M/s. SRIPAN LAND DEVELOPMENT P. LTD., MUMBAI V. CIT - 8, MUMBAI

ITA 1602/MUM/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7881 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 14-02-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 08-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANT LAL
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Principle of natural justice; Notional interest
• Section: 143(3); 143(1); 264; 147; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, E, MUMBAI BEFORE SHRI S V MEHROTRA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) SRIPAN LAND DEVELOPMENT P LTD., 31M CHITRAKOOF, ALTAMOUNT ROAD, MUMBAI-400026. PAN:AAECS9688H APPELLANT VS THE COMMISSIONER OF INCOME TAX-8, 214, AAYAKAR BHAVANM M K ROAD, MUMBAI-400020. RESPONDENT APPELLANT BY : SHRI PRAKASH K JOTWANI RESPONDENT BY : SHRI HEMANT LAL O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31.1.2006 OF CIT PASSED U/S 263 OF THE ACT FOR THE ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. THE LD. CIT ERRED IN REVISING THE ASSESSMENT MADE FOR THE YEAR U/S 263 ON THE GROUND THAT THE AO HAD NOT MADE ADDITION ON ACCOUNT OF NOTIONAL INTER EST ON THE INTEREST FREE DEPOSITS OBTAINED BY THE APPEL LANT U/S 23(1) (A); ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 2 2. THE LD. CIT ERRED IN HOLDING THAT THE CASE LAWS FURNISHED WERE NOT RELEVANT TO THE CASE WHILE THE C ASE LAWS WERE DIRECTLY ON THE ISSUE OF ADDITION OF NOTI ONAL INTEREST AND APPLICABILITY OF PROVISIONS OF SECTIO N 263. 3. THE LD. CIT ERRED IN SUBSTITUTING HIS OPINION IN PLACE OF THE AOS OPINION WHO HAD PASSED THE ASSESSMENT ORDER BY CONSIDERING THE DECISION OF THE CALCUTTA AND BOMBAY HIGH COURT ON THE ISSUE OF NOTIONAL INTEREST; 4. WITHOUT PREJUDICE TO THE ABOVE, THE LEANED CIT(A) ERRED IN DIRECTING THE AO TO RECOMPUTE THE INCOME FOR THE YEAR BY MAKING ADDITION ON ACCOUNT OF NOTIONAL INTEREST, WHILE U/S 263 HAS SHOULD HAVE S ET ASIDE THE ASSESSMENT 5. THE LEARNED CIT ERRED IN DIRECTING THE AO TO LEVY PENALTY UNDER SECTION 271(1) (C ) IN HIS ORDER OF REVISION U/S 263 3. THE ASSESSEE HAS CHALLENGED THE REVISION ORDER P ASSED UNDER SECTION 263 MAINLY ON TWO GROUNDS I.E. (I) T HAT THE CIT HAS SUBSTITUTED HIS OPINION IN PLACE OF THE OPINION OF THE AO AND THEREFORE THE CIT(A) HAS NO JURISDICTION U/S 2 63 (II) THE ADDITION ON ACCOUNT OF NOTATIONAL INTEREST ON THE I NTEREST FREE DEPOSITS U/S 23(1)(A) OF THE ACT IS AGAINST THE LA W AS SETTLED BY THE VARIOUS DECISIONS OF THIS TRIBUNAL AS WELL A S THE HON. HIGH COURTS. AS REGARDS THE VALIDITY OF THE JURISD ICTION U/S 263, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT WHILE COMPLETING THE ASSESSMENT, THE AO HAS DULY EXAMINED THE ISSUE OF COMPUTATION OF ANNUAL LETTING VALUE, THERE FORE, ONCE THE AO HAS TAKEN A VIEW THE CIT CANNOT BE PERMITTED TO TAKE A DIFFERENT VIEW ON THE SAME ISSUE. HE HAS SUBMITTE D THAT THE ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 3 ASSESSEE HAS FURNISHED ALL THE DETAILS IN RESPECT OF THE ISSUE OF ANNUAL LETTING VALUE OF THE PROPERTY IN QUESTIO N. HE HAS REFERRED THE LETTER DATED 8.9.2003 ISSUE BY THE AO , WHEREIN THE AO HAS RAISED THE VARIOUS QUARRIES ABOUT THE I NTEREST FREE DEPOSITS RECEIVED BY THE ASSESSEE. IN THE SAID LET TER THE AO ASKED THE ASSESSEE TO FURNISH THE COPY OF THE CONV EYANCE DEED AND OTHER RECORD OF FLAT IN QUESTION. THE AO ALSO ASKED THE ASSESSEE TO EXPLAIN ABOUT THE FIXED DEPOSITS WI TH DOCUMENTARY EVIDENCE AS WELL AS TO FURNISH THE CORRESPONDENCE WITH THE BANK. HE HAS REFERRED TO R EPLY OF THE ASSESSEE TO THE QUERIES OF THE AO AND SUBMITTED T HAT THE ASSESSEE HAS EXPLAINED THAT THE SECURITY DEPOSIT OF 1,90,00,000/- WAS RECEIVED AGAINST THE PREMISES RE NTED TO BANK. THE COPY OF THE AGREEMENT WITH THE CITI BA NK WAS ALSO SUBMITTED BEFORE THE AO. HE HAS RELIED UPON T HE DECISION OF THE HON. JURISDICTIONAL HIGH COURT IN THE CASE OF COMMNR. OF INCOME-TAX, MUMBAI VERSUS M/S. J.K. INVESTORS (BOMBAY) LTD. REPORTED IN 248 ITR 723 AS WELL AS THE DECISION OF THE HON. CALCUTTA BENCH OF THIS TRIBUNAL IN THE CASE OF INCOME TAX OFFICER VS. MAKRUPA CHEMICALS (P) LTD. REPORTED IN 75 TAXMAN 193 AND TH E DECISION IN THE CASE OF DCIT V/S RECLAMATION REAL TY INDIA PVT LTD IN ITA NO.1411/MUM/2007 TO 1413 /MUM/2007 ORDER DATED 26.11.2010 FOR THE AY 2004-05. ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 4 4. ON THE OTHER HAND THE LEARNED DR HAS SUBMITTED T HAT THE AO HAS NOT MADE ANY QUERY REGARDING THE ADDITI ON ON NOTATIONAL INTEREST ON THE INTEREST FREE DEPOSITS RECEIVED BY THE ASSESSEE ON DETERMINATION OF THE FAIR MARKET V ALUE. THE AO VIDE LETTER DATED 8.9.2003 RAISED THE QUERIES AB OUT THE SOURCES OF THE LIABILITIES SHOWN BY THE ASSESSEE I N THE NATURE OF SECURITY DEPOSITS AND THEREFORE ALL THE DETAILS REGARDING THE SAID SECURITY DEPOSITS WAS ASKED BY THE ASSESSEE A ND NOT FOR THE PURPOSE OF COMPUTING THE FAIR RENT OF THE PROPE RTY IN QUESTION. HE HAS FURTHER CONTENDED THAT THE AO E VEN NOT AT ALL EXAMINED THE ISSUE OF ADDITION ON ACCOUNT OF N OTIONAL INTEREST ON INTEREST FREE DEPOSITS RECEIVED BY THE ASSESSEE. THUS, THE AO HAS NOT APPLIED HIS MIND ON THE ISSUE AND THEREFORE, THERE IS NO QUESTION OF ANY VIEW TAKEN BY THE AO ON THE ISSUE. THE LEARNED DR HAS SUBMITTED THAT WHEN THE AO HAS NOT EXAMINED THE ISSUE AND HAS NOT APPLIED THE MIND ON THE ISSUE WHILE FRAMING THE ASSESSMENT THEN THE ASSESSMENT ORDER IS ERRONEOUS SO FAR AS THE PREJUDI CIAL TO THE INTEREST OF THE REVENUE. HE HAS RELIED UPON THE DEC ISION OF THIS TRIBUNAL IN THE CASE OF ARVEE INTERNATIONAL V/S AD DL.CIT REPORTED IN 101 ITD 495(MUMBAI). THE LEARNED DR HAS FURTHER CONTENDED THAT EVEN IN THE CASE OF CIT V/S KE LVINATOR INDIA 256 ITR 01 HON. FULL BENCH OF TH E HON. DELHI HIGH COURT HAS OBSERVED THAT IF THERE ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 5 IS A MISTAKE OR ERROR COMMITTED BY THE AO IN THE ASSESSMENT ORDER THE REMEDY IS NOT U/S 147 BUT THE SAME IS ONL Y U/S 263. HE HAS ALSO RELIED UPON THE DECISION IN THE CASE O F BAKER TECHNICAL SERVICES (P) LTD 126 TTJ (MUMBAI)(TM) 455 . 5. IN REBUTTAL, THE LEARNED AR HAS SUBMITTED THAT T HE AO RAISED THE QUARRIES REGARDING THE FAIR RENT; U/S 2 3(1) OF THE ACT, THEREFORE, THE AO HAS TAKEN A VIEW WHILE COMP LETING THE ASSESSMENT U/S 143(3) AND THE CIT CANNOT SUBSTITUT E THE VIEW OF THE AO FOR COMPUTATION OF THE FAIR MARKET RENT U/S 23(1)(A0. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. AFTER CAREFUL PERUSAL OF THE QUERIES RAIS ED BY THE AO, WE FIND THAT THE QUERIES WERE RAISED BY THE AO IN RESPECT OF FIXED DEPOSITS SHOWN BY THE ASSESSEE AS LIABILITY I N THE BALANCE SHEET FOR EXAMINING AND ASCERTAINING THE S OURCES OF PARTIES REGARDING SECURITIES DEPOSITS. THE AO HAS N OT DISCUSSED ANYTHING ABOUT THE ISSUE OF NOTIONAL INT EREST FOR DETERMINING THE FAIR MARKET RENT U/S 23(1)(A). THU S, THE AO HAS NOT APPLIED HIS MIND OR TAKEN ANY VIEW ON THE ISSUE OF NOTIONAL INTEREST. WHEN THE AO HAS NOT TAKEN ANY VIEW IN RESPECT OF THE ISSUE WHICH IS A SU BJECT MATER OF THE REVISION ORDER U/S 263 THEN IT CA NNOT BE SAID THAT THE CIT HAS TAKEN A DIFFERE NT VIEW THAN THE VIEW TAKEN BY THE AO AND HAS WRONGLY ASSUMED THE ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 6 JURISDICTION U/S 263. FROM THE RECORD, IT IS CLEAR THAT THE AO HAS NOT EXPRESSED ANY VIEW EVEN THE ISSUE HAS NOT AT ALL BEEN DISCUSSED AND NO FINDINGS HAS BEEN GIVEN. IN ORDER TO ASCERTAIN THAT THE AO HAS TAKEN A VIEW ON A PARTIC ULAR ASSESSMENT ORDER SHOULD EXHIBIT SOME THOUGHT PROC ESS OF THE AO ON THE ISSUE UNDER CONSIDERATION. ONCE IT IS MA NIFEST FROM THE ASSESSMENT ORDER AS WELL AS THE OTHER RECORD TH AT THE AO HAS NOT APPLIED ITS MIND THEN THE ORDER OF THE AO QUA THE ISSUE IN QUESTION IS ERRONEOUS SO FAR AS THE PREJUD ICIAL TO THE INTEREST OF THE REVENUE. THE DECISION RELIED UPON BY THE LEARNED AR ARE RELEVANT FOR DECIDING THE ISSUE ON M ERITS. SO FAR AS EXERCISING THE JURISDICTION U/S 263 IS CON CERNED, ONCE THE CONTENTION OF NON APPLICATION OF MIND ON THE PA RT OF THE AO ON A PARTICULAR ISSUE IS SATISFIED THEN INVOKING T HE PROVISION OF SECTION 263 IS PROPER AND JUSTIFIED. THERE IS NO DOUBT THAT THE ISSUE WHICH IS A SUBJECT MATER OF SECTION 263 ORD ER IS A COMPLEX MATTER AND THERE IS A POSSIBILITY OF TWO VI EWS BUT WHEN THE AO HAS NOT EXPRESSED ANY VIEW WHILE FRAMIN G THE ASSESSMENT THEN THE QUESTION OF SUBSTITUTION OF TH E VIEW BY THE CIT DOES NOT ARISE. IN THE CASE OF ARVEE INTE RNATIONAL (SUPRA), THIS TRIBUNAL HAS DISCUSSED THE ISSUE OF E XERCISING THE JURISDICTION U/S 263 IN DETAILED IN PARAGRAPH 9 TO 16 AS UNDER : ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 7 9. LET US NOW EXAMINE THE LEGALITY OF THE ORDER PASSED BY THE LEARNED COMMISSIONER WITH REFERENCE TO THE STATUTORY CONDITIONS LAID DOWN IN SECTION 26 3. THE SCHEME OF THE INCOME-TAX ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF D UE TO AN ERRONEOUS ORDER OF THE ASSESSING OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF T HE REVENUE. AS HELD IN MALABAR INDUSTRIAL CO. LTD. 'S CASE (SUPRA), THE COMMISSIONER CAN EXERCISE REVISIONAL JURISDICTION UNDER SECTION 263 IF HE IS SATISFIED THAT THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS (Z) ERRONEOUS; AND ALSO (U) PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 10. THE WORD 'ERRONEOUS' HAS NOT BEEN DEFINED IN TH E INCOME-TAX ACT. IT HAS HOWEVER BEEN DEFINED AT PAGE 562 IN BLACK'S LAW DICTIONARY (SEVENTH EDITION) THU S: 'ERRONEOUS, ADJ. INVOLVING ERROR; DEVIATING FROM TH E LAW.' THE WORD 'ERROR' HAS BEEN DEFINED AT THE SAME PAGE IN THE SAME DICTIONARY THUS: ERROR. N. 1. A PSYCHOLOGICAL STATE THAT DOES NOT CONFORM TO OBJECTIVE REALITY; A BELIEF THAT WHAT IS FALSE IS TRUE OR THAT WHAT IS TRUE IS FALSE. 11. AT PAGE 649/650 IN P. RAMANATHA AIYER'S LAW LEXICON (REPRINT 2002), THE TERM 'ERROR' HAS BEEN DEFINED TO MEAN THUS: ERROR. A MISTAKE IN JUDGMENT OR DEVIATION FROM THE TRUTH IN MATTERS OF FACT, AND FROM THE LAW IN MATTE RS OF JUDGMENT;... 'ERROR', IS A FAULT IN JUDGMENT, OR IN THE PROCESS OR PROCEEDING TO JUDGMENT OR IN THE EXECUTI ON UPON THE SAME, IN A COURT OF RECORD; WHICH IN THE CIVIL LAW IS CALLED A NULLITIE. (TERMES DE LA LEY) ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 8 SOMETHING INCORRECTLY DONE THROUGH IGNORANCE OR INADVERTENCE (SECTION 99, C.P.C. AND SECTION 215, CR.P.C.). ERROR, FAULT. ERROR RESPECTS THE ACT; FAULT RESPECT S THE AGENT, AN ERROR MAY LAY IN THE JUDGMENT, OR IN THE CONDUCT; BUT A FAULT LIES IN THE WILL OR INTENTION. 12. AT PAGE 650 OF THE AFORESAID LAW LEXICON, THE SCOPE OF 'ERROR, MISTAKE, BLUNDER, AND HALLUCINATION' HAS BEEN EXPLAINED THUS: AN ERROR IS ANY DEVIATION FROM THE STANDARD OR COUR SE OF RIGHT, TRUTH, JUSTICE, OR ACCURACY, WHICH IS NOT INTENTIONAL. A MISTAKE IS AN ERROR COMMITTED UNDER A MISAPPREHENSION OR MISCONCEPTION OF THE NATURE OF A CASE. AN ERROR MAY BE FROM THE ABSENCE OF KNOWLEDGE; A MISTAKE IS FROM INSUFFICIENT OR FALSE OBSERVATION. BLUNDER IS A PRACTICAL ERROR OF A PECULIARLY GROSS OR AWKWARD KIND, COMMITTED THROUGH GLARING IGNORANCE, HEEDLESSNESS, OR AWKWARDNESS. 'AN ERROR MAY BE OVERLOOKED OR ATONED FOR, A MISTAK E MAY BE RECTIFIED; BUT THE SHAME OR RIDICULE WHICH I S OCCASIONED BY A BLUNDER, WHO CAN COUNTERACT.' STRIC TLY SPEAKING, HALLUCINATION IS AN ILLUSION OF THE PERCEPTION, A PHANTASM OF THE IMAGINATION. THE ONE COMES OF DISORDERED VISION, THE OTHER OF DISORDERED IMAGINATION. IT IS EXTENDED IN MEDICAL SCIENCE TO MATTERS OF SENSATION, WHETHER THERE IS NO CORRESPONDING CAUSE TO PRODUCE IT. IN ITS ORDINARY USE IT DENOTES AN UNACCOUNTABLE ERROR IN JUDGMENT OR FA CT; ESPECIALLY IN ONE REMARKABLE OTHERWISE FOR ACCURATE INFORMATION AND RIGHT DECISION. IT IS EXCEPTIONAL E RROR OR MISTAKE IN THOSE OTHERWISE NOT LIKELY TO BE DECEIVED. (SMITH, SYN. DIS) ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 9 13. IN ORDER TO ASCERTAIN WHETHER AN ORDER SOUGHT T O BE REVISED UNDER SECTION 263 IS ERRONEOUS, IT SHOUL D BE SEEN WHETHER IT SUFFERS FROM ANY OF THE AFORESAI D FORMS OF ERROR. IN OUR VIEW, AN ORDER SOUGHT TO BE REVISED UNDER SECTION 263 WOULD BE ERRONEOUS AND FALL IN THE AFORESAID CATEGORY OF 'ERRORS' IF IT IS , INTER ALIA, BASED ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW OR NON-APPLICATION OF MIND TO SOMETHING WHICH WAS OBVIOUS AND REQUIRED APPLICATION OF MIND OR BASED ON NO OR INSUFFICIENT MATERIALS SO AS TO AFFECT THE MERITS OF THE CASE AN D THEREBY CAUSE PREJUDICE TO THE INTEREST OF THE REVE NUE. 14. SECTION 263 OF THE INCOME-TAX ACT SEEKS TO REMOVE THE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. IT EMPOWERS THE COMMISSIONER TO INITIATE SUO MOTU PROCEEDINGS EITHER WHERE THE ASSESSING OFFICER TAKE S A WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AVAILABLE ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO THE MATTERS, WHERE SUCH INQUIRY WAS PRIMA FACIE WARRANTED. THE COMMISSIONER WILL BE WELL WITHIN HIS POWERS TO REGARD AN ORDER A S ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES O F THE CASE, THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE CLAIM MADE B Y THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. UNLIKE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE I T, THE ROLE OF AN ASSESSING OFFICER UNDER THE INCOME-T AX ACT IS NOT ONLY THAT OF AN ADJUDICATOR BUT ALSO OF AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN, WHICH IS APPARENTLY IN ORDER BUT CALLS FO R FURTHER ENQUIRY. HE MUST DISCHARGE BOTH THE ROLES EFFECTIVELY. IN OTHER WORDS, HE MUST CARRY OUT INVESTIGATION WHERE THE FACTS OF THE CASE SO REQUIR E AND ALSO DECIDE THE MATTER JUDICIOUSLY ON THE BASIS OF ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 10 MATERIALS COLLECTED BY HIM AS ALSO THOSE PRODUCED B Y THE ASSESSEE BEFORE HIM. THE SCHEME OF ASSESSMENT HAS UNDERGONE RADICAL CHANGES IN RECENT YEARS. IT DESER VES TO BE NOTED THAT THE PRESENT ASSESSMENT WAS MADE UNDER SECTION 143(3) OF THE INCOME-TAX ACT. IN OTHER WORD S, THE ASSESSING OFFICER WAS STATUTORILY REQUIRED TO MAKE THE ASSESSMENT UNDER SECTION 143(3) AFTER SCRUTINY AND NOT IN A SUMMARY MANNER AS CONTEMPLATED BY SUB-SECTION (1) OF SECTION 143. BULK OF THE RETURNS FILED BY THE ASSES SEES ACROSS THE COUNTRY IS ACCEPTED BY THE DEPARTMENT UN DER SECTION 143(1) WITHOUT ANY SCRUTINY. ONLY A FEW CAS ES ARE PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER IS TH EREFORE, REQUIRED TO ACT FAIRLY WHILE ACCEPTING OR REJECTING THE CLAIM OF THE ASSESSEE IN CASES OF SCRUTINY ASSESSMENTS. H E SHOULD BE FAIR NOT ONLY TO THE ASSESSEE BUT ALSO TO THE PUBLIC EXCHEQUER. THE ASSESSING OFFICER HAS GOT TO PROTECT, ON ONE HAND, THE INTEREST OF THE ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECTED TO ANY AMOUNT OF TAX IN EXCESS OF WHAT IS LEGITIMATELY DUE FROM HIM, AND ON THE OTHER HAND, HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THAT NO ONE DODGED THE REVENUE A ND ESCAPED WITHOUT PAYING THE LEGITIMATE TAX. THE ASSE SSING OFFICER IS NOT EXPECTED LO PUT BLINKERS ON HIS EYES AND MECHANICALLY ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS OF THE CLAIMS MADE IN THE RETURN WH EN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOK E INQUIRY. ARBITRARINESS IN EITHER ACCEPTING OR REJ ECTING THE CLAIM HAS NO PLACE. THE ORDER PASSED BY THE ASSE SSING OFFICER BECOMES ERRONEOUS BECAUSE AN ENQUIRY HA S NOT BEEN MADE OR GENUINENESS OF THE CLAIM HAS N OT BEEN EXAMINED WHERE THE INQUIRIES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHING WRONG WITH HIS ORDER IF ALL THE FACTS ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 11 STATED OR CLAIM MADE THEREIN ARE ASSUMED TO BE CORRECT. THE COMMISSIONER MAY CONSIDER AN ORDER OF THE ASSESSING OFFICER TO BE ERRONEOUS NOT ONLY WHEN IT CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT BUT ALSO WHEN IT IS A STEREO- TYPED ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN AND FAILS TO MAKE ENQUIRIE S OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH ARE CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. IN TAK ING THE AFORESAID VIEW, WE ARE SUPPORTED BY THE DECISIO NS OF THE HON'BLE SUPREME COURT IN RAMPYARI DEVI SARAOGI V. CIT , SMT. TARA DEVI AGGARWAL V. CIT AND MALABAR INDUSTRIAL CO. LID'S CASE (SUPRA). IN MALABAR INDUSTRIAL CO. LTD. 'S CASE (SUPRA) THE HON 'BLE COURT HAS HELD AS UNDER: THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONL Y 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 SA ME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF MIND. 15. IN OUR HUMBLE VIEW, ARBITRARINESS IN DECISION- MAKING WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAUSES PREJUDICE TO AN ASSESSEE OR TO TH E STATE EXCHEQUER. THE LEGISLATURE HAS TAKEN AMPLE CARE TO PROVIDE FOR THE MECHANISM TO HAVE SUCH PREJUDICE REMOVED. WHILE AN ASSESSEE CAN HAVE IT CORRECTED THROUGH REVISIONAL JURISDICTION OF THE COMMISSIONER UNDER SECTION 264 OR THROUGH APPEALS AND OTHER MEANS OF JUDICIAL REVIEW, THE PREJUDICE ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 12 CAUSED TO THE STATE EXCHEQUER CAN ALSO BE CORRECTED BY INVOKING REVISIONAL JURISDICTION OF THE COMMISSIONER UNDER SECTION 263. ARBITRARINESS IN DECISION-MAKING CAUSING PREJUDICE TO EITHER PARTY CANNOT THEREFORE BE ALLOWED TO STAND AND STARE AT T HE LEGAL SYSTEM. IT IS DIFFICULT TO COUNTENANCE SUCH ARBITRARINESS IN THE ACTIONS OF THE ASSESSING OFFIC ER. IT IS THE DUTY OF THE ASSESSING OFFICER TO ADEQUATELY PROTECT THE INTEREST OF BOTH THE PARTIES, NAMELY, T HE ASSESSEE AS WELL AS THE STATE. IF HE FAILS TO DISCH ARGE HIS DUTIES FAIRLY, HIS ARBITRARY ACTIONS CULMINATIN G IN ERRONEOUS ORDERS CAN ALWAYS BE CORRECTED EITHER AT THE INSTANCE OF THE ASSESSEE, IF THE ASSESSEE IS PREJUDICED OR AT THE INSTANCE OF THE COMMISSIONER, IF THE REVENUE IS PREJUDICED. THE UNDERLYING PHILOSOPH Y OF SECTION 263 IS THE REMOVAL OF THE PREJUDICE CAUS ED TO THE REVENUE BY THE ERRONEOUS ORDERS OF THE ASSESSING OFFICER. IN CIT V. V.P. AGARWAL [1993] 68 TAXMAN 236 (ALL.), THE HON'BLE ALLAHABAD HIGH COURT HAS HELD AS UNDER: 14. WHILE MAKING AN ASSESSMENT, THE ITO HAS A VARIED ROLE TO PLAY. HE IS THE INVESTIGATOR, PROSEC UTOR AS WELL AS ADJUDICATOR. AS AN ADJUDICATOR HE IS AN ARBITRATOR BETWEEN THE REVENUE AND THE TAXPAYER AND HE HAS TO BE FAIR TO BOTH. HIS DUTY TO ACT FAIRLY REQUIRES THAT WHEN HE ENQUIRES INTO A SUBSTANTIAL MATTER LIKE THE PRESENT ONE, HE MUST RECORD A FINDI NG ON THE RELEVANT ISSUE GIVING, HOWSOEVER BRIEFLY, HI S REASONS THEREFOR. IN S.N. MUKHERJEE V. UNION OF INDIA AIR 1990 SC 1984, IT HAS BEEN OBSERVED BY THE HON'BLE SUPREME COURT AS FOLLOWS: 35. REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHORITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURISDICTION BY THE AP PELLATE OR ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 13 SUPERVISORY AUTHORITY. BUT THE OTHER CONSIDERATIONS , REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THI S COURT IN HOLDING THAT AN ADMINISTRATIVE AUTHORITY M UST RECORD REASONS FOR ITS DECISION ARE OF NO LESS SIGN IFICANCE. THESE CONSIDERATIONS SHOW THAT THE RECORDING OF REA SONS BY AN ADMINISTRATIVE AUTHORITY SERVES A SALUTARY PU RPOSE, NAMELY, IT EXCLUDES CHANCES OR ARBITRARINESS AND EN SURES A DEGREE OF FAIRNESS IN THE PROCESS OF DECISION-MAK ING. THE SAID PURPOSE WOULD APPLY EQUALLY TO ALL DECISIO NS AND ITS APPLICATION CANNOT BE CONFINED TO DECISIONS WHI CH ARE SUBJECT TO APPEAL, REVISION OR JUDICIAL REVIEW. IN OUR OPINION, THEREFORE, THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINIST RATIVE AUTHORITY EXERCISING QUASI-JUDICIAL FUNCTIONS IRRES PECTIVE OF THE FACT MAY, HOWEVER, BE ADDED THAT IT IS NOT REQU IRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE D ECISION OF A COURT OF LAW. THE EXTENT AND NATURE OF THE REA SONS WOULD DEPEND ON PARTICULAR FACTS AND CIRCUMSTANCES. WHAT IS NECESSARY IS THAT THE REASONS ARE CLEAR AND EXPL ICIT SO AS TO INDICATE THAT THE AUTHORITY HAS GIVEN DUE CONSIDERATION TO THE POINTS IN CONTROVERSY. THE NEE D FOR RECORDING OF REASONS IS GREATER IN A CASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. THE APPELLATE OR R EVISIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GI VE SEPARATE REASONS IF THE APPELLATE OR REVISIONAL AUT HORITY AGREES WITH THE REASONS CONTAINED IN THE ORDER UNDE R CHALLENGE. SIMILAR VIEW WAS EARLIER TAKEN BY THE HON'BLE SUPRE ME COURT IN SIEMENS ENGG. & MFG. CO. LTD. V. UNION OF INDIA AIR 1976 SC 1785. IT IS SETTLED LAW THAT WHILE MAKING ASSESSMENT ON ASSESSEE, THE ITO ACTS IN A QUASI-JUD ICIAL CAPACITY. AN ASSESSMENT ORDER IS AMENABLE TO AP PEAL BY THE ASSESSEE AND TO REVISION BY THE COMMISSIONER UNDER SECTIONS 263 AND 264. ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 14 THEREFORE, A REASONED ORDER ON A SUBSTANTIAL ISSUE IS LEGALLY NECESSARY. THE JUDGMENT OF THE HON'BLE MADR AS HIGH COURT ON WHICH RELIANCE WAS PLACED BY THE LEAR NED COUNSEL FOR THE ASSESSEE ALSO POINTS TO THE SAME DIRECTION. WE HAVE REPRODUCED ABOVE THE RELEVANT PO RTION OF THE OBSERVATIONS MADE BY THE LEARNED JUDGES. THE Y HAVE HELD THAT ORDERS, WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE, MUST BE REGARDED AS ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF THE ASSESSING OFFICERS ARE ALLOWED TO MAKE ASSESSMENTS IN AN ARBITRARY MANNER, AS HAS BEEN DONE IN THE CASE B EFORE US, THE ADMINISTRATION OF REVENUE IS BOUND TO SUFFE R. IF WITHOUT DISCUSSING THE NATURE OF THE TRANSACTION AN D MATERIALS ON RECORD, THE ASSESSING OFFICER HAD MADE CERTAIN ADDITION TO THE INCOME OF THE ASSESSEE, THE SAME WOULD HAVE BEEN CONSIDERED ERRONEOUS BY ANY APPELLA TE AUTHORITY AS BEING VIOLATIVE OF THE PRINCIPLES OF N ATURAL JUSTICE WHICH REQUIRE THAT THE AUTHORITY MUST INDIC ATE THE REASONS FOR AN ADVERSE ORDER. WE FIND NO REASON WHY THE SAME VIEW SHOULD NOT BE TAKEN WHEN AN ORDER IS AGAI NST THE INTERESTS OF THE REVENUE. AS A MATTER OF FACT S UCH ORDERS ARE PREJUDICIAL TO THE INTERESTS OF BOTH THE PARTIES, BECAUSE EVEN THE ASSESSEE IS DEPRIVED OF THE BENEFI T OF A POSITIVE FINDING IN HIS FAVOUR, THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CASE. 16. IN VIEW OF THE FOREGOING, IT CAN SAFELY BE SAID THAT AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE UNDE R SECTION 263 IN THE FOLLOWING CASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR O F REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 15 (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICAT ION OF LAW. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPED ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. 7. IN VIEW OF THE ABOVE DISCUSSION AN FOLLOWING TH E DECISION OF THIS TRIBUNAL (SUPRA), WE HOLD THAT THE RE IS NO ILLEGALITY SO FAR AS EXERCISING AND JURISDICTION THE PROVISIONS OF SECTION 263 OF THE ACT BY THE CIT. 8. GROUNDS OF APPEAL NO.2 ON MERITS. 9. WE HAVE HEARD BOTH THE PARTIES. THE MAIN CONTE NTION OF THE LEARNED AR IS THAT IN VIEW OF THE VARIOUS DECIS ION, THE NOTIONAL INTEREST CANNOT BE ADDED WHILE FRAMING THE FAIR RENTAL VALUE U/S 23(1)(A). WE HAVE CONSIDERED THE RIVAL CONTENTION AND RELEVANT RECORD. AS PER THE PROVISIONS OF SEC TION 23(1), THE ALV HAS TO BE DETERMINED BY TAKING INTO ACCOUNT THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR UNDER SECTION 23(1)(A) AND THEN I F ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 16 THE PROPERTY IS LET OUT THEN THE AO HAS TO FIRST TA KE INTO ACCOUNT THE ACTUAL RENT RECEIVED OR REASONABLY BY T HE OWNER OF THE PROPERTY. THUS, AS PER THE PROVISIONS OF SECTIO N 23(1), THE AO HAS TO FIRST DETERMINE THE FAIR RENT U/S 23(1)(A ) AND THEN TAKE INTO ACCOUNT THE ACTUAL RENT RECEIVED OR RECEI VABLE BY THE ASSESSEE U/S 23(1)(B) ONLY THEREAFTER THE AO HAS TO COMPARE THE FAIR RENT U/S 23(1)(A) WITH THE ACTUAL RENT RE CEIVED OR RECEIVABLE AS PER THE SECTION 23(1)(B). IF THE A O FOUND THAT THE ACTUAL RENT IS EXCESS OF THE SUM AS DETERMINED U/S 23(1) (A) THEN THE ALV OF THE PROPERTY WOULD BE ACTUAL R ENT. SINCE, IN THE CASE IN HAND, THE AO HAS NOT AT ALL SHOWN A NY EXERCISE FOR COMPUTATION OF THE ALV OF THE PROPERTY BY ADOP TING THE METHOD AS PROVIDED U/S 23(1). THE EXERCISE OF DETER MINATION OF THE ALV AS PER THE SECTION 23 (1) INCLUDES TWO STEPS, FIRST DETERMINATION OF FAIR RENT U/S 23(1)(A) AND SECON D ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER. FOR COM PUTATION OF THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY B E EXPECTED TO LET, THE AO HAS TO TAKE INTO ACCOUNT VARIOUS FAC TORS. AS IT IS SETTLED BY THE VARIOUS DECISIONS BY THE HON. SUPREM E COURTS AND HIGH COURTS THAT FAIR RENT U/S 23(1)(A) MAY BE DETERMINED BY CONSIDERING THE MUNICIPAL VALUE OR STANDARD RENT OF THE PROPERTY AS THE CASE MAY BE. THEREFORE, IN OUR VIEW THE ISSUE ON MERITS REQUIRES TO BE VERIFIED AND EXAMINED PRO PERLY BY TAKING INTO ACCOUNT VARIOUS FACTORS REQUIRES FOR DE TERMINATION ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 17 OF THE ALV AS PRESCRIBED U/S 23(1) OF THE ACT. THE CIT WHILE PASSING THE REVISION ORDER U/S 263 HAS NOT TAKEN I NTO ACCOUNT ALL THE ASPECTS FOR COMPUTATION OF THE ALV AS PRES CRIBED U/S 23(1). SINCE THE MUNICIPAL VALUE/STANDARD RENT OF THE PROPERTY IN QUESTION IS NOT AVAILABLE ON THE RECORD, THEREFO RE, THE ISSUE ON MERITS CANNOT BE ADJUDICATED. ACCORDINGLY, WE SE T ASIDE THE ISSUE TO THE RECORD OF THE AO FOR VERIFICATION, EX AMINATION AND ADJUDICATION ON THE ISSUE OF ALV AS PER LAW. THE R EVISION ORDER PASSED BY THE CIT U/S 263 IS MODIFIED. 10. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH MAR, 2011 SD SD (S V MEHROTRA ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI, DATED 25 TH MAR 2011 SRL:11311 ITA NO.1602/MUM/2006 (ASSESSMENT YEAR 2001-02) 18 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI