1. This is an appellant's appeal against the order of the Commissioner of Income-tax, Bombay City-I, Bombay dated 30th March, 1993 passed under section 263 of the Income-tax Act, 1961, holding that the assessment made by the Assessing Officer dated 31-10-1990 for the assessment year 1989-90 was erroneous and prejudicial to the interests of the revenue. All the grounds of appeal relate to the said only one issue. The Commissioner of Income-tax, Bombay City-I, Bombay set aside the assessment order on the ground of granting relief of Rs. 54,94,805 under section 80HHC of the Income-tax Act, 1961 and directed the Assessing Officer to rework the said relief.
2. Mr. Arvind Sonde, the learned Representative for the appellant submitted, at the time of hearing this appeal, that all the material facts were disclosed before the Assessing Officer in respect of the claim of relief under section 80HHC. The Assessing Officer applied his mind and granted the said relief. He submitted that the Commissioner should have appreciated the materials placed before him and claimed that the appellant-firm was entitled to relief under section 80HHC on the export of 'Granite Stone'. A sum of Rs. 11,60,340 was included in the total turnover. He submitted to set aside the order of the Commissioner and to restore that of the Assessing Officer who was granted the relief under section 80HHC of the Act.
3. The Commissioner of Income-tax, Bombay City-I, held that the deduction under section 80HHC of the Income-tax Act, 1961 of Rs. 54,94,805 was wrongly allowed since the products manufactured during the previous year relevant to the assessment year 1989-90 were clarifiable under the category 'Minerals and Ores'. He further held that notwithstanding the deduction under section 80HHC of the Act, showed income of Rs. 11,60,340 and interest income of Rs. 3,78,975 and miscellaneous income of Rs. 7,300 and credit balance write back of Rs. 92,271 were wrongly excluded from the total turnover within the meaning of section 80HHC of the Income-tax Act, 1961.
4. The appellant-firm had been engaged in the business of excavation of granite stones and in cutting and dressing the said stones to make it dimensional stone of ornamental value before exporting the same. The said activity amounted to manufacture or production of an article or a thing. The appellant submitted that the provisions of granting relief under section 80HHC should be liberally construed. According to the Commissioner, the Assessing Officer did not consider the legal implications of exclusion of Minerals and ores for the purpose of section 80HHC. Section 80HHC(2)(b) had been amended with effect from 1-4-1991 for taking processed 'Minerals and Ores', as specified in the Twelfth Schedule. The Twelfth Schedule includes items of 'Cut and polished minerals and rocks including cut and polished granite'.
According to the CIT, in view of the said amendment with effect from 1-4-1991, it could be inferred that the term 'Mineral' included in these items prior to the amendment.
5. The CIT also considered this aspect of granting relief under section 80HHC and that the matter was highly debatable. However, considering the point by him as highly debatable does not carry much weight. He came to the conclusion that the Assessing Officer did not apply his mind to all these issues while completing the assessment and allowing the relief under section 80HHC and, therefore, he considered that there was an error in the assessment order which was prejudicial to the interests of the revenue.
6. He further considered that whether the interest income constituted a business income or otherwise was also highly debatable question but it was to be considered with reference to the facts of the case. According to him the Assessing Officer further did not apply his mind to the interest income, misc. income and credit balance written back. On these items also he considered the assessment order as erroneous and prejudicial to the interests of the revenue. Therefore, he set aside the assessment order for granting relief under section 80HHC and directed the Assessing Officer to rework the same according to law after providing due opportunity of being heard to the assessee.
7. We have heard the learned Representative Mr. Arvind Sonde, for the appellant and the learned Departmental Representative Shri R.K.Lachchiramka. Their arguments are taken into consideration.
8. Mr. Sonde did not consider it just and proper to argue the merits and demerits of the claim. However, according to him, it was important to consider the jurisdiction of the Commissioner of Income-tax, Bombay City-I for invoking and initiating the proceedings under section 263 of the Income-tax Act, 1961 to set aside the assessment on the point of granting relief under section 80HHC directing the Assessing Officer to make fresh assessment in this respect. He only considered that the Assessing Officer did not apply his mind. However, the Commissioner did not come to the conclusion that granting relief under section 80HHC was not correct and he did not give any finding on that point of granting relief or did not issue a further direction to withdraw the relief granted by the Assessing Officer except holding that the Assessing Officer did not apply his mind properly. Mr. Sonde argued at length on the point of jurisdiction and the powers of the CIT invested in him under section 263 of the Income-tax Act, 1961. The crux of his arguments was that the CIT(A) wrongly initiated the proceeding under section 263 of the Act and his setting aside the assessment with a direction to make fresh assessment was not correct. Therefore, he submitted that the order of the CIT should be set aside and the assessment order in this respect should be restored. However, Mr. Sonde pointed out certain facts from the assessment order about filing audit report under section 80HHC(4) of the Act. From para 3 of the assessment order, Mr. Sonde pointed out that, the Assessing Officer took into account the revised working for section 80HHC claim. He mentioned that the deduction under section 80HHC was already revised and the appellant explained this position vide its letter dated 24-7-1990. In para 4 of the assessment order, it was mentioned that the assessee was engaged in business of excavation of granite stones under Quarrying Lease of Government of Karnataka. The lease was granted by Government of Karnataka on 5-3-1982 and excavated stones were then exported. Mr.
