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Karnataka High Court · body

2011 DIGILAW 1043 (KAR)

Commissioner of Income Tax v. Namdari Seeds

2011-10-24

ARAVIND KUMAR, MANJULA CHELLUR

body2011
JUDGMENT 1. ITA Nos. 1282/2006, 1283/2006 and 1284/2006 are preferred by Revenue questioning correctness and legality of the order dated 29.3.2006 passed by ITAT, Bangalore Bench-B in ITA Nos. 664-666/BANG/2005 relating to assessment years 2000-01 to 2002-03. The Assessing Officer gave effect to the order passed under section 263 by Commissioner of Income-tax and passed assessment order on 10.3.2006 which came to be set aside by the CIT (Appeals) in ITA Nos. 2, 3 and 4/AC-II(1)/CIT(A) 1/06 07 on 11.8.2006 and same was affirmed by ITAT, Bangalore-B Bench in ITA Nos. 966, 967 and 968 (Bang)/2006 dated 14.9.2007. Aggrieved by these orders of the ITAT, Revenue has preferred ITA Nos. 75, 71 and 76 of 2008 questioning the correctness and legality of the same. Hence, these appeals are taken up together for consideration and disposal. 2. Heard Sri M.V. Seshachala, learned counsel appearing for Revenue and Sri Shankar, learned counsel appearing for respondent assessee. 3. ITA No. 1282/2006 was admitted by this Court to consider the following substantial questions of law: 1. Whether the Tribunal was right in holding that the income derived by the assessee from manufacturing of seeds and sale of the same would amount to agricultural income which would be exempted u/s. 10(1) of the Income-tax Act? 2. Whether the Tribunal was right in not taking into consideration of the fact that the assessee could not have held the agricultural land in view of the provisions of the section 79A of the Karnataka Land Reforms Act, 1961.? 4. ITA Nos. 1283 and 1284 of 2006 came to be admitted on 20.8.2007 to consider the substantial questions of law as framed in ITA No. 1282/2006. 5. ITA No. 71/2008 came to be admitted on 15.1.2009 to consider the following substantial question of law: Whether the Appellate Authorities were correct in holding that the activity carried on by the assessee by trading in imported seeds would amount to agricultural activity on land taken on lease and is contract farming considered as agricultural income exempt u/s. 10(1) of the Act by following the view expressed in earlier cases,? 6. ITA No. 75/2008 and ITA No. 76/2008 came to be admitted by this court on 20.11.2008 and 20.1.2009 respectively to consider the same substantial question of law which was framed in ITA No. 71/2008. 7. 6. ITA No. 75/2008 and ITA No. 76/2008 came to be admitted by this court on 20.11.2008 and 20.1.2009 respectively to consider the same substantial question of law which was framed in ITA No. 71/2008. 7. It is the contention of Sri Seshachala, learned counsel appearing for appellant that Tribunal committed an error to hold that, the order passed by the Commissioner in exercise of the powers u/s. 263 of the Income-tax Act, was not erroneous and prejudicial on the ground that view taken by the Assessing Officer was one of the possible view and as such, exercise of revisional jurisdiction by the Commissioner was proper and did not call for interference. He would further contend that assessee itself had treated the income from sale of seeds on export as business income and claimed exemption u/s. 80HHC. The Commissioner of Income-tax issued show cause notice and found that the amount claimed as agricultural income and exemption claimed u/s 10(1) of the Income-tax Act was not an agricultural income since the production of seeds is contract basis on the land belonging to contractors or in other words land not belonging to the assessee and since the agricultural products was not produced in the assessee's own and such exemption cannot be claimed as agricultural income and as such the Commissioner issued the show cause notice that order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. He would elaborately submit and contend that the Assessing Officer ought to have made inquiries and lack of inquiry resulting in prejudicial order to the Revenue being passed or resulting in loss of Revenue thereof would give rise for the Commissioner to exercise the Revisional Jurisdiction. In view of the same, he contends that the order of the Tribunal is erroneous and liable to be set aside. 8. Per contra, Sri Shankar, learned counsel appearing for respondent - assessee would support the order passed by the Assessing Officer as also the Income-tax Appellate Tribunal and contends initiation of proceedings u/s. 263 of the Act is without jurisdiction since two views were possible on the date of passing of the order and the order of the Assessing Officer which is in detail is not amenable to jurisdiction u/s. 263 of the Act when all aspects are considered by the Assessing Officer. He would further contend that in respect of M/s. Namdhari Seeds Pvt. Ltd., it was reopened u/s. 148 of the Act and not u/s. 263 of the Act and both sections operate in different ways. He would further submit that on the date of passing of the order i.e., 31.3.2005, two views were already there namely the order of the Tribunal in the case of M/s. Namdhari Seeds Pvt. Ltd., (dated 11.8.2004) and as such, Section 263 of the Act is not attracted and every loss of revenue as a