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TMI Blog2008 (11) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the Ld. CIT, Gwalior has erred to hold that the appellant was not entitled to deduction u/s. 80IA(2)(iv)(c) of the Act as he was carrying on repair work and was not manufacturing or producing any article or thing as required by the said section. The CIT has totally failed to appreciate the submissions of the appellant in proper perspective and in an objective manner. 4. That without prejudice to the above and in the alternative, Ld.CIT. Gwalior has also failed to appreciate that the industrial activities of the appellant, while carrying out repair jobs consisted of manufacturing or producing article or things, which were also separately saleable items, for in-house use value of which did not form part of the repairing labour charges and as such profit or gain attributable to this activity at least was entitled to deduction u/s. 80IA(2)(iv)(c) of the Act. 5. That the order dated 29.12.2006 passed by the Ld. CIT Gwalior is bad in law and/acts and is liable to be set aside." 2. Briefly, the facts are that the assessee filed a return declaring nil income on 27.11.2000. This return was processed u/s. 143(1) of the Act on 11.05.01. The assessee has claimed deduction u/s. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n material on record. The assessee has disclosed the sale of products, which were manufactured at its own unit. Such list is available at assessee's paper book page 46. This was also available with the authorities below and was a part of record. The assessee's bill raised to the Electricity Board reveals that the items like HV Leg Coil and HV Bushings were manufactured by the assessee and charged from its customers alongwith labour charges on account of job work done by it. The assessee also has registration as manufacturing unit with Small-Scale Industries Deptt., wherein the date of commencing the production is stated to be 28.08.1998. The unit is located in backward area for carrying out aforesaid manufacturing activities. Reference is made to assessee's paper book page 4 in that regard. Sales Tax has also been paid on the sales of such goods. Furthermore, the assessee has made a declaration to the Excise Department copies placed at assessee's paper book page 27. The goods manufactured therein are stated to be HV Leg Coil and value of such goods cleared during the year under consideration are stated at ₹ 34,68,986/-. The finding reached by the ld. CIT is, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The State Government, State Commerce Department and other government agencies have treated the activities of assessee as manufacturing activities. Considering it a manufacturing unit, the exemption from commercial tax has also been granted to the assessee. The assessing authority after examining the issue recorded a finding as under:- "(i) It is clear that the word "manufactured" include repairing work in the case of electrical transformers because a series of manufacturing activities are undertaken in this process and it carries warranty and guarantee also. Virtually when it electric transformer comes for repairing the inside material available in it is only waste wire and waste oil which is returned to the authorities concerned and sold in the open market. The only difference in repair and manufacture on transformers is that in repair the old cabinet of the transformers is used and in manufactured, new cabinet is purchased from the market/other manufacturer is used. Thus manufacture of transformer includes repairs of transformers as well. (ii) As regards allowability of deduction u/s. 80IA(2)(iv)(c), the case has been examined in length and it is found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. His order, therefore, could not be termed as erroneous. This view finds support from the decision rendered by jurisdictional High Court in the case of CIT vs. Govindram Seksaria Charity Trust (supra). The order of Assessing Authority is also not shown to be unsustainable in law. Such an order, therefore, cannot be termed as erroneous. The essential condition of an order being erroneous is, thus, absent. In that view of the matter and having regard to Apex Court judgment rendered in the case of Malabar Industrial Co. Ltd. vs. CIT (supra), the Ld. CIT, Gwalior can be said to have erred in canceling the assessment and directing to withdraw the deduction so allowed by the Assessing authority. We, therefore, set aside her order passed u/s. 263 of the Act and allow the appeal of the assessee. 10. In the result, the appeal stands allowed. Order pronounced in the court on July 2007. Diva Singh, Judicial Member 2nd January 2008 1. Having given my utmost consideration I find myself unable to agree with the findings arrived at in the proposed draft order. Accordingly, I propose humbly to set out the reasons for writing a dissenting order. 2. The relevant facts of the case are that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) discussing the facts took note of the fact that in the first round admittedly during the year the assessee company carried out only repair works. The distribution transformers were sent by MPSEB for repairs and after repairs they were sent back to MPSEB for use. From this activity the assessee company only derived charges for carrying out such repair work. 10. The CIT (Admn.) in the first round had observed that the word "manufacture" involves bringing into existence a new product. The new product should be such a product which is of a different chemical composition and whose integral structure is different. The said analogy as considered in ITO vs. Ahura Shipping and Engg. Co. Pvt. Ltd, 8 ITD 435 (Bombay) was relied upon by the CIT (Admn.) and thus on facts the CIT (Admn.) was of the view that manufacture or production of any article by a person implies that the item is for sale and not for some job work. 11. Thus, in these facts as per position of law appreciated by him the learned Commissioner was of the view that unless a new product, article or thing comes into existence there will not be any manufacture or production. As such, simply by carrying out certain proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous, and (ii) Prejudicial to the interest of revenue. According to the assessee and the counsel, the notice u/s. 23 does not specify whether the assessment order sought to be revised is erroneous and prejudicial to the interest of revenue. In this regard, reliance has been placed on the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (S.C.). Reliance has also been placed on CIT vs. Govindram Seksariya Charity Trust (1987) 166 ITR 580 (M.P.). According to which the Commissioner of Income Tax setting aside assessment u/s. 263 on the ground that ITO allowed exemption without examining applicability of provisions of section 13(1)(c)(ii) - Tribunal finding that ITO was alive to relevant provisions of law and facts before passing order of assessment - Commissioner of Income Tax not justified in setting aside assessment. In view of the above it has been submitted that the re-assessment order passed by the ld. Assessing Officer is neither erroneous nor prejudicial to the interest of revenue, therefore, the proceedings u/s 263 have been requested to be dropped." 12. Considering these the CIT (Admn) was of the view that as far as the location of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raft order namely:- (i) That the A.O. has duly considered the issue and entertained a possible view that repairing of transformer amounted to manufacture of product by the assessee. (ii) Reliance was placed upon Amritsar Bench of the Tribunal in Saraf Electricals P. Ltd. vs. ACIT (2004) 89 TTJ (Asr.) 761, copy of which is placed at pages 15 to 21 of the Paper Book. (iii) It was also submitted that the assessee is manufacturing certain parts which have been used in the repairing of these transformers as such activity of repairs should come under the definition of manufacturing. The sale of these products which have been used in the repair work stand disclosed in assessee's Paper Book page 46. (iv) That the assessee has registration as manufacturing unit with the Small Scale Industries Department and date of commencing the production therein is 28.08.1998. (v) The unit is located in backward area for carrying out aforesaid manufacturing activities. (vi) Reference was made to page 4 of Paper Book so as to contend that the Sales Tax has been paid on the sales of such goods. (vii) Moreover that the assessee has made a declaration to the Excise Department, as such, manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk in the case of electrical transformers. The said finding it was submitted is based on no material as it is neither based on any report of any expert obtained by the A.O. nor has any authority been relied upon by the assessee either before the A.O. or before the CIT (Admn.). The finding of the A.O. based on no facts was contended to be carelessly given as no material or expert opinion was referred to therein to hold that "the only difference in repairing and manufacturing of transformer is that in repair the old cabinet of the transformers is used and in manufactured new cabinet is purchased from the market/other manufacturer. Thus, manufacturing of transformer included repair of transformer as well". It was the submission of the ld. Sr. D.R. Shri Ambesh that it was this reasoning of the A.O. which is erroneous and contrary to the settled legal position as the A.O. himself was not convinced that any manufacturing has taken place and has tried to rely upon a long drawn erroneous reasoning that since these articles were within the warrantee and guarantee period as such their repair and not manufacture could be stated to have been a manufacturing activity. It was his submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he repairs identical process as was required for manufacture was required and undertaken. The said fact stood demonstrated in the facts of that case. In the facts of the present case admittedly the assessee in the year under consideration has not been involved in any manufacturing activity or sale of electrical transformers and has admittedlly only undertaken job repair. The nature and extent of repairing work has not been addressed either by the assessee before the Bench or before the A.O. or the CIT (Admn.) in the two rounds. In the