Sonde further submitted that this relief under section 80HHC had been granted to the appellant since 1985-86 and, therefore, the Assessing Officer was right in granting the relief for this year also. The Assessing Officer has right to examine the claim for every year because every year's assessment is an independent unit. Therefore, as this relief had been granted from the assessment year 1985-86, hence the grant of relief in this year was right and would be a correct step.
9. In the computation of income, the Assessing Officer allowed the deduction of claim under section 80HHC as per the revised working amounting to Rs. 54,94,805. At this stage, we are not inclined to give a finding either on the application of mind or on granting the relief under section 80HHC by the Assessing Officer because the said point was not argued on merits. We are constrained with only the point whether the initiation of proceedings under section 263 of the Act and setting aside the assessment is correct. The appellant-firm had been carrying on business of export out of India of goods and merchandise. The appellant-firm claimed deduction under section 80HHC for the assessment year under appeal on the basis of the sale proceeds received and determined in convertible foreign exchange. The details were furnished in Annexure 'A', a copy of which is at page 2 of the paper book. The amount of Rs. 62,55,301 was taken on the basis of the computation of income. The deduction under section 80HHC shall change in the event of assessment of income on higher or lower income. Mr. Sonde pointed out the appellant's explanation from page 5 of the paper book. In para 10 it was stated that the appellant was dealing in Granite Stone and this was not excisable goods. Only export sales were done. There were no local sales. The exports were done from the Mangalore Port through Bharat Overseas Bank, Fort Branch, Bombay. The appellant furnished all the details to the Assessing Officer vide pages 11 to 20 of the paper book in respect of the claim made by way of relief and deduction.
10. Mr. Sonde mainly relief on the case laws in support of his contention that simply setting aside the assessment was not sufficient under section 263. In support of this contention, he has cited and relied upon the decision of the Punjab and Haryana High Court in the case of CIT v. R.K. Metal Works [1978] 112 ITR 445. The Punjab and Haryana High Court held that it was necessary for the Commissioner to state in what manner he considered that the order of the Income-tax Officer was erroneous and prejudicial to the interests of the revenue and what the basis was for such a conclusion. There was no indication in the order as to the basis on which the Commissioner came to the prima facie conclusion that the capital borrowed by the firm was utilised for purpose other than that of the firm's business. The Tribunal set aside the Commissioner's order and the Punjab and Haryana High Court held on the facts that the Tribunal was right in law in setting aside the order passed by the Commissioner under section 263.
He has also pointed out certain observations from page 447 of the said decision that simply to set aside the assessment order was not proper course. In respect of the same analogy, Mr. Sonde cited and relied on the decision of the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and pointed out certain observations from page 170. The Bombay High Court in that case held that the Income-tax Officer in that case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were the part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. This decision of the ITO could 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 could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That was not permissible. The Tribunal was justified in setting aside the order passed by the Commissioner of Income-tax under section 263.
11. Mr. Sonde submitted that this appellant's case falls within the four corners of the decision of the Bombay High Court (supra).
According to Mr. Sonde, the Commissioner simply asked the ITO to re-examine the matter and he did not come to the conclusion and failed to give a finding that the ITO has wrongly allowed the relief. Unless such a conclusion or a finding was given, the Commissioner does not have any jurisdiction to initiate the proceedings under section 263 of the Act.
12. He further submitted that in the instant appeal, neither the assessment order was erroneous nor it was prejudicial to the interests of the revenue. For this reason also, the assessment could not have been set aside. He argued that the order may be prejudicial to the interests of the revenue but the same cannot be set aside if it was not found erroneous. He submitted that the initiation of the proceedings under section 263 was bad in law and without jurisdiction. Mr. Sonde relief on the decision of the Allahabad High Court in the case of CIT v. Goyal (P.) Family Specific Trust [1988] 171 ITR 698/[1987] 35 Taxman 522. He has also pointed out certain observations from pages 701 and 702 of the said decision. This decision is on the point that in the absence of a finding by the Commissioner of Income-tax that the assessment orders were erroneous, the cancellation of assessment was not justified. The Tribunal was justified in setting aside the order of the Commissioner and no question of law arose from his order. The Commissioner did not give a specific finding that the assessment order was erroneous on such and such basis and, therefore, it was fit to set aside and to make fresh assessment. The Commissioner's finding is a necessary ingredient.
13. Mr. Sonde also cited and relied upon the three decisions of the Tribunal. The decision of the Delhi Bench of the Tribunal in the case of Hindustan Marketing & Advertising Co. Ltd. v. ITO [1989] 28 ITD 231 was relied upon. The Delhi Bench of the Tribunal, in that case, came to a conclusion that the ITO had made reasonable detailed enquiries and after proceeding the materials utilised the same for completion of the assessment and, therefore, the observations of the Commissioner were in the nature of conjectures. Thus, the assessments in the present case were in accordance with law and were not erroneous as to be prejudicial to the revenue. The Commissioner, therefore, had no jurisdiction to make the impugned order. The Tribunal distinguished the decision of the Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375. He has also cited another decision of the Delhi Bench of the Tribunal in the case of Transactional Analytic Centre for Education, Research & Training v. ITO [1988] 24 ITD 400. The Tribunal held in that case that there was no evidence to show that the ITO's orders which were made after necessary enquiries and on proper appraisal of the facts of the case and the law applicable thereto were erroneous so as to be prejudicial to the interests of revenue. Thus, considering the entirely of the facts and circumstances of the case, the Commissioner had no jurisdictional facts to assume lawful jurisdiction under section 263, and hence, his impugned order was bad in law and was, accordingly, to be cancelled.
14. He cited the decision of the Bombay Bench of the Tribunal in the case of BBC Brown Boveri & Co. Ltd. v. ITO [1989] 31 ITD 408. The Tribunal held in that case that the Commissioner has to discuss and give a finding. The provisions of section 263 are not meant to set aside merely unfavourable orders and bring to tax some more money to the treasury unless is it established that the orders passed by the ITO was erroneous and prejudicial to the interests of revenue. Therefore, the Commissioner's order under section 263 for both the years was cancelled and the appeals of the assessee were allowed. Mr. Sonde contended that the CIT neither indicated any error and its basis in the assessment order nor gave a finding that the Assessing Officer was not satisfied but still granted the relief.
15. The cumulative effect of the arguments advanced by Mr. Sonde and the case laws go together is to come to a conclusion that in the instant appeal, the initiation of the proceedings under section 263 was not correct.
16. The learned Departmental Representative, Shri R.K. Lachchiramka also argued vehemently and he tried to point out the merits and de-merits of the claim under section 80HHC. At this point, according to the appellant, the claim was allowable and according to the learned Departmental Representative, the claim was not allowable. As we have mentioned above that we are not concerned either with the allowability or non-allowability of the claim. We are concerned with the jurisdiction of the CIT and powers invested in him under section 263 of the Income-tax Act, 1961. We also need not to take in account the quality of a granite. According to Mr. Lachchiramka, the Assessing Officer neither made enquiries in detail nor applied his mind to the assessee's claim. He contended that the CIT was right in setting aside the assessment with a direction to make fresh assessment. The CIT did not mention specifically in his order to withdraw the relief granted under section 80HHC. His impression was that the Assessing Officer did not apply his mind and wrongly granted the relief under section 80HHC.This impression would not be sufficient for invoking the jurisdiction under section 263 of the Act. It is true that section 263 is there on the Statue Book to apply wherever the assessment orders are found erroneous and prejudicial to the interests of the revenue. Only finding an assessment order prejudicial to the interest of the revenue would not help to invoke the provisions of section 263 unless the assessment order was found erroneous. Merely setting aside the assessment order is also not sufficient without giving a specific finding. Mr. Lachchiramka relied on the decision of the Karnataka High Court in the case of Muddeereswara Mining Industries v. CIT [1993] 204 ITR 550. The Karnataka High Court held in that case granite was a mineral within the meaning of the term found in section 80HHC(b)(ii). The Departmental Representative mainly relief on another aspect of this finding of the Karnataka High Court wherein the Karnataka High Court held that the assessee was not entitled to the allowance claimed under section 80HHC in respect of the granite exported from India. We only say that the merits and de-merits of the claim was not the subject-matter in the instant appeal.
17. Mr. Sonde, in his reply, pointed out a decision of the Punjab and Haryana High Court in the case of CIT v. Jagadhri Electric Supply & Industrial Co. [1983] 140 ITR 490/[1981] 7 Taxman 56 while contending that the Tribunal cannot incorporate any reason or substitute any reason when such reasons were not considered by the CIT.18. We have examined the facts relating to invoking the provisions of section 263 by the CIT. We find that he has merely set aside the assessment order and directed the Assessing Officer to make fresh assessment. He did not give any specific finding and the basis to hold that the assessment order was erroneous and prejudicial to the interest of the revenue. The decision of the Bombay High Court (supra) fully applies to the appellant's case. It would be incorrect to say because section 263 is on the Statute Book and, therefore, it should be invoked somewhere. It can be invoked when the assessment order was found erroneous and prejudicial to the interests of the revenue otherwise not. How it should be found erroneous and prejudicial has been mentioned in the case of laws cited above. If these norms are not followed to set aside the assessment, the setting aside the assessment under section 263 cannot be held proper and justifiable. After examining the relevant facts and the legal position, we are unable to come to a conclusion that the CIT was right in setting aside the assessment and directing the Assessing Officer to make fresh assessment. We hereby quash the order of the CIT passed under section 263 and restore that of the Assessing Officer.
