Nitin Enterprises, Jammu V. The Income-tax Officer, Jammu & Kashmir

ITA 151/ASR/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3753 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 16-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AJAY K SHARMA
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Capital receipt
• Section: 143(3); 142(1); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TR IBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND SH.N.K.CHOUDHRY, JUDICIAL MEMBER I.T.A. NO.151(ASR)/2015 ASSESSMENT YEAR: 2010-11 M/S. NITIN ENTERPRISES INDUSTRIAL ESTATE, SICOP KATHUA, (J&K). PAN:AAEFN9856D VS. INCOME TAX OFFICER WARD, KATHUA (J&K). (APPELLANT) (RESPONDENT) APPELLANT BY: SH. AJAY K. SHARMA (CA) RESPONDENT BY: SH. RAHUL DHAWAN (DR) DATE OF HEARING: 22.09.2016 DATE OF PRONOU NCEMENT: 21.12.2016 ORDER PER N. K. CHOUDHRY (JM): THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), JAMMU, DATED 10.012.2014 FOR ASST. YEAR:201 0-11. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. GROUND I 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT( A) ERRED IN ADJUDICATING A DI FFERENT GROUND, FROM THE GROUND TAKEN BY THE APPELLANT AND THEREBY INDIRECTLY CONFIRMING THE DISALLOWANCE OF EXCISE DUTY REFUND F OR THE PURPOSE OF DEDUCTION U/S 80IB OF THE IT ACT. 2. THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE APPELLANT COMPANY DID NOT CARRY ON THE MANUFACTURING ACTIVITI ES AS DEFINED U/S 2(29BA) OF THE I T ACT, 1961, TOTALLY DISREGARD ING THE FACTS THAT THE APPELLANT WAS CLAIMING THE DEDUCTION U/S 80IB A ND WAS BEING ALLOWED BY THE DEPARTMENT FOR THE LAST SEVEN PREVIO US YEARS. 3. THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE 1 ST GROUND OF APPEAL AGAINST THE DISALLOWANCE OF EXCISE DUTY REFU ND BY THE ASSESSING OFFICER IN VIEW OF THE FACTS THAT SIMILAR DISALLOWANCES ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 2 WERE DECIDED BY THE APPELLATE AUTHORITIES IN RESPEC T OF EARLIER ASSTT. YEARS IN FAVOUR OF THE APPELLANT. FURTHER CI T(A) HAS COMPLETELY IGNORED THE DECISION OF JURISDICTIONAL H IGH COURT OF J & K IN THE CASE OF M/S SHREE BALAJI ALLOYS & OTHERS V S CIT (2011) 239 CTR 70 (J&K). 4. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF EXCIS E DUTY BY THE ASSESSING OFFICER BE DELETED AND DEDUCTION U/S 80IB AS CLAIMED BE ALLOWED AND THAT THE DECISION OF THE CIT (A) BE CANCELLED WITH DIRECTION TO AO TO ALLOW THE DEDUCTION AS CLAI MED BY THE APPELLANT. GROUND II 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DISALLOWING DEPRECIATI ON ON GOODWILL THEREBY ENHANCING THE ASSESSMENT BY COMPLETELY IGNORING THE DECISION OF THE SUPREME COURT IN THE C ASE OF CIT VS. SMIF SECURITIES LTD (CIVIL APPEAL NO.5961 OF 20 12). 2. THE APPELLANT PRAYS THAT THE DEPRECIATION ON GOODWI LL AS CLAIMED BY THE APPELLANT BE RESTORED AND THE DEC ISION OF THE CIT(A) CANCELLED. 3. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUNDS O F APPEAL. (I) THE ADDITION MADE BY LD. CIT(A) IS NOT MAINTAI NABLE AS IT IS DONE WITHOUT SHOW CAUSE NOTICE BECAUSE SHOW CAUSE N OTICE ISSUED BY THE INSPECTOR OF CIT(A) IS NOT VALID SHOW CAUSE. (II) EXCISE DUTY REFUND IS A CAPITAL RECEIPT AND WI LL NOT FROM PART OF INCOME. AS DECIDED BY HONORABLE J&K HIGH COURT AND BY THE HONORABLE BENCH TOO. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS PARTNERSHIP FIRM IN THE BUSINESS OF MANUFACTURING OF LIQUID SEALANT, DRAIN CLEANER, RUSTONLENE RUST DISINTEGRATOR, PVC SOLVENT CEMENT, ADHESIVE, EPOXY PUTTY ETC. THE APPELLANT IS HAVING ITS INDUSTRIAL U NIT IN THE NOTIFIED INDUSTRIAL BACKWARD STATE OF J&K AT INDUSTRIAL AREA , KATHUA. THE APPELLANT FILED INCOME TAX RETURN DECLARING INCOME NIL AFTER CLAIMING THE DEDUCTION OF RS.77,55,213/- U/S.80IB OF THE ACT. TH E CASE OF THE ASSESSEE FIRM WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 3 PROCEEDINGS, DEDUCTION CLAIMED ON EXCISE DUTY REFUN D OF RS.46,51,397/- U/S.80IB OF THE I.T. ACT HAS BEEN DI SALLOWED ON THE PLEA THAT SAME IS NOT DERIVED FROM THE INDUSTRIAL UNDERT AKING. THE ASSESSING OFFICER ALSO DISALLOWED THE INTEREST ON FDR OF RS.7 53/- AS THE SAME IS NOT DERIVED FROM THE MANUFACTURING ACTIVITY. 5. FEELING AGGRIEVED BY THE ASSESSMENT ORDER, THE A SSESSEE PREFERRED THE APPEAL BEFORE LD. CIT(A), WHO ALSO CONFIRMED TH E ASSESSMENT ORDER ON THE SAME FOOTING AS FRAMED BY THE ASSESSING OFFICER . HOWEVER, BEFORE THE LD. CIT(A), ONE ANOTHER GROUND WAS ALSO RAISED QUA DEPRECIATION CHARGED ON GOODWILL DURING UNDER CONSIDERATION AND IT WAS S UBMITTED BEFORE THE LD. CIT(A) THAT ASSESSEE FIRM HAS ACQUIRED SAID BUS INESS FROM THE OTHER PARTNERSHIP CONCERN. AS IT IS PAID MORE THAT THE FA IR MARKET VALUE OF NET ASSETS AND IT IS CLASSIFIED AS AN INTANGIBLE ASSETS IN THE BALANCE SHEET. BROADLY, THE GOODWILL CAN EXISTS IN NORMAL COURSE O F BUSINESS IN A MANNER, IT CAN BE ACQUIRED FROM SELLER OF THE BUSIN ESS IN CASH OR ANY OTHER CONSIDERATION TO RUN THAT BUSINESS THAT SAME NAME AND REPUTATION AS EARLIER, THEREFORE, THE DEPRECIATION U/S 32(1) O F THE I.T. ACT CAN BE CLAIMED. HOWEVER, THE CIT(A) DECLINED TO ENTERTAIN THE CLAI M IN RESPECT OF DEPRECIATION ON GOODWILL. RELEVANT PART OF DETERMIN ATION AS ENUMERATED IN THE ORDER IS REPRODUCED HEREIN BELOW. 7. I HAVE CONSIDERED THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT MADE BEFORE ME. THE AO HAS DISALLOWED A SUM OF RS.46,51,397/- ON AC COUNT OF RECEIPT OF CENTRAL EXCISE DUTY REFUND U/S 80IB(4) A ND ADDED TO THE ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 4 INCOME OF THE APPELLANT. THE AO HAS STATED THAT THE EXCISE DUTY REFUND IS A REVENUE RECEIPT AND NOT DERIVED FROM IN DUSTRIAL UNDERTAKING. THE APPELLANT BEFORE ME HAS STATED THA T THE EXCISE DUTY REFUND DISALLOWANCE IS NOT IN ORDER IN VIEW OF HONBLE HIGH COURT OF J&K IN THE CASE OF M/S SHREE BALAJI ALLOYS AND OTHERS VS. CIT 2011, 238 CTR 70 (J&K). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APP ELLANT WAS ASKED TO GIVE THE DETAILS OF MANUFACTURING PROCESS WHICH RESULTED IN THE CLAIM OF DEDUCTION U/S 80IB. THE APPELLANT HAS DECLARED A NIL INCOME AFTER CLAIMING DEDUCTION U/S 80IB OF THE I.T . ACT, 1961 FOR RS.77,55,213/-. IT IS FOUND FROM THE ASSESSMENT ORD ER THAT THE AO HAS KEPT HIS FOCUS ONLY ON THE ISSUE OF TAXABILITY OF EXCISE DUTY REFUND AND HAS NOT GONE INTO THE MANUFACTURING PROC ESS. DURING THE COURSE OF APPELLANT PROCEEDINGS THE APPELLANT WAS A SKED TO JUSTIFY THE MANUFACTURING PROCESS IN ORDER TO CLAIM THE DED UCTION U/S 80IB BECAUSE MANUFACTURE IS THE PRE-CONDITION FOR DEDU CTION. THE APPELLANT GAVE THE DETAILS AS UNDER: THE MAIN MATERIALS FOR MANUFACTURE OF THESE PRODUC TION ARE VARIOUS ORGANIC AND INORGANIC CHEMICALS WHICH ARE M IXED IN A PREDETERMINED RATIO TO GET A FORMULATION. THE CHE MICALS ARE MIXED/BLENDED IN VESSELS BY APPLYING POWER. THE LIQ UID CHEMICALS ARE PACKED IN VARIOUS CONTANERS UNDER A T RADE NAME. THE PASTE AND POWDER CHEMICALS ARE OBTAINED B Y PHYSICALLY MIXING VARIOUS CHEMICALS AND ARE MIXED I N VESSELS. THE MIXTURE IS MADE WET AND IN GRANULE DRU M THE GRANULES OF VARIOUS CHEMICALS ARE OBTAINED. THE POW ER SECTION MIXES VARIOUS CHEMICALS AND ARE POWDERED TO FORUM USEABLE POWDER. THE ABOVE DETAIL IS VAGUE AS IT DOES NOT OUTLINE TH E CONSTITUENT RAW MATERIAL AND THE FINISHED PRODUCT. VIDE ORDER SHEET ENTRY DATED 16.05.2014 THE APPELLANT WAS ASKED TO FURNISH THE C ONSTITUENT COMPONENT OF RAW MATERIAL AND FINISHED PRODUCT. FUR THER, VIDE ENTRY DATED 27.05.2014 THE APPELLANT WAS ASKED TO FURNISH AS UNDER: THE DETAILS OF ADDITIONS TO P&M AND ALSO TO EXPLA IN AS TO HOW THE GOODWILL IN YOUR CASE QUALIFY FOR DEPRECIAT ION AND WHY IT SHOULD NOT BE DISALLOWED. THIS WILL AMOUNT T O ENHANCEMENT OF ASSESSMENT ON A/C OF DISALLOWANCE OF GOODWILL. CASE IS ADJOURNED TO 11/06/2014 AT 11.00 AM. ON SAID DATE THE DETAILS OF MANUFACTURING PROCESS AND CHANGE IN CHEMICAL COMPOSITION IS TO BE EXPLAINED. THEREAFTER, THE APPELLANT TOOK ADJOURNMENT ON 11.06 .2014 AND 30.06.2014. ON 15.07.2014 THE APPELLANT WAS ISSUED SHOW CAUSE NOTICE FIXING THE CASE OF 31.07.2014 AND ASKING TO EXPLAIN AS TO WHY THE DEDUCTION U/S 80IB SHOULD NOT BE WITHDRAWN IN VIEW OF THE FACT THAT THE MANUFACTURE WAS NOT ESTABLISHED. ON 30.07.2014 A ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 5 LETTER WAS RECEIVED STATING THAT SINCE THE MATTER I S VERY COMPLEX THE APPELLANT WANTS TO APPOINT A SENIOR COUNSEL AND REQ UESTED THREE WEEKS ADJOURNMENT. A 15 DAYS ADJOURNMENT WAS GRANTE D, HOWEVER WITHOUT RESPONSE FROM THE APPELLANT. AGAIN THE CASE WAS FIXED FOR 29.10.2014 BY A NOTICE DATED 13.10.2014. ON 29.10.2 014 THE ACCOUNTANT OF THE FIRM ATTENDED AND REQUESTED FOR A DJOURNMENT. THE APPELLANT WAS GIVEN A LAST ADJOURNMENT AND FINAL OP PORTUNITY OF BEING HEARD ON 3.11.2014 BUT AGAIN THE APPELLANT SO UGHT ADJOURNMENT ON THE GROUND THAT A NEW COUNSEL HAS BE EN APPOINTED. AGAIN AN OPPORTUNITY OF BEING HEARD WAS GIVEN ON 25 .11.2014 BUT NOBODY ATTENDED ON THE SAID DATE. WHILE GOING THROUGH THE MANUFACTURING PROCESS ENUM ERATED ON PREPAGE. IT IS FOUND THAT THE APPELLANT WAS NOT DOING AN ACTIVITY WHICH CAN BE TERMED AS MANUFACTURING. PRIMA FACIE, IT WAS MERELY MIXING OF FEW CHEMICALS AND PACKAGING. VIDE THIS OF FICE LETTER