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TMI Blog2013 (8) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... ror 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 Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as there is no case to hold that the Assessing Officer's order is erroneous or prejudicial to the interests of revenue. 3. The learned AR submitted that the original assessment was completed u/s. 143(3) of the Act vide assessment order passes u/s. 143(3) of the Act on 26.12.2008. He submitted that before passing the assessment order, the Assessing Officer called for various details vide his letter dated 15.9.2006. In response to this letter the assessee furnished various details with reference to the same issue raised by the CIT in his order u/s. 263 of the Act. He submitted that the assessee also filed full details before the Assessing Officer and after considering the entire issue the Assessing Officer passed the assessment order u/s. 143(3) of the Act. The order may be short and cryptic, it does not mean that the order of the Assessing Officer is erroneous and prejudicial to the interests of revenue. According to the CIT(A) the Assessing Officer should have made further enquiry rather than accepting the explanation of the assessee. Therefore, it cannot be said that it is a case of "lack of enquiry". The CIT though not agreed with the enquiry made by the Assessing Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie" (termes de la ley). Something incorrectly done through ignorance or inadvertence S.99 CPC and S.215 Cr.PC. 'Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention." 6. At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus: "An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case. 11. In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides, it is having a corporate office at New Delhi Though registered office is at Hyderabad, there are no activities at Hyderabad. While the profits derived from the units located at Baddi Bhimtal is claimed as 100% exempted u/s 80IC, the unit located at Bommasandra does not enjoy any tax benefit. The unit located at Dehradun though stated to be eligible for deduction u/s 80IC, in the absence of profits, no deduction was claimed. For the taxable unit of Bommasandra, the assessee claimed a loss of Rs. 4 crores and in respect of units located at Baddi and Bhimtal, the exempted income was shown at Rs.13.71 crores and Rs.6.46 crores respectively. Since the tax payable under normal provisions was less, the tax was paid u/s 115JB of the Act. 15. The assessing officer noted that the appellant company purchased some raw material as well as many components (both local and imported) which we utilized for getting the final product and the company got some of the work done from outside parties, i.e. job works. If the value of the components and the job work charges are excluded, the value addition done at the assessee own unit would be meager and therefore, it would be said that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 80IC. He relied on various judicial decisions and held that the definition of manufacture inserted in the Act with effect from 1-4-2009 cannot be applied for the Asst. Year 2008-09. The Act provides incentives to the manufacturing units located in the backward areas and the traders or the units which deal merely on assembling of certain goods even if located in the backward areas are not entitled for the deduction under the Act. He also held that the assessee did small portion of manufacturing or assembling whatever name is given and major part of work got done through outside agencies and the fact that the value of components was much more than the value of raw material purchased and substantial quantity of raw material/components were handed over to the job work manufacturers clearly proves that what the assessee has done was assembling, testing and packing only. 17. The assessing officer has also made an alternate stand for disallowance which is as under: "Without prejudice, the above stand that the assessee company is not eligible for the deduction u/s 80IC, If any appellate authority holds that they are entitled for the deduction, the income computed by the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - merely because some raw material is readily purchased from the market and some raw material is got manufactured by outsourcing, it cannot be said that assessee is not engaged in manufacture - Admittedly, the new product is made by the assessee - As regards non payment of excise duty, exemption from customs duty, excise and central excise duty has been granted to water treatment plants Vide Circular NO.659/50/2002-CX, dt. 6 th Sept. 2002 - Thus, no adverse inference can be drawn on the basis that no excise duty is paid by the assessee - So far as the condition of employment of minimum number of workers is concerned, assessee employed twenty or more workers during the major part of the year and hence there is substantial compliance of the condition - As regards non deduction of PF and ESI contributions, merely because there is violation of labour law, It cannot be said that. there is no employer-employee relationship between the assessee and the employees - Moreover, assessee has been granted similar deduction In the preceding years - Therefore, 'assessee is entitled for deduction under s.80-1B." 19. The CIT(A) observed that the assessee is engaged in the manufacture of water pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inct commodity. He relied on the following case laws: 1. CIT Vs. Jackson Engineers Ltd., 231 ITR 348 (Delhi) 2. CIT Vs. Mahesh Chandra Sharma (P H), 177 Taxman 22 (P H) 3. N.S. Budhiraja Co., 204 ITR 412 (SC) 4. CIT Vs. Chiranjjevi Wind Energy Ltd., [2010] 333 ITR 192 (Mad.) 5. CIT Vs. Emptee Poly-Yarn(P) Ltd., 320 ITR 665 6. ITO Vs. Arihant Tiles Marbles (P) Ltd., 320 ITR 79 23. The learned AR also relied on the decision in the case of PL Patel Vs. ITO, ITAT Mumbai 'B' Bench, [2011] 60 DTR 53 wherein it was held that Merely because some raw material is readily purchased from the market and some raw material is got manufactured by outsourcing, but when the final product is made by the assessee himself, it cannot be said that the assessee is not engaged in the manufacturing. The new product is made by the assessee and, therefore, the assessee is entitled for deduction u/s 80IB. 24. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below as well as the decisions cited. The case of the assessee is that the assessee is engaged in the manufacturing activity and hence, the assessee is entitled for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty with a distinct name, character and use, then it would amount to manufacture. Similarly, in BPL India Ltd. Vs. CCE 2002 9143) ELT 3, the Supreme Court held that assembly of imported kits of VTR with colour monitors imported in disassembled condition amounted to manufacture since the end of produce had a distinct character and use and the process of assembly was done by technical experts or skilled persons. On the other hand, assembly of plant at site will not be liable to duty. If 'immovable property' emerges after such assembly because excise duty can be levied on 'googs'. 27. Processing and Manufacture: A process is series of things which are carried out in order to achieve a particular result. Processing is distinct from 'manufacturing and mere processing does not mean 'manufacture'. In Empire Industries Vs. Union of India, 1985 20 ELT 179 (SC) it was held that any process creating something else having distinctive name, character and use would be 'manufacture'. Thus, processing gray fabrics by bleaching, dyeing, printing of fabric will amount to 'manufacture'. 28. Various Courts have laid down the ratios in the following cases, on which reliance has been placed, as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Vs. DCIT in ITA No. 4183/Del/2011 for AY 2007-08 vide order dated 16/03/2012, the Delhi Bench of ITAT held as follows:- "7. We have duly considered the rival contentions and gone through the record carefully. In order to avail deduction under section 80IC, an assessee has to fulfill the conditions contemplated in the section. Therefore, before considering the respective contentions as well as the relevant material, it is imperative upon us to take note of the relevant statutory provisions. The relevant part of section 80-IC, thus reads as under: "80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category States - (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise, (a) which has begun or begins to manufacture or produce any article or thing, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub- section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. ... (7) The deduction under sub-section (1) from profits and gains derived from an [undertaking] shall not be admissible unless the accounts of the [undertaking] for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. (8) Where any goods [or services] held for the purposes of the eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification. (12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger-- (a ) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b ) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place. [(12A) Nothing contained in sub-section (12) shall apply to any enterprise or undertaking which is transferred in a scheme of amalgamation or demerger on or after the 1st day of April, 2007.] ... 9. From the bare perusal of the section would reveal that sub-section (1) of section 80IC provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be determined, is when assessee came into existence and whether geographically it is located with the notified area contemplated in sub- clause (ii) of sec. 80IC(2)(a) or (2) (b). It emerges out from the record that assessee partnership firm came into existence on 1 st of April 2006. It is situated at F-3, Industrial Area, Bhimtal (Nainital). According to the assessee, it has started the manufacturing operation at its industrial undertaking on 28.8.2006 though this date has been disputed by the Assessing Officer and we will discuss this aspect in the later part of the order. For the time being, it is concluded that as far as geographical location of the assessee is concerned, it falls within the industrial estate specified for the purpose of admissibility of deduction under sec. 80-IC of the Act. Similarly, it has commenced its operation in between period of January 2003 to April 2012 as provided in sub-clause (2) of section 80-IC(ii)(a)(b) of the Act. Therefore, to this extent, there cannot be any dispute between the parties. 11. The next step which is essential for examining the case of an assessee about the admissibility of deduction under sec. 80-IC is whether it ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, it has been held that blending of various categories of teas and selling them after packaging with new brand name does not amount to manufacturing or production of a new commodity. 12. As observed earlier, we would be reverting back to the facts of the present case in the later part of the order. First, we would like to bring at home the meaning of expression "manufacture and production" as propounded in the various authoritative pronouncements of the Hon'ble Supreme Court as well as of Hon'ble High Court. 13. In the case of India Cine Agency, Hon'ble Supreme Court has considered the judgment rendered in the case of Sesa Goa (supra) and all other decisions on the point which contemplate the meaning of expression "manufacture" as well as "production". The relevant discussion made by the Hon'ble Court reads as under: "2.As noted above, the core issue is whether activity undertaken was manufacture or production. 3. In Black's Law Dictionary(5th Edition), the word "manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts to manufacture' or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. Etymologically the word 'manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v.Union of India[1985] 3 SCC 314). ... 14. In this case, assessee was carrying on businessof conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under sec. 80-HH and 80-I as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls ..... X X X X Extracts X X X X X X X X Extracts X X X X
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