19. In this view of the matter, the appellant succeeds and the appeal is allowed.
1. I have carefully gone through the order of the learned Judicial Member and I am not persuaded to accept his findings.
2. The facts of the case have been set out by the learned Judicial Member in great detail and they need not be stated here.
3. The assessee was an exporter of cut and polished granites. It had claimed section 80HHC relief before the Assessing Officer and the same was allowed by him. The Commissioner of Income-tax, on a perusal of the order of the Assessing Officer, took the view that such allowance was given without investigating the claim of the assessee, as required under the law and, for that reason, he set aside the order of the Assessing Officer. The learned counsel for the assessee, as observed by the learned Judicial Member, has not raised any argument regarding the merits of the case. He has contested the validity of the order of the Commissioner in the sense that the same was without jurisdiction. He has, inter alia, relief on the following judgments of various High Courts in support of his claim : 4. The learned Departmental Representative, on the other hand, relying on the decision of the Delhi High Court in the case of Gee Vee Enterprises (supra) claims that it is within the competency of the Commissioner to regard an assessment order as erroneous where he finds that it had been made without proper enquiry. It is incumbent on the Assessing Officer to investigate the facts of the case before determining the total income, especially if the facts so warrant.
5. In my considered opinion, the order passed by the Commissioner under the provisions of section 263 of the Act is not open to any serious challenge. Under the scheme for granting incentive for export under section 80HHC of the Act, it was specifically provided at the relevant time that no such relief would be admissible if the exports are of minerals and ores. These provisions have been modified by introduction of Schedule Twelve to the Income-tax Act. The benefit of export market allowance was extended to cut and polished minerals and rocks, including cut and polished granite. In the Notice Issued by the Commissioner as also in the order passed by him under section 263 of the Act, he has referred to Schedule Twelve of the Income-tax Act introduced with effect from 1st April, 1991 by Finance (No. 2) Act of 1991, to highlight the fact that cut and polished granite was to be regarded as in the nature of minerals and rocks and, therefore, no benefit under section 80HHC of the Act was allowable prior to 1st April, 1991 in respect of the exports of the same. The order passed by the Commissioner is quite clear on the point. He has spelt out in the impugned order that since the assessee was engaged in the export of cut and polished granite stone, relief under section 80HHC of the Act was probably not available to it prior to the introduction of Schedule Twelve. The assessee has claimed that the Commissioner was not clear in his findings and, in this connection, adverted to the following remarks by him in para 6.2 of his order : "It is also clear from the various case laws quoted by the assessee's counsel that the matter is highly debatable." These observations were made by the Commissioner in the context of the assessee's claim that granite was not in the nature of minerals and, therefore, nothing turns on the same. In any case, as observed earlier, the assessee has not addressed us on the merits of the issue.
6. I shall now proceed to deal with the cases relied upon by the assessee in support of its claim that the Commissioner exceeded his jurisdiction in assuming his revisionary powers under section 263 of the Act. I shall first refer to the decision of the jurisdictional High Court in the case of Gabriel India Ltd. (supra). The Court, after referring to the conditions precedent before assumption of jurisdiction under section 263 of the Act, observed that an order under this section could be validly passed by the Commissioner only if the order of the Assessing Officer was erroneous and, at the same time, prejudicial to the interests of the revenue. The Court, at the same time, cautioned that before order under section 263 could be passed there must be a prima facie material on record to show that tax which was lawfully exigible had not been imposed or that by the application of the relevant statute, or on an incorrect or incomplete interpretation, a lesser tax than what was just had been imposed. I fail to understand how this decision of the Bombay High Court can, in any way, advance the case of the assessee.
7. In the case of Goyal (P.) Family Specific Trust (supra), the Court has only held that in the absence of a finding by the Commissioner that the assessment orders were erroneous, the cancellation of the same would not be justified. As observed earlier, the Commissioner, in the instant case, has given a clear finding that the assessment order was erroneous, inasmuch as allowance of relief under section 80HHC of the Act was against the statutory provisions which clearly denied relief under section 80HHC if the exports were of minerals and ores. Hence, this case also would not help the assessee.
8. In the case of R.K. Metal Works (supra), the Punjab & Haryana High Court has held that before the Commissioner exercises his revisionary jurisdiction under section 263 of the Act, it is necessary for him to state in what manner he considered the order of the Assessing Officer was erroneous and prejudicial to the interests of the revenue and what was the basis for such a conclusion. In the instant case, the Commissioner has, not only in the Notice issued under section 263 of the Act but also in his order, elaborately dealt with the issue which necessitated his action under section 263 of the Act. In this view of the matter, this case also would not come to the rescue of the assessee.