DATED 15.07.2014 THE APPELLANT WAS GIVEN A SHOW CAUSE NOT ICE FOR ENHANCEMENT, AS ITS CLAIM OF DEDUCTION U/S 80IB(4) WAS APPARENTLY NOT JUSTIFIED. THE MANUFACTURING PROCESS GIVEN BY T HE APPELLANT WAS QUITE VAGUE AND DESPITE ASKING SPECIFICALLY ABOUT T HE CHEMICAL COMPOSITION OF FINISHED PRODUCTS, THE APPELLANT FAI LED TO FURNISH THE SAME. IN SUBMISSIONS DATED 16.05.2014 & 27.05.2014 THE APPELLANT HAS OUTLINED THE FINISHED PRODUCT AS LIQU ID SEALANT, RAPID DRAIN CLEANER, RUST DISINTEGRATOR & PVC SOLVE NT CEMENT, WHICH ARE COMMERCIAL NAMES ONLY AND WITHOUT GIVING THEIR CHEMICAL COMPOSITION. HOW THE VARIOUS INPUTS ARE CONVERTED I NTO ABOVE PRODUCTS ARE NOT ILLUSTRATED ? THE VARIOUS STEPS OF MANUFACTURING AND UNDERLYING SPECIFIC CHEMICAL REACTIONS WERE NOT PROVIDED. THE APPELLANT REITERATED THAT IT WILL HELP ARRANGE A TE CHNICAL EXPERT TO EXPLAIN THE UNDERLYING PROCESS OF MANUFACTURING, WH ICH WAS NEVER DONE. FURTHER, THE APPELLANT HAS FAILED TO SATISFY THAT THERE WAS AN INTERVENTION OF MACHINERY AND POWER IN THE MANUFACT URING PROCESS AND ALL OTHER CONDITIONS REQUIRED TO FULFILL THE CR ITERIA OF DEDUCTION U/S 80IB I.E. MINIMUM NUMBER OF LABOUR REQUIREMENT WITH THE AID OF POWER ETC, HAVE BEEN DULY COMPLIED WITH. VIDE LETTER DATED 11.06.2014, THE COUNSEL OF THE AP PELLANT SH. SUSHLL KUMAR STATED THAT THE CHEMICAL COMPOSITION C AN BE PROVIDED BY OUR TECHNICAL EXPERT FOR WHICH SOME MORE TIME WA S REQUIRED. AFTER GRANTING TIME OF20 DAYS, AGAIN ON 30.06.2014 THE APPELLANT ASKED FOR ANOTHER 20 DAYS ON THE SAME GROUND WHICH WAS ACCORDED. DESPITE GIVING FULL OPPORTUNITY OF BEING HEARD, THE APPELLANT COULD NOT SATISFY ME ABOUT THE MANUFACTUR ING PROCESS. THEREFORE, I HAVE COME TO A CONCLUSION THAT THE APP ELLANT IS CLAIMING A WRONG DEDUCTION U/S 80IB AS IT IS NOT PROVED THAT RAW MATERIAL CONSTITUENTS HAVE BEEN CONVERTED INTO A NEW PRODUCT WITH DIFFERENT IDENTITY AND CONSTITUTION. THE WORD MANUFACTURE HAS BEEN DEFINED IN SECTION 2(29BA) AND AS PER THIS DEFINITION EITHE R AN ARTICLE OR THING OF DIFFERENT NAME, CHARACTER OR USE IS CREATE D OR A NEW AND DISTINCT OBJECTED WITH A DIFFERENT CHEMICAL COMPOSI TION OR INTEGRAL STRUCTURE COMES INTO EXISTENCE. NONE OF THE ABOVE C ONDITION IS SATISFACTORY EXPLAINED BY THE APPELLANT. ONCE MANUF ACTURING IS NOT ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 6 PROVED BEYOND DOUBT AS A NATURAL CONSEQUENCE THE CL AIM OF EXCISE DUTY REFUND U/S 80IB(4) AS DEDUCTION COULD NOT BE A DMITTED. THE CLAIM OF DEDUCTION OF RS.77,55,213/- IS THUS WITHDR AWN AND ASSESSED AT AN INCOME OF RS.77,55,213/-. FURTHER THE APPELLANT HAS CLAIMED A DEDUCTION OF RS . 8 LACS AS DEPRECIATION ON GOODWILL CREATED FOR RS.80 LACS. TH E APPELLANT HAS NOT SATISFIED AS TO WHAT THE GOOD WILL WAS IN THE S CHEDULE OF FIXED ASSETS AND HOW IT WAS TAKEN AT TO RS. 8OLACS. THE D EDUCTION OF DEPRECIATION OF RS.8 LACS ON GOOD WILL THUS NOT ADM ITTED. WITH THIS REMARKS, THE ASSESSMENT IS ENHANCED FROM NIL TO (RS.77,55,213+RS.8,00,000) RS.85,55,213/-. IN RESPECT OF OTHER GROUNDS EITHER NO SUBMISSION HA S BEEN MADE OR CONSEQUENTIAL IN NATURE HENCE DISMISSED. THE APPEAL IS NOT ALLOWED AND ASSESSMENT I S ENHANCED. 