T.U. Mehta, J.
1. The question involved in this reference is with regard to the extent of the revisional powers of the Commissioner acting under section 263 of the Income-tax Act, 1961 (which is hereinafter referred to as 'the Act').
2. The facts which give rise to this reference can be shortly stated as under. The respondent-assessee was a registered partnership firm consisting of two partners at the relevant time. The assessment year with which we are concerned in this reference is 1965-66. The assessee's income was assessed by the Income-tax Officer for this year on 21st March, 1970, at Rs. 1,03,840. Subsequently, on 24th February, 1972, the Additional Commissioner of Income-tax found on the facts before him that the order passed by the Income-tax Officer at the time of assessing the assessee's income was erroneous in so far as it was prejudicial to the revenue. He, therefore, issued a show-cause notice contemplated by section 263 of the Act for the purpose of giving an opportunity to the assessee of being heard on the question why the revisional powers contemplated by section 263 of the Act, should not be exercised. This notice refers to the date on which the Additional Commissioner considered that the order passed by the Income-tax Officer at the time of the original assessment was erroneous as well as prejudicial to the interests of the revenue. Shortly stated these facts are as under :
At the relevant time the assessee-firm was dealing in land transactions by making agreements to purchase or to take land on lease and assign it to others with profit. The transaction with which we are concerned in this case was with regard to the leasehold rights of land bearing final plot No. 499 of T. P. Scheme No. 3 of Ellisbridge belonging to one Manekji Hormasji and Bai Tehmina Jivanji. It is found that the banakhat for this land was originally obtained by one Ambalal Vyas. The said banakhat rights were transferred by Ambalal Vyas to a firm named Dev & Co. and this Dev & Co. transferred these banakhat rights to the assessee-firm. Assessee-firm in its turn sold these banakhat rights to a society named Jaldarshan Co-operative Housing Society. It was further found that out of this transaction, the assessee earned gross profit of Rs. 5,00,000. Out of this amount of Rs. 5,00,000 it claimed two deductions - one was of the sum of Rs. 1,45,000 and the other was of the sum of Rs. 2,00,000. Both these deductions went unchallenged during the course of the assessment proceedings before the Income-tax Officer. The assessment order passed by the Income-tax Officer under section 143(3) of the Act is found at annexure 'A' and on its perusal it does not show that the Income-tax Officer had given any treatment to both these deductions.
3. It transpires from the record the originally Dr. Ambalal Vyas was believed to be the benamidar of the above referred firm of Dev & Co. The final deed transferring the banakhat rights in favour of Jaldarshan Co-operative Housing Society was dated 31st October, 1964. Perusal of that document shows that out of the consideration of Rs. 5,00,000, the amount of Rs. 2,00,000 was paid to Dev & Co. It was for this reason that the assessee had claimed the deduction of this amount of Rs. 2,00,000 from the profit of Rs. 5,00,000. As stated above, originally, Dr. Ambalal Vyas was stated to be benamidar of Dev & Co. However, subsequent to the assessment, on 10th March, 1971, Dr. Ambalal Vyas made an affidavit which revealed, inter alia, that he was working as a benamidar of the assessee itself. The Additional Commissioner of Income-tax, after knowing the contents of this affidavit, checked up the record and ultimately came to the conclusion that revisional proceedings contemplated by section 263 of the Act should be undertaken. He, therefore, issued the above referred notice dated 24th February, 1972. In this notice he has mentioned the fact that at the time of the original assessment, the Income-tax Officer has failed to make necessary inquiry about both the deductions, namely, the deduction of Rs. 1,45,000 and the other deduction of Rs. 2,00,000, which were claimed by the assessee during the course of the assessment.
4. So far as the deduction of Rs. 1,45,000 was concerned, the same was claimed by the assessee on the ground that he had to pay this amount on account of the building structure, which was standing on the land in question. But the Additional Commissioner found that the ownership of this building structure was to remain with the assessee and, therefore, the said deduction was not allowable. In this connection, the Additional Commissioner has stated as under in his show-cause notice :
'In returning the said income you had claimed a deduction of Rs. 1,45,000 being a payment for purchase consideration of the buildings standing on the said land. According to the documents registered on October 31, 1964, the buildings were to be purchased by you from the landlords and you were to be the sole owner of the buildings and also of sale realisation in the event of the sale of said buildings by you. The buildings were however transferred to Jaldarshan Co-operative Housing Society by the landlords and the said Jaldarshan Co-operative Housing Society paid to the landlords the sale consideration of the said building; but since according to your agreement with the said Jaldarshan Society the buildings were to remain your property, and you were to be the sole owner of the realisation from the said buildings, you agreed to reimburse the said Jaldarshan Co-operative Housing Society for the payment made by it to the landlords in respect of the said buildings. Thus, the payment of a sum of Rs. 1,45,000 by you for acquisition of the buildings has nothing to do with the profit of Rs. 5,00,000 which you received on sale of banakhat rights for the lease of the land. In the circumstances, the claim of deduction of a sum of Rs. 1,45,000 from the profit of Rs. 5,00,000 received in the transactions of purchase and a sale of banakhat rights were not admissible and, therefore, the Income-tax Officer had erred in allowing the said deduction claimed by you.
5. As for the other deduction of Rs. 2,00,000 the Additional Commissioner of Income-tax stated as under in his show-cause notice :
'In computing the profit from the said transaction of purchases and sale of banakhat rights you have further claimed a deduction of Rs. 2 lakhs being profit paid to an intermediary, M/s. Dev & Co. It appears M/s. Dev & Co. purported to have acquired banakhat right form one Dr. Ambalal B. Vyas who has been described as benamidar of Dev & Co. in the document dated October 3, 1964, and registered on October 31, 1964, which was executed between four parties including your firm. The said Dr. Ambalal B. Vyas has deposed on oath that he was not a benamidar of Dev & Co. but was in fact benamidar of your firm and he had entered into a contract for lease of the land with the landlords for and on your behalf. In the circumstances it would appear that Dev & Co. was only another intermediary nominated by you as your benamidar with a view to bifurcate the profits realised by you on sale of banakhat rights to the said Jaldarshan Co-operative Housing Society. In the circumstances it would appear that the Income-tax Officer has not gone into the facts as he ought to have and has accepted your claim without making any inquiry worth the name. The Income-tax Officer erred in allowing your claim of deduction of Rs. 2 lakhs.'
6. In view of these allegations the Commissioner proposed the action under section 263 in the following terms :
'I, therefore, intend to make an order under section 263 cancelling the assessment order of the Income-tax Officer with a direction to him to make a fresh assessment according to law after making full inquiry and giving necessary opportunity of being heard.'
7. This shows that at the very start the Commissioner proposed to take action by setting aside the assessment order and by giving direction to the Income-tax Officer to make fresh order of assessment. The above facts further show that the above referred show-cause notice was issued by the Commissioner on certain factual data which he has in his possession at the relevant time. The initiation of the proceedings under section 263 can be made if the Commissioner considers that any order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the revenue. The above averments, which are quoted from the show-cause notice clearly reveal that in the opinion of the Commissioner, the order passed by the Income-tax Officer was erroneous inasmuch as he had not made the necessary inquiry on certain important points with regard to these deductions and, therefore, the order passed by him was prejudicial to the interest to the revenue.
8. In reply to the show-cause notice, the assessee submitted its written statement on March 15, 1972. With regard to the deduction of Rs. 1,45,000 it stated as under :
'It was the scheme of the Mukur Corporation to demolish the old structures and float a multi-storeyed residential building a flat system and to building a commercial building on the road side so as to enable the society that may be proposed (to be formed) to earn the sufficient lease rent. It would have been impossible to carry out this scheme if the buildings were not demolished and as a matter of fact the buildings were immediately demolished. So we did not remain the owner of the buildings any more, but only of the net proceeds realised from the sale of the super structures. We sold the super structures with a condition to give the land in ground level after doing the necessary filling for Rs. 2,018.50. Hence, our profit would not be Rs. 1,45,000 but Rs. 2,018.50 which is shown in our return of income and correctly assessed by the learned Income-tax Officer after considering all these aspects.'
9. With regard to the other item of deduction of Rs. 2,00,000 the assessee stated as under :
'The second averment in your honour's notice is not correct and so it is specifically denied. That though Dr. A. B. Vyas seems to have been examined long back on March 10, 1971, it is a matter of great regret that his statement is supplied to us on March 13, 1972, on the last minute when action under section 263 is proposed. The said statement is incorrect in many respects and with a view to bring out the true facts we desire to cross-examine him at the earliest. We should, therefore, be given opportunity to do so on any date convenient to your honour to establish that the department has no prima facie case either to pass order as contemplated or set aside the assessment on unwarranted facts.'
10. From the above reply, it is clear that with regard to the deduction of Rs. 2,00,000 the assessee wanted to cross-examine Dr. Vyas on whose affidavit the Commissioner had initiated action under section 63. It is an admitted position that a copy of the statement made by Dr. Vyas was supplied to the assessee before March 13, 1972. It is found to be an admitted position that initially the Commissioner was inclined to allow the assessee to cross-examine Dr. Vyas. For this purpose, the assessee approached the Commissioner on 16th March, but on that day the assessee was informed that it was not necessary to allow him to cross-examine Dr. Vyas at that stage as he was intending to send the matter back for reassessment to the Income-tax Officer and, therefore, the assessee was to get full opportunity to cross-examine Dr. Vyas. The assessee thereupon filed another written statement on 17th March, 1972, setting out its legal contentions in detail. Ultimately, the Commissioner passed his final order under section 63, which is found at annexure 'B'. By this order, he set aside the assessment already made and directed the Income-tax Officer to make fresh assessment. In this order, he also directed the Income-tax Officer to give the assessee proper opportunity to prove its case including the cross examination of Dr. Vyas as desired by it. One important fact, which was revealed from the subsequent affidavit of Dr. Vyas was that Dev & Co. consisted of brothers, wives, father-in-law and brother-in-law of two partners of the assessee-firm. The Commissioner found that the Income-tax Officer has acted to the prejudice of the revenue in not making any inquiry as regards the constitution of Dev & Co.
11. Being aggrieved by this order of the Commissioner, the respondent-assessee approached the Appellate Tribunal. The Appellate Tribunal was of the opinion that the Commissioner had failed to come to any 'firm' conclusion that the above referred two items of deductions were allowed by the Income-tax Officer incorrectly during the course of the assessment. After quoting the provisions of section 263, the Tribunal finally disposal of the matter with the following observations :
'In our reading of this provision, the Commissioner of Income-tax can pass an order only if he considers that any order passed by an Income-tax Officer is prejudicial to the interests of the revenue. Having substantial doubts about the correct allowance of the claim would not lead to the conclusion that the order was prejudicial to the interests of the revenue.' It is thus evident from these observations of the Tribunal that the Tribunal allowed the appeal of the assessee only on the ground that the Commissioner has not come to any 'firm' conclusions and had set aside the original assessment only on 'substantial doubts'.
12. Being aggrieved by this decision of the Tribunal, the revenue has preferred this reference in which the following question has been referred to us for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in setting aside the order of the Additional Commissioner of Income-tax made under section 263 on the ground that the Additional Commissioner of Income-tax had not come to a firm conclusion that the order by the Income-tax Officer was erroneous in so far as it was prejudicial to the interests of revenue ?'
13. Shri Kaji, who appeared on behalf of the revenue, has contended that the Tribunal was mistaken in taking a view that at the time of passing the final order under section 263 in Commissioner is always expected to come to a 'firm' conclusion with regard to the facts of the case. According to Shri Kaji, the nature of the conclusions, which the Commissioner is expected to reach at the time of passing final order under section 263, ultimately depends upon the order which he eventually passes under the said section, and in cases where the matter is sent back to the Income-tax Officer with direction for fresh assessment, it would be in a given case sufficient if the Commissioner comes to some prima facie conclusions.
14. As against this, the contention raised by Shri Patel on behalf of the assessee was that it was the duty of the Commissioner to come to a 'firm' and final conclusion about the controversial points before him and, therefore, merely because the Commissioner entertains some doubts about the controversial points, it would not be proper to set aside a concluded assessment and to send the matter back with a direction for fresh assessment. Shri Patel also contended that the Commissioner was not justified in not allowing the assessee an opportunity to cross-examine Dr. Vyas especially when his subsequent affidavit was obtained by the department as early as 10th March, 1971, and during the course of almost one year thereafter, the department did not take any steps in the matter. According to Shri Patel, the Commissioner was bound to make an inquiry into the matter even if he wanted to send the matter back to the Income-tax Officer for reassessment. He pointed out that if the Commissioner had made such an inquiry, the assessee would have been able to show that the Income-tax Officer had not committed any error during the course of the original proceedings and that the affidavit, which was filed by Dr. Vyas, on March 10, 1971, was not a document on which any reliance whatever could be placed.
15. Before touching the legal aspect of the extent of the revisional powers, which the Commissioner possesses under section 263 of the Act, it would be necessary to advert to some facts, which, in our opinion, are absolutely necessary to dispose of this reference. This facts will also be helpful in deciding whether the Commissioner was in any 'doubt' as regards the controversial points raised before him at the time of making the final order.
16. We shall first refer to the contents of the affidavit filed by Dr. Vyas on March 10, 1971, as found from the order passed by the Commissioner under section 263. This is how he has summarised the contents of this affidavit :
'However, in his deposition on March 10, 1971, before the Income-tax Officer, Circle-IV, Ward-D, Ahmedabad, Dr. A. B. Vyas stated that : in selling at Ahmedabad he was helped by Shri B. M. Raval and when Shri Raval requested him to work as the benamidar of himself and Shri Ramesh P. Modi, who were in partnership, to purchase the land on lease from Shri Manekji Hormasji, he agreed to do so in view of his obligation to Shri Raval and it was clearly mentioned in the document which he signed at the same time as he signed the Kutch Banachithi between himself and Shri Manekji in May or June, 1964, that he was working as benami for Mukur Corporation consisting of two partners, viz., R. P. Modi and B. M. Raval, and the document also stated that whenever they asked him to transfer the same back to whomsoever they desired, he had to sign that about a month later when other instalment of Rs. 75,000 was to be paid, two documents known as kutcha banakhat, one between himself and Manekji was signed, and the other between himself and Mukur Corporation as the benami of Shri R. P. Modi and Shri B. M. Raval; regarding Dev and Company through he got knowledge of the same company on the last date of signing the final document in October, 1964, and on reading the document he questioned the partners of Mukur Corporation 'what is the necessity of forming so called Dev & Company' and they told him that according to kutcha banakhat he had to sign whatever document they asked to sign regarding lease on the same land and Dev & Company as far as he knew consisted of the brothers, wives and father-in-law and brother-in-law of the two partners, viz, Shri R. P. Modi and Shri B. M. Raval; that as confirmed that prior to the date on which the final lease deed was executed in October, 1964, he did not know anything about Dev & Company; that he did not receive any single pie from Mukur Corporation or their partners and only the loan of Rs. 20,000 which he had given was settled by the transfer of a flat in the building which he in turn transferred to the wife of Shri Ratilal Chhotalal Barot through whom he had taken the loan earlier.'
17. After referring to this to this affidavit of Shri Vyas the Commissioner has recorded his reasoning the conclusions on the question of deduction of Rs. 2,00,000 as under in his order :
'The above deposition would mean that according to Shri Vyas he was the benami of the assessee-firm and its two partners, viz., Shri R. P. Modi and Shri B. M. Raval, and that the so-called firm of Dev & Company was incorporated only in October, 1964, when the deed dated October 31, 1964, was executed. It is also significant to note that the firm called dev and Company comprises nine partners including two lady partners, seven and eight, viz., Gauriben Jyotindranath Dev and Nirmalaben Jagjivandas Upadhayaya, who apparently, were the wives of the two partners, Shri R. P. Modi and Shri B. M. Raval, though this relationship is not disclosed in the description of their names in the lease deed. This is a curious aspect of the matter which assumes significance. It is also seen from clause (2) of the lease deed dated October 31, 1964, that though Dev and Company is mentioned as the party to the deed, the condition of the banakhat provide that the assessee was to pay Rs. 25,000 per annum in advance only to these two ladies for the duration of the lease deed and this liability of the assessee-firm is assigned to the party No. 1, viz., the vendee, Jaldarshan Co-operative Housing Society, and under clause (4) if the party No. 1 defaults, the ladies have the right to take the possession of the land, etc., evidencing the dominant interest of these two ladies who are none but the wives of the two partners. It is also seen that according to the recital in the deed, the kutcha chithi by which the lease rights were assigned by the landlord and the assessee-firm is formed with effect from June 15, 1964, under the partnership deed dated June 29, 1964. The above circumstances of the case, especially Dr. Vyas's deposition that he was only the benami of the assessee-firm and did not receive any recompense and did not even know about Dev and company till October 31, 1964, do cast considerable doubt regarding the genuineness of the assessee's claim of Rs. 2,00,000 to Dev and company which was allowed by the Income-tax Officer without necessary inquiry.'
18. As for the deduction of Rs. 1,45,000 the Commissioner has discussed the question in para. 5 of his order :
'Regarding the deduction of Rs. 1,45,000 from the profit of Rs. 5,00,000 received by the assessee from the transaction in question, the assessment's arguments are that the assessee-firm was to take the land with the old superstructures on lease for 99 years and the assessee had not purchased it from the lessor; that the assessee has to bear the loss by paying the cost of the superstructures which were to be demolished immediately and would fetch nothing; that it was the scheme of the Mukur Corporation to demolished the old structure and to float a multi-storeyed residential building on flat system and to build a commercial building on the road side so as to enable the society (that was proposed to be formed) to earn sufficient lease rent and the buildings in question were demolished immediately and the assessee did not remain the owner of the building any more but only of the net sale proceeds of Rs. 2,018 which was shown by the assessee in its profit and loss statement and this point at issue had been accepted by the Income-tax Officer after considering the matter and cannot be disturbed under section 263. The assessee's above explanation has to be considered in the light to the recitals in the sale deed of lease rights dated October 31, 1964, according to which party No. 1 has to pay the amount to the landlord being the liability assigned to it by No. 4, i.e., the assessee (clause 4) and ownership of the superstructure shall be of the assessee and any realisation from the superstructure shall be of the assessee and the liability to pay a sum of Rs. 1,45 000 shall be of the assessee (clause 5). The profit and loss statement filed with the return merely mentioned the sale of superstructure for Rs. 2,018.50 without details and deduction for superstructure amount payable to owner, Manekji Hormasji, Rs. 1,45,000. since the assessment is proposed to be set aside, the above issue can also be examined by the Income-tax Officer after taking into account the assessee's explanation and other relevant material.' These excerpts quoted from the order of the Commissioner clearly show that he has recorded a detailed and reasoned order and has taken a prima facie view of the matter before setting aside the original assessment.
19. Important facts, which are very material for appreciating the controversial points raised by the parties in this reference, are that the Income-tax Officer at the time of carrying out original assessment did not care to probe further into the details as regards the constitution of the firm of Dev & Co. Had he done so, he would have at once known that this firm came into existence only on the date on which the last document in favour of Jaldarshan Co-operative Housing Society was executed by the assessee and that it was constituted by very near relatives of the two partners of the assessee-firm. The revelation of these facts would have undoubtedly helped the cause of the revenue and would have also induced the Income-tax Officer to make further probe into the matter. It is thus evident that, before allowing the deduction of Rs. 2,00,000, the Income-tax Officer had erred in not making proper inquiry into the matter. The result of not making this inquiry was that the order, which was ultimately passed by the Income-tax Officer, worked to the prejudice of the revenue.
20. So far as the deduction of Rs. 1,45,000 is concerned, the patent facts, which were on the record before the Income-tax Officer, were that the assessee itself had valued the superstructure at Rs. 1,45,000 but had credited only the amount of Rs. 2018.50, being the scrap value of this superstructure. Even as against those credit of Rs. 2,018.50 no details were revealed by the assessee. These facts by themselves were sufficient to induce the Income-tax Officer to make further probe into the matter. But here also the Income-tax Officer failed to make proper inquiry at the time of the original assessment and, therefore, he not only committed an error but also acted against the interests of the revenue.
21. These facts, therefore, clearly reveal that at the time of the initiation of action by Commissioner under section 263, the Commissioner had sufficient materials with him to consider that the order passed by the Income-tax Officer was erroneous and had resulted in prejudice to the interests of the revenue.
22. Now, if in the light of these facts we consider the provisions of section 263, we find that the order passed by the Commissioner setting aside the original assessment and directing the fresh assessment by the Income-tax Officer is completely in conformity with the provisions of the section. Sub-section (1) of section 263, which is relevant for our purpose, is in the following terms :
'(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.'
23. A bare perusal of this section shows that before the Commissioner initiates action under it, he should not only call for and examine the record of the assessment but should consider, (1) that the order passed by the Income-tax Officer is erroneous, and (2) that it is prejudicial to the interest of the revenue. Therefore, unless these three conditions are satisfied, namely, (1) that he should call for and examine the record of the proceedings in question, (2) he should consider that the order passed by the Income-tax Officer is erroneous and (3) that the order passed by the Income-tax Officer is prejudicial to the interests of the revenue, the Commissioner has no jurisdiction to initiate any revisional proceedings. Up to this stage, the Commissioner is not expected to issue any show-cause notice or to hear the concerned assessee. The section contemplates that it is the 'consideration' of the Commissioner, which is relevant for initiating the action. Of course this consideration cannot be mala fide or arbitrary but the fact remains that it is the consideration of the Commissioner and none else. It should further be noted that a mere finding of the Commissioner that the order passed by the Income-tax Officer is erroneous may not in all cases result in the conclusion that that erroneous order is prejudicial to the interests of the revenue. There would be cases where the order passed by the Income-tax Officer would be erroneous and yet that order would not result in any prejudice to the interests of the revenue. As to what is meant by the expression 'prejudicial to the interests of the revenue', The High court of Calcutta has explained as under Dawjee Dadabhoy & Co. v. S. P. Jain : 31ITR872(Cal) :
'The words, `prejudicial to the interests of the revenue', have not been defined, but it must mean that the orders or assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. It can mean nothing else.'
24. We respectfully agree with these observations.
25. Now, applying this test to the facts of the present case, it is obvious that not only the Income-tax Officer had committed an error in not making any further inquiry into the details as regards both the deductions but also that want of this inquiry has resulted in prejudice to the interest of the revenue. We, therefore, conclude that the initiation of action taken by the Commissioner under section 263 was quite proper.
26. Second step which is contemplated by section 263 is to issue show-cause notice. There is no dispute about this step, because it is an admitted position that the assessee has been given an opportunity of being heard and the final order which is passed by the Commissioner was passed only after hearing it.
27. The third step is as regards an inquiry as the Commissioner 'deems necessary'. It is with regard to this step that Shri Patel vehemently contended that the Commissioner had committed an error in not allowing the assessee to cross-examine Dr. Vyas, whose affidavit dated March 10, 1971, was very material. Now, after reading the relevant portion of sub-section (1) of section 263, we do not find any justification for the view that in every case the Commissioner is expected to make an inquiry before passing the final order. The concluding portion of this sub-section (1) of section 263 shows that the Commissioner can pass various orders such as enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. If the Commissioner in this case had enhanced or modified the assessment, then looking to the facts of the present case, Shri Patel would have been justified in contending that, before passing the final order of enhancement or modification of the assessment, the assessee ought to have been given an opportunity to cross-examine Dr. Vyas. But here the Commissioner has not himself passed any final order as regards the assessment. What he has done is to cancel the original assessment and to direct a fresh assessment by the Income-tax Officer with a further direction to the Income-tax Officer to give proper opportunity to the assessee to substantiate its pleas as well as to cross-examine Dr. Vyas. Therefore, the question is whether it is obligatory on the Commissioner acting under section 263 to enter into a regular inquiry in all cases before the original assessment order is cancelled and the Income-tax Officer is directed to make a fresh assessment. There is nothing in the section itself which would justify such a view, because, on the question of inquiry, the section specifically says that that inquiry should be as 'deemed necessary' by the Commissioner. In this connection, we may profitably refer to some of the observations of the Supreme Court in Rampyari Devi Saraogi v. Commissioner of Income-tax : 67ITR84(SC) . In that case, the order which was passed by the Commissioner mentioned some facts which were not indicted or intimated to the assessee and which the assessee had no opportunity of meeting. The assessee made a grievance of this but the Supreme Court disposed of the contention raised by the assessee by observing that all the additional material, on which the Commissioner had relied upon, was supporting material and did not constitute the basic ground on which the order under section 33B (of the Act of 1922) was passed. The Supreme Court further observed that even if the facts, which the Commissioner introduced regarding the inquiries made by him, had been indicated to the assessee, the result would have been the same, because the assessee had not in any way suffered from the failure of the Commissioner to indicate the results of the inquiries. The Supreme Court ultimately held that in such a case the assessee would have full opportunity of showing to the Income-tax Officer whether the income assessed in the assessment orders which were originally passed was correct or not, and, therefore, the assessee could not be said to have been denied an opportunity of showing cause against the grounds and materials and the rules of natural justice were not violated. In Commissioner of Income-tax v. Panna Devi Saraogi : 78ITR728(Cal) , the High Court of Calcutta held that there was no violation of the principles of natural justice on the question of opportunity being given to the assessee. That opportunity was reasonably given, by stating the basic grounds on which the Commissioner thought that the Income-tax Officer's order was erroneous and giving a reasonable opportunity to the assessee even to produce evidence along with facts of that case, the High court further observed that all that the Commissioner did was to cancel the assessment and ask the Income-tax Officer to make a fresh assessment according law after making proper enquiries and investigations with regard to the jurisdiction, carrying on the business, possession of initial capital and the sources of moneys invested in the name of the assessee and, therefore, the assessee would again get full opportunity to produce evidence, if any, in support of her case.
28. In view of this, we find that considering the facts of this case, the Commissioner was not bound to make any inquiry before passing the final order and that in substance no prejudice is caused to the assessee by failure of the Commissioner to give it any opportunity to cross-examine Dr. Vyas.
29. Next question is whether at the time of passing the final order, the Commissioner was bound to record final conclusion. Now, even on this question, we find that there is nothing in section 263(1) to show that before passing the final order under that section, the Commissioner must necessarily and in all cases record final conclusions about the points in controversy before him. As already noted by us above, we would have expected him to record final conclusions, which he thought proper if he was to settle the assessment finally but since he has not settled the assessment finally but since he was not settled the assessment finally, and has preferred to direct the Income-tax Officer to make an order for fresh assessment, it was proper that he did not express any final conclusions and recorded only prima facie conclusions at which he had arrived with reference to the facts of the case. Here it should be noted that, as the assessment was to be freshly made by the Income-tax Officer, the only proper course for the Commissioner was not to express any final opinion as regards the controversial points.
30. Shri Patel heavily relied upon the Allahabad High Court decision in J. P. Srivastava & Sons Ltd. v. Commissioner of Income-tax : 111ITR326(All) for the proposition that it was obligatory on the Commissioner to examine the merits of the objections raised by the assessee and, therefore, it was not proper to 'delegate' that power to the Income-tax Officer by setting aside the assessment order and directing him to make fresh assessment. The facts of that case were that the only ground upon which action was taken by the Commissioner under section 33B (of the Act of 1922) was that the Income-tax Officer did not apply his mind to the claim of the assessee as contained in part D of the return. The court found that the Commissioner himself did not apply his mind to the merits of claim and, in fact, he specifically refrained from going into the merits. In view of this, the court held that the finding that the order of the Income-tax Officer was erroneous, was by itself not enough to given jurisdiction to the Commissioner, because it was necessary to be shown further that the order was prejudicial to the interests of the revenue. Since, in the opinion of the High Court, the Commissioner failed in finding that the erroneous order passed by the Income-tax Officer was against the interest of the revenue, the High Court concluded that the order passed by the Commissioner in setting aside the original assessment was wrong. This case is easily distinguishable on facts because, so far as the case under consideration is concerned, it is evident that the failure of the Income-tax Officer to make proper inquiry with regard to both the deductions during the course of his original assessment was clearly prejudicial to the revenue, because the deductions in question were quite substantial in nature. In our opinion, therefore, the decision relied upon by Shri Patel is of no help to the respondent-assessee.
31. In view of what is stated above, we are of the opinion that the Tribunal was not justified in law in setting aside the order of the Additional Commissioner of Income-tax under section 263 on the ground that the Additional Commissioner had not come to a firm conclusion that the order passed by the Income-tax Officer was erroneous. In other words, our answer to the question referred to us is in the negative, i.e., in favour of the revenue and against the assessee. The respondent-assessee shall bear the costs of the revenue of this reference.