A. Venku Reddy, Judicial Member -
(1.) ASSESSEE is the appellant in ITA No. 173/Hyd/89, whereas the Revenue is the appellant in ITA No. 1232/Hyd/ 90. Both appeals relate to assessment year 1985-86. For the sake of convenience, these two appeals have been heard together for disposal by a common order.
(2.) Assessee's appeal arises out of the order dated 21-11-1988 made by the Commissioner of Income-tax, Guntui, under Section 263 of the Income-tax Act. Facts that led to the filing of this appeal are briefly as follows :
(a) Assessee is a registered firm, carrying on the business of manufacture and sale of refined oil. Assessee had earlier a unit to manufacture only groundnut oil, but assessee, later commenced a refinery unit in which not only the groundnut oil manufactured in the old unit, but also the groundnut oil purchased from outside, was refined and sold as 'refined oilï¿½. For the assessment year 1985-86, Assessing Officer allowed deductions under Section 80HH and Section 80-1 of the Income-tax Act, to the extent of Rs. 1,37,631 and Rs. 1,10,105 respectively to the assessee-firm, and completed the assessment under Section 143(3) of the Income-tax Act. On a scrutiny of the assessment records, the Commissioner of Income-tax found that this action of the ITO in allowing reliefs under Section 80HH and Section 80-1 is erroneous and is also prejudicial to the interests of the Revenue. Accordingly he issued a notice under Section 263 of the Income-tax Act, calling upon the assessee to show cause as to why the reliefs allowed earlier under Sections 80HH and 80-1 should not be withdrawn, as the activity of the assessee does not involve any manufacture or production of any article or thing, for the purposes of granting relief under Sections 80HH and 80-1. After considering the objections of the assessee, the Commissioner, by his order dated 21-11-1988, made under Section 263, has set aside the assessment made by the ITO for assessment year 1985-86, and directed the ITO to re-do the assessments, after disallowing the deductions under Sections 80HH and 80-1. The learned Commissioner, relying on the decision of the Supreme Court in the case of Thungabhadra Industries Ltd. v. CTO 11 STC 827 held that there is no manufacture involved, where groundnut oil is merely converted into refined oil, and that the assessee's activity of merely refining the groundnut oil cannot be considered to be a manufacture or production of an article or thing, for granting relief under Section 80HH and Section 80-1 of the Income-tax Act.
(b) Aggrieved by the said order of the Commissioner, assessee preferred the appeal ITA No. 173/Hyd/89.
After the Commissioner made the order under Section 263, the ITO, while giving effect to the said order, has re-done the assessment, withdrawing the reliefs that were granted earlier under Sections 80HH and 80-1. As against the said re-done assessment, which was in fact, an assessment made for giving effect to the order passed by the Commissioner under Section 263, assessee preferred an appeal before the CIT(A), Hyderabad. The learned Commissioner (Appeals) basing on the decision of the Kerala High Court in the case of CIT v. Marwell Sea Foods  166 ITR 624 came to the conclusion that conversion of raw groundnut oil into refined groundnut, oil also amounts to manufacture or production of an article or thing, qualifying for deductions contemplated under Sections 80HH and 80-1 of the Income-tax Act. Thus, he took a view different from the one that was taken by the Commissioner, who made the order under Section 263. Aggrieved by this order of the Commissioner (Appeals), the Revenue preferred the appeal ITA No. 1232/Hyd/90 contending inter alia that no appeal lies to the Commissioner of Income-tax (Appeals) on the order of the ITO passed in pursuance of the order of the Commissioner under Section 263; and that the learned Commissioner (Appeals) should have rejected the appeal on the ground that no appeal is maintainable.
(3.) LET us first consider the assessee's appeal, ITA No. 173/Hyd/89. The only substantial issue that arises for consideration in this appeal is whether the conversion of raw groundnut oil into refined oil amounts to manufacture or production of an article or thing, as comtemplated under Sections 80HH and 80-1 of the Income Tax Act, for allowing relief under the said provisions to the assessee. The benefit under Section 80HH is available to an industrial undertaking which manufactures or produces articles in a backward area. Likewise, benefit under Section 80-1 of the Income-tax Act is available to an industrial undertaking, which manufactures or produces any article or thing not being an article or thing specified in the Eleventh Schedule. There is no dispute that the industrial undertaking of the assessee is located in a backward area. Assessee started a refinery unit in which groundnut oil is converted into refined oil. The question that arises for consideration is whether the conversion of raw groundnut oil into refined oil is an activity involving manufacture or production of an article or thing, as contemplated under Sections 80HH and 80 I of the Income-tax Act.;