6. THE APPELLANT AGGRIEVED BY THE ORDER PASSED BY T HE LD. CIT(A) PREFERRED THE INSTANT APPEAL ON THE GROUNDS STATED IN PARA NO.2 OF THE ORDER. HOWEVER THERE IS DELAY OF FIVE DAYS IN FILIN G OF THE INSTANT APPEAL, THEREFORE, WE FEEL IT APPROPRIATE TO DECIDE THE APP LICATION OF DELAY BEFORE PROCEEDING WITH THE MERIT OF THE CASE. IN THE APPLI CATION, IT IS STATED BY THE APPLICANT THAT ASSESSEE FIRM IS OPERATING A MAN UFACTURING CONCERN AT KATHUA, HOWEVER, ALL THE PARTNERS OF THE ASSESSEE F IRM BASED AT MUMBAI. THE ORDER UNDER CONSIDERATION WAS PASSED BY THE LD. CIT(A), JAMMU ON 10.12.2014, WHICH WAS RECEIVED IN THE FACTORY PREMI SES AT KATHUA, JAMMU ON 10 TH JANUARY, 2015 AND THEREAFTER, THE SAID ORDER WAS S ENT TO THE PARTNERS IN MUMABI WHERE THE DOCUMENTS PERTAINI NG TO THE APPEAL WAS DRAFTED AND THE SAME WAS DISPATCHED TO KATHUA U NIT FOR FILING BEFORE ITAT ON 3 RD MARCH, 2015 BY FIRST FLIGHT COURIER TO KATHUA UNIT FOR FILING APPEAL BEFORE ITAT AS THE LAST DATE FOR FILING APPE AL WAS 10 TH MARCH, 2015. HOWEVER, THE DOCUMENTS WERE RECEIVED IN KATHU A OFFICE ON 13 TH MARCH, 2015 DUE TO COURIER DELAY, THEREFORE, THE R EASONS OF DELAY IN ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 7 FILING OF APPEAL WERE BEYOND THE CONTROL OF ASSESSE E FIRM AND THE ASSESSEE/APPELLANT PRAYED THAT DELAY OF SIX DAYS IN FILING IN APPEAL MAY KINDLY BE CONDONED. THE ASSESSEE/ APPELLANT ALSO FILED A COPY OF THE C OURIER CONSIGNMENT TRACKING RECEIPT AS WELL AS PHOTO COPY OF THE LETTER. WE HAVE CONSIDERED THE DOCUMENTS ON RECORDS AS WEL L AS SUBMISSIONS OF THE APPELLANT AND EVEN OTHERWISE THE RE IS NO OBJECTION FROM THE LD. DR, THEREFORE, CONSIDERING THE DELAY O F 5 DAYS DUE TO UNFORESEEN CIRCUMSTANCES WHICH WERE BEYOND THE CONT ROL OF THE ASSESSEE FIRM, THEREFORE, THE DELAY IS CONDONED IN THE INTER EST OF JUSTICE. 7. NOW COMING TO THE MERITS OF THE CASE, IT WAS ARG UED BY THE LD. AR THAT THE AO WAS APPRISED WITH THE LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT, JAMMU & KASHMIR IN THE CASE OF M/S. SH. BALAJI ALLOYS VS. CIT AND ANOTHER (2011)333 ITR 335 (J&K), HOWEVER, T HE AO COULD NOT GIVE ANY WEIGHTAGE TO THE JUDICIAL PRONOUNCEMENT WH EREAS THE HONBLE ITAT, AMRITSAR BENCH IN VARIOUS CASES FOLLOWED THE SAID DECISION. IT WAS FURTHER SUBMITTED BY THE LD. AR THAT DISALLOWANCES OF DEDUCTION CLAIMED U/S 80IB OF THE IT ACT ON THE GROUND THAT THESE ARE THE PROFITS ATTRIBUTABLE TO EXCISE DUTY REFUND AND NOT DERIVED FROM THE MANUFACTURING ACTIVITY, IN FACT, THIS ISSUE IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF JURISDICTIONAL HIGH (SUPRA) AND THEREFORE, IN VIEW OF THE AFORESAID DECISION, THE DISALLOWANCE S DEDUCTION CLAIMED U/S 80IB IS LIABLE TO BE DELETED AS WELL AS THE DED UCTION CLAIMED ON ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 8 INTEREST EARNED ON FDR RS.750 IS ALSO LIABLE TO BE DELETED. THE LD. AR ALSO RAISED ADDITIONAL GROUNDS OF APPEAL AND SUBMIT TED THAT THE ADDITIONAL