JUDGMENT
Balasubramanian, J.
There are certain common questions of law which have been referred to us by the Tribunal, at the instance of the revenue, arising out of the assessment of the assessee for the two assessment years 1975-76 and 1976-77, and the questions of law referred read as under:
“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the Commissioner had not validly assumed jurisdiction under section 263 of the Income Tax Act and, accordingly, in cancelling the order made for the assessment years 1975-76 and 1976-77 ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that inasmuch as tile assessment was made under section 143(3), read with section 144B on the basis of the directions given by the Inspecting Assistant Commissioner, the order. made cannot be subject-matter of revision by the Commissioner under section 263 ?
3. Whether, the Appellate Tribunal’s view that there was no clear finding in the order passed by the Commissioner of Income-tax under section 263 regarding the items allowed by the Income Tax Officer which could be termed as prejudicial to the interest of the revenue is sustainable in law and is reasonable on the facts obtaining in this case ?”
2. The questions relate to the jurisdiction of the Commissioner under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The assessee is a public limited company. The assessments for the assessments years 1975-76 and 1976-77 were completed by the Income Tax Officer under section 143(3), read with section 144B, of the Act. The Commissioner on perusal of the records of the assessee for the two assessment years noticed that the orders were erroneous and prejudicial to the interest of the revenue and, accordingly, show-cause notices were issued to the assessee requiring to show cause as to why the orders of assessment made by the assessing officer should not be set aside with a direction to the assessing officer to consider that points contained in the show-cause notices. In the show-cause notices as many as 15 items have been considered to be erroneous and prejudicial to the interest of the revenue insofar as the assessment year 1975-76 is concerned and 24 items were considered to be erroneous and prejudicial to the interest of the revenue as far as the assessment year 1976-77 is concerned. The assessee sent a detailed reply and stated that the proposal to revise the orders of assessment is based on assumptions and not any material. The assessee has also dealt with each individual item and submitted that all the points have been considered by the Inspecting Assistant Commissioner (Range Salem) at the time of finalisation of draft assessment and, therefore, the revision proceedings initiated by the Commissioner should be dropped. The Commissioner found that the Income Tax Officer had not considered the points while completing the assessment and, therefore, overruled the objections raised by the assessee. He found certain instances wherein the assessment orders showed that they were erroneous and prejudicial to the interest of the revenue. After noticing some of those items, he came to the conclusion that those items represent various issues covered in the show-cause notices and many of them could be considered after the examination of the books of the assessee. He, therefore, held that the orders of assessment were erroneous and prejudicial to the interest of the revenue and in that view of the matter, set aside the orders of assessment for the two assessment years 1975-76 and 1976-77 and remitted the matter to the assessing officer to examine other issues also contained in the showcase notices and take appropriate action.
3. The assessee challenged the order of the Commissioner before the Income Tax Appellate Tribunal. The Appellate Tribunal held that the Commissioner had no jurisdiction to revise the orders of assessment made in pursuance of the directions of the Inspecting Assistant Commissioner on the ground that, there was a statutory merger of the order of the Income Tax Officer with that of the Inspecting Assistant Commissioner. The Tribunal recorded a finding that the order of the Commissioner was not a speaking order and the Commissioner has not given any clear finding that any of the items listed in the order was erroneous and prejudicial to the interest of the revenue. According to the Tribunal, the Commissioner has not considered the objections of the assessee. The Tribunal also held that there is no material to show the assessments were made in a hurry, especially when the procedure prescribed under section 144B had been followed, and the higher authority had been associated in making the orders of assessment. The Tribunal also held that the Commissioner had surrendered his judgment to the audit party and delegated his discretion to the assessing officer. The Tribunal, therefore, held that the procedure adopted by the Commissioner would vitiate the order of the Commissioner and cancelled the order passed by the Commissioner and allowed the appeal preferred by the assessee. The Tribunal, on the basis of the directions of this Court, has stated a case and referred the questions of law set out earlier for the two assessment years in question.
4. The learned counsel for the revenue submitted that the order of the Tribunal is erroneous in law as the Tribunal proceeded on the assumption that the order of the Commissioner was not a speaking order. He submitted that under the provisions of section 263 of the Act, the Commissioner has wide powers to remit the matter to the assessing officer and it is for the Commissioner to pass such orders thereon as the circumstances of the case would justify. He also submitted that the Tribunal was not correct in holding that the Commissioner had surrendered his jurisdiction in favour of the audit party and the report of the audit party would constitute a material for the Commissioner to exercise his revisional jurisdiction under section 263. The submission of the learned counsel for the revenue was that the circumstances relied on by the Commissioner would clearly show that the orders of the assessment were erroneous and they were not in accordance with law and tile Commissioner has jurisdiction to exercise the powers conferred under section 263. The learned counsel for the assessee, on the other hand submitted that it is the duty of the Commissioner to record his final conclusion on the matters raised in the show-cause notices, especially when the assessee in his reply has pointed out that there were no mistakes or errors in the orders of assessment passed by the assessing officer. The learned counsel for the assessee further submitted that the Commissioner had not exercised the jurisdiction conferred upon him properly, as the Commissioner after setting out the objections raised by the audit party and the reply submitted by the assessee set aside the orders of assessment with a direction to the assessing officer to complete the assessment. According to the learned counsel, the Commissioner should have determined the question whether the orders of assessment were erroneous and prejudicial to the interest of the revenue and it is not open to the Commissioner to remit the matter for the purpose of further investigation. The learned counsel for the assessee relied upon the decision of the Supreme Court in the case of Sirpur Paper Mill Ltd. v. CWT (1970) 77 ITR 6 and the decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. Addl. CIT (1977) 108 ITR 407, in support of his submission that the Commissioner cannot exercise the power on the basis of the report of the audit party. The learned counsel for the assessee also placed reliance on the decision of this Court in the case of Venkatakrishna Rice Co. v. CIT ( 1987) 163 ITR 129/30 Taxman 528 and submitted that the procedure contemplated in section 263 is prejudicial to the income-tax administration as a whole. Reliance was placed by the learned counsel for the assessee on the decision of the Bombay High Court in the case of CIT v. Gabriel India Lid. (1993) 203 ITR 108, wherein the Bombay High Court held that the Commissioner could not direct the Income Tax Officer to re-examine the question, where the Commissioner after initiating the revision proceedings did not decide that the claim of the assessee was erroneous and the expenditure claimed was not revenue in nature, but capital in nature. He, therefore, submitted that on the same analogy the Commissioner had not exercised powers of revision conferred upon him. The learned counsel foil lie assessee also submitted that the orders of the Income Tax Officer should not only be erroneous but the order should have resulted in prejudice to the interests of the revenue and unless the two conditions prescribed in section 263 are satisfied, the Commissioner has no power to revise the orders of the Income Tax Officer. The learned counsel placed reliance on the decision of the Karnataka High Court in the case of a CIT v. T Narayana Pai (1975) 98 ITR 422 in support of his above submission.
5. Insofar as the second question of law that has been referred to us I or our consideration is concerned, there is no dispute that the issue raised in the second question is covered against the assessee in view of the decision of this Court in CIT v. V.V.A Shanmugam (TC No. 1090 of 1980, dated 7-1-1997), wherein this Court held that the Commissioner has the jurisdiction under section 263 to interfere with the order passed by the Income Tax Officer as per 1 he directions given by the Inspecting Assistant Commissioner under section 144B of the Act. We are in respectful agreement with the reasoning and the view expressed by the Bench of this Court and, accordingly, the second question referred to us is answered in the negative and in favour of the revenue. The remaining questions, viz., question Nos. 1 and 3 are considered together.
