Income Tax Appellate Tribunal - Delhi
Govind Singh,, New Delhi vs Assessee on 19 March, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "E" DELHI)
BEFORE SHRI A.D. JAIN AND SHRI B.P. JAIN
ITA NO. 2157(Del)2009
Assessment year: 2004-05
Shri Govind Singh, Dy.Commissioner of Income Tax,
702-703, Ansal Chamber-II, v. Circle 24(1), New Delhi.
6-Bhikaji Cama Place, N.Delhi.
(Appellant) (Respondent)
Appellant by: Shri Salil Aggarwal, Advocate
Respondent by: Shri Jayant Mishra, CIT(DR)
ORDER
PER A.D. JAIN, J.M.
This is assessee's appeal for the assessment year 2004-05. The effective grounds raised are as under:-
"1. That the ld. Commissioner of Income Tax, Delhi-VIII, New Delhi has grossly erred both in law and on facts in framing an order under section 263 of the Act dated 19.03.2009.
2. The ld. CIT, Delhi-VIII, New Delhi has grossly erred both in law and on facts in disallowing the claim of deduction u/s 80 IB of the Act of Rs. 9,79,423/-."
2. The assesssee individual is proprietor of M/s. G.S. Enterprises, engaged in the business of assembling, fabricating, processing and packaging of all types of shaving products including shaving razors, blades and brushes on contract 2 manufacturing basis. In the return of income filed for the year, the assessee declared total income of Rs. 38,06,313/- after claiming deduction u/s 80 IB of the Income Tax Act, amounting to Rs.9,79,423/-. The AO allowed the claim of the assessee u/s 80 IB of the Act and determined the total income of the assessee at Rs. 40,50,300/-.The learned CIT observed that the assessee had accepted the offer of Gillette India Ltd. ("GIL" for short) for packing and sealing of razors and cartridges for and on its behalf and was using machines and tools for packing and sealing of razors and cartridges for GIL. It was observed that the agreement between the assessee and GIL clearly showed that the assessee was engaged only in the activity of job work of packing/packaging of all types of shaving products including shaving razors, blades and brushes on contract manufacturing basis and was not manufacturing of articles or things as required under the provisions of section 80 IB of the I.T. Act in order to be eligible for deduction thereunder; that no raw-materials were purchased by the assessee since the assessee was only packaging various components supplied by his principal, GIL; that this proved that the activity of the assessee was mainly of job work and the assessee was deriving income from packing activities done on contract manufacturing basis for GIL; that u/s 80 IB of the Act, the assessee could claim deduction only if it manufactured or produced any article or thing, which the assessee was not doing; that the products, before processing and after processing, 3 were not two items having different identities; and that that the assessment order was erroneous and prejudicial to the interest of the revenue inasmuch as the conditions prescribed u/s 80 IB of the Act were not satisfied.
3. It was on the above basis that the ld. CIT disallowed deduction of Rs. 9,79,423/- u/s 80 IB of the Act to the assessee. The AO was directed to give effect to the said disallowance and to calculate the tax and interest payable by the assessee on the total income to be recomputed after giving effect to the ld. CIT's order.
4. Aggrieved, the assessee is in appeal before us.
5. Challenging the impugned order, the learned counsel for the assessee has contended that the ld. CIT has gone wrong in framing the order u/s 263 of the Act, without satisfying the mandatory pre-conditions of the provisions thereof, inasmuch as the order of assessment was neither erroneous nor prejudicial to the interest of the revenue; that the ld. CIT has erred in disallowing the claim of deduction u/s 80 IB of the Act amounting to Rs.9,79,423/-, failing to appreciate that the entire operational and productional business activities undertaken by the assessee to ultimately produce shaving systems amounts to "manufacture" or "production" of an article or thing as contemplated under the provisions of section 80 IB of the Act; that the ld. CIT failed to appreciate that the claim of deduction u/s 80 IB of the Act has been allowed to the assessee right from 4 assessment year 1996-97 in assessments made under both sections 143(1) as well as 143(3) of the Act and that so, there was no basis, either in law or on facts to hold that the assessee was not entitled to such deduction; that the ld. CIT failed to appreciate the replies filed by the assessee and the evidence furnished in support thereof, or the case laws relied on by the assessee; that as per the assessment order for assessment year 1998-99 (copy at pages 150-151 of the assessee's paper book ("APB" for short), it has been held that the assessee was carrying on the business activity of assembly/manufacture of shaving systems/razors on job work for GIL, as in the years prior to 1998-99; that again, by virtue of the assessment order for assessment year 2003-04 (copy at APB 152-155); that the assessee's claim had been allowed; that for assessment year 2005-06 also, the claim was allowed, though u/s 143(1) of the Act; that the agreements (APB 73 to 78 and 79 to 85) have been overlooked by the ld. CIT; that the process of manufacture carried on by the assessee was laid bare before the ld. CIT vide the assessee's reply dated 2.9.2008 (APB 1-45, relevant portion at pages 27 to 28 of the APB) to the notice u/s 263 of the Act; that it has also not been considered that the assessee is not subject to excise duty, as evidenced by the assessee's excise returns (APB 219-266); that the photograph of the Industrial Unit of the assessee, showing the manufacturing process of the assessee (APB 71-72) and to demonstrate the manufacturing process of the assessee; that the details of the 5 machinery used by the assessee for its manufacturing process were also made available before the ld. CIT, which the ld. CIT again, failed to consider; that the ld. CIT has also failed to appreciate that the assessee was subject to ESI (Certificate at APB 213); that the "registration and licence to work a factory"
granted to the assessee by the State of Rajasthan (APB 214)shows that the assessee was employing persons and using power subject to the Factories Act, 1948; and that all these evidences having been duly been considered by the AO, there was nothing erroneous and prejudicial to the interest of the revenue in the assessment order, as wrongly made out by the ld. CIT.
6. Per contra, the ld. DR, supporting the impugned order, has submitted that the ld. CIT has rightly observed the assessment order to be erroneous as well as prejudicial to the interests of the revenue inasmuch as before allowing deduction claimed by the assessee u/s 80 IB of the Act, the AO did not make any enquiry;
that the facts were not examined by the AO; that the assessee was only doing the job work of packing/packaging for GIL; that no raw-material was employed by the assessee in this process; that therefore, the order of the ld. CIT being on force, it requires no interfering for the proposition that where no enquiries carried out by the AO, invocation of the provision of section 263 of the Act and holding that the assessment order is erroneous and prejudicial to the interest of the revenue, is very much in order, the ld. DR has relied on 33 ITR 182(SC), 67 ITR 6 84(SC), 88 ITR 323 and 99 ITR 375 (Del). For the proposition that if the view of the AO is unsustainable, invocation of the provision of section 263 of the Act is correct, the ld. DR has placed reliance on "Malabar Industries" 243 ITR 83 (SC).
7. We have heard the parties and have perused the material on record. From the record, it is seen that the assessee has maintained that his proprietory concern is an industrial undertaking being a small scale unit for assembling, fabricating, processing, manufacturing and packaging of all types of shaving systems, including shaving razors and shaving blades at Bhiwadi Industrial Area, Bhiwadi District, Alwar, Rajasthan. The unit was set up in assessment year 1996-97.
The assessee entered into an agreement on 23.5.1995 with GIL for assembling and packing of shaving products, razors and cartridges for GIL on contract manufacturing basis, for their branded products. For assessment year 1996-97, the assessee claimed deduction u/s 80IA of the Act, which was allowed, though u/s 143(1) of the Act. For assessment year 1998-99, the assessee's claim u/s 80 IA of the Act was again allowed, in scrutiny assessment. For assessment year 2003-04, the assessee claimed deduction u/s 80 IB of the Act, which was allowed under scrutiny. For assessment year 2004-05, again, the assessee's claim u/s 80 IB of the Act was allowed under scrutiny. It is only for the year under 7 consideration that the claim of the assessee has been disallowed u/s 263 by the ld. CIT, though the same was allowed in the assessment order.
8. The question arising for consideration is as to whether the assessee is or is not carrying on a manufacturing activity so as to entitle deduction u/s 80 IB of the Act to be granted .
