The Judgment of the Court was delivered by
N.V Balasubramanian, J.:— This is a reference at the instance of the Revenue challenging the order of the Income-tax Appellate Tribunal cancelling the order passed by the Commissioner of Income-tax in exercise of his revisional power under section 263 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).
2. The facts leading to the present reference are that the assessee is a public charitable trust and during the course of its assessment proceedings ‘for the assessment year 1975-76, it claimed exemption under section 11 of the Act.
3. The Income-tax Officer accepted the claim of the assessee and in reaching the above conclusion, he departed from his earlier view arrived ‘at by him for the earlier assessment year 1974-75 wherein he has held that the entire business income was liable to be taxed. The reason for his departure from his finding rendered for the earlier assessment year was that he was of the view that the ratio of the decision of the Supreme Court in the case of Cit, Kerala v. Dharmodayam & Co., Kerala, [1977] 109 ITR 527 would apply to the facts of the case and completed the assessment granting the exemption as claimed by the assessee. It is relevant to mention here that the Income-tax Officer found that the dominant purpose of the assessee-trust was charitable in nature and the assessee applied its income for charitable and religious purposes.
4. The Commissioner of Income-tax on a perusal of the records of the assessee was prima facie of the view that the finding of the Income-tax Officer granting exemption of the entire income from the business representing fertilizer commission was erroneous and prejudicial to the interests of the Revenue on the score that the income from fertilizer commission could not be said to be held by the assessee for carrying out the primary objects of the trust. The Commissioner, after hearing the assessee, held that the Income-tax Officer did not notice the fact that the business of distributorship of fertilizer was donated in favour of the assessee with a specific direction to utilise the income for the purpose of carrying out the primary objects of the trust and the assessee had not brought to the notice of the Income-tax Officer how it came into possession of the distributorship of fertilizer business. He, therefore, held that it is not a case where the assessee-trust acquired certain funds and started a business out of such funds, that it is a case where the assessee-trust possessed a running business which was claimed to be its property held by the trust for charitable purposes. He, therefore, held that the Income-tax Officer did not have necessary materials when he accepted the claim of the assessee for exemption under the Act. Hence, the Commissioner set aside the order of assessment with a direction to redo the same in accordance with law.
5. The assessee appealed to the Income-tax Appellate Tribunal. The Appellate Tribunal found that the Income-tax Officer had considered all relevant materials on record and held that the case of the assessee would fall within the ratio of the decision of the Supreme Court in the case of Cit, Kerala v. Dharmodayam & Co., Kerala, [1977] 109 ITR 527 and the assessee would be entitled to exemption. The Tribunal also held that the fact that the Income-tax Officer had departed from his earlier year's finding showed that he had applied his mind to the grant of exemption at the time of completion of assessment and that he did not act mechanically. The Tribunal also held that the Commissioner had not made out any prima facie case for his view, that the Income-tax Officer would have come to a different conclusion than, the one reached by him at the time of finalisation of the earlier assessment. The Tribunal, therefore, held that the Commissioner of Income-tax, lacked jurisdiction to revise the assessment and set aside the order of the Commissioner and allowed the appeal preferred by the assessee.
6. On an application by the Revenue, the Tribunal has stated a case and referred the following question of law for our consideration:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in setting aside the order of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, and thereby restoring the assessment order passed by the Income-tax Officer for 1975-76?”
7. We are of the view that there is no infirmity in the order of the Appellate Tribunal. The facts clearly show that the Income-tax Officer had applied his mind to all the relevant materials produced before him at the time of completion of the assessment proceedings and then came to the conclusion that the income of the assessee was exempt under the provisions of section 11 of the Act. According to the Income-tax Officer, the decision of the Supreme Court in the case of Cit, Kerala v. Dharmodayam & Co., Kerala, [1977] 109 ITR 527 would apply to the facts of the case. The fact that he had departed from his view arrived at in the earlier year shows that he had not, acted in a mechanical manner and has applied his mind to the question of grant of exemption and considered the matter before granting exemption under the Act. The Commissioner of Income-tax set aside the order of the Income-tax Officer on the score that the Income-tax Officer was not aware of the fact that the business of distributorship in fertilizer was donated in favour of the assessee and the Income-tax Officer was not right in not considering the effect of the donation of the distributorship business in favour of the assessee. However, the Commissioner of Income-tax has not examined the question further that, even assuming that such a material was placed before the Income-tax Officer, the position regarding the grant of exemption of the assessee's income would be different, had the Income-tax Officer noticed that there was a donation of the distributorship business. It is not disputed by learned counsel for the Revenue that the business of distributorship was an asset in the assessee's business and it was held under a trust. The Income-tax Officer had found that the income from such distributorship business was applied for charitable purposes only. The Commissioner has nowhere recorded how the final conclusion of the Income-tax Officer would vary, had the Income-tax Officer taken into consideration the position that the business of distributorship was donated in favour of the assessee.
8. Learned counsel for the Revenue relied upon the decision of this court in the case of K.A Ramaswamy Chettiar v. CIT, [1996] 220 ITR 657, wherein this court held that if the Income-tax Officer did not make an enquiry as expected of him, that would be a sufficient ground for the Commissioner of Income-tax to revise the order under section 263 of the Act. But, this decision has no application to the facts of the instant case, as here, the Income-tax Officer had followed the decision of the apex court and held that the assessee was entitled to exemption. Further, it is not indicated by the Commissioner in his order that the enquiry undertaken by the Income-tax Officer fell short of the requirement that is expected of him in the consideration of the question of grant of exemption. We are of the view that where the material relied upon by the Commissioner which, according to him, was omitted to be noticed by the Income-tax Officer would not have altered or varied the final conclusion arrived at by the Income-tax Officer, the Commissioner would lack the jurisdiction to revise the order of assessment and the decision of this court in K.A Ramaswamy Chettiar's case, [1996] 220 ITR 657 would have no application to the facts of the case.
9. We are also of the opinion that it is futile on the part of the Commissioner to set aside the order of the Income-tax Officer by directing him to consider the fact of donation of the distributorship business in favour of the assessee-trust when after considering the said fact, the conclusion that may be reached by the Income-tax Officer would not be different. We, therefore, hold that the Commissioner had no jurisdiction to set aside the order of assessment merely to conduct another purposeless and fruitless enquiry to reach the same result which was arrived at earlier, and if any fresh enquiry is held, it will be an empty formality as by going through the motion of making a further enquiry and reaching the same conclusion no useful purpose would be achieved. Though it is not expected of the Commissioner to record his final conclusion in the order passed in revision, he must at least indicate in his order how the order of the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. We, therefore, hold that the power of revision cannot be exercised as a matter of course, but it must be exercised to correct some error in the orders passed by the Assessing Officer. The revisional power is not meant to be exercised to correct every error of fact, but the error must be of such a nature that it is erroneous and prejudicial to the interests of the Revenue. We are of the view that the Commissioner would have no jurisdiction to revise an order of assessment, if the final conclusion arrived at by the Income-tax Officer could not be different even after considering the particular fact which the Commissioner has directed the Income-tax Officer to consider. Further, the power of revision is not meant to be exercised for the purpose of directing the Income-tax Officer to hold another investigation when the order of the Assessing Officer was not found to be erroneous.
10. The Commissioner of Income-tax in the instant case, in our opinion, has merely set aside the order of the Income-tax Officer directing the officer to hold further investigation without recording any finding that the order passed by the Income-tax Officer was in any way erroneous or prejudicial to the interests of the Revenue. We hold that the Tribunal was quite justified in holding that the order did not call for any interference in the: revision done by the Commissioner of Income-tax. Accordingly, we answer the question of law referred to us in the affirmative and against the Revenue. The assessee will be entitled to costs of a sum of Rs. 750.