TaxTMI 
TaxTMI 
2008 (11) TMI 316
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.... not at all erroneous. 3. That under the facts and circumstances of the case, the ld. CIT, Gwalior has erred to hold that the appellant way not entitled to deduction under section 80-IA(2)(iv)(c) of the Act as he was carrying on repair work and was not manufacturing or producing any article or thing as required by the said section. The CIT has totally failed to appreciate the submissions of the appellant in proper perspective and in an objective manner. 4. That without prejudice to the above and in the alternative, ld. CIT, Gwalior has also failed to appreciate that the industrial activities of the appellant, while carrying out repair jobs consisted of manufacturing or producing article or things, which were also separately saleable items, for in-house use value of which did not form part of the repairing labour charges and as such profit or gain attributable to this activity at least was entitled to deduction under section 80-IA(2)(iv)(c) of the Act. 5. That the order dated 29-12-2006 passed by the ld. CIT, Gwalior is bad in law and facts and is liable to be set aside." 2. Briefly, the facts are that the assessee filed a return declaring nil income on 27-11-2000. This ....
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....n 80HH cannot be denied, which is available to the new industrial undertaking. It was further contended that the conclusions reached by the ld. CIT, Gwalior are not based on material on record. The assessee has disclosed the sale of products, which were manufactured at its own unit. Such list is available at assessee's paper book page 46. This was also available with the authorities below and was a part of record. The assessee's bill raised to the Electricity Board reveals that the items like HV Leg Coil and HV Bushings were manufactured by the assessee and charged from its customers along with labour charges on account of job work done by it. The assessee also has registration as manufacturing unit with Small-Scale Industries Deptt., wherein the date of commencing the production is stated to be 28-8-1998. The unit is located in backward area for carrying out aforesaid manufacturing activities. Reference is made to assessee's paper book page 4 in that regard. Sales Tax has also been paid on the sales of such goods. Furthermore, the assessee has made a declaration to the Excise Department copies placed at assessee's paper book page 27. The goods manufactured therein are stated to be....
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....explained before the assessing authority that the repairing of transformers also involves manufacture of various articles. The assessee has also clearly stated the manufacturing activities undertaken by it. The State Government, State Commerce Department and other Government agencies have treated the activities of assessee as manufacturing activities. Considering it a manufacturing unit, the exemption from commercial tax has also been granted to the assessee. The assessing authority after examining the issue recorded a finding as under:- "(i) It is clear that the word 'manufactured' include repairing work in the case of electrical transformers because a series of manufacturing activities are undertaken in this process and it carries warranty and guarantee also. Virtually when its electric transformer comes for repairing the inside material available in it is only waste wire and waste oil which is returned to the authorities concerned and sold in the open market. The only difference in repair and manufacture on transformers is that in repair the old cabinet of the transformers issued and in manufactured, new cabinet is purchased from the market/other manufacturer is used. Thus ma....
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....g the order of reassessment. A perusal of the reassessment order also reveals that the assessing authority was alive to the issue, relevant facts and provisions of law before he took considered decision. His order, therefore, could not be termed as erroneous. This view finds support from the decision rendered by jurisdictional High Court in the case of Shri Govindram Seksariya Charity Trust. The order of assessing authority is also not shown to be unsustainable in law. Such an order, therefore, cannot be termed as erroneous. The essential condition of an order being erroneous is, thus, absent. In that view of the matter and having regard to Apex Court judgment rendered in the case of Malabar Industrial Co. Ltd. the ld. CIT, Gwalior can be said to have erred in cancelling the assessment and directing to withdraw the deduction so allowed by the assessing authority. We, therefore, set aside her order passed under section 263 of the Act and allow the appeal of the assessee. 10. In the result, the appeal stands allowed. Per Smt. Diva Singh, Judicial Member.-Having given my utmost consideration I find myself unable to agree with the findings arrived at in the proposed draft order. ....
