M.C Agarwal, J.:— Both these relate to the Income-tax Assessment of an assessee for the same year i.e assessment years 1972-73. They were heard together and are disposed of by this common order.

2. The assessee-respondent is doing business under the name of M/s Agarwal Scientific Glass Industries, Agra, dealing in manufacture and sale of scientific laboratory equipment. He filed return of Income-tax for the assessment years 1972-73, the accounting for which had ended on 31-3-1972. An income of Rs. 29,407/- was returned. The balance sheet filed in support of the return of Income-tax showed three creditors as follows:

1. M/s K.K Trading Corporation, Bombay

Rs. 1,09,463/-

2. M/s Reliable Trading Co., Bombay

Rs. 44,949/-

3. M/s Amritlal Brothers, Bombay

Rs. 3,151/-

3. In the books of accounts the assessee has shown purchases of Rs. 85,773/- Rs. 44,949/- and Rs. 36,151/- from the aforesaid parties respectively. The assessee had also filed copies of accounts of these parties as appearing in the books of accounts for different years showing purchases alleged to have been made during the accounting periods of assessment years 1970-71 and 1971-72. The assessing officer initiated enquiries into the transactions with the above named parties, Enquiries made from the State Bank of India revealed that cheques issued by the assessee purporting to be for payments in respect of purchases made from the said parties were bearer cheques and the payments thereof were received either by the assessee himself or by his employees. Enquiries revealed that firms styled as M/s Reliable Trading Co. and M/s. K.K Trading Corporation were not in existence at the addresses given by the assessee, while the third party M/s Amritlal Brothers denied any dealings with the assessee. Thereafter the assessee moved a petition under S. 271 (4-A) of the Income-tax Act, 1961. In that petition, he admitted that he had made an investment of about Rs. 90,000/- outside the books of accounts and that money was utilised in making purchases from Bombay. He offered a sum of Rs. 80,000/- to be assessed as his income. This disclosure petition was rejected by the Commissioner of Income-tax. In the mean time the Voluntary Disclosure of Income and Wealth Ordinance, 1975 was promulgated and the assessee made another disclosure petition stating that Rs. 80,412/- that was the credit balance in the accounts of M/s Reliable Trading Company and M/s K.K Trading Corporation, Bombay as on 3-12-1973 represented his own money which was utilised to make purchases from Bombay in respect of which he was unable to get any vouchers. It was also asserted that he had taken several other amounts as loans from his wife, mother and other members of the family. The wife and other members of the family also filed voluntary disclosure petitions under the aforesaid ordinance declaring the respective amounts that were claimed to have been advanced as loan to the assessee during the period relevant to assessment years 1970-71 to 1974-75. The assessment for assessment years 1972-73 in respect of the present assessee was completed by the Income-tax Officer on 29th March, 1976 under S. 143(3) of the Income-tax Act, 1961 on a total income Rs. 42680/- determining the said income the assessing officer did not make any addition to the income of the assessee in respect of the aforesaid transactions of purchases.

4. The Commissioner of Income-tax initiated action under S. 263 of the Act as in his view by not making addition in respect of the fictitious transactions in the names of three parties referred to above, the assessing officer had made an assessment order that was erroneous and prejudicial to the interests of revenue. The Commissioner, therefore, issued a show cause notice to the assessee and after examining the matter he set aside the assessment observing that there was no evidence to show that the close relatives of the assessee had actually lent any money to him and the assessing officer had erred in accepting the assessee's contention without analvsing the facts of the case in the light of the relevant provisions of law. The Commissioner observed that since the matter has not been properly examined by the income-tax officer, it would be in the interest of justice to restore the matter to him for further examination and for making an assessment de novo after allowing the assessee an opportunity of being heard.

5. The assessee then appealed to Income-tax Appellate Tribunal, which, after taking note of the observation made by the Commissioner, quashed the Commissioner's order by observing as below:

“We have heard the parties and have gone through the order of the Commissioner carefully. We find that the main objections of the Commissioner are that apart from the evidence in the shape of declaration’ by the assessee's various relations, there was no evidence that the amounts disclosed by the declarants were really made available to the assessee for investment in making purchases and that assuming the amounts were made so available to the assessee, there was no evidence that the assessee did utilise those amounts for making alleged purchases from Bombay parties. From these two circumstances the Commissioner has drawn an inference that the assessee made an attempt to hoodwink the department by making fictitious entries in the name of some bogus parties and when his dishonesty was detected an attempt was made to take refuse under the voluntary disclosure scheme. Since according to him the assessee did not comeup with clean hands under that scheme also, he made another attempt to cheat the department by not making the entire disclosure in his own hands but by making it in the name of a number of his relations, he held the assessment order passed by the Income-tax Officer to be erroneous and prejudicial to the interests of the revenue.”

“As noted by us earlier a number of cases have been cited by the parties. However, it is not really necessary for us to refer to each of them as there is possibly no dispute about the ratio laid down in those cases. In order to assume jurisdiction under S. 263, the Commissioner has to find that the order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. To our mind this requires the Commissioner to be prima facie satisfied and it is not necessary that he should come to the final conclusion that a particular disallowance, or an addition must necessarily be made. If that was so, there would have been no necessity for the Commissioner to set aside the assessment order and direct the Income-tax Officer to make a fresh assessment as contemplated in S. 263. This, however, does not mean that the Commissioner under S. 263 can direct a fishing enquiry which might or might not result in some addition or disallowance. Therefore according to us particularly where Allahabad High Court has jurisdiction, the Commissioner must be found to be prima facie satisfied that the order passed by the Income-tax Officer is erroneous and prejudicial to the interest of the Revenue. From the two objections taken by him to the order of the Income-tax Officer, we do not think it can be reasonably held that the Commissioner was prima facie satisfied about the error and prejudice on the order. Accordingly we cancel the order of the Commissioner and restore that of the Income-tax Officer.”

6. The Commissioner then moved an application under S. 256(1) of the Act and at his instance the Tribunal vide reference dated 6th August, 1980 has referred the following question of law for the opinion of this Court.

“Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in cancelling the order under S. 263 of the Income-tax Act, 1961 passed by the Commissioner of Income-tax in restoring the order of the Income-tax Officer?”

7. Pursuant to the Commissioner's order and in compliance therewith the Income-tax Officer made a fresh assessment vide order dated 29th May, 1980 wherein, in addition to the income originally assessed, he treated a sum of Rs. 1,66,878/- as income of the assessee in respect of various transactions which had been the subject matter of investigation. The assessee appealed to the Commissioner Income-tax (Appeals), who vide order dated 19th February, 1981 annulled fresh assessment, on the ground that the Commissioner's order under S. 263 which gave jurisdictions to the assessing officer to make fresh assessment had been set aside by the Tribunal. Against the order of the Commissioner (Appeals) the revenue came in appeal before the Income-tax Appellate Tribunal which vide order dated 7th June, 1982 upheld the view taken by the Commissioner (Appeals). The Commissioner, thereafter moved an application under S. 256(1) for referring a question of law arising out of the Tribunals’ order dated 7th June, 1982 and the Tribunal rejected the same.

8. Feeling aggrieved the Commissioner has moved the present application (I.T.A No. 149 of 1983 under S. 256(2) of the Income-tax Act) praying.that the Tribunal be directed to State a case and to refer the following question for the opinion of this Court.

“Whether the Income-tax Appellate Tribunal, New Delhi was justified in law in holding that there was no infirmity in the order of the Commissioner of Income-tax (Appeals) Agra when reference Application under S. 256(1) of Income-tax Act, 1961 in respect of order under S. 263 of Income-tax Act for assessment year 1972-73 is pending for disposal?”.

9. We will first take the reference being I.T.R No. 299 of 1980. The facts as narrated above have been stated in the order of the Commissioner to which the Tribunal has also made a brief reference in its order. The Tribunal did not controvert the same nor were those facts controverted before us. The assessment order in question does not deal with these issues at all and it is totally silent on the subject giving an impression as if nothing worth enquiry and investigation was noticed and no enquiry whatsoever were made while, in fact, the Income-tax Officer had found some transactions which required investigation and about which an investigation produced result adverse to the assessee. Yet while framing the assessment the assessing officer completely shut his eyes and did not make any reference whatsoever to the relevant facts in the assessment order, what to say of recording a specific finding in favour or against the assessee. That is why the Commi ssioner in his order says that by doing so the Income-tax Officer “virtually” accepted the assessees case.

10. Learned standing counsel contended that the assessment order in question was totally silent on the issue about which the Assessing Officer had made enquiries and had found material which was prima facie adverse to the assessee and his failure to discuss the facts in the assessment order and record a specific finding makes the assessment order erroneous and prejudicial to the interests of Revenue. Criticising the approach of the Tribunal he urged that even the Tribunal has not observed that the material on record was sufficient to establish that undisclosed investment in purchase of goods had been financed from loans, raised from various close relatives who had made voluntary disclosures under the aforesaid ordinance. He pointed out that the Tribunals’ approach, that the Commissioner should have himself recorded a finding about the genuineness of the transactions in question and should not have set aside the matter to the assessing officer was also erroneous. He placed reliance in Swaroop Vegetables Product Industries Limited v. Commissioner of Income-tax, (1991) 187 ITR 412 in which this court observed that it is beyond dispute that under S. 263 of the Income-tax Act, 1961 the Commissioner has power to set aside the assessment order and send the matter for fresh assessment if he is satisfied that further enquiries are needed and that the order of the Income-tax Officer is prejudicial to the interests of Revenue. He also placed reliance on a judgment of the Hon'ble Calcutta High Court in Commissioner of Income-tax v. Rama Devi Saraogi, (1970) 78 ITR 728 in which also the view taken was that the Commissioner has the power to cancel the assessment and direct fresh assessment to be made that will give the assessee the fullest opportunity of making its case at that stage. The same view was taken by the Hon'ble Gujarat High Court in Additional Commissioner of Income-tax v. Mukur Corporation, (1978) 111 ITR 312.

11. Learned counsel for the assessee, on the other hand, contended that in order to enable the Commissioner to acquire jurisdiction under S. 263 to interfere with the assessment order, it is to be made out that the assessment order is erroneous as well as prejudicial to the interest of Revenue. According to him it is not enough that the Commissioner brands the assessment order as erroneous. It has to be demonstrated to be so. According to him, there may be some loss to the Revenue but that would not amount to prejudice to the Revenue and if income has escaped assessment action can be taken under S. 147 of the Act. In that situation S. 263 could not be invoked by the commissioner. He further contended that where two views are possible on same issue the Commissioner would not be justified in taking action under S. 263 simply because he does not agree with the view taken by the assessing officer. Reliance was placed on Venkatakrishna Rice Company v. Commissioner of Income-tax, (1987) 163 ITR 129 (Madras). The Hon'ble Madras High Court has exhaustively dealt with the nature of the Commissioner's power under S. 263 and learned counsel for the assessee took us through the following observations appearing at pages 137 of the report:—

“In our judgment, the expression “prejudicial to the interests of the Revenue” is not to be construed in a petty fogging manner, but must be given a dignified construction. It may be noted that the use of the expression “Revenue”, in our opinion, is significant. It denotes some kind of abstraction or symbol in the same sense in which the expression “crown” is used to distinguish it from any person enthroned. The interests of the Revenue is not to be equated to rupees and paise, merely. There is a biblical saying that we do not live by bread alone. Varying this saying, it may be said that the Revenue does not live by tax alone. In this sense, therefore, the interests of the Revenue are not tied up merely with realising as much Revenue as possible, willy nilly, merely looking to the productivity aspect of taxation. The jurisdic tion of the Commissioner under S. 263 is undoubtedly a supervisory jurisdiction. It is intended for interference in special cases to counteract orders which are erroneous as well as prejudicial to the interests of the Revenue. In this context, therefore, the expression “prejudicial to the interests of the Revenue” must be regarded as involving a conceptioa of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commis sioner might think to be prejudicial to the interests of Revenue administration. There might be cases where the Commissioner might wish to interfere with an order of the Income-tax Officer in order to safeguard the fair name and reputation of the Income-tax Department without any thought of going into the particular aspects of the assessment. Assessment which are mala fide, politically and communally motivated may be, however, set aside as being prejudicial to the interests of the Revenue. It is unnecessary, for us to illustrate the point any further. All that we wish to observe is that the scope of the interference under this section is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. Nor is the section meant to get at sheer escapement of revenue which, as is well known, is taken care of by provisions elsewhere in the Act such, for instance, as S. 147 of the Act. The prejudice must be prejudice to the revenue administration”

(Emphasis supplied)

12. Reliance was also placed on M. Kenche Gowda v. State of Krnataka, (1988) 174 ITR 380 : (1988 Tax LR 1540) in which it was held that the Revisional power under S. 35 of the Karnataka Agricultural Act, 1957 could not be invoked in respect of the income of a different assessees that has escaped assessment and for which action can be taken under S. 36 of that Act.

13. Learned counsel for the assessee contended that in this case the alleged creditors being the wife and other relatives of the assessee had made voluntary disclosures claiming therein that the disclosed amounts had been advanced as loan to the present assessee and those disclosures have been accepted. There was sufficient proof that the assessee's contention was correct and in view of the instructions of the Central Board of direct taxes that such disclosure would not be questioned, the order of the assessing officer in accepting the assessee case cannot be said to be erroneous. For this view reliance was placed on Commr. of Income-tax v. Mukund Family Trust, Agra, 1986 UPTC 2038 and Rajan Ram Krishna v. Commissioner of Wealth tax, (1981) 127 ITR 1 : (1981 Tax LR 282) (Gujarat). Learned counsel contended that the Tribunal had enough material before it in which the assessee's contention could be sustained though for some reasons it did not refer to the same in its order.

14. We have given our anxiousa consideration to the respective arguments. It cannot be in dispute that while exercising powers under S. 263 of the Act to interfere with the assessment order in question it was necessary for the Commissioner to show that the assessment order was erroneous and prejudicial to the interests of Revenue and from a perusal of the assessment order, which has completely omitted the issue from consideration, and the various details referred to above and discussed by the Commissioner, we are of the opinion that the Commissioner had successfully demonstrated that the assessment order was erroneous and prejudicial to interests of venue. The Commissioner has indirectly referred to the Income-tax Officer's omission when he says that the assessing officer has virtually accepted the assessees contention. If the assessing officer had actually recorded any finding on the issue and then accepted the assessee's claim, the things could be different. The omission of the assessing officer to discuss the issue and record a categorical finding has deprived the Commissioner of knowing the reasons why the assessing officer did not make any addition on account of the discrepancies noticed by him. That is the reason why the Commissioner instead of recording a finding himself has, to be fair to the assessee, set aside the assessment order and restored the issue for determination by the assessing officer so that either side has a proper opportunity of establishing its case.

15. While making an assessment, the income-tax officer has a varied rule to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbiter between the revenue and the tax payer 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., (1990) 4 SCC 594 : AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows (at page 1995):—

“Reasons, when recorded by an admin-istrative 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. There 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 whether the decision is subject to appeal, revision or judicial review. It 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, it is affirmed such an order need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.”

16. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engineering and Manufacturing Company limited v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the Income-tax Officer acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Ss. 263 and 264 of the Act. Therefore, a reasoned order on a substantial issue is legally necessary. The judgment of the Hon'ble Madras High Court in which reliance was placed by the learned counsel for the assessee also points to the same direction. We have reproduced about 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 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 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.

17. As is evident from the Tribunals order, the Tribunal has not discussed the material on record and has not recorded any finding that the assessee's case stood established from the material on record. The Tribunal's view that the Commissioner should have himself recorded a finding is not in accordance with the view taken by this court in the case of Swaroop Vegetable Products Industries Limited (supra).

18. The contention of the learned counsel for the assessee that where action under S. 147 to bringing to tax the escaped income is permissible under S. 147, no action under S. 263 can be taken, may be correct. But in the facts and circumstances of this case, we are of the view that no action under S. 147 could be justified after the assessment had been made. The reason is that the matter was wide open before the assessing officer. He enquired in the transactions, procured some evidence, apprised assessee of his view and the assessee also made his submissions and lead evidence before him. In respect of such a matter, no action under S. 147 can be initiated and there is no doubt about the legal position in this regard.

19. As regards the legal effect of the disclosures made by the alleged creditors, we are of the view that we should not express any opinion and it would be for the respective authorities to take them into account in arriving at their finding.

20. In view of the above discussion, we are of the opinion that the Commissioner was right in holding that the impugned assessment order was erroneous and prejudicial to the interests of revenue and setting aside the same and directing the assessing officer to make a fresh assessment; and the Tribunal was not right in Cancelling the commissioners order passed under S. 263 of the Income-tax Act, 1961. Accordingly we answer the question referred to this court in the negative and in favour of Revenue, No order as to costs.

21. Now we come to the I.T.A No. 149 of 1983. As stated above following the Tribunal's order, the consequential assessment order was annulled by the Commissioner (Appeals) and his order was upheld by the Tribunal, The Tribunal also refused to make a reference. Learned counsel for the assessee contended that the Commissioner (Appeals) was bound to follow the Tribunal's order and the Tribunal was also bound to follow its earlier order and therefore the order passed by the Tribunal is in accordance with law and no question of law can be said to arise out of the Tribunal's order. Reliance was placed on Commissioner of Income-tax v. Dhampur Sugar Mills Ltd., (1988) 17 ITR 449 in which this course held that where the Commissioner's order under S. 263 had been set aside, the assessing officer had no jurisdiction to pass a fresh assessment order. That was a case in which the Tribunal's order quashing the Commissioner's order under S. 263 had become final as no reference under S. 256 had been sought. Reliance was also placed on a similar decision of the Madhya Pradesh High Court in Govindram Seksaria Charity Trust v. Income-tax Officer “C” Ward, circle-1 (1987) 168 ITR 387 : (1987 Tax LR 655). In this case also the Tribunal's order was not challenged by way of reference and the Hon'ble Madhya Pradesh High Court therefore held that till the order passed by the Tribunal was set aside, the Revenue was bound by the order passed by the Tribunal. Reference was also made to a recent decision of the Hon'ble Supreme Court of India in Union of India v. Kamlakshi Finance Corporation Ltd., 1992 Supp (1) SCC 443 : AIR 1992 SC 711 : (1992 AIR SCW 350) in which as Assistant Collector, Central Excise had passed an order disobeying the order passed by the appellate authority. The High Court condemned the conduct of the Assistant Collector and on appeal the Hon'ble Supreme Court upheld the High Courts view. The Hon'ble Supreme Court stressed upon the need to follow judicial discipline and to give effect to orders of higher appellate authorities. There can be no dispute with the principles of law and propriety laid down in the aforesaid rulings, but the facts of the present case are different. At already stated, when the Tribunal passed the impugned order dated 7th June, 1982, it had already referred a question of law arising out of its order which it had followed while passing the impugned order and we have recorded above an opinion on that question disapproving the view taken by the Tribunal. As a consequence the Tribunal has to pass an order under S. 260 of the Act in accordance with the opinion of this Court. That would be an order dismissing the assessees’ appeal and upholding the order of the Commissioner, as a result of which the re-assessment made by the assessing Officer cannot be said to be without jurisdiction or against the directions of the Tribunal as the. Tribunals’ order passed earlier would be deemed to have never been passed. However the fresh assessment order passed by the assessing officer has been set aside by the Commissioner (Appeals) and that order has been upheld by the Tribunal by an order from which the proposed question of law is said to arise. Therefore, a queer situation has arisen and it has to be examined how to retrieve the situation. We may mention that the Hon'ble Supreme Court in Commissioner of Income-tax Delhi v. Bansi Dhar and sons, (1986) 157 ITR 665 L (1986 Tax LR 317) has the occasion to deal with the effect of reference under S. 256 vis-a-vis the powers of the Tribunal relating to the appeal which it had disposed of. The Hon'ble Supreme Court took the view that till the question of law is answered by the High Court or the Supreme Court and the Tribunal passes an order under S. 260 in accordance with the opinion of the High Court or the Supreme Court, the appeal is kept pending before the appellate Tribunal. The following observations at pages 672 and 673 of the report are important:—

“After the High Courts and, in cases of appeals to the Supreme Court, the courts answer the question in any manner or give certain opinion, the Appellate Tribunal would dispose of the appeals in accordance with the opinions expressed or answers given by the High Courts or the Supreme Court. Therefore, under the scheme, the appeal is kept pending before the Tribunal and the appellate jurisdiction is retained by the Tribunal, but the High Court exercises an advisory or consultative jurisdiction. When a question of law arises, the Tribunal can and in certain circumstances must seek, at the instance of the assessee or in its own motion or at the instance of the Revenue, the opinion of the High Court on such question. The jurisdiction exercised by the High Courts is purely advisory, it is not that of a civil court exercising original, or any appellate or revi-sional jurisdiction. Therefore, the powers and jurisdiction of the High Courts, and in certain cases of the supreme Court, are those which are expressed and conferred upon them and also those which inhere in the exercise of that jurisdiction or are ancillary or those which subserve the exercise of that function and jurisdiction of giving advice. The appeal is kept pending before the Appellate Tribunal.”

22. In our view, therefore, a question of law does arise out of the order of the Tribunal and we direct the Tribunal to state a case and refer the following question for the opinion for this Court.

“Whether on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Commissioner (Appeals), Agra whereby he annulled the assessment order dated 29th May, 1980 by following the Tribunal's order dated 31-12-1979.”

No order as to costs.

Order according