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TMI Blog1997 (2) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... should have appreciated the materials placed before him and claimed that the appellant firm was entitled to relief under section 80HHC for the export of granite stone . A sum of Rs. 11,60,340 was included in the total turnover. He submitted to set aside the order of the Commissioner and to restore that of the Assessing Officer who has granted the relief under section 80HHC of the Act. The Commissioner of Income-tax, Bombay City-I, held that the deduction under section 80HHC of the Income-tax Act, 1961, of Rs. 54,94,805 was wrongly allowed since the products manufactured during the previous year relevant to the assessment year 1989-90, were classifiable under the category minerals and ores . He further held that notwithstanding the deduction under section 80HHC of the Act, showed income of Rs. 11,60,340 and interest income of Rs. 3,78,975 and miscellaneous income of Rs. 7,300 and credit balance write back of Rs. 92,271 were wrongly excluded from the total turnover within the meaning of section 80HHC of the Income-tax Act, 1961. The appellant firm had been engaged in the business of excavation of granite stones and in cutting and dressing the said stones to make them dimensiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to him, it was important to consider the jurisdiction of the Commissioner of Income-tax, Bombay City-I, for invoking and initiating the proceedings under section 263 of the Income-tax Act, 1961, to set aside the assessment on the point of granting relief under section 80HHC directing the Assessing Officer to make fresh assessment in this respect. He only considered that the Assessing Officer did not apply his mind. However, the Commissioner did not come to the conclusion that granting relief under section 80HHC was not correct and he did not give any finding on that point of granting relief or did not issue a further direction to withdraw the relief granted by the Assessing Officer except holding that the Assessing Officer did not apply his mind properly. Mr. Sonde argued at length on the point of jurisdiction and the powers of the Commissioner of Income-tax invested in him under section 263 of the Income-tax Act, 1961. The crux of his arguments was that the Commissioner of Income-tax wrongly initiated the proceedings under section 263 of the Act and his setting aside the assessment with a direction to make fresh assessment was not correct. Therefore, he submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment of income on higher or lower income. Mr. Sonde pointed out the appellant s explanation from page 5 of the paper book. In paragraph 10, it was stated that the appellant was dealing in granite stone and this was not excisable goods. Only export sales were done. There were no local sales. The exports were done from the Mangalore Port through the Bharat Overseas Bank, Fort Branch, Bombay. The appellant furnished all the details to the Assessing Officer, vide pages 11 to 20 of the paper book in respect of the claim made by way of relief and deduction. Mr. Sonde mainly relied on case law in support of his contention that simply setting aside the assessment was not sufficient under section 263. In support of this contention, he has cited and relied upon the decision of the Punjab and Haryana High Court in the case of CIT v. R. K. Metal Works [1978] 112 ITR 445. The Punjab and Haryana High Court held that it was necessary for the Commissioner to state in what manner he considered that the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue and what the basis was for such a conclusion. There was no indication in the order as to the basis on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was erroneous nor it was prejudicial to the interests of the Revenue. For this reason also, the assessment could not have been set aside. He argued that the order may be prejudicial to the interests of the Revenue but the same cannot be set aside if it was not found erroneous. He submitted that the initiation of the proceedings under section 263 was bad in law and without jurisdiction. Mr. Sonde relied on the decision of the Allahabad High Court in the case of CIT v. Goyal Private Family Specific Trust [1988] 171 ITR 698. He has also pointed out certain observations from pages 701 and 702 of the said decision. This decision is on the point that in the absence of a finding by the Commissioner of Income-tax that the assessment orders were erroneous, the cancellation of the assessments was not justified. The Tribunal was justified in setting aside the order of the Commissioner and no question of law arose from his order. The Commissioner did not give a specific finding that the assessment order was erroneous on such and such basis and, therefore, it was fit to set aside and to make fresh assessment. The Commissioner s finding is a necessary ingredient. Mr. Sonde also cited and reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef. The cumulative effect of the arguments advanced by Mr. Sonde and the case law together is to come to a conclusion that in the instant appeal, the initiation of the proceedings under section 263 was not correct. The learned Departmental Representative, Shri R. K. Lachchiramka also argued vehemently and he tried to point out the merits and demerits of the claim under section 80HHC. At this point, according to the appellant, the claim was allowable and according to the learned Departmental Representative, the claim was not allowable. As we have mentioned above, we are not concerned either with the allowability or non-allowability of the claim. We are concerned with the jurisdiction of the Commissioner of Income-tax and powers invested in him under section 263 of the Incometax Act, 1961. We also need not take into account the quality of granite. According to Mr. Lachchiramka, the Assessing Officer neither made enquiries in detail nor applied his mind to the assessee s claim. He contended that the Commissioner of Income-tax was right in setting aside the assessment with a direction to make a fresh assessment. The Commissioner of Income-tax did not mention specifically in his ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d prejudicial to the interests of the Revenue, otherwise not. How it should be found erroneous and prejudicial has been mentioned in the case law cited above. If these norms are not followed to set aside the assessment, the setting aside the assessment under section 263 cannot be held proper and justifiable. After examining the relevant facts and the legal position, we are unable to come to a conclusion that the Commissioner of Income-tax was right in setting aside the assessment and directing the Assessing Officer to make fresh assessment. We hereby quash the order of the Commissioner of Income-tax passed under section 263 and restore that of the Assessing Officer. In this view of the matter, the appellant succeeds and the appeal is allowed. N. R. PRABHU (Accountant Member). I have carefully gone through the order of the learned Judicial Member and I am not persuaded to accept his findings. The facts of the case have been set out by the learned Judicial Member in great detail and they need not be stated here. The assessee was an exporter of cut and polished granite. It had claimed section 80HHC relief before the Assessing Officer and the same was allowed by him. The Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Commissioner is quite clear on the point. He has spelt out in the impugned order that since the assessee was engaged in the export of cut and polished granite stone, relief under section 80HHC of the Act was probably not available to it prior to the introduction of Schedule Twelve. The assessee has claimed that the Commissioner was not clear in his findings and, in this connection, adverted to the following remarks made by him in paragraph 6.2 of his order : It is also clear from the various case law quoted by the assessee s counsel that the matter is highly debatable. These observations were made by the Commissioner in the context of the assessee s claim that granite was not in the nature of minerals and, therefore, nothing turns on the same. In any case, as observed earlier, the assessee has not addressed us on the merits of the issue. I shall now proceed to deal with the cases relied upon by the assessee in support of its claim that the Commissioner exceeded his jurisdiction in assuming his revisionary powers under section 263 of the Act. I shall first refer to the decision of the jurisdictional High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 263 of the Act cannot be made use of for setting aside, what the Commissioner considers as, unfavourable orders. Thus, it could be seen that none of the cases relied upon by the assessee does help to advance its case. At the time of appeal hearing, the assessee had pointed out that a similar claim of the assessee was accepted by the Revenue in the earlier years. This again does not in any way go to show that there has been an application of mind by the Assessing Officer regarding the claim of the assessee. The assessments had been completed in a routine manner. The argument of the assessee that the claim had been admitted after proper consideration of the issue is not supported by the material on record. The assessee s learned counsel has pointed out, in this connection, that the assessee had furnished a revised working of deduction under section 80HHC of the Act, before the Assessing Officer, in the course of the assessment proceedings and that was accepted by the Assessing Officer. Such acceptance, according to learned counsel, cannot be without considering the issue before him. The revised working is contained in a letter written by the assessee to the Assessing Officer. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in taking recourse to his revisionary powers. Before parting with this case, I may observe that the powers of the Commissioner under the provisions of section 263 of the Act are very wide and in the exercise of the supervisory powers, it would be open to him to correct a mistake which is prejudicial to the Revenue arising out of nonapplication of mind, or an incorrect or incomplete interpretation of the relevant statute, by the Assessing Officer. In view of what is stated above, I do not find any reason to interfere with the impugned order of the Commissioner. It is, accordingly, sustained. In the result, the appeal fails. It is dismissed. ORDER OF REFERENCE TO THIRD MEMBER Since we have differed in our opinion in the abovementioned appeal, the following point of difference of opinion is being referred under section 255(4) of the Income-tax Act, 1961, to the President, Income-tax Appellate Tribunal, to hear and decide it by majority of members : Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax was right in initiating the proceedings under section 263 of the Income-tax Act, 1961, on the only ground that the Incometax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1989-90 are classifiable under the category of minerals and ores . 2. Notwithstanding No. item (2) shown income of Rs. 11,60,340 and interest income of Rs. 3,78,975 and miscellaneous income of Rs. 7,300 and credit balance write back of Rs. 92,271 are wrongly excluded from the total turnover within the meaning of section 80HHC of the Income-tax Act, 1961. It may be observed that the Commissioner of Income-tax did mention that the products manufactured by the assessee, i.e., granites are classifiable or includible under the category of minerals and ores. After, it was pleaded by the assessee before the Commissioner of Income-tax that granite cannot be classified as minerals and ores, since it is essentially a rock which is used as ornamental stones in buildings. The Commissioner of Income-tax rejected this argument with the following observations : Coming to the second point regarding relief under section 80HHC it is clear that the Assessing Officer has not at all considered the legal implications of exclusion of minerals and ores for the purpose of section 80HHC. It is also relevant that section 80HHC(2)(b) has been amended with effect from April 1, 1991, taking process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding either on the application of mind or on the granting of relief under section 80HHC by the Assessing Officer because the said point was not argued on the merits. We are concerned (wrongly typed as constrained ) with only the point whether the initiation of proceedings under section 263 of the Act and setting aside the assessment is correct. He observed that the Commissioner of Income-tax was not justified in revising the assessment order because he did not point out any error in the assessment order. In this context, he has relied, inter alia, upon the decision of the jurisdictional High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom) and held as follows (page 69) : We have examined the facts relating to invoking the provisions of section 263 by the Commissioner of Income-tax. We find that he has merely set aside the assessment order and directed the Assessing Officer to make fresh assessment. He did not give any specific finding and the basis to hold that the assessment order was erroneous and prejudicial to the interest of the Revenue. The decision of the Bombay High Court in CIT v. Gabriel India Ltd. [1993] 203 ITR 108, fully applies to the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for relief under section 80HHC of the Act on granite. I shall, at the cost of repetition, refer here to the decision of the jurisdictional High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom), where the court has observed that where there was some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute or on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed, exercise of revisionary powers would be justified. What has happened in the instant case is that due to incorrect interpretation of the relevant statute, or nonapplication of mind by the Assessing Officer, legitimate taxes had not been imposed and, therefore, the Commissioner was justified in taking recourse to his revisionary powers. Before me, learned counsel for the assessee reiterated the argument that carried weight with the Judicial Member. It is claimed that the Commissioner of Income-tax should give a positive finding about the error in the assessment order before he can invoke his jurisdiction under section 263. He stressed that, according to the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actional Analytic Centre for Education, Research and Training v. ITO [1988] 24 ITD 400 (Delhi). The learned Departmental Representative, on the other hand, supported the order of the learned Accountant Member. It is pleaded that the Commissioner of Income-tax has brought out both in the show-cause notice issued by him and in the order, that the assessment order was erroneous inasmuch as the relief under section 80HHC was granted without examining the issue whether the cut and polished granite which was actually exported by the assessee falls in the prohibited category of minerals and ores prior to the amendment to this section and insertion of the Twelfth Schedule with effect from April 1, 1991. He has also relied on the decision of the Karnataka High Court in the case of God Granites v. Under Secretary, CBDT [1996] 218 ITR 298, and argued that as per this decision, the term mineral used in section 80HHC(2)(b) includes rock and the term rock includes granites and so, prior to the amendment, the assessee, who exported only granite was not eligible for the grant of relief under the said section. So, it is pleaded that there is a clear error in the assessment order, which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the grant of the relief. He has not considered whether the granite is included in minerals and ores and so, whether the export of granite qualifies for the relief under section 80HHC. The replies sent by the assessee to the questionnaires issued by the Assessing Officer are at pages 3 to 20 of the assessee s paper book and none of these replies bear out that the Assessing Officer applied his mind to this issue or raised a question on this issue and obtained the assessee s reply thereon. The question of quantification of the relief arises only if the granite is not included in minerals and ores and so, the assessee qualifies for the grant of relief. As the Assessing Officer has not applied his mind to a very relevant and basic issue, I am of the view that the assessment order has to be categorised as a stereotyped one and so, in the light of the decision of the Delhi High Court in the case of Gee Vee Enterprises [1975] 99 ITR 375, the Commissioner of Income-tax is within his jurisdiction to invoke his powers under section 263 and to set aside the assessment order. Further, it is not as though the Commissioner of Income-tax has not given a clear finding about the error in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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