proceeding of rectification of mistake under Section 154/155 of the Income-tax Act by the Joint Commissioner of Income-tax was dropped on January 7, 2000, before the initiation of the proceeding under Section 263 of the Act.
2. It is the notice dated January 24, 2000, aforementioned and the order dated March 28, 2000, passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act, which stand challenged in the present writ petition, by the petitioners under Article 226 of the Constitution of India.
3. I have heard Dr. A.K Saraf, learned senior counsel, appearing on behalf of the petitioners, and Mr. U. Bhuyan, learned standing counsel, Income-tax Department.
4. Assailing the impugned order, Dr. Saraf submits that the Income-tax Commissioner's power of suo motu revision, under Section 263, cannot be exercised unless the order sought to be revised, suffers from lack of jurisdiction. An order which is passed by any authority in exercise of its jurisdiction cannot be interfered with on ground of illegality or incorrectness in passing the order unless, contends Dr. Saraf, the incorrectness or illegality goes to the root of the exercise of power or suffers from jurisdictional error. An assessment which escapes the attention of an authority cannot, according to Dr. Saraf, be corrected by invoking the power of suo motu revision under Section 263. An order, in order to attract the provisions of Section 263, submits Dr. Saraf, must not only be erroneous, but must also cause prejudice to the interests of the Revenue. In support of his submission that every erroneous order is not revisable under Section 263 and an erroneous order is one which is relatable to the jurisdictional error, Dr. Saraf has placed reliance on Rajendra Singh v. Superintendent of Taxes reported in , Santalal Mehendi Ratta (HUF) v. Commissioner of Taxes reported in and this High Court's decision in W.P. (C) No. 1416 of 2001 Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India .
5. Contending that the impugned notice to show cause and also the impugned order are beyond the revisional powers of a Commissioner under Section 263, Dr. Saraf has submitted that in the case at hand, the power of suo motu revision was exercised by the Commissioner after a rectification proceeding already stood initiated under Section 154 of the Income-tax Act, this rectification proceeding having been initiated, points out Dr. Saraf, on the basis of an audit report of the Department concerned. While the rectification proceeding was in progress, interference by the Commissioner, in exercise of powers under Section 263, is, according to Dr. Saraf, an encroachment into the field reserved for the authority under Section 154 of the Income-tax Act. The power to reopen an assessment under Section 147 and rectify an order under Section 154, submits Dr. Saraf, operate in different and distinct fields and when a competent authority was in seisin of a rectification proceeding under Section 154, the revisional authority could not have exercised powers under Section 263. This apart, submits Dr. Saraf, on the basis of the facts, when a rectification proceeding could have been initiated, the same facts cannot be made the foundation for exercise of revisional jurisdiction under Section 263, for, insists Dr. Saraf, these two powers are distinct and separate and one authority cannot intrude into the field reserved for the other. Support for these submissions is sought to be derived by Dr. Saraf from the decisions, in State of Kerala v. K.M. Cheria Abdulla and Co. reported in : [1965]1SCR601 , Santalal Mehendi Ratta (HUF) v. Commissioner of Taxes reported in , this High Court's decision in W.P. (C) No. 1416 of 2001 (Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India ).
6. It is further pointed out by Dr. Saraf that in the present case, suo motu revisional power has been exercised under Section 263 on the basis of an audit objection. Exercise of jurisdiction by an authority under Section 263 has to be based, contends Dr. Saraf, on the basis of its own findings and not on the basis of findings reached by any other authority, such as, an audit party. In the present case, according to Dr. Saraf, the exercise of revisional jurisdiction is based on the audit report and such exercise of powers is impermissible in law and cannot be sustained. In support of these submissions, Dr. Saraf relies on Sirpur Paper Mill Ltd. v. CWT reported in : [1970]77ITR6(SC) and Jeewanlal (1929) Ltd. v. Addl. CIT reported in : [1977]108ITR407(Cal) .
7. Resisting the submissions made on behalf of the petitioners, Mr. Bhuyan has submitted that in the present case, revisional jurisdiction was exercised after the rectification proceeding was dropped and as the issue, which the Commissioner had raised under Section 263, was a debatable issue, such exercise of revisional jurisdiction by the Commissioner cannot be challenged as an exercise of power without, jurisdiction. Mr. Bhuyan also submits that there is no legal bar in initiating a proceeding under Section 263 even if a rectification proceeding proposed earlier on the same subject was dropped, for, dropping of the rectification proceeding does not necessarily mean, contends Mr. Bhuyan, that there is no mistake or error in the assessment order sought to be rectified. Mr. Bhuyan also submits that powers given to the authorities under Sections 154 and 263 operate in different fields and in the case at hand, when the conditions precedent for exercise of power under Section 263 existed, such exercise of power by the Commissioner cannot be challenged on the ground that on the same facts, a rectification proceeding was initiated but dropped. Such exercise of revisional jurisdiction, contends Mr. Bhuyan, cannot be assailed on the ground that it was open to the authorities concerned to go for rectification or reassessment proceedings.
8. The order impugned in the writ proceeding, is, according to Mr. Bhuyan, within the ambit of the power of the Commissioner under Section 263 and the fact that the Commissioner has not recorded his final conclusion, while passing the impugned order, cannot be challenged as an order without jurisdiction for the final conclusion, according to Mr. Bhuyan, could not have been recorded by the Commissioner inasmuch as there could have been nothing left for the assessing authority to decide, had the final conclusion been recorded by the Commissioner.
9. It is the submission of Mr. Bhuyan that the Commissioner can exercise his revisional jurisdiction on the basis of information or material, which is brought to his notice. Hence, in the present case, the mere fact that the Commissioner has decided to exercise power, under Section 263, on the basis of an audit report cannot be made the foundation for challenging the impugned order passed by the Commissioner. In support of his submission, Mr. Bhuyan places reliance on CIT v. Bhagat Shyam and Co. : [1991]188ITR608(All) . No prejudice, contends Mr. Bhuyan, has been caused to the petitioners inasmuch as the assessment order has been set aside only to the limited extent of examining the correctness of the order passed by the Assessing Officer allowing deduction under the head bonus. The impugned order, points out Mr. Bhuyan, leaves the petitioners completely free to satisfy the Assessing Officer that the deduction earlier permitted is permissible in law. That apart, points out Mr. Bhuyan, an order made under Section 263 is an appealable order and the appeal lies under Section 253(1)(c) of the Income-tax Act to the Appellate Tribunal. When there is an alternative remedy available to the petitioners, the petitioners cannot be permitted to sustain their challenge to the impugned order by taking resort to Article 226 of the Constitution of India. In support of this submission, Mr. Bhuyan places reliance on C.A. Abraham v. ITO : [1961]41ITR425(SC) ; Shivram Poddar v. ITO : [1964]51ITR823(SC) , Thansingh Nathmal v. Superintendent of Taxes : [1964]6SCR654 , Sales Tax Officer v. Shiv Ratan G. Mohatta : [1965]3SCR71 , Gita Devi Aggarwal v. CIT : [1970]76ITR496(SC) , Champalal Binani v. CIT : [1970]76ITR692(SC) , Deoki Nandan Singhania (AOP) v. CIT : [1991]190ITR289(All) , Pandit Pyare Lal Sharma Memorial Trust Society v. Union of India : [1991]190ITR432(All) , Asst. Collector of Central Excise v. Dunlop India Ltd. : 1985ECR4(SC) and Swamiji (Indra Prasad Gupta) v. CIT : [1994]209ITR446(All) .
10. Reacting to the submissions made on behalf of the respondents, Dr. Saraf submits that in the case at hand, there was no debatable issue inasmuch as the error was to be verified on the basis of the papers and documents. Such an exercise, according to Dr. Saraf, had already been done at the time of making the assessment and also by initiating a rectification proceeding, which was dropped on reaching the conclusion that there was no mistake apparent on the face of the record. Hence, the revisional powers under Section 263, repeats Dr. Saraf, could not have been exercised in the face of such facts and particularly, when on the same set of facts, rectification proceedings already stood initiated and then dropped. Reference is made by Dr. Saraf in this regard to the observations made by this High Court in Santalal Mehendi Ratta (HUF) v. Commissioner of Taxes reported in .
11. Challenging the validity of the order, Dr. Saraf submits that it is incorrect to submit that a Commissioner, while exercising power under Section 263, need not record necessary rinding as to why he considers the order erroneous and prejudicial to the interests of the Revenue. As a matter of fact, submits Dr. Saraf, it is the duty of the Commissioner to record a specific finding as to how he has concluded that the order is erroneous, for exercise of revisional jurisdiction under Section 263 would not be permissible unless the impugned order is shown to be erroneous. In support of this submission, Dr. Saraf places reliance on Rajendra Singh v. Superintendent of Taxes , Herbertsons Ltd. v. Commissioner of Taxes and Addl. CIT v. Mukur Corporation : [1978]111ITR312(Guj) .
12. The rectification proceeding in the present case, points out Dr. Saraf, was initiated on the basis of the audit objection and hence, when on reveri-fying the books of account, the Assessing Officer had dropped the proceeding, the Commissioner could not have initiated a suo motu revisional proceeding on the same set of facts, particularly when the Commissioner has not recorded any cogent reason to show that the order suffers from jurisdictional error. To support this submission, Dr. Saraf refers to Sirpur Paper Mill Ltd. v. CWT : [1970]77ITR6(SC) .
13. As regards the respondent's contention that the present writ petition should not be entertained, Dr. Saraf submits that when a revisional order of a Commissioner is without jurisdiction or when the assessee challenges the very jurisdiction of exercise of revisional jurisdiction by a Commissioner under Section 263, the fact that there is an alternative remedy in the form of statutory appeal, cannot be made a ground for not invoking the High Court's jurisdiction under Article 226. In this regard, Dr. Saraf places reliance on Shree Automobiles P. Ltd. v. Commissioner of Taxes reported in [2003] 132 STC 125 (Gauhati); Bhopal Sugar Industries Ltd. v. D.P. Dube, Sales Tax Officer : [1964]1SCR481 and L. Hirday Narain v. ITO : [1970]78ITR26(SC) .
14. Let me now deal with the merits of the rival submissions made before me on behalf of the parties. Since it is Section 263 of the Income-tax Act, 1961 (in short 'the Act') around which revolves the entire case of the petitioners, I reproduce herein below Section 263, which reads as under:
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 cancelling the assessment and directing a fresh assessment.
Explanation.--For the removal of doubts, it is hereby declared that, for the purposes of this Sub-section,
(a) an order passed on or before or after the 1st day of June, 1988, by the Assessing Officer shall include
(i) an order of assessment made by the Assistant Commissioner or the Income-tax Officer on the basis of the directions issued by the Deputy Commissioner under Section 144A ;
(ii) an order made by the Deputy Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner, of Director General or Commissioner authorised by the Board in this behalf under Section 120;
(b) 'record' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner ;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided to such appeal.
15. From a plain reading of Section 263 of the Income-tax Act, it is clear that the power of the Commissioner of Income-tax to initiate suo motu revisional proceeding can be exercised only if the circumstances specified therein exist. Two circumstances must co-exist to enable a Commissioner to exercise power of suo motu revision. These circumstances are : (i) the order must be an erroneous one and (ii) because of being an erroneous order, the order must have become prejudicial to the interests of the Revenue. Unless both these ingredients are present in a given case, it is not legally permissible for a Commissioner to initiate suo motu proceeding under Section 263 of the Act.
16. The expression 'erroneous' has not been defined in the Act. However, Black's Law Dictionary defines the word 'erroneous' to mean 'involving error ; deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is, hence, invalid. The erroneous assessment pertains to a defect, which is jurisdictional in nature. It does not refer to the judgment of the Assessing Officer in fixing the amount or valuation of property. 'Erroneous judgment' means one rendered according to course and practice of court; but contrary to law, upon a mistaken view of law or upon an erroneous application of legal principles.
17. An order cannot be termed erroneous unless it can be shown to be an order, which is not in accordance with law. If the Income-tax Officer, acting in accordance with law, makes certain assessment, the same cannot be termed as erroneous by the Commissioner merely because the order, according to the Commissioner, should have been more elaborate in writing. Section 263 of the Income-tax Act does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who makes the assessment, unless the decision of the Income-tax Officer is held to be an erroneous one. It is an established position of law that the Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and if it was done by the Commissioner himself, then he would have estimated the income at a figure higher than the one determined by the Income-tax Officer; but such opinion would not vest in the Commissioner the power to re-examine the accounts and determine the same at a higher figure. This court, in Rajendra Singh v. Superintendent of Taxes [1990] 79 STC 10, while examining the provisions of the Tripura Sales Tax Act, which is pari materia, has interpreted the expression 'erroneous' as relatable to a jurisdictional error either in making an assessment or in making any other order as distinguished from any other error that may have occurred in determining the extent and quantum of tax.
18. Section 263, correctly submits Dr. Saraf, does not visualise a case of substitution of the judgment of the Commissioner for that of the subordinate authority who passed the order which is sought to be revised. The order passed by a subordinate authority in exercise of its quasi-judicial power vested in him in accordance with law, cannot be termed erroneous merely because the Commissioner does not feel satisfied with the conclusions reached. In this regard, reference may be made to the decision of the Bombay High Court in CIT v. Gabriel India Ltd. : [1993]203ITR108(Bom) , wherein it was held as under (page 115):
The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz. that the order is erroneous, is absent.
19. Reference may also be made to the decision of this High Court in Santalal Mehendi Ratta (HUF) v. Commissioner of Taxes reported in , wherein this High Court while examining Section 36 of the Assam General Sales Tax Act, 1993, which is pari materia, held as under (page 516):
The revisional authority for various good reasons may be inclined to view an assessment order from a negative standpoint. The revisional authority may likewise disagree with the views of the primary authority in its interpretation of the law imposing the liability or the extent or quantum thereof. It may disagree with the primary authority with regard to the determination of the amount of tax to be paid. It may also disagree with the primary authority on matters relating to deductions allowable under the statue. All such situations as aforesaid may render the order of the primary authority wrong or erroneous as commonly understood. Such situations, however, would not be facets of an erroneous decision in so far the meaning of the said expression as appearing in Section 36 of the Act is concerned. Judicial opinion is unanimous that the expression as appearing in Section 36 must be confined to jurisdiction errors otherwise there would be no distinction between the different aspects of the corrective power conferred by the provisions of the Act for application in different situation. No distinction between the power to reopen an assessment and the appellate or revisional power or the power to rectify would exist. There would be an intermingling of the powers resulting in confusion and uncertainty, a situation definitely not contemplated by any statute.
20. In W.P. (C) No. 1416 of 2001, Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India , decided on September 8, 2006, this High Court held as under (page 130):
The above judicial pronouncements therefore adumbrate the essence and extent of the revisional jurisdiction of an authority akin to the Commissioner of Income-tax under the Act. Not only the exercise of the suo motu power conceptualised therein is hedged by the two conditions of error in the order sought to be revised and the consequential prejudice to the Revenue but no interference is permissible unless the same is afflicted by a jurisdictional error or a patent illegality rendering the same ex facie invalid and non-existent in law. The process to derive the satisfaction that the order is erroneous and is thus prejudicial to the interests of the Revenue, the sine qua non for invocation of the power, thus logically has to be informed with the above limitations.
21. From the discussions held above, what emerges is that an order of assessment made by a primary authority may not be agreed to by a revi- sional authority. Merely, however, for the fact that the revisional authority disagrees with the findings of the primary authority, either in imposing liability or in refusing to impose any liability, such disagreement cannot be made a ground for interference with the order of the primary authority. An erroneous order, as is commonly understood, is not conceived by Section 263. There has been unanimity in judicial opinion that the error committed by the primary authority must be an error of jurisdiction, for if the order is not kept confined to jurisdictional error, no distinction would be left between corrective powers or power of rectification conferred on an authority under the provisions of the Act and the revisional power exercisable by another authority. If the distinction between the power to reopen an assessment and the power to rectify is not distinguished from revisional jurisdiction, every incorrect order would become amenable to revisional jurisdiction and the fall out would be that revisional jurisdiction would then become exercisable even in a case where the provisions for initiating a rectification proceeding are attracted. Such an approach would lead to intermingling of powers by various authorities resulting in utter confusion and uncertainty. Such a situation, as correctly pointed out in Santalal Mehendi Ratta (HUF) , is not contemplated by any statute. Viewed thus, it is clear that every error cannot be an error of jurisdiction and every error of an assessing authority is not open to exercise of suo motu revisional powers under Section 263. Even if a turnover escapes attention, this, in itself, is not enough to attract the revisional jurisdiction unless materials exist to show that the error, which has so crept in, is an error relatable to the exercise of jurisdiction by the assessing authority. If an authority which has the power to assess, makes an assessment and commits a mistake or allows a deduction which ought not to have been allowed, such a mistake, unless it goes to the root of the making of the assessment order, cannot be revised under Section 263. No wonder, therefore, that in CIT v. Gabriel India Ltd. reported in : [1993]203ITR108(Bom) the court has pointed out that when an assessment made by an Assessing Officer is on the lower side and the Commissioner is of the view that the income ought to have been assessed at a higher figure, such a case is not revisable, for, such a case, which would be regarded as erroneous in other statutes, would not be regarded as erroneous under the provisions of the Act inasmuch as an incorrect order can be rectified if the error is apparent on the face of the record. Moreover, if an error is an error apparent on the face of the record and can be rectified the revisional jurisdiction cannot be exercised. [While passing an order of assessment, an Assessing Officer may commit an error; but every such error is not revisable under Section 263. If an Assessing Officer allows a deduction which could have been allowed under the law, such an error cannot be interfered with by revision, for there is no lack of inherent jurisdiction unless it is shown that the law, in such a case, did not permit the deduction to be allowed at all. Thus, when a deduction is not permissible under the law and such a deduction is allowed, there would be lack of jurisdiction and such an order would be revisable. Considered thus, it is clear that in both the cases, the order can be termed an erroneous order, but while in one case, revisional jurisdiction can be exercised, exercise of such revisional jurisdiction is not possible in the other case inasmuch as in one case, the Assessing Officer has jurisdiction, but commits an error, while exercising jurisdiction; whereas in the other case, he commits an error without jurisdiction.
22. Merely because of the fact that an Assessing Officer's order is erroneous, a Commissioner cannot interfere. Similarly, because an order of the Assessing Officer is prejudicial to the interests of the Revenue, it will not attract revisional jurisdiction under Section 263. These two elements, namely, that the order is erroneous and it is prejudicial to the interests of the Revenue must co-exist. When an Assessing Officer has several choices and he adopts one of the choices, it cannot be interfered with unless it is shown that the choice of exercise by the Assessing Officer is without application of mind or wholly contrary to the law. The revisional power conferred on the Commissioner is not an appellate power, but a supervisory power. Thus, a Commissioner cannot sit as an appellate authority under Section 263 on an order passed by an Assessing Officer. Section 263, it must be borne in mind, gives to the Commissioner a special power, which has almost no parallel in any other statute. It is an extraordinary revisional power. This power cannot be exercised as a jurisdictionally corrective power or as a review of the orders passed by subordinate authorities. This power under Section 263 can be invoked only for the purpose of correcting such wrongs, which have taken place because of non-application of law or for a wholly incorrect application of law and when such application or non-application of law causes prejudice to the Revenue. The power under Section 263 cannot be equated to, or be regarded as, an appellate jurisdiction or even ordinary revisional jurisdiction. The revisional jurisdiction under Section 263 is a unique jurisdiction, which has to be understood in the context of the scheme of the Act. Such a power being exercisable only against orders which are erroneous in the sense that it goes to the root of the jurisdiction and also prejudicial to the interests of the Revenue.
23. Though Section 263 cannot be invoked to correct each and every type of mistake or error committed by an Assessing Officer, the fact remains that an incorrect assessment of facts or an incorrect application of law can be regarded as erroneous. In the same category would fall orders passed without applying the principles of natural justice or without application of mind. Thus, when an order of deduction is passed on incorrect assumption of facts or incorrect application of law, such an order, being erroneous, may be revised if such an order is prejudicial to the interests of the Revenue. Similarly, when a deduction is allowed without application of mind, such an order can also be revised under Section 263 provided that the order is prejudicial to the interests of the Revenue. When an Assessing Officer has jurisdiction but passes in exercise of such jurisdiction, an order which suffers from non-application of mind or incorrect assumption of facts or incorrect application of law, it would amount to an erroneous order within the meaning of Section 263. Thus, when a deduction is not permissible yet is allowed either because of non-application of mind or because of incorrect application of law, such an order would be regarded as an erroneous order and can be interfered with in revision under Section 263, if it is prejudicial to the interests of the Revenue. Thus where.]
24. It was after examination of the books of account under Section 43B of the Act that the assessing authority had allowed the deduction on account of bonus in exercise of its powers under Section 143(3). The Assessing Officer having acted within his jurisdiction in allowing the claim of bonus as deduction, it was not open to the Commissioner of Income-tax to consider the said order as erroneous merely because in his view, a certain amount of bonus, allowed as deduction, should have been disallowed, particularly when the impugned order of the Commissioner does not show how the order of assessment can be said to be an order passed without jurisdiction or an order passed beyond jurisdiction or wholly contrary to jurisdiction.
25. While considering the present writ petition, it needs to be borne in mind that Section 154 of the Act vests in an Assessing Officer, the power to initiate proceeding for rectification if there is some mistake in making the assessment and the mistake is apparent from the face of the record. Thus, when a mistake is apparent from the face of the record, it is Section 154 which becomes applicable. Section 147 empowers an Assessing Officer to reopen a completed assessment if he has reason to believe that an income of the assessee has escaped assessment. Thus, the power of rectification which is exercisable under Section 154, is distinct and separate from the power exercisable under Section 147 of the Act. Similarly, the power of suo motu revision under Section 263 has to be read as a power outside the purview of Section 154 and also Section 147, for if in respect of a matter, power under Section 154 is exercisable, the power under Section 147 cannot be exercised and if, in a matter, power under Section 147 is exercisable, the power under Section 154 cannot be exercised and when neither the power of rectification vested under Section 154, nor the power to reopen the assessment as envisaged under Section 147, is attracted to a case, the power under Section 263 may become exercisable provided that the error committed by an Assessing Officer, while making an assessment, is, as already indicated above, jurisdictional in nature. Since all these powers, conferred on different authorities, operate in distinctly separate fields, one authority cannot entrench upon the field of power reserved for the other authority.
26. It is also worth noticing that in the case at hand [a rectification proceeding was initiated, under Section 154 of the Income-tax Act, by the Joint Commissioner of Income-tax at the initiative of the audit party and the Joint Commissioner, after making necessary enquiry, dropped the proceedings] The assessing authority was satisfied that there was no mistake apparent from the record in allowing the claim of deduction on account of bonus. Initiation of the suo motu revisional proceedings in the same matter amounts to entrenching upon the powers of the assessing authority, which has been specifically reserved for the assessing authority. Since respondent No. 1, namely, the Commissioner of Income-tax has intruded into the powers of the assessing authority by initiating the proceedings under Section 263 of the Act on an issue already examined by the Assessing Officer in exercise of powers under Section 154 of the Act, the revisional authority must be held to have exceeded the limits of Section 263 and, therefore, the impugned order passed by the Commissioner of Income-tax has to be treated as an order without jurisdiction, arbitrary, not tenable in law and liable to be set aside and quashed. In other words, the power to reopen an assessment under Section 147, the power to rectify an order under Section 154 and the power to suo motu revise an assessment under Section 263 of the Income-tax Act operate in different and distinct fields. The authorities prescribed for the exercise of such powers are also different as are the facts and situations which would justify recourse to the provisions. To permit the revisional authority to exercise powers under Section 263 of the Act in the instant case, on the ground that excess deduction on account of bonus has been allowed, would amount to permitting the revisional authority to intrude into the powers of the authorities under Sections 147 and 154 of the Act.
27. What may be pointed out is that Section 154 of the Act confers power on the Assessing Officer to initiate proceeding for rectification if it is found that there is some mistake apparent from the face of the records. Independent of, and distinct from, this power is the power which Section 147 confers on the Assessing Officer making it possible for him to reopen a completed assessment if he has reason to believe that any income of the assessee has escaped assessment. The basis on which the notice under Section 263 has been issued and the impugned order has been passed does not come within the purview of Section 263, for the Act has conferred jurisdiction on the Assessing Officer specifically to deal with a situation, such as the present one and when the Assessing Officer had already resorted to Section 154 to reverify whether there was any mistake in allowing the claim of bonus or not, the revisional authority could not have taken resort to Section 263. Reference may be made in this regard to State of Kerala v. K.M. Cheria Abdulla and Co. reported in : [1965]1SCR601 , wherein the apex court, while describing the contours of power of various authorities, observed and held as follows (page 886):
But the power conferred by Rule 14A by the use of the expression 'making such enquiry as such appellate or revising authority considered necessary' must be read subject to the scheme of the Act. It would not invest the revising authority with power to launch upon enquiries at large so as either to trench upon the powers which are expressly reserved by the Act or by the Rules to other authorities or to ignore the limitations inherent in the exercise of those powers. For instance, the power to reassess escaped turnover is primarily vested by Rule 17 in the Assessing Officer and is to be exercised subject to certain limitations, and the revising authority will not be competent to make an enquiry for reassessing a taxpayer. Similarly the power to make a best judgment assessment is vested by Section 9(2)(b) in the assessing authority and has to be exercised in the manner provided. It would not be open to the revising authority to assume that power. The revisional power has to be exercised for ascertaining whether the order passed is illegal or improper or the proceeding recorded is irregular and it is in aid of that power that such orders may be passed as the authority may think fit. One of the inquiries in considering the legality or propriety of the orders passed by the subordinate officer which the revising or the appellate authority may make is about the correctness of the tax levied and if after perusing the record the authority is prima facie satisfied about the illegality or impropriety of the order or about the irregularity of the proceeding, it may in passing its order direct an additional enquiry. Neither Section 12 nor Rule 14-A authorises the revising authority to enter generally upon enquiries which may properly be made by the assessing authorities and to reopen assessments.
28. In Santalal Mehendi Ratta (HUF) v. Commissioner of Taxes , a turnover of the assessee was reopened due to alleged concealment of facts by the assessee. Exercise of revisional jurisdiction in such a case was interfered with by the court on the ground that a turnover, which escaped assessment due to concealment, can be reopened by taking resort to the power to reopen the assessment and when such a power of reopening the assessment existed, it is not permissible to exercise revisional jurisdiction, for revisional jurisdiction cannot be exercised as an alternative to, or as a substitute of, the power to reopen assessment. The relevant observations made by this High Court, in Santalal Mehendi Ratta (HUF) , read as under (page 517):
In the instant case, it is not the stand of the Deputy Commissioner that the primary authority did not have the jurisdiction to make the assessment or had exceeded its jurisdiction. The short and simple case of the Deputy Commissioner is that the turnover of the petitioner has escaped assessment due to concealments made by the assessee. The aforesaid facts, in my considered view, does not render the order infirm on account of any jurisdictional error. If tax has escaped assessment due to concealment, the proper recourse is to reopen the assessment under Section 18 of the Act. This is precisely what was attempted to be done but was abandoned subsequently. If on the given facts the power under Section 18 was attempted to be exercised but subsequently abandoned, it is not understood how on the same set of facts the power under Section 36 can be exercised. The powers under both the aforesaid two provisions of the Act, namely, Sections 18 and 36 operate in two different fields and is vested into two different authorities. To permit the revisional authority to exercise power Under Section 36 in the facts of the instant case would be to permit the said authority to trench upon the powers of the primary authority under Section 18 of the Act. Such a situation has been disapproved of by the apex court in the case of State of Kerala v. K.M. Cheria Abdulla and Co. [1965] 16 STC 875.
29. In Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India (W.P. (C). No. 1416 of 2001), too, this High Court has clearly delineated the contours of powers of the various authorities under the Income-tax Act and has clearly held that the Act envisages compartmentalisation in the functioning of the authorities so much so that it would be impermissible to overedge the legislatively reserved frontiers of the other authority. Succinctly describing the contours of the powers of various authorities under the Act, this High Court, in Bongaigaon Refinery and Petrochemicals Ltd. , observed and held as under (page 131):
Entertainment of a view different from the one adopted by the Assessing Officer, if plausible would not clothe the Commissioner with the power to interfere therewith under the said provision of the Act. Differently put, an error within the jurisdiction of the Assessing Officer on an evaluation of the materials available would not be exposed to interference in exercise of suo motu revisional powers under Section 263 of the Act. The provision though permits the Commissioner to initiate an enquiry as he may deem necessary does not authorise a roving probe into the facts with the disposition to pick out errors to sustain the eventual interference. This assumes great significance in the context of the statutory framework of the Act outlining the jurisdictional contours of different authorities to adjudicate the issues as legislatively stipulated. The Commissioner in exercise of his revisional powers cannot arrogate to himself a status to surrogate the other authorities and supplant their roles under the Act. The Commissioner is not a substitute for the other statutorily prescribed fora with codified functions dischargeable in terms of the prescribed procedure in the situations comprehended thereby. The Commissioner therefore has to be rigorously held to the limits of his suo motu revisional jurisdiction lest any transgression of statutorily ordained prerogatives of other authorities under the Act result from an unbridled exercise of such power. The Act envisages a compartmentalisation in the functioning of the authorities prescribed who have to dwell within the legally stipulated parameters so much so that it would be impermissible to overreach the legislatively mandated frontiers. Any other approach would be antithetical to the scheme and alignment of the Act.
30. From what have been discussed above, it becomes abundantly clear that a revisional authority cannot entrench upon the powers which are expressly reserved by the Act in favour of the other authorities. The Act nowhere authorises the revisional authority to intrude into inquiries properly made by the assessing authority and to reopen an already completed assessment.
31. In the case at hand, the order, initiating rectification proceedings under Section 154, as well as the order revising the assessment under Section 263, were passed on the basis of one and the same audit objection. While exercising revisional jurisdiction, the revisional authority must bear in mind that the principles of natural justice do not permit the decision of a quasi-judicial authority, such as a Commissioner of Income-tax, to be influenced by any other authority. Thus [held the Commissioner could not have initiated a suo motu revisional proceeding on the basis of the said audit report.] Had, on the basis of the audit report, the Commissioner came to his own finding that the assessing authority, while making the assessment, or the authority empowered to rectify a turnover, which had escaped assessment, has acted without jurisdiction, revisional jurisdiction could have been exercised. Emphasised the Supreme Court, in the case of Sirpur Paper Mill Ltd. v. CWT : [1970]77ITR6(SC) , that while exercising power, the Commissioner must have an unbiased mind and decide the dispute according to the procedure which is consistent with the principles of natural justice and cannot permit his mind to be influenced by the dictation of another authority. The relevant observations made by a three-judge Bench of the Supreme Court, in the case of Sirpur Paper Mill Ltd. : [1970]77ITR6(SC) , read as follows (page 7):
In exercise of the power the Commissioner must bring to bear and unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice ; he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority.
32. From the facts as discussed above, it is clear that in the case at hand, the Commissioner has initiated the suo motu revisional proceeding, under Section 263, entirely based on the objection raised by the internal audit authority. There is nothing either in the impugned notice dated January 24, 2000, or in the impugned order dated March 28, 2000, to show that the Commissioner has applied his independent mind and has come to the conclusion that the assessment made needs to be revised. Moreover, the suo motu revisional jurisdiction cannot be invoked under Section 263, for the purpose of making a roving enquiry by directing an authority, as has been done in the present case, to again verify an issue which was verified by the Assessing Officer and thereby settled and concluded by him. Such an approach is not permitted within the parameters of the powers conferred on a revisional authority under Section 263, for, allowing exercise of such powers would amount to permitting the revisional authority to reopen an assessment, which has been made in exercise of jurisdiction vested in the assessing authority, but while making the assessment, a mistake has been committed by the assessing authority unless it is alleged that the deductions allowed were wholly impermissible in law. Furthermore, though a revisional proceeding had been initiated against the order of assessment made on March 11, 1998, no revisional proceeding was initiated against the order dated January 7, 2000, whereby the assessing authority had dropped the rectification proceeding initiated under Section 154. Thus, while the order passed on January 7, 2000, remain unchallenged and unaltered, the order dated March 11, 1998 got reopened. When a rectification proceeding is initiated under Section 154 and a final order dropping the rectification proceeding is passed, the effect is that the assessment order has merged into the order made in the rectification proceeding. In the case at hand, the assessment order, dated March 11, 1998 had merged into the order dated January 7, 2000. In such circumstances, without interfering with the order dated January 7, 2000, the order dated March 11, 1998 could not have been reached by the revisional authority and set aside. Viewed thus, it was clear that the impugned notice and the order passed by the Commissioner under Section 263, were absolutely without jurisdiction and not tenable in law.
33. A Division Bench of the Calcutta High Court, too, in the case of Jeewanlal (1929) Ltd. v. Addl. CIT reported in : [1977]108ITR407(Cal) , following the law laid down by the Supreme Court, in Sirpur Paper Mill Ltd. : [1970]77ITR6(SC) observed (page 412): 'The second ground of attack was, as I mentioned before, that this order was passed at the suggestion of the audit department of the Revenue and not by the Additional Commissioner in exercise of his quasi-judicial discretion. I have noticed the terms of Section 263 of the Act which empowers the Commissioner to call for examination of the record and thereafter to make an order. In this case the Commissioner purported to exercise the power at the suggestion of the audit department. This position would be clear if one refers to the averment made in paragraph 4(d) of the affidavit-in-opposition, by one Madan Mohan Lal, filed on behalf of the respondents. From the facts it is apparent that the Additional Commissioner did not exercise his discretion and judgment. In the aforesaid view of the matter, on the basis of the principles enunciated by the Supreme Court in the case of Sirpur Paper Mill Ltd. v. CWT : [1970]77ITR6(SC) , this notice cannot also be sustained. The notice therefore, issued on the 24th of March, 1972, is hereby quashed and set aside.'
34. From what have been pointed out above, it is clear that the Commissioner of Income-tax initiated the revisional proceeding influenced by the objection raised by the internal audit party and has not applied his independent mind, while passing the impugned order. Hence, the impugned order is liable to be set aside and quashed.
35. Mr. Bhuyan's contention that dropping of the rectification proceeding did not mean that there was no mistake or error in making the assessment order has no force, for, when the rectification proceeding is dropped after receiving reply from an assessee, the logical conclusion would be, unless shown otherwise that there was no error in making the assessment which called for rectification in exercise of powers under Section 154. This apart, the exercise of power of revision is not permissible on the same set of facts on which a rectification proceeding was dropped unless it can be shown that the rectification proceeding initiated was without jurisdiction or that the dropping of the rectification proceeding amounted to refusal of exercise to jurisdiction. It has neither been contended by the respondents nor does it appear that the rectification proceeding was without jurisdiction. In such circumstances, when the rectification proceeding was dropped, revisional jurisdiction could not have been exercised without showing that dropping of the rectification proceeding was improper or dropping of the rectification proceeding itself was without jurisdiction.
36. Though it is not necessary for the Commissioner to record a specific finding that the deductions allowed were impermissible, the fact remains that in order to enable a Commissioner to set aside an order of assessment under Section 263 on the ground that deductions have been permitted without jurisdiction, the Commissioner must record that the order is erroneous and give reasons therefor. Without recording reasons for holding that the order is erroneous, a Commissioner cannot initiate revisional jurisdiction under Section 263. In the case at hand, the Commissioner has not assigned reasons for holding that the deductions allowed were impermissible. What the Commissioner has, in effect, directed is that in terms of the objections raised by the audit party, the books of account be verified.
37. As regards the exercise of jurisdiction under Article 226, what needs to be noted is that the writ petitioners have challenged the exercise of power under Section 263 as an exercise of power without jurisdiction. When the Commissioner does not claim that to the facts of the case at hand, a rectification proceeding could not have been initiated nor does the Commissioner claim that dropping of the rectification proceeding amounted to omission to exercise jurisdiction, which rightfully stood vested in the authority concerned, the exercise of revisional jurisdiction under Section 263 has to be held as an exercise of power without jurisdiction. When the power is exercised without jurisdiction, the High Court can interfere with such an order of suo motu revision in exercise of powers under Article 226. Reply of a notice to show cause issued by the Commissioner under Section 263 will not confer jurisdiction on the Commissioner if the Commissioner is, otherwise, not legally empowered to initiate and conduct a revisional proceeding under Section 263(See Shree Automobiles P. Ltd. v. Commissioner of Taxes ). Made it clear the Supreme Court in Bhopal Sugar Industries Ltd. v. D.P. Dube, Sales Tax Officer : [1964]1SCR481 , that the High Court has jurisdiction to entertain a writ application, when an authority under a taxing statute has arrogated to itself the powers which it does not possess. Moreover, in L. Hirday Narain v. ITO : [1970]78ITR26(SC) the apex court has made it clear that if a writ petition is not dismissed in limine but is entertained despite availability of an alternative remedy and the parties were heard on the merits, it would be unjustified for the High Court to dismiss the writ petition on the ground of availability of an alternative remedy. Considered thus, it is clear that in the facts and circumstances of the present case, when exercise of revisional jurisdiction could not be shown to be an exercise of power within the jurisdiction of the Commissioner, and when this court has not dismissed the writ petition in limine and has already heard the writ petition on the merits, it would not be fair and just to dismiss the writ petition on the ground of availability of an alternative remedy.
38. What crystallises from the above discussion is that in the present case, when there was no lack of jurisdiction on the part of the assessing authority, in passing the order of assessment and the assessing authority had not exceeded its jurisdiction in passing the order of assessment, the order cannot be termed erroneous, within the meaning of Section 263, to enable the Commissioner of Income-tax to invoke powers under Section 263 of the Act.
39. In the result and for the reasons discussed above, this writ petition succeeds. The impugned notice as well as the order passed by the Commissioner are hereby set aside and quashed.
40. With the above observations and directions, this writ petition shall stand disposed of.
41. No order as to costs.