1. Both the appeals have been directed by different assessees against the separate orders of the learned Commissioner of Income Tax under Section 263 of the Act dated 24-3-2005 pertaining to assessment year 2001-02. For the sake of convenience, we will first take up the appeal in the case of Shri Balram Manmani.
2. In the grounds of appeal, the assessee has challenged the assumption of jurisdiction under Section 263 of the Act as well as the direction of the learned Commissioner of Income Tax to make the assessment afresh after conducting further enquiries.
3. Briefly, the facts of the case are that the assessee derives share of profit from M/s. Balram Wood Products, the firm engaged in the manufacture and sale of Katha. The original assessment under Section 143(3) of the Act was completed on 29-9-2003. Subsequently, the learned Commissioner of Income Tax examined the assessment records and noted that the assessee's accounts have been credited by a sum of Rs. 20.3 9 lakhs by way of gift received from one Shri Vraj Lal G Pau residing in London through his minor son Master Kamesh Manmani. The Indian address of the donor was in Chennai. The learned Commissioner of Income Tax observed that while accepting the gift as genuine, the assessing officer has not made any worthwhile enquiries. He, therefore, felt that the assessment order passed by the assessing officer was erroneous insofar as prejudicial to the interests of Revenue. He, therefore, issued a show-cause notice to the assessee on 7-3-2005 as to why the assessment order passed by the assessing officer may not be enhanced, modified or cancelled and the assessing officer be directed to pass fresh assessment order.
4. The assessee, vide his reply dated 14-3-2005 stated that during the assessment proceedings, the assessing officer had asked the assessee to file various evidences in support of the genuineness of the gift. In order to prove the genuineness of the gift, the assessee had furnished the following documents before the assessing officer: (1) Confirmation from the donor confirming the gift to the assessee's minor son.
(3) The certificate from Union Bank of India, Madurai Branch, confirming the Demand Draft issued from the donor's bank account.
(4) The copy of assessee's bank account where the amount has been credited.
(5) Statement showing incomings and outgoings of the said bank account.
(6) Interest as had been credited by the bank in the Savings Bank Account of the assessee (standing in the name of minor son).
(8) Passport of the donor in support of the contention that donor was a foreign national.
5. It was also stated that the above documents were filed before the assessing officer in response to the queries made by him. This fact conclusively goes to prove that the assessing officer had duly initiated the enquiries and took the same to logical conclusion. By placing reliance on various case laws, the assessee claimed that the gift was genuine and as the assessing officer has accepted the same after making necessary enquiries, the assessment order cannot be said to be erroneous insofar as prejudicial to the interests of revenue.
6. The learned Commissioner of Income Tax considered the submissions of the assessee. He observed that the assessing officer had issued questionnaire on 11-12-2002 in which 12 questions were put to the assessee. However, no question was put on the assessee about the genuineness of the gift. He also observed that in case of a gift, it was very crucial to examine the relationship between the donor and donee. This has not been examined. The capability of the donor to make such a huge gift and the occasion of the gift had also not been examined by the assessing officer. He also observed that in the instant case, the most important aspect was the relationship between the donor and the donee. No worthwhile enquiries have been made by the assessing officer in this regard. He, therefore, held the order passed by the assessing officer to be erroneous insofar as prejudicial to the interests of revenue. He cancelled the assessment order passed by the assessing officer and directed the assessing officer to make fresh assessment after examining the genuineness of the gift and after providing reasonable opportunity to the assessee. The order of the learned Commissioner of Income Tax has been challenged before us, 7. It is argued by the learned counsel that in his order under section 263, the learned Commissioner of Income Tax has observed that in the instant case, the crucial issue was examining the relationship between the donor and the donee. He stated that relationship between the donor and donee was not a pre-requisite for valid gift during the year under consideration. He stated that the Allahabad Bench of the Tribunal in the case of ITO v. Matadin Snehlata (HUF) (2004) 90 ITD 203 (All), has observed that relationship between the donor and donee was irrelevant for the validity of the gift. The Delhi Bench of the Tribunal in the case of Hari Chand Ghanshyam Dass (I.T. Appeal No. 4398 (Del) of 1992) has also considered this issue. Vide its order, the Tribunal held that it was not necessary that the donor and the donee should be real relations. There may be relation by behaviour. He argued that for the validity of gift, the assessing officer has to examine the legal effect of the transaction. The Hon'ble Supreme Court in the case of Commissioner of Income Tax v. B.M. Kharwar (1969) 72 ITR 603 (SC), has held that in revenue cases regard must be had to the substance of the transaction rather than its mere form. He stated that the Hon'ble Supreme Court in the case of Kishinchand Chellaram v. Commissioner of Income Tax (1980) 125 ITR 713 (SC), has observed that burden was on the revenue to show that the money belonged to the assessee by bringing proper evidence on record and the assessee could not be expected to bring evidence to help the Department to discharge the burden that lay on it.
8. The learned counsel further argued that all the documents proving the validity of gift were filed before the assessing officer. Even the learned Commissioner of Income Tax has not doubted the veracity of these evidences. He has not doubted the origin of the gift and receipt therefrom. He also argued that the learned Commissioner of Income Tax was not justified in observing that the assessing officer had not called any information regarding the genuineness of the gift. He stated that though the information about the validity of the gift was not called for through questionnaire, by order sheet entries the assessee was asked to furnish the evidences in support of gift and these were submitted. The assessing officer was satisfied with the documents and accepted the gift to be genuine. He stated that looking to the above facts, the order passed by the assessing officer cannot be said to be erroneous and as there was neither any error of law or of fact, such order cannot also be said to be prejudicial to the interests of Revenue. He stated that the term "erroneous" has been explained by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax v.Gabriel India Ltd. (1993) 203 ITR 108 (Bom). He also relied on the decision of the Hon'ble A.P. High Court in the case of Sirpur Paper Mills Ltd. v. ITO (1978) 114 ITR 404, 407 (A.P.) wherein the Hon'ble High Court has observed as under : The Department cannot be permitted to begin fresh litigation because the views they entertain on facts or new versions which they present as to what should be the inference of proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, "except when legal ingenuity is exhausted". To do so is . . . ." to divide one argument into two and to multiply the litigation.
9. Relying on the legal position mentioned above as well as the factual position, the learned Counsel argued that the order passed by the assessing officer was neither erroneous nor prejudicial to the interests of Revenue. The learned Commissioner of Income Tax has wrongly assumed jurisdiction under section 263 of the Act and the same deserves to be cancelled.
10. On the other hand, the learned Departmental Representative stated that the assessee's accounts have been credited by huge sums which was claimed to have been received by way of gift. During assessment proceedings, the assessing officer did not enquire the genuineness of the gift by issue of a questionnaire. The assessment was made in a very casual manner. Relying on various cases, the learned Departmental Representative stated that non-application of mind makes the assessment order erroneous insofar as prejudicial to the interests of Revenue. The learned Commissioner of Income Tax has, therefore, rightly assumed jurisdiction under section 263 of the Act. She, therefore, supported the order of the learned Commissioner of Income Tax.
11. We have considered the rival submissions. Section 263 of the Act reads as under : 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 insofar 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.
12. From a reading of section 263(1), it is clear that power of suo motu revision can be exercised by the Commissioner only if on examination of any proceedings under the Income Tax Act, he considers that any order passed by the assessing officer was "erroneous" insofar as it is prejudicial to the interests of the revenue. It is not an arbitrary or un-chattered power. It can be exercised only on fulfilment of the requirements laid down in section 263(1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him, will be illegal and without jurisdiction. This opinion was expressed by the Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra).
13. The expression "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary, 6th Edition, Page 542. According to definition, "erroneous' means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature. Similarly, "erroneous judgment" means one rendered according to course and practice of court but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. From the aforesaid definitions, it is clear that an order cannot be termed as "erroneous" unless it is not in accordance with law. If an assessing officer acting in accordance with law, makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) has held that section 263 does not visualize a case of substitution of the judgment of the Commissioner for that of the assessing officer, who passed the order, unless the decision is held to be erroneous.
14. The words "prejudicial to the interests of the revenue" have not been defined, but they must mean that the orders of the assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. Our views find support from the decisions in Addl.
Commissioner of Income Tax v. Mukur Corpn. (1978) 111 ITR 312 (Guj), Gabriel India Ltd. case (supra) and Commissioner of Income Tax v. Smt.
Minalben S. Parikh (1995) 215 ITR 811 (Guj).
15. The phrase "prejudicial to the interests of revenue" has to be read in conjunction with an erroneous order passed by the assessing officer.
As has been held in various cases reported in Rampyari Devi Saraogi v.Commissioner of Income Tax (1968) 67 ITR 84 (SC), Smt. Tara Devi Aggarwal v. Commissioner of Income Tax(SC) and Malabar Industrial Co. Ltd. v. Commissioner of Income Tax (2000) 243 ITR 83 (SC), every loss of revenue as a consequence of an order of the assessing officer, cannot be treated as prejudicial to the interests of revenue,. For example, when an assessing officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the assessing officer has taken one view with which the Commissioner of Income Tax does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the assessing officer is unsustainable in law.
16. The Bombay High Court in the case of Gabriel India Ltd. (supra) had explained the scope of the provisions of section 263 of the Act. The Hon'ble Bombay High Court has observed as under : Two circumstances must exist to enable the Commissioner to exercise the power of revision under this sub-section, viz. (i) the order should be erroneous; and (ii) by virtue of the order being erroneous prejudice must have been caused to the interests of the revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income Tax Officer acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. 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 higher figure than the one determined by the Income Tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure.
17. The Hon'ble M.P. High Court in the case of Commissioner of Income Tax v. Ratlam Coal Ash Co. (1988) 171 ITR 141 (MP), also considered this issue. The Hon'ble Court held that as the order was passed by the assessing officer after making inquiries, the assumption of jurisdiction under section 263 was not justified. The special Bench of the ITAT in the case of Babu Lal Grandson Family Trust v. ITO (1989) 31 ITD 52 (Del), also considered this issue. While allowing the appeal of the assessee, the ITAT held as under : Many of the points raised by the learned Commissioner in his impugned order are such which really suggest that the learned Commissioner was looking for a lot of enquiry or information on points which were not necessary in a case of the present nature like the nature of accounts maintained by the Trust. Neither the papers on the record nor any other material which was before the Income Tax Officer or the Commissioner suggested such a course of enquiry nor arouse any suspicion. May be that the Income Tax Officer should have written a more detailed order but for want of it, it would not become erroneous or prejudicial to the interests of the revenue. The Commissioner of Income Tax was not justified in initiating action on the basis of mere guess work, possibilities or suspicion under section 263.
18. The Bombay Bench of the ITAT in the case of Patel Cotton Co. Ltd. v. Assistant Commissioner of Income Tax (1998) 64 ITD 273 (Bom), also considered the scope of the provisions of section 263 of the Act.
Hon'ble Bench observed as under : Admittedly, when there are two views possible in a case then mere fact that the assessing officer has taken one view would not render his order as erroneous though it may be prejudicial to the interests of the revenue. For exercising powers under section 263, two conditions must be satisfied. Firstly, the order sought to be revised must be erroneous and secondly, by reason of the said order there must be prejudice caused to the revenue. In this case, it may be noted that a prejudice is caused to the revenue by adopting a view favourable to the assessee, yet, the order cannot be said to be erroneous as a possible view in accordance with the decisions of the Tribunal (supra) was adopted by the assessing officer. Considering the facts and circumstances of this case, we are of the view of that the action of the Commissioner of Income Tax under section 263 was not warranted as the view taken by the assessing officer cannot be said to be erroneous in view of the decisions of the Tribunal quoted elsewhere in this order. We accordingly cancel the orders of the Commissioner of Income Tax under section 263 and restore the orders of the assessing officer.
