appeal filed by assessee is directed against order passed by learned Commissioner of Income-tax under section 263 of Income-tax Act, 1961 on following grounds:"1. order passed by Ld. CIT under section 263 of Income-tax Act, is bad in law. 2. Ld. CIT erred in holding that loss of Rs. 13,90,096 incurred by appellant on sale of import entitlement license is not admissible deduction. 3. Ld. CIT failed to appreciate that appellant had shown value of import entitlement at Rs. 73,01,184 in closing stock of assessment year 1996-97 and after selling part of it in assessment year 1997-98 and making profit, appellant had sold balance in assessment year 1998-99 in which loss of Rs. 13,90,096 was incurred and therefore, same had been correctly allowed by Assessing Officer as deduction. 4. Ld. Commissioner failed to appreciate that whereas in assessment year 1996-97, appellant was allowed deduction under section 80HHC, in assessment year 1998-99, business loss on sale of license has been allowed under section 37(1) and therefore, there had not been allowance of double deduction." 2. facts of case, in brief, are that assessee, partnership firm, was engaged, during previous year relevant to assessment year under appeal, in business exporting pens and ball pens. It filed its return of income declaring loss of Rs. 11,32,829 on 30-10-1998 for assessment year under appeal. assessment was completed on 29-12-2000 under section 143(3) of IT Act accepting loss shown by assessee. entire order of assessment passed by Assessing Officer reads, in verbatim, as under: "The assessee-firm filed its return of income for assessment year 1998-99 on 30-10-1998 admitting net loss of Rs. 11,32,828. This return of income was processed under section 143(1)(a) without any prima facie adjustment on 31-3- 1999. Subsequently, notice under section 143(2) of IT Act was issued and served on assessee. In response to notice under section 143(2) of IT Act, Mr. L.R. Bajaj, Advocate, attended from time to time, furnished details called for and case was discussed. loss returned by assessee at Rs. 11,32,828 is accepted. Assessed under section 143(3) of IT Act, above loss is allowed to be carry forward. Credit for prepaid taxes and tax payable is determined as per ITNS 150 separately. Demand notice and challan is issued accordingly." 3. learned Commissioner of Income-tax called for records of assessee and found that assessee had shown, in assessment year 1996-97, export turn over of Rs. 2.36 crores and total profit of Rs. 1.58 crores including import entitlements of Rs. 73.01 lakhs obtained by assessee as result of exports made by it. learned Commissioner noted that entire profit including value of import entitlements obtained by it was claimed by assessee and allowed by Assessing Officer as deduction under section 80HHC while processing return under section 143(1) of IT Act on 15-1- 1997 for assessment year 1996-97. He further noted that assessee had subsequently declared, in assessment year 1998-99, i.e., assessment year under appeal, loss of Rs. 13,90,096 on sale of aforesaid import licences on which it had earlier (in assessment year 1996-97) claimed and obtained deduction under section 80HHC with result that it claimed net loss of Rs. 11,32,829 in return of income for assessment year under appeal. Ld. Commissioner was of opinion that since value of aforesaid licences had already been considered while giving deduction under section 80HHC for assessment year 1996-97, claim of assessee for further deduction by way of loss of Rs. 13,90,096 on sale of said licences during year under consideration was untenable. He was also of view that there was failure on part of Assessing Officer in not examining said claim of assessee on merits and in accordance with law at assessment stage with result that said claim of assessee stood accepted without any objective consideration and evaluation of issues involved by Assessing Officer. He therefore formed belief that order mechanically passed by Assessing Officer without application of mind was both erroneous and prejudicial to interest of revenue. 4. In view of aforesaid, Ld. Commissioner issued show-cause notice under section 263 asking assessee to explain as to why order passed by Assessing Officer for assessment year under appeal should not be set aside for being made afresh as per law after giving reasonable opportunity of hearing to assessee. assessee submitted its reply to show-cause notice which learned Commissioner considered and, after consideration of submissions made by assessee, passed impugned order setting aside assessment made by Assessing Officer with direction to him to frame fresh assessment as per law after giving reasonable opportunity of hearing to assessee. It is this order of learned Commissioner, which is subject-matter of appeal by assessee before us. 5. In support of appeal, Ld. Authorised Representative for assessee took us through relevant notices issued and orders passed by Departmental authorities. He submitted that Assessing Officer had accepted profit as shown in Profit & Loss Account for assessment year 1996-97 as eligible for deduction under section 80HHC. He explained that assessee had indeed suffered loss in assessment year under appeal, i.e., assessment year 1998-99 as result of sale of entitlements and therefore, assessee was entitled to claim loss so suffered by it. He submitted that Assessing Officer had considered all relevant aspects of case while passing assessment order and it was only then that he decided to accept loss in question as shown by assessee. He argued that claim of assessee for deduction