ACIT, New Delhi V. M/s. Gamma Pizzakraft Pvt. Ltd., New Delhi

ITA 980/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65509 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 27-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGHDR
• Assessee Lawyers: SURESH MALIKAR
• Keywords: Gift; Depreciation; Principle of natural justice; Additional depreciation; Royalty expenses; Revenue expenditure; Capital expenditure
• Section: 37(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI A.N. PAHUJA, AM & SHRI C.M. GARG, JM ITA NO.980/DEL/2012 ASSESSMENT YEAR: 2007-08 A.C.I.T.,CIRCLE-12(1), NEW DELHI V/S . GAMMA PIZZAKRAFT PVT. LTD., 303, MANSAROVER BUILDING, 90, NEHRU PLACE, NEW DELHI [PAN : AACCG3988 Q] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI SURESH MALIK,AR REVENUE BY SHRI SATPAL SINGH,DR DATE OF HEARING 13-09-2012 DATE OF PRONOUNCEMENT 21 -09-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 27.02.2012 BY THE REVENUE AGAI NST AN ORDER DATED 05.12.2011 OF THE LD. CIT(A)-VII, NEW DELHI, RAISES THE FOLLOWING GROUNDS:- 1 WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E DISALLOWANCE OF ` ` 13,85,238/- MADE BY THE AO ON ACCOUNT OF ROYALTY EXPENSES. 2 WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E DISALLOWANCE OF ` `5,99,464/- MADE BY THE AO ON ACCOUNT OF ADDITIONAL DEPRECIATION. 3 THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, F ACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF ` ` 16,24,943/- FILED ON 31.10.2007 ITA N O.980 /DEL./2012 2 BY THE ASSESSEE, WAS TAKEN UP FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) ISSUED ON 24.09.2008. SUBSEQUENTLY, RETURN WAS REVISED ON 23 .03.3009, DECLARING TOTAL LOSS OF ` `16,09,576/-. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASS ESSEE CLAIMED DEDUCTION FOR AN AMOUNT OF ` ` 13,85,238/- ON ACCOUNT OF ROYALTY. THE AO WAS OF T HE OPINION THAT THE EXPENDITURE WAS CAPITAL IN NATURE. TO A Q UERY BY THE AO, THE ASSESSEE REPLIED THAT THE EXPENDITURE BEING RECURRING DID NO T BRING ANY ENDURING BENEFIT AND, THEREFORE, WAS REVENUE IN NATURE. HOWEVER, T HE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE WHILE RELYING UPON DECI SION OF THE HONBLE APEX COURT IN SOUTHERN GEAR PVT. LTD. VS. CIT, 232 ITR 3 59(SC) AND JONAS WOODHEAD AND SONS (INDIA) LTD. VS. CIT, 224 ITR 342 (SC) AND ACCORDINGLY, CONCLUDED THAT 25% OF THE AFORESAID EXPENDITURE WAS CAPITAL IN NATURE. HOWEVER, IN THE COMPUTATION OF INCOME, THE AO DISALLOWED THE ENTIRE AMOUNT, 3. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 4. GROUNDS OF APPEAL NO.2 AND 3 RELATE TO THE DISALLOWANCE OF ` `13,85,238/- ON ACCOUNT OF CONTINUING FEE/ROYALTY EXPENSES BY TREATING IT AS A CAPITAL EXPENDITURE. IT WAS SUBMITTED ON BEHALF OF THE APPELLANT INTER ALIA THAT IDENTICA L ADDITION AS MADE ON SIMILAR GROUNDS IN ASSESSMENT YEAR 2006-07 BY TH E ASSESSING OFFICER IN APPELLANTS OWN CASE. THE APPELLANT PRE FERRED AN APPEAL BEFORE LEARNED CIT(A)-XV, NEW DELHI WHO HAS DELETED THE DISALLOWANCE MADE ON THIS GROUND VIDE ORDER DATED 0 1.09.2011 FOR ASSESSMENT YEAR 2006-07 IN APPEAL NO.63/2008-09. I HAVE PERUSED THE ORDER OF THE LEARNED CIT(A)-XV, NEW DEL HI FOR ASSESSMENT YEAR 2006-07 REFERRED TO ABOVE. AS THE FACTS AND CIRCUMSTANCES OF THE CASE ARE PARI MATERIA WITH THE CASE OF THE APPELLANT IN ASSESSMENT YEAR 2006-07, FOR THE REASO NS AS DISCUSSED IN THE AFORESAID ORDER OF CIT(A)-XV, NEW DELHI, GROUND OF APPEAL NO.2 IS ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE ORDER OF T HE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF TH E LD. CIT(A) AND CONTENDED ITA N O.980 /DEL./2012 3 THAT IN THE PRECEDING ASSESSMENT YEAR SIMILAR CLAIM HAD BEEN ALLOWED BY THE LD. CIT(A).WHILE REFERRING TO VARIOUS CLAUSES IN PARA 3 .4, 9, 14.1, 14.2 OF THE AGREEMENT PLACED AT PAGE 26 TO 46 OF THE PAPER BOOK , THE LD. AR ADDED THAT A SIMILAR CLAIM DISALLOWED IN PRECEDING ASSESSMENT Y EAR, HAD BEEN ALLOWED BY LD. CIT(A) AND THE REVENUE HAVE NOT PREFERRED ANY APPEA L AGAINST THE SAID ORDER. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. THE ISSUE BEFORE US IS AS TO WHETHER ROYALTY PAID IN TERMS OF THE AGREEMENT DATED 10.12.2005 IS REVENUE IN NATURE. BEFORE PROCE EDING FURTHER, WE MAY HAVE A LOOK AT THE RELEVANT TERMS AND CONDITIONS OF THE AGREEMENT., WHEREUNDER THE LICENSOR IS STATED TO BE HAVING A COMPREHENSIVE RE STAURANT SYSTEM FOR RETAILING A LIMITED MENU OF UNIFORM AND QUALITY FOOD PRODUCTS, EMPHASIZING PROMPT AND COURTEOUS SERVICE IN A CLEAN AND WHOLESOME ATMOSPHE RE FOR FAMILIES. THE SAID SYSTEM IS ADHERENCE BY LICENSEES TO STANDARDS AND POLICIES ,NOT LIMITED TO SERVING DESIGNATED FOOD & BEVERAGES ,USE OF ONLY PR ESCRIBED EQUIPMENT AND BUILDING LAY OUT & DESIGNS, BUT STRICT ADHERENCE TO DESIGNATED FOOD AND BEVERAGE SPECIFICATIONS AND TO PRESCRIBED STANDARDS OF QUALI TY, SERVICE & CLEANLINESS IN RESTAURANTS BESIDES COMPLIANCE OF STANDARDS & POLI CIES IN CONJUNCTION WITH TRADE MARKS, SERVICE MARKS, TRADE NAMES ETC. IN TERMS OF CLAUSE 1 OF THE AGREEMENT, LICENSOR GRANTED THE RIGHT TO USE SYSTEM, SYSTEMS PROPERTY AND MARKS TO THE ASSESSEE LICENSEE SOLELY IN CONNECTION WITH THE C ONDUCT OF BUSINESS OF THE OUTLET, INITIALLY FOR A PERIOD OF 10 YEARS. IN TERM S OF CLAUSE 1.3, LICENSEE SHALL NOT WITHOUT THE PRIOR WRITTEN APPROVAL OF THE LICENSOR CONDUCT ALL OR ANY PART OF THE BUSINESS AT ANY OTHER LOCATION OR SUBLICENSE THE RI GHT TO USE THE SYSTEM, SYSTEMS PROPERTY AND MARKS. THE LICENSEE HAS NOT BEEN GRANT ED ANY EXCLUSIVE TERRITORY, PROTECTION OR ANY OTHER RIGHTS AND LICENSOR RESERVE D THE RIGHT TO USE OR GRANT TO OTHER PARTIES THE RIGHT TO USE SYSTEM, SYSTEMS PRO PERTY AND MARKS, IN TERMS OF CLAUSE 1.4 OF THE AGREEMENT. IN TERMS OF CLAUSE 2 R EAD WITH SCHEDULE B TO THE AGREEMENT, LICENSEE