19. Similar view was taken by the Pune Bench of the ITAT in the case of Fatehchand Rajmal Jain v. Inspecting Assistant Commissioner (1997) 60 ITD 47. The Delhi Bench of the ITAT in the case of Super Cassettes Ind (P) Ltd. v. Commissioner of Income Tax (1992) 41 ITD 530, after considering the decision of Hon'ble High Court in the case of Gee Vee Enterprises v. Addl. Commissioner of Income Tax (1975) 99 ITR 375, has held as under : As regards the Commissioner's order under section 263, a reading of the order showed that it was more on the line of approach of appellate authority which was not its role as held by the Madras High Court in the case of Venkatakrishna Rice Co. v. Commissioner of Income Tax (1987) 163 ITR 129 (Mad). It was evident that he was of a different opinion from that of his subordinate officer and since he had only proposed to take a different view from the one taken by the assessing officer and section 263 not being intended for change of opinion, the action of the Commissioner was set aside.
20. Keeping in view the above legal position, we have examined the facts of the case before us. Admittedly, during the course of assessment proceedings, the assessing officer had asked the assessee to furnish information in respect of the gift received by the assessee.
The assessee had also furnished the requisite informations. As the details have been furnished by the assessee before the assessing officer and the assessment order has been passed by the assessing officer after taking into account the submissions as well as evidences, it cannot be said that the assessment order has been passed in a casual manner. While accepting the gift to be genuine, the assessing officer has applied his mind and therefore, it cannot be said to be case of non-application of mind. No material whatsoever has been brought on record by the learned Commissioner of Income Tax which go to show that there was any discrepancy or falsity in the evidences furnished by the assessee. There is force in the contention put forth by the learned counsel that the order has been held to be erroneous in this respect merely on guess work and in the expectation of finding out some discrepancy. The revisionary jurisdiction as has been conferred on the learned Commissioner of Income Tax under section 263 cannot be exercised on the basis of such a possibility or guess work. As the assessing officer has examined the documents filed before him and has come to a definite conclusion, the learned Commissioner of Income Tax could not have thrust his own finding in this respect, even if such an opinion, if implemented, can fetch some more revenue. Unless and until some specific error of law is pointed out, as has not been done here, the learned Commissioner of Income Tax's order under section 263, will have to be held to be based on extraneous material/consideration.
21. Considering the facts as a whole, we hold that the order passed by the assessing officer was neither erroneous nor prejudicial to the interests of the revenue and, therefore, assumption of jurisdiction under section 263 of the Act by the learned Commissioner of Income Tax is illegal. We, therefore, quash the order under section 263 passed by the learned Commissioner of Income Tax.
23. Now, we will take up the appeal in the case of Shri Hari Kishan Manmani.
24. In this case also, when the return of income was filed by the assessee, the assessing officer noted that the assessee's accounts have been credited by a huge sum. He asked the assessee to explain the nature of the credit. It was explained by the assessee that the credit entries represented gift from the same donor, who has given gift in the case of Shri Balram Manmani. During the assessment proceedings, the assessee was asked to file evidences in support of the genuineness of the gift. Various evidences as in the case of Shri Balram Manmani were filed before the assessing officer. The assessing officer accepted the gift as genuine and passed order under section 143(3) of the Act on 29-9-2003.
25. Subsequently, the learned Commissioner of Income Tax examined the assessment records and felt that as the assessing officer has not examined the genuineness of the gift in the proper perspective, the order passed by the assessing officer appears to be erroneous in so far as prejudicial to the interests of revenue. He, therefore, issued a show cause notice to the assessee as to why the assessment may not be enhanced, modified, set aside and cancelled for making a fresh assessment. The assessee made detailed submissions. However, the learned Commissioner of Income Tax held that by not making any enquiry into the relationship between the donor and the donee and the genuineness of the transactions of the gift and the capability of the donor for which the case was selected under scrutiny, the assessing officer has apparently ignored the interests of revenue, thus, making his order in respect of this issue prejudicial to the interests of revenue. He, therefore, cancelled the assessment made by the assessing officer under section 143(3) of the Act and directed the assessing officer to make fresh assessment after conducting enquiries and after giving the assessee reasonable opportunity of being heard.
26. We have considered the rival submissions. The facts of the case are similar to that of Shri Balram Manmani. In that case we have held the order passed by the learned Commissioner of Income Tax under section 263 to be illegal. As the facts in the case of the assessee are similar, keeping in view our order in the case of Shri Balram Manmani, we hold that the order passed by the learned Commissioner of Income Tax was illegal and the same is quashed.