Vildirect: IncomeTax-caselaws-2012-VIL-789--DT

2012-VIL-789--DT

Income Tax Appellate Tribunal

ITA No.2745/Mum/2012

Date: 10.10.2012

BOSTON ANALYTICS PVT LTD., C/O. KALYANIWALLA & MISTRY ARMY &

ITO 3 (1) (2) , AAYAKAR BHAVAN, M.K. ROAD, MUMBAI

For the Appellant: Shri M.M.Golvala & Sandeep Chetiwal
For the Respondent: Shri Surinder Jit singh

BENCH

SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER)

JUDGMENT

Per B.R.Mittal, JM:

The assessee has filed this appeal for assessment year 2007-08 against order dated 9.3.2012 of ld CIT-3 passed under section 263 of the I.T.Act, 1961.

2. In the grounds of appeal, assessee has contended that the order passed by ld CIT under section 263 of the Act is erroneous and is required to be cancelled.

3. The relevant facts are that assessee is a company engaged in the business of back-office operations by way of business and market research and financial analytics. Assessee company is having one undertaking, the profit of which, is eligible for exemption u/s.10A of the Act. Assessee company is also stated to be registered with Software Technology Park of India under STP scheme for development of computer Software/IT enabled services.

4. For the assessment year under consideration, assessee filed its return on 29.10.2007 declaring an income of Rs. Nil after setting off unabsorbed depreciation of Rs. 449/- for assessment year 2006-07 and claiming exemption under section 10A of Rs. 64,60,154. The income was also assessed at Rs. Nil under section 115JB of the Act after setting off unabsorbed depreciation of Rs. 561/- and allowing exemption under section 10A of Rs. 78,93,531/-. The assessment order was made under section 143(3) of the Act dated 24.12.2009.

5. Ld CIT issued notice under section 263 of the Act dated 6.1.2012 stating that while framing the assessment order, the AO allowed exemption under section 10A of Rs. 78,93,531/-. The computation of income under special provision of the Act i.e. 115 JB does not prescribe any methodology for computation of 10A exemption. Hence, assessee’s claim under section 10A should have been restricted to Rs. 64,60,154 while computing income under section 115JB. In para 3 of said notice, it is further stated, inter alia, that Assessing Officer has committed the lapse of not applying his mind to the issue discussed above. A copy of the said notice issued under section 263 is placed at page 12 of PB.

6. Pursuant thereto, assessee filed reply to the notice vide letter dated 13.2.2012, copy placed at pages 13 to 21 of PB. Ld CIT has reproduced the contents of said letter in the impugned order. Assessee in the said letter has contended that quantification of exemption under section 10A of the Act is governed by section 10A(4) which is in relation to the export turnover and not the income. On the other hand section 115 JB is a self-contained code. That book profit as defined in section 115JB(2) r.w. Explanation (1) thereto mean the net profit as shown in the profit and loss account as increased by the amounts mentioned in clauses (a) to (f) and as reduced by amounts covered by clauses (i) to (viii) of the said Explanation. It is also stated in the said letter that the entire income of an eligible undertaking, as per its books of account, is to be reduced while calculating book profit. Therefore, deduction/exemption from MAT scheme is from the taxable income, which is otherwise the adjusted book profit. The deduction/exemption under section 10A is in that way given out of the gross total income in the cases falling under MAT, which means 10A exemption is to be computed on the basis of adjusted book profit.

Assessee placed reliance on the decision of ITAT Mumbai (SB) in the case of DCIT vs. Syncome Formulations (I) Pvt Ltd., 106 ITD 193(Mum), which was decided in the context of section 80 HHC of the Act, wherein, it was held that the deduction under section 80 HHC in a case of MAT assessment is to be worked out on the basis of the adjusted book profit and not on the basis of the profit computed under regular provisions of law applicable to the computation of profit and gains of business or profession. Assessee stated in the said letter that the said decision of ITAT (SB) in the case of Syncome Formulations (I) Pvt Ltd(supra) has been approved by Hon’ble Supreme Court in the case of CIT vs. Bhari Information Tech Systems (P)Ltd., 340 ITR 593 (SC). Assessee also referred to the decision of Hon’ble Supreme Court in the case of Ajanta Pharma Limited vs CIT, 327 ITR 311(SC) and submitted that Hon’ble Supreme Court also held that computation of book profit is different from the normal computation. Further, Hon’ble Supreme Court held that condition of getting the deduction certified by a Chartered Accountant is not a qualifying condition but only a compliance condition. In the context of above, assessee submitted before ld CIT that deduction/exemption under section 10A should not be restricted to what is computed as per normal provisions of Income tax Act and that there is no error in the order of AO calling for revision or any other amendment.

7. Ld CIT, after considering above submissions of assessee has stated that on consideration of the facts of the case, it is observed that AO has not enquired into this aspect and he has not verified or made any enquiry with regard to assessee’s claim of exemption under section 10A while computing the income under the special provision of the Act i.e. 115 JB. Ld CIT has stated that it is seen that AO has not called for any details, nor made any enquiry or verification of the assessee’s claim of set off of unabsorbed depreciation of earlier years made in the computation of income. It is relevant to reproduce paras 4.3 and 4.4 of the order of ld CIT which are as under:

“4.3 The contention of the assessee is carefully appreciated, however, the same is not acceptable as on a plain reading of the provisions of Section 10A, it is seen that there is no provision to work out deduction u/s. I0A separately for computing the book profit. Similarly, u/s. 115JB also, there is no provision to work out exempt income u/s.10A separately for computing the book profit. In this connection reliance is also placed on first proviso to sub Section (2) of Section 115 JB which reads as under:

‘Provided that while preparing the annual accounts including profit and loss account,-

(i) the accounting policies:

(ii) the accounting standards adopted for preparing such accounts including profit and loss account;

(iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company ax its annual general meeting in accordance with the provision of section 210 of the Companies Act, 1956 (1 of 1956)

4.4 From the above provisions it is crystal clear that for allowing depreciation also in the computation of book profit, there is no separate method prescribed u/s. 115JB. Further, in Form No.56F, the tax auditor of the assessee has certified that Rs. 63,10,165/- as an amount eligible for exemption u/s 10A for the assessment year under consideration and he has not certified any separate amount for working out Book Profit u/s. 115JB. Thus there is no provision in the Act, either u/s l0A or u/s. 115JB to re-compute exemption u/s.10A for computation of the book profit.”

8. In view of above, ld CIT has held that AO has not applied his mind and has failed to make enquiry with regards to the allowability of the claim of exemption u/s.10A, while computing book profit u/s.115JB. Hence the assessment order is erroneous and prejudicial to the interest of revenue. Ld CIT has also referred the decision of ITAT Chennai in the case of Rajya Laxmi Mills Ltd., and also the decision of Hon’ble Allahabad High Court in the case of Jagdish Kumar Gulati, 269 ITR 71 and has stated that if the assessment order is made without prior enquiries before accepting the claim of the assessee, the assessment order can be held to be erroneous and prejudicial. Ld CIT has also stated that the assessment order has been made without application of mind and, therefore, the order passed by the AO is erroneous. Accordingly, ld CIT has set aside the assessment order dated 24.12.2009 with the direction to the AO to make a fresh assessment after a detailed verification of submissions given by the assessee in the return and the statements filed. Ld CIT has also stated that while computing the fresh assessment order, AO will give proper opportunity of hearing to the assessee and will examine and consider all the submissions as well as evidence which the assessee may produce before him and thereafter decide this issue on merits on the basis of findings given and as per law. Hence, this appeal by the assessee.

9. During the course of hearing, ld A.R. made his submissions at length and referred letter dated 13.2.2012, copy placed at pages 13 to 21 of PB, the contents of which we have mentioned hereinabove and also the said letter has been reproduced by ld CIT in the impugned order. Ld A.R. referred page 3 of the order of ld CIT and stated that assessee in the said letter stated the computation of profit as per normal provisions and as per the provisions of section 115JB of the Act and as per normal provisions, the claim of deduction u/s.10A comes to Rs. 64,60,154 and whereas as per provisions of section 115JB, it comes to Rs. 78,93,531 and this difference had occurred on account of claim of depreciation. He submitted that depreciation as per books of account is Rs. 41,7,102 and hence, book profit is more and more deduction u/s.10A is worked out while computing the book profit for section 115JB of the Act. Ld A.R submitted that section 115JB is self-contained code and book profit is to be worked out as per section 115JB of the Act. He submitted that assessee is having only one undertaking and the entire income of the said undertaking is to be reduced while calculating book profit. Ld A.R. submitted that ld CIT in para 4.4 of the impugned order referred Form No.56F stating that tax auditor of the assessee certified an amount of Rs. 63,10,165 as an amount eligible for exemption u/s.10A of the Act but it relates to normal computation and in form 56F, there is no reference of computation of book profit as per section 115JB of the Act. It is only in Form 29B, the reference to section 115JB is given and said Form 29B was filed before the AO and ld CIT. He submitted that ld CIT failed to consider the cases referred by the assessee in letter dated 13.2.2012. He submitted that order of ld CIT should be quashed as AO has rightly taken a view to allow the claim of the assessee u/s.10A of the Act while computing income under section 115JB of the Act.

10. On the other hand, ld D.R. while supporting the order of ld CIT, submitted that AO did not make any enquiry. He has not taken any view but accepted the claim of the asssessee whatever was claimed in the return filed. He referred assessment order and submitted that the assessment order does not talk about claim of the assessee u/s.10A of the Act in the light of section 115JB of the Act and, therefore, AO did not apply his mind while allowing deduction u/s.10A for computing book profit u/s.115JB of the Act. Ld D.R. submitted that the decisions cited by assessee in its letter dated 13.2.2012 and have also been considered by ld CIT in the impugned order relate to section 80HHC and not section 10A of the Act. Therefore, said decisions are not relevant while exercising the power by ld CIT under section 263 of the Act. Ld D.R. referred para 3 of the notice issued by ld CIT u/s.263 and submitted that ld CIT while exercising his jurisdiction u/s.263 specifically stated that AO committed a lapse while passing assessment order of not applying his mind to the issue. He submitted that ld CIT has only set aside the order of AO with a direction to pass a fresh assessment order as per provisions of law and, therefore, no prejudice is caused to the ssessee.

11. Ld A.R. in his reply to the submissions of ld D.R. submitted that notice issued by ld CIT u/s.263 discussed the merits of allowing exemption u/s.10A of the Act, u/s.115JB of the Act and not stated that AO did not apply his mind while computing book profit u/s.115JB of the Act. Ld A.R. submitted a compilation of case law. Ld A.R. referred to the decision of Hon’ble A.P. High Court in the case of CIT vs. G.K.Babra, 211 ITR 336 (AP) and submitted that if CIT passed an order on an issue which was not mentioned in the show cause notice, it is violation of natural justice and, therefore, order of ld CIT is invalid. He also referred from the said compilation the case of Hon’ble Apex Court in the case of CIT vs. Max India Ltd, 295 ITR 282(SC) and submitted that assumption of jurisdiction of ld CIT has to be considered on the date when he issued notice u/s.263 of the Act and not on the date when he passed the order. He further submitted that when there are two possible views and the AO has taken one view with which ld Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue. Ld A.R. submitted that Hon’ble Apex Court in the above case had referred its earlier decision in the case of Malbar Industrial Co. vs CIT, 243 ITR 83(SC). Accordingly, order passed by ld CIT u/s.263 was held to be not sustainable in law and special appeal filed by the department was dismissed.

12. Ld A.R. also referred the decision of Hon’ble Apex Court in the case of CIT vs. G.M. Mittal Stainless Steel P. Ltd., 263 ITR 255 (SC) and submitted that the satisfaction of ld CIT should be based on material either legal or factual available with him. He submitted that there was no material with ld CIT when he assumed the jurisdiction that the assessment order passed by the AO is erroneous and prejudicial to the interest of revenue.