consequence order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue since if one possible course if adopted by the Assessing Officer, which is permissible under law has resulted in loss of revenue cannot be ground for exercise of revisional jurisdiction. He would submit that if two views are possible and the Commissioner does not agree with the view of the Assessing Officer, it cannot be treated as an erroneous order prejudicial to the interests of Revenue. He would elaborate his submission to contend that neither change of opinion by reappraisal of evidence nor substitution of the opinion of that of the Commissioner for the view of the Assessing Officer would fall within the parameters for exercise of revisional jurisdiction. In support of his submission he has relied upon the following judgments: (1) Commissioner of Income Tax Vs. Max India Ltd., (2007) 295 ITR 282 SC (2) MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, (2000) 243 ITR 83 SC (3) Commissioner of Income Tax Vs. Mepco Industries Limited, (2007) 294 ITR 121 Mad (4) Commissioner of Income Tax Vs. Arvind Jewellers, (2003) 259 ITR 502 Guj (5) The Commissioner of Income Tax Vs. Ansal Properties and Ind. (Pvt.) Ltd., (2009) 315 ITR 225 Delhi (6) CIT v. Vikash Polymers [2010] 194 Taxman 57 (Delhi) (7) CIT v. Sunbeam Auto Ltd. [2010] 189 Taxman 436 (Delhi) (8) Commissioner of Income Tax Vs. Gabriel India Ltd., (1993) 203 ITR 108 Bom (9) The Commissioner of Income Tax Vs. Design and Automation Engineers (Bombay) Pvt. Ltd., (2010) 323 ITR 632 Bom (10) Commissioner of Income Tax Vs. Deepak Mittal, (2010) 324 ITR 411 P & H. Accordingly, he seeks for answering the substantial questions of law in favour of the assessee and consequently dismiss the appeals. 9. Design and Automation Engineers (Bombay) Pvt. Ltd., (2010) 323 ITR 632 Bom (10) Commissioner of Income Tax Vs. Deepak Mittal, (2010) 324 ITR 411 P & H. Accordingly, he seeks for answering the substantial questions of law in favour of the assessee and consequently dismiss the appeals. 9. It is noticed by us that while admitting the appeals, the substantial questions of law as extracted herein above has been formulated for being adjudicated. However, the substantial question of law raised in the appeal memorandums filed by the Revenue on the issue of the Tribunal holding that order of the Assessing Officer cannot be termed as erroneous and prejudicial to the interests of the Revenue having not been formulated, we deem it just and proper to formulate the said substantial question of law also for being adjudicated and answer to the said substantial questions of law would have a bearing to consider other substantial questions of law. As such, by consent of learned advocates appearing for parties, same is formulated as under: Whether the tribunal was correct in holding that the order passed by the Commissioner under section 263 of the Income-tax Act was not erroneous and prejudicial to the interests of the Revenue and the view taken by the Assessing Officer, being a possibility, exercise of jurisdiction was correct? 10. In order to answer the said substantial question of law, it would be necessary to extract the relevant provision namely Sec. 263 of the Income-tax Act as in existence at the relevant point of time: 263. Revision of orders prejudicial to Revenue - (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 Assessing Officer is erroneous insofar 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. 11. At this juncture it would of benefit to extract the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) 5. 11. At this juncture it would of benefit to extract the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) 5. To consider the first contention, **** Explanation: **** A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is, not erroneous but is prejudicial to the Revenue, recourse cannot be had to s. 263(1) of the Act. There can be no doubt that, the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will, satisfy the requirement, of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not (conferred) to loss of tax. The High Court of Calcutta in DAWJEE DADABHOY and CO. Vs. S. P. JAIN AND ANOTHER., (1957) 31 ITR 872 Cal, the High Court of Karnataka in Commissioner of Income Tax, Mysore Vs. T. Narayana Pai, ILR (1974) KAR 1398, the High Court of Bombay in Commissioner of Income Tax Vs. Gabriel India Ltd., (1993) 203 ITR 108 Bom and the High Court of Gujarat in COMMISSIONER OF INCOME TAX Vs. SMT. MINALBEN S. PARIKH., (1995) 215 ITR 81 Guj treated loss of tax as prejudicial to the interest of the Revenue. 6. **** 7. **** 8. In the instant case, the CIT noted that the ITO passed the order of nil assessment without application of mind. SMT. MINALBEN S. PARIKH., (1995) 215 ITR 81 Guj treated loss of tax as prejudicial to the interest of the Revenue. 6. **** 7. **** 8. In the instant case, the CIT noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the AO. Thus, there was no material to support the claim of the appellant that the said amount, represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the CIT under s. 263(1) was justified. 