GROUNDS GOES TO THE ROOT OF THE CASE AND HAVING DIRECT RELATION WITH THE ISSUES UNDER CONTROVERSY. FOR THE SAKE OF CONVENIENCE AND BREVITY THE ADDITIONAL GROUNDS ARE REPRODUCED HEREI N BELOW. (I) THE ADDITION MADE BY LD. CIT(A) IS NOT MAINTAI NABLE AS IT IS DONE WITHOUT SHOW CAUSE NOTICE BECAUSE SHOW CAUSE NOTICE ISSUED BY THE INSPECTOR OF CIT(A) IS NOT VALID SHOW CAUSE. (II) EXCISE DUTY REFUND IS A CAPITAL RECEIPT AND WI LL NOT FORM PART OF INCOME. AS DECIDED BY HONORABLE J&K HIGH COURT AND BY THE H ONBLE BENCH TOO. THE LD. AR ALSO DRAWN OUR ATTENTION TO THE CHART SH OWING YEAR WISE STATUS OF ORDER PASSED BY THE VARIOUS INCOME TAX AU THORITIES AND HONBLE BENCH OF ITAT THAT IS AVAILABLE AT PB-3 & 4 AND TH E SAME ARE REPRODUCED HEREIN BELOW FOR THE SAKE OF CONVENIENCE AND BREVIT Y AND IT WAS SUBMITTED THAT AT THE FINANCIAL YEAR 2006-07. THE A SSESSING OFFICER HAS ALLOWED THE CLAIM TO DETERMINATION TO THE EXTENT TH AT THE ASSESSEE FIRM IS ENGAGED IN MANUFACTURING OF LIQUID SEALANT, DRAIN C LEANER, RUSTONLENE RUST DISINTEGRATOR. THIS IS THE FIRST YEAR OF THE P RODUCTION OF INDUSTRIAL UNDERTAKING THE ASSESSEE FULFILLS THE CONDITIONS FO R THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT. THE ASSESSMENT ORDER OF THE AS SESSMENT YEAR 2006- 07 IS REPRODUCED HEREIN BELOW FOR THE SAKE OF CONVE NIENCE AND BREVITY. INCOME TAX DEPARTMENT 1. NAME OF THE ASSESSEE M/S NITIN ENTERPRISES 9. PREVIOUS YEAR ENDING 31.03.2006 2. ADDRESS 166-170SICOP INDUSTRIAL AREA, KATHUA 10. NATURE OF BUSINESS MFG. OF LIQUID SEALANT, RUSTOLENE, 3. PAN AAEFN9856D 11. DATES) OF HEARING AS PER RECORD. ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 9 4. DISTRICT/W ARD/CIRCLE KATHUA 12. DATE OF ORDER 24.03.2008 5. STATUS FIRM 13. SECTION AND SUB-SECTION UNDER WHICH THE ASSESSMENT IS MADE 143(3) OF THE INCOME TAX ACT, 1961. 6. ASSESSME NT YEAR 2006-07 7. WHETHER RESIDENT/ RESIDENT BUT NOT ORDINARILY RESIDENT/ NON- RESIDENT. R & O.R. 8. METHOD OF ACCOUNTIN G MERCANTILE ASSESSEMNT ORDER U/S143(3) OF THE INCOME TAX ACT,19 61 . RETURN DECLARING NIL INCOME WAS FILED ON 31.10.200 6 WHICH WAS PROCESSED U/S 143(1) ON THE SAME INCOME. LATER ON T HE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER COMPULSORY SCRUTINY OF THE ACTION PLAN. NOTICE U/S 143(2) AND 142(1) ALONG WIT H DETAILED QUESTIONNAIRE WERE ISSUED ON 05.06.2007 FIXING THE CASE FOR 19.06.2007. THE SAID NOTICES WERE DULY SERVED ON THE ASSESSEE O N 08.06.2007. SHRI PARDEEP KUMAR AGGARWAL, PARTNER AND SHRI SUSHIL KUM AR, ADVOCATE APPEARED FROM TIME TO TIME, FILED REPLY TO THE QUES TIONNAIRE, PRODUCED BOOKS OF ACCOUNT. CASE DISCUSSED WITH THEM. THE ASS ESSEE FIRM IS ENGAGED IN MANUFACTURING OF LIQUID SEALANT AND RUST OLINE. THIS IS THE FIRST YEAR OF THE PRODUCTION OF THE INDUSTRIAL UNDE RTAKING. THE ASSESSEE FULFILLS THE CONDITIONS FOR THE CLAIM OF DEDUCTION U/S 80IB. HOWEVER, DURING THE RELEVANT PERIOD ASSESSEE DID NOT HAVE SU RPLUS ON WHICH DEDUCTION U/S 80IB COULD BE CLAIMED. ALL THE PURCHA SES, SALES AND EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT ARE DULY VOUCHED. THE BOOKS OF ACCOUNTS ALONG WITH MANUFACTURING ACCOUNT AND TRADI NG HAVE BEEN EXAMINED. THE INCOME OF THE ASSESSEE IS ASSESSED AS UNDER:- NET INCOME AS DECLARED BY THE ASSESSEE RS.NIL ASSESSED, ISSUE REQUISITE DOCUMENTS TO THE ASSESSE E. SD/- (KANV BALI) INCOME TA X OFFICER, KATHUA DATED:24.03.2008. ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 10 9. ON THE CONTRARY, THE LD. DR HEAVILY PLACED HIS R ELIANCE ON THE ORDERS PASSED BY THE AUTHORITIES BELOW AND SUBMITTE D THAT THE ORDERS ARE PERFECTLY ALL RIGHT. THERE IS NO PERVERSITY IN THE ORDERS, THEREFORE, DOES NOT REQUIRE ANY INTERFERENCE. 10. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCE S OF THE CASE AND ALSO CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIE S AS FROM THE CHART SHOWING YEAR WISE STATUS OF ORDER PASSED BY VARIOUS INCOME TAX AUTHORITIES AND HONBLE ITAT. IT REFLECTS THAT DURI NG THE YEAR 2006-07, 2007-08 AND 2009-10, EXCISE DUTY REFUND WAS ALLOWED TO THE ASSESSEE FIRM AND THEREAFTER IN SUBSEQUENT YEARS 2011-12, 20 12-13 AND 2013-14. THE EXCISE DUTY REFUND WAS ALLOWED BY THE REVENUE A UTHORITIES AND THE MANUFACTURING PROCESS CARRIED ON BY THE ASSESSEE WA S ACCEPTED IN FIRST FOUR YEARS AND EVEN IN SUBSEQUENT THREE YEARS BY TH E A.O AND THE CIT(A) EXCEPT THE ASSESSMENT YEAR 2010-11 WHICH IS UNDER C ONTROVERSY. AS FROM THE ASSESSMENT ORDER 2006-07, IT IS CLEAR THAT IT WAS THE FIRST YEAR OF THE OPERATION OF THE UNIT OF THE ASSE SSEE FIRM AND WHILE FRAMING THE ASSESSMENT ORDER THE LD. AO HAS CLEARLY MENTIONED THAT THIS WAS A FIRST YEAR OF DEDUCTION CLAIMED AND ASSESSEE FULFILLS THE CONDITIONS FOR CLAIMING OF DEDUCTION U/S 80IB. EVEN OTHERWISE, MANUFACTURING PROCESS HAS BEEN EXPLAINED TO THE LD. CIT(A), HOWEV ER, HE WAS NOT SATISFIED WITH THE SUBMISSIONS MADE BY THE ASSESSEE FIRM IN THE ABSENCE OF TECHNICAL EXPERT TO EXPLAIN THE PROCESS OF MANUF ACTURING BY THE ASSESSEE FIRM. ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 11 IN OUR CONSIDERED VIEW, THE OBSERVATION OF THE LD. CIT(A) IS NOT INCONSONANCE WITH THE PROVISIONS AND SUBSEQUENT ASS ESSMENT ORDERS BECAUSE IN THE ASSESSMENT YEAR: 2006-07, IT IS CLEA R MENTIONED BY THE ASSESSING OFFICER THAT THE ASSESSEE FIRM ENGAGED IN THE MANUFACTURING LIQUID SEALANT, DRAIN CLEANER, RUSTONLENE . THIS IS THE FIRST YEAR OF THE PRODUCTION OF THE INDUSTRIAL UNDERTAKING AND THE AS SESSEE FULFILLS THE CONDITIONS FOR THE CLAIM OF THE DEDUCTION U/S 80IB. AS WELL AS FROM THE YEAR 2006-10 AND 2011 TO 2014, IT IS CLEAR THAT THE ASSESSEE WAS ALLOWED DEDUCTION AS CLAIMED UNDER THE HEAD AS STATED ABOVE . AS THE ASSESSEE FULFILLED THE CONDITION FOR CLAIMING OF DEDUCTION U /S 80IB. EVEN OTHERWISE, IT IS A FACT THAT LD. CIT(A) IS NO T A TECHNICAL EXPERT AND HE ONLY DETERMINED THAT THE ASSESSEE FIRM IS NO T IN MANUFACTURING ACTIVITY JUST ON THE SURMISES AND LACK OF TECHNICAL EXPERTISE. WHILE RELIED UPON THE JUDGMENTS AS WELL AS PREVIOU S SUBSEQUENT ASSESSMENT ORDERS AND SPECIFICALLY THE ASSESSMENT O RDER OF 2006-07, WE DO NO HAVE ANY HESITATION TO CONCLUDE THAT THE ASSE SSEE FIRM IS ENTITLED TO GET DEDUCTION AS CLAIMED U/S 80IB OF THE ACT. WI TH REGARD TO THE CLAIM OF THE ASSESSEE FIRM TO THE EXTENT THAT DEDUCTION O F RS.8 LAC ON DEPRECIATION OF GOODWILL CREDITED FOR RS.80 LACS AS IT WAS OBSERVED BY THE LD. CIT(A) THAT THE APPELLANT HAS NOT SATISFIED AS TO WHAT THE GOODWILL WAS IN THE SCHEDULED OF FIXED ASSET AND HOW IT WAS TAKE N AT RS.80,00,000/-. AS IT WAS ARGUED BY THE LD. AR OF THE ASSESSEE THAT THE LD. CIT(A) ERRED IN DISALLOWING DEPRECIATION ON GOODWILL THEREBY ENHANC EMENT THE ASSESSMENT BY COMPLETELY IGNORING THE DECISION OF S UPREME COURT OF ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 12 INDIA, IN THE CASE OF CIT VS. SMIF SECURITIES LTD. (CIVIL APPEAL NO.5961 OF 2012 (SC) FROM THE JUDGMENT REFERRED ABOVE, IT IS CLEAR THAT GOODWILL IS AN ASSET U/S 3(B) TO SECTION 32(1) OF THE ACT. HOWEVER , FROM THE ORDER OF LD. CIT(A), IT IS CLEAR THAT THE APPELLANT HAS NOT SATI SFIED AS TO WHAT THE GOODWILL WAS IN THE SCHEDULE OF FIXED ASSET AND HOW IT WAS TAKEN AT RS.80 LAC, THEREFORE, WE ARE OF THE CONSIDERED OPINION AS IT REFLECTS FROM THE ORDER PASSED BY THE LD. CIT(A) THAT THE ASSESSEE FI RM HAS NOT REPRESENTED AND JOINED THE PROCEEDINGS PROPERLY, EFFECTUALLY AN D IN TIME AND ON MAXIMUM TIME ABSENTED FROM THE PROCEEDINGS OF THE L D. CIT, THEREFORE, IN THE INTEREST OF NATURAL JUSTICE, WE FEEL IT APPROPR IATE TO REMAND BACK THE CASE ON THE POINT OF DETERMINATION OF GOODWILL. 11. NOW COMING TO THE ADDITIONAL GROUND OF APPEAL A S RAISED BY THE ASSESSEE FIRM. THE ADDITION MADE BY THE LD. CIT(A) IS NOT MAINTAINABLE AS IT IS DONE WITHOUT SHOW CAUSE NOTICE BECAUSE THE SA ME WAS ISSUED BY THE INSPECTOR OF CIT(A) WHICH IS NOT VALID SHOW CAUSE A ND SECOND GROUND THE EXCISE DUTY REFUND IS A CAPITAL RECEIPT AND WILL NO T FORM OF PART OF THE INCOME AS DECIDED BY HONBLE J & K AND BY THE HONB LE BENCH TOO. IN OUR CONSIDERED OPINION, AS THE ADDITIONAL GROUND RAISED BY THE APPELLANT ARE DIRECTLY AND INDIRECTLY GOES TO THE ROOT OF THE CAS E AND ALSO HAVING CO- RELATION WITH THE GROUNDS OF APPEAL, HOWEVER, BECAU SE WE HAVE ALREADY SET ASIDE THE ORDER OF LD. CIT(A) TO THE EXTENT FOR DISALLOWANCE OF THE EXCISE DUTY REFUND CLAIMED U/S 80IB BEING NOT RELAT ED TO THE ITA NO.151(AS R)/2015 ASST. YEA RS: 2010-11 13 MANUFACTURING PROCESS OF THE ASSESSEE FIRM. THEREFO RE, WE ARE OF THE CONSIDERED OPINION THAT THE ADDITIONAL GROUNDS DOES NOT REQUIRE SPECIFIC ADJUDICATION IN THE CUMULATIVE EFFECT. THE APPEAL O F THE ASSESSEE IS PARTLY ALLOWED AND REST REFERRED TO THE FILE OF THE LD. CI T(A) TO DECIDE AFRESH QUA THE ISSUE OF GOODWILL AS CLAIMED BY THE ASSESSEE BY GIVING PROPER AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE RESPEC TIVE PARTIES. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED QUA REFUND OF EXCISE DUTY REFUND AND REST ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21. 12. 2016 SD/- SD/- (T. S. KAPOOR) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIA L MEMBER DATED: 21.12.2016. /PK/PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER