Macbrout Engineering P. Ltd, Goa V. Assistant Commissioner Of Income-Tax, Cir-1, Margao

ITA 91/PAN/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84782 (ITAT-PANAJI)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NISANT K LD
• Keywords: Gift; Depreciation; Opportunity of being heard; Additional depreciation; Period of limitation; Question of law; Benefit of exemption; Revenue expenditure
• Section: 143(3); 142(1); 80IB; 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 91/PNJ/2014 (ASSESSMENT YEAR - 2009 - 10 ) MAC B ROUT ENGINEERING PVT. LTD. D2 - 5, MARGAO INDUSTRIAL ESTATE, SAN JOSE DE AREAL, SALCETE - GOA 403709. PAN:AADCM6795L (APPELLANT) VS. THE COMMISSIONE R OF INCOME TAX - PANAJI - GOA. (RESPONDENT) APPELLANT BY : SHRI LORENCE MALEKAR, CA. SHRI MANJUNATH HEGDE, CA RESPONDENT BY : SHRI NISANT K. , LD. DR. DATE OF HEARING : 03/09 /2014 DATE OF PRONOUNCEMENT : 14 /11 /2014 O R D E R PER: D.T. GARASIA (JM) THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT - PANAJI DATED 20 TH JANUARY, 2014 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE. 1. THE LEARNED COMM ISSIONER OF INCOME TAX, PANAJI - GOA (HERE IN AFTER REFERRED TO AS C.I.T.) ERRED IN LAW AS WELL AS ON FACTS WHILE INVOKING THE PROVISIONS OF SECTION 263. 2. THE LEARNED C.I.T. ERRED IN INI TIATING PROVISIONS OF SECTION 26 3 WITHOUT VERIFYING THE FULL FACTS OF THE CASE. 3. THE LEAR NED C.I.T. ERRED IN SETT ING ASIDE THE ORDER PASSED BY TH E AO U/S.143(3) OF T HE I.T. ACT AND DIRECTING THE AO TO PASS FRESH ORDER WITHOUT COMING TO THE CONCLUSION THAT THE EARLIER FINDINGS OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4. THE LEARNED C.I .T. EVEN AFTER INITIATING THE PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE AND THE ASSEESSEE EXPLAINING IN DETAIL THE PROCESS OF MANUFACTURING ACTIVITIES CARRIED OUT FOR OUTSIDERS ON JOB WORK BASIS, (CALLED MACHINING CHARGES) WITH DETAILED PROCESS CHART AND ON SHOWING ACTUAL PRODUCTS, COULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ERRONEOUS. THE LEARNED CIT ERRED IN SIMPLY ASKING THE ASSESSING OFFICER TO RE - EXAMINE THE M ATTER. (APPELLANT RELIES ON THE BOMBAY HIGH COURT DECISION IN THE CASE OF COMMISSIONER OF INCOME - TAX V. GABRIEL INDIA LTD. (1993) 203 ITR 0108 (BOM) 2 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT 5. THE LEARNED C.I.T. FAILED TO APPRECIATE THAT MACHINING CHARGES EARNED BY THE ASSESSEE IS TOWARDS PRODUCT S MANUFACTURED FOR CUSTOMERS FROM THE RAW MATERIALS SUPPLIED BY THEM. IT FORMS PART OF THE MANUFACTURING ACTIVITIES CARRIED ON BY THE ASSESSEE. THEREFORE, EARNINGS IN THE FORM OF MACHINING CHARGES ENTITLED TO EXEMPTIO N U/S. 10 B OF THE I. T. ACT 1961. 6. TH E LEARNED CI.T. ERRED IN IGNORING THAT THE ISSUE OF MACHINING CHARGES WAS EXAMINED BY THE JURISDICTION ITAT, PANAJI BENCH, IN THE CONTEXT O F DEDUCTION U/S. 80 - IB, I N ASSESSES OWN CASE, FOR THE A. Y. 2006 - 07. AY 2007 - 08 AND AY 2008 - 09 AND IT WAS HELD TO BE M ANUFACTURING ACTIVITY. 7. THE LEARNED C.I .T. ERRED IN IGNORING THE BELOW MENTIONED DECISIONS RELIED ON BY THE ASSESSEE, WHERE IN IT HAS BEEN HELD THAT THE INCOME EARNED AS A RESULT OF PRODUCTS MANUFACTURED ON JOB WORK BASIS FOR OUTSIDERS IS TO BE REGARDED AS MANUFACTURING ACTIVITY. A) DCIT V/S SHASHI KANT MITTAL (2009) 22 DTR 218 (DELHI) B) COMMISSIONER OF INCOME TAX III V/S SADHU FORGING LTD (2011) 200 TAXCMANN 0001(DELHI) C) METALMAN AUTO PVT . LTD. VS. CIT, LUDHIANA (HC OF P & H AT CHANDIGARH) D) RAMIT K UMAR SHARMA VS. DIT (2009) 309 ITR 0344 (AAR) E) NU - LOO K (P) LTD V/S. COMMISSIONER OF INCOME TAX, DELHI (1986), 157 ITR 0253 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN BUSINESS OF MANUFACTURING OF TURBO MACHINERY COMPONENTS AND INSULATORS. THE ASSESSEE FILED THE RETURN OF INCOME OF INCOME FOR THE A.Y.2009 - 10 DECL ARING NILL TOTAL INCOME AND RS. 98,63,595/ - U/S. 115JB. THE RETURN WAS PROCESSED U/S. 143 OF THE IT ACT. WHICH WAS PASSED ON 11.11.2011 DISALLOWANCE THE ASS ESSEES CLAIM FOR EXEMPTION U/S. 10B PARTLY AND THUS DETERMINED THE TOTAL INCOME AT RS. 6,81,074/ - . 3.1. THE COMMISSIONER OF INCOME TAX UNDER POWER 263 OF THE INCOME TAX ACT HAS PERUSED THE ASSESSMENT ORDER AND HE WAS OF THE VIEW THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CLAIME D AMOUNT RS.80,89,614/ - U/S 10B OF THE IT ACT WHI CH IS INCLUDED AN AMOUNT OF RS. 3,39,57,54/ - RECEIVED ON ACCOUNT OF MACHINING CHARGES. IT IS SEEN FROM THE RECORDED OF A.Y.2006 - 07 AND 2008 - 09 THAT THE TRANSACTION OF MACHI NING CHARGES RECEIVED BY THE ASSESSEE WERE EXAMINED IN THE CONTEXT O F DEDUCTION U/S. 80IB AND IT WAS CONCLUDED THAT THE RECEIPTS OF MACHINING CHARGES ARE IN THE NATURE OF JOB WORK CHARGES/LABOUR CONTRACT AND CANNOT FALL WITHIN THE MEANING OF MANUFACTURING ACTIVITY. AS PER PROVISIONS U/S. 10B, THE DEDUCTION 3 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT U/S. 10B IS ALLOWABLE ONLY IN RESPECT OF PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS MANUFACTURED BY THE 100% EXPORT ORIENTED UNDERTAKING. SINCE THE MACHINING CHARGES ARE IN THE NATURE OF JOB WORK CH ARGES/ LABOUR CONTRACT AND ARE NOT COMING UNDER THE PURVIEW OF MANUFACTURING ACTIVITY THUS SAME HAS TO BE DISALLOWED FOR THE A.Y.2009 - 10 ALSO. OMISSION TO DISALLOW MACHINING CHARGES U/S 10B OF THE IT ACT RESULTED IN UNDER ASSESSMENT OF INCOME OF RS.30,56,1 78/ - AND SHORT LEVY OF TAX TO THE EXTENT OF RS.9,44,358/ - . THE COMMISSIONER WAS OF THE VIEW THAT THE ORDER OF INCOME TAX OFFICER IS PRIMA FACIE FOUND TO BE ERRONEOUS IN SO FAR AS, ALLOWING THE MACHINING CHARGES AS EXEMPTION U/S. 10B OF THE IT ACT PREJUDICI AL TO THE INTEREST OF REVENUE. THE ASSESSEE IN ITS WRITTEN SUBMISSION CONTENDED THAT ASSESSEE COMPANY IS SPECIALIZED IN TURBO MACHINERY APPLICATIONS WITH ORE COMPETENCY IN 5 - ASIX MILLING. USING THE HIGHLY DEVELOPED M ACHINING TECHNOLOGY AND LATEST ADVANCES IN CUTTING TOOLS, THE COMPANY PRODUCES NOZZLE RINGS, SINGLE BLADES COMPONENTS FOR AUTOMOTIVE AND POWER GENERATION, TURBOCHARGES, TURBO MACHINERY PARTS AND OTHER COMPLEX BLADED COMPONENTS ON ADVANCED 5 AXIS CNC MACHINES, MEETING INTERNATIONAL STANDARDS. IT HAS 2 MANUFACTURING UNITS; ONE IS ELIGIBLE FOR DEDUCTION U/S. 80IB AND SECOND 100% EXPORT ORIENTED UNIT. THE MACHINING CHARGES HAS BEEN EARNED BY 100% EOU. IN THE EOU, IT CO N VERTS THE STEEL RODS INTO SINGLE GRADE COMPONENTS WITH THE AID OF MACHINERY WHICH AMOUNTS TO MANUFACTURE AS ITS END PRODUCT, WHICH MAKES IT A COMMERCIA LLY KNOWN DISTINCT PRODUCT WHICH IS COMMERCIAL KNOWN DISTINCT PRODUCT FROM THE MATERIALS OUT OF WHICH IT IS PRODUCED. THE ASSESSEE , THEREFORE , ARGUED THAT THE ONLY ESSENTIAL PREREQUISITE UNDER SECTION 10B IS THAT THE 100% EOU SHOULD BE CARRYING OUT THE MANUFACTURE OR PRODUCTION OF ARTICLES OR THINGS. THE ASSESSEE IS RECEIVING RAW MATERIALS IN THE FORM OF STEEL RODS FROM ITS FOREIGN CUSTOMER AND IS EXPORTING TO FOREIGN CUSTOMER AS PER SPEC IFICATIONS OF THE CUSTOMER AND IS EXPORTING TO FOREIGN CUSTOMERS. THUS, THE ASSESSEE SATISFIES ALL THE CONDITI O NS LAID DOWN UNDER SECTION 10B OF THE INCOME TAX ACT, 1961. IN SUPPORT OF THIS ASSESSEE CARRIED OUT THE DECISION. 4 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT 3.2. AFTER CONSIDERING THE REP LY THE COMMISSIONER WAS OF THE VIEW THAT WHETHER THE MACHINE CHARGES ARE ELIGIBLE FOR DEDUCTION UNDER 80IB HAS NOT REACHED IN FINALITY AS DEPARTMENT HAS FILED APPEAL TO HIGH COURT IN ASSESSEES CASE IN EARLIER YEAR. THEREFORE, HE HAS SET ASIDE THE ASSESSME NT ORDER FOR THE A.Y. 2009 - 10 PASSED BY THE AO U/S 143(3) OF THE IT ACT, 1961 AND THE AO IS DIRECTED TO PASS THE FRESH ORDER AFTER VERIFYING THE CLAIM LEGALLY AND GIVE REASONABLE OPPORTUNITY TO BEING HEARD TO THE ASSESSEE. 