Delhi High Court

Jagatjit Industries Ltd. vs Dy. Commissioner on 2 May, 2003

Equivalent citations: (2004) 91 TTJ Del 281

ORDER

S.K. Yadav, J.M.

Through this appeal, the assessed has assailed the order of Commissioner passed under section 263 of the Income Tax Act on various grounds which are as under :

"1. That the order under section 263(l), dated 8-8-2000, as passed by the learned Commissioner is arbitrary, unjust, and illegal on various factual and legal grounds including the following :

(a) The learned Commissioner had not discharged the onus which lay on him to prove that the reassessment order as passed under section 147/143(3) of the Income Tax Act, by the learned assessing officer was erroneous and prejudicial to the interest of revenue.

(b) The provisions of section 263 in terms did not apply to the facts of this case inasmuch as the reassessment order as passed under section 147/143(3) of the Income Tax Act, was neither erroneous nor prejudicial to the interest of the revenue because the same had been passed after proper application and by taking into consideration the documentary evidence placed on record not only by,the learned assessing officer but also by the learned Addl. Commissioner.

(c) The learned Commissioner is wrong in his observation that the reassessment order was passed in a hurried manner and that no genuine efforts had been made by the learned assessing officer to examine Shri Jaiswal. There was no false assertion of any kind in the reassessment order as has been assumed by the learned Commissioner in the impugned order.

(d) The Delhi High Court judgment reported in Gee Vee Enterprises v. Addl. CIT (1975) 99 ITR 375 (Del) had absolutely no application to the facts of appellant's case.

(e) The learned Commissioner is wrong in saying that the reassessment order had been passed without making relevant enquires and that the reassessment order was erroneous and prejudicial to the interest of the revenue.

(f) Various observations made by the learned Commissioner while cancelling the reassessment order under section 263 are either incorrect or are untenable. Some of the observations are self-contradictory also."

2. That the impugned order under section 263 as passed by the learned Commissioner is bad in law and void ab initio and, therefore, the same deserves to be cancelled.

3. That the appellant reserves its rights to add, amend or modify the grounds of appeal. "

2. The facts in nutshell are that the original assessment framed under section 143(3) was reopened under section 147 after recording reasons and reassessment was framed. The reassessment record was examined by the Commissioner in his revisional jurisdiction under section 263 of the Income Tax Act (hereinafter referred as to Act) and he found the assessment order as erroneous and prejudicial to the interest of the revenue. The Commissioner cancelled the reassessment order and asked the assessing officer to reexamine the issues of payment of commission to M/s L.P. Breweries after affording an opportunity to the assessed to cross-examine Mr. Jaiswal.

3. Certain facts which are necessary to understand the complexity of the issues are that in the case of L.P. Breweries and Agencies (P) Ltd. during the course of assessment proceedings for the assessment year 1996-97, the assessing officer noticed that it has received a payment of Rs. 30,13,036 on account of commission from M/s Jagit Industries Ltd. i.e., the assessed, during the period of 1-7-1995 to 31-8-1995, and tax was deducted at source. While detailed investigation was made by the assessing officer, Shri Manoj Jaiswal, Director of L.P. Breweries came forward along with an affidavit stating therein that in the assessment years 1995-96 and 1996-97, commission of Rs. 74,40,561 received by L.P. Breweries (hereinafter referred as to LPB) from the assessed was merely an accommodation entry and that the entire commission was returned back to the assessed, i.e., M/s Jagatjit Industries Ltd. (hereafter referred as to JIL) except to the extent of 2.3 per cent of the total amount, i.e., TDS amounting to Rs. 1,71,134 and also stated that the return for the assessment years 1995-96, 1996-97 be treated as modified to that extent.

3A. After collecting all these evidence, the assessing officer of LPB has handed over the entire material to the assessing officer of the assessed for necessary action. On receipt of this information, the assessing officer has recorded the following reasons and issued the notice under section 148 of the Income Tax Act.

"In this case, return of income declaring a returned income of Rs. 22,37,27,240. was filed on 30-11-1995. The assessment under section 143(3) was completed at an income of Rs. 23,43,89,683 on 31-3-1998. This was reduced to Rs. 22,57,74,420 after giving effect to Commissioner (Appeals)'s order on 24-8-1998. In the return of income the assessed had claimed an expenditure of Rs. 74,40,561 through M/s L.P. Breweries & Agencies (P) Ltd. for the service rendered by them. Mr. Manoj Jaiswal, Director of M/s L.P. Breweries & Agencies (P) Ltd. during the course of his assessment proceedings filed an affidavit dated 22-3-1999, that he did not render any service to M/s Jagatjit Industries Ltd. against these payments. During the course of their assessment proceedings, he also admitted that this was merely an accommodation entry and that he had returned the whole amount of M/s JIL except to the extent of 2.3 per cent of total income. From these it is clear that in the return for assessment year 1995-96 M/s Jagatjit Industries has claimed a bogus expenditure of Rs. 74,40,561 and, therefore, I have reason to believe that an income of Rs. 74,40,561 and, therefore, I have reason to believe that an income of Rs. 74,40,561 has escaped assessment within the meaning of section 147. Issue notice under section 148."

4. In response to notice under section 148, return was filed and the assessing officer re-examined the issue but finally did not make an addition on he point of dispute, i.e., the payment of commission. This assessment order was examined by the Commissioner under its revisional jurisdiction and after finding it to be erroneous and prejudicial to the interest of revenue, issued the show-cause notice to the assessed. The assessed has replied to show-cause notice with the submission that he has placed all relevant evidence before the assessing officer to prove the genuineness of payment of commission to LPB and after making a detailed investigation on this issue, the assessing officer accepted the claim of the assessed. It was also contended on behalf of the assessed that Mr. Manoj Jaiswal has no locus standi to file the affidavit because he was not the director of LPB at the relevant point of time. The Commissioner having noticed that the assessing officer did not make necessary investigation in the payment of commission to LPB which ought to have been done by an officer, he formed a view that this assessment order is erroneous and prejudicial to the interest of the revenue and he cancelled the same and restored the matter to the file of the assessing officer for re-examination of the payment of commission in the light of his observation after affording an opportunity to the assessed to cross-examine Shri Manoj Jaiswal.

5. Aggrieved with this order of Commissioner, the assessed preferred an appeal before the Tribunal with the submission that the assessed has filed a detailed reply in response to show-cause notice before the Commissioner stating therein the detailed inquiries were conducted by the assessing officer in reassessment proceedings and after being convinced with the genuineness of payment of commission, he allowed the claim of the assessed. The learned counsel for the assessed Mr. O.P. Sapra has contended that during the course of assessment proceedings, assessing officer has made inquiries regarding selling expenses which includes payment to LPB & Agency (P) Ltd. and in support of this contention, he has also invited our attention to the details of payment of commission. It is further submitted that the LPB was appointed as an agent of the assessed to promote its sales in a specified area in the State of Rajasthan on which agreed percentage of commission was paid to LPB. Our attention was invited to the sale promotion agreement appearing at page Nos. 56 to 58 of the assessed's compilation and this agreement remained in existence till 30-8-1996, when the security deposit of Rs. 1 lakh was returned back to LPB.

6. The learned counsel for the assessed further submitted that the revenue has reopened the assessment on the basis of an affidavit of Shri Manoj Jaiswal, one of the directors who has deposed against the assessed, when he was cornered by the revenue, during the course of assessment in the case of LPB with regard to the forged TDS certificate only with the intent to escape from the legal consequences expected in his own case. Mr. Sapra further contended that this affidavit of Shri Manoj Jaiswal does not have any legal sanctity because he was not at all connected with the LPB at the relevant point of time and he became the director with effect from 29-9-1998, while transactions were made during the financial year 1994-95. In the case of LPB, the audited accounts were filed after the date of affidavit of Mr. Manoj Jaiswal before the Registrar of Companies confirming the receipt of impugned remuneration. Therefore, the assessing officer did not give much importance and has rather rejected the affidavit following the judgment of the jurisdictional High Court in the case of Sunder Industries & Ors. v. General Engineering Works AIR 1982 Del 220. The assessing officer, however, made its efforts to examine Mr. Jaiswal and issued summons but the same were not served upon Mr. Jaiswal and the assessing officer could not examine him. Before the assessing officer, the assessed has, however, placed the confirmation letters of different parties of the same State in which they have confirmed that they have received the supply of liquor through LPB. Since the affidavit of Manoj Jaiswal is self-serving document and is filed with ulterior motive, the same cannot be held to be the sole basis of holding that the order of the assessing officer is erroneous and prejudicial to the interest of the revenue because the conclusion of the learned assessing officer are based on detailed examination of evidence on record. Since two views are possible and one view has been adopted by the assessing officer after making a detailed inquiry, his order cannot be called to be erroneous and prejudicial to the interest of the revenue. In support of his contention, the learned counsel for the assessed has relied upon the following judgments :

(i) Commissioner v. Minal Ben (1995) 215 ITR 81 (GuJ)

(ii) Commissioner v. Gabriel India Ltd, (1993) 203 ITR 108 (Bom)

(iii) Commissioner v. Trustees of Anupam Charitable Trust (1987) 167 ITR 129 (Raj)

7. The learned counsel for the assessed, Mr. Sapra, further contended that in order to ascertain the genuineness of the payment of commission, the assessing officer has examined Mr. Anil Verma, Taxation Manager and Mr. Pramod Kala, Dy. Manager (Taxation) who have confirmed the payment of commission to LPB. Our attention was invited to the statement of Mr. Anil Verma who has explained the details of TDS certificate issued to the assessed and also about the 4 TDS certificate. It was further contended when the LPB got cornered because of TDS certificate having been forged by it, coupled with the fact that it could not prove the substantial expenses as claimed by it against the commission income earned from the assessed as shown by it in the assessment years 1995-96 and 1996-97, an affidavit dated 22-3-1999, was filed by Shri Manoj Jaiswal who became the director of LPB on 29-9-1998, stating therein in para 3 on assurance of complete immunity against levy of tax, interest, penalty and prosecution by the assessing officer, Company Ward 26(3), that the remuneration receipt was shown as income by LPB only to accommodate GIL against which no services were rendered by LPB. The learned counsel further submitted that there was no power vested in the assessing officer to grant any such immunity. In the present circumstances, it could not be assumed that LPB which admittedly was an existing company duly registered with Registrar of Companies will work only to have benefit of TDS. No evidence whatsoever, directly or indirectly, has been brought on record to this effect. Learned departmental Representative Mr. Sapra has also pointed out certain defects in the affidavit. He further urged that Mr. Manoj Jaiswal had not been examined by the assessing officer of LPB and no opportunity had been given to the assessed for cross-examining him particularly when much before the affidavit, the assessing officer had summoned the assessed to verify the payment made by the assessed to LPB. The affidavit of Shri Manoj Jaiswal was rightly ignored as it had no evidentiary value as held by jurisdictional High Court in the case of Sona Electrical Company v. Commissioner (1985) 152 ITR 507 (Del) and Commissioner v. Eastern Commercial Enterprises (1994) 210 ITR 103 (Cal). He further submitted that it is important to note that Manoj Jaiswal did not appear before the assessing officer of the assessed on 26-3-2002, when he was to be re-examined by the assessed despite his assurance given in an affidavit dated 26-3-1999, that he would co-operate with the IT department in future also as and when required for this purpose during the course of reassessment consequent to the order of Commissioner passed under section 263 and then the assessing officer again re-examined the entire issue and finally framed the assessment by making the addition of Rs. 74,40,561 on protective basis in the hands of the assessed because the reassessment proceedings in the case of LPB were pending. The learned counsel for the assessed has placed the reassessment order on record with the submission that even in consequential order, the revenue could not bring anything on record to doubt the genuineness of the payment of commission to LPB. They, however, made the addition protectively to protect the interest of the revenue.

