D.K. Kapur, J.
1. The following two question have been referred to us under section 256(1) of the Income-tax Act, 1961, for the assessment year 1964-65 :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the production effected during the previous year relevant to the assessment year 1964-65 was experimental, and did not amount to manufacturing activity
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its approach to the application of section 154 of the Income-tax Act 1961 ?'
2. The facts of the case are that the assessed, M/s. Food Specialities Ltd., was manufacturing condensed milk till almost the end of the assessment year 1964-65 which ended on December 31, 1963. Thereafter, it also set up a plant for manufacturing 'Nescafe', which is a type of coffee. It appears that though the plant started (production) towards the end of December, 1963, the assessed claimed that manufacture up to the end of December, 1963, was on an experimental basis. The Income-tax Officer completed the assessment on May 6, 1968, and apparently, though some relief under section 84 was granted, it is said that the same does not refer to the manufacture of Nescafe.
3. The Income-tax Officer passed an order under section 154 of the Income-tax Act, 1961, rectifying the previous order on May 4, 1972, on the ground that coffee powder manufacture had started in December, 1963, and, thereforee, relief under section 84 had to be granted from the previous year relevant to assessment year 1964-65 and not from 1965-66. An appeal was taken to the Appellate Assistant Commissioner who by order dated August 3, 1973, held in favor of the assessed that no order under section 154 could be passed as it amounted to a change of opinion. The Income-tax Officer appealed to the Tribunal which by an order dated March 15, 1975, held that the manufacture up to the end of December, 1963, was on an experimental basis, although the manufacture was valued at about Rs. 8 lakhs. It also held that section 154 was not applicable and there was no patent error on the record. It is said :
'The mistake apparent on record can only occur if a patent error is committed in assessment of a fact already on record. In the situation, the assessed cannot take advantage of the fact that the factum of some manufacturing activity, though on experimental basis was already on record. All that one has to take guard is that in case the deduction from such facts necessitates long-drawn process of reasoning and is capable of two opinions, the same should not be taken recourse to ...'
4. The Tribunal then proceeded to examine whether there was a patent error. On facts, it held that though the production was large, yet there was no sale and hence there was no ground to interfere with the order of the Appellate Assistant Commissioner.
5. On an application by the Commissioner for a reference, the above two questions have been referred to us. The question we have to decide whether there is any ground for holding that section 154 was applicable to the facts of this case.
6. Section 154 was held to be inapplicable by the Appellate Assistant Commissioner following the judgment of the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers : 82ITR50(SC) , in which the court pointed out that a mistake is apparent on the record when it is an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning. Learned counsel for the assessed has submitted that this judgment has been relied upon by the Madhya Pradesh High Court in a case quite similar to the one before us, in CIT v. Steel Tubes of India P. Ltd. : 138ITR619(MP) , where the controversy was which was the year in which the new undertaking began to manufacture, which is a point like the one involved in the present case. Learned counsel for the assessed also referred to the case of J. K. Synthetics Ltd. v. CBDT : 83ITR335(SC) , where the year in which the assessed begins to manufacture or produce articles occurring in section 80J was under examination and it was observed that this was a question of fact.
7. As regards the year of manufacture, on the question whether there can be an experimental period, a reference was made to the case of CIT v. Hindustan Antibiotics Limited : 93ITR548(Bom) and Madras Machine Tools . v. CIT : 98ITR119(Mad) in both of which it was held that manufacturing for the purpose of section 15C of the 1922 Act and section 84 of the 1961 Act was the date of 'commercial' manufacture and the period during which experimental work, particularly manufacture, was effected had to be disregarded.
8. It, thereforee, appears that there is an authoritative view that section 84 commences to operate not from the date when an undertaking physically starts to manufacture but operates from the date on which commercial manufacture is to start. This observation was made in the light of section 84(7) which states that the provisions of the section in relation to an industrial undertaking is to apply is from the assessment year relevant to the previous year in which the undertaking begins to manufacturer produce articles. It so happened that on experimental basis, the assessed, in the present case, started manufacture in December, 1963, but on commercial basis, this started only in January, 1964, which would be in the assessment year 1965-66. The controversy that seems to have arisen was whether the experimental portion of manufacture was to be considered as a period during which 'manufacture' had taken place for the purpose of applying section 84(7).
9. For this purpose, the assessed had written a letter which is annexure D to the statement of case, the letter is dated December 18, 1964, and was apparently file along with the return by the chartered accountant of the company. It stated that the coffee powder unit was brought into use in the latter half of December, 1963; but during that month the production was merely experimental. It was submitted that development rebate was to be allowable but relief under section 84 was not to be available for the year 1964-65 as proper production started only in January, 1964. Thus, the chartered accountant had made it obvious to the Income-tax Officer that as far as the assessed was concerned, the manufacture was only experimental for the last portion of December, 1963. On this footing, the Income-tax Officer did not treat the assessed as being entitled to relief under section 84 for that assessment year. The consequences of no relief being granted in 1964-65 would be that the five year period allowable under section 84(7)(ii) would extend for one year more. However, if the relief was granted in 1964-65, the five year period would end one year earlier. It was only about five years later that the Income-tax Officer decided to rectify the order by saying that relief was to be granted to the assessed even in 1964-65 and the experimental period was to be treated as a period of 'manufacture'. This is the reason for the rectification.
10. As already observed, an involved process of reasoning is required to find out which is the proper period during which the manufacturing process actually started. Assuming that the Income-tax Officer made a mistake initially for one thing, it is not very apparent on the record, because a reading of the order, as initially passed in May, 1968, does not indicate any apparent mistake. For the second reason, the mistake, if any, can only be determined on an elaborate examination of the facts and circumstances relating to the manufacturing of this coffee unit.
11. The first question referred to us relates to whether the Tribunal was right in holding that the production during the previous year relating to the assessment year 1964-65 was experimental. The facts show that the manufacture took place in the last portion of December, 1963, and no sales were effected. The production was of the order of Rs. 8 lakhs worth of coffee. It may be seen that Rs. 8 lakhs is a large sum but the production is not large considering the capacity of the company which is said to be hundred time this. Furthermore, it cannot be doubted that the object of the company was to market this product throughout India on a large scale and probably the experimental period might be extended to see the actual effect of what was being manufactured. The assessed has brought this fact out in its initial letter, enclosed with the return. We are in no position to say what is the correct experimental period for manufacturing coffee on a mass scale and it does appear to be a question of fact. The fact that the assessed made this statement very early and supported it by his contentions which have been accepted by the Tribunal and, in our view, it is sufficient to show that the manufacture was on an experimental scale, though the experimental scale is massive by ordinary standards. The question, although a question of fact is answered in the affirmative, in favor of the assessed as if it is a question of law. The answer to question No. 1 really depended on question No. 2 because the jurisdiction to reopen the matter depended on whether there is authority under section 154 to rectify the original assessment. The subject-matter of the second question is whether the Tribunal was right in its approach to the application of section 154 of the Income-tax Act, 1961. The answer to this question has to be in the affirmative. The Tribunal has merely followed the view of the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers : 82ITR50(SC) . This is a view which is supported by a large number of authorities following the same and even is apparent from a reading of section 154. It is only a mistake apparent from the record which can be rectified and as the Supreme Court was at pains to point out, that the error must be patent and obvious and not one to be determined by an involved set of reasons. In other words, one must be able to look at the order or the record and say; here is a mistake. If one cannot know this and one has to probe through the facts to determine where the mistake is, it will not be a mistake apparent from the record but one arrived at by a process of reasoning. Such an error is not be rectified.
12. As far as this question is concerned, it is necessary also to say that if two opinions about a question are open, then also it is not a mistake. It is only if the matter is so obvious that there can be only one answer and not much reasoning is required that one say : it is an apparent mistake.
13. We accordingly answer the second question referred to to us in the affirmative, in favor of the assessed and against the Department, leaving the parties to bear their own costs.