4. LEARNED AR FILED THE WRITTEN SUBMISSION WHICH READ AS UNDER: WITH RE FERENCE TO THE ABOVE WE WOULD LIKE TO MAKE THE FOLLOWING SUBMISSIONS: 1. THE BRIEF FACTS OF OUR CASE ARE THAT THE APPELLANT IS A PRIVATE LIMITED COMPANY SPECIALISING IN TURBO MACHINERY APPLICATIONS, WITH CORE COMPETENCY IN 5 - AXIS MILLING. USING THIS HIGHLY DEVELOPED MACHINING TECHNOLOGY AND LATEST ADVANCES IN CUTTING TOOLS THE UNIT PRODUCES NOZZL E RINGS, SINGLE BLADES COMPONENTS FOR AUTOMOTIVE AND POWER GENERATION, TURBO CHARGERS, TURBO MACHINERY PARTS AND OTHER COMPL EX BLADED COMPONENTS ON ADVANCED 5 AXIS CNC MACHINES, MEETING INTERNATIONAL STANDARDS. THE APPELLANT HAS TWO MANUFACTURING UNITS AT MARGAO INDUSTHAL ESTATE, SAN JOSE DE AREAL, P.O. CURTORIM - GOA. WITH GOA BEING AN INDUSTRIALLY BACKWARD STATE AS SPECIFIED IN THE EIGHT SCHEDULE TO THE ACT, AND THE OTHER CONDITIONS SET OUT IN THE ACT BEING DULY COMPLIED WITH, MACBR OUT ENGINEERING PRIVATE LIMITED IS EL IGIBLE TO CLAIM DEDUCTION U/S 80 IB(4) OF T HE ACT PERTAINING TO TH E SHED D 2 - 5. ACCORDINGLY, THE APPELLANT COMPANY HAS BEEN CLAIMING DEDUCTION U/S 80 - I B FROM A.Y.2004 - 05. BESIDES, THE APPELLANT HAS ALSO SET UP A 100% EXPORT ORIENTED UNIT AT SHED A1 - 22 WHICH IS DULY APPROVED BY THE DEVELOPMENT COMMISSIONER, SEEPZ SEZ, MINI STRY OF COMMERCE AND INDUSTRY, ANDHERI, MUMBAI, AND AS SUC H IS ENTITLED TO EXEMPTION U/S 1 OB. THIS UNIT COMMENCED MANUFACTURING ACTIVITY ON 16TH DECEMBER, 2006 AND HA S BEEN CLAIMING EXEMPTION U/S 10 B FROM A.Y. 2007 - 08. 2. IN THE PROCESS OF MANUFACTURE OF N OZZLE RINGS, SINGLE BLADES COMPONENTS FOR AUTOMOTIVE AND POW ER GENERATION, TURBOCHARGERS, TU RBO MACHINERY PARTS AND OTHER COMPLEX BLADED COMPONENTS, THE RAW MATERIAL IS EITHER PROCURED BY THE APPELLANT, OR PROVIDED BY THE CUSTOMER, DEPENDING ON VARIOUS FAC TORS, MOST IMPORTANTLY NON - AVAILABILITY OF THE DESIRED QUALITY OF MATERIAL IN THE DOMESTIC MARKET. WHEN THE RAW MATERIALS EMANATE FROM THE CUSTOMER, THE NOMENCLATURE USED FOR BILLING AND ACCOUNTING PURPOSE IS MACHINING CHARGES AS AGAINST SALES IN CASE THE RAW MATERIALS ARE PROCURED BY THE APPELLANT. DURING THE YEAR, THE APPELLANTS PROFIT & LOSS A/C PERTAINING TO THE UNIT ELIGIBLE FOR EXEMPTION U/S 108 S HOWS SALES TO THE TUNE OF RS. 7,36,93,099/ - AND MACHINING CHARGES OF RS. 33,95,754/ - . 3. FOR A.Y . 2009 - 10, RETURN DECLARING A LOSS OF RS. 9,37,887 WAS FILED. HOWEVER, VIDE HIS ORDER DATED 11.11.2011 U/S 143(3) THE LEARNED DEPUTY COMM ISSIONER OF INCOME TAX, CIRCLE - 1 (DCII) DISALLOWED RS. 16,18,961 AS PROPORTIONAL CLAIM MADE U/S 10 B ON SALE OF 5 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT SCRAP OF RS. 17,98,845. THE APPELLANT PREFERRED FIRST APPEAL, AND THE CIT(A) REWORKED THE DISALLOWANCE TO RS. 2,31,339. THE DEPARTMENT FILED AN APPEAL AGAINST THE ORDER OF THE CIT(A), BUT THE SAME WAS DISMISSED BY THE HONBLE ITAT, PANAJI BENCH. 4. THE LEARNED COMM ISSIONER OF INCOME TAX, PANAJI (CIT), PASSED AN ORDER U/S 263 DATED 20TH JANUAR Y, 2014 AND SET - ASIDE THE ASSESSMENT OMER FOR AY 2009 - 10, OPINING THAT CLAI M OF DEDUCTION U/S 10 B ON MACHINING CHARGES WAS PRIMA FACIE UNSUSTAINABLE AND REQUIRED RE - EXAMINATION . HE FURTHER STATED THAT WHETHER MACHINING CHARGES ARE ELIGIBLE FOR DEDUCTION U/S 80 - TB HAS NOT REACHED FINALITY AS DEPARTMENT HAS FILED AN APPEAL TO HIGH COURT. 5. WE HUMBLY SUBMIT T HAT THE ORDER OF THE LEARNED CIT IS BAD IN LAW FOR REASONS MENTIONED BELOW: A) SIGNIFICANT JUDICIAL PRONOUNCEMENTS [MENTIONED IN (D) BELOW] WERE BROUGHT TO THE KNOWLEDGE OF THE LEARNED CIT, WHERE IN IT WAS HELD THAT INCOME RECEIVED FROM JOB WORK DONE ON MATERIAL SUPPLIED BY THE CUSTOMERS QUALIFIE S FOR DEDUCTION UNDER SECTIO N 10 B OF THE INCOME TAX ACT, 1961, AS LONG AS THE PROCESS CARRIED OUT ON THE RAW MATERIALS AMOUNTS TO MANUFACTURE, AND THE CRUX OF THE DEDUCTION IS NOT WHETHER THE RAW MATERIAL IS SELF - ACQUIRED OR PROVIDED BY THE CUSTOMER, BUT WHETHER THE PROCESS THE RAW MATERIAL UNDERGOES AMOUNTS TO MANUFACTURE OR NOT. BESIDES, IN VI EW OF THE FACT THAT SECTION 80 - IB AND SECTION 10B ARE SIMILAR IN THE SENSE THAT THEY ARE BOTH MANUFACTURING CENTRIC, DECI SIONS WHEREIN DEDUCTION U/S 80 - I B WAS ALLOWED ON IDENTICAL FACTS OF MA NUFACTURE USING MATERIALS PROVIDED BY THE CUSTOMER WERE ALSO PROVIDED TO THE LEARNED ACIT. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LEARNED CIT THA T IN OUR OWN CASE FOR A.Y.S 2006 - 07, 2007 - 0 8 & 2008 - 09, THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS), PA NAJI HAS HELD THAT MACHINING AMOUNTS TO MANUFACTURE IN T HE CONTEXT OF DEDUCTION U/S 80 - IB AND THE SA ME STAND HAS BEEN REITERATED BY THE HONBLE ITAT BENCH. PANAJI . B) BINDING NATURE OF AN IT AT ORDER ON THE ASSESSING OFFICER: IT IS A WELL SETTLED PRINCIPLE OF LAW THAT THE DECISION OF A JURISDICTIONAL ITAT BENCH, BEING A HIGHER AUTHORITY IN THE HIERARCHY, IS BINDING ON THE ASSESSING OFFICER IRRESPECTIVE OF PENDENCY OF APPEAL OF THE IMPUGNED ITAT ORDER IN THE HIGH COURT. THE TRIB UNAL EXERCISES JUDICIAL FUNCTIONS AND HAS ALL POWERS OF A COURT. THE PROCEEDINGS BEFORE THE TRIBUNAL ARE DEEMED TO BE JUDICIAL PROCEEDINGS. REFU SAL TO FOLLOW AN ORDER OF THE IT AT WOULD RENDER THAT AUTHORITY GUILTY OF COMMITTING CONTEMPT OF TRIBUNAL. THIS S TAND HAS BEEN REITERATED IN SEVERAL JUDICIAL PRONOUNCEMENTS, THE PROMINENT ONES OF WHICH ARE STATED BELOW: THE HON BLE SUPREME COURT IN KAMALAKSHI FINANCE CORPORATIONS CASE AIR 1992 SC 711, HAS LAID DOWN THAT THE DOCTRINE OF BINDING PRECEDENTS IS EQUALLY APPLICABLE TO TRIBUNAL ORDERS ALSO AS THE TRIBUNAL IS A HIGHER AUTHORITY, IN SO FAR AS ASSESSING OFFICER AND CIT(A) ARE CONCERNED IN THE JUDICIAL HIERARCHY. ON THE ISSUE OF BINDING NATURE OF ORDERS PASSED BY THE INCOME TA X APPELLATE TRIBUNAL, THE HONBLE M P HIGH COURT IN THE CASE AGRAWAL WAREHOUSING & LEASING LTD. V. CIT 12002] 257 IPR 235/ 124 TAXMAN 44D HAS HELD THAT THE ORDERS PASSED BY THE T RIBUNA L ARE BINDING ON AL L THE TAX AUTHORITIES FUNCTIONING UNDER THE JURISDICTION OF THE TRIBUNAL WHILE SO HOLDING, IT FOLLOWED THE DECISION OF 6 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT THE HON , BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. KAMLAKSHI FINANCE CORP . LTD AIR 1992 SC 711, 712 WHICH HA S RULE D AS UNDER: IT CANNOT BE TOO VE HEMENT LY EMPHASIZED THAT IT IS OF UTMOST IMPORTANCE THA T IN DISPOSING OF THE QUASI - JUDICIAL ISSUES BEFORE THEM, REVENUE OFFICERS ARE BOUND BY THE DECISIONS OF APPELLATE AUTHORITIES. THE ORDER OF THE APPE HATE COLLECTOR IS BINDING ON THE ASSISTANT COLLECTORS WORKING WITHIN HIS JURISDICTION AND THE ORDER OF THE TRIBUNAL IS BINDING UPON THE ASSISTANT COLLECTORS AND THE APPELLATE COLLECTORS WHO FUNCTION UNDER THE JURISDICTION OF THE TRIBUNAL. THE PRINCIPLES OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGHER APPEL LATE AUTHORITIES SHOULD BE FOLLO WED UNRESER VEDLY BY THE SUBORDINATE AUTHORITIES. THE MERE FACT THAT THE ORDER OF THE APPELLATE AUTHORITY IS NOT ACCEPTABLE TO THE DEPARTMENT IN ITSELF AN OBJECTIONABLE PHRASE AND IS THE SUBJECT MATTER OF AN APPEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLES S ITS OPERATION HAS BEEN SUSPENDED BY A COMPETENT COURT. IF THIS HEALTHY RULE IS NOT FOLLOWED, THE RESULT WILL ONLY BE UNDUE HARASSMENT TO THE ASSESSEES AND CHAOS IN ADMINISTRATION OF TAX LAWS . REFERENCE IS ALSO INVITED TO THE DECISION OF THE BOMBAY HIG H COURT IN SUBRAMANIAN, ITO V. SIEMENS INDIA LTD J1985] 156 ITR 11). THE