6. Section 263 empowers the Commissioner to call for and examine the record of any proceeding under the Act and if he considers that any order passed by the Income Tax Officer is erroneous and prejudicial to the interests of the revenue he may, after complying with the principles of natural justice pass such orders thereon as the circumstances of the case require including an order enhancing or modifying the assessment or cancelling the assessment and directing the fresh assessment. The Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products & Camphor Works (1997) 143 CTR 406 held that the revisional powers conferred on the Commissioner under section 263 is of wide amplitude and it enables the Commissioner to call for and examine the record of any proceeding under the Act. The Supreme Court held that section 263 empowers tile Commissioner to make or cause to be made such enquiry as the deems necessary in order to find out if the order passed by the Income Tax Officer was erroneous in so far as it is prejudicial to the interest of the revenue. The decision of the Supreme Court makes it clear that the powers of the Commissioner are very wide in exercising the powers of revision under section 263. The only limitation on his power is that he must have some materials which would enable him to form a prima facie opinion that the order passed by the Income Tax Officer was erroneous insofar as it is prejudicial to the interests of the revenue. Once he comes to the conclusion on the basis of the material that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the the Commissioner is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to the assessment and direct a fresh assessment. The Commissioner is fully empowered to adopt any one of the three courses indicated the provisions of section 263 and the Commissioner’s power cannot be faulted because he cancelled the assessment and directed a fresh assessment. In the instant case, the order of the Commissioner shows that he has gone through the records of the Income Tax Officer and he considered the order to he erroneous and prejudicial to the interests of the revenue on several matters for both the assessment orders. The Commissioner also found that the records do not show that the Income Tax Officer has considered the points on which the revision was made while completing the assessment. He also gave detailed reasons with reference to some of the items for both the assessment years and he held that they were representatives of the various issues covered in the show-cause notices. On the above basis, the Commissioner came to the conclusion that the order of the Income Tax Officer wits erroneous and prejudicial to the interests of the revenue and set aside the orders of the Income Tax Officer with the direction to the Income Tax Officer to consider the points in detail. It is not a case where he simply sets aside the assessment order to verify the correctness of the accounts seeking clarification the assessee as was done in the case of CIT v. Smt. D. Valliammal (1998) 230 ITR 695 (Mad.), wherein it was held that the Commissioner cannot simply set aside the order unless he finds the order was erroneous. On the other hand, in the instant case, the Commissioner has found that the records do not show that the Income Tax Officer had considered the points on which revision proceedings were initiated, which indicate that there was a lack of proper enquiry. Not content with the above conclusion, the Commissioner examined the matter and found that some of the items claimed and allowed were erroneous which shows that the order was erroneous. The Tribunal, in our opinion, was not correct in holding that the order passed by the Commissioner was not a speaking order.
7. The contention of the learned counsel for the assessee that the Commissioner should have examined the issue and recorded a clear finding that the findings of the Income Tax Officer on all the points were erroneous and, therefore, the Commissioner had lacked jurisdiction is bereft of any force. It is no doubt true that for making a valid order under section 263, it is essential for the Commissioner to record an express finding that the order sought to be revised was erroneous as well as prejudicial to the interests of the revenue. In the instant case, the Commissioner had recorded such a finding and with reference to some of the items he positively found that the orders were erroneous and prejudicial to the interests of the revenue. But in our opinion, there is nothing in section 263 to show that the Commissioner should in all cases record his final conclusion on the points in controversy before him. The above position of law is well-settled by the decision of the Gujarat High Court in the case of Addl. CIT v. Mukur Corpn. (1978) 111 ITR 312, wherein the Gujarat High Court held as under:
“… 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, 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.” (p. 325)
8. The further question that arises is whether in the absence of the final conclusion of the Commissioner on all the points raised in the show-cause notices, can it be said that the Commissioner has not exercised the jurisdiction properly? We are of the opinion that it would all depend upon the facts of each case to decide whether the Commissioner had exercised the powers properly or not. In the instant case, the Commissioner found that the Income Tax Officer was not correct in granting relief to some of the items considered in the original assessment proceedings and from the instances or specimen of some of the cases examined by him, he came to the conclusion that the Income Tax Officer had not completed the assessment by following the procedure expected of him. In our opinion, it is not necessary for the Commissioner to examine each item in detail and record a clear finding that. the order passed by the Income Tax Officer was erroneous and not in accordance with law. Some of the typical illustrations were noticed by the Commissioner to find out how the assessment proceedings were proceeded with by the officer and how the orders were erroneous and prejudicial to the interests of the revenue. Therefore, it is not a case of the Commissioner directing fresh assessment without any material. The order of the Commissioner clearly shows that he had enough materials and on that basis, he exercised the powers of, revision under section 263, set aside the order and ordered to make fresh assessment. The decision of this Court in the case of K.A. Ramaswamy Chettiar v. CIT (1996) 220 ITR 657/88 Taxman 526, makes it clear that the Income Tax Officer is expected to make an enquiry before taking the particular item of income or before granting deduction of particular item of expenditure and if he does not make such an enquiry as expected, that would be a ground for the Commissioner to interfere under section 263. In our opinion, the decision of this Court in the above case is applicable to the facts of the present case, as the order of the Commissioner indicates that the Income Tax Officer had not called for the details atleast with reference to some of the items, and granted deduction without verification of the claim. The Commissioner has pointed out in the orders of revision that there were certain glaring mistakes in the orders of assessment made by the assessing officer and the Commissioner after examining the records held that the Income Tax Officer had not considered the points raised in the show-cause notice and we are of the opinion that the Commissioner had properly exercised the jurisdiction under section 263.
9. In the case of Indian Textiles v. CIT(1986) 157 ITR 112, this Court held that the Commissioner had jurisdiction under section 263 where the Income Tax Officer had granted certain relief without verifying the facts and the order passed by the officer was held to be prejudicial to the interests of the revenue. This Court also held that the Commissioner has the power to set aside a portion of the order of the assessing authority which is against the revenue or he may remit the matter to the Income Tax Officer for further enquiry after setting aside the relief given by the assessing officer. Therefore, the Commissioner, in our opinion, had set aside the orders of the Income Tax Officer insofar as they relate to the matters which were the subject-matters of revision. The learned counsel for the assessee strongly placed reliance on the decision of this Court in the case of Venkatakrishna Rice Co. (supra), wherein this Court held that the prejudice contemplated under section 263 must be prejudicial to the income-tax administration as a whole and section 263 cannot be invoked as a jurisdictional corrective or as a review of a subordinate’s order in exercise of the supervisory power. We are of the opinion that the above decision has no application as the words ‘prejudicial to the interests of the revenue’ as held by the Supreme Court in Shree Manjunathesware Packing Products & Camphor Works’ case (supra) have wide impact and where it was found that the assessing officer failed to apply his mind in proper perspective and where the officer had completed the assessment without conducting or making the enquiry that is necessary for the purpose of deciding the issue before him, the order passed in such circumstances can be said to be erroneous and prejudicial to the interests of the revenue in the sense that the order is not in accordance with law, and once such a conclusion is reached by the Commissioner, the Commissioner would have necessary power to invoke his jurisdiction under section 263. We have already held that the mere fact that a higher authority like Inspecting Assistant Commissioner was associated in the draft assessment proceedings would not render the orders of the assessment immune from the revisional proceedings. The Commissioner is expected to examine the orders of assessment to find out whether there is any error resulting in prejudice to the interest of the revenue and in that process the question as to who participated, in the assessment proceedings or made the order of assessment is an immaterial consideration.
10. The learned counsel also placed reliance on the decision of the Bombay High Court in the case of Gabriel India Ltd. (supra). The decision of the Bombay High Court has no application to the facts of the case. In the decision before the Bombay High Court, it was found that the Commissioner noticed that the order of the Income Tax Officer did not contain discussion with regard to the allowability of the claim for deduction. The Commissioner, therefore, came to the conclusion that the claim of the assessee required examination as to whether the expenditure in question was allowable as a revenue expenditure or not allowable as a capital expenditure. In the factual situation, the Court held it is not open to the Commissioner to re-examine the matter and he has no power to set aside the orders of assessment and direct the Income Tax Officer to re-examine the issue. On the other hand, on the facts of the case, it was found by the Commissioner that the Income Tax Officer had not conducted the enquiry which was expected of him and also found that some of the items allowed by the Income Tax Officer were not allowable and warranted by the provisions of the Act. The Commissioner here has recorded a finding that the orders of the Income Tax Officer were erroneous and prejudicial to the interests of the revenue. Therefore, the decision of the Bombay High Court cited supra has no application to the facts of the case.
11. There is no quarrel over the proposition of law laid down by the Karnataka High Court in the case of T Narayana Pai (supra), wherein the Karnataka High Court held that the twin conditions prescribed in section 263, viz., the order must be erroneous and prejudicial to the interests of the revenue should be satisfied.
12. The learned counsel also relied upon the decision of the Supreme Court in the case of Sirpur Paper Mill Ltd.’s (supra) and the decision of the Calcutta High Court in Jeewanlal (1929) Ltd.’ case (supra) and submitted that the Commissioner, in the instant case, had exercised the powers of revision on the basis of report of audit party and, therefore, the Commissioner had no jurisdiction to invoke his jurisdiction under section 263. The decision of the Supreme Court in Sirpur Paper Mill Ltd.’s case (supra) has no application as the Commissioner there had surrendered his jurisdiction and authority to the Board of revenue in deciding the questions which were sought to be raised by the company in the revision application. On the other hand, the Commissioner occupies a unique position in the administrative set-up of the department. He is the head of the department in the administrative side and he is also given the power of quasi-judicial nature under section 263 to exercise the powers of revision. There is no dispute that there is no right of appeal to the department against the orders of the assessing authority, to the first appellate authority, and jurisdiction to reopen or to rectify the mistake is subject to the fulfilment of statutory conditions to reopen the assessment or to rectify the mistake in the order. The internal audit party on going through the records of the assessment of the assessee had pointed out certain mistakes in the orders passed by the Income Tax Officer. The report of the audit does not in any way bind the Commissioner but nonetheless, the Commissioner is empowered under section 263 to make such enquiry and to find out that the order of the Income Tax Officer is erroneous and prejudicial to the interests of the revenue. If after such investigation, the Commissioner comes to the conclusion that the order is erroneous and prejudicial to the interests of the revenue, he can pass any orders as he thinks fit, but where the materials are already available on record, there is nothing which precludes the Commissioner from taking into consideration already available materials, on record. The Apex Court in the case of Shree Manjunathesware Packing Products & Camphor Works (supra) has laid down the above proposition that it is open to the Commissioner to take into account the materials which come into existence subsequent to the completion of the orders of the assessment made by the Income Tax Officer. The report of the internal audit party does not have any binding effect on the Commissioner and the order passed by the Commissioner shows that he has applied his mind independently to the errors pointed out by the internal audit party and then came to the conclusion that the orders passed by the Income Tax Officer were erroneous and prejudicial to the interests of the revenue. Therefore, it is not a case of the action initiated by the Commissioner on the binding circular issued by the higher authorities, nor it is a case of surrender of jurisdiction in favour of any other authority, but it is a case where the ‘ Commissioner had exercised the powers of revision after applying his mind in considering the question whether the orders were erroneous and prejudicial to the interest of the revenue, in the revisional proceedings. Consequently, we hold that the Commissioner had exercised the powers and assumed the jurisdiction properly and the Tribunal was not correct in holding that the Commissioner lacked the jurisdiction under section 263.
13. In the result, we answer the questions 1 and 3 also in the negative, and in favour of the revenue. The revenue will be entitled to costs of Rs. 1,000 one set.