11.1 Learned counsel for the assessee has relied upon the judgments referred to supra, whereunder it has been held as follows: (1) Commissioner of Income Tax Vs. Max India Ltd., (2007) 295 ITR 282 SC. In para 2 it is held that: 2. At this stage we may clarify that under paragraph 10 of the judgment in the case of MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, (2000) 243 ITR 83 SC this court has taken the view that the phrase "prejudicial to the interests of the Revenue" under section 263 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer.. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General, on an interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection, he has further submitted that in fact the 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word "profits" in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under section 263 of the Income-tax Act. Case Laws: (2) The Supreme Court in the case of MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, (2000) 243 ITR 83 SC at page No. 88 has held as follows: The phrase "prejudice to the interest of the revenue" has to be read in conjunction with erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order passed by the assessing officer cannot be treated as prejudicial to the interest of the revenue. For example, when an income tax officer adopts one possible view which the commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the income tax officer is unsustainable in law. (3) The Hon'ble Delhi High Court in the case of The Commissioner of Income Tax Vs. Ansal Properties and Ind. (3) The Hon'ble Delhi High Court in the case of The Commissioner of Income Tax Vs. Ansal Properties and Ind. (Pvt.) Ltd., (2009) 315 ITR 225 Delhi at page No. 229 has held as follows: Considering the facts of the case in this light, we find when the commissioner had issued the notice on March 1, 2004 the commissioner of income tax (appeals) had already, while construing the rectification order dated June 30,2003, passed by the assessing officer, held that the issue of surcharge was a debatable one. This fact was also subsequently confirmed by the Tribunal, though later to the order passed under section 263. The impression we get by reading these orders as also the order passed by the tribunal and subsequently by this court on March 14, 2007, is that at the time when the commissioner issued the notice under section 263 and passed the order dated March 23, 2004, the contemporaneous understanding was that two views were possible and the question of surcharge on undisclosed income was a debatable one. It: is different matter that today the supreme court has settled that issue and has held that surcharge is leviable on undisclosed income and that the amendment to section 113 of the said Act by introduction of the provision was only clarificatory in nature. The position is very clear that when an issue is debatable, the provision of section 263 cannot be invoked. We are of the view that the issue was clearly debatable at the time when the notice and the order under section 263 were issued and passed. Consequently, the only conclusion that can be arrived at is that the initiation of proceedings under section 263 without jurisdiction. (4) The Hon'ble Delhi High Court in the case of CIT v. Vikas Polymers reported in 47 DTR 348 at page No. 355 has held as follows: It is also trite that there is a fine though subtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the CIT is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under Act and passing orders thereon. It is only in cases of "lack of inquiry" that the CIT is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under Act and passing orders thereon. In Gabrial India Ltd. (supra), it was expressly observed: (5) The Hon'ble Delhi High Court in the case of CIT v. Sunbeam auto Ltd reported in 31 DTR 1 at page No. 11 has held as follows: Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any iniquity, even inadequate that would not by itself give occasion to the CIT to pass orders under Section 263 of the Act. Merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. (6) The Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. reported in 208 ITR 108 at page No. 114 has held as follows: From the aforesaid definition it is clear that an order cannot be termed as erroneous unless it is not in accordance with Law. If an income tax officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Case may be visualized where the income tax officer while making an assessment examinee the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the commissioner he would have estimated the income at a figure higher than the one determined by the income tax officer. The commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the commissioner he would have estimated the income at a figure higher than the one determined by the income tax officer. That would not vest the commissioner with power to reexamine the accounts and determine the income himself at a higher figure. It is because the Income tax Officer has exercised the quasi-judicial power vested in him in accordance with law. More over, in the instant case the commissioner himself, even after initiating proceedings for revision an hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to reexamine the matter that, in our opinion, is not possible. Further enquiry