IS REQUIRED TO PAY 6.3% OF THE CONTINUING FEE BESIDES INITIAL FEE. IN TERMS OF CLAUSE 3.4, LICENSOR SHALL LEND ON LY ONE COPY OF MANUALS TO LICENSEE AND THE LATTER IS NOT AUTHORISED TO REP RODUCE OR PART WITH POSSESSION OF ITA N O.980 /DEL./2012 4 THE SAID MANUAL. CLAUSE 9 STIPULATES CONFIDENTIALI TY CLAUSE WHILE IN TERMS OF CLAUSE 14 ,LICENSEE SHALL NOT CHARGE, PLEDGE OR OTH ERWISE CREATE ANY ENCUMBRANCE OR SECURITY ,INTEREST OR LIEN IN RESPEC T OF ANY INTEREST OR RIGHT UNDER THE AGREEMENT NOR CAN TRANSFER OR GIFT THE BUSINESS OR THE AGREEMENT. IN THE EVENT OF TERMINATION OF THE AGREEMENT, LICENSEE AGR EED TO DISCONTINUE USE OF MARKS AND SYSTEM PROPERTY AND DISPOSE OF ALL MATER IALS BEARING THE MARKS OR PROPRIETARY SUPPLIES. ON PERUSAL OF VARIOUS CLAUSES OF THE AGREEMENT , IT IS APPARENT THAT THE ASSESSEE WAS MERELY GIVEN A NON-E XCLUSIVE AND NON- TRANSFERABLE RIGHT OF USER OF THE SYSTEM, SYSTEMS PROPERTY AND MARKS FOR THE STIPULATED PERIOD. EXPENDITURE IN THESE FACTS CANNO T BE SAID TO BE FOR ACQUISITION OF ANY ASSET AT ALL. IN FACT, ALL THE RIGHTS IN THE SYSTEM, SYSTEMS PROPERTY AND MARKS CONTINUED TO VEST IN YUM RESTAURANTS (INDIA) PVT. LTD. AND IT WAS ONLY THE RIGHT TO USE THE SYSTEM, SYSTEMS PROPERTY AND MAR KS THAT WAS MADE AVAILABLE TO THE ASSESSEE AND THAT TOO BASED ON ITS REVENUES FOR A LIMITED PERIOD . THAT MEANS ALL THE ROYALTY PAID IN THE SHAPE OF 6.3 % OF THE REVENUES FOR THE USE OF THE SYSTEM, SYSTEMS PROPERTY AND MARKS COULD NOT B E CONSIDERED TO BE OF ENDURING NATURE AND THUS, CAPITAL EXPENDITURE. THE EXPENDITURE, IN OUR OPINION, IS REVENUE NATURE. IN THE CASE OF JONAS WOOD HEAR AND SONS VS. CIT, 117 ITR 55, IT WAS HELD THAT THE QUESTION REGARDING CAPITAL OR REVENUE EXPENDITURE DEPENDS ON THE TERMS OF AGREEMENT IN EACH CASE. IN THE CAS E OF CIT VS. GUJARAT CARBON LTD., 254 ITR 294, IT WAS HELD THAT THE PAYMENT OF REVENUE UNDER THE AGREEMENT WAS DIRECTLY RELATABLE TO SERVICES WHICH WERE IN TH E REVENUE FIELD AND WERE ALLOWABLE AS REVENUE EXPENDITURE. IN THE CASE OF GO ODYEAR (I) LTD. VS. ITO,73 ITD 189 (DELHI), THE ASSESSEE HAD NOT ACQUIRED OWNE RSHIP RIGHT OF TECHNICAL KNOWHOW BUT TRANSFER OF USE OF LICENSES. THERE WAS NO ADVANTAGE OF ENDURING NATURE AND HENCE IT WAS HELD TO BE A CASE OF REVENU E EXPENDITURE. IN THE CASE OF TRAVANCORE SUGAR AND CHEMICALS LTD. 62 ITR 566 (SC) IT WAS HELD THAT WHENEVER A PAYMENT IS BASED ON A PERCENTAGE OF TURNOVER PROF ITS, IT NECESSARILY HAS NO RELATION TO THE CAPITAL VALUE OF THE ASSET, BECAUSE IT CANNOT BE KNOWN AT THE TIME OF THE AGREEMENT WHAT THE TURNOVER OR PROFITS WILL BE OVER A PERIOD OF YEARS. IN ANOTHER CASE REPORTED AS DCIT VS. SWARAJ ENGINES LT D. (2002) 124 TAXMAN 188, ITA N O.980 /DEL./2012 5 THE TRIBUNAL HELD THAT THE ROYALTY PAYMENT IS ALLO WABLE AS REVENUE EXPENDITURE, SINCE IT IS RELATED TO SALES AND THAT IT IS PAID FO R BETTER