QUESTION THAT AROSE FOR CONSIDERATION IN THIS CASE IS WHETHER THE INCOME TAX OFFICER IS BOUND BY THE DECISION OF A SINGLE JUDGE OR A DIVISION BENCH OF THE COURT WITHIN WHOSE JURISDICT ION HE IS OPERATING EVEN IF AN APPEAL HAS BEEN PREFERRED AGAINST SUCH DECISION AND IS PENDING. THE FOLLOWING OBSERVATIONS OF THE BOMBAY HIGH COURT MAY BE EXTRACTED IP 12): SO FAR AS THE LEGAL POSITION IS CONCERNED, THE INCOME TAX OFFICER WOULD BE BOUND BY A DECISION OF THE SUPREME COURT AS ALSO BY A DECISION OF THE HIGH COURT OF THE STATE WITHIN WHOSE JURISDICTION HE IS FUNCTIONING, IRRESPECTIVE OF THE PENDENCY OF ANY APPEAL OR SPECIAL LEAVE APPLICATION AGAINST THAT JUDGMENT HE WOULD EQUALLY BE BOUND BY A DECISION OF ANOTHER HIGH COURT ON THE POINT, BECAUSE NOT TO FOLLOW THAT DECISION WOULD BE TO CAUSE GRAVE PREJUDICE TO THE ASSESSEE. WHERE THERE IS A CONFLICT BETWEEN DIFFERENT HIGH COURTS, HE MUST FOLLOW THE DECISION OF THE HIGH COURT WITHIN WHOSE JURISDIC TION HE IS FUNCTIONING, BUT IF THE CONFLICT IS BETWEEN DECISIONS OF OTHER HIGH COURTS, HE MUST TAKE THE VIEW WHICH IS IN FAVOUR OF THE ASSESSEE AND NOT AGAINST HIM, SIMILARLY, IF THE INCOME TAX APPELLATE TRIBUNAL HAS DECIDED A POINT IN FAVOUR OF THE ASSESS EE, HE CANNOT IGNORE THAT DECISION AND TAKE A CONTRARY VIEW, BECAUSE THAT WOULD EQUALLY PREJUDICE THE ASSESSEE. T HERE CANNOT BE ANY DISPUTE THAT THE RATIO OF THE DECISION OF JURISDICTIONAL HIGH COURT EQUALLY APPLIES TO THE ORDERS PASSED BY THE ITAT ALSO V IS - A - VIS THE AUTHORITIES DOWN BELOW. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF BARODA V. H.C. SHRIVATSAVA [2002] 256 ITR 385 I 122 TAXMAN 330 HAS ALSO DEALT WITH THE IMPUGNED ISSUE AND THE RELEVANT OBSERVATIONS ARE EXTRACTED BELOW: AT THIS JUNC TURE, WE CANNOT RESIST OBSERVING THAT THE JUDGMENT DELIVERED BY THE INCOME - TAX TRIBUNAL WAS VERY MUCH BINDING ON THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS BOUND TO FOLLOW THE JUDGMENTS IN ITS TRUE LETTER AND SPIRIT. IT WAS NECESSARY FOR JUDICIAL UNI T AND DISCIPLINE THAT ALL THE AUTHORITIES BELOW THE TRIBUNAL MUST ACCEPT AS BINDING THE JUDGMENTS OF THE TRIBUNAL. THE ASSESSING OFFICER BEING AN INFERIOR 7 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT OFFICER VIS - A - VIS THE TRIBUNAL, WAS BOUND BY THE JUDGMENT OF THE TRIBUNAL AND THE ASSESSING OFFICER S HOULD NOT HAVE TRIED TO DISTINGUISH THE SAME ON UNTENABLE GROUNDS. IN THIS BEHALF IT WILL NOT BE OUT OF PLACE TO MENTION THAT IN THE HIERARCHICAL SYSTEM OF COURTS WHICH EXISTS IN OUR COUNTRY, IT IS NECESSARY FOR EACH LOWER TIER INCLUDING THE HIGH COURT, TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIERS . IT IS INEVITABLE IN A HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME APPELLATE TRIBUNAL WHICH DO NOT ATTRACT THE UNANIMOUS APPROVAL OF ALL MEMBERS OF THE JUDICIARY. BUT THE JUD ICIAL SYSTEM ONLY WORKS F SOMEONE IS ALLOWED TO HAVE THE LAST WORD, AND THAT LAST WORD ONCE SPOKEN IS LOYALLY ACCEPTED THE BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE AS HELD BY THE SUPREME COURT IN THE MATTER OF ASS T. CCE V. DUNL OP INDIA LTD. /1985] 154 IT]? I72. IN THE RECENT JUDGMENT OF CARGO HANDLING (P) WORKERS POOL, VISHAKAPATNARN V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1 , VISAKHAPATNAM (2012) 50 SOT 116 (VISAKUAPATNAM), THE HON BLE ITAT, WHILE DISPOSING THE APPEAL ON THE MATTER OF BINDING NATURE OF JURISDICTIONAL ITAT ORDER, HAS HELD AS UNDER: 8. AS HELD BY HON BLE MP HIGH COURT IN THE CASE OF IN THE CASE AGRAWAL WAREHOUSING & LEASING LTD. (SUPRA), THE LEARNED CIT(A), IN THE INSTANT CASE, HAS C OMMITTED JUDICIAL IMPROPRIETY AND ALSO ERRED IN LAW IN REFUSING TO FOLLOW THE ORDER OF THE APPELLATE TRIBUNAL. BEING AN AUTHORITY IN THE HIGHER HIERARCHY OF THE INCOME TAX DEPARTMENT, THAT TOO HOLDING APPELLATE CHARGE, THE LEARNED CIT(A), IN OUR VIEW, SHOU LD NOT HAVE COMMITTED THIS KIND OF JUDICIAL IMPROPRIETY. 9. WHENEVER A DECISION OF THE INCOME TAX APPELLATE TRIBUNAL IS FOUND TO BE UNACCEPTABLE TO THE AUTHORITIES BELOW, THE RIGHT COURSE TO FOLLOW IS TO CARRY THE MATTER IN APPEAL TO THE HIGH COURT AND IN CASE OF URGENT NECESSITY, TO SEEK SUSPENSION OF THE OPERATION OF THE ORDER OF THE TRIBUNAL APPEALED A GAINST IF THE HONBLE HIGH COURT SUSPENDS THE OPERATION OF THE ORDER APPEALED AGAINST THEN THE TAX AUTHORITIES ARE UNDER NO OBLIGATION TO FOLLOW THE ORDER SO SUSPENDED TILL THE MATTER IS DECIDED BY THE HONBLE HIGH COURT. C) I N THE CIT V. GABRIEL INDIA LTD (1993) 71 TAYCMAN 585 (BORN), ON THE ISS UE OF SECTION 263, THE HONBLE HIGH COURT HELD AS FOLLOWS: THE POWER OF SUO MOTU REVISION UNDER SUB - SECTION (1) IS IN THE NATU RE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISI ON UNDER THIS SUB - SECTION, VIZ. ) THE ORDER IS ERRONEOUS; AND (I I) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTERESTS OF THE REVENUE. IT HAS, THEREFORE, TO BE CONSIDERED FIRSTLY AS TO WHEN AN ORDER CAN BE SAID TO BE ERRONEOUS ONE FINDS THAT THE EXPRESSIONS ERRONEOUS ASSE SSMENT AND ERRONEOUS JUDGMENT HAVE BEEN DEFINED IN BLACKS LAW DICTIONARY. ACCORDING TO THE DEFINITION, ERRONEOUS ME ANS INVOLVI NG ERROR; DEVIATING FROM THE LAW. ERRONEOUS ASSESSMENT REFERS TO AN ASSESSMENT THAT DEVIATES FROM THE LAW AND IS, THEREFOR E, INVALID, AND IS A DEFECT THAT IS JURISDICTIONAL IN ITS NATURE, AND DOES NOT REFER TO THE JUDGMENT OF THE ASSESSING OFFICER IN FIXING THE AMOUNT OF VALUATION OF THE PROPERTY. SIMILARLY, ERRONEOUS JUDGMENT MEANS ONE RENDERED ACCORDING TO COURSE AND PRA CTICE OF COURT, BUT CONTRARY TO LAW, UPON MISTAKEN VIEW OF LAW, OR UPON ERRONEOUS APPLICATION OF L EGAL PRINCIPLES; 8 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN ITO ACT ING IN ACCORDANCE WITH LAW MAKES A 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 THE JUDGMENT OF THE COMMI SSIONER FOR THAT OF THE ITO, WHO PASSED THE ORDER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE ITO WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FA CTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING S OME ESTIMATE HIMSELF. THE COMMISSIONER, ON PERU SAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMA TE MADE BY THE OFFICER CONCERNED WAS ON THE L OWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE ITO. THAT WOULD NOT VEST THE COMMI SSIONER 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 CONC L USION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSIO N. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF THE COMMISSIONER THE ORDER IN QUESTION IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BUT THAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISS IONER WITH THE POWER REVISION BECAUSE THE FIRST REQUIREM ENT VIZ., THAT THE ORDER IS ERRONEOUS, IS ABSENT. SIMILARLY, I F AN ORDER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THEN ALSO THE POWER OF SUO MOT U REVISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE THE SUBJECT - MAT TER OF REVIS I ON BECAUSE THE SECOND REQUIREMENT ALSO MUST BE FULFILLED. THERE MUST BE SOME PRIMA FADE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. THEREFORE, IN ORDER TO EXERCISE POWER UNDER SECTION 263(1) THERE MUST BE MATERIAL BEFORE THE COMMISSIONER TO CONSIDER THAT THE ORDER PASSED BY THE ITO WAS ERRONEOUS INSOFAR AS IT I S PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THAT IT MUST BE AN ORDER WHICH IS NOT IN ACCORDANCE WITH THE LAW OR WHICH HAS BEEN PASSED BY THE ITO WITHOUT MAKING ANY ENQUIRY IN UNDUE HASTE. AN ORDER CAN BE SAID TO BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IF IT IS NOT IN ACCORDANCE WITH THE LAW IN CONS EQUENCE WHEREOF THE LAWFUL REVEN UE DUE TO THE STATE HAS NOT BEEN REALISED OR CANNOT BE REALISED. THERE MUST BE MATERIAL AVAILABLE ON THE RECORD CULLED FOR BY THE COMMISSIONER TO SATISFY HIM PRIMA FADE THAT THE AFORESAID TWO REQUISITES AL - C PRESENT IF NOT, HE HAS NO AUTHORITY TO INITIATE PROCEEDINGS FOR REVISION. EXERCISE OF POWER OF SU 0 MOTU REV ISION UNDER SUCH CIRCUMSTANCES WILL AMOUNT TO ARBITRARY EXERCISE OF POWER. IT IS WELT - SETTLED THAT WHEN EXERC ISE OF STATUTORY POWER IS DEPENDENT UPON THE EXISTENCE OF CERTAIN OBJECTIVE FACTS, THE AUTHORITY BEFORE EXERCISING SUCH POWER MUST HAVE MATERIALS ON RECORD TO SATISFY IT IN THAT REGARD. IF THE ACTION OF THE AUTHORITY IS CHALLENGED BEFORE THE COAST, IT WOUL D BE OPEN TO THE COURTS TO EXAMINE WHETHER THE RELEVANT OBJECTIVES WERE AVAILABLE FL - URN THE RECORDS CALLED FOR AND EXAMINED BY SUCH AUTHORITY. THE I TO IN THIS CASE HAD TIRADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASS E SSEE. THE ASSESSEE HAD GIVEN A DETAILED EXPLANATION IN THAT REGARD BY 9 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT A LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY , THE CLAIM WAS ALLOWED BY THE I TO ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE . THIS DECISION OF THE ITO COUL D NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. MOREOVER, IN THE INSTANT CASE, THE COMMISSIONER HIMSELF EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, C OULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS E RRONEOUS AND THAT THE EXPENDITUR E WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITA L NATURE. HE SIMPLY ASKED THE ITO TO RE - EXAMINE THE MATTER . THAT WAS NOT PERMISSIBLE. HENCE, THE PRO VISIONS OF SECTION 263 WERE NOT AP PLICABLE TO THE INSTANT CASE AN D, THEREFORE, THE COMMISSIONER WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER. THE RATIO OF THE AFORESAID CASE IS APPLICABLE TO THE CASE OF THE APPELLANT, AS THE AO HAS VERIFIED THA T ALL CONDITIONS PRESCRIBED BY SECTION 10B HAVE BEEN COMPLIED WITH. MERELY NON - DISCUSSION OF THE SAME IN THE ASSESSMENT ORDER DOES NOT RENDER THE SAME ERRONEOUS. D) IN THE FOLLOWING JUDGMENTS, ON MERITS, OUR CONTENTION HAS BEEN RE - ITERATED. TN THE CASE OF DCII VS SHASHI KANT MITTAL (2009) 22 DTR 218 (DELHI), DELHI BENCH HAS HELD THAT JOB WORK OF CONVERTING GOLD BARS SUPPLIED BY THE F OREIGN CUSTOMER IN TO GOLD JEWEL LARY AND EXPORTING THEM BACK AMOUNTS TO MANUFACTURE AND RELIEF U/S. 10B IS ELIGIBLE. IT W AS HEL D AS UNDER: NOW, THE QUESTION IS WHETHER THE RAW MATERIAL SHOULD BE OWNED BY THE ASSESSEE FOR THE PURPOSE OF CLAIMING THE EXEMPTION UNDER A 103. A READING OF THE PROVISIONS OF S. 10B SPEC I FIES THAT THE ASSESSEE SHOULD BE EXPORTING ARTICLES OR THINGS , SHOULD BE AN UNDERTAKING AND SHOULD BE MANUFACTURING ARTICLES OR THINGS WHICH ARE EXPORTED. UNDISPUTEDLY, THE ASSESSEE IS RECEIVING RAW MATERIALS FROM ITS FOREIGN CUSTOMERS AND IS EXPORTING THE MANUFACTURED GOLD JEWELLERY. A COPY OF THE BILL WHICH HAS BE EN EXTRACTED IN THE ASSESSMENT ORDER ALSO CLEARLY SHOWS THAT IN THE BILL, THE ASSESSEE HAS TAKEN VALUE OF THE JEWELLERY WHICH IS EXPORTED AND FROM THE SAME HE HAS REDUCED THE COST OF THE RAW MATERIAL WHICH HAS BEEN PROVIDED BY THE CUSTOMERS WHICH IS THE PR IMARY RAW MATERIAL. FURTHER, A PERU SAL OF THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF TAJ FIRE WORKS INDUSTRIES, REFERRED TO SUPRA CLEAR LY SHOWS THAT THE OWNERSHIP OF THE RAW MAT ERIAL IS NOT AN ISSUE FOR THE PUR POSE OF SATISFYING THE TEST OF MANUFACTURE OR THAT OF AN INDUSTRIAL UNDERTAKING. A PERUSAL OF THE PROVISIONS OF S. JOB ALSO SPECIFIES ONLY THAT THE ASSESSEE SHOULD MANUFACTURE. THE DEFINITION OF MANU FACTURE AS DEFINED, BY THE HON,BL E SUPREME COURT IN THE CASE OF ASPINWALL AND CO. LT D. (SUPRA), REFERRED TO ABOVE ALSO DOES NOT GIVE ANY INDICATION THAT OWNERSHIP OF THE RAW MATERIALS IS A PRIMARY CONDITION FOR MANUFACTURING. THIS BEING SO, WE ARE OF THE VIEW THAT THE CIT(A) WAS RIGHT IN LAW IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO TH E BENEFIT OF EXEMPTION UNDER S. 103 OF THE ACT. THE CASE OF SHASHI KANT MITTAL CITED ABOVE REAFFIRMS OUR CONTENTION THAT FOR THE PURPOSE OF DEDUCTION U/S 10 B, WHETHER RAW MATERIALS ARE OWNED BY THE ASSESSEE HIMSELF OR ARE PROVIDED BY THE CUSTOMER IS IRREL EVANT, WHAT IS GERMANE TO THE DEDUCTION IS WHETHER THE RESULTANT PRODUCT THAT EMERGES AS A RESULT OF THE PROCESS CARRIED OUT ON THE RAW MATERIALS IS COMMERCIALLY DISTINCT FROM THE RAW MATERIAL, SO AS TO CONSTITUTE MANUFACTURING. 10 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT THERE ARE SEVERAL JUDICIAL PRONOUNCEMENTS WHEREIN IT HAS BEEN HELD THAT THE INCOME EARNED FROM JOB WORK CHARGES ON WORK DONE ON THE MAT ERIAL SUPPLIED BY THE CUSTOMERS IS ELIGIBLE FOR DEDUCTION U/S 80 - IB, OF THE INCOME TAX ACT, 1961. THE RATIO OF THESE EASES SQUARELY APPLIES TO US. T HE SIGNIFICANT OF WHICH ARE. IN COMMISSIONER OF INCOME_TAX - III V. SADHU FORGING LTD (2011) 200 TA.XMAN 0001 (DELHI), FOLLOWING QUESTIONS OF LAW WERE ADMITTED: - W HETHER INCOME RECEIVED FROM JOB WORK, LABOUR CHARGES ON WORK DONE BASED ON MATERIAL SUPPLIED BY THE CUSTOMERS QUA4FIES FOR DEDUCTION UNDER SECTION 801B OF THE INCOME TAX ACT, 1961? - WHETHER INCOME RECEIVED FROM JOB WORK/LABOUR CHARGES ON THE WORK DONE ON MATERIAL SUPPLIED BY THE CUSTOMERS IS PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING T O BE ELIGIBLE FOR DEDUCTION UNDER SECTION 8048 OF THE INCOME TAX ACT, 1961 THE HIGH COURT HELD IN THE AFFIRMATIVE TO THE BOTH THE QUESTIONS AS UNDER: WHEN THE ASSESSEE WAS ENTITLED TO CLAIM EXEMPTION IN RESPECT OF INCOME DERIVED FROM SUCH PROCESSES DOING FOR ITSELF, WE DO NOT SEE ANY REASON AS TO WHY HE WOULD NOT BE ENTITLED TO DO SO MERELY BECAUSE THE RAW MATERIAL COMPONENTS WAS BEING SUPPLIED BY OTHER CUSTOMERS AND FOR WHOM THE ASSESS EE WAS DOING THE JOB. IN FACT DEDUCTION U/S 80IB IS GIVEN ON THE PROFI TS DERIVED FROM THE MANUFACTURING PROCESS, BEING UNDERTAKEN BY THE ASSESS E E WHICH QUALIFY FOR DEDUCTION. KEEPING IN VIEW THE ACTIVITIES OF THE ASSESSEE IN GIVING HEAT TREATMENT FOR WHICH IT HAD EARNED LABOUR CHARGES & JOB WORK CHARGES, IT CAN THUS BE SAI D THAT THE APPELLANT HAD DONE A PROCESS ON THE RAW MATERIAL WHICH WAS NOTHING BUT A PART AND PARCEL OF THE MANUFACTURING PROCESS OF INDUSTRIAL UNDERTAKING. THESE RECEIPTS CANNOT BE SAID TO BE INDEPENDENT INCOME OF MANUFACTURING ACTIVITIES OF THE UNDERTAKIN GS OF THE ASSESSEE AND THUS COULD NOT BE EXCLUDED FROM THE PROFITS & GAINS DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTIONS U/S 80 - I B. THESE WERE THE GAINS DERIVED FROM INDUSTRIAL UNDERTAKING & SO ENTITLED FOR THE PURPOSE OF COMP UTING DEDUCTIONS U/S 80IB . THERE CANNOT BE ANY TWO OPINIONS THAT MANUFACTURING ACTIVITY OF THE TYPE OF MATERIAL BEING UNDE RTAKEN BY THE ASSESSE E WOUL D ALSO GENERATE SCRAP IN THE PROCESS OF MANUFACTURING. THE RECEIPTS OF THE SALE OF SCRAP BEING PART & PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERE TO WOULD ALSO BE WITHIN THE AM BIT OF GAINS DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80 IB . IN METALMAN AUTO PVT. LTD . VS.CIT LUDHIANA (HIGH COURT OF PUNJABAB AND HARYA NA T CHANDIGARH) , APPEAL NO. 840 OF 2010, THE QUESTION OF LAW AROSE AS TO WHETHER ITAT IS JUSTIFIED IN LA W IN ALLOWING DEDUCTION U/S 80IB ON LABOUR JOB RECEIPTS IGNORING THE FACT THAT SUCH INCOME IS NOT DERIVED FROM THE ELIGIBLE BUSINESS? THE HIGH COURT ANSWERED IN FAVOUR OF THE ASSESSE E AS FOLLOWS: WE AFFIRM THE FINDING OF THE CIT{APPEALS) THAT THE JOB WORK INCOME FINS BEEN EARNED BY THE ASSESSEE BY CARRYING OUT MANUFACTURING ACTIVITIES FOR OUTSIDE PARTIES, WHICH ARE S IMILAR TO THOSE CARRI ED ON BY THE A SSESSEE FOR MANUFACTURING PRODUCTS FOR OWN SALE. AS A CONSEQUENCE, IT FOLLOWS THAT THE LABOUR/JOB WORK RECEIPTS HAVE BEEN EARNED BY THE ASSESSEE IN THE COURSE OF MANUFACTURING OF PRODUCTS, ALBEIT FOR AN OUTSIDE PA FLY. MERELY BECAUSE THE ARTICLE IS PRODUCE D FOR AN OUTSIDE PARTY, AND THE ASSESSEE EARNS JOB WORK CHARGES THEREON, WOULD NOT DISENTITLE THE ASSESSEE FROM BEING REGARDED AS ENTITY CARRYING 11 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT OUT MANUFACTURING ACTIVITY. THE SAID PROPOSITION HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE O F NORTHERN AROMATIES LTD. (SUPRA) AND TH E CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF IMPEL FORGE PV T. LTD. (SUPRA) RELIED UPON THE JUDGMENT OF THE HONBL E DELHI HIGH COURT TO HOLD SIMILARLY. APART FROM THE AFORESAID, WE FIND THAT THE HONBLE MADRAS HI GH COURT IN THE CASE OF CIT V TAJ FIRE WORKS INDUSTRIES, 288 IT R 92 HAS UPHELD A SIMILAR PROPOSITI ON. IN THE CASE BEFORE THE HONBLE MADRAS HIGH COURT, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF FIREWORKS. IT WAS DOING JOB WORK ON THE RAW MATERIALS SUPPLI ED BY THE CUSTOMER AND ON THE INCOME EARNED, IT CLA IMED DEDUCTIONS U/S 8OHH AND 80I OF THE ACT. RECENTLY THE HONBLE MADRAS HIGH COURT IN THE CASE OF SUNDARAM FASTENERS LIMITED V/S. THE COMMISSIONER OF INCOME TAX - II, (JUDGMENT DATED 13.07.2011 T.C. ( A ) NOS.752 AND 753 OF 2094) HAS HELD THAT DEDUCTION U/S. SOHH AND 80 - I IS ELIGIBLE IN RESPECT OF JOB WORK CHARGES EARNED BY THE ENTITY. THE MADRAS HIGH COURT IN CASE OFTHEQFND1CHERR V.MS ESUIRE TRANSLAM INDUSTRIES AND M/S NEXUS TRASCORE INDUSTRIES WAS FACED WITH THE QUESTION OF LAW AS TO WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80 - IB OF THE ACT IN RESPECT OF CRGO LAMINATIONS. ITS OBSERVATIONS WERE AS FOLLOWS: MANUFACTURE IS A TRANSFORMATION OF AN ARTICLE WHICH IS COMMERCIALLY DIFFERENT FROM THE ONE, WHICH IS CONVERTED. THE ESSENCE OF MANUFACTURE IS THE CHANGE OF ONE OBJECT TO ANOTHER FOR THE PURPOSE OF MAKING IT MARKETABLE. THE ESSENTIAL POINT THUS IS THAT IN MA NUFACTURE SOMETHING IS BROUGHT I NTO EXISTENCE, WHICH IS DIFFE RENT FROM THAT WHICH ORIGINALLY EXISTED. THE PREVAL ENT AND GENERALLY ACCEPTED TEST TO ASCERTAIN THAT THERE IS MANUFACTURE IS WHETHER THE CHANGE OR THE SERIES OF CHANGES BROUGHT ABOUT BY THE APPLICATION OF PROCESSES TAKE THE COMMODITY TO THE POINT WHERE, COMMERCIALLY, IT CAN NO LONGER BE REGARDED AS THE ORIGINAL COMMODITY BUT IS INSTEAD IS RECOGNIZED AS A DISTINCT AND NEW ARTICLE THAT HAS EMERGED AS A RESULT OF THE PROCESS. KEEPING THE ABOVE IN MIND, THE HONBLE HIGH COURT HELD THAT THE RAW MATERIAL RECEIVED FROM THE CLIENT UNDERGOES A PROCESS OF MANUFACTURE AND HENCE THE CONVERSION CHARGES PAID ARE ELIGIBLE FOR BENEFIT U/S 80 - TB OF THE ACT. 6. WE WOULD ALSO LIKE TO BRING TO YOUR NOTICE THAT ON THE ISSUE OF WHETHER MACHINING AMOUNTS TO MANUFACTURE, IN THE CONTEXT OF SECTION 80 - IB, THE HONBLE HIGH OF BOMBAY AT GOA HAS AFFIRMED THE DECISION OF THE HONBLE ITAT BENCH, PANAJI. 7. ON THE BASIS OF THE ABOVE SUBMISSIONS, OUR SINCERE PRAYER TO YOUR GOOD SELF IS TO KINDLY SET ASIDE THE ORDER OF THE LEARNED CIT U/S 263 . 5. ON THE OTHER HAD THE LEARNED DR RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT IT IS THE CASE WHERE NO ENQUIRY HAS BEEN MADE BY THE AO WHILE 12 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT ALLOWING THE MACHINERY CHAR GES IS GETTING ELIGIBLE FOR EXEMPTION U/S. 10B OF THE ACT. 6. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE CASE LAWS AS RELIED THE ORDER OF CIT PASSED U/S. 263 OF THE ACT . THE COMMISSIONER HAS E XERCISED HIS POWER U/S. 263 IN RESPECT OF ORDER PASSED BY AO U/S. 143(3). THE MAIN CONTENTION OF THE COMMISSIONER OF INCOME TAX THAT THE COMMISSIONER WAS OF THE VIEW WHETHER THE MACHINERY CHARGES ELIGIBLE FOR DEDUCTION UNDER 80IB HAS NOT BEEN REACHED IN FI NALITY AS THE DEPARTMENT HAS FILED THE APPEAL TO HIGH COURT IN ASSESSEES CASE IN EARLIER YEAR. THEREFORE, IN THE YEAR UNDER CONSIDERATION WHETHER THE ASSESSING OFFICER HAS MADE ENQUIRY OR NOT, FOR THAT PURPOSE THE COMMISSIONER HAS SET ASIDE THE ASSESSMENT ORDER. BEFORE DECIDING THE ISSUE WHETHER THE ORDER PASSED UNDER 263 IS VALID OR NOT , IT IS ESSENTIAL TO REFER THE RELEVANT PROVISION S OF SECTION 26 3. SECTION 263 LAYS DOWN AS UNDER: 263. (1) THE COMMISSIONER MAY CAL/FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND F HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECES SARY, PASS SUCH ORDER THEREON AS THE C IRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING AFRESH ASSESSMENT. EXPLANATION . - FOR THE REMOVAL OF DOUBT S IT IS HEREBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB - SECTION, - (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE )ST DAY OF JUNE, 2988 B THE ASSESSING OFFICER SHALL INCLUDE (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT C OMMISSIONER OR DEPUTY DIRECTOR OR THE INCOME - TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED BY THE JOINT COMMISSIONER UNDER SECTION 144A; (II) AN ORDER, MADE BY THE JOINT COMMISSIONER IN EXERCISE OF THE POWER OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE CHIEF COMMISSIONER OR DIRECTOR 13 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT GENERAL OR COMMISSIONER AUTHORISED BY THE BOARD IN THIS BEHALF UNDER SECTION 120; (B ,) RECORD SHALL INCLUDE A ND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDING UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER ; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB - SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB - SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUC H APPEAL. (2) NO ORDER SHALL BE MADE UNDER SUB - SECTION (1) AFT ER THE EXPIRY OF TWO YEARS FROM THE END OF THE F INANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF TH E APPELLATE TRIBUNAL, THE HIGH C OURT OR THE SUPREME COURT. EXPLANATION - IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB - SECT ION (2), THE TIME TAKEN IN GIVING AN OPPORTUNITY TO THE A SSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED. THE ONLY ALLEGATION IN RESPECT OF THE MACHINE CHARGES WERE ELIGIBLE FOR DEDUCTION UNDER 80IB OR NOT THAT HAS BEEN NOT EXAMINED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDING. DURING THE COURSE OF HEARING, WE HAVE GONE THROUGH THE RECORD OF THE ASSESS MENT ORDER AND WE FIND THAT THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY WHETHER THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER 80IB OR NOT. NO DOUBT THE ASSESSING OFFICER VIDE ORDER SHEET, THE ASSESSI NG OFFICER HAS ASKED FOR THE DETAIL ACTIVITIES OF THE ASSESSEE AND COMPUTATION OF DEDUCTION CLAIMED BY U/S. 80IB BUT DID NOT RAISE ANY C ARRY ABOUT ELIGIBILITY U/S. 10 B . NOW THE QUESTION ARISES WHETHER THE LACK OF ENQUIRY BY ASSESSING OFFICER WILL BE TANTAM OUNT TO ONE WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. WE 14 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT NOTED THAT A SIMILAR ISSUE HAS ARISEN IN THE ASSESSMENT YEAR 2006 - 07 IN I.T.A. NO.139/PNJ/1 1 IN THE CASE OF V.M. SALAGOANKER IN WHICH ALSO THE A.O HAS NOT CARRIED OUT ANY ENQUIRY AND THIS TRIBUNAL, VIDE ORDER DATED 25/08/2011 HAS HELD AS UNDER: 12. WE HAVE HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD AND CASE LAWS BROUGHT TO OUR NOTICE. THE APPELLANT DOES NOT DISPUTE THAT HE ALSO IS ENGAGED IN THE B USINESS OF TRADING OF IRON ORE. THE APPELLANT IN HIS RETUR N OF INCOME MADE CLAIM