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....e (iv) of sub-section (2). 9. Referring back to the facts as were considered by the CIT (Admn.) in the first round the CIT (Admn.) discussing the facts took note of the fact that in the first round admittedly during the year the assessee-company carried out only repair works. The distribution transformers were sent by MPSEB for repairs and after repairs they were sent back to MPSEB for use. From this activity the assessee-company only derived charges for carrying out such repair work. 10. The CIT (Admn.) in the first round had observed that the word "manufacture" involves bringing into existence a new product. The new product should be such a product which is of a different chemical composition and whose integral structure is different. The said analogy as considered in ITO v. Ahura Shipping & Engg. Co. (P.) Ltd. [1984] 8 ITD 435 (Bom.) was relied upon by the CIT (Admn.) and thus on facts the CIT (Admn.) was of the view that manufacture or production of any article by a person implies that the item is for sale and not for some job work. 11. Thus, in these facts as per position of law appreciated by him the learned Commissioner was of the view that unless a new product, art....
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.... not justified because the ingredients of section 23 are not fulfilled. The two conditions must exist namely- (i) The order sought to be revised must be erroneous and (ii) Prejudicial to the interest of revenue. According to the assessee and the counsel, the notice under section 23 does not specify whether the assessment order sought to be revised is erroneous and prejudicial to the interest of revenue. In this regard, reliance has been placed on the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC). Reliance has also been placed on CIT v. Govind Ram Seksariya Charity Trust [1987] 166 ITR 580 (MP). According to which the Commissioner of Income-tax setting aside assessment under section 263 on the ground that ITO allowed exemption without examining applicability of provisions of section 13(1)(c)(ii) - Tribunal finding that ITO was alive to relevant provisions of law and facts before passing order of assessment - Commissioner of Income-tax not justified in setting aside assessment. In view of the above it has been submitted that the reassessment order passed by the ld. Assessing Officer is neither erroneous nor prejudicial to the interest of revenue,....
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.... 27-1-2004." Aggrieved by this the assessee is in appeal before the Tribunal. 15. The arguments advanced on behalf of the assessee have been more or less reproduced in para 5 of the proposed draft order namely:- (i) That the Assessing Officer has duly considered the issue and entertained a possible view that repairing of transformer amounted to manufacture of product by the assessee. (ii) Reliance was placed upon Amritsar Bench of the Tribunal in Saraf Electricals (P.) Ltd.'s case, copy of which is placed at pages 15 to 21 of the Paper Book. (iii) It was also submitted that the assessee is manufacturing certain parts which have been used in the repairing of these transformers as such activity of repairs should come under the definition of manufacturing. The sale of these products which have been used in the repair work stand disclosed in assessee's Paper Book page 46. (iv) That the assessee has registration as manufacturing unit with the Small Scale Industries Department and date of commencing the production therein is 28-8-1998. (v) The unit is located in backward area for carrying out aforesaid manufacturing activities. (vi) Reference was made to page 4 of....
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....an manufacturing. 17. Accordingly in the light of this above reasoning it was submitted by the learned D.R. that the Assessing Officer has committed an error in holding that manufacturing included repairing work in the case of electrical transformers. The said finding it was submitted is based on no material as it is neither based on any report of any expert obtained by the Assessing Officer nor has any authority been relied upon by the assessee either before the Assessing Officer or before the CIT (Admn.). The finding of the Assessing Officer based on no facts was contended to be carelessly given as no material or expert opinion was referred to therein to hold that "the only difference in repairing and manufacturing of transformer is that in repair the old cabinet of the transformers is used and in manufactured new cabinet is purchased from the market/other manufacturer. Thus, manufacturing of transformer included repair of transformer as well". It was the submission of the ld. Sr. D.R. Shri Ambesh that it was this reasoning of the Assessing Officer which is erroneous and contrary to the settled legal position as the Assessing Officer himself was not convinced that any manufact....
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....at case was that the assessee therein was engaged in the manufacturing and sale of electrical transformers and had also undertaken some repair of some old damaged transformers wherein also on account of the extent of damage for carrying out the repairs identical process as was required for manufacture was required and undertaken. The said fact stood demonstrated in the facts of that case. In the facts of the present case admittedly the assessee in the year under consideration has not been involved in any manufacturing activity or sale of electrical transformers and has admittedly only undertaken job repair. The nature and extent of repairing work has not been addressed either by the assessee before the Bench or before the Assessing Officer or the CIT (Admn.) in the two rounds. In the absence of any discussion or reference there is no material or evidence to hold that the Assessing Officer has examined the extent of damage and the resultant effort required to make it operational. As such, it cannot be said that the Assessing Officer has given a finding on fact which is sustainable in law as no material or evidence has been lead by the assessee before the Assessing Officer to agitate....
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....assessee in the year under consideration industrial undertaking entitled to claim deduction under section 80-IA for manufacture of transformer. As such, the reliance placed upon the list in Paper Book page 46 is of no help to the assessee. 21. Similarly the reliance placed upon the Bill of Electricity Board claimed showing the payment of items utilised in the repair work having been manufactured by the assessee does not lead to the proposition that the assessee has manufactured Electric transformer as admittedly the assessee has only repaired the same after having used certain item which may have been manufactured by it. Accordingly the assessee having charged for these items which are not purchased from the market but utilised in-house products the fact remain that the assessee did claim labour charges done by it for repair and did not receive payment for manufacturing transformers. 22. Similarly the factum of registration with Small Scale Industries Department commencing the production from a specific date is also of no help as the admitted facts on record in the year under consideration is that the assessee has not manufactured any electrical transformer at all and has onl....
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.... M.P. High Court in the case of Govindram Seksariya Charity Trust also is of no help as the Assessing Officer has granted the deduction erroneously without appreciating the error which was committed by him which was contrary to law and in the facts of the present case it cannot be said that the assessment order has been passed after making thorough enquiries as the reasoning that repairing can be held to be equated with manufacturing would be a view which would be a travesty of the provisions of the Act. 26. Accordingly, for the above-mentioned facts and reasons, I find myself unable to agree with the finding that the Assessing Officer was alive to the issue as in the facts of the present case the Assessing Officer though conscious of the fact that the deduction is entitled only to industrial undertaking manufacturing a new and independent product has come to very erroneous and gravely prejudicial finding to the interests of the revenue as no material fact or reason or discussion as to how manufacturing can be equated with repairing work. Accordingly, the grounds raised by the assessee in this peculiar facts are dismissed and the impugned order as such for reasoning given herein....
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....work in the case of electrical transformers and whether assessee is entitled to deduction under section 80-IA(2)(iv)(c) or not as the "main issue" in the reassessment. The Assessing Officer accepted the claim of the assessee, with the following observations: "It has stated by the assessee that the word "repairing" in the context of transformers means repairing in the cause of warranty and guarantee period and manufacture of Coal Transformers insulation, manufacture of core coal assembly etc. This involve manufacture of various articles. It has been further stated by the ld. Counsel for the assessee that in the statement of income enclosed with return of income, the manufacturing activity has been clearly stated and the State Government, State Commercial Department and other technical agencies have after thorough examination considered these activities as manufacturing activities and exception from commercial tax was allowed. In view of above discussion it is clear that the word "manufactured" include repairing work in the case of electrical transformers because a series of manufacturing activities are under taken in this process and it carries warranty and guarantee also. Vir....
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.... again challenged above-said order of the Commissioner in appeal before the an Appellate Tribunal. 7. After hearing both the parties, the learned Accountant Member in his proposed order noted briefly the order passed by the Assessing Officer and the ld. CIT. He also examined the basis given by learned CIT for revising the assessment order. The contentions of the parties are noted in paras 5 and 6. Thereafter proposed order starts from para 7 where reasons for re-opening the assessment are recorded. In para 8, it has been emphasised by the learned Accountant Member that proceedings were reopened by the Assessing Officer to examine the question whether assessee was carrying on any manufacturing activity. In that light, various documents and orders of State Government, State Commerce Department and other Government agencies were examined and specific finding on the issues was recorded by the Assessing Officer. The aforesaid finding of the Assessing Officer has already been reproduced in earlier part of this order. 8. After examining sale bills which are placed at pages 57 to 58 of the paper book, for supply of material manufactured by the assessee and the credit of above sale pr....
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.... given by her for agreeing with the view taken by the learned CIT can be summarised (mostly in the words of learned Judicial Member), as under: "(i) Admittedly in the facts of the present case, the assessee has only carried out repairing activity and has not manufactured or produced any new article or thing. (ii) The order of Amritsar Bench of Tribunal in the case of Saraf Electricals (P.) Ltd. is distinguishable and not applicable to the facts of the case. 'The material distinction from the facts of that case was that the assessee therein was engaged in the manufacturing and sale of electrical transformers and had also undertaken some repair of old damaged transformers wherein also on account of the extent of damage for carrying out the repairs identical process as was required for manufacture was required and undertaken.... In the facts of the present case admittedly the assessee in the year under consideration has not been involved in any manufacturing activity or sale of electrical transformers and has admittedly only undertaken job repairs. The nature and extent of repairing work has not been addressed either by the assessee before the Bench or before the Assessing Offic....
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....r and was prejudicial to the interests of revenue and the two conditions laid down by Apex Court for applying section 263 are fully met. For the aforesaid reasons, she was unable to agree with the finding that the Assessing Officer was alive to the issue in question in the present case. She again reiterated the finding that the view that manufacturing can be equated with repair work was erroneous and, therefore, on peculiar facts of the case, the learned Commissioner had rightly exercised her powers under section 263 of the Income-tax Act and action taken was required to be upheld. 10. On account of above difference between Hon'ble Members, the matter was referred to me under section 255(4) of the Income-tax Act. In order to resolve the difference, the case was fixed for hearing at Agra. Shri Mahesh Agarwal, CA on behalf of the assessee and Smt. Shefali Juneja, the ld. DR on behalf of the revenue, have been heard. I have also seen the relevant record with the help of the ld. Representative of the parties. Shri Mahesh Agarwal, ld. Representative of the assessee, submitted that assessee, in the relevant period, had carried manufacturing activities as it has manufactured parts used....
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.... be erroneous and insofar as prejudicial to the interest of the revenue under section 263 of the Income-tax Act. This was submitted without prejudice to his main submission that assessee did carryon manufacturing activities and not merely repair of transformers. It was accordingly submitted that assessment order was neither erroneous nor prejudicial to the interest of the revenue. 12. Smt. Shefali Juneja, on the other hand, placed strong reliance on the order of the CIT under section 263 as also on the proposed order of the learned Judicial Member. According to her, the assessee did not manufacture or produce any article. No change of ownership of any produced article was shown. The assessee merely carried on repair work on transformers belonging to M.P.S.E.B. The assessee also did not pay any excise duty as held by the ld. Judicial Member in her proposed order. No sale of coil claimed to be a separate manufactured item was shown in the account. Thus, there was no clear material to show that assessee carried any manufacturing activity. The above arguments were again rebutted by the ld. counsel for the assessee and position under the excise law as well as sale of coils manufactur....
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....ers own manufactured parts and components are fitted. The company manufactures electromechanical parts, and components of transformers as above and fitting them at a centralized placed i.e. is company's manufacturing premises amounts to manufacturing and processing of raw material into electrical and mechanical components. This view was explained to the Assessing Officer in the cause of assessment proceedings and he accepted the claim. Which in fact falls under section 80-IA(2)(i)(iv) of Income-tax Act." 15. Thereafter, again after the remand of the case from the Tribunal, the assessee further furnished detailed reply dated 27-12-2006. The assessee reiterated its stand as under:- "The applicant-company has started the activities i.e. production with effect from 20-3-1998 as mentioned in the certificate of registration. The applicant-company is an industrial undertaking for manufacture of transformers, manufacture of electromechanical part, accessories, component of distribution transformers i.e. winding coils, connection metal parts, cork sheet washer, insulation material, etc., and repair of transformer which includes replacement of various parts, i.e., winding coils connect....