absence of any discussion or reference there is no material or evidence to hold that the A.O. has examined the extent of damage and the resultant effort required to make it operational. As such, it cannot be said that the A.O. has given a finding on fact which is sustainable in law as no material or evidence has been lead by the assessee before the A.O. to agitate the extent of damage and as such no material or evidence has been discussed to that extent. Moreover, no finding also has been given that the transformers were damaged to such an extent that the entire step by step process as would have taken place for manufacture was taken alongwith the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of items utilised in the repair work having been manufactured by the assessee does not lead to the proposition that the assessee has manufactured Electric transformer as admittedly the assessee has only repaired the same after having used certain item which may have been manufactured by it. Accordingly the assessee having charged for these items which are not purchased from the market but utilised in-house products the fact remain that the assessee did claim labour charges done by it for repair and did not receive payment for manufacturing transformers. 22. Similarly the factum of registration with Small Scale Industries Department commencing the production from a specific date is also of no help as the admitted facts on record in the year under consideration is that the assessee has not manufactured any electrical transformer at all and has only carried out repairing work. The Registration Certificate of Small Scale Industries Development per se does not entitle the assessee to claim the deduction as admittedly no manufacturing of transformers took place in the year under consideration. 23. The location of the assessee's activity in backward area also per se doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order has been passed after making thorough enquiries as the reasoning that repairing can be held to be equated with manufacturing would be a view which would be a travesty of the provisions of the Act. 26. Accordingly, for the above mentioned facts and reasons, I find myself unable to agree with the finding that the A.O. was alive to the issue as in the facts of the present case the A.O. though conscious of the fact that the deduction is entitled only to industrial undertaking manufacturing a new and independent product has come to very erroneous and gravely prejudicial finding to the interests of the Revenue as no material fact or reason or discussion as to how manufacturing can be equated with repairing work. Accordingly, the grounds raised by the assessee in this peculiar facts are dismissed and the impugned order as such for reasoning given herein above is upheld by me. 27. In the result, appeal of the assessee is dismissed. Reference Under S. 255(4) of the IT Act, 1961 2 January 2008 There being difference in opinion, the following questions are being forwarded to the Hon'ble President, I.T.A.T. u/s. 255(4) of the I.T. Act for referring the same to the Third Member: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Coal Transformers insulation, manufacture of core coal assembly etc. This involve manufacture of various articles. It has been further stated by the Ld. Council of the assessee that in the statement of income enclosed with return of income, the manufacturing activity has been clearly stated and the State Govt., State Commercial Department and other technical agencies have after thorough examination considered these activities as manufacturing activities and exception from commercial tax was allowed. In view of above discussion it is clear that the word "manufactured" include repairing work in the case of electrical transformers because a series of manufacturing activities are under taken in this process and it carries warranty and guarantee also. Virtually when it electric transformer comes for repairing the inside material available in it is only waste wire and west oil which is returned to the authorities concerned or sold in the open market. The only difference in repair and manufacture on transformers is that in repair the old cabinet of the transformers is used and in manufactured new cabinet is purchased from the market/other manufacturer is used. Thus manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mphasised by the learned Accountant Member that proceedings were reopened by the A.O to examine the question whether assessee was carrying on any manufacturing activity. In that light, various documents and orders of State Government, State Commerce Department and other government agencies were examined and specific finding on the issues was recorded by the A.O. The aforesaid finding of the A.O has already been reproduced in earlier part of this order. 