8. Learned counsel for the assessed, Mr. Sapra, further contended that since the matter was voluntarily examined by the assessing officer in the light of evidence available on record, the assessment order should not be held to be erroneous and prejudicial to the interest of the revenue.

9. Learned Departmental Representative, on the other hand, has emphatically refuted the contention of the assessed and placed heavy reliance upon the order of Commissioner. The learned departmental Representative Mr. Salil Gupta, has invited our attention to a letter written by the assessing officer having jurisdiction over LPB and the various other documents annexed to it stating therein how fictitious claim for commission payment were raised by the assessed. Learned departmental Representative Mr. Salil Gupta further invited our attention that the agreement dated 19-8-1994, was further renewed vide letter dated 12-3-1995 up to 31-3-1996. As such, it is not correct to say that this agreement was not renewed. During the course of assessment proceedings, neither on behalf of the assessed nor on behalf of the LPB Ltd., any evidence regarding services rendered by LPB for the assessed was produced. With regard to a letter dated 23-2- 1998, of the assessed through which it was claimed that the LPB has placed all books of accounts and relevant records before the assessing officer, the learned departmental Representative invited our attention to the letter appearing at page No. 1 of revenue's compilation with the submission that this letter was delivered at the dak counter and no books of account were produced before the assessing officer. The entire books of account were claimed to have been burnt in a fire which took place in his car. He has also invited our attention to the ledger account of conveyance and traveling expenses in the books of LPB (P) Ltd. with the submission that it has debited the huge expenditure but no details or description were given. He further invited our attention to the bank account of LPB which was opened on 6-4-1994, and closed on 8-5-1997; along with the copy of cheques through which the cash was withdrawn from the bank with the submission that this bank account was opened just before agreement was entered between the assessed and the LPB and whatever commission was received by LPB, it was immediately withdrawn either in cash or through its director Mrs. M. Kutti. The relevant documents are placed at pp. 19 to 37 of revenue's compilation. It was further submitted that this account was also closed after determination of the agreement. It means that this account was opened only to encash cheques of the aforesaid commission payment from the assessed. Learned departmental Representative further submitted that according to the assessed, the payment of commission was made within the previous year relating to the impugned assessment year but from the account of LPB, it is evident that part of the payments were received in May, June and December of 1995. When a substantial amount was paid in the succeeding year from where the LPB has incurred the expenditure on traveling and conveyance because it has no funds in hand. Our attention was invited to the balance sheet of LPB appearing at pages Nos. 100 and 101 of the assessed's compilation. The learned departmental Representative Mr. Salil Gupta further contended that after making a detailed observation from the assessment proceedings in the case of LPB, the assessing officer has written a detailed letter to the assessing officer having jurisdiction over the assessed with a request to take appropriate action in the case of assessed because the payment of commission did not appear to be genuine. Through this letter, the assessing officer of LPB has also pointed out that LPB has forged one TDS certificate alleged to have been issued by JIL. Along with this letter the assessing officer has furnished the relevant evidence collected in the case of LPB.

