Invocation Of Section 263 Of IT Act On Ground Of Deduction Under Section 80-IA Wrongly Allowed By AO

RELEVANT EXTRACTS:

25. On the basis of above material, it is not possible to hold that assessee was carrying on mere repair of transformers and not any manufacturing activity. Assessee’s claim that it is manufacturing electromechanical parts and accessories like winding coils, insulation material etc. etc. 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 Electicals 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 learned C.I.T failed to see the implication of the sales-tax paid by the assessee. The above facts clearly established that parts, coils etc. manufactured by the assessee from the raw material were separately sold. The aforesaid sale could not represent repair receipts. The learned Commissioner was also in error in concentrating on the fact that ownership did not change hands without considering that ownership was merely of old cabinet with lamination of the burnt transformers. It was – not of the entire transformer,more particularly the parts introduced in the cabinet were independently and separately sold. There is further material on record to show that these parts are commercially saleable items. The entire case could not be thrown out on the ground that assessee in the profit and loss account has stated sale receipts including of repair charges. It is further not permissible to invoke S.263 to correct a minor error findings or observations in the assessment order. “Error” and prejudice to the revenue has to be shown with reference to record. The case set up by the assessee in reply that it was manufacturer of electromechanical parts accessories was totally ignored. The same was the position of evidence on record. The appellate Tribunal is/was required to hold the approach of

(i) In the case of CIT Vs Gabriel India Ltd., 203 ITR 108 (Bom), their Lordships held as under:-

“An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the Commissioner, he would have estimated the income dated 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 Am and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled.”

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