OF ADDITIONA L DEPRECIATION AMOUNTING TO RS. 4,42,46, 711/ - AND DECLARED INCOME OF RS......... FROM THE BUSINESS OF IRON ORE MINING, PROCESSING AND EXPORTING AS REPRODUCED AT PAGE 1 OF THE ASSESSING OF FICER. THE ASSESSING OFFICER SIMPLY ACCEPTED THE AFORESAID CLAIM OF ADDITIONAL DEPRECIATION AS WAS STATED IN THE RETURN OF INCOME AND HAS FAILED TO MAKE ANY ENQUIRY AS TO WHETHER THE CONDITIONS CONTAINED U/S 32(1) (IIA) FOR ALLOWING THE ADDITIONAL DEPRECIA TION HAVE ACTUALLY BEEN SATISFIED. EVEN THE APPELLANTS RETURN DID NOT CONTAIN SUCH DETAILS FROM WHICH A CONCLUSION IN ACCORDANCE WITH LAW COULD BE DRAWN. THE IMPLICATION OF THE JUDGMENT BY APEX COURT IN THE CASE OF CIT VS. SESA GOA LTD. 272 ITR 332 (SC) H AS NOT BEEN ANALYZED TO FIND OUT AS TO WHETHER THE NEW MACHINE R Y ON WHICH ADDITIONAL DEPRECIATION HAS BEEN CLAIMED IS ACQUIRED OR INSTALLED IN THE ASSESSEE S BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING OR THAT IT WAS A MACHINERY INSTALLE D IN THE TRADING BUSINESS OR OTHERWISE IN A BUSINESS WHICH DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING AS CLARIFIED IN THE SU PREME COURT JUDGMENT IN SESA GOA LTD., SUPRA. NO FINDINGS OF FACT ARE SHOWN TO HAVE BEEN RECORDED BY THE A SSESSING OFFICER ON THESE ASPECTS. THE NATURE OF BUSINESS MENTIONED AT PAGE N O. 1 OF THE ASSESSMENT ORDER SIMPLY STATES THE EX - FACIE POSITION AS IS NARRATED BY THE ASSESSEE IN THE RETURN OF INCOME FILED BY HIM. THE SAME DOES NOT CONSTITUTE ANY FINDING OF F ACT REACHED AFTER MAKING ANY ENQUIRY BY THE ASSESSING OFFICER. IT THUS IS APPARENT THAT THE ASSESSING OFFICER ACCEPTED THE CLAIM ON ITS FACE WITHOUT PERFORMING HIS FUNCTIONS AS ARE REQUIRED OF HIM AS A QUASI JUDICIAL AUTHORITY. THE ASSESSMENT ORDER THUS MA DE WAS ERRONEOUS AND UNDER THE CIRCUMSTANCES OF THE CASE, IT WAS NOT NECESSARY FOR THE LEARNED CIT TO MAKE FI1RTHER ENQUIRIES BEFORE SETTING ASIDE THE ORDER AND FIND OUT HIMSELF ALL SUCH RELEVANT FACTS IN A MANNER AS ARE REQUIRED TO BE DONE BY THE ASSESSIN G AUTHORITY. THE ASPECT OF DEDUCTION OF INTEREST PAID ON INCOME TAX WAS NEITHER ENQUIRED NOR SHOWN TO HAVE BEEN VERIFIED BY THE ASSESSING OFFICER AND THUS THE ORDER OF ASSESSMENT IS ERRONEOUS ON THAT COUNT AS WELL. 13. ADMITTEDLY THE ASSESSING OFFICER BEI NG A QUASI - JUDICIAL AUTHORITY HAD THREE FUNCTIONS (I) TO COLLECT THE MATERIALS AND INFORMATION (II) TO PROCESS THE MATERIALS AND INFORMATION; AND (III) TO ADJUDICATE ON THE CONSIDERATION OF SUCH MATERIALS AND INFORMATION. IN A CASE LIKE THIS, WHERE THE ASS ESSING OFFICER HAS FAILED TO PERFORM HIS DUTIES IN NUMBER (I) AND (II) ABOVE AND PROCEEDS TO ADJUDICATE, SUCH ORDERS ARE TAKEN TO HAVE BEEN PASSED IN A SLIP - SHOD MANNER AND CANNOT BE TAKEN TO BE ORDERS PASSED IN ACCORDANCE WITH LAW. DEFINITELY SUCH ACTIONS OF THE GOVT. 15 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT FUNCTIONARIES GOES TO EFFECT THE REPUTATION OF REVENUE DEPARTMENT ADVERSELY AND CAUSE PREJUDICE TO THEIR INTERESTS, BESIDES CAUSING LOSS OF REVENUE BY HIS SUCH DECISION. 14. THE APPELLANT S PLEA THAT SIMILAR ISSUE WAS ALSO A SUBJECT MATTER O F ASSESSMENT IN ASSESSMENT YEAR 2008 - 09, NOT AN YEAR IN APPEAL BEFORE US IS OF NO CONSEQUENCE IN CASE OF EXERCISE OF JURISDICTION U/S 263 FOR THE DIFFERENT YEAR. UNDER THE PECULIAR FACTS, THE CASE LAWS REFERRED INCLUDING THOSE ON POSSIBILITY OF TWO VIEWS O N THE ISSUES BEFORE US CANNOT IMPRESS US TO SAY THAT THE EXERCISE OF JURISDICTION U/S 263 OF THE ACT IS INITIATED AS THE OPINION ON THE BASIS OF SUCH CASE LAWS NEEDS TO BE TESTED IN THE CIRCUMS TANCE WHEN ASSESSING OFFICER HI MSELF HAS MADE ENQUIRIES AND TAK EN A POSSIBLE DECISION IN ACCORDANCE WITH LAW. 15. IN THE PRESENT CASE, THE LEARNED CIT IS FO UND SATISFIED THAT THE ASSESSMENT ORDER PASSED IS BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF REVENUE AND THUS THE TWIN CONDITIONS OF SECTION 263 OF THE ACT AS ARE ALSO ENUNCIATED BY APEX COURT IN MALABAR INDUSTRIAL CO. LTD. VS. CIT [2000] 243 ITR 83 (SC) STAND DULY SATISFIED. THE LEARNED CIT ALSO DIRECTED THE ASSESSING OFFICER TO CALL FOR INFORMATION ON BOTH THE ISSUES AND EXAMINE IT AND TAKE DECISION AFRESH ON MERITS AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS WOULD CAUSE NO PREJUDICE TO THE ASSESSEE. HAVING REGARD TO THE JUDGMENT RENDERED BY HON BLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS. ADDL. CIT [1975] 99 ITR 3 75 (DEL), HON BLE RAJASTHAN HIGH COURT IN THE CASE OF SMT. RENU GUPTA VS. CIT [2008] 301 IT R 45 (RAJ.) AND HONBLE MADHYA P RADESH HIGH COURT IN CIT VS. DEEPAK KUMAR GARG [2008] 299 ITR 435 (ALP) AND THE FINDINGS REACHED AS AFORESAID, WE FIND NO INFIRMITY I N TH E DECISION TAKEN BY LEARNED CIT. THE GROUNDS RAISED IN APPEAL, THEREFORE, STAND REJEC TED AND APPEAL IS DISMISSED. 5 .4 IN THAT CASE, WE NOTED THAT LEARNED A.R. HAS TAKEN ALL THESE ARGUMENTS AND HAS ALSO RELIED ON THE DECISION OF I.T.A.T. DELHI IN THE CASE OF SAW PIPES LTD., 3 SOT 237 FOR THE PURPOSE OF THE LACK OF ENQUIRY. THE LEARNED A.R., BEFORE US, TRIED TO DISTINGUISH THE FACTS OF THE CASE AND VEHEMENTLY RELIED IN RESPECT OF THIS ISSUE WHICH IS THE ONE ON THE BASIS OF WHICH THE PROCEEDINGS U/S 263 WERE INITIATED. IT IS CLEAR THAT IF ANY UNDERTAKING WHICH MANUFACTURES OR PRODUCE ANY ARTICLE OR THING THEN THEY ARE ENT ITLED FOR DEDUCTION UNDER 80IB FOR THE ACT. BEFORE ALLOWING THIS DEDUCTION THE ASSESSING OFFICER IS DUTY BOUND TO ENQUIRY WHETHER THE ACTIVITIES OF THE ASSESSEE I.E., THE ASSESSEES COMPANY IS PRODUCING NOZZLE RINGS, SINGLE BLADES COMPONENTS FOR AUTOMOTIVE AND POWER GENERATION, TURBOCHARGES, TURBO MACHINERY PARTS AND OTHER COMPLEX COMPONENTS ON ADVANCE 5 AXIS CNC MACHINES. WHETHER THIS ACTIVITIES IS MANUFACTURING ACTIVITIES OR NOT THE ASSESSING OFFICER SHOULD MAKE THE ENQUIRY. IN THE CASE OF HAND THE ASSESS ING OFFICER HAS NOT 16 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT MADE A NY ENQUIRY, THE AO HAS ALLOWED THE CLAIM OF SECTION 80IB. WE FIND THAT ASSESSEE HAS NOT ALLOWED THE CLAIM TAKING ONE OF THE POSSIBLE VIEW BUT IT IS A CASE WHERE NO ENQUIRY MADE BY THE ASSESSING OFFICER FOR ELIGIBILITY OF CLAIM U/S . 80IB, THEREFORE, WE ARE OF THE VIEW THAT THIS CASE IS A LACK OF ENQUIRY AND IF THE AO IS FILED TO MAKE SUCH ENQUIRY, SUCH ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND THE COMMISSIONER IS JUSTIFIED IN RESTORING MATTER BACK TO THE FILE OF AO FOR VERIFICATION OF THE CLAIM U/S. 80IB. 6 . 1. WE HAVE GONE THROUGH THE DECISION OF CIT VS. VODAFONE ESSAR SOUTH LTD. 212 TAX MANN 184 (DEL.) ON WHICH THE LD . AR VEHEMENTLY RELIED. WE NOTED THAT THIS DECISION WILL NOT ASSIST THE ASSESSEE. IN THIS DECISION THE HONBLE HIGH COURT RELIED ON THE EARLIER DECISION OF THE HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD., 332 ITR 167 IN WHICH IT WAS HELD THAT IF THERE IS SOME INQUIRY BY THE AO IN THE ORIGINAL PROCEEDINGS, EVEN IF INADEQUATE, THAT CANNOT CLOTHE THE COMMISSIONER WITH JURISDICTION U/S 263 MERELY BECAUSE HE CAN FORM ANOTHER OPINION. IN THIS CASE ON THE BASIS OF THIS DECISION, HONBLE HIGH COURT TOOK THE VIEW THAT IF THERE WAS ANY INQUIRY, EVEN INADEQUATE, THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS U/S 263 OF THE ACT MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF LACK OF INQUIRY. IN TH IS DECISION UNDER PARA 11 HONBLE HIGH COURT CLEARLY LAID DOWN THAT THAT WAS NOT A CASE OF NO INQUIRY. IN THE CASE OF THE ASSESSEE WE NOTED THE AO HAS NOT MADE ANY INQUIRY WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B OR NOT. WE MAY CLARIFY THAT ELIGIBILITY OF THE CLAIM AND COMPUTATION OF THE CLAIM ARE TWO DIFFERENT THINGS. COMPUTATION ONLY DEALS WITH THE CALCULATION WHILE ELIGIBILITY OF THE CLAIM REQUIRES WHETHER THE ASSESSEE COMPLIES WITH THE CONDITIONS FOR THE ELIGIBILITY OF THE CLAIM. 