10. On the basis of this letter, the assessing officer having jurisdiction over the assessed has formed a view that an income chargeable to tax has escaped assessment in the hands of the assessed and he reopened the assessment. But while framing the assessment, learned assessing officer did not examine Mr. Manoj Jaiswal who had made a statement on oath before the assessing officer in the case of LPB through an affidavit that they have not received any commission from the assessed and whatever entries are found in the books of account, they are only for accommodation. The learned assessing officer even did not examine the position in the bank account of LPB to ascertain as to how and why the payment of commission was withdrawn in cash immediately after the deposit of cheques. The learned assessing officer did not even bother to find out the facts as to how the LPB has forged the TDS certificate in the name of the assessed. The assessing officer has simply issued a notice to the principal officer of LPB for summoning Shri Manoj Jaiswal at the residence of Shri Manoj Jaiswal which was returned back unserved and the assessing officer took note of it by stating in his order that Shri Manoj Jaiswal has refused to receive the notice and obtained confirmation letter of different traders who had confirmed the supply of IMFL through LPB. The learned departmental Representative further invited our attention from the annual report appearing at pages Nos. 143 and 144 with the submission that its chairman was L.P. Jaiswal and its subsidiary company was L.P. Investment Ltd., besides others. From these documents, he has tried to infer that LPB is certainly connected to Jagdish Industries Ltd. for which necessary investigation is required but the assessing officer did not do the same. He has also invited our attention that necessary inquiry was conducted in the case of LPB and on that inquiry, it was revealed that no concern like LPB & Agency (P) Ltd. exists either at Jaipur or V.P. 35-C, Maurya Enclave, Pitampura, Delhi, where the notice was issued by the assessing officer in the name of Principal Officer, LPB. Since the notice was not issued in the name of Manoj Jaiswal, there was no question of its service upon his wife Mrs. Ekta Jaiswal. Through this report dated 5-8-2000, it was brought to the notice of the assessing officer that at VP 35-C, Maurya Enclave, Manoj Jaiswal was living with this wife but the company under the name of LPB did not exist. The assessing officer did not take any trouble to summon Manoj Jaiswal to ascertain the veracity of his affidavit filed in the case of LPB stating therein that he has not received the commission from the assessed and the assessing officer has gone with the presumption that notice was refused to be received by Shri Manoj Jaiswal whereas it was issued to the principal officer of LPB.

10.1. Mr. Salil Gupta, the senior departmental Representative, further submitted that when no evidence was placed before the assessing officer about the services rendered by LPB for which commission was paid and evidence was brought before him that whatever commission was paid, it was immediately withdrawn by the LPB and the LPB is not a genuine party, a prudent assessing officer is. required to make necessary investigation to dig out the truth as it had been repeatedly held by the Apex Court and various High Courts that the assessing officer is not only an adjudicator but investigator also. The assessing officer did not make the necessary inquiries and has accepted the contention of the assessed in toto and allowed his claim. By doing so, his order has become erroneous and prejudicial to the interest of the revenue and hence Commissioner is justified in cancelling the same with the direction to make further inquiries in terms of his observations. In support of his aforesaid contentions, the learned departmental Representative has relied upon the following judgments :

1. Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC)

2. Duggal & Co. v. Commissioner (1996) 220 ITR 456 (Del)

3. KR. Ramaswamy Chettiar & Anr. v. CIT (1996) 220 ITR 657 (Mad)

4. Commissioner v. Gabriel India Ltd. (supra)

5. CWT v. Anokha Singh (2000) 246 ITR 26 (Del)

6. Commissioner v. Ratlam Coal Ash Co. (1988) 171 ITR 141 (MP)

7. Thalibai F Jain & Ors. v. Income Tax Officer (1975) 101 ITR 1 (Kar)

8. Commissioner v. Export House (2002) 256 ITR 603 (P&H)

9. Swarup Vegetable Products Industries Ltd. v. CIT (1991) 187 ITR 412 (All)

10. Commissioner v. Pushpa Devi (1987) 164 ITR 639 (Pat)

11. Sm t. Tara Deid Aggarwal v. CIT 1973 CTR (SC) 107

12. Gee Vee Enterprises v. Addl. CIT (1975) 99 ITR 375 (Del).

11. The learned departmental Representative further submitted that the controversy before the Tribunal is to examine whether the assessing officer has made a proper inquiry which is expected from a prudent officer or he has gone on wrong premises while accepting the claim of the assessed which made his order erroneous and prejudicial to the interest of the revenue. He cannot take into account the subsequent events or the result of the order. Even if the assessing officer allowed the claim to the assessed in consequential order, that order can be revised by the Commissioner and its fate is uncertain but it does not mean that the Commissioner has wrongly exercised its jurisdiction.

12. On consideration of rival submissions and from a careful perusal of record, we find that in the case of assessed, a regular assessment was framed under section 143(3) of the Income Tax Act. During the course of assessment proceedings in the case of LPB for the assessment year 1996-97, it was noticed by the assessing officer that the assessed has claimed more expenses than the receipt of commission, he investigated the claim of the assessed and during the course of investigation, the assessing officer found that the claim of receipt of commission from JIL is not genuine because no evidence of services rendered by LPB for JIL was produced. While examining the bank accounts of LPB, the assessing officer noticed that it was opened just prior to the execution of the agreement and except the commission received, no other transaction in this bank account was performed. Whenever the commission was received by LPB through cheque, it was immediately withdrawn in cash by LPB itself or through its director Mr. Madhavan Kutti. During the course of assessment proceedings, the LPB could not explain the reasons about the huge withdrawal in cash from its accounts. On examination of the TDS certificates, it was again noticed by the assessing officer that JIL has issued 4 TDS certificates but the LPB is claimed to have received 5 TDS certificates and one of the TDS certificates was found to be bogus which was forged by the LPB. During the course of assessment proceedings in the case of LPB, the JIL was summoned but the complete accounts were not produced before the assessing officer. The JIL has simply filed a copy of account of LPB in their books of accounts.

13. It was also noticed by the assessing officer that whenever LPB was asked to produce the books of accounts, it postponed it for one reason or the other and ultimately, the LPB came out with the plea that the desired vouchers for the expenses and other books of accounts were burnt in a fire in his car on 18-1-1998. In FIR, it was stated that the books of accounts of 8 companies which were lying in the dickey of Maruti 800 car were burnt in fire. It was not explained before the assessing officer as to why the assessed kept the books of accounts and records of 8 companies on a particular day. When this LPB was questioned on all these points, its director Manoj Jaiswal came out with the plea that LPB in fact never worked for JIL and whatever commission was received, it was returned to JIL except to the extent of 2.3 per cent of total amount, i.e., TDS amounting to Rs. 1,71,134. He, accordingly, stated the return for the assessment years 1995-96, 1996-97 be also treated as modified to that extent. The affidavit to this effect led the assessing officer in the case of LPB to form an opinion that the LPB is not a genuine concern. Whatever they have done, it was to accommodate the JIL and the assessing officer, accordingly, wrote a detailed letter stating all these facts vide its letter dated 24-3-1999, annexing all this evidence to the assessing officer of the JIL with the request to take appropriate action in the case of JIL.

14. On receipt of this letter, the assessing officer of JIL reopened the assessment by issuing the notice under section 148 of the Act and thereafter, framed the assessment but while framing the assessment, the assessing officer did not examine Shri Manoj Jaiswal who has categorically stated that LPB never rendered any services for JIL to promote the sale of its IMFL in Rajasthan but rather showed the receipt of commission as income only to accommodate JIL. A copy of the affidavit is placed at page No. 210 of the assessed's compilation. The assessed has strongly contended that this affidavit cannot be taken into account in order to draw an inference that the claim of commission payment by the assessed is bogus because Manol Aggarwal who was director in LPB at the time of assessment proceedings was not at all connected with LPB during the financial year 1994-95 and 1995-96 when the transaction took place. No doubt, Mr. Manoj Aggarwal was not the director or at all connected with the LPB during the assessment year 1995-96 but its evidentiary value cannot be lessened because this affidavit is not of Manoi Jaiswal but it is of a company i.e., LPB though its director. During the course of assessment proceedings, the assessing officer has questioned the LPB and LPB has come out with the plea that these facts and the statement of the company can only be recorded through its directors or iis principal officers. As such, we are of the considered view that the affidavit is very much relevant to the present controversy and it should have been examined by the assessing officer having jurisdiction over JIL in reassessment proceedings. If this affidavit is seen along with other events quoted by the assessing officer of LPB through its letter dated 24-3-1999, addressed to the assessing officer of the assessed, this affidavit carries much importance. But, while framing the assessment, the assessing officer of JIL has simply issued a notice to the principal officer of LPB at the residential address of Manoj Jaiswal and the same was received back unserved with the report of the inspector stating therein that Smt. Ekta Jaiswal w/o Manoj Jaiswal has stated that no concern in the name of LPB & Agencies (P) Ltd. did exist at this address and she is residing there along with her husband Shri Manoj Jaiswal. Once it was brought to the notice of the assessing officer that Manoj Jaiswal was residing at a particular place, he should have been summoned by the assessing officer under section 131 of the Income Tax Act in order to verify the veracity of this affidavit but the assessing officer did not do the same.

15. It was also pointed out before the assessing officer of JIL through aforesaid letter written by the assessing officer of LPB that whenever commission was paid in the account of LPB, it was immediately withdrawn either by LPB, through self-cheque or through its director Mr. M. Kutti but the assessing officer of JIL did not feel it proper to make any inquiry or investigation from the bank or from LPB to ascertain under what circumstances and for what reasons, the commission payment was withdrawn in cash and where that money has gone. Did it come back to the assessed itself by circuitous means or it was withdrawn to meet the genuine expenditure? When the assessment was reopened on the basis of the letter which contains all these facts, a prudent assessing officer should have at least made necessary inquiry in order to discharge his official duty. As such, the assessing officer has not acted in a way which is expected from an officer framing the assessment.

16. Through this aforesaid letter, it was also stated to the assessing officer that the LPB has furnished 5 TDS certificates whereas JIL has issued only 4 TDS certificates which means that one TDS certificate of the assessed was manufactured by LPB. Once this type of information was received by the assessing officer of JIL, he should have at least made the necessary inquiry about these facts and if it is found to be true, necessary action available in the law should have been taken against the LPB. But it was not done by the assessing officer.

17. On careful perusal of the reassessment order, we are of the considered opinion that the assessing officer has not investigated or inquired various facts which were reported to him by the assessing officer of LPB through his letter dated 24-3-1999, and has acted in a way which is not expected from an officer framing an assessment because it has been repeatedly held by the Apex Court and various High Courts that the assessing officer is not only an adjudicator but also an investigator. In the case of Gee Vee Enterprises v. Addl. CIT (supra), their Lordships have held that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income Tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, assessing officer should have made further inquires before accepting the statement made by the assessed in his return. The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry, In his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent upon the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. In the case of Commissioner v. Export House (supra), their Lordships of Punjab & Haryana High Court have held that if the relief is granted without making a proper inquiry, the order of the assessing officer is erroneous and prejudicial to the interest of the revenue.

18. We are also conscious about the scope of section 263 of the Income Tax Act and jurisdiction of the Commissioner. No doubt, in a consequential order, the assessing officer has made an addition on protective basis with regard to aforesaid payment of commission in the hands of JIL and the proceedings initiated under section 148 in the case of LPB for the assessment year 1996-97 was dropped but our concern in the case in hand are that whether the assessment order framed by assessing officer is erroneous and prejudicial to the interest of the revenue.