8. After examining sale bills which are placed at pages 57 to 58 of the paper book, for supply of material manufactured by the assessee and the credit of above sale proceeds in the profit and loss account, the A.O had held in re-assessment proceedings that assessee carried on manufacturing activities and was entitled to deduction u/s 80IA of the Income-tax Act. Above view of the A.O was in line with the view taken by ITAT Amritsar Bench in the case of Saraf Electricals Pvt. Ltd. vs. ACIT 89 TTJ (Asr.) 761. The learned Accountant Member further observed that CIT in the impugned order reached the finding without considering material on record, particularly the sale bills under which products used by the assessee in repair were specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in the manufacturing and sale of electrical transformers and had also undertaken some repair of old damaged transformers wherein also on account of the extent of damage for carrying out the repairs identical process as was required for manufacture was required and undertaken............. In the facts of the present case admittedly the assessee in the year under consideration has not been involved in any manufacturing activity or sale of electrical transformers and has admittedly only undertaken job repairs. The nature and extent of repairing work has not been addressed either by the assessee before the Bench or before the Assessing Officer or before CIT (Administration) in the two rounds." (iii) No finding also has been given that the transformers were damaged to such an extent that the entire step by step process as would have taken place for manufacture was taken alongwith the manufactured items for these damaged items. The A.O. has missed the basic crucial distinctive feature that the damaged transformers also required the identical process as required for manufacturing of new transformers. (iv) It was not necessary for the Commissioner to place material on record t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held. 10. On account of above difference between Hon'ble Members, the matter was referred to me u/s 255(4) of the I.T.Act. In order to resolve the difference, the case was fixed for hearing at Agra. Shri Mahesh Agarwal, CA on behalf of the assessee and Smt. Shefali Juneja, the ld. DR on behalf of the revenue, have been heard. I have also seen the relevant record with the help of the ld. Representative of the parties. Shri Mahesh Agarwal, ld. Representative of the assessee, submitted that assessee, in the relevant period, had carried manufacturing activities as it has manufactured parts used in the transformer. The assessee even sold fully manufactured transformers for which a sum of ₹ 50,605/- stood credited to the Profit and loss account of the last year. The assessee had further manufactured and sold several parts used in transformers like coil etc, and this was clearly stated in the books of account, copy of few sales have been filed at pages 57/58 of the paper book. Item 1 to 18 showed parts manufactured by the assessee. The ld. Counsel for the assessee also drew my attention to page 24 where a copy of license granted to the assessee is available which clearly showed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture or produce any article. No change of ownership of any produced article was shown. The assessee merely carried on repair work on transformers belonging to M.P.S.E.B. The assessee also did not pay any excise duty as held by the ld. Judicial Member in her proposed order. No sale of coil claimed to be a separate manufactured item was shown in the account. Thus, there was no clear material to show that assessee carried any manufacturing activity. The above arguments were again rebutted by the ld. Counsel for the assessee and position under the excise law as well as sale of coils manufactured by the assessee and other parts, which were independent commercial products was duly shown in the record. In this connection, my attention was again drawn to pages 32/33 of the paper book where the sale of spare parts was shown. It was clarified that sale list of other manufacturers selling coil was placed on record to show that coil was an item which was commercially sold. 13. I have given careful thought to the rival submissions of the parties. It is not in dispute that except for the controversy that assessee did not manufacture any article or thing, other conditions of the Section 80- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 14 of the paper book). The assessee reiterated its stand as under:- "The applicant company has started the activities i.e. production with effect from 20.3.1998 as mentioned in the certificate of registration. The applicant company is an industrial undertaking for manufacture of transformers, manufacture of Electromechanical part, accessories component of distribution transformers i.e. winding coils, connection metal parts, cork sheet washer, insulation material etc. and repair of transformer which includes replacement of various parts i.e. winding coils connection metal parts, cork sheet washer, insulation material, material manufactured by the company at its own. The business of the company is primarily manufacturing of electromechanical parts of transformers and virtually sale of electromechanical parts and components to the customers as per their requirements and replacement where transformers get burned and damaged and the transformers are replaced during warranty/guarantee period. It is worthwhile to note that the company is not purchasing the said parts and accessories of transformers from market for further sale and replacement but manufacturing at its own. ... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... witchgear to show rate of coils given by them and to show that coil was an independent marketable product (Annexure P-3-4). It also attached a copy of declaration furnished before the Central Excise Department mentioning product in which coils are specifically mentioned as item manufactured by the assessee. Copy of declaration was annexed as P-5-12. 18. It is evident from assessee's replies that the assessee is not claiming to be a manufacturer merely because it was carrying on repair of the transformers for MPSEB. Its claim was that the assessee company is running an industrial undertaking for manufacture of Transformers and manufacture of electromechanical parts, accessories, components of distribution transformers from raw and fresh material. The main parts manufactured by the assessee were claimed to be as under: i) Winding Coils, ii) Connection metal parts, and iii) Cork sheet washer. 18.1 The assessee further emphasised, "this business is primarily manufacture of electromechanical parts of transformers and virtually sale of electromechanical parts and components to MPSEB etc.". It is not in dispute that in the damaged and burnt transformers, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had furnished the following information as per Column 4 and 5: 4) Full description of goods (heading-wise) manufactured by the factory. HV Leg Coils (tarrif-8504.00) 5) Value/quantity of the goods cleared during the preceding financial year. ₹ 34,68,986.75 20. In the Excise documents, it is further stated that assessee as a small scale unit was entitled to claim exemption of goods manufactured upto the value of ₹ 50 lacs in a financial year. In Column No.10, titled "Process of manufacture", the assessee explained that main raw material was PPC Aluminium wire. Through the coil winding machine, HV leg coils are prepared with the help of insulating paper, cotton, tape, Empire sleeve and adhesive. 21. In order to show that parts and accessories manufactured by the assessee were commercial items, and saleable as such, the assessee placed on record price list of LT Switchgear an independent company. The said list contains the sale price of various items. The aforesaid evidence was placed on record to substantiate the claim that assessee was a manufacturer of electromechanical parts and accessories and components from raw material. 22. The PandL A/c and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from different material is clearly established on record. No dispute had been raised that above items manufactured by the assessee were different in shape and in commercial value from the raw material used to manufacture them. On account of above activity, the assessee claimed to be a manufacturer. The further claim of the assessee that in its case repair tantamount to manufacturer of transformers was also to be viewed in the light of facts and circumstances noted above. In case of damaged or burnt transformers, which were required to be replaced during warranty /guarantee period, the assessee had used only the old cabinet with lamination of transformers. All other items were new items manufactured by the assessee and put in the cabinet in a similar manner as was done in the case of Saraf Electricals P.Ltd. (supra). Facts in that case are similar to facts in the present case. However, the learned Commissioner totally ignored the detailed submissions of the assessee and failed to examine the case as pleaded before him. It failed to examine documents produced by the assessee including certificate of registration/exemption issued by the Excise and Department of Industries. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled. " (ii) In the case of Malabar Industrial Co. Ltd. vs Commissioner of Income Tax 243 ITR 83 (SC), their Lordships held as under:- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case, the A.O after enquiry had taken a possible view of the matter. It was, therefore, obligatory on the part of the Commissioner to show for the purposes of provision of Sec.263 that assessment order was erroneous and in so far as prejudicial to the interest of the Revenue. It was for the ld. Commissioner to show that repair charges, if any, received by the assessee were totally unconnected with the manufacturing activities carried on by the assessee and, therefore, could not form part of manufacturing receipt for purposes of Sec. 80IA of the I.T.Act. The onus was not on the assessee but clearly on the Revenue to show that a specified amount out of total receipt of the assesses exemption u/s 80IA was wrongly allowed as exempt. No such exercise was undertaken by the ld. Commissioner inspite of two innings provided to the Commissioner to show error and prejudice in the order of the A.O. 27. The aforesaid errors further crept in, in the proposed order of learned Judicial Member. In my considered opinion, the learned Judicial Member was not right in putting burden of proof on the assessee in proceedings u/s 263 and in not examining profit and loss account and balance s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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