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2013 (8) TMI 761 - AT - Income TaxRevision u/s 263 - erroneous and prejudice to revenue order Held that - As held in the case of Malabar Industries Co. Ltd., Vs. CIT 2000 (2) TMI 10 - SUPREME Court , the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue Assessing officer should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him - The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. Arbitrariness in decision- making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer - While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In the present case, there is no description what enquiry he has caused to come to the conclusion that the assessee is entitled for deduction u/s. 80IC of the Act - Regarding allowability of deduction u/s. 80IC of the Act from Assessing Officer s order. The assessee produced copy of letter dated November 6, 2006 addressed to the Assessing Officer and one more letter dated 15.12.2008. There is one more letter regarding claim of the assessee u/s. 80IC of the Act. It has to be noted that these letters do not bear any acknowledgement from the Assessing Officer or from the Inward section of the Department - In these circumstances, we are of the opinion that the CIT is justified in exercising his powers u/s. 263 of the Act. Manufacture of water purifiers - Assembly - Deduction u/s 80IC of the Income Tax Act, 1961 - The case of the assessee is that the assessee is engaged in the manufacturing activity and hence, the assessee is entitled for deduction u/s 80IC of the Act. The case of the DR is that the assessee is not engaged in the manufacture and it is only engaged in the work of assembling of various parts of purifier and joining them so as to make water purifier an there is no value addition to this product Held that - In the case under consideration, the assessee company does the assembling work to prepare water filter cum purifiers. It purchases various components like, chassis, body, top cover, back cover, pumps, PCB, wire harness, some hardware and plastic components from different vendors from all over India, assembles these components to get a finished product - A new distinct article which is called water purifier came into existence having commercial market and the original commodity no longer remained and the new product has recognized as distinct commodity - Assessee is engaged in the manufacture of water purifiers and therefore entitled for deduction u/s 80IC.
Issues Involved:
1. Jurisdiction of invoking Section 263 of the Income-tax Act, 1961. 2. Allowability of deduction under Section 80IC of the Income-tax Act, 1961 for the manufacture of water purifiers. Detailed Analysis: 1. Jurisdiction of invoking Section 263 of the Income-tax Act, 1961: The assessee contested the invocation of Section 263 by the CIT, arguing that the original assessment under Section 143(3) was not erroneous or prejudicial to the interests of revenue. The CIT invoked Section 263, claiming insufficient enquiry by the Assessing Officer (AO) regarding the assessee's claim under Section 80IC. The Tribunal analyzed the legal framework, emphasizing that Section 263 empowers the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the revenue. The term "erroneous" was interpreted as involving error or deviation from the law, as defined in Black's Law Dictionary and P. Ramanatha Aiyer's Law Lexicon. The Tribunal noted that an order could be erroneous if it is based on incorrect facts, incorrect application of law, or insufficient enquiry. The Tribunal concluded that the AO's order was cryptic and lacked detailed enquiry into the assessee's claim under Section 80IC. The letters submitted by the assessee did not bear any acknowledgment from the AO, making it unclear whether a proper enquiry was conducted. Therefore, the Tribunal upheld the CIT's invocation of Section 263, confirming the order passed under this section. 2. Allowability of deduction under Section 80IC of the Income-tax Act, 1961 for the manufacture of water purifiers: The revenue appealed against the CIT(A)'s decision allowing deduction under Section 80IC for the manufacture of water purifiers. The AO had disallowed the deduction, arguing that the assessee was merely assembling components rather than manufacturing. The Tribunal examined the facts, noting that the assessee had units in various locations, with profits from units in Baddi and Bhimtal claimed as exempt under Section 80IC. The AO, based on reports from DDIT (Inv), Shimla, concluded that the assessee was engaged in assembling rather than manufacturing, disallowing the deduction. The CIT(A) relied on ITAT Mumbai's decision in P.L. Patel vs. ITO, which held that assembling components to create a new product constitutes manufacturing. The Tribunal agreed with the CIT(A), citing several judicial precedents, including CIT vs. Jackson Engineers Ltd., CIT vs. Mahesh Chandra Sharma, and CIT vs. Chiranjjevi Wind Energy Ltd., which supported the assessee's claim of manufacturing. The Tribunal concluded that the assessee's activity of assembling various components to create water purifiers constituted manufacturing, entitling the assessee to deduction under Section 80IC. The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s order. Conclusion: The Tribunal dismissed the assessee's appeal against the invocation of Section 263, confirming the CIT's order. It also dismissed the revenue's appeals, upholding the CIT(A)'s decision that the assessee was entitled to deduction under Section 80IC for the manufacture of water purifiers. The orders were pronounced in the open court on 15th July, 2013.
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