These cases have chequered history. assessee Khandani Shafakhana is registered firm engaged in manufacture of unani medicines. On 20-11-1981 business premises of firm and residential premises of its partners were searched by ITO's under section 132 of Income-tax Act, 1961 ('the Act'). During course of search certain documents and undisclosed assets were found, on basis of which order was passed by ITO under section 1325(5) making addition of Rs. 11,86,394 made up of following items: 1. Unexplained cash of Rs. 8,477 out of cash of Rs. 66,000 seized from business premises of firm. 2. Concealed income of Rs. 6,07,847 on account of nothings made by Shri Hakim Hari Kishan Lal, managing partner in his handwriting in loose papers seized from business premises of firm pages 31 to 35 of Annexure D-1. This includes division of Rs. 3,60,424 between three persons, namely, Shri Hakim Hari Kishanlal, Vijay Abbot and Rajinder Abbot. 3. Undisclosed income of Rs. 4,48,000 on account of nothings made on pages 30 and 43 of Annexure D-1. 4. Undisclosed income of Rs. 1,22,070 on account of nothings made at page 34 of Annexure D-1. This order was passed on 17-2-1982. Subsequently, assessee filed objections under section 132(11) before notified authority, who happened to be in this case commissioner, against order under section 1325(5). Pursuant thereto various meetings were held at instance of commissioner, when evidence against additions was produced and considered. Eventually, assessee filed petition under section 273A of Act before Commissioner of stating that they would agree for addition of Rs. 75,000 to be spread over three assessment years with view to purchase peace and avoid multiplicity of proceedings, making it clear that assessee was not agreeing that there was any concealment of income. thereafter commissioner called for report from ITO and again various meetings were held between assessee's representative and commissioner, IAC and ITO. On 29-4-1982 settlement was reached between assessee and Income-tax department, which was recorded by way of minuted which we consider it necessary for purposes of decision of this case to reproduce in detail: "MINUTES OF MEETING TO CONSIDER SETTLEMENT PETITIONS OF KHANDANI SHAFAKHANA, SHRI HAKIM HARI KISHAN LAL, SMT. RAJ DEVI, DR. RAJINDER ABBOT AND DR. HAR PRAKASH ABBOT FOR ASSESSMENTS YEARS 1980-81 TO 1982-83: detailed discussion was held in room of Commissioner Delhi-VIII, new Delhi on 28-4-1982. following persons were present: 1. Shri Ranbir Chandra Commissioner of Delhi-VIII, New Delhi. 2. Shri J. Gill, IAC, Range II (i), New Delhi. 3. Shri S. S. Pushkarana, ITO Doctor Circle, New Delhi. 4. Shri S. L. Batra, Chartered Accountant. 5. Shri Hakim Hari Kishan Lal. issues involved were discussed with reference to orders under section 132(5) of income-tax act, 1961 and petitions moved by assessee under section 132(1) and also report of ITO Doctor Circle dated 28-4- 1982 forwarded by IAC, Range II (i), New Delhi. issues involved were discussed thread bare in which assessee's authorised representative are participated. concensus of discussion was as under: 1. That undisclosed income in hands of Dr. Har Prakash Abbot, Dr. Rajinder Abbot, Shri Hakim Hari Kishan Lal, Smt. Raj Devi while making orders under section 132(5) were not called for as they stood explained satisfactorily in view of evidence produced by assessee. 2. That assessee was not in position to explain nothings in case of firm Khandani Shafakhana in respect of sales which are seized during search operations under section 132 on 20-11-1981. Through detailed scrutiny of these nothings with reference to regular books of account, it was noticed that in some cases figures of sales as reflected in books of account of firm. Although in some cases it was other way round, i.e., figures of sales reflected in books of account were more than figures mentioned in seized documents. It was also noticed that certain slips/documents to determine exact figure of sales which has been suppressed by firm and as such understatement of income by firm cannot be determined correctly. As such in view of discrepancies in figures of sales in seized documents and as reflected in books of account after examining information in detail and after detailed discussion it was agreed by parties concerned that it would be proper if understatement of income on account of suppressed sales for all three assessment years are taken at Rs. 75,000. assessee and authorised representatives have also agreed to said estimate. 3. It was further pleaded on behalf of assessee-firm that it is only to avoid multiplicity of proceedings and prolonged litigation that assessee came forward for settlement and that if penalty proceedings, etc., are initiated d levied on basis of additions of Rs. 25,000 in each of assessment years from assessment years 1980-81 to 1982-83 as discussed above, real hardship would be caused to assessee. It was further pleaded that assessee be allowed to pay additional demand raised in installments. However, this was not agreed to and it was decided that additional demands raised would be adjusted out of seized assets retained under section 132(5). assays have agreed to this but have vehemently prayed for waiver of penalties under section 273A (4) of Act on grounds that all conditions mentioned in section 273A. After detailed discussions following decisions were arrived at: (a) Addition of Rs. 25,000 will be made in each of assessment years, namely, 1980-81 to 1982-83. (b) That no other addition as per discussion was found proper on account of seized material in possession of department. (c) That penal interest shall be chargeable under rules. (d) That since conditions laid down under section 273A (4) are satisfied no penalty shall be levied either under section 271 or under section 273 of act in respect of additions agreed to by assessee. (e) That books of account and other documents seized by department shall be released after finalisation of relevant assessment years. (f) That seized assets shall be released after whole outstanding demands including demands for these assessment years are paid by assessee. (g) That assessee will not go in appeal before appellate authorities against order of assessment. Sd/- S. S. Pushkarana Sd/- Ranbir Chandra ITO, Dr. Cir. Commissioner of Income-tax New Delhi. Delhi-VIII, New Delhi. Sd/- S. L. Batra Sd/- J. S. Gill Cartered Accountant. Inspecting Assistant Commissioner of Income-tax Range II(i), New Delhi. Sd/- Shri Hakim Hari Kishan Lal, New Delhi. Assessee." Thereafter ITO pursuant to these agreements completed assessments by adding Rs. 25,000 in hands of assessee-firm. It is also pertinent to note narration given by ito in support of this addition. "Addition on account of understatement of income (as decided by Commissioner, Delhi-VIII, New Delhi) on basis of information gathered from material/documents seized during operation under section 132 of Income-tax Act, 1961 Rs. 25,000. Similarly while making assessments of partners of assessee- firm, who are appellants before us in it appeal nos. 5565 to 5570 (Delhi) of 1984 o n additions were made by referring to agreement reached with commissioner in which it was agreed upon that no additions were called for in these cases of partners. ITO, thus, gave effect to settlement reached with commissioner and completed assessments of assessee by adding Rs. 25,000 and assessments of partners without adding anything but by making reference to settlement reached. 2. Subsequently on 12-12-1983 Commissioner gave notice under section 263 of act proposing to cancel these assessments stating that ITO had not properly considered, appreciated seized material and overlooked certain material aspects. assessee contended before commissioner to withdraw these notices assessee filed writ petition in Delhi High Court on 11-1-1984 but Delhi High Court by its judgment dated 19-7-1984 dismissed writ petition in limine without considering questions involved in matter. assessee then moved Hon'ble Supreme Court under article 136 of constitution. By its order on 19-9-1984 Hon'ble Supreme Court passed following order: "We do not consider it appropriate to interfere with these proceedings at this stage. However, petitioner will be at liberty to contend either before Commissioner or Appellate Tribunal in any proceedings which may be brought to this court that notice which was issued under section 263 of Income-tax act was without jurisdiction. If such contention is raised before Commissioner or Appellate Tribunal, he will decide it without reference to judgment of High Court. With these observation, special leave petition is dismissed." Thereafter Commissioner gave assessee further opportunities to present their cases. assessee contended that assessment orders having been passed on basis of report of ITO with concurrence of IAC and Commissioner, it could not be said that there was any prejudice caused to interests of revenue by ITO by passing such order. It was further pointed out that in coming to this conclusion all seized material was considered very thoroughly and only then above decisions were reached and that it is not proper for commissioner to say that certain important seized material was omitted or ignored by commissioner or ITO, as case may be, while making assessments. Commissioner, however, observed that under section 263 of Act, he had requisite power to cancel any order passed by ITO if it is erroneous insofar as it is prejudicial to interests of revenue and that orders passed by ITO caused prejudice to interests of revenue because it ignored material evidence on record. What weighed in mind of commissioner was that when ITO while passing order under section 132(5) estimated concealed income at Rs. 11,86,394 on basis of scrutiny of seized documents, assessments were made on paltry sum