6.2 IN THE CASE OF INFOSYS TECHNOLOGIES LTD. VS. JCIT (BANG), 103 ITD 399 WE NOTED THAT THE AO EXAMINED AND CONSIDERED THE RELEVANT FACT AND ONLY AFTER CONSIDERING THOSE FACTS ALLOWED THE DEDUCTION TO THE ASSESSEE AND THEREFORE THE 17 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT TRIBUNAL TOOK THE VIEW THAT IF THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS, REVISION CANNOT BE RESORTED TO. 6.3 IN THE CASE OF HARYANA COACH BODY BUILDERS VS. ITO, 10 SOT 736 WE NOTED THAT THE AO ALLOWED THE CLAIM OF THE ASSESSEE AFTER INQUIRING INTO ALL THE ITEMS CALLED FOR THE I NQUIRY AND THEREFORE THE HONBLE TRIBUNAL TOOK THE VIEW THAT THE AOS BRIEF ORDER INQUIRING INTO ALL THE ITEMS CALLED FOR INQUIRY COULD NOT BE SET ASIDE BY THE CIT ON THE GROUND THAT THE ORDER SHOULD HAVE BEEN MORE ELABORATE OR FURTHER INQUIRIES SHOULD HAV E BEEN MADE. 6.4 IN THE CASE OF NABHA INVESTMENTS PVT. LTD. VS. UNION OF INDIA & ORS. 246 ITR 41 (DEL) WE NOTED THAT QUESTION DOES NOT RELATE TO THE LACK OF INQUIRY. THEREFORE, THIS DECISION WILL NOT ASSIST THE ASSESSEE. 6.5 IN THE CASE OF INDIAN HOTE LS LTD. VS. DCIT, ITA NO. 3234/B/92 WE NOTED THE COURT QUASHED THE 263 PROCEEDINGS AS IN THAT CASE INQUIRY HAD BEEN MADE BY THE AO WITH REGARD TO THE QUESTION INVOLVED RELYING ON THE DECISION OF MUMBAI HIGH COURT IN THE CASE OF GABRIEL INDIA, 203 ITR 108. 6.6 IN THE CASE OF CIT VS. GABRIEL INDIA, 203 ITR 108 (MUM) THE AO HAD MADE THE INQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE AND ASSESSEE HAD GIVEN DETAILED EXPENDITURE. THE ORDER PASSED BY THE AO WAS HELD NOT TO BE ERR ONEOUS SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. THUS, IN OUR VIEW THE CASE LAW RELIED ON BY THE LD. AR FOR LACK OF INQUIRY/INADEQUATE INQUIRY WILL NOT ASSIST THE ASSESSEE. 6 . 7 THE DECISION OF THE COORDINATE BENCH IN THE CASE OF THE V.N. SALGAONCAR IS BINDING ON US AND WE CANNOT TAKE A DIFFERENT VIEW AS SUGGESTED BY LEARNED AR. THIS IS A FACT THAT IN THIS CASE THE ASSESSING OFFICER HAS NOT ISSUED ANY NOTICE OR RAISED ANY QUERY TO THE ASSESSEE IN RESPECT OF ELIGIBILITY OF THE CLAIM OF EXEMPTION 18 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT U/S 10B FOR CODLI UNIT DURING COURSE OF ASSESSMENT PROCEEDING. EVEN NO SUBMISSIONS WERE ALSO MADE BY THE ASSESSEE EXCEPT FILING THE DETAILS OF COMPUTATION OF CLAIM MADE BY HIM. NO DOUBT, THE ASSESSEE HAS SUBMITTED THE DETAILS OF COMPUTATION OF CLAIM MADE U/S 10B BUT THIS DOES NOT MEAN THAT THE ASSESSING OFFICER HAS APPLIED HIS MIND TO THE ELIGIBILITY OF THE CLAIM OF ASSESSEE . HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LT D. VS. CIT [2000] 243 ITR 83, AT PAGE 88 HAS CATEGORICALLY HELD AS UNDER: IN THE INSTANT CASE, THE COMMISSIONER NOTED THAT THE INCOME TAX OFFICER PASSED THE ORDER OF NIL ASSESSMENT WITHOUT APPLICATION OF MIND. INDEED, THE HIGH COURT RECORDED THE FINDIN G THAT THE INCOME TAX OFFICER FAILED TO APPLY HIS MIND TO THE CASE IN ALL PERSPECTIVE AND THE ORDER PASSED BY HIM WAS ERRONEOUS. IT APPEARS THAT THE RESOLUTION PASSED BY THE BOARD OF THE APPELLANT COMPANY WAS NOT PLACED BEFORE THE ASSESSING OFFICER. THUS , THERE WAS NO MATERIAL TO SUPPORT THE CLAIM OF THE APPELLANT THAT THE SAID AMOUNT REPRESENTED COMPENSATION FOR LOSS OF AGRICULTURAL INCOME. HE ACCEPTED THE ENTRY IN THE STATEMENT OF THE ACCOUNT FILED BY THE APPELLANT IN THE ABSENCE OF ANY SUPPORTING MATE RIAL AND WITHOUT MAKING ANY INQUIRY . ON THESE FACTS THE CONCLUSION THAT THE ORDER OF THE INCOME TAX OFFICER WAS ERRONEOUS IS IRRESISTIBLE. WE, ARE, THEREFORE OF THE OPINION THAT THE HIGH COURT HAS RIGHTLY HELD THAT THE EXERCISE OF THE JURISDICTION BY THE COMMISSIONER U/S 263(1) WAS JUSTIFIED. THIS ITSELF PROVES NON APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER AND ALLOWING THE CLAIM U/S 10B TO THE ASSESSEE WITHOUT MAKING AN ENQUIRY WILL TANTAMOUNT THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF THE REVENUE. HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. (SUPRA) WHILE HOLDING SO HAS RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAMPYARI DEVI SARAOGI VS. COMMISSIONER OF INCOME - TAX 67 ITR 84(SC). IN THIS CASE THE INCOME TAX OFFICER ACCEPTED THE RETURN OF THE ASSESSEE IN RESPECT OF THE INITIAL CAPITAL, GIFT RECEIVED AND SALE OF JEWELLERY, THE INCOME FROM BUSINESS ETC. WITHOUT ANY ENQUIRY OR EVIDENCE WHATSOEVER. FOR THAT REASON THE CIT HELD THE ORDER T O BE ERRONEOUS. IN REVISION, HE CANCELLED THE ORDER AND ORDERED THE INCOME TAX OFFICER TO MAKE FRESH ASSESSMENT. IN HIS ORDER THE COMMISSIONER HAD USED CERTAIN NEW GROUNDS WHICH HAD NOT BEEN DISCLOSED TO THE ASSESSEE IN THE NOTICE GIVEN TO HIM TO SHOW CA USE WHY THE ORDER OF THE INCOME TAX OFFICER SHOULD NOT BE 19 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT REVISED. (THIS IS THE SAME THING WHICH THE LEARNED A. R. ARGUED THAT THE CIT HAS NOT STATED IN THE SHOW CAUSE NOTICE THAT THIS IS A CASE OF LACK OF ENQUIRY) BUT, APART FROM THIS NEW GROUND, THE HON 'BLE SUPREME COURT OBSERVED AT PAGE 385 AS UNDER: 'THERE WAS AMPLE MATERIAL TO SHOW THAT THE INCOME TAX OFFICER MADE THE ASSESSMENTS IN UNDUE HURRY...THE ASSESSEE MADE A DECLARATION GIVING THE FACTS REGARDING INITIAL CAPITAL, THE ORNAMENTS AND PRESENTS RE CEIVED AT THE TIME OF MARRIAGE, OTHER GIFTS RECEIVED FROM HER FATHER IN LAW, ETC., WHICH SHOULD HAVE PUT ANY INCOME TAX OFFICER ON HIS GUARD. BUT THE INCOME TAX OFFICER WITHOUT MAKING ANY INQUIRIES TO SATISFY HIMSELF PASSED THE ASSESSMENT ORDER... A SHORT STEREO TYPED ASSESSMENT ORDER WAS MADE FOR EACH ASSESSMENT YEAR... NO EVIDENCE WHATSOEVER WAS PRODUCED IN RESPECT OF THE MONEY LENDING BUSINESS DONE...NO NAMES WERE GIVEN AS TO THE PARTIES TO WHOM THE LOANS WERE ADVANCED ......' 6.8 THUS, THE LAW AS MAY B E STATED AFTER GOING THROUGH BOTH THE DECISIONS OF SUPREME COURT IS VERY CLEAR THAT IF THE ASSESSMENT HAS BEEN MADE WITHOUT MAKING THE PROPER ENQUIRY AND APPLICATION OF MIND, THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. UNLIKE THE CI VIL COURT WHICH IS NEUTRAL TO GIVE A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT, AN ASSESSING OFFICER IS NOT ONLY AN ADJUDICATOR BUT IS ALSO AN INVESTIGATOR. THE ASSESSING OFFICER CANNOT REMAIN PASSIVE ON THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY. IT IS THE DUTY OF THE ASSESSING OFFICER TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE ENQUIRY. IF THERE IS FAILURE TO MAKE SUCH ENQUIRY, IN OUR OPINION, THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE REVENUE HAS NOT TO PROVE THAT ITS ORDER IS ERRONEOUS AND CIT CAN REVISE IT U/S 263. EVEN THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF SWARUP VEGETABLE PRODUCTS INDUSTRIES LTD. (NO. 1) VS. CIT [1991] 187 ITR 412 HAS ALSO TAKEN THE SIMILAR VIEW BY OBSERVING AS UNDER: IT IS BEYOND DISPUTE THAT, UNDER SECTION 263 OF THE I.T. ACT, THE COMMISSIONER HAS POWER TO SET ASIDE THE ASSESSMENT ORDER AND SEND THE MATTER FOR FRESH ASSES SMENT IF HE IS SATISFIED THAT FURTHER ENQUIRY IS NECESSARY AND THAT THE ORDER OF INCOME TAX OFFICER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 20 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT HON'BLE DELHI HIGH COURT ALSO IN THE CASE OF GEE VEE ENTERPRISES VS. ADDL. CIT [1975] 99 ITR 375 (DEL) HAS ALSO TAKEN THE SIMILAR VIEW THAT LACK OF PROPER ENQUIRY TANTAMOUNT THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 6 . 9 SIMILAR ISSUE HAS ARISEN BEFORE THE SPECIAL BENCH OF I.T.A.T. CHENNAI B BENCH IN THE CASE OF RAJALAKSMI MILLS LTD. VS. INCOME TAX OFFICER [2009] 121 ITD 343 (CHENNAI) (SB). THE FACTS OF THIS CASE WERE THAT THE ASSESSEE ENCLOSED THE BALANCE SHEET ALONG WITH THE RETURN AND IN THE BALANCE SHEET THE ASSESSEE MADE A PROVISION FOR GRATUITY AMOUNTING TO RS.7,85,600/ - . THE ASSESSEE CLAIMED IT AS DEDUCTION IN THE RETURN OF INCOME. THE ASSESSING OFFICER ALLOWED THE SAME WITHOUT MAKING ANY DISCUSSION IN THE ORDER OF ASSESSMENT. THE CIT BY INVOKING THE PROVISION OF SECTION 263 TOOK THE VIEW THAT THE ORDER WAS ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF REVENUE. THE SPECIAL BENCH OF I.T.A.T. UNDER THESE FACTS HAS HELD AS UNDER: IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER ENQUIRIES BEFORE CANCELLING THE ASSESSMENT ORDER OF THE ASSESSING OFFICER. THE COMMISS IONER CAN REGARD THE ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEMENTS MADE BY THE ASSESSEE IN THE RETURN. THE REASON IS OBVIOUS. UNLIKE THE CI VIL COURT WHICH IS NEUTRAL TO GIVE A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT, AN ASSESSING OFFICER IS NOT ONLY AN ADJUDICATOR BUT IS ALSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. THE MEANING TO BE GIVEN TO THE WORD 'ERRONEOUS IN SECTION 263 EMERGES OUT OF THIS CONTEXT. THE WORD 'ERRONEOUS' IN THAT SECTION INCLUDES CASES WHERE THERE HAS BEEN FAILURE TO MAKE THE NECESSARY INQUIRIES. IT IS INCUMBENT ON THE ASSESSING OFFICER TO INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES MAKE SUCH AN INQUIRY PRUDENT AND TH E WORD 'ERRONEOUS' IN SECTION 263 INCLUDES THE FAILURE TO MAKE SUCH AN ENQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN ENQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE C ORRECT. IN THE INSTANT CASE, THE ASSESSING OFFICER FAILED TO MAKE ANY ENQUIRY IN REGARD TO THE ALLOWABILITY OF THE PROVISION FOR GRATUITY. AS SUCH, THE ORDER WAS ERRONEOUS AND 21 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THEREFORE, THE CONDITIONS PRECEDE NT FOR ASSUMING JURISDICTION UNDER SECTION 263 DID EXIST IN THE FACTS OF THE INSTANT CASE. 6.10 WE HAVE ALSO GONE THROUGH THE DECISION OF I.T.A.T. E BENCH NEW DELHI IN I.T.A. NO.1438/DEL/09 IN THE CASE OF N.T.P.C. LIMITED VS. DY. CIT. ON THE CASE OF LACK OF ENQUIRY IN THIS JUDGMENT WHILE DEALING THE ISSUE OF LACK OF ENQUIRY, THE TRIBUNAL, UNDER PARA 14 HAS HELD AS UNDER: 14. IN THE LIGHT OF ABOVE PROPOSITIONS LET US EXAMINE THE FACTS OF THE PRESENT CASE. ON PAGE NO. 5 OF THE PAPER BOOK, VOLUME - I, TH E ASSESSEE HAS PLACED ON RECORD COPY OF THE QUESTIONNAIRE DATED 29/06/2006 ISSUED BY THE ASSESSING OFFICER. IN THIS QUESTIONNAIRE, ASSESSING OFFICER HAS CALLED FOR INFORMATION FROM THE ASSESSEE UNDER SEC. 142(1) ON FIFTEEN COUNTS. WITH THE ASSISTANCE OF L EARNED REPRESENTATIVES, WE HAVE GONE THROUGH THIS QUESTIONNAIRE CAREFULLY. PERUSAL OF THIS QUESTIONNAIRE REVEALS THAT ASSESSING OFFICER HAS NOT A SINGLE QUESTION ON BOTH THE ISSUES. THEREFORE, IT SUGGESTS THAT HE HAS NOT CONDUCTED ANY INQUIRY ON THESE TWO ISSUES. THE CONTENTIONS OF THE ASSESSEE IS THAT IT HAS DISCLOSED ALL MATERIAL FACTS FULLY AND TRULY DURING THE ASSESSMENT PROCEEDINGS AND ASSESSMENT HAS BEEN FRAMED UNDER SEC.143(3) OF THE ACT, THEREFORE, IT BE PRESUMED THAT ASSESSING OFFICER MUST HAVE GO NE THROUGH ALL THESE DETAILS. HOWEVER, HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES, HON'BLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES AS WELL AS IN THE CASE OF ASHOK LOGANI AND DLF POWER EQUIPMENTS, IT HAS BEEN HELD THAT IF THE ASSES SING OFFICER FAILED TO GO INTO THE ISSUES IN PROPER PERSPECTIVE AND HIS APPROACH IS PERFENTORY THEN THE ORDER WOULD BE TERMED AS ERRONEOUS WHICH WOULD ULTIMATELY CAUSED A PREJUDICE TO THE ASSESSEE ON ESCAPEMENT OF INCOME FROM TAX. THE JUDGMENT OF THE HON'B LE DELHI HIGH COURT IN THE CASE OF ASHOK LOGANI AS WELL AS IN THE CASE OF DLF POWER ARE THE LATEST DECISIONS ON THIS ISSUE. SIMILARLY, LEARNED DR HAS BROUGHT TO OUR NOTICE THE DECISION OF HON'BLE DELHI HIGH COURT DATED 15.2.2002 IN THE CASE OF CIT VS. REGE NCY PARK PROPERTY MANAGEMENT SERVICES PVT. LTD. REPORTED IN [2012] TIOL PAGE 75 WHERE IT HAS BEEN HELD THAT IF ASSESSING OFFICER HAD NOT DEALT WITH THE DETAILS AND EXAMINED THE ISSUES THEN THERE WAS AN ERROR ON THE PART OF THE ASSESSING OFFICER UPON WHICH ACTION U/S 263 CAN BE JUSTIFIED. THUS, CONSIDERING ALL THESE ASPECTS, WE ARE OF THE VIEW THAT LEARNED COMMISSIONER HAS RIGHTLY TAKEN COGNIZANCE U/S 263 OF THE ACT BECAUSE ASSESSING OFFICER HAS NOT CONDUCTED ANY INQUIRY ON THESE TWO ISSUED. 6.11 THIS CLEARLY PROVES THAT THE TRIBUNAL HAS ALSO TAKEN THE VIEW THAT LACK OF ENQUIRY WILL TANTAMOUNT TO BE THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE CIT HAS ALREADY RESTORED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER A ND THE ASSESSING OFFICER, AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE HAS TO RE - DECIDE THE ISSUE WHETHER THE ASSESSEE IS ENTITLED FOR THE ADDITIONAL DEPRECIATION OR NOT. 22 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT 6.12 WE HAVE ALSO LOOKED INTO THE PLEA TAKEN BY LEARNED A. R. THAT THE CIT HAS EXTENDED THE SCOPE OF ENQUIRY. WE HAVE GONE THROUGH THE SHOW CAUSE NOTICE ISSUED U/S 263 AND NOTED THAT IN THE SHOW CAUSE NOTICE, THE CIT HAS GIVEN AN OPPORTUNITY TO THE ASSESSEE IN RESPECT OF THE CLAIM U/S 8 0 I B. ONCE THE CIT HAS ISSUED SHOW CAUSE NOTICE IN RESPECT OF PARTICULAR ISSUE, IN OUR OPINION, ANY MATTER WHICH IS ANCILLARY TO THAT ISSUE, WILL ALSO INCLUDE THEREIN. THE FACT THAT THE ASSESSING OFFICER HAS ALLOWED THE EXEMPTION U/S 10B WITHOUT MAKING ANY ENQUIRY WILL BE WITHIN THE AMBIT THAT THE ASS ESSING OFFICER HAS FOUND ASSESSEE ELIGIBLE FOR EXEMPTION U/S 10B AND THE ORDER IS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE HAVE ALREADY MENTIONED IN THE PRECEDING PARAGRAPH THAT HON'BLE VARIOUS COURTS HAVE HELD THAT THE LA CK OF ENQUIRY MAKES AN ORDER TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. 6.13 IN OUR OPINION SO FAR AS THE CLAIM MADE BY THE ASSESSEE U/S 8 0I B IS CONCERNED, THE CIT HAS INVOKED THE JURISDICTION IN ACCORDANCE WITH LAW AS IT IS A CA SE WHERE THE AO HAD NOT MADE ANY INQUIRY AND THEREFORE THE ORDER ON THIS BASIS ITSELF IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS A SETTLED LAW THAT IF AN ORDER IS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ONE ISSUE OUT OF SEVERAL ISSUES, THE ORDER PASSED U/S 263 WILL REMAIN VALID. WE, THEREFORE, ARE NOT DEALING WITH THE OTHER ALLEGATIONS LEVIED BY THE CIT WHILE INVOKING THE JURISDICTION U/S 263 EVEN THOUGH THE LD. AR HAS VEHEMENTLY ARGUED ON THOSE ISSU ES AS, IN OUR OPINION, DEALING WITH THOSE ISSUES WILL MERELY BE AN ACADEMIC EXERCISE AND EVEN IF THOSE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE, THE ORDER PASSED U/S 263 CANNOT BE QUASHED. THE ORDER PASSED U/S 263 HAS TO BE UPHELD AS, IN OUR OPINION, IT HAS PASSED THROUGH TEST OF FULFILMENT OF BOTH THE CONDITIONS BY THE CIT THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE ISSUE OF CLAIM OF EXEMPTION 23 . ITA NO. 91/PNJ/2014(A.Y.2009 - 10 ) MACBROUT ENGINEERING PVT. LTD. VS. CIT ALLOWED TO THE ASSESSEE U/S 80I B. WE, THEREFORE , DISMISS THE APPEAL FILED BY THE ASSESSEE BY UPH OLDING THE ORDER PASSED U/S 263. 7 . IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN CO URT ON 1 4 . 1 1 .2014. S D / - S D / - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER J UDICIAL MEMBER PLACE : PANAJI / GOA DATED : 1 4 . 1 1 .2014 P.S. - *PK* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER