JUDGMENT
D.A. Mehta, J.
1. Following two questions have been referred by the Tribunal, Ahmedabad Bench ‘C’, under Section 256(2) of the IT Act, 1961 (the Act), at the instance of CIT :
Question No. 1
“Whether the Tribunal is right in law and on facts in cancelling the order made by the CIT in exercise of the powers under Section 263 of the IT Act, 1961 ?
Question No. 2
Whether, when the CIT was satisfied that the registration was granted by the ITO without examining the genuineness of the firm, the Tribunal was justified in law in cancelling the said order ?”
2. The assessment year is 1981-82 and the relevant accounting period is Samvat year 2036. The assessee, a partnership firm, sought registration in terms of provisions of Section 185 of the Act. The AO passed an order on 17th Nov., 1983 granting registration to the assessee-firm in the following words :
“Assessee-firm according to partnership deed came into existence w.e.f. 31st March, 1980.
Form No. 11 along with partnership deed has been filed with ITO, Survey Circle Ward-B. Formalities as laid down in the Act being found genuine, registration is granted for the year under consideration.”
3. The Commissioner of Income-tax (Inv.), Gujarat (hereinafter referred to as the CIT), initiated action under Section 263 of the Act by issuing show-cause notice on 4th June, 1984. The assessee filed reply to the show-cause notice on 9th July, 1984 and 22nd July, 1984. However, the CIT for the reasons stated in his order dt. 23rd Nov., 1984 rejected the explanation of the assessee and held that the order made by the AO under Section 185(1)(a) of the Act granting registration to the firm was erroneous and prejudicial to the interests of Revenue. As a consequence, he set aside the order with a direction “to pass fresh order according to law after carrying out necessary investigation with regard to the genuineness of the firm.”
4. The assessee carried the matter in appeal before the Tribunal. The Tribunal allowed the appeal vide its order dt. 19th Sept., 1986 holding that the order made by the CIT was bad in law. That CIT had referred to only certain questions out of the statement recorded of the partners to draw the inference that the firm may not be genuine. In other words, according to Tribunal, the CIT had doubted the genuineness of the firm by reading the statement of the partners in a truncated manner. The Tribunal has held that a document has to be read as a whole in order to decide its importance instead of picking up answers to one or two questions, which may favour one party or the other. The Tribunal has further found on reading the various statements of the partners that, when the said documents are read as a whole, it was difficult to concur with the view taken by the CIT while initiating proceedings under Section 263 of the Act.
5. The Tribunal has further found that the basis for initiation of proceedings under Section 263 of the Act appeared to be the factum of a search conducted under Section 132 of the Act at the premises of the firm and the partners. Finally, the Tribunal finds “we find from the material already on record that the ITO had, in fact, made proper investigation before granting registration under Section 185(1)(a) of the Act.”
6. It is this order which is assailed by the learned standing counsel for the Revenue, Ms. M.M. Bhatt.
7. It was submitted that the CIT was not satisfied with the answers given by the partners as could be seen from the reproduction in the order under Section 263 of the Act, and hence, he initiated action under the said section holding the order granting registration to be erroneous and prejudicial to the interests of Revenue. According to her, no prejudice was caused to the assessee considering the fact that the CIT had merely set aside the order with a direction to pass fresh order after carrying out necessary investigation and the Tribunal had wrongly interfered in such an order, which per se was an innocuous order.
8. Mr. R.K. Patel, learned advocate appearing on behalf of the respondent-assessee, submitted that there was no error in the order of Tribunal and Tribunal had recorded various findings of fact, which were not shown to be incorrect in any manner.
9. The true scope of the powers of CIT under Section 263 of the Act is defined by apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC). While explaining the phrase “prejudicial to the interests of the Revenue”, it is stated that the order made by the assessing authority cannot be treated as prejudicial to the interests of the Revenue when an officer has adopted one of the courses permissible in law, or where two views are possible and the officer has taken one view with which the CIT does not agree. That, in such circumstances, apart from the order not being prejudicial to the interests of Revenue, it cannot be treated as an erroneous order also, unless the view taken by the AO is unsustainable in law.
10. Applying the aforesaid tests to the facts found by the Tribunal it is not possible to agree with the contention raised by the Revenue. There is no infirmity in the order of the Tribunal, which would enable this Court to interfere. As to whether a firm is genuine or not is primarily a question of fact. Similarly, as to what inference of facts should be drawn from the facts available on record would also be a question of fact. It is not even the case of Revenue, as even the CIT does not state in his order under Section 263 of the Act that, on the same set of evidence, view adopted by the AO was not a possible view. The CIT also does not state that no investigation has been carried out by the AO. In fact, when one reads the entire order of CIT, there is no whisper about the order granting registration being erroneous in any manner, and this is a prerequisite condition for exercise of jurisdiction under Section 263 of the Act. Even if one infers that, that was said by the CIT, yet as found by the Tribunal on reading of the statements and taking overall view of the matter, it was not possible to doubt the genuineness of the firm. The finding of fact recorded by the Tribunal from the material on record that the AO had made proper investigation before granting registration has not been shown to be incorrect in any manner whatsoever.
11. As can be seen from the order under Section 185(1)(a) of the Act extracted hereinbefore, the AO has taken into consideration the fact that all the requisite formalities as laid down in the Act have been fulfilled by the firm, and it is further found that the firm was genuine. In the circumstances, at the highest, it would amount to taking one view from the material available on record, with which the CIT does not agree and this by itself, as held by the apex Court, cannot constitute a valid reason for exercise of jurisdiction under Section 263 of the Act.
12. Therefore, both on facts and in law, it is not possible to hold that the impugned order of Tribunal requires any interference. The Tribunal has rightly held that the CIT could not have exercised powers under Section 263 of the Act.
13. Insofar as the question No. 2 is concerned, the same proceeds on an incorrect presumption that the CIT has recorded a satisfaction to the effect that the registration was granted by the AO without examining the genuineness of the firm. As already noticed hereinbefore, the AO has categorically recorded that the firm was genuine and the Tribunal has found that from the material available on record such finding was rightly arrived at by the AO after making proper investigation.
14. In the result, both the questions are answered in the affirmative i.e., in favour of the assessee and against the Revenue. The Tribunal was justified in cancelling the order made by the CIT under Section 263 of the Act.
15. Reference stands disposed of accordingly with no order as to costs.