9. There are some other decisions, of the Tribunal, to which a reference has been made by the learned Judicial Members. Those decisions, to my mind, do not in any way advance the case of the assessee. They merely hold that the provisions of section 263 of the Act cannot be made use of for setting aside, what the Commissioner considers as, unfavourable orders.
10. Thus, it could be seen that none of the cases relied upon by the assessee does help to advance its case. At the time of appeal hearing, the assessee had pointed out that similar claim of the assessee was accepted by the revenue in the earlier years. This again does not in any way go to show that there has been an application of mind by the Assessing Officer regarding the claim of the assessee. The assessments had been completed in a routine manner. The argument of the assessee that the claim had been admitted after proper consideration of the issue is not supported by the material on record. The assessee's learned counsel has pointed out, in this connection, that the assessee had furnished a revised working of deduction under section 80HHC of the Act, before the Assessing Officer in the course of the assessment proceedings and that was accepted by the Assessing Officer. Such acceptance, according to the learned counsel cannot be without considering the issue before him. The revised working is contained in a letter written by the assessees to the Assessing Officer. In the letter, the assessee has merely quantified the relief admissible to it and this has been claimed on the basis that the export of granite was eligible for relief under section 80HHC of the Act. There is ample indication to show that the Assessing Officer has not considered the provisions of section 80HHC of the Act as they stood at the relevant time. Certain exports were excluded from the purview of the provisions of section 80HHC, of the Act and this has been lost sight of by the Assessing Officer. It was in these circumstances that the Commissioner has stepped in and issued a Notice under section 263 of the Act. The Commissioner's findings in this regard are quite categorical and leave no room for equivocation. The Commissioner has observed that there has been an under-assessment as a result of wrong interpretation of the provisions of section 80HHC of the Act and the relief has been granted by the Assessing Officer without considering the relevant provisions, namely, that granite is a mineral and, therefore, ineligible for section 80HHC deduction at the material time. He has proceeded to buttress his argument by referring to Twelfth Schedule to the Income-tax Act, under which, the concession under section 80HHC of the Act was extended to export of granite also, w.e.f. 1-4-1991. This is not a case where the Commissioner has sought to super-impose or substitute his judgment over that of the Assessing Officer and this is because there has been no application of mind by the Assessing Officer in the course of assessment proceedings regarding the eligibility of relief under section 80HHC of the Act on granite. I shall, at the cost of repetition, refer here to the decision of the jurisdictional High Court in the case of Gabriel India Ltd. (supra) where the Court has observed that where there was some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute, or on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed, exercise of revisionary powers would be justified. What has happened in the instant case is that due to incorrect interpretation of the relevant statute, or non-application of mind by the Assessing Officer, legitimate taxes had not been imposed and, therefore, the Commissioner was justified in taking recourse to his revisionary powers.
11. Before parting with this case, I may observe that the powers of the Commissioner under the provisions of section 263 of the Act are very wide and in the exercise of the supervisory powers, it would be open to him to correct a mistake which is prejudicial to the revenue arising out of non-application of mind, or an incorrect or incomplete interpretation of the relevant statute, by the Assessing Officer.
12. In view of what is state above, I do not find any reason to interfere with the impugned order of the Commissioner. It is accordingly, sustained.
Since we have differed in our opinions in the above mentioned appeal, the following point of difference of opinion is being referred under section 255(4) of the Income-tax Act, 1961, to the President, Income-tax Appellate Tribunal to hear and decide it by majority of Members : "Whether, on the facts and circumstances of the case, the Commissioner of Income-tax was right in initiating the proceedings under section 263 of the Income-tax Act, 1961 on the only ground that the Income-tax Officer did not apply his mind ?" 1. The Members who constituted the Bench originally could not agree.
Hence, the President of the Tribunal has referred the following point to me for my opinion as Third Member :- "Whether, on the facts and circumstances of the case, the Commissioner of Income-tax was right in initiating the proceedings under section 263 of the Income-tax Act, 1961 on the only ground that the Income-tax Officer did not apply his mind ?" 2. This is an appeal by the assessee against the order of the CIT under section 263 of the IT Act, 1961 holding that the assessment made by the Assessing Officer dated 31-10-1990 for the assessment year 1989-90 was erroneous and prejudicial to the interests of the revenue. Accordingly, the CIT set aside the assessment for being redone. The first effective ground taken by the assessee reads as follows :- "The Learned Commissioner of Income-tax, City-I has erred on facts and in law setting aside the relief of Rs. 54,94,805 granted under section 80HHC of the Income-tax Act, 1961 and in directing to the Assessing Officer to re-work the said relief." 3. There are other grounds taken by the assessee relating to the computation of turn-over and inclusion of certain interest income under the head 'business', but the point of difference between the Members is limited to the question whether the CIT exercised his jurisdiction under section 263 correctly on the ground that the Assessing Officer did not apply his mind to the question whether the business of export of Granites carried on by the assessee is eligible for grant of deduction under section 80HHC of the IT Act in the light of the provisions of this section which stipulate that the section does not apply to the export of Minerals and Ores.