under section 80HHC in assessment year 1996-97 and its claim for allowance of business loss on sale of import entitlements during previous year relevant to assessment year under consideration were altogether different from each other and that their admissibility depended upon fulfilment of statutory conditions laid down in that behalf. He submitted that mere fact that import licences had been taken into account while computing deduction under section 80HHC in earlier year would not ipso facto disentitle assessee from claiming loss suffered on their sale in subsequent year. According to him, assessee was entitled to both claims in that it satisfied requisite conditions prescribed for availing both of them. His alternative submission was that even if issue was considered to be debatable one, learned Commissioner was not justified in assuming jurisdiction under section 263 as Assessing Officer had taken plausible view while making assessment. According to him, Ld. Commissioner was not at all right in law in substituting his own view for view taken by Assessing Officer in matter. In support of his submissions, he relied upon following orders:1. CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC) 2. CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) 3. United Phosphorus Ltd. v. Jt. CIT [2002] 81 ITD 553 (Ahd.) 4. Asstt. CIT v. Premier Consolidated Capital Trust India Ltd. [2004] 4 SOT 793 (Mum.) 5. Wallfort Shares & Stock Brokers Ltd. v. ITO [2005] 96 ITD 1 (Mum.)(SB) 6. Order dated 16-5-2005 passed by "G" Bench Mumbai of Tribunal in Red Rose Enterprise v. CIT [IT Appeal No. 117 (Mum.) of 2004] for assessment year 2000-01. 6. In reply, Shri Rai, learned Departmental Representative supported order passed by learned Commissioner under section 263 of Income- tax Act, 1961. He submitted that Assessing Officer had not expressed any view in assessment order and hence, there was no question of Commissioner taking different view in his order or substituting his own view for view taken by Assessing Officer. He submitted that assessment order passed by Assessing Officer was non-speaking order, which did not reflect any application of mind on part of Assessing Officer. According to him, t h e Assessing Officer simply accepted mechanically what assessee had claimed before him without any objective consideration or evaluation of issues involved. He argued that mere passing of mechanical and stereotyped order without any application of mind or objective evaluation of relevant materials and issues by Assessing Officer would render his order not only erroneous but also prejudicial to interest of revenue. Applying aforesaid principles, learned DR submitted that learned Commissioner was, on facts of case, absolutely justified in exercising revisional jurisdiction under section 263 of Income-tax Act. He supported order of learned Commissioner with reference to decisions in CIT v. M.M. Khambhatwala [1992] 198 ITR 144 (Guj.) and Malabar Industrial Co. Ltd. v. CIT [1992] 198 ITR 611 (Ker.) - affirmed by Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83. 7. We have considered rival submissions. There is no dispute that Assessing Officer had earlier taken into consideration and allowed deduction under section 80HHC with reference to import entitlements of Rs. 73,01,184 in assessment year 1996-97 obtained by assessee. Thus, assessee first claimed and obtained, in assessment year 1996-97, 100% deduction on said import entitlements under section 80HHC on basis of their mere receipt from Government and without selling them. assessee thereafter sold those licences and claimed loss of Rs. 13,90,096 on their sale in assessment year under appeal. In other words, assessee was claiming in assessment year under appeal further deduction of Rs. 13,90,096 on account of alleged loss over and above deduction of Rs. 73,01,184 allowed by Assessing Officer under section 80HHC in assessment year 1996-97 on basis of mere receipt of import licences. 8. facts available on record clearly show that assessee was not engaged in business of purchase and sale of import licences during relevant period. Import licences accrue to exporter as incentive on basis of exports made. Licences are neither sold by Government nor are they purchased by exporters. It is not commodity but licence or permit granted by Government to exporters as incentive to enable them to import things specified therein. Such licences are also transferable. It therefore follows that exporter cannot theoretically or otherwise suffer any loss on sale of import licences as he obtains them from Government as incentive on basis of exports made without paying separately any price for purchasing them. Loss is caused only when thing's original cost exceeds its later selling price or when dominion over things are irretrievably destroyed or lost. exporter does not pay any cost to Government for obtaining import licences and hence, there can be no loss to assessee-exporter when he sells them. He always makes profit as and when he sells such licences. He however cannot always makes profit as and when he sells such licences. He however cannot make profit on mere receipt of licences without selling them. Section 28(iii) of Income-tax Act seeks to bring "profits on sale of licence" granted under Imports (Control) Order, 1955, made under Imports and Exports (Control) Act, 1947 to charge of tax. Two aspects thus clearly emerge; one, there can only be profit (and, in no case loss) on sale of import licences obtained by assessee directly from Government as incentive on basis of exports made; and two, profits can accrue to assessee only in year in which such licences are sold and not before. It is fairly well-settled that assessee cannot adopt method of showing profit or loss contrary to law. Assessing Officer ought to have, therefore, examined as to whether assessee, in first instance, was justified in law in showing higher profit (without selling licences) in earlier year in order to claim exemption, e.g., under section 80HHC and further thereafter in claiming loss in year under consideration on ground that licences obtained earlier were sold without there being any actual loss to assessee on such sale. He did not examine aforesaid issues at all while making assessment. We are not suggesting as to what view Assessing Officer should have taken in matter. We are simply highlighting arbitrariness in decision making of Assessing Officer when facts available on record should have provoked him to judicially inquire and examine matter in accordance with law. We have therefore, no hesitation to hold that assessment order mechanically passed by him without due application of mind was not only erroneous but was also prejudicial to interest of revenue within meaning of section 263 of Income-tax Act. 9. Let us now examine legality of order passed by learned Commissioner with reference to statutory conditions laid down in section 263. scheme of Income-tax Act is to levy and collect tax in accordance with provisions of Act and this task is entrusted to revenue. If due to erroneous order of Assessing Officer, revenue is losing tax lawfully payable by person, it will certainly be prejudicial to interests of revenue. As held in Malabar Industrial Co. Ltd.'s case (supra), Commissioner can exercise revisional jurisdiction under section 263 if he is satisfied that order of Assessing Officer sought to be revised is (i) erroneous; and also (ii) prejudicial to interests of revenue. 10. word "erroneous" has not been defined in Income-tax Act. It h s however been defined at page 562 in Black's Law Dictionary (Seventh Edition) thus: "erroneous, adj. Involving error; deviating from law." word "error" has been defined at same page in same Dictionary thus:"error. N. 1. psychological state that does not conform to objective reality; belief that what is false is true or that what is true is false." 11. At page 649/650 in P. Ramanatha Aiyer's Law Lexicon (Reprint 2002), term "error" has been defined to mean thus: "Error. mistake in judgment or deviation from truth in matters of fact, and from law in matters of judgment; . . . 'Error', is fault in judgment, or in process or proceeding to judgment or in execution upon same, in Court of Record; which in Civil Law is called Nullitie." (Termes de la Ley) "Something incorrectly done through ignorance or inadvertence (S. 99, C.P.C. and S. 215, Cr.P.C.)." "Error, Fault. Error respects act; fault respects agent, error may lay in judgment, or in conduct; but fault lies in will or intention." 12. At page 650 of aforesaid Law Lexicon, scope of "ERROR, MISTAKE, BLUNDER, and HALLUCINATION" has been explained thus: "An error is any deviation from standard or course of right, truth, justice, or accuracy, which is not intentional. mistake is error committed under misapprehension or misconception of nature of case. error may be from absence of knowledge; mistake is from insufficient or false observation. Blunder is practical error of peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. "An error may be overlooked or atoned for, mistake may be rectified; but shame or ridicule which is occasioned by blunder, who can counteract." Strictly speaking, Hallucination is illusion of perception, phantasm of imagination. one comes of disordered vision, other of disordered imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes unaccountable error in judgment or fact; especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived. (Smith, Syn. Dis)" 13. In order to ascertain whether order sought to be revised under section 263 is erroneous, it should be seen whether it suffers from any of aforesaid forms of error. In our view, order sought to be revised under section 263 would be erroneous and fall in aforesaid category of "errors" if it is, inter alia, based on incorrect assumption of facts or incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect merits of case and thereby cause prejudice to interest of revenue. 14. Section 263 of Income-tax Act seeks to remove prejudice caused to revenue by erroneous order passed by Assessing Officer. It empowers Commissioner to initiate suo motu proceedings either where Assessing Officer takes wrong decision without considering materials available on record or he takes decision without making enquiry into matters, where such inquiry was prima facie warranted. Commissioner will be well within his powers to regard order as erroneous on ground that in circumstances of case, Assessing Officer should have made further inquiries before accepting claim made by assessee in his return. reason is obvious. Unlike Civil Court which is neutral in giving decision on basis of evidence produced before it, role of Assessing Officer under Income-tax Act is not only that of adjudicator but also of investigator. He cannot remain passive in face of return, which is apparently in order but calls for further enquiry. He must discharge both roles effectively. In other words, he must carry out investigation where facts of case so require and also decide matter judiciously on basis of materials collected by him as also those produced by assessee before him. scheme of assessment has undergone radical changes in recent years. It deserves to be noted that present assessment was made under section 143(3) of Income-tax Act. In other words, Assessing Officer was statutorily required to make assessment under section 143(3) after scrutiny and not in summary manner as contemplated by sub-section (1) of section 143. Bulk of returns filed by contemplated by sub-section (1) of section 143. Bulk of returns filed by assessees across country is accepted by Department under section 143(1) without any scrutiny. Only few cases are picked up for scrutiny. Assessing Officer is therefore, required to act fairly while accepting or rejecting claim of assessee in cases of scrutiny assessments. He should be fair not only to assessee but also to Public Exchequer. Assessing Officer has got to protect, on one hand, interest of assessee in sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on other hand, he has duty to protect interests of revenue and to see that no one dodged revenue and escaped without paying legitimate tax. Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what assessee claims before him. It is his duty to ascertain truth of facts stated and genuineness of claims made in return when circumstances of case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting claim has no place. order passed by Assessing Officer becomes erroneous because enquiry has not been made or genuineness of claim has not been examined where inquiries ought to have been made and genuineness of claim ought to have been examined and not because there is anything wrong with his order if all facts stated or claim made therein are assumed to be correct. Commissioner may consider order of Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on face of it but also when it is stereo-typed order which simply accepts what assessee has stated in his return and fails to make enquiries or examine genuineness of claim which are called for in circumstances of case. In taking aforesaid view, we are supported by decisions of Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 and Malabar Industrial Co. Ltd.'s case (supra). In Malabar Industrial Co. Ltd.'s case (supra) Hon'ble Court has held as under: "There can be no doubt that provision cannot be invoked to correct each and every type of mistake or error committed by Assessing Officer, it is only when order is erroneous that section will be attracted. incorrect assumption of facts or incorrect application of law will satisfy requirement of order being erroneous. In same category fall orders passed without applying principles of natural justice or without application of mind." 15. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to assessee or to State Exchequer. Legislature has taken ample care to provide for mechanism to have such prejudice removed. While assessee can have it corrected through revisional jurisdiction of Commissioner under section 264 or through appeals and other means of judicial review, prejudice caused to State Exchequer can also be corrected by invoking revisional jurisdiction of Commissioner under section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at legal system. It is difficult to countenance such arbitrariness in actions of Assessing Officer. It is duty of Assessing Officer to adequately protect interest of both parties, namely, assessee as well as State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at instance of assessee, if assessee is prejudiced or at instance of Commissioner, if revenue is prejudiced. underlying philosophy of section 263 is removal of prejudice caused to revenue by erroneous orders of Assessing Officer. In CIT v. V.P. Agarwal [1993] 68 TAXMAN 236 (All.), Hon'ble Allahabad High Court has held as under: "14. While making assessment, ITO has varied role to play. He is investigator, prosecutor as well as adjudicator. As adjudicator he is arbitrator between revenue and taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into substantial matter like present one, he must record finding on 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 Hon'ble Supreme Court as follows: '35. Reasons, when recorded by administrative authority in order passed by it while exercising quasi-judicial functions, would no doubt facilitate exercise of its jurisdiction by appellate or supervisory authority. But other considerations, referred to above, which have also weighed with this Court in holding that administrative authority must record reasons for its decision are of no less significance. These considerations show that recording of reasons by administrative authority serves salutary purpose, namely, it excludes chances or arbitrariness and ensures degree of fairness in process of decision-making. 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, requirement that reasons be recorded should govern decisions of administrative authority exercising quasi-judicial functions irrespective of fact may, however, be added that it is not required that reasons should be as elaborate as in decision of court of law. extent and nature of reasons would depend on particular facts and circumstances. What is necessary is that reasons are clear and explicit so as to indicate that authority has given due consideration to points in controversy. need for recording of reasons is greater in case where order is passed at original stage. appellate or revisional authority, if it affirms such order, need not give separate reasons if appellate or revisional authority agrees with reasons contained in order under challenge.' Similar view was earlier taken by 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, ITO acts in quasi-judicial capacity. assessment order is amenable to appeal by assessee and to revision by Commissioner under sections 263 and 264. Therefore, reasoned order on substantial issue is legally necessary. judgment of Hon'ble Madras H i g h Court on which reliance was placed by learned counsel for assessee also points to same direction. We have reproduced above relevant portion of observations made by learned Judges. They have held that orders, which are subversive of administra-tion of revenue, must be regarded as erroneous and prejudicial to interests of revenue. If Assessing Officers are allowed to make assessments in arbitrary manner, as has been done in case before us, administration of revenue is bound to suffer. If without discussing nature of transaction and materials on record, Assessing Officer had made certain addition to income of assessee, same would have been considered erroneous by any appellate authority as being violative of principles of natural justice which require that authority must indicate reasons for adverse order. We find no reason why same view should not be taken when order is against interests of revenue. As matter of fact such orders are prejudicial to interests of both parties, because even assessee is deprived of benefit of positive finding in his favour, though he may have sufficiently established his case." 16. In view of foregoing, it can safely be said that order passed by Assessing Officer becomes erroneous and prejudicial to interest of revenue under section 263 in following cases: "(i) order sought to be revised contains error of reasoning or of law or of fact on face of it. (ii) order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In same category fall orders passed without applying principles of natural justice or without application of mind. (iii) order passed by Assessing Officer is stereo-typed order which simply accepts what assessee has stated in his return or where he fails to make requisite enquiries or examine genuineness of claim which is called for in circumstances of case." 17. We shall now turn to facts of case to see whether case before us is covered by aforesaid principles. We have already reproduced earlier entire assessment order. Perusal of assessment order passed by t h e Assessing Officer does not show any application of mind on his part. It simply says in one line that loss returned by assessee is accepted. No greater evidence is required than mere reproduction of aforesaid line from assessment order to establish that it is case where Assessing Officer mechanically accepted what assessee wanted him to accept without any application of mind or enquiry. No evidence has been placed before us that claim made by assessee was objectively examined or considered by Assessing Officer either on record or in assessment order. It is because of such non-consideration of issues on part of Assessing Officer that loss claimed by assessee stood automatically allowed without any scrutiny. assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of claim made by assessee. Assessing Officer has completely omitted issue in question from consideration and made assessment in arbitrary manner. His order is completely non-speaking order. In our view, it was fit case for learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling assessment order and directing Assessing Officer to pass fresh order in accordance with law after giving reasonable opportunity of hearing to assessee. In our view, assessee should have no grievance in that learned Commissioner has simply asked Assessing Officer to consider claim of assessee as per law. assessee can neither contend nor expect that loss returned by it should be accepted by Department without proper scrutiny and objective consideration of issues by Assessing Officer. 18. It was however contended by learned counsel that Assessing Officer had taken possible view in allowing loss claimed by assessee and hence, Commissioner was not justified in assuming revisional jurisdiction under section 263. We have given our thoughtful consideration to aforesaid submissions. As already stated earlier, order becomes erroneous because inquiries, which ought to have been made on facts of case, were not made and not because there is anything wrong with order if all facts stated or claims made in return are assumed to be correct. Thus, it i s mere failure on part of Assessing Officer to make necessary inquiries or to examine claim made by assessee in accordance with law, which renders resultant order erroneous and prejudicial to interest of revenue. Nothing more is required to be established in such case. One would not know as to what would have happened if Assessing Officer had made requisite inquiries or examined claim of assessee in accordance with law. He could have accepted assessee's claim. Equally, he could have also rejected assessee's claim depending upon results of his enquiry or examination into claim of assessee. Thus, formation of any view by Assessing Officer would necessarily depend upon results of his inquiry and conscious, and not passive, examination into claim of assessee. If Assessing Officer passes order mechanically without making requisite inquiries or examining claim of assessee in accordance with law, such order will clearly be erroneous in law as it would not be based on objective consideration of relevant materials. It is therefore, mere failure on part of Assessing Officer in not making inquiries or not examining claim of assessee in accordance with law that per se renders resultant order erroneous and prejudicial to interest of revenue. Nothing else is required to be established in such case to show that order sought to be revised is erroneous and prejudicial to interests of revenue. 19. We are unable to accept aforesaid submission of learned counsel for two other reasons also. First reason is that view so taken by Assessing Officer without making requisite inquiries or examining claim of assessee will per se be erroneous view and hence will be amenable to revisional jurisdiction under section 263. Second reason is that it is not taking of any view that will take matter outside scope of section 263. view taken by Assessing Officer should not be mere view in vacuum but judicial view. It is well established that Assessing Officer being quasi- judicial authority cannot take view, either against or in favour of assessee/revenue, without making proper inquiries and without proper examination of claim made by assessee in light of applicable law. In Gruh Finance Ltd. v. Jt. CIT [2000] 243 ITR 482 (Guj.), argument against initiation of proceedings under section 147/148 that claim for depreciation has been considered and hence cannot be disallowed on mere change of opinion was rejected because there was no conscious consideration of materials which were on record. As already stated earlier, no material was placed before Assessing Officer at assessment stage on basis of which he could take any view. assessee has also not been able to show to us that any inquiry was made by Assessing Officer in this regard. Therefore mere allegation that Assessing Officer has taken view in matter will not put matter beyond purview of section 263 unless view so taken by Assessing Officer is judicial view consciously based upon proper inquiries and appreciation of all relevant factual and legal aspects of case. judicial view taken by Assessing Officer may perhaps place matter outside purview of section 263 unless it is shown that view so taken by Assessing Officer contains some apparent error of reasoning or of law or of fact on face of it. 20. learned counsel has kly relied upon following observations made in Malabar Industrial Co. Ltd.'s case (supra) and submitted that learned Commissioner was not justified in substituting his view for that of Assessing Officer:". . . Every loss of revenue as consequence of order of Assessing Officer cannot be treated as prejudicial to interests of revenue. For example, when Income-tax Officer adopted one of courses permissible in law and it has resulted in loss of revenue; or where two views are possible and Income-tax Officer has taken one view with which Commissioner does not agree, it cannot be treated as erroneous order prejudicial to interests of revenue, unless view taken by Income- tax Officer is unsustain-able in law." [Emphasis supplied] 21. We have carefully gone through aforesaid observations. "Adopting" one of courses permissible in law necessarily requires Assessing Officer t o consciously analyse and evaluate facts in light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of courses permissible in law. Assessing Officer cannot be presumed or attributed to have "adopted" or chosen course permissible in law when his order does not say so. Similarly, "taking" one view where two or more views are possible also necessarily imports requirement of analysing facts in light of applicable law. Therefore, proper examination of facts in light of relevant law is necessary concomitant in order to say that Assessing Officer has adopted permissible course of law or taken view where two or more views are possible. It is only after such proper examination and evaluation has been done by Assessing Officer that he can come to conclusion as to what are permissible courses available in law or what are possible views on issue before him. In case he comes to conclusion that more than one view is possible then he has necessarily to choose view, which is most appropriate on facts of case. In order to apply aforesaid observations to given case, it must therefore first be shown that Assessing observations to given case, it must therefore first be shown that Assessing Officer has "adopted" permissible course of law or, where two views are possible, Assessing Officer has "taken" one such possible view in order sought to be revised under section 263. This requires Assessing Officer to take conscious decision else he would neither be able to "adopt" course permissible in law nor "take" view where two or more views are possible. In other words, it is Assessing Officer who has to adopt permissible course of law or take view where two or more views are possible. It is difficult to comprehend as to how Assessing Officer can be attributed to have "adopted" permissible course of law or "taken" view where two or more views are possible when order passed by him does not say so. We cannot assume, in order to provide legitimacy to assessment order, that Assessing Officer has adopted permissible course of law or taken possible view where his order does not say so. submissions made by learned counsel, if accepted, would require us to form, substitute and read our view in order of Assessing Officer when Assessing Officer himself has not taken view. It could have been different position if Assessing Officer had "adopted" or "taken" view after analysing facts and deciding matter in light of applicable law. However, in case before us, Assessing Officer has not at all examined as to whether only one view was possible or two or more views were possible and hence, question of his adopting or choosing one view over other does not arise. aforesaid observations of Hon'ble Supreme Court do not, in our view, help assessee; rather they go against assessee. 22. In Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147, Hon'ble Supreme Court has held that ". . . There is always peril in treating words of speech or judgment as though they are words in legislative enactment, and it is to be remembered that judicial utterances are made in setting of facts of particular case, said Lord Morrin in Herrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make world of difference between conclusions in two cases . . . ." Therefore, observations of Hon'ble Supreme Court in Malabar Industrial Co. Ltd.'s case (supra) on which reliance has been placed by learned counsel cannot be read in isolation. judgment deserves to be read in its entirety to cull out law laid down by Hon'ble Supreme Court. If so read, it is quite evident that orders passed on incorrect assumption of facts or incorrect application of law or without applying principles of natural justice or without application of mind will satisfy requirement of order being erroneous and prejudicial to interest of revenue. If order sought to be revised under section 263 suffers from any of aforesaid vices, it cannot be said that Assessing Officer has "adopted", in such order, course permissible in law or "taken" view where two or more views are possible. 23. It was next contended by learned Authorised Representative that t h e Assessing Officer had considered all relevant aspects of case carefully while passing order. According to him, mere fact that assessment order passed by Assessing Officer was short would neither mean failure on his part in not examining matter carefully nor would render his order erroneous so long as view taken by him was possible view. In our view, aforesaid submission of assessee must fail partly for reasons already explained earlier in this order and partly for reasons that it is not size or length of order that matters in deciding upon its legality. It is quite possible that long order, which is sought to be revised under section 263 may suffer from same errors as pointed out above. It is equally possible that even short order, which is sought to be revised under section 263 may reflect proper application of mind by Assessing Officer and thus may not be amenable to revision under section 263. Therefore, it is not length of order but judicial strength of order that is material in deciding whether order sought to be revised is erroneous and prejudicial to interest of revenue. In case before us, assessment order passed by Assessing Officer lacks judicial strength to stand. It is not case where order is short but is supported by judicial strength. It is in this view of matter that we feel that learned Commissioner has correctly exercised his revisional jurisdiction under section 263. 24. As held in V.P. Agarwal's case (supra), Assessing Officer has been entrusted role of investigator, prosecutor as well as adjudicator under scheme of Income-tax Act. If he commits error while discharging aforesaid roles and consequently passes erroneous order causing prejudice aforesaid roles and consequently passes erroneous order causing prejudice either to assessee or to State Exchequer or to both, order so passed by him is liable to be corrected. As mentioned earlier, assessee can have prejudice caused to him corrected by filing appeal as also by filing revision application under section 264. But State Exchequer has no right of appeal against orders of Assessing Officer. Section 263 has therefore been enacted to empower Commissioner to correct erroneous order passed by Assessing Officer which he considers to be prejudicial to interest of revenue. Commissioner has also been empowered to invoke his revisional jurisdiction under section 264 at instance of assessee also. line of difference between sections 263 and 264 is that while former can be invoked to remove prejudice caused to State later can be invoked to remove prejudice caused to assessee. provisions of section 263 would loose significance if they were to be interpreted in manner that prevented Commissioner from revising erroneous order passed by Assessing Officer, which was prejudicial to interest of revenue. In fact, such course would be counter productive as it would have effect of promoting arbitrariness in decisions of Assessing Officers and thus destroy very fabric of sound tax discipline. If erroneous orders, which are prejudicial to interest of revenue are allowed to stand, consequences would be disastrous in that honest tax payers would be required to pay more than others to compensate for loss caused by such erroneous orders. For this reason also, we are of view that orders passed on incorrect assumption of facts or incorrect application of law or without applying principles of natural justice or without application of mind or without making requisite inquiries will satisfy requirement of order being erroneous and prejudicial to interest of revenue within meaning of section 263. 25. Before we conclude matter, we wish to clarify that observations made by us in preceding paragraphs are in context of provisions of section 263. They have been made in order to examine legality of impugned order passed by learned Commissioner under section 263. Assessing Officer is however free to decide matter in fresh round of assessment initiated as result of order of learned Commissioner on merits and in accordance with law without being influenced by aforesaid observations. 26. In view of above, appeal filed by assessee is dismissed. *** ARVEE INTERNATIONAL v. ADDITIONAL COMMISSIONER OF INCOME TAX