TMI Blog2008 (11) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 return was processed under section 143(1) of the Act on 11-5-2001. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 HV Leg Coil and value of such goods cleared during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 manufacture of transformer includes repairs of transformers as well. (ii) As regards all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing 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. Accordingly, I propose humbly to set out the reasons for writing a dissenting order. 2. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, article or thing comes into existence there will not be any manufacture or production. As such, simply by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y- (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, therefore, the proceedings under section 263 have been requested to be dropped." 12. Considering these the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Paper Book so as to contend that the sales tax has been paid on the sales of such goods. (vii) Moreover that the assessee has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer 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 manufacturing has taken place and has tried to rely upon a long drawn erroneous reasoning that since these articles were within the warrantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the extent of damage and as such no material or evidence has been discussed to that extent. Moreover, no finding also has been given th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormer. 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 only carried out repairing work. The Registration Certificate of Small Scale Industries Development per se does not entitle the assessee to cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ously 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 hereinabove is upheld by me. 27. In the result, appeal of the assessee is dismissed. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 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 proceeds in the profit and loss account, the Assessing Officer had held in reassessment proceedings that assessee carried on manufacturing activities and was entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Officer or before CIT (Administration) in the two rounds.' (iii) No finding also has been given that the transformers were damaged to such an extent that the entire step ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able 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 in the transformer. The assessee even sold fully manufactured transformers for which a sum of Rs. 50,605 stood credited to the Profit and loss account of the last year. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 manufactured by the assessee and other parts, which were independent commercial products was duly shown in the record. In this connection, my attention was again drawn to pages 32/33 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 connection metal parts, cork sheet washer, insulation material, material manufactured by the company at its own. The business of the company is primarily manufacturing of electromechanical parts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 manufacture of Transformers and manufacture of electromechanical parts, accessories, components of distribution transformers from raw and fresh material. The main parts manufactured by the assessee were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 material was PPC Aluminium wire. Through the coil winding machine, HV leg coils are prepared with the help of insulating paper, cotton, tape, Empire sleeve and adhesive. 21. In order to show that parts and accessories manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 118276.00 - ------------------------------------------------------------ Total: 1186143.00 1123092.00 ------------------------------------------------------------ 23. The closing stock as per Schedule 'M' shows different items like DPC coil and other finished goods and their total value is shown at Rs 6,22,994. The claim of the assessee as a manufacturing unit is further supported by report of a Chartered Accountant. The certificate also contains information on licensed capacity, and capacity in fact used and number of items manufactured. 24. At pages 57 and 58, the assessee has shown sale bills to establish that various parts were sold by the assessee to MPEB. On such parts, manufactured by the assessee, the assessee has paid sales tax and this fact is not in dispute at all. Thus sale of items manufactured by the assessee is fully established. No sales tax is payable on repairs and this material fact has been disregarded. It is clear that neither the case of the assessee nor material available on record was examined and on general observations without reference to any specific material action under section 263 was taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The entire case could not be thrown out on the ground that assessee in the profit and loss account has stated sale receipts including of repair charges. It is further not permissible to invoke section 263 to correct a minor error findings or observations in the assessment order. "Error" and prejudice to the revenue has to be shown with reference to record. The case set up by the assessee in reply that it was manufacturer of electromechanical parts - accessories was totally ignored. The same was the position of evidence on record. The Appellate Tribunal is/was required to hold the approach of ld. CIT as legally erroneous. In this connection, reference is invited to the following decisions:- (i) In the case of Gabriel India Ltd. their Lordships held as under:- "An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only when an order is erroneous that the section will be attracted." 26. The ld. Judicial Member who passed a dissenting order here is herself the author of order in the case of ITO v. AMD Export Corpn. (Kandla) [2001] 79 ITD 381 (Delhi) wherein it is observed as under:- "The provisions of the Act as well as the circulars of the Board would clearly show that the purpose of incorporating this section is to provide development and growth to certain identified/identifiable backward areas of the State. The purpose is to encourage economic development and industrialisation of those areas. The object of section 10A is to give fillip to a new industrial undertaking in the initial stage, the benefit cannot be taken away by imposing any restrictions which do not mention in the Act. This would be in consonance with the recognised principles of interpretation. The administrative authority or the court should not whittle down the plenitude of the exemption or relief granted by the legislation by laying stress on something which is not considered in that provision." 27. In the case of Saraf Electricals (P.) Ltd., the Amritsar Bench as per head note observed as under:- "Deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, in accordance with law. ORDER Per Hari Om Maratha, Judicial Member.-In this case, there was a difference of opinion between the Members constituting the original Bench on the following points: "(i) Whether under the peculiar facts and findings, the reassessment order dated 27-1-2004 can be termed both erroneous and prejudicial to the interest of revenue? (ii) Whether there is any justification in the action of ld. CIT, Gwalior to modify the reassessment order and withdrawing the deduction of Rs. 4,84,234 granted under section 80-IA of the Act by taking action under section 263 of the Income-tax Act, 1961." 2. The learned Accountant Member had set aside the revisional order passed under section 263 of the Act and had allowed the appeal of the assessee. The learned Judicial Member, on the other hand, had dismissed the appeal of the assessee. The learned Third Member has agreed with the view taken by the learned Accountant Member and has answered both these questions in favour of the assessee by replying the same in the negative. In the light of the majority view, the appeal of the assessee stands allowed. 3. In the result, the appeal of the assessee is allowed. - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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