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.... sale and replacement but manufacturing at its own. Therefore, the company carried on the manufacturing activity to manufacture winding coils, connection metal parts, cork sheet washer, insulation material etc. for the purpose of replacement in the transformer and independently sellable product." 17. Along with the reply, the assessee attached Annexure P-1, a copy of Registration Certificate issued by Industries Department to the assessee. It also attached copy of supply order given by Madhya Pradesh Pachim Khertra Vidyut Vitran Ltd. as Annexure P-2, copy of price list of L&T Switchgear to show rate of coils given by them and to show that coil was an independent marketable product (Annexure P-3-4). It also attached a copy of declaration furnished before the Central Excise Department mentioning product in which coils are specifically mentioned as item manufactured by the assessee. Copy of declaration was annexed as P-5-12. 18. It is evident from assessee's replies that the assessee is not claiming to be a manufacturer merely because it was carrying on repair of the transformers for MPSEB. Its claim was that the assessee-company is running an industrial undertaking for manufact....
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.... the column 'Items of manufacture/activity (S. No. II and Appendix-A), it is mentioned that the assessee manufactured 10KVA to 1000KVA transformers - 12 in Numbers. The assessee also manufactured winding coils, metal points, coaskft sets, besides carrying repair work. 19.1 At page 25, there is letter from Superintending Engineer accepting tender of the assessee for supply of DPC Coils - 105 kgs. at the rate of Rs. 227 per kg. 19.2 It is further seen that documents granting exemption under the Excise Department also support the case of the assessee. In its claim for getting exemption, the assessee had furnished the following information as per Columns 4 and 5: (4) Full description of goods HV Leg Coils (tariff-8504.00) (heading-wise) manufactured by the factory. (5) Value/quantity of the goods Rs. 34,68,986.75 cleared during the preceding financial year. 20. In the Excise documents, it is further stated that assessee as a small scale unit was entitled to claim exemption of goods manufactured up to the value of Rs. 50 lakhs in a financial year. In Column No. 10, titled "Process of manufacture", the assessee explained that main raw ma....
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....; 49037.00 ------------------------------------------------------------ 4. Labour charges on Raw Material - 10650.00 ------------------------------------------------------------ 5. Wages A/c 83022.00 819400.00 ------------------------------------------------------------ 6. Misc. expo on transformer repair - 12100.00 ------------------------------------------------------------ 7. Transport Freight A/c 198135.00 114734.00 ------------------------------------------------------------ 8. H.T. Coil Winding charges 82318.00 - ------------------------------------------------------------....
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....ly" with reference to the controversy which was the main dispute between the parties. 25. On the basis of above material, it is not possible to hold that assessee was carrying on mere repair of transformers and not any manufacturing activity. Assessee's claim that it is manufacturing electromechanical parts and accessories like winding coils, insulation material etc. etc. from different material is clearly established on record. No dispute had been raised that above items manufactured by the assessee were different in shape and in commercial value from the raw material used to manufacture them. On account of above activity, the assessee claimed to be a manufacturer. The further claim of the assessee that in its case repair tantamount to manufacturer of transformers was also to be viewed in the light of facts and circumstances noted above. In case of damaged or burnt transformers, which were required to be replaced during warranty/guarantee period, the assessee had used only the old cabinet with lamination of transformers. All other items were new items manufactured by the assessee and put in the cabinet in a similar manner as was done in the case of Saraf Electricals (P.) Ltd. F....
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....es enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interest of....
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....transformers and repairing the old transformers undisputedly being the same involving use of same machinery, benefit of deduction under section 80HH/80-I could not be denied to the assessee for repairing old transformers." 28. On the facts of the case, the Assessing Officer after enquiry had taken a possible view of the matter. It was, therefore, obligatory on the part of the Commissioner to show for the purposes of provision of section 263 that assessment order was erroneous and insofar as prejudicial to the interest of the revenue. It was for the ld. Commissioner to show that repair charges, if any, received by the assessee were totally unconnected with the manufacturing activities carried on by the assessee and, therefore, could not form part of manufacturing receipt for purposes of section 80-IA of the Income-tax Act. The onus was not on the assessee but clearly on the revenue to show that a specified amount out of total receipt of the assessee, exemption under section 80-IA was wrongly allowed as exempt. No such exercise was undertaken by the ld. Commissioner in spite of two innings provided to the Commissioner to show error and prejudice in the order of the Assessing Offic....