or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income tax officer was erroneous and prejudicial to the interest of the revenue. Without doing so, he does not get the power to set-aside the assessment. (7) The Hon'ble Madras High Court in the case of Commissioner of Income Tax Vs. Mepco Industries Limited, (2007) 294 ITR 121 Mad at page No 126 has held as follows: As held by the apex court in Malabar industries Co., Ltd's case [2001] 243 ITR 83 every loss of revenue as a consequence of an order of the assessing officer, cannot be treated as prejudicial to the interest of the revenue, for example when an income tax officer adopts one of the possible courses permissible in law and it has resulted in loss of revenue, or where two views are possible and income tax officer has taken one view with which the commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the income tax officer is unsustainable in law. 8. The Hon'ble Gujarat High Court in the case of Commissioner of Income Tax Vs. 8. The Hon'ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Arvind Jewellers, (2003) 259 ITR 502 Guj at page No. 506 has held as follows: From the above observation by the Supreme Court it is clear that the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the assessing officer, it is only when an order is erroneous that the section will be attracted and incorrect assumption or an incorrect application of law will satisfy the requirement of the order being erroneous. The Supreme Court has also made it clear that the phrase "prejudicial to the interest of the revenue" has to be read in conjunction with an erroneous order passed by the assessing officer and that every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the Interest of the revenue. It was further emphatically stated that when an income tax officer adopts one of the courses permissible in law and has resulted in loss of revenue, or where two views are possible and the income tax officer has taken one view with which the commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless view taken by the income tax officer is unsustainable hi law. (9) The Hon'ble Bombay High Court in the case of CIT v. Design and automation Engineering P Ltd. reported in 323 ITR 632 at page No. 637 has held as follows: We are in complete agreement with the decision of this court in the case of Commissioner of Income Tax Vs. Gabriel India Ltd., (1993) 203 ITR 108 Bom and we reject the submission of the Revenue that the order of the Assessing Officer is erroneous or is passed without application of mind because in his order he has not made elaborate discussion in that regard. In any event the Revenue has admittedly not argued before the Commissioner of Income-tax has set aside the order of the Assessing Officer only on the ground that the Commissioner of Income-tax did not agree with the view taken by the Assessing officer and took a view different than that taken by the Assessing Officer. In any event the Revenue has admittedly not argued before the Commissioner of Income-tax has set aside the order of the Assessing Officer only on the ground that the Commissioner of Income-tax did not agree with the view taken by the Assessing officer and took a view different than that taken by the Assessing Officer. In our view it cannot be said that the Assessing Officer has not applied his mind while granting deduction to the assessee under section 80HHC as regards net profit earned by the assessee pertaining to its export business. In our view, the Tribunal is correct in its view that the view taken by the Assessing Officer was a possible view and that the condition precedent for invoking jurisdiction under section 263 by the Commissioner of Income-tax did not exist. 10. The Hon'ble P & H High Court in the case of Commissioner of Income Tax Vs. Deepak Mittal, (2010) 324 ITR 411 P & H at page No. 414 has held as follows: Having heard the learned counsels at a considerable length, we are of the view that the order of the Tribunal does not suffer from any legal infirmity or give raise to any such substantive question of lay which may warrant admission of the appeal. The exercise of revisional jurisdiction by the Commissioner of Income Tax wholly without any justification, it is rightly been held that change of opinion by reappraising the evidence is not within the parameters of revisional jurisdiction of the Commissioner of Income Tax under section 283 of the Act. 11. Commissioner of Income Tax Vs. Max India Ltd., (2007) 295 ITR 282 SC At this stage we may clarify that under paragraph 10 of the judgment in the case of MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, (2000) 243 ITR 83 SC this court has taken the view that the phrase "prejudicial to the interests of the Revenue" under section 263 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income tax Officer is unsustainable in law. According to the learned Additional Solicitor General, on an interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection, he has further submitted that in fact the 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word "profits" in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under section 263 of the Income-tax Act. 12. Commissioner of Income Tax v. Sunbeam Auto Ltd. [2009] 31 DTR (Del) 1. Para 12 We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. 12. Commissioner of Income Tax v. Sunbeam Auto Ltd. [2009] 31 DTR (Del) 1. Para 12 We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open, In Gabrial India (supra), law on this aspect was discussed in the following manner: From a reading of sub-s. (1) of section, it is clear that the power of suo motu revision can be exercised by the CIT only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the ITO is 'erroneous insofar as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfillment of the requirements laid down in sub-s. (1). It is not an arbitrary or unchartered power. It can be exercised only on fulfillment of the requirements laid down in sub-s. (1). The consideration of the CIT as to whether an order is erroneous insofar as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the CIT acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The CIT cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induces repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. Vs. Income-tax Officer, Circle I, Ward A, Rajkot, AIR 1977 SC 429 . From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the CIT simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the CIT for that of the ITO, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the CIT he would have estimated the income at a figure higher than the one determined by the ITO. The CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the CIT he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the CIT with power to reexamine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We may now examine the facts of the present case in the light of the powers of the CIT set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. 12. Thus keeping the principles laid down in the above judgment, it would emerge that a perusal of section 263 of the Income Tax Act would go to show that same was enacted to equip the Commissioner with powers of revision, whenever there is any erroneous order prejudicial to the Revenue is passed. The broad parameters under which this section can be surmised as under: (1) The Commissioner of Income Tax can call for and examine the records of any proceedings under the Act if he is of the opinion that such order or acts taken has resulted in erroneous order, thereby it has caused prejudice to the interests of the Revenue and this exercise is a part of administration control and to exercise this power, he need not supplement with his reasons. (2) Till consideration and examination of such records by the Commissioner or administrator, question of assessee's appearance at that stage does not arise. (3) Once he examines the records and make such inquiries and considers that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue then he has to give an opportunity to the assessee of being heard and after considering the assessee's reply he may pass such orders as the circumstances of the case may justify by adhering to audi altrem partem. (4) The Commissioner can enhance or modify the assessment or cancel it and direct the fresh assessment. (5) The Commissioner who issues notice u/s 263 of the Income Tax Act can act on the basis of records and suggestions put up to him by his subordinates and others either suo moto or at the suggestion/application of others. (6) The Commissioner who issues notice u/s. 263 of the Income Tax Act has to judge the action of the Assessing Officer as on the date when the assessment was made on the basis of returns filed and records available then. 13. The scope of the power of interference under this section is net merely to set aside an order which is not favourable to the Revenue or to bring more money to the Revenue. The prejudice must be actual prejudice to the Revenue. Such revisional power is an extraordinary power required to be employed not as a jurisdictional corrective or as a review of a subordinate's order in exercise of supervisory power. It is invoked and employed only for the purpose of setting right distortions and prejudices caused to the Revenue. Thus, the two ingredients essential for invoking of this power are: "erroneous" and "prejudicial" order which must go hand in hand. In other words, both conditions must co-exist. 14. In the instant case, it is noticed that assessee is a partnership firm carrying on the activity of import and export of Hybrid seeds of vegetables, fruits, flowers and etc., Assessee had claimed certain amounts earned as agricultural income and claimed exemption u/s. 10(1) of the Act, which was allowed by the Assessing Officer. Admittedly, the assessee had declared the income from seeds production as business income and had claimed exemption u/s. 80HHC. Admittedly, the assessee had declared the income from seeds production as business income and had claimed exemption u/s. 80HHC. It is also not in dispute that activity of the assessee continued to be the same, but the head of income changed from "business income" to ''agricultural income". There was no change in the activity. The Assessing Officer having selected the case for scrutiny issued notice to the assessee to explain the sudden change of source of income from "business" to "agricultural" income on the face of the activity not being changed. Assessee replied that on acquiring knowledge through various mediums, an opinion on the activity of the firm was sought for and as opined by the experts, the firm decided to change the heading of income from "business income" to "agricultural income". 15. The Assessing Officer based on the reply given by the assessee which was supported by expert opinion (as per the assessee) and with a passing reference to the case of M/s. Indo American Exports, case held the income is to be treated as agricultural income. The fact that assessee had declared the income as "business income" and claimed exemption u/s. 80HHC was not in dispute. It was also not in dispute that the assessee was not owning the agricultural land and had entered into contracts with the agricultural land owners and came to a conclusion as under: After verification of facts brought on record by the assessee, the contention of the assessee that the income derived from the above activities is by performance of agriculture is accepted. 16. There was no discussion as to how the said conclusion was arrived at except extracting the contentions of the assessee. There was no consideration of the facts as pleaded by the assessee itself for the previous assessment years or the assessment years in question. Thus, there was an incorrect assumption of facts or incorrect application of law which would satisfy the requirement of order being erroneous. A perusal of the order of the Assessing Officer would not depict that he has chosen one from out of the two courses available or permissible. Thus, there was an incorrect assumption of facts or incorrect application of law which would satisfy the requirement of order being erroneous. A perusal of the order of the Assessing Officer would not depict that he has chosen one from out of the two courses available or permissible. Thus on facts, the assesses himself having treated the income as "business income" had suddenly changed to the heading "agricultural income" and hence, there were no two views available to the Assessing Officer even if so, it is not stated in the order as to what are those two views and as to how he intends to adopt one out of these two views. In view of the same we are of the considered view, the judgments relied upon by the learned counsel appearing for the assessee are inapplicable and the substantial questions of law requires to be answered in the negative and the order passed by the Tribunal requires to be set aside and the order passed by the Commissioner for Income Tax is to be restored. Re: ITA 71/2008, 75 & 76/2008 17. The above appeals came to be admitted for considering the substantial question of law formulated which is extracted above. 18. On the return of incomes filed by the assessee for the assessment years 2000-01, 2001-02 & 2002-03, the assessing officer has passed order which came to be revised by the Commissioner of income tax in exercise of the power under section 263 of the Income Tax Act, vide orders dated 31.03.2005. The said order passed by the Commissioner in exercise of revisional jurisdiction was subject matter of challenge by the assessee before the Tribunal in ITA Nos. 664-666/BANG/2005. The Tribunal by order dated 29.03.2006 set aside the revisional order of the Commissioner. Aggrieved by the said order of the Tribunal, Revenue has come up in appeal in ITA Nos. 1282/2006, 1283/2006 & 1284/2006 referred to above. In the said appeals we have set aside the orders passed by the Tribunal by answering the substantial question of law in favour of the Revenue and against the assessee. 19. Aggrieved by the said order of the Tribunal, Revenue has come up in appeal in ITA Nos. 1282/2006, 1283/2006 & 1284/2006 referred to above. In the said appeals we have set aside the orders passed by the Tribunal by answering the substantial question of law in favour of the Revenue and against the assessee. 19. To give effect to the revisional order passed by the Commissioner, the assessing officer issued fresh notices to the assessee, considered the books of account produced as also contentions raised by the assessee and passed an order by treating the income earned as agriculture income which was claimed as business income. In view of our finding given in ITA Nos. 75/2007, 76/2007. 284/2007, 387/2008, 388/2008, 389/2008, 739/2008, 740/2008. 748/2008, 19/2008 and 474/2008 by order of even date by holding that income earned by the assessee is not agricultural income and for the reasons set out therein and following the same, we answer the substantial questions of law in favour of the Revenue and against the assessee. 20. Accordingly, we answer the substantial questions of law with regard to exercise of Revisional Jurisdiction by Commissioner under Section 263 of Income Tax Act, 1961 in the negative that is in favour of the Revenue and against the assessee. Insofar as the substantial question of law formulated herein above with regard to "agricultural income", we have already answered the same in ITA Nos. 4/2009 and ITA No. 744/2009 and other connected matters by order of even date, holding that income earned by the assessee is not agricultural income and for the reasons set out therein, the above substantial questions of law are answered accordingly as held by us in ITA No. 4/2009 and ITA No. 744/2009.