4. The CIT issued a Show Cause Notice under section 263 in which he proposed to revise the assessment order dated 31-10-1990 passed by the Assessing Officer under section 143(3) for the assessment year 1989-90 for the following, inter alia, two reasons :- "1. Deduction under section 80HHC of IT Act, 1961 of Rs. 54,94,805 is wrongly allowed since the products manufactured during previous year relevant to assessment year 1989-90 are clarifiable under the category of 'minerals and ores'.
2. Notwithstanding item (2) showed income of Rs. 11,60,340 and interest income of Rs. 3,78,975 and miscellaneous income of Rs. 7,300 and credit balance write back of Rs. 92,271 are wrongly excluded from the 'total turnover' within the meaning of section 80HHC of IT Act, 1961." 5. It may be observed that the CIT did mention that the products manufactured by the assessee, i.e., granites are "clarifiable" or includible under the category of minerals and ores. It was pleaded by the assessee before the CIT that granites cannot be classified as minerals and ores, since it is essentially a rock which is used as ornamental stones in the buildings. The CIT rejected this argument with the following observations :- "Coming to the second point regarding relief under section 80HHC it is clear that the Assessing Officer has not at all considered the legal implications of exclusion of Minerals and Ores for the purpose of section 80HHC. It is also relevant that section 80HHC(2)(b) has been amended with effect from 1-4-1991 taking processed 'Minerals and Ores specified in the Twelfth Schedule. Out of this exclusion clause. The Twelfth Schedule includes items of 'Cut and polished minerals and rocks including cut and polished granite'. In view of this amendment from 1-4-1991, it could be inferred that the term 'Mineral' included these items prior to the amendment. It is also clear from the various case laws quoted by the assessee's counsel that the matter is highly debatable. Since the Assessing Officer has not at all applied his mind to all these issues while completing the assessment year and allowing relief under section 80HHC, it could be said that there is error prejudice to the interest or revenue." It may be seen that the CIT relied upon the amendment to section 80HHC(2) inserted by Finance (No. 2) Act, 1991 with effect from 1-4-1991, as per which exclusion from the category of eligible goods for the purpose of granting relief upon the said section is limited to minerals and ores other than the processed minerals and ores specified in the Twelfth Schedule. In the Twelfth Schedule, item 10 includes 'cut and polished minerals and rocks including cut and polished granites' under processed minerals and ores. In other words, with effect from 1-4-1991, the statute made it clear that cut and polished granite, which was the product exported by the assessee, was eligible for the grant of relief under section 80HHC.6. The question is whether grant of relief under section 80HHC to the assessee, prior to 1-4-1991, as is granted by the Assessing Officer for the assessment year in question, i.e., 1989-90 is correct and if it is not correct, the CIT was within his jurisdiction under section 263 to revise or set aside the assessment order, as is done in the impugned order of the CIT dated 30-3-1993. The Judicial member did not express any opinion on the merits of the claim of the assessee. In other words, he did not express any opinion as to whether the assessee was entitled for the grant of the claim under section 80HHC or not. In para 9 of his order, he observed as follows :- "In the computation of income, the Assessing Officer allowed the deduction of claim under section 80HHC as per the revised working amounting to Rs. 54,95,805. At this stage, we are not inclined to give a finding either on the application of mind or on the granting the relief under section 80HHC by the Assessing Officer because the said point was not argued on merits. We are concerned (wrongly typed as 'constrained') with only the point whether the initiation of proceedings under section 263 of the Act and setting aside the assessment of correct." He observed that the CIT was not justified in revising the assessment order because he did not point out any error in the assessment order.
In this context, he has relied upon, inter alia, the decision of the jurisdictional High Court in the case of Gabriel India Ltd. (supra) and held as follows :- "We have examined the facts relating to invoking the provisions of section 263 by the CIT. We find that he has merely set aside the assessment order and directed the Assessing Officer to make fresh assessment. He did not give any specific finding and the basis to hold that the assessment order was erroneous and prejudicial to the interests of the revenue. The decision of the Bombay High Court (supra) fully applies to the appellant's case. It would be incorrect to say because section 263 is on the Statute Book and, therefore, it should be invoked somewhere. It can be invoked when the assessment orders was found erroneous and prejudicial to the interests of the revenue otherwise not. How it should be found erroneous and prejudicial has been mentioned in the case laws cited above. If these norms are not followed to set aside the assessment, the setting aside the assessment under section 263 cannot be held proper and justifiable. After examining the relevant facts and the legal position, we are unable to come to a conclusion that the CIT was right in setting aside the assessment and directing the Assessing Officer to make fresh assessment. We hereby quash the order of the CIT passed under section 263 and restore that of the Assessing Officer." 7. The learned Accountant Member pointed out that the CIT has clearly pointed out an error in the assessment order inasmuch as, he has mentioned that there was an under-assessment as a result of wrong interpretation of the provisions of section 80HHC. He also relief upon the same decision of the jurisdictional High Court, i.e., the decision in the case of Gabriel India Ltd. (supra) on which the learned Judicial Member relied and came to the opposite conclusion. He held as follows :- "The Commissioner's findings in this regard are quite categorical and leave no room for equivocation. The Commissioner has observed that there has been an under-assessment as a result of wrong interpretation of the provisions of section 80HHC, of the Act and the relief has been granted by the Assessing Officer without considering the relevant provisions, namely, that granite is a mineral and, therefore, ineligible for section 80HHC deduction at the material time. He has proceeded to buttress his arguments by referring to Twelfth Schedule to the Income-tax Act, under which, the concession under section 80HHC of the Act was extended to export of granite also, w.e.f. 1-4-1991. This is not a case where the Commissioner has sought to super-impose or substitute his judgment over that of the Assessing Officer and this is because there has been no application of mind by the Assessing Officer in the course of assessment proceedings regarding the eligibility of relief under section 80HHC of the Act on granite. I shall, at the cost of repetition, refer here to the decision of the jurisdictional High Court in the case of CIT v. Gabriel India Ltd. (supra), where the Court has observed that where there was some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute or on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed, exercise of revisionary powers would be justified. What has happened in the instant case is that due to incorrect interpretation of the relevant statute, or non-application of mind by the Assessing Officer, legitimate taxes have not been imposed and, therefore, the Commissioner was justified in taking recourse to his revisionary powers." 8. Before me, the learned counsel for the assessee reiterated the argument that carried weight with the judicial Member. It is claimed that the CIT should give a positive finding about the error in the assessment order before he can invoke his jurisdiction under section 263. He stressed that, according to the CIT, the issue whether the cut and polished granite rock exported by the assessee is includible in minerals and rocks and whether the assessee is entitled for the grant of relief under section 80HHC is only, as is evident from the remarks of the CIT extracted herein before, "highly debatable". He has accordingly set aside the assessment with a direction to work out the relief afresh according to law and has not given any positive finding that the grant of relief is erroneous and so, should be withdrawn. It is claimed that the action of the CIT is squarely hit by the ratio of the decision of the jurisdictional High Court in the case of Gabriel India Ltd. (supra) as was held by the learned Judicial Member. He has also mentioned that the order of the Accountant Member does not reflect the correct position. The Accountant Member in para 7 of his order has mentioned that the Commissioner has given a clear finding that the assessment order was erroneous, inasmuch as, the assessee is not eligible for relief under section 80HHC if the exports were of minerals and ores. It is claimed by the learned counsel for the assessee that the order of the CIT does not contain a positive finding that the assessment order was erroneous in this sense. The learned Accountant Member in para 11 of his order has mentioned that it would be open for a Commissioner, acting under section 263 to correct a mistake, which is prejudicial to the interests of the revenue but it is claimed that the order of CIT does not bring out in any clear terms what exactly is the error in the assessment order. So, it is claimed that the order of the CIT is not in conformity with the ratio of the decision of the jurisdictional High Court in the case of Gabriel India Ltd. (supra) notwithstanding the reliance placed by the Accountant Member in his order on this case. He has also relied on the following decisions :- 5. Transactional Analytic Centre for Education, Research & Training's case (supra).
