K.C. Singhal, Judicial Member - (1.) THIS appeal by the assessee is against the order of the CIT under Section 263. A short and interesting issue that arises in this appeal relates to the assumption of jurisdiction by the CIT.
(2.) The brief facts giving rise to this appeal are these. Assessee is a partnership firm which acquired development rights in a plot of land at Dahisar, Bombay, in the year 1979 for a consideration of Rs. 17,34,000. However, from 1979 to 1988, the assessee could not exploit this right of development except construction of a boundary wall. In the year 1988, the assessee decided to dispose of the said right and ultimately sold the same on 16-7-1988 to M/s. Vardhman Developers for a consideration of Rs. Two crores. Out of this amount, assessee received only Rs. 1.95 crores during this year. It invested Rs. 1,93,75,000 in IDBI bonds on 26-7-1988 for claiming exemption under Section 54E. Return for the assessment year 1989-90 was filed declaring an income of Rs. 3,14,840. In the return assessee declared a capital gain at Rs. 1,81,19,585 and simultaneously claimed exemption for the same amount under Section 54E on the basis of investment made by it in IDBI bonds. Hence, income under the head 'capital gain' was nil. However, the Assessing Officer after scrutinising the return and considering all the relevant facts, determined the capital gain at Rs. 2,18,125 and the total income was assessed at Rs. 5,32,970. The CIT on the basis of the report received from the Dy. CIT, Range-13, Bombay, dated 23-8-1991 issued notice under Section 263 dated 30-9-1991 to the assessee which was duly served upon it. The notice contended the following ground for assuming the jurisdiction: "the profit on the sale of the land during the year was wrongly treated as income from capital gain and deduction under Section 48(2) and Section 54 was allowed instead of taxing the income under the head business." However, nobody appeared on behalf of the assessee on the appointed date. The CIT, therefore, passed the order under Section 263 on 31 -10-1991 in the following terms : It has been held by the Delhi High Court at 99 ITR 375 that failure to make enquiries would render an assessment erroneous and prejudicial to the interest of revenue. Similarly in 147 ITR 710 it has been held that non application of mind would also render an order erroneous and prejudicial to the interest of revenue. In the present case it is clear from the records that the Assessing Officer has neither made enquiries nor applied his mind. In the circumstances I am satisfied that the order passed on 22-3-1991 was erroneous and prejudicial to the interest of revenue. I will accordingly set aside the assessment direct the Assessing Officer to reframe the same according to law after giving the assessee a fair opportunity of being heard. This order of the CIT has been challenged by the assessee in this appeal.
(3.) THE learned counsel for the assessee Mr. Trivedi has vehemently argued before us that the order of the CIT under Section 263 is without jurisdiction inasmuch as the order of the Assessing Officer could not be said to be erroneous on the ground stated by the CIT in his order. According to him all the necessary and primary facts were before the Assessing Officer and he had assessed the assessee under the head 'capital gains' after scrutinising all the facts. THE CIT in his order has not mentioned any fact in respect of which the Assessing Officer failed to apply his mind. He has also not indicated in his order in what respect the enquiry was required. He further stated that even after setting aside the order, the Assessing Officer had not made any enquiry and has merely substituted the opinion of the CIT and assessed the assessee under the head 'business income'. According to him, the CIT has not pointed out any error in his order and, therefore, the order of the Assessing Officer could not be said to be erroneous. THE power under Section 263 could not be exercised for substituting his opinion. In his support, he strongly relied upon the judgment of the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and the judgment of the Madras High Court in the case of Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 and the judgment of Punjab & Haryana High Court in the case of CIT v. Kanda Rice Mills [ 1989] 178 ITR 446. Besides this, he also relied upon the various decisions of the Tribunal reported as Indian Aluminium Co. Ltd. v. CIT [1994] 50 TTJ (Cal.) 281, Mittal Cotton Factory v. ITO [1983] 15 TTJ (Chd.) 64, Mewar Chemical Products Ltd. v. Asstt. CIT [1994] 50 TTJ (Jap.) 80, and Bajaj Auto Employees' Welfare Fund v. ITO [1987] 27 TTJ (All.) 64, Nirfabrics Ltd. v. Dy. CIT[ 1994] 50 ITD 336 (Bom.), Dilshad Trading Co. (P.) Ltd. v. ITO [1994] 49 ITD 348 (Bom.) and 41 ITD 539. His further submission was that before passing any order under Section 263, the CIT must show errors either factually or legally and further must show that on account of such errors the order of the Assessing Officer is prejudicial to the interest of the revenue. According to him no order can be passed in the name of enquiry unless it points out in what respect Assessing Officer had failed to make an enquiry. He further submitted that the High Court judgments relied upon by the CIT are distinguishable.;