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TMI Blog2003 (2) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... manent Registration with the District Industries Centre, Daman and also registered with Chief Inspector of Factories Textile Commissioner, Mumbai. The aforementioned authorities treated the factory premises as a factory engaged in spinning of yarn for the manufacture of waste cotton yarn. The assessee purchases coarse cotton waste from Cotton Mills like Welspun Terry Towels, Bombay Dying, Century Textile Ltd. NTC Mills etc. Since it is uncleaned cotton waste, the job of cleaning and opening of cotton was entrusted to M/s. Shyam Udyog. During the previous year relevant to the assessment year under consideration, the assessee paid a sum of Rs. 7,76,564 to M/s. Shyam Udyog for the aforementioned job work. The cleaned cotton waste, according to the assessee, is suitable for manufacturing process. The cotton waste is put on Roving Machines to which spindles are attached. By this process, the cotton waste is twisted and yard is winded on bobbins. This is then taken to the reeling machine for reeling the yarn for hank form. The hanked yarn is then taken to bundling machine where it is packed in 4.5 kgs. Bundles and 8 such bundles are packed in one gunny bag. The process of conversion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and in turn received labour charges for carrying out the said job. Vide letter dated 25-1-2000, addressed to the Assessing Officer, the assessee submitted that he is eligible to claim deduction under section 80-IA of the Act. Copies of the Factory license, Registration Certificate as Small Scale Industrial Undertaking etc., were furnished before the learned Assessing Officer apart from categorically stating that the process of converting the cotton waste into cotton waste yarn as a manufacturing process. Based on the information furnished before the learned Assessing Officer, the learned Assessing Officer concluded that the assessee is entitled for deduction under section 80-IA of the Act. The following observations of the learned Assessing Officer shows the nature of enquiry conducted by him : "The assessee s main source of income is from manufacturing of cotton yarn at his factory situated at Daman . . . The assessee has furnished all the relevant details as well as evidence for allowability of deduction claimed under section 80-IA. The assessee is manufacturing yarn out of waste cotton which he is procuring from the nearby Mills and commission agents." The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 80‑IA was correctly accepted by the learned Assessing Officer. 6. It may be noticed that the Dy. CIT 25(2) Mumbai has not taken any action after receiving the detailed reply. But, within a short period thereafter, i.e., on 20-3-2002, the CIT, MC-XXV, Mumbai issued a Notice under section 263 of the Act wherein the some reason was mentioned to state that the order passed by the learned Assessing Officer is erroneous and prejudicial to the interest of the revenue. The show-cause notice dated 20-3-2002 read thus :- "It is seen from the assessment records that the assessment framed by the DCIT (Inv.), Circular 15(1), Mumbai dated 15-2-2000 under section 143(3) for the assessment year 1997-98 determining the total income at Rs. 1,05,070 is prejudicial to the interest of the revenue in as much as the Assessing Officer has allowed the deduction amounting to Rs. 25,33,282 under section 80-IA of the Income-tax Act when no manufacturing activity was carried on as the processing charges amounting to Rs. 7,65,564 was paid to an outsider and there is nothing in record show that the manufacturing activity was carried out to claim the deduction under section 80-IA and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activity, the assessee is converting such cleaned cotton waste into yarn which amounted to manufacturing activity and thus, it cannot be said that the Assessing Officer has not applied his mind while allowing the claim of deduction under section 80‑IA of the Act. The learned counsel for the assessee further submitted that though the revisional authority doubted the nature of enquiries conducted by the learned Assessing Officer, even at the stage of issue of notice under section 263 or thereafter, he could not lay his hands on any material to prove that the process carried out by the assessee was not a manufacturing activity. He was merely swayed away by the fact that the assessee incurred expenditure to the tune of Rs. 7,65,564 in the form of payment of labour charges to M/s. Shyam Udyog for carrying out the work of cleaning and opening of cotton waste, ignoring the fact that the cleaned cotton waste was further processed by the assessee to produce cotton waste yarn and in the process, incurred an expenditure of Rs. 6,67,930 and on account of the process carried out in-house, the cleaned cotton waste was converted into cotton waste yarn which is a new marketable product. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative adverted my attention to the assessment order as well as the material papers to submit that after the routine enquiry, the Assessing Officer posted the case for hearing on 25-1-2000 and at no stage he has called for the details about the manufacturing activity except ensuring that all other conditions were fulfilled under section 80‑IA of the Act. She further submitted that the record do not suggest any query being asked by the Assessing Officer with regard to the processes carried out by M/s. Shyam Udyog. Thus, she submitted that the essential enquiries were not carried out by the Assessing Officer in which event the order of the Assessing Officer can be termed as erroneous which results in prejudicial to the interest of the revenue. She has relied upon the following decisions in support of her contention that in a case where it is ascertained that no application of mind on the part of the Assessing Officer, proceedings under section 263 of the Act can be validly initiated : (1) Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC); (2) Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) ; (3) CIT v. South India Shipping Corpn. Ltd. [1998] 233 ITR 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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