9. The learned D.R., on the other hand, supported the order of the learned Accountant Member. It is pleaded that the CIT has brought out both in the Show Cause Notice issued by him and in the order that the assessment order was erroneous inasmuch as, the relief under section 80HHC was granted without examining the issue whether the cut and polished granite which was actually exported by the assessee falls in the prohibited category of minerals and ores, prior to the amendment to this section and insertion of Twelfth Schedule with effect from 1-4-1991. He has also relied on the decision of Karnataka High Court in the case of God Granites v. Under Secretary CBDT [1996] 218 ITR 298/85 Taxman 536 and argued that as per this decision, the term 'mineral' used in section 80HHC(2)(b) includes rock and the term rock includes granites and so, prior to the amendment, the assessee, who exported only granite was not eligible for the grant of relief under the said section. So, it is pleaded that there is a clear error in the assessment order, which the CIT was authorised to set right under the provisions of section 263. It is also pleaded that a simple non-application of the mind to a relevant issue is itself an error and in the present case, the Assessing Officer has granted relief under section 80HHC without examining the issue whether the export of granite qualifies for relief under section 80HHC and so, there is an error in the order, which is also prejudicial to the interests of the revenue and in terms of the decision of the Delhi High Court in the case of Gee Vee Enterprises (supra), the CIT was within his jurisdiction to set aside the assessment order in question. He has also relied upon the decision of the Hon'ble Gujarat High Court in the case of CIT v. M.M.Khambhatwala [1992] 198 ITR 144 and argued that the CIT can exercise his powers of revision under section 263 even in a case where the issue is debatable. He has also relief upon the following decisions :- 1. Tarajan Tea Co. (P.) Ltd. v. CIT [1994] 205 ITR 45/77 Taxman 220 (All.) 2. CIT v. Shivanand Electronics [1994] 209 ITR 63/75 Taxman 93 (Bom.) 3. CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843/83 Taxman 643 (Raj.) 10. The learned counsel for the assessee, in reply, mentioned that in all the cases cited by the learned D.R., there is a clear finding about the existence of an error in the assessment order and to that extent they are distinguishable. It is also pleaded that the decision of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises (supra) is not applicable inasmuch as, the Assessing Officer had examined the issue of grant of relief under section 80HHC and has completed the assessment only after sending elaborate questionnaires on this and other issues. So, it is pleaded that the order of the Assessing Officer is not a sterio-typed order and the decision of the Delhi High Court is also not applicable.
11. I have carefully considered the rival submissions and I am in agreement with the learned Accountant Member. Firstly, while is true that the Assessing Officer has considered the quantification of the relief under section 80HHC, he has failed to apply his mind to the issue whether the assessee satisfies the basic condition for the grant of the relief. He has not considered whether the granite is included in minerals and ores and so, whether the export of granite qualifies for the relief under section 80HHC. The replies sent by the assessee to the questionnaires issued by the Assessing Officer are at page 3 to 20 of the assessee's paper book and none of these replies bear out that the Assessing Officer applied his mind to this issue or raised a question on this issue and obtained the assessee's reply thereon. The question of quantification of the relief arises only if the granite is not included in minerals and ores and so, the assessee qualifies for the grant of relief. As the Assessing Officer has not applied his mind to a very relevant and basic issue, I am of the view that the assessment order has to be categorised as a sterio-typed one and so, in the light of the decision of the Delhi High Court, cited (supra), the CIT is within his jurisdiction to invoke his powers under section 263 and to set aside the assessment order. Further, it is not as though the CIT has not given a clear finding about the error in the assessment order, he has clearly mentioned in the show-cause notice issued to the assessee that the products manufactured or exported by the assessee are clarifiable or includible under the category of minerals and ores. On the date the CIT was perusing the record for taking action under section 263, the amendment to section 80HHC w.e.f. 1-4-1991 and the Twelfth Schedule were on the statute book even though they were not there at the time of completion of the assessment. By virtue of the definition of the word "record" in section 263 inserted by Finance Act, 1989 with retrospective effect from 1-6-1988, the CIT was also within his right to consider the eligibility of the assessee for the relief under section 80HHC in the light of the amendment w.e.f. 1-4-1991 and the Twelfth Schedule. That is exactly what he had done. He has taken into account the amendment to section 80HHC(2)(b) w.e.f. 1-4-1991 and the terms of the relevant item in Twelfth Schedule and thus observed in para 6.2 of his order that in view of the amendment from 1-4-1991, it could be inferred that the terms 'Mineral' included granite prior to the amendment. In the light of this clear observation, it cannot, to my mind, be said that the CIT has not given a clear finding about the existence of an error in the assessment order. Simply because he mentioned that the issue was debatable, it does not mean that he did not pinpoint an error in the assessment order. He pointed out the error and still considering that there is some argument on behalf of the assessee and therefore, the issue could be debated, he thought fit to set aside the assessment order so that the assessee can adduce all his arguments before the Assessing Officer. In view of the decision of the Gujarat High Court in the case of Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312, the only proper course for the Commissioner when he proposes to set aside the assessment order, is not to give his final conclusions. If the CIT gives a final conclusion, there is no point in setting aside the assessment order because in that case, the judicial discretion of the Assessing Officer while reframing the assessment would be totally fettered by the conclusion of the Commissioner. I am of the view that the CIT has clearly pointed out an error in the assessment order and at the same time, rightly left the issue open for being decided by the Assessing Officer while redoing the assessment after applying his mind to all the arguments and evidence that might be adduced by the assessee in support of its stand. The description of the issue as debatable only indicates that the revenue did not have a closed mind and does not, to my mind, detract from the correctness of the action taken by the CIT. The decision of the jurisdictional High Court in the case of Gabriel India Ltd. (supra), to my mind, supports the action taken by the CIT.12. In the above view of the matter, I agree with the learned Accountant Member and I would uphold the order of the CIT under section 13. The matter will now go back to the regular Bench for a decision, according to majority opinion.