9. It is seen that the operational and other activities carried on by the assessee relate to the receipt/use of individual items of components, intermediate materials and other parts and items. The individual items of the components, intermediate materials and other parts and items, inter alia, consist of moulded plastic components like handles and overcaps, stainless steel blades and plastic blade cartridges, metal components like back and slide and springs, paper and paper board articles, PVC poly bags, corrugated boxes and other cartons and BOPP tapes and other packaging materials. It is these items which are assembled to form a single product, through a specialized and skilled process including the use of sophisticated pneumatic press. The end product is distinctively transformed and is different from the various constituents comprising it. The item so manufactured is necessarily required to be packed in a special way, which primarily is an essential process of production of the items produced, to be commercially considered as saleable with separate properties in its use as a finished product. The packaging technique employed is a new packaging 8 technique, known as "Blister packaging" which process ensures that the product maintains and/or retains those essential qualities, standards and properties required for its salability including a longer shelf. The entire process of production carried out by the assessee ultimately results in the production/manufacture of a shaving system.
10. The process of contract manufacturing undertaken by the assessee, as explained to the Authorities below, is as follows:-
"1. The assessee would receive various components of metal, alloys, plastic, etc., namely, razor cape, back and slide, platform, plastic moulded handles, twin blade cartridges, metal springs, aluminium inserts, brass fingers, top plates, button assembly, paper and paper boards, corrugated boxes, PVC poly bags, BOPP tapes and other packaging material etc. from suppliers and also from GIL. The supply of said components were supported by excise invoices issued by the suppliers. These components would fall under different excise tariff headings. Since, assessee was engaged in contract manufacturing, the s aid components were received on behalf of GIL whereby assessee was stated to be consignee and the delivery is effected at the factory premises of the assessee at E-127, Industrial Area, Bhiwadi, District Alwar, Rajasthan. Some of these invoices received during the impugned assessment year 2004-05 are placed at page 207-220 of PB for your kind consideration. These invoices will reveal:
1. The invoices reveal the description of components which were used by assessee for assembling to manufacture shaving razors and blades by using mechanical and manual process.
2. That they are subjected to excise duty and VAT as per law.
3. They are classified under excise tariff heading as per excise law.
4. The invoices stated assessee as consignee while GIL is buyer.9
5. The delivery address is stated to be E-127, Bhiwadi Industrial Area, Bhiwadi, District Alwar Rajasthan 301019, the factory of the assessee which is duly registered under various laws as applicable to the establishment and operation of factory in the State of Rajasthan, India as well Central Laws.
6. These components were then checked for quality control The springs are fixed on to the backend slide and the two are placed on to the plastic handle. Then these three are placed on to the die is placed on the pheumatic press. It is assembled by skilled operators (who were on rolls with GSE) using dies/fixtures on pneumatic presses. The press is operated to pressure fit to form a fixed head handle. The cartridge is fixed to form a razor. These razors were then blister sealed using PVC blisters and heat seal lacquer coated printed cards of board on blister sealing machines which are propelled by pneumatic and hydraulic cylinders. The sealed cards in the end were packed into corrugated shippers. In some cases, there was electroplating was done by sending to KJ Auto at Daruhera, Haryana. GSE was fully responsible for the quality control and had to adhere to spoilage norms as per agreement and in case of spoilage exceeding prescribed norms had to borne the loss . There were four varieties of shaving razors and blades manufactured, namely, Fixed Head Razors, Three piece Razors, Vector Razor and Presto Razor at the aforesaid industrial unit of G.S. Enterprises at E-127, Bhiwadi Industrial Area, Bhiwadi, District Alwar, Rajasthan 301019 and the exact manufacturing process will depend upon the type of the shaving razor and blade manufactured but broadly the process will remain the same as stated above.
