1. This is an appeal by the assessee. In the first two grounds of appeal, the assessee submits that the order of the Commissioner as passed under Section 263 of the Income-tax Act, 1961 ('the Act') is bad in law and not supported by facts or circumstances of the case and that the Commissioner did not legally act in initiating the proceedings under Section 263 on the basis of the objection raised by the revenue audit and not in the exercise of the Commissioner's quasi-judicial powers and discretion as described by the above section.
2. Briefly speaking, it is seen from the order impugned before us under Section 263 that on his examination of the assessment records, the Commissioner noticed that the assessment order for the assessment year 1980-81 passed by the ITO appeared to be erroneous and also detrimental to the interests of the revenue. He, accordingly, initiated proceedings under Section 263 for which the notice was issued. The Commissioner narrated the facts of the case that in the previous year the assessee had shown an expenditure of Rs. 2,30,505 under the head 'Repairs of factory shed'. He pointed out that the assessee had no factory shed earlier and had shown Rs. 2,34,153 separately on account of construction of two new factory sheds, which it appears, was incorrectly claimed and allowed. He was of the view that since the assessee was not in possession of any factory shed prior to this year, the amount of Rs. 2,30,505 prima facie was either excessive or of a capital nature. That apart, he pointed out that there was allowance for running expenses of the motor car which was considered unjustified as the assessee had income from leasehold property. The Commissioner noted that it was on these two grounds that action under Section 263 was initiated.
3. The assessee complied with the- notice issued, contending that the assessee spent Rs. 2,34,153, which had been claimed as repairs and not wrongly allowed as such. It was true that there has been typographical error and the amount should be Rs. 2,30,505.
4. The assessee raised certain preliminary objection on legal grounds against the proceedings under Section 263. Firstly, it was contended that action has been taken on the basis of audit objection and not in the exercise of the Commissioner's powers under Section 263, referring to the decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. Addl. CIT  108 ITR 407 and also on another decision in the case of Sirpur Paper Mill Ltd. v. CWT  77 ITR 6 as decided by the Hon'ble Supreme Court.
5. The Commissioner requested the assessee's representative to justify the allegation that action under Section 263 was initiated as a result of audit objection. The Commissioner found that the learned representative had no evidence, documentary or otherwise, to prove that the action was initiated as a result of audit objection. He, therefore, rejected this part of the contention.
6. Secondly, it was contended before the Commissioner that the case was before the Commissioner (Appeals), who had passed an order in the appeal filed by the assessee in connection with an under Section 154 of the Act passed by the ITO, and, therefore, the order of the ITO merged with that of the Commissioner (Appeals) and, therefore, the Commissioner (Appeals) under Section 263 cannot take any action as such.
7. On merits also, it was contended that the expenditure was correctly allowed as revenue, as the property in question did not belong to the assessee, but was taken out on rent on payment of Rs. 15,000 per month and, therefore, there could be no question of capital expenditure.
8. The Commissioner found that there was an agreement dated 27-2-1980 between the assessee and the erstwhile owners of the property which included plant, machinery, store, shed, etc. It was also pointed out that the agreement mentioned that till the entire purchase price was paid by the vendee, i.e., the assessee, they will remain as tenants on the monthly rent of Rs. 15,000. The Commissioner pointed out that in the schedule, properties concerned were described. He observed that before incurring the expenditure, the assessee apparently was aware fully of the fact that the property would vest with the assessee after the sale and that the advantage of whatever expenditure would be incurred would ultimately accrue to the assessee only. The assessee relied on the decision in the case of Girdhari Dass & Sons v. CIT  105 ITR 339 (All.) in order to stress that the expenditure incurred in the circumstances, was of revenue. He also relied on the decision in the case of CIT v. Kalyanjee Mavji & Co.  122 ITR 49 (SC). Another authority relied on by the assessee was on the decision in the case of R.B. Naraian Singh Sugar Mills (P.) Ltd. v. CIT  129 ITR 698 (Delhi). The Commissioner analysed the facts of the case and found that these are different from the facts of those decided cases. He examined the details of the sheds and structures which the assessee had contracted to purchase which were several in numbers. He found from the final list that there were certain items which were not in the earlier list. He noted that the assessee's representative has very fairly conceded that the expenditure on such items which were not in existence earlier but which came to existence after, cannot be considered to be for repairs. Such new items listed and considered by the Commissioner were in respect of garage, testing shed, painting shed, platform and stores amounting to Rs. 71,642.
9. The Commissioner pointed out that the assessee had no arguments to support the contention that this expenditure at least was of the revenue nature. The Commissioner concluded that the total expenditure including expenses of a capital nature as well and having regard to the nature and circumstances of the facts of the case, he was of the opinion, that it would be fair if Rs. 1 lakh was treated as capital expenses which brought about into existence the new assets for the assessee and the balance of the expenditure may be treated as revenue.
He further directed the ITO to modify the assessment accordingly.
Hence, this appeal.
10. The objections raised before the Commissioner are stressed before us also by the assessee's learned counsel. It is vehemently urged that the Commissioner acted mechanically on the basis of the audit objection and as such, the Commissioner could not have the valid jurisdiction to initiate the penalty proceedings under Section 263 and that in fact, the Commissioner has not dealt with this objection raised by the assessee in the impugned order. In this connection, the learned counsel for the assessee refers to the decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd. (supra). He also emphasised the ratio of the decision in the case of Sirpur Paper Mill Ltd. (supra) in order to challenge the initiation of the proceedings by the Commissioner. It is submitted that the Commissioner requested the assessee to produce evidence. But it is pointed out that since the assessment records and other evidence regarding the allegation of the assessee are with the Commissioner, it was not possible for the assessee to produce those evidence before the Commissioner at the relevant time. Before us, the assessee has given a copy of the extract from audit objection, it is at page 10 of the paper book, on the basis of which, it is alleged that the Commissioner has simply acted because of the audit objection. It is also stated that the assessment order was completed on 30-1-1981 and the audit report was made on 14-8-1981. The assessee's learned counsel further states that the ITO wrote to the IAC (Audit) on 16-6-1982. It is also stated that the assessee replied to the assessee's letter dated 6-7-1982. It is, therefore, argued that on these facts and the background, the Commissioner has acted only on the basis of the audit objection, without applying his quasi-judicial mind at all. Before us, a copy of the assessee's reply to the Commissioner is given in order to stress the contention of the assessee in this respect. It is also submitted that in a similar circumstance, the Hon'ble Supreme Court has not sustained the action of the department in reopening the assessment under Section 147(b) of the Act, on the basis of 'information' as to 'law* on the opinion of audit party on the point of law. It was held that such opinion would not amount to information for the purpose of Section 147(). It is urged, therefore, that the same position would be in the present context also and, therefore, the Commissioner has acted illegally in initiating the proceedings under Section 263. It is, therefore, urged that on these premises, the order of the Commissioner may be quashed and the appeal of the assessee may be allowed.
11. The learned departmental representative, on the other hand, resists the submissions made on behalf of the assessee contending that the assessee's learned counsel has brought certain materials before us in the form of copy of the audit objection, etc., which might have been obtained by surreptitious means, as these matters are internal corresponding only for the department and it is not understood as to how the assessee managed to obtain these papers and, therefore, these materials cannot be admitted now at this stage in the circumstances. It is also urged that the Tribunal cannot look into such papers as the same were even placed before the Commissioner when the assessee was specifically asked to produce evidence, documentary or otherwise, in support of the allegation that the Commissioner acted mechanically on the basis of the audit objection.
12. That apart, it is argued on behalf of the revenue that the ratio in the case of Sirpur Paper Mill Ltd. (supra) cannot be applied to the facts of the case which is under Section 263, whereas in the above decided case, the issue was under Section 25(1) of the Wealth-tax Act, 1957 ('the 1957 Act') which is corresponding to Section 264 of the 1961 Act. It is submitted, therefore, that the reliance made by the assessee on the above decision may not be taken into cognizance of. It is also stated that in that decided case, the application of the assessee for revision praying for relief to be given, was rejected by the Commissioner of Wealth-tax on the basis of certain correspondence between him and the Board. It is submitted that, admittedly, there were no such correspondence with the Board by the Commissioner in the present case. It is further argued that the Commissioner can exercise his powers under Section 263 even in cases where no enquiry was made by the assessing officer before the assessment was completed. It is urged, therefore, that the claim of the assessee was ill-founded.
13. It is also argued that the case relied on by the assessee, i.e., Jeewanlal (1929) Ltd.'s case (supra) involved different principles. It is specifically pointed out on behalf of the revenue that in that decided case, it was held by the Hon'ble Calcutta High Court that it was clear from the affidavit in apposition filed that the Additional Commissioner issued notice under Section 263 at the instance of the audit department without exercising his own discretion and judgment and, therefore, the ratio of that decision cannot be applied to the facts of the case. It is submitted by the learned departmental representative that from the order under Section 263 impugned before us, it could be seen that the Commissioner examined the assessment records and found that the assessment order for the year under consideration was erroneous and the basis for such finding has been given in the order of the Commissioner itself, which would indicate beyond doubt that the Commissioner has considered the facts and materials on record and has applied his mind to the same before giving the direction to the ITO as done by him in the present case. It is stressed that facts of the present case are distinguishable from those of the case of Jeewanlal (1929) Ltd. (supra). It is also submitted that the Commissioner can take into consideration any information from any source and, therefore, the contention of the assessee in this respect cannot be accepted at all. It is argued that the Commissioner has not considered any extraneous materials before coming to the conclusion that the order of assessment was erroneous and prejudicial. On the whole, it is urged that the appeal by the assessee on the point having no merits may be rejected.
14. We have heard both the sides and have perused the order of the authorities below for our consideration. We have also gone through the decisions in the cases relied on before us. We find that there is considerable force in the arguments made by the learned departmental representative that the ratio enunciated in the case of Sirpur Paper Mill Ltd. (supra), would not be applicable to the facts of the present case. The provisions of Section 263 and Section 264 are different and are meant for different circumstances. Section 263 provides revision of orders which are erroneous and prejudicial to the interests of the revenue, while Section 264 authorises the Commissioner to exercise his powers even if such orders are not erroneous or prejudicial to the interests of the revenue. He can act under Section 264 only on application by the assessee for claiming certain reliefs. In fact, the only two conditions are to be satisfied before the Commissioner can take action under Section 263, i.e., to say there must be a proceeding during which an order was passed by the authorities under the Commissioner and such orders are found to be erroneous and that too, are prejudicial to the interests of the revenue. In fact, we do not find any requirements of the section that 'information' should be spelt out by the Commissioner before coming to the conclusion or before forming his belief that the order sought to be revised, is erroneous and prejudicial to the interests of the revenue, as required by Section 147. In fact, the Commissioner need not even issue a notice to the assessee under Section 263 as this section only requires the Commissioner to give opportunity of being heard to the assessee before passing order under Section 263. But Section 147 requires more than that which we need not spell out here. Thus, according to us, reliance of the assessee on the ratio of the decision of the Hon'ble Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT 119 ITR 997 would not be helpful to the assessee. In fact, it was held in that case at page 1001 (middle) that the word 'information' means instruction or knowledge concerning facts or particulars, for which there is little difficulty. It was also held that by its inherent nature, a fact has concrete existence and it influences the determination of an issue by the mere circumstance of its relevance and it requires no further authority to make it significant and its quintessential value lies in its definite vitality.
15. From a simple reading of Section 263, we do not find any requirement for the Commissioner to record 'information' or to indicate what was the source of information, before he acts under Section 263.
We may refer to the decision of the Hon'ble Supreme Court in the case of CIT v. Electro House  82 ITR 824. That apart, the provisions of Section 263 are machinery provisions and not charging provisions. It is true, fiscal statutes are to be construed strictly but not in respect of machinery provisions, as held by the Hon'ble Supreme Court in the case of CIT v. National Taj Traders  121 ITR 535.
16. We have perused the order of the Commissioner. We do not find any slight indication that he has acted mechanically only on the basis of the audit objection. Of course, the assessee has raised this point before the Commissioner, who did not accept the contention as the assessee's representative could not lay any evidence, documentary or otherwise, in support of the allegation. As stated earlier, the assessee's representative has placed before us copy of certain audit objection in order to strengthen the case of the assessee. But as objected by the learned departmental representative, these extraneous materials which were not before the Commissioner cannot be taken into consideration. This objection made on behalf of the revenue is valid.
Even otherwise, for the sake of argument, there is no indication that the audit has directed the revenue authorities to take action under Section 263. In fact, it has simply noted that from the detailed expenditure, it was seen that the same was of capital nature which has not been capitalised, which resulted in an under-charge of tax. The audit did not even suggest to the ITO to capitalise the expenditure to the extent of withdrawing the allowance. It would be for the ITO to see that inherent nature of that fact which has a concrete existence and the circumstance of its relevance. The field of operation prescribed for Section 263, 154 or 147 is completely different from each other and one does not overlap the other.
17. In our opinion, there is no indication in the present context that the Commissioner was dictated by the audit to take notice under Section 263. As indicated earlier, the assessee's learned counsel has pointed out that the assessment was made on 30-1-1981 and the audit submitted its audit objection on 14-8-1981. But the Commissioner passed the order under Section 263 some time in January 1983. In between, there has been correspondence between the ITO, the IAC (Audit) and the assessee itself. We find no immediate nexus of the action taken by the Commissioner under Section 263 with the audit objection as such. We have gone through the order of the Commissioner and we are of the opinion that he has applied his mind to the facts available on record before coming to his conclusion. In fact, he discussed the various aspects of the matter on merits with the assessee's learned counsel, who conceded before the Commissioner that there were expenses which were not entirely revenue in nature, as stated in the impugned order.
18. The Hon'ble Calcutta High Court in the case of Bagsu Devi Bafna v.CIT  62 ITR 507 held on facts of the case that though the findings of the Commissioner in his revision order were based on materials on record and the other materials gathered by him and not disclosed to the assessee, the fact that the Commissioner had imported materials collected by him but not disclosed to the assessee and used them for making the order, could not invalidate the order itself because those materials were merely supporting materials and did not constitute the basic grounds on which the order was made. But as indicated earlier, we do not find that the Commissioner has acted mechanically on the basis of the audit objection, as claimed on behalf of the assessee.
19. Having regard to the entirety of the circumstances and facts of the case and keeping in view the ratio enunciated in the different decisions cited earlier, we are of the opinion that the Commissioner has assumed a proper jurisdiction under Section 263, in the context of the present case before us. No interference is called for in this respect.
20. The assessee's learned counsel has taken up his arguments on merits also. It is pointed out that the assessee has been deriving income from its leasehold properties and during the year has taken up a foundry business for the first time by taking up a leasehold property having certain structures and in addition to those certain new structures were raised. It is his submission that even in such a situation, the entire expenditure should have been allowed as revenue expenditure relying on the decision of the Hon'ble Delhi High Court in the case of Instalment Supply (P.) Ltd. v. CIT  149 ITR 53 and also on the decision of the Hon'ble Allahabad High Court in the case of Girdhari Das & Sons (supra). It is also submitted that the status of the assessee in the instant case is only that of a tenant and he was admittedly not the owner of those assets and, therefore, any expenditure should be allowed as revenue if the same has been incurred for repairs, maintenance, renovation, addition, etc., in respect of those properties It is also argued in the alternative that before the Commissioner, the list of five items like, garage, testing shed, etc., the cost of construction of which was stated to be at Rs. 71,642, was given relating to the new additions made to that leasehold property. It is urged that at the worst, only this amount could be treated as capital and not at Rs. 1 lakh estimated by the Commissioner in his order, who determined the same without any basis. It is submitted that the assessee has got the basis and records for the expenditure of Rs. 71,642. It is urged that the claim of the assessee in this respect may be allowed.
21. We have heard the learned departmental representative as well on this point. We have perused the order of the Commissioner for our consideration along with the submissions made on behalf of the assessee. In our opinion, there is substance and force in the submissions made on behalf of the assessee. Admittedly, Rs. 71,642 related to the cost of construction of those items which were not in existence as per the earlier list, which was prepared at the time when the lease was taken. In this view of the matter, we deem fit that only Rs. 71,642 should be treated as capital in nature and not Rs. 1 lakh as done by the Commissioner. The balance of the expenditure should be treated as revenue in nature. To this extent, the order of the Commissioner is modified. The ITO would please work out the relief admissible accordingly.