of Rs. 25,000 that too for each of assessments years. since there was nothing in assessment order to show that seized material was duly considered, he held that ITO did not make any enquiry before making assessment under section 143(3) of act. In other words, he felt that even though ITO had obeyed instruction of Commissioner, ITO should have again conducted independent enquiry, discussed entire seized material in assessment order before coming to any conclusions as to quantum of addition to be made and that non-discussion of material caused prejudice to interests of revenue and vested jurisdiction in him to invoke provisions of section 263. In support of assumption of jurisdiction under section 263 , he placed k reliance on decision of Delhi High Court in case of gee vee enterprises v. Addl. CIT [1975] 99 ITR 375. He cancelled assessments made by ITO on these assesses for these two years and directed him to made fresh assessments after making necessary investigations. To put it simply, fault or error that was said to have been committed by ITO while making these assessments was nonenquiry with reference to addition proposed in order passed under section 132(5). He also referred to following five items which according to him ITO had not considered at all although that was part of seized material: (a) Renovation of residential premises by Shri Rajinder Abbot (vide nothings on pages 36 to 41). (b) Renovation of flat during April 1981 (vide nothings on page 50) Rs. 6,380. (c) Booking of 14 scooters in names of wives and children of partners of firm during January 1981 (vide nothings on pages 16 to 29) Rs. 7,000. (d) Booking of truck with supreme motors (vide nothings on pages 44 to 49) Rs. 20,000. (e) Investments in national savings certificates, fixed deposit, etc., by Dr. Rajinder Abbot in his own name and in names of his wife and children during financial years 1978-79 to 1980-81 relevant to assessment years 1979-80 to 1981-82. 3. assessee is aggrieved by these orders passed by Commissioner under section 263 and filed these appeals before us. chief contentions of learned counsel for assessee is that on facts of this case, it is not possible at all even to remotely suggest that ITO committed error when he only obeyed and followed instructions given to him by commissioner under whose jurisdiction he functions. Placing k reliance on provisions of section 119(3) of Act learned advocate Shri G. C. Sharma pointed out that every ITO employed in thee execution of act shall observe and follow instructions given to him for his guidance by director of inspection or by commissioner or by IAC within whose jurisdiction he performs his functions. Any deviation from this mandatory provision would mean defiance of law and ITO would not only be guilty of disobedience but he would be committing contempt for which he is punishable. It is open under Act, as it now stands, to compel ITO to observe and follow instructions given by commissioner, who acted under section 263 in canceling those assessments committed error when he said that he ITO obeyed instructions of Commissioner, under whom he worked, made erroneous assessment. Virtually this leads to situation where ITO's could with anarchy in administration of Act. Commissioner should have seen that entire seized material was considered by commissioner and IAC and ITO concerned and only then conclusion was reached to make addition of Rs. 75,000 spread over period of three assessment years. minutes recorded show that entire material was considered. It is not as if settlement was reached in haste. Several meetings were held between assesses, his representatives and commissioner in presence of IAC. If after mature and exhaustive consideration of seized material commissioner, who is appellate authority under section 132(11) comes to conclusion that additions proposed in order passed under section 132(5) were incorrect, baseless and arrives at figure to be added as concealed income of assessee and gives directions to that effect to ITO, who following those instructions completes assessment, how can it be said, learned advocate asked, that seized material was not considered by ITO and additions were made in disregard of that seized material. Merely because there was no discussion in assessment order about explanations offered by assessee in regard to seized material, does it follow that earlier proceedings were all non set in law. Could Commissioner ignore those proceedings, ignore conclusions reached three in and then say that ITO committed error because he did not refer to that material? it is not as if ITO was not aware of that seized material. proceedings that have taken place till time assessments came to be made were as consideration of that material. It was taking into account all this material and making references to them wherever needed and by observing and following erection of commissioner, which he was bound to follow under Act, ITO completed assessments. It is now very wrong on part of present commissioner to say that merely because there was no discussion in assessment order about he seized material, assessments made by ITO were such as to cause prejudice to interests of thee revenue. It only amounts to turning blind eye to all those proceedings that have taken place before they culminated into assessment. Thus, proceeded arguments of learned counsel for assessee. We were also taken through entire material on record that culminated into assessments. Finally it was urged that assessments made by ITO did not suffer from any error nor any prejudice was caused to interests of revenue and commissioner was not justified in canceling assessments. 4. On other hand, Shri R. N. Bara appearing for revenue contended that in case like this ITO had far more greater responsibility to make proper assessment. He should show in assessment order how he dealt with seized material. He would not say nor even suggest that ITO should disobey instructions given to him by commissioner but he would certainly emphasis responsibility of ITO to show in assessment order or at least in assessment record all seized material had been disposed of. In other orders, ITO should reconcile figure arrived at as concealed income in order passed under section 132(5) with eventual amounts that were proposed for addition in assessment order. If there is failure in this reconciliation, it is certainly assessment made causing prejudice to interests of revenue and commissioner, as authority in charge of protection of revenue, could interfere to set right this mistake. All that he said was that ITO should investigate into matter and then arrive at proper conclusion. He did not suggest that addition fined to amount mentioned in order passed under section 132(5). minutes recorded by commissioner, on which so much reliance was placed by assessee, as if they are sacrosant are rely not legal orders. Commissioner or for that matter IAC has no power under act to agree for any settlement more particularly o n petition filed under section 273A under which section power of commissioner is confined only to reduce or waive penalty in certain case and not to deal with any income much less settlement of income. It is, therefore, very incorrect for assessee to suggest that orders passed by commissioner have got any legal sanction behind them. In case of this nature, ITO must be said to have failed in his duty to show how he has considered various additions proposed in section 132(5) as not worthy of adding in final assessment made under section 143(3). That apart commissioner found certain other items mentioned in paragraph No. 3 of this order. There is no reference in order of ITO that these items were considered. There is as pointed out by Commissioner nothing in minutes also. If any one of those items was not considered by ITO, that is enough to give commissioner necessary jurisdiction to invoke provisions of section 263. He also made reference to order passed by Delhi High Court observed that question in writ was with regard to interpretation of section 273A of ITO and that only power of commissioner under that section was with regard to penalty and not regarding quantum of income. This, according to him, must set at rest that various agreements advanced by assessee founded on legality of minutes of Commissioner. Proceedings on these lines, learned departmental representative supported order of Commissioner. 5. We have carefully considered relevant record and given our due consideration to arguments addressed to us. issues in this case are not many and are not far to seek. simple question is whether ITO committed any error while making assessments, which caused prejudice to interests of revenue. Arising in its wake is question whether ITO could be said to have acted erroneously when he observed and followed directions given to him by Commissioner, under whom he performed his functions. This leads us to further question whether it is open to ITO to question legality or otherwise of directions given by commissioner without amounting to definance disobedience or insubordination. second question incidental to this is whether in reality and truth any enquiry was made into seized material either by commissioner or by IAC or by ITO or by all of them put together at any stage and whether there were any flaws, omissions grave or otherwise in those enquiries. If all or any one of them are present, then commissioner will have jurisdiction to interfere under section 263. Let us see whether ITO had committed any error. He only followed instructions given to him by commissioner which he is bound to do under provisions of section 119(3). We do not think that at this stage it is open to him to question directions given by commissioner. It may be open to ITO to point out to Commissioner any mistakes or omissions committed by him. We do not think any Commissioner should take exception to this or be offended by it. On contrary they should appreciate alertness of such ITO. But in case where commissioner sends to ITO for his report on explanations by assessee and proposals made by him, it is certainly open to ITO to express his opinion whether explanations offered could be accepted or not and whether proposals made could be acted upon or not and make counter suggestions in order to protect interest of revenue. This does not mean definance. On other hand, this means only compliance. But in this case what happened was, as soon as assessee made petition to commissioner for settlement, commissioner held several meetings with ITO. that was on record. assessee filed explanation to various additions proposed in order under section 132(5) supported by materials. This explanation was sent to ITO for his comments. It was only after getting explanations offered by assessee examined by ITO and it is only after receiving his comments on them and that too through IAC final settlement was reached. It is note worthy that ITO was also present and party to this settlement. opening paragraph of this minutes duly and unequivocally show that issues involved were discussed with reference to order sunder section 132(5) and report of ITO dated 28-4-1982 forwarded by IAC, Range ii, New Delhi. This further points out that issues involved were discussed with threadbare. Does it not mean that everything that was to be considered with reference to orders under section 132(5) were considered to fuller extent by all concerned including ITO? is there anything left from consideration? Thereafter conclusions reached were that here was no undisclosed income to be added in hands of partners of assessee-firm Dr. Rajinder Abbot, Dr. Har Prakash Abbot, Shri Hakim Har Kishan Lal and Smt. Raj Devi not on any ground of concession but on ground that they were all explained satisfactorily with evidence. commissioner now is not able to show that this conclusion was erroneous by pointing out any omission in consideration of seized material. When he says that ITO has not shown any material in assessment order, he was ignoring entire proceedings that took place before assessment was made. This, is in our opinion, is neither proper nor called for nor open to him. If Commissioner is able to point out any particular omission of seized material which has bearing on computation of income, then he can say that there was some escapement of income but it was not case her at all. On other hand opening paragraph of settlement shows to repeat that ITO had considered every material with reference to orders under section 132(5) and then arrived at conclusion that no addition was to be made in hands of partners. then discussion took place as to discrepancies found with regard to seized material and account books of assessee and after discussion again with seized material addition of Rs. 75,000 was proposed to be made. how can it, therefore, be said that ITO did not make any enquiry with regard to seized material. This observation of commissioner, in circumstances of this case, is in our considered opinion factually incorrect. seized material was duly considered and only then conclusions were reached which led to addition of Rs. 75,000 spread over three years. Another important thing to be noted in this context is that one of decisions reached was that no other addition as per discussion was found proper on account of seized material in possession of department. What does this mean and show? It means that entire seized material in possession of department was considered and then it was found that no addition other that addition of Rs. 75,000 could be made. Commissioner now is not showing that this decision was wrong. Except stating that material as not considered and that assessment order does not show any consideration of this material, which is now found to be factually incorrect, he does not say that any particular addition was omitted to be made. On these facts what is to be seen is not validity or competence of commissioner in making order under section 273A or in arriving at settlement but what is relevant is whether commissioner now is justified in saying that no enquiry was made by ITO while making assessment with reference to seized material and with reference to order passed under section 132(5). There is enough evidence on record to show that seized material was considered by ITO. Not only that it was processed by IAC, range ii and ultimately considered by commissioner. Nothing more is required than this to show that seized material was considered very thoroughly by competent persons. This is, therefore, not case where seized material was not considered. Merely because ITO does not refer to these enquiries in assessment order that would not nullify enquiries made which were on record and explanations offered by assessee, which again were on record. That enquiry is not nihilism. This discussion shows that ITO neither committed any error nor failed to make proper enquiry with reference to order passed under section 132(5) and seized material. arguments addressed by learned departmental representative cannot, therefore, be accepted as tenable. At this stage we would like to deal with items that commissioner has mentioned in paragraph No. 3 of his order. We repeatedly asked in court as to whether these items were considered and it was pointed out to us that these items were also considered. In any case non consideration of these items would not make assessment made on firm assessment causing prejudice to interests of revenue they may at worst be considered in hands of partners because none of those items relate to firm, assessee before us in which main proceedings were initiated, following which assessments made in hands of partners were also cancelled. point to be noted here is that ITO after considering seized material with reference to order under section 132(5) came to conclusion before assessee and his superior officers, namely, IAC and Commissioner that no addition need be made in hands of partners. There is, therefore, no question of ITO not considering these materials also. Thus, Commissioner does not seem to be factually correct even here. It is for these reasons we are unable to agree with contentions advanced on behalf of department and agree with view taken by commissioner that ITO for not having mentioned in assessment order enquiries conducted by him, he committed error as to cause prejudice to interests of revenue. Here we may pointed out decision of Calcutta high court in Russell Properties (P.), Ltd. V. A. Chowdhuray, Addl., CIT [1977] 109 ITR 229. Quoting from head-note principle laid down by calcutta high court is: "The power of revision under section 263 of Income-tax Act, 1961 can b e exercised only if following conditions are satisfied-firstly, commissioner must call for and examine records of proceedings under act and, secondly, Commissioner must consider order passed by Income-tax officer to be erroneous in so far as it is prejudicial to interests of revenue. However, where there is decision of higher appellate authority subordinate authority is bound to follow such decision. Hence, order passed by Income-tax officer following decision of appellate tribunal cannot be held to be erroneous and such order cannot be revised." (p. 229) Thus, we are fortified in view that we are taking that when there is decision of higher authority, which ITO is bound to follow under Act, order passed by ITO following such decision could not beheld to be erroneous and such order could not be revised under section 263. More or less this is also view expressed by Calcutta high court in another case Jeewanlal (1929) Ltd. v. CIT [1977] 138 ITR 33, though not directly on issue. Madhya Pradesh High Court in case of H. H. Maharaja Raj Pawer Dewas v. CIT [1982] 138 ITR but if it is not prejudicial to interests of revenue, commissioner cannot exercise revisional jurisdiction under section 263. Another words, prejudice to interests of revenue unless shown which is condition precedent, no jurisdiction under section 263(1) can be assumed. In our view Commissioner in this case has not been able to show any prejudice to interests of revenue even though ITO, for sake of argument, might be said to have committed error in not discussing entire seized material with reference to order passed under section 132(5) in final assessment order passed under section 143(3). For these reasons, we are o f opinion that commissioner has not properly exercised his revisional jurisdiction under section 263 in this case. We are able to come to this conclusion without going into question whether Commissioner has power while acting under section 273A in deciding quantum of income for assessment. Although observations made by Delhi High Court in writ petition do support department's contention. Legality or otherwise, it is on facts of this case that issue became, if we may say so, non-issue in sense that what is to be seen is whether ITO has made proper enquiry and whether he has come to proper conclusion or not. That apart minutes recorded by commissioner and such settlements reached between heads of department like commissioners and assesses, to which concerned ITOS are made parties from whom reports are called for and which are made basis of settlements, if doubted and thrown aside like this, faith of people in administration will be severally shaken and will jeopardies process and course of justice. That there was thorough enquiry made by ITO is proved by fact that it was recorded in minutes. proof that there was no mistake in such consideration is established by fact that present commissioner is not able to show any omissions of any such consideration. 6. In results, appeals are allowed. *** VIJAY KUMAR v. INCOME TAX OFFICER