19. We have carefully perused the various aforesaid judgments referred to by the parties. As early as in 1972 the scope of revision was examined by the Apex Court in the case of Tara Devi Aggarwal v. CIT (supra) in which their Lordships have held that where the assessed is assessed on an income voluntarily returned, it is not prejudicial to the interest of revenue, only if it is found that the assessment was made on the basis that the income had been earned by the assessed which was assessable. Where an income has not been earned and is not assessable, merely because the assessed wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to larger amount, an assessment so made will be erroneous and prejudicial to the interest of the revenue and the Commissioner has jurisdiction to cancel the assessment and proceedings for assessment may be initiated under the provisions of the Act against some other assessed who according to the income-tax authorities would be liable for the income thereof. Following the aforesaid ratio of the Apex Court the Hon'ble Karnataka High Court in the case of Thalibhai F. Jain & Ors. v. Income Tax Officer (supra) has held, "whether an assessment was made without inquiry and evidence and in undue haste, it was erroneous and prejudicial to the revenue. In the case of Commissioner v. Pushpa Devi (supra), their Lordships of Patna High Court has also held that where the assessment was made without making a proper inquiry, the Commissioner could not be denied jurisdiction to act in terms of section 263 of the Act. In fact, it was obligatory on him to exercise jurisdiction where the order of assessment was erroneous and prejudicial to the interest of the revenue. Again, in the case of Swarup Vegetable Products Ltd. v. CIT (supra), their Lordships of the Allahabad High Court have categorically held that where the assessing officer had accepted the claim of the assessed erroneously that too without making proper enquiry, the Commissioner can cancel the assessment on the ground that the order is erroneous and prejudicial to the interest of the revenue. In the case of K.A. Ramaswami Chettiar & Anr. v. CIT (supra), their Lordships of Madras High Court after having relied upon the ratio laid down by the Apex Court in the case of Tara Devi Aggarwal (supra) have categorically held that when the Income Tax Officer is expected to make an inquiry of a particular item of income and if he does not make an inquiry as expected that would be a ground for the Commissioner to interfere under section 263 of the Income Tax Act with the order passed by the Income Tax Officer since such an order passed by the Income Tax Officer is erroneous and prejudicial to the interest of the revenue. Following the same principle, their Lordships of Delhi High Court in the case of Duggal & Co. v. CIT (supra) again held that the assessing officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is, incumbent upon the Income Tax Officer to further investigate the facts stated in the return, when circumstances would make such an inquiry prudent and the word erroneous' in section 263 of the Income Tax Act includes failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. Again in the case of CWT v. Anokha Singh (supra), their Lordships of jurisdictional High Court have further held that where the assessment is completed without any inquiry whatsoever, an order of the assessment is erroneous and prejudicial to the interest of the revenue. While exercising power to revise such assessment, the Commissioner may make further inquiry before cancelling the original order and he can rely on the result of such inquiry.

20. The meaning of phrase "prejudicial to the revenue" was examined by the Apex Court in the case of Malabar Industries Co. Ltd. v. CIT (supra) in which their Lordships have held as under

"A bare reading of the section 263 of the Income Tax Act, 1961, makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent-if the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue, recourse cannot be had to section 263(l) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the assessing officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principle of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer, cannot be treated as prejudicial to the interests of the revenue, for example, when an Income Tax 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 Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law. "

21. Turning to the case in hand, in the light of ratio laid down by the Apex Court and various High Courts through aforesaid judgments, we find that when the assessment was reopened on the basis of a letter written by the assessing officer having jurisdiction of the LPB to the assessing officer of the present assessed, the assessing officer was required to make a detailed inquiry on all these points which were raised in this aforesaid letter in reassessment proceedings. More particularly, Mr. Manoj Jaiswal whose statement was found to be the basis for reopening the assessment should have been examined by the assessing officer besides other inquires but the assessing officer did not make any efforts and he rather accepted the claim of the assessed on incorrect assumption of facts. We are, therefore, of the view that the assessing officer has not made the necessary inquiries which was expected from him. As such, his order is erroneous and prejudicial to the interest of the revenue and the Commissioner was perfectly justified in setting aside his order after having recourse to section 263 of the It Act. We, therefore, dismiss the appeal of the assessed.

22. In the result, the appeal of the assessed stands dismissed.