CONDUCT, EFFICIENCY AND IMPROVEMENT OF THE EXISTING BUSINESS OR PRODUCT MAN UFACTURED BY THE ASSESSEE. IN THE CASE OF CIT VS. LUMAX INDUSTRIES LTD. (2008) 173TAXMAN 290 (DELHI), HONBLE HIGH COURT HELD THAT THE PAYMENT OF LICEN SE FEE ON YEAR TO YEAR BASIS FOR ACQUISITION OF TECHNICAL KNOWLEDGE WOULD NOT AM OUNT TO CAPITAL EXPENDITURE, BUT THE REVENUE EXPENDITURE. IN VIEW OF THE FOREGO ING, ESPECIALLY WHEN THE OWNERSHIP RIGHTS IN THE SYSTEM, SYSTEMS PROPERTY A ND MARKS THROUGHOUT VESTED WITH THE LICENSOR AND ON THE EXPIRATION OR TERMINAT ION OF THE AGREEMENT THE ASSESSEE WAS REQUIRED TO DISCONTINUE USE OF THE SY STEM, SYSTEMS PROPERTY AND MARKS WHILE THE PAYMENT OF ROYALTY IS ON YEAR TO Y EAR BASIS ON THE REVENUES EARNED BY THE ASSESSEE AND AT NO POINT OF TIME THE ASSESSEE WAS ENTITLED TO BECOME THE EXCLUSIVE OWNER OF THE SYSTEM, SYSTEMS PROPERTY AND MARKS, WE ARE OF THE OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE AS ROYALTY IS REVENUE EXPENDITURE AND IS, THEREFORE, ALLOWABLE UN DER SECTION 37(1) OF THE ACT. CONSEQUENTLY, IN THE ABSENCE OF ANY BASIS ,WE DO NO T FIND ANY INFIRMITY IN THE CONCLUSION OF THE LD. CIT(A).THEREFORE, GROUND NO.1 IN THE APPEAL IS DISMISSED. 6. COMING NOW TO GROUND NO.2 RELATING TO DISALLOW ANCE OF ` ` 5,99,464/- ON ACCOUNT OF ADDITIONAL DEPRECIATION, DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION AMOUNTING TO ` `5,99,464/-. TO A QUERY BY THE AO SEEKING TO DISAL LOW ADDITIONAL DEPRECIATION, THE ASSESSEE SUBMITTED THAT CLAIM HAS BEEN MADE IN ACCORDANCE WITH PROVISIONS OF SECTION 32 (1)(IIA) OF THE ACT. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND RELYING UPON DECISION IN INDIAN HOTEL COMPANY LTD. VS. INCOME-TAX OFFICER, (2000) 112 TAXMAN 48 (SC) CONCL UDED THAT COOKING FOOD IN A HOTEL DOES NOT QUALIFY FOR ADDITIONAL DEPRECIATION. ACCORDINGLY, THE AO REJECTED THE CLAIM OF THE ASSESSEE. 7. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM IN THE FOLLOWING TERMS:- ITA N O.980 /DEL./2012 6 6. GROUND OF APPEAL NO.4 RELATES TO THE GRIEVANC E OF APPEAL AGAINST THE ACTION OF THE ASSESSING OFFIC ER IN DISALLOWING DEPRECIATION TO THE EXTENT OF ` ` 5,99,464/-. IT WAS SUBMITTED ON BEHALF OF THE APPELLANT INTER ALIA THA T IDENTICAL ADDITION WAS MADE ON SIMILAR GROUNDS IN ASSESSMENT YEAR 2006-07 BY THE ASSESSING OFFICER IN APPELLANTS OWN CASE. THE APPELLANT PREFERRED AN APPEAL BEFORE LEARNED CI T(A)- XV, NEW DELHI WHO HAS DELETED THE DISALLOWANCE MADE ON THIS GROUND VIDE ORDER DATED 1.9.2001 FOR ASSESSMEN T YEAR 2006-07 IN APPEAL NO.63/2008-09. I HAVE PERUSED TH E ORDER OF THE LEARNED CIT(A)-XV, NEW DELHI FOR ASSESSMENT YEAR 2006-07 REFERRED TO ABOVE. AS THE FACTS AND CIRCUM STANCES OF THE CASE ARE PARI MATERIA WITH THE CASE OF THE A PPELLANT IN ASSESSMENT YEAR 2006-07, FOR THE REASONS AS DISCUSS ED IN THE AFORESAID ORDER OF CIT(A)-XV, NEW DELHI, GROUND OF APPEAL NO.4 IS ALLOWED. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDIN GS OF THE LD. CIT(A). INTER ALIA, THE LD. AR RELIED UPON DECISIONS IN IDANDAS VS. ANA NT RAMCHANDRA PHADKE: 1982 AIR 127 (SC); CIT VS. M.R. GOPAL: (1965) 58 IT R 598 (MADRAS); CIT VS. EAST INDIA HOTELS LTD.: (1994) 209 ITR 854 (CALCUTT A); INDIA CINE AGENCIES VS. CIT : 220 CTR 223 (SC) AND YFC PROJECTS (P) LTD. VS . DCIT: 134 TTJ 167 (ITAT, DELHI) RELATING TO MANUFACTURE OF AN ARTICLE OR THI NG. THE LD. AR ADDED THAT A SIMILAR CLAIM DISALLOWED IN PRECEDING ASSESSMENT Y EAR, HAD BEEN ALLOWED BY LEARNED CIT(A) AND THE REVENUE HAVE NOT PREFERRED A NY APPEAL AGAINST THE SAID ORDER.. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. INDISPUTABLY A SIMILAR CLAIM OF ADDITIONAL DEPRECIATION DISALLOWED IN THE PRECEDING ASSESSMENT YEAR HAD BEEN ALLOWED BY THE L D. CIT(A) AND THE REVENUE HAVE NOT PREFERRED ANY APPEAL AGAINST THE SAID DECI SION NOR THE LD. DR STATED THE REASONS FOR NON-FILING OF THE APPEAL IN THE PRECEDI NG ASSESSMENT YEAR. AT THE OUTSET, WE MAY HAVE A LOOK AT THE RELEVANT PROVISIO NS OF SEC. 32(1)(IIA) OF THE ACT, WHICH READ AS UNDER: ITA N O.980 /DEL./2012 7 (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHE R THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSE E ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT, OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II): PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF - A. ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON ; OR B. ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE ; OR C. ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES ; OR D. ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR; 9.1 THE LD. AR ON BEHALF OF THE ASSESSEE WHILE REFERRING TO DECISION IN OSNAR CHEMICAL PVT. LTD. (2012) 276 E.L.T. 162 (SC) CONTE NDED THAT MANUFACTURE TAKES PLACE ONLY WHEN THERE IS TRANSFORMATION OF RAW MATE RIALS INTO NEW AND DIFFERENT ARTICLE, HAVING DIFFERENT IDENTITY, CHARACTERISTIC AND USE. THE CONCLUSION ARRIVED AT IN THIS DECISION OR IN THE DECISIONS PLACED IN THE PAPER BOOK RELIED UPON BY THE LD. AR ,ARE NOT DISPUTED. THE VARIOUS DECISIONS WERE RE NDERED ON PECULIAR FACTS AND CIRCUMSTANCES OF THEIR OWN. HOWEVER, IN THE INSTANT CASE BEFORE US, NEITHER THE ITA N O.980 /DEL./2012 8 LD. AR NOR THE LD. DR EXPLAINED BEFORE US AS TO WHI CH SPECIFIC PRODUCTS ARE MANUFACTURED BY THE ASSESSEE OR WHAT ARE THE INGRED IENTS USED THEREIN OR WHAT IS THE MANUFACTURING PROCESS INVOLVED. THERE IS NOT HING IN THE IMPUGNED ORDER OR ORDER OF THE LD. CIT(A) IN THE PRECEDING YEAR AS TO THE PRODUCTS MANUFACTURED OR PRODUCED OR EVEN THE MANUFACTURING PROCESS. AS REG ARDS DECISION RELIED UPON BY THE AO IN THE CASE OF INDIAN HOTEL COMPANY LTD. VS. INCOME-TAX OFFICER (2000) 112 TAXMAN 48 (SC) HOLDING THAT CATERING FOO D IS NOT A MANUFACTURING ACTIVITY, WE FIND THAT THE LD. