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Issues Involved:
1. Whether the re-assessment order dated 27.01.2004 is erroneous and prejudicial to the interests of revenue. 2. Justification of the CIT's action to modify the re-assessment order and withdraw the deduction granted under Section 80IA of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Whether the re-assessment order dated 27.01.2004 is erroneous and prejudicial to the interests of revenue: The assessee filed a return declaring nil income, claiming a deduction under Section 80IA(2)(iv)(c) of the Income Tax Act, 1961, for Rs. 4,84,234/-. The Assessing Officer (AO) initially allowed this deduction after considering whether the repair work on transformers could be classified as manufacturing. The AO concluded that the repair work involved manufacturing activities and thus allowed the deduction. However, the Commissioner of Income Tax (CIT) later found this re-assessment to be erroneous and prejudicial to the interests of revenue, arguing that the assessee was only engaged in repair work, not manufacturing, and directed the withdrawal of the deduction. The CIT's basis was that no new product came into existence through the repair work, and thus, it did not qualify as manufacturing. The Tribunal examined whether the AO had made due and proper inquiries before allowing the deduction. It noted that the AO had considered various documents, including sales bills showing the sale of manufactured items, and had concluded that the repair work involved manufacturing activities. The Tribunal found that the AO's view was a possible one and in line with the decision of the Amritsar Bench in Saraf Electricals Pvt. Ltd. vs. ACIT, which held that repairing old transformers could be considered manufacturing. The Tribunal concluded that the CIT had not considered all the material facts and had not shown that the AO's conclusion was unsustainable in law. Therefore, the re-assessment order could not be termed erroneous. 2. Justification of the CIT's action to modify the re-assessment order and withdraw the deduction granted under Section 80IA of the Income Tax Act, 1961: The CIT's action was based on the view that the assessee's activities did not amount to manufacturing but were merely repair work. The Tribunal noted that the CIT had not provided sufficient evidence to show that the AO's order was erroneous and prejudicial to the interests of revenue. The CIT had not considered the assessee's registration as a manufacturing unit, sales tax payments, and declarations to the Excise Department, which supported the assessee's claim of being engaged in manufacturing activities. The Tribunal found that the AO had made a thorough examination of the facts and had a reasonable basis for allowing the deduction. The CIT's order was set aside as it failed to demonstrate that the AO's order was both erroneous and prejudicial to the interests of revenue. Separate Judgment by Judicial Member: The Judicial Member disagreed with the majority view, emphasizing that the assessee was only engaged in repair work and not manufacturing. The Judicial Member argued that the AO had erroneously equated repair work with manufacturing without sufficient evidence or expert opinion. The Judicial Member upheld the CIT's action, stating that the AO's order was erroneous and prejudicial to the interests of revenue. Third Member's Decision: The Third Member agreed with the Accountant Member, concluding that the AO had taken a possible view based on thorough inquiries and that the CIT had not demonstrated that the AO's order was erroneous and prejudicial to the interests of revenue. The Third Member answered both questions in favor of the assessee, leading to the appeal being allowed. Conclusion: In light of the majority view, the appeal of the assessee was allowed, and the CIT's order under Section 263 was set aside. The re-assessment order dated 27.01.2004 was not found to be erroneous or prejudicial to the interests of revenue.
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