13. Ld A.R. further submitted that Hon’ble Jurisdictional High Court in the case of CIT vs. Gabriel India India Ltd., 203 ITR 108(Bom) held that if order is erroneous but no prejudice is caused to the revenue, ld CIT cannot invoke his jurisdiction u/s.263 of the Act. He submitted that ld CIT while passing the impugned order ignored the said decision of Hon’ble Jurisdictional High Court (supra) and, therefore, the said order is liable to be set aside.

14. Ld A.R. relying on the decision of Hon’ble Gujarat High Court in the case of Garden Silk Mils ltd vs CIT, 221 ITR 861 (Guj) submitted that ld CIT cannot ignore the decision of Hon’ble Jurisdictional High Court as the decisions laid down by Hon’ble Jurisdictional High Court are binding on him. Ld A.R. submitted that there is no loss to the revenue as the entire income of the assessee is eligible for deduction u/s.10A of the Act.

15. Ld A.R. referred to the decision of ITAT Delhi in the case of DCIT vs. Roxy Investments (P) Ltd., 24 SOT 227(Mum) and submitted that it was held that the amount of income which is to be reduced for computing book profit under clause (ii) of Explanation to Section 115JB(2) is the amount which is credited to profit and loss account and not the amount of income which is claimed by the assessee or determined by the Assessing Officer while assessing the income under regular provisions of the Act. Ld A.R. submitted that similar view has also been taken by ITAT Mumbai in the case of ASB International I (P)Ltd vs. DCIT/ACIT (I.T.A. Nos.7040 to 7042/M/2011 and I.T.A. No.245/m/2011) by order dated 29.6.2012 as also in the case of ACIT vs. M/s. Tata Autocomp Systems Pvt Ltd(I.T.A. No.3602/M/11) by order dated 6.6.2012. He submitted that the impugned order of ld CIT is not valid in law and same should be quashed.

16. We have considered submissions of ld representatives of parties and orders of authorities below. We have also carefully perused the cases cited before us.

17. The short question before us is whether the assessment order, which is subject matter of revision by ld CIT u/s.263 of the Act is erroneous and prejudicial to the interest of revenue as held by ld CIT u/s.263. There is no dispute to the fact that if the assessment order passed by the AO is erroneous and prejudicial to the interest of revenue, ld CIT u/s.263 can set aside/modify/cancel the assessment order.

However, ld CIT before exercising his jurisdiction u/s.263 of the Act must satisfy that the assessment order is not only erroneous but is also prejudicial to the interest of revenue. It is also more or less settled that the order cannot be termed as erroneous unless it is not in accordance with law. It is also well settled that section 263 of the Act does not empower ld CIT to substitute his judgment over the decision of the AO. The case where the AO while making the assessment examined the accounts, makes enquiries and applied his mind to the facts of the case and computed the income, it is well settled that ld CIT cannot revise such order only on the ground that estimate or conduct of enquiry made by the AO in his view was not proper or the AO should have adopted a different approach than the approach adopted by him.

18. Before we consider the submissions of ld representatives of parties in the light of decision cited before us, we consider it necessary to state the assessment order dated 24.12.2009 passed by the AO u/s.143(3) which is as under:

“Return of income was filed on 29/10/07 declaring an Income of Rs. NIL, after setting-off unabsorbed depreciation of Rs. 449/- for A. Y. 06 -07.

Return was processed u/s 143(1) (a) of IT Act. The case was selected for scrutiny. Notice u/s 143 (2) of IT Act was issued on 24/9/08 & duly served on the Assessee Company on 26/9/08.

Notice u/s 142 (1) along with questionnaire was issued on 9/7/09 & duly served on the Assessee Company on 14/7/09.

In response to the above Notice, Mr. Sandeep Chetiwal, CA, from M/s Kalyaniwalla & Mistry, CA’s, attended and furnished the details called for from time to time.

The main business of the company is to carry on business intelligence service in the field of Customised Research & Analysis, including Financial Modelling & Statistical Analysis, specific technical know-how & analysis tailored to specific needs of the clients. ‘

Subject to above remarks the total income of the Assessee is computed as under:-

*Business Income*:	*(Rs.)*
*Net Profit as per P& a/c*	7894092
Add: Disallowed / considered separately:
1) Loss on sale of fixed assets:	1361134
2) Amount disallowed u/s 40(a) (1a):	523209
3) Amount disallowed u/s 40 (a)	157890
4) Dep. as per books (considered separately):	4178102
5) Preliminary expenses w/off:	16567
6) Expenses disallowed u/s 43 B:	150000
7) Provision for gratuity disallowed u/s 40 A (7):	150000 6536902 14430994
*Less:* Allowed / exempt
1) Depreciation as per IT Act:	7966238
2) Preliminary expenses allowed u/s 35 D:	4142 7970380
Export profit considered for 10 A deduction:	6460614
Less: Allowed / exempt Deduction u/s. 10A (646061460488404/60492704)*	6460154 460
*Less:* Allowed / exempt 460
1) Unabsorbed Depreciation for A. Y. 2006- 07.	-------
*Total Income:*	*Nil*

Assessed u/s 143 (3) of IT Act. Give credit for prepaid taxes after verification.

Issue D.N. & Challan. ITNS 150 A enclosed herewith is part of the Assessment

Order.

Sd/-

(Vidya S. Deshmukh)

ITO 3 (1) (2), Mumbai. “

19. Ld CIT in the notice issued under section 263, copy placed at page 12 of PB, has stated that AO allowed exemption u/s.10A of Rs. 78,93,531/-. It is further stated that as per the provisions of I.T.Act, exemption u/s.10A of the Act comes to Rs. 64,60,154 and, therefore, AO should have restricted the claim of the assessee u/s.10A to Rs. 64,60,154 while computing income u/s.115JB of the Act as the provisions of section 115JB does not prescribe any methodology for computation of 10A exemption. We observe that in para 3 of the said notice, ld CIT has stated that AO has committed the lapse of not applying his mind to the issue discussed above i.e. in para 2 of the said notice. In view of above notice, assessee filed its reply vide letter dated 13.2.2012, copy placed at pages 13 to 21 of PB, and the contents of which have also been mentioned by ld CIT in the impugned order. During the course of hearing, ld A.R. emphasized that AO allowed the deduction to the assessee in accordance with law after considering computation filed by the assessee. During the course of hearing and in reply to a query by Bench, ld A.R. submitted that it is a fact that AO has not whispered in the assessment order a single word of computation and allowed the deduction u/s.10A while computing book profit under section 115JB of the Act though assessee filed computation of book profit. Ld A.R. submitted that it cannot be a fault of the assessee if the AO does not pass selfcontained speaking order. In the light of above submissions and also considering the assessment order passed by the AO which is the subject of scrutiny by ld CIT u/s.263 of the Act, we refer to decision of Hon’ble Apex Court in the case of Malbar Industrial Co.(supra) for the purpose of principles governing the exercise of jurisdiction u/s.263 of the Act. In the case of Malbar Industrial Co.(supra), AO accepted the claim of the assessee without any enquiry. Ld CIT noted in that case that ITO had passed the assessment assessment order without application of mind and the Hon’ble High Court had also recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. In the aforesaid facts and circumstances, the Hon’ble Supreme Court has held that “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. Thus, none-reasoned or non- speaking orders passed by the AO as also the orders passed by him mechanically or without making relevant enquiries in accordance with law or without application of mind would fall in the category or orders passed “without applying the principles of natural justice or without application of mind”.

20. In Commissioner of Income-tax v. Pushpa Devi,164 ITR 639(Pat), ld CIT set side the assessments and remanded the case to the ITO “with a direction to frame assessments after making a close scrutiny as to the extent of initial capital and the actual income earned by the assessee for the years in question”. In that case also, assessment order passed by the AO was a non-reasoned and non-speaking order. On these facts, Hon’ble Patna High Court has held that an assessment order without enquiry would be erroneous within the meaning of section 263 of the Act. In this regard, we also consider it relevant to mention the order of ITAT Mumbai in the case of Arvee International v. Additional Commissioner of Income-tax, Range 19(1), 101 ITR 495(Mum), in which the Co-ordinate Bench held as under:

14. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo motu proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under section 143(3) after scrutiny and not in a summary manner as contemplated by sub-section (1) of section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon’ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR323 and Malabar Industrial Co. Ltd.’s case (supra). In Malabar Industrial Co. Ltd.’s case (supra) the Hon’ble Court has held as under :

“There can be no doubt that the provision 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. 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.”

15……………………. It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced.

The underlying philosophy of section 263 is the removal of the prejudice caused to the revenue by the erroneous orders of the Assessing Officer. In CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.), the Hon’ble Allahabad High Court has held as under :

“14. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon’ble Supreme Court as follows :

‘35. Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.’ Similar view was earlier taken by the Hon’ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgment of the Hon’ble Madras High Court on which reliance was placed by the learned counsel for the assessee also points to the same direction. We have reproduced above the relevant portion of the observations made by the learned Judges. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case.”

21. Therefore, there is no dispute to the fact that if the AO makes an assessment order without making enquiry into the claim of the assessee and accept whatever is stated by the assessee, which the assessee has stated in the return, in that circumstances, ld CIT is justified to exercise his jurisdiction u/s.263 of the Act. The view taken by the AO should not be a mere view in vacuum but a judicial view. It is well settled that AO being a quasi judicial authority cannot take a view, either against or in favour of assessee/revenue, without making proper enquiries and without proper examination of the claim made by the assessee in the light of the applicable law. Therefore, “adopting” or “taking” possible view in law necessarily requires the AO to consciously analyse and evaluate the facts in the light of the relevant law. “Taking” one view where two or more views are possible necessarily imports the requirement of analyzing the facts in the light of the applicable law. This requires the Assessing officer to take a conscious decision else he would neither be able to “adopt” a course permissible in law nor “take” a view where two or more views are possible.

22. In the case before us, as is evident from the assessment order, which we have reproduced hereinabove in para 18, AO has not at all examined as to how the assessee has computed the claim u/s.10A in relation to normal provisions of the Act and also while computing the book profit for the purpose of section 115JB of the Act. AO, it appears, has mechanically accepted the claim of the assessee. There is no material before us that AO has scrutinized the claim of the assessee which he was required to scrutinize in the facts and circumstances of the case. AO is not expected to act mechanically or put blinkers on his eyes. The Apex Court has held in the case of Malbar Industrial Co. (supra) and the other authorities referred to above that an order passed without applying the principles of natural justice or without application of mind renders the order erroneous and prejudicial to the interest of the revenue. Moreover, the principle of natural justice also demands to pass a reasoned order. In the case before us, AO has not even discussed whatsoever briefly about the claim of deduction of the assessee It cannot, therefore, be said that the order passed by him is a reasoned order conforming to the principles of natural justice. Therefore, we are of the considered view that it cannot be said that the AO has allowed the claim of deduction u/s.10A after application of mind as the application of mind is best reflected in the finding recorded in the assessment order.

23. The Hon’ble Delhi High Court has also held in the case of Duggal and Co. v. Commissioner of Income-tax, 220 ITR 456(Del) that AO is not only an adjudicator but also an investigator and if he fails to make enquiries which is necessary to ascertain the true facts the assessment order is erroneous and prejudicial to the interest of revenue.

24. In the light of our above discussion, we are of the considered view that cases cited by ld A.R. (supra) are not relevant to the facts of the case before us. Therefore, we do not consider it necessary to discuss those cases and we hold that ld CIT has rightly held, in the facts and circumstances of the case that AO has passed the assessment order for the assessment year under appeal without proper application of mind and witho0ut making proper enquiries and AO is therefore, erroneous and prejudicial to the interest of revenue. Moreover, ld CIT has only set aside the assessment order, which we hold rightly so, with a direction to the AO to pass a fresh assessment order after a detailed verification of submission given by the assessee in the return and the statements filed and also after considering such evidence which the assessee may produce before him. Hence, AO is to pass a fresh assessment order as per law and after giving opportunity of hearing to the assessee. Therefore, we hold that we find no infirmity in the order of ld CIT. Hence, the order of ld CIT is confirmed and grounds of appeal taken by the assessee are rejected.

25. In the result, appeal filed by assessee is dismissed.

Pronounced in the open court on 10th October, 2012

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