Esquire Translam Industries v. Chief Commissioner Of Income Tax – Vi, “Aayakar Bhavan”, Iii Floor

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 26.10.2017 CORAM THE HONOURABLE Mr.JUSTICE T.S.SIVAGNANAMWrit Petition No.35087 of 2007 Esquire Translam Industries,Represented by its Managing Partner,Mr.Ketan Bagadia,Plot No.B125,PIPDIC, Industrial Estate,Mettupalayam, Puducherry 605 009....Petitioner Vs 1.Chief Commissioner of Income Tax – VI, “Aayakar Bhavan”, III Floor, 121, Nungambakkam High Road, Chennai 600 034. 2.Commissioner of Income Tax, D.P.Thottam M.G.Road, Puducherry. 3.Income Tax Officer, Ward I(1) Puducherry....Respondents Prayer:Writ Petition filed under Article 226 of TheConstitution of India seeking to issue a Writ of Certioraricalling for the records of the second respondent in C.No.9127A(25)/CIT/PDY/2007-08 dated 17.10.2007 and quash the impugnednotice. Heard Mr.R.Sivaraman, learned counsel for the petitionerand Mr.A.P.Srinivas, learned senior panel counsel for therespondents. https://hcservices.ecourts.gov.in/hcservices/ 2. The petitioner is aggrieved by a notice issued by thesecond respondent under Section 154 of the Income Tax Act, 1961.The notice states that an order dated 20.01.2006 passed by hispredecessor under Section 263 of the Act for the assessment year2002 – 2003 requires to be amended, as there is a mistakeapparent from the record within the meaning of Section 154 ofthe Act. The notice further states that rectification of themistake as per particulars given will have the effect ofenhancing the assessment/reducing the refund/increasing thepetitioner's liability. The petitioner was given an opportunityof being heard in person on 30.11.2007. This notice dated12.10.2007 issued under Section 154 of the Act (Impugned notice)itself suffered from a mistake in the sense that the assessmentorder was wrongly mentioned as 2002 – 2003 instead of 2001 –2002. Therefore, an erratum was issued vide notice dated29.10.2007. 3. Two questions would arise for consideration in this writpetition. Firstly, whether the activity done by the petitioneramounts to manufacture, secondly, whether the second respondentwould justified to issue a notice under Section 154 of the Act,after a detailed order was passed by his predecessor underSection 263 of the Act, dropping the proceedings which he hadinitiated. With regard to the first issue, the matter has nowbeen settled in various decisions and one of the decisions beingthat of the High Court of Gujarat in Commissioner of Income Tax-vs- Alfa Lamination reported in [(2009)225 CTR 212 (Gujarat)],wherein, the Court, while affirming the view taken by theTribunal held as follows: “11.Whether a particular activity amounts to manufacture or not would always be a questiondependent upon the facts and evidence on recordand would be based on the facts of each case. Theonly issue which would call for an inquiry is asto whether correct tests have been applied afterfinding the facts on record. The tests toascertain whether an activity amounts tomanufacture or production of an article or thinghave been laid down and reiterated by variousdecisions of the apex Court and this High Court.Broadly, the requirement is that the raw materialmust be, in the first instance, subjected to aprocess of such a nature that it cannot be termedto be the same as the end-product after the rawmaterial undergoes the process of manufacture. Inother words, the goods purchased as raw materialshould go in as inputs in the process ofmanufacture and the result must be manufacture ofother goods. The article produced must beregarded by the trade as a new and distinct article having an identity of its own, anindependent market after the commodity issubjected to the process of manufacture. Thenature and extent of the process would vary fromcase to case, and in a given case, there may beonly one stage of processing, while in anothercase, there may be several stages of processing,and perhaps, a different kind of process at everystage. That with every process, the commoditywould experience a change, but ultimately, it isonly when the change, or a series of changes,bring about a result so as to produce a new anddistinct article, that it can be said that thedifferently, the final product does not retainthe identity of the raw material after it hasundergone the process or processes ofmanufacture. [CIT v. Prabhudas Kishordas TobaccoProducts (P.) Ltd., [2006] 201 CTR (Guj.) 312:[2006] 282 ITR 568 (Guj.)]. The above referred decision of the Division Bench of the HighCourt of Gujarat has been affirmed by the Hon'ble Supreme Courtas the appeal filed by the Revenue in S.L.P.No.6625 of 2010 wasdismissed by order dated 04.10.2010. 4. Therefore, the first issue framed for consideration hasto be answered in favour of the assessee and it has to be heldthat the proposal to rectify the so called error in the orderdated 20.01.2006 is not tenable. The second question would be asto whether the power under Section 154 of the Act could beexercised, after the Commissioner has considered the matter bypassing an order under Section 263 of the Act. 5. The learned counsel for the petitioner would placereliance on the decision of this Court in the case of Festo ElgiPrivate Limited -vs- Commissioner of Income Tax reported in[(2000) 246 ITR 705 (Madras)], the Court observed that asuccessor who consider himself abler cannot on that score undowhat his predecessor had done. The facts of the said case arealso more or less identical to that of the case on hand. 6. As pointed out earlier, the petitioner's predecessor inoffice had done a thorough exercise and passed the order underSection 263 of the Act dated 20.01.2006, after conducting aninspection of the petitioner's factory and being satisfied thatthe activity done by the petitioner amounts to manufacture.Unfortunately, the successor in Office namely the secondrespondent while issuing the impugned notice did not even stateas to what is the mistake which is apparent from the record.Thus, it can be safely concluded that the present attempt of thesecond respondent was to undo what his predecessor has done,which has been clearly held to be impermissible in the case of Festo Elgi Private Limited. Thus, following the said decisionthe Issue No.2 is also answered favourable of the assessee. 7. For the above reasons, the writ petition is allowed andthe impugned notice is quashed. No costs. M.P.1/07 is closed. Sd/- Assistant Registrar(CS-III) //True Copy// Sub Assistant RegistrarrnaTo1.Chief Commissioner of Income Tax – VI, “Aayakar Bhavan”, III Floor, 121, Nungambakkam High Road, Chennai 600 034.2.Commissioner of Income Tax, D.P.Thottam M.G.Road, Puducherry.3.Income Tax Officer,Ward I(1), Puducherry.+1cc to Mr.A.P.Srinivas,Advocate, S.R.No. 76028+1cc to Mr.R.Sivaraman, Advocate, S.R.No. 76441W.P.No.35087 of 2007NM (CO)TR(21/11/2017)