TMI Blog2005 (11) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and jewellery and even the audit report under section 44AB mentions in column 28(a) that it is a trading concern and that column 28(b) relating to manufacturing concern is not applicable. (iv) The learned CIT(A) erred in law and on facts that the outsourcing is a manufacturing activity." 3. Rival contentions have been heard and records perused. The brief facts of the case are that the assessee is a partnership firm that came into existence on 21-6-1999. The object clause of the firm is described as exports of gems and jewellery. The returns of income for assessment years 2000-01 and 2001-02 were accepted under section 143(1). In the year under appeal i.e., assessment year 2002-03, the assessee outsourced the manufacturing facility and exported goods thus manufactured. In the return of income the assessee declared the income of Rs. 28,14,930 after claiming the deduction of Rs. 58,83,266 under section 80HHC. The assessee also added a footnote in which it was claimed that the assessee was eligible for deduction under section 10B of the Income-tax Act and the required certificate in Form No. 56G for claiming the deduction was also attached with the return of income. There was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not legally made and it cannot be ignored. 3.2 Before the CIT(A) it was submitted by learned AR that the manufacturing of the exported articles is got done from outside sources and that was the circumstance which prompted the assessee to be cautious about computing the income after claiming the deduction under section 10B. If the manufacturing under section 10B excludes the outsourcing of manufacturing, the assessee may face the prospect of the rejection of the claim and consequent interest liabilities and proceedings under penal provisions. The question to be considered is to whether manufacturing would include manufacturing by outsiders under the responsibility and supervision of the assessee in terms of risks and quality control. As per learned A.R. the issue is no longer a debatable issue and that the undertaking itself need not carry out the actual manufacturing. In CIT v. Rajmohan Cashews (I) Ltd. [1995] 211 ITR 659 (Ker.) "good portion of processing of cashew was done in outside factories with processing charges being paid by the assessee. Similar view was taken in CIT v. Talwar Khuller(P.) Ltd. [1999] 235 ITR 70 (All.) and CIT v. Indian Resins and Polymers [1999] 235 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0J and though the responsibility for claiming refund and relief rested with the assessee, ITO should have drawn the attention of the assessee to this relief to which the assessee appeared to be clearly entitled but which the assessee had omitted to claim. The decision went against the assessee only because the relevant material for granting relief could not be said to have been available with the ITO at the time of making assessment. In the present case the claim is made and the relevant material is furnished. The manner of making the claim should not come in the way of taking a decision about its allow ability or otherwise. In the case of N.T. Patel Co. v. CIT [1961] 42 ITR 224, the Supreme Court observed that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. As a result, if it is found by a Tribunal in the course of deciding a matter that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time. Of course this can be done only if the relevant facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts attached with the return is no more in the statute book during the relevant assessment year 2002-03 under consideration. As per learned D.R., since the Assessing Officer does not have any power at all to make any changes in the returned income submitted by the assessee while issuing the intimation on the basis of return he cannot assume power under section 154. He relied on judgment of Patna High Court in the case of Parikh Engg. Body Building Co. Ltd. v. CIT [1999] 238 ITR 554 in support of the proposition that what could not have been done directly cannot be done indirectly in the garb of rectification power. 4.1 It was argued by the ld. Authorised Representative that by not considering the alternative claims made by the assessee in its return of income, there arose a mistake in the order of the Assessing Officer passed under section 143(1). As the mistake was apparent from the record he should have rectified the same on the application made by the assessee under section 154. Since the Assessing Officer did not judiciously rectified the mistake, the CIT(A), had correctly exercised his powers under section 154 and directed the Assessing Officer for allowing statutory claims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further reiterated the contentions made before the CIT(A) and justified his action for directing the Assessing Officer for allowing assessee's claims. 4.3 To highlight what constitutes record of assessment, the learned AR relied on CIT v. K.N. Oil Industries [1983] 142 ITR 131 (MP) wherein it was held that the record of the assessment is not confined to the return. Section 154 of the Act which confers jurisdiction for rectifying a mistake enables the ITO to assume jurisdiction when he finds "any mistake apparent from the record". The word 'record', as used in section 154, will include all material which forms-part of the assessment proceedings and not only the return. If an assessee omits to claim the relief allowable to him under the provisions of the Act, it could not be said that he is not entitled to get that relief. It is the duty of the ITO and other officers administering the Act to inform the assessee that he is entitled to a particular relief if it is apparent that he is so entitled from the material available in the proceedings of assessment. Held, on the facts of the case, that if it is apparent from the record that the assessee was entitled to relief admissible under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tern and design of the articles to be manufactured by the artisans and advances money to them for purchasing the raw material, namely, brass, to manufacture those articles. The artisans made articles in different models. The articles in raw form were examined by the assessee and then directions were given to the artisans to modify and polish the same. The assessee claimed that it was an industrial company as defined in clause (c) of section 8 of the Finance Act, 1975, engaged in the manufacture and processing of brassware articles and entitled to the concessional rate of tax. Held, that a processor of goods need not himself carryout all the processes resulting in the end product: he may get some of them done by a third party. The artisans were not free to manufacture any item of their own in any shape or pattern they liked but they were guided by the assessee itself as to which pattern and design they were required to manufacture. 4.8 In the rejoinder, learned D.R. submitted that the judgment of S.R. Koshti v. CIT [2005] 276 ITR 165 (Guj.), as relied on by learned AR is not applicable to the assessee's case insofar as facts are different. In the case of S.R. Koshti, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartmental Representative in the instant case the returned income was accepted by Assessing Officer under section 143(1), in which the assessee had made a claim under section 80HHC, therefore, no fault can be traced in his order. 5. We have considered the rival contentions, carefully gone through the orders of authorities below and also deliberated on various judicial pronouncements relied on by the learned Authorised Representative and learned Departmental Representative and cited at bar, in the factual matrix of the instant case. We have also carefully gone through the detailed paper book filed by the learned A.R. as well as rejoinder filed by the learned Departmental Representative. As per our considered view, the main controversy involved in the instant case relate to the power of the CIT(A) while deciding an appeal filed against the order of Assessing Officer passed under section 154 read with section 143(1). In the instant case, there is no dispute to the fact that in the original return, the assessee has made claim for deduction under section 80HHC and income was returned accordingly. However, in the other documents accompanying with the return of income, as footnote, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B is subject to various conditions and stipulations which are required to be examined. In the instant case, the CIT(A) was undisputedly deciding the appeal filed against dismissal of application under section 154, which has been filed to rectify the mistake done by the Assessing Officer while processing the return under section 143(1). Here we have to see the scope of powers under section 154, read with section 143(1) and not 143(3). The provisions of section 143(1) has been amended by the Finance Act, 1999 with effect from 1-6-1999. In view of the above discussions, following questions falls for consideration: (i) What are the powers of the Assessing Officer while processing return under section 143(1) for the assessment year 2002-03, under consideration. (ii) If the assessee, in addition to the main claim made in the return, has made some alternative claims in the statement enclosed with the return, whether the Assessing Officer is required to pass separate orders for different income worked out on the basis of different claims, while processing the return under section 143(1). (iii) If the Assessing Officer has accepted the claim made in the original return and proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2000-01 and which are applicable for the assessment year 2002-03 under consideration reads as under: "143. [(1) Where a return has been made under section 139, or in response to a notice under sub-section 142.- i. if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and ii. if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee." 6.1 It is crystal clear from the plain reading of above section that the power of Assessing Officer while processing return under section 143(1), after its amendment by Finance Act, 1999 with effect from 1-6-1999, is limited to ask for any shortfall in the tax amount or interest or to issue refund if the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under section 80-IB on the basis of audit report and other documents enclosed therewith. Can it be said that all such other alternate claims made by the assessee would go in vain, just by stating that there was no fault in the Assessing Officer's action under section 143(1). The clear cut answer is 'No'. The jurisdictional High Court in the case of S.R. Koshti had categorically observed that the authorities under the Income-tax Act are under an obligation to act in accordance with the law and tax can be collected only as provided under the Act. It was further observed that if an assessee under a mistake or misconception or of not being properly instructed, are over-assessed the authorities under the Act are required to assist him and ensure that only legitimate taxes are collected. Applying the broad proposition laid down by the jurisdictional High Court to the facts of the instant case, the alternate claim put by the assessee is required to give due weightage by the Assessing Officer as per the provisions of the Act after calling for required information/ documents in this regard and undertaking necessary inquiry with respect to eligibility of alternative claim put by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already on the record. Other, case laws referred by the ld. Authorised Representative pertains to the power of rectification with reference to scope of section 143(1) prior to its amendment by the Finance Act, 1999. Thus these case laws are not pertinent for deciding the scope of power under section 154/143(1) for the relevant assessment year 2002-03, under consideration. Further more in view of the detailed arguments placed by the learned AR with regard to eligibility of assessee's claim under section 10B/80-IB, there remains no doubt that issue was debatable and allowability or denial of such claim require long process of reasoning which does not come within the purview of section 154. As per our considered view, mistake apparent from the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably two opinions. In the instant case, it was not open to the Assessing Officer to go into the eligibility of assessee's claim under provisions of section 10B/80-IB, while disposing the petition filed under section 154/143(1). Thus the power of rectification can be exercised only when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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