7. The finished shaving razors and razor blades falls in Central Excise Heading 8212. The finished goods were dispatched by GSE per direction of GIL after clearance from the factory gate of the assessee and due provisions of excise duty. The assessee was duly filing return with Excise Department and the same for the impugned assessment year 2004-05 are placed at page 169-204 of PB,"
10 ITA 2157(Del)09
11. During the year, the assessee received components from various manufacturers on behalf of GIL, as per the terms of the agreement dated 22.10.2002 as well as the agreement dated 23.5.95. Thereafter, the assessee assembled these components through machines and/or manual processes as detailed above to make a different commercial commodity, namely, Shaving Razors and Razor Blades on behalf of GIL. These commodities were altogether different articles, falling under Central Excise Tariff Heading 8212. The process carried on by the assessee was thus nothing but a manufacturing activity, producing altogether new commercial articles, i.e., Shaving Razors and Razor Blades.
12. All the above facts were duly taken into consideration by the AO while passing the assessment order. The facts, undeniably, remained the same as those in the earlier years, when deduction was granted to the assessee.
13. The ld. CIT, in the impugned order, has observed, inter alia, that the assessee, being engaged in packing/sealing Razors and Cartridges, does not manufacture or produce any article or thing, thereby not satisfying the conditions required by section 80 IB of the Act; that the assessee was not producing any component/raw-material; that the components supplied by assessee's principal were being packed and sealed by the assessee on a contract manufacturing basis; that one of the conditions for being eligible for deduction u/s 80 IB was that the machinery or plant being used for the purpose of manufacturing an article or thing is owned by the industrial undertaking claiming deduction; that the 11 ITA 2157(Del)09 assessee was using machines and tools belonging to GIL and it could not be said that the assessee was using his own plant and machinery for the purpose of manufacturing; that the assessee's stand that deduction u/s 80 IA of the Act was allowed in the earlier assessment years was not tenable in view of the settled position of res judicata being not applicable to Income Tax proceedings; that the AO did not make further enquiries before accepting the statement made by the assessee in the return of income, regarding any manufacturing activity carried on by the assessee, which was essential for claiming exemption u/s 80 IB of the Act; and that the AO did not appreciate the facts involved in the case, i.e., that the assessee was only engaged in the activity of packing of materials and not manufacture.
14. We do not find ourselves at one with the findings recorded by the ld. CIT(A). Firstly, as seen hereinabove, the activity carried on by the assessee is certainly a process of manufacture. The process carried on by the assessee results in an article which is entirely distinct from the raw-material . This, evidently, is the primary condition of claiming and being allowed deduction u/s 80 IB of the Act. It is not that the assessee is merely packing or sealing razors and cartridges. Rather, the assessee's manufacturing process also includes job work of packing of components/materials.
15. Apropos the objection of the ld. CIT that the machinery used by the assessee was not owned by the assessee but was of GIL, which also disentitles the assessee to claim deduction u/s 80 IB, we find that there is no such condition raised by section 80IB of the Act. The only condition as per section 80 IB(2)(ii) is that the industrial undertaking, in order to claim deduction u/s 80 IB, must not be found by the transfer of a new business, 12 ITA 2157(Del)09 machinery or plant previously used for any purpose. The ld. CIT has referred to clauses 1 to 4 of the agreement between the assessee and the GIL.
16. Clauses 1 to 4 of the agreement dated 23.5.95, entered into by the assessee with GIL, are as follows:-
"1. ISP manufactures and sells stainless steel razor blades, shaving systems and other shaving products.
2. GSE has adequate facilities including equipment and manpower for assembling and packing of a variety of shaving products in its factory situated at plot No. E-127, Industrial Area, Bhiwadi - 301019 and has offered these facilities to ISP.
3.ISP is desirous of using these facilities offered by GSE for assembling and for packing of shaving products as listed in schedule upon terms and conditions appearing hereinafter. Parties may add or delete the products listed in the said schedule from time to time.
Now, therefore, in consideration of the Mutual Covenants herein expressed that the parties hereto agrees as follows:
1. Nature of contract/assembly/packing.
ISP & GSE are two independent contracting parties. The agreement between the parties is one on principle to principle basis and shall be construed as such for all purposes.
2 Assembling/Packing 2.1 GSE shall assemble/pack the said products in its factory mentioned above and or with the prior approval of ISP at such other places where it has sufficient assembling packing facilities. In assembling/packing of the said products GSE shall confirm strictly to the drawings specifications and instructions provided by the ISP and shall strictly adhere to the schedule of delivery specified by the ISP from time to time.
2.2 The drawings specifications and instructions, shall remain the sole and exclusive property of ISP and shall be treated as confidential during the terms of this agreement.
13 ITA 2157(Del)09 2.3 GSE shall not use the drawings specifications and instructions provided by ISP for any purposes other than assembling/ and packing of the said products for ISP.
3. Supply of Material 3.1 ISP shall supply GSE including all packaging, assembling materials and other supplies from time to time for assembling/ packing of the said products.
3.2 GSE shall provide facilities for proper storage of the said products and also all materials to be used in the assembling/ packing of the said products. GSE shall also keep such records of receipt issue, consumption and stock of all the above materials and the said products as desired by ISP.
3.3 The property in the said products and such materials Packaging and other materials and work in progress shall always remain with ISP and GSE shall have no right or lien of Whatsoever nature and cause on the same.
3.4 GSE shall hold in trust for ISP and be a bailee for consideration of the raw materials/packaging materials, articles, labels, cartons, boxes or any other property whether movable or immovable that may be given, handed over or entrusted to or otherwise come into its custody or possession or on account of ISP and shall be liable to make goods any loss caused to ISP as a result of pilferage, theft, robbery or damage or destruction of such goods, whilst these will be in custody of GSE. It is expressly agreed that property in such goods shall always remain with ISP and GSE shall conduct its business in a manner so as to give a clear indication to the third parties that the property in such goods belonged to ISP, GSE shall render to ISP proper account for all such property and ISP shall be entitled to put GSE to the strict proof thereof. GSE shall not sell, transfer, alienate, mortgage, charge, hypothecate, pledge or otherwise create any encumbrances on all or any of the said property or allow any of the said property to be subjected to any attachment, lien distrait or subject to transfer, possession or custody by an 'officer' of court like a receiver or of any revenue authority in any proceedings to which it might become a party or which, might otherwise be against it by third party. Notwithstanding anything contained in this agreement, any violation of this clause by any act or omission whether voluntary or involuntary on the part of GSE shall be a ground and 14 ITA 2157(Del)09 sufficient cause for ISP to forthwith determine the Agreement and take possession of all the said property without intervention of the court.
3.4.1. GSE will provide to ISP an inventory statement of all ISP items in stock at GSE every month on the last day of the month, this inventory statement shall be verified by ISP and ISP shall give a written acceptance of the inventory statement with physical stocks, by the 3rd day of each month.
4. Job Charges 4.1 ISP shall pay a mutually agreed job charges as agreed from time to time. 4.2 GSE shall claim all benefits of MODVAT on goods supplied to it by ISP directly or through the suppliers/job workers and shall keep complete record of the same. All such benefits claimed shall be adjusted against excise duty paid by GSE on clearance of said finished products. The net job charges/excise duty arrived at after adjusting these benefits/credits shall be paid in such manner as enumerated in this agreement.
4.3 Any change in excise duty or levy/exemption of any other duty or tax as applicable at the time of supply shall be to ISP's account."
17. Clauses 1 to 4 (APB 80 to 81) of the agreement dated 22.10.2002 between the assessee and GIL read as follows:-
"1. PRINCIPAL TO PRINCIPAL CONTRACT GIL and GSE are two independent contracting parties, not connected with each other in any manner. This Agreement being executed between the parties is on a principal to principal basis and shall be construed as such.
2. ASSEMBLY AND PACKAGING 2.1 GSE shall undertake assembling and packaging in its factory mentioned above and I or with the prior approval of GIL at such other places, where it has sufficient assembly and packing facilities. In assembling and packaging of the said products, GSE shall conform strictly to the 15 ITA 2157(Del)09 drawings, specifications and instructions provided by GIL and shall adhere to the schedule of delivery specified by GIL from time to time.
2.2 The drawings, specifications and instructions, shall remain the sole and exclusive property of GIL and shall be treated as confidential by GSE both during the term of this Agreement and at all times hereafter.
2.3 GSE shall not use the drawings, specifications and instructions provided by GIL for any purpose other than assembling and packaging of the said products for GIL.
3. SUPPLY OF MATERIAL 3.1 GIL shall supply to GSE materials for assembling and packaging of the said products.
3.2 GSE shall provide and ensure facilities for proper storage of the said products and also all materials supplied by GIL to be used in the assembling and packaging the said products. GSE shall also keep such records of receipt , issue, consumption and stock of all the above materials and the said products as desired by GIL.
3.3 The property in the said product and other materials in work in progress shall always remain with GIL. GSE shall have no right or lien of whatsoever nature on the same.
3.4 GSE shall hold in trust for GIL and be a bailee for consideration for the packaging materials or any other property, whether movable or immovable that may be given, handed over or entrusted to or which otherwise may come into its custody or possession on account of GIL. GSE shall make good any loss caused to GIL arising out of damage, destruction or pilferage or negligence/willful actions by GSE employees. It is expressly agreed that property in such goods shall always remain with GIL. GSE shall conduct its business in a manner so as to give a clear indication to third parties that the property in such goods belongs to GIL. GSE shall render to GIL proper account for all such property and GIL shall be entitled to put GSE to the strict proof thereof. GSE shall not sell, transfer, alienate, mortgage, charge, hypothecate, pledge or otherwise create any encumbrances on all or any of the said property or allow any of the said property to be subjected to any attachment, lien, distrait, or be subject to transfer, possession or custody by an 16 ITA 2157(Del)09 officer of court like a receiver or of any revenue authority in any proceedings to which it might become a party or which might otherwise be brought against it by a third party.
3.5 Notwithstanding anything contained in this Agreement, any violation of this clause by any act of commission or omission, whether voluntary or involuntary on the part of GSE shall be a good and sufficient cause for GIL to forthwith determine this Agreement and take possession of all the said property without the intervention of the Court.
3.6 GSE will provide to GIL an inventory statement of all GIL raw material, finished goods and work in process at its premises, every month on the last day of the month. This inventory statement shall be verified by GIL and GIL shall give a written acceptance of the inventory statement with physical stocks by the 3rd day of each subsequent month.
4. CHARGES 4.1 GIL and GSE shall mutually agree upon charges to be paid by GIL to GSE for carrying out its obligations which shall be described fully in the Rate Contract as issued from time to time pursuant to this agreement. These charges shall include the cost of the raw materials procured by GSE directly and used in the finished goods.
4.2 GIL shall make payment of bills within such time from the date of receipt of the same, subject to deduction of tax at source as indicated in any purchase order.
4.3 GSE shall claim all benefits of MODVAT on goods supplied to it by GIL directly or through the suppliers/job workers and shall keep a complete record of the same."
18. From the above contents of both the contract agreements, nothing makes out that the assessee's industrial undertaking was formed by transfer of machinery or plant previously used for any purpose to a new business. The objection of the ld. CIT in this regard is, therefore, not sustainable and is rejected as such.
17 ITA 2157(Del)09
19. Coming to the next objection raised by the ld. CIT, the same is that the AO should have made further enquiries before accepting the statements made by the assessee and his return and that no enquiries were conducted by the AO regarding any manufacturing activity carried on by the assessee. In this regard, it is patent on record that the assessee had laid there as above, before the ld. AO all the necessary details regarding his activities . It was after considering these details that deduction was allowed to the assessee by the AO, more particularly in view of the fact that such deduction had been allowed to the assessee in the earlier years, as discussed hereinbefore.
20. Coming to the case laws cited by the parties, in "CIT v. Rajeev Grinding Mills", 279 ITR 86 (Del), it has been held that where in the immediately preceding two assessment years, the addition was made on account of grinding loss and such addition was deleted in first appeal and the grinding loss declared by the subsequent assessment years was also accepted by the revenue. As such, the revenue could not dispute the grinding loss only for the assessment year in question on the ground of excessive claim, thereby making an estimated addition. The Tribunal was held justified in deleting the addition in toto.
21. Apropos the ld.CIT's objection regarding res judicata not applicable to Income Tax proceedings, there can possibly be no two views about disproposition. However, it is also trite that when the facts and circumstances remain the same over the years, the Department is not at liberty to take a view different from that taken in the earlier years.
18 ITA 2157(Del)09
22. In "CIT v. J.K. Charitable Trust", 308 ITR 161(SC), it was held that where the fact situation is the same as in the earlier years, the revenue cannot appeal, if no appeal has been filed for the earlier years.
23. In "CIT v. Paul Brothers", 216 ITR 548(Bom), it has been held that special deductions under sections 80 HH and 80 J of the Act cannot be withdrawn in a subsequent year.
24. In "CIT v. Natraj Stationery Products P.Ltd.", 312 ITR 22(Del), it was held, inter alia, that the Tribunal had correctly held the assessee to be entitled u/s 80 IB(3)(i) of the Act in regard to the other industrial undertakings, the provisions of which are in pari materia with the provisions of section 80 IA(2)(iv) of the Act as obtaining in the initial year.
25. In "Smt. Tara Devi Aggarwal v. CIT, West Bengal", 88 ITR 323(SC), it has been held, on the facts of that case, that there were materials before the Commissioner to justify his finding that the order of assessment for the year 1960-61 was erroneous insofar as it was prejudicial to the interests of the revenue. Herein, however, this is not the fact situation. As discussed, the activity of the assessee is that of manufacture. Besides, in the earlier years, on the same facts, deduction was allowed to the assessee. It clearly is not a case of no enquiry by the AO.
26. In "Gee Vee Enterprises v. Addl. CIT, Delhi-I", 99 ITR 375(Del), it has been held that it is an appeal of the AO to investigate the fact and the Commission can regard the ground on the erroneous ground that in the facts of the case, the AO should have made 19 ITA 2157(Del)09 further enquiry before accepting the statement made by the assessee in his return. Herein, as above, it has not been made out as to how it is a case of no enquiry particularly when in the earlier years, the deduction claimed u/s 80 IB has been allowed to the assessee under scrutiny and the facts remained consistently the same in the year under consideration also.
27. In "Malabar Industrial Co. Ltd. v. CIT", 243 ITR 83(SC), where an amount was received by the assessee as compensation for delay in payment for rubber plantation and the AO failed to assess the amount, the CIT was held justified in passing an order of revision to assess such amount as income from other sources. Clearly, the facts in the present case are at entire variance with those present before the Hon'ble Supreme Court in "Malabar Industrial Co. Ltd.". The present is not at all a case of no enquiry by the AO, the facts remaining the same as in the earlier years where under scrutiny, the deduction claimed u/s 80 IB was allowed.
28. In "Rampyari Devi Saraogi v. CIT, West Bengal", 67 ITR 84 (SC), where there was ample material to show that the AO had made the assessment in undue haste, without any evidence or enquiry, the Commissioner was held to have rightly exercised revisional jurisdiction. Evidently, the present is not a case of either undue haste on the part of the AO or the deduction having been allowed to the assessee without any evidence or enquiry as above.
29. In "CIT v. McMillan &Co.", 33 ITR 182(SC), it was held, inter alia, that the AO, even when he accepts the method of accounting, he is not bound by the figure of profits shown in the account and if and when an appeal is taken by the assessee, the first 20 ITA 2157(Del)09 Appellate Authority can re-examine the books of account to test the correctness of the assessment made. Obviously, these are not the facts of the case at hand. Here, the AO allowed the deduction claimed by the assessee u/s 80 IB of the Act since the activity of the assessee was that of manufacture and such deduction had been allowed to the assessee in the earlier years under scrutiny assessment.
30. In view of the above, finding force in the grievance sought to be raised by the assessee, we hereby accept the same. There is nothing erroneous, much less prejudicial to the interests of the revenue, in the assessment order. The order of the CIT, passed u/s 263 of the Act is quashed and that passed by the AO is revived.
31. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 30.4.2010.
Sd/- sd/-
(B.P. Jain) (A.D. Jain)
Accountant Member Judicial Member
Dated: 30.04.2010
*RM
copy forwarded to:
1. Shri Govind Singh,
702-703, Ansal Chamber-II,
6-Bhikaji Cama Place, N.Delhi.
2. DCIT, Circle 24(1), New Delhi.
3. CIT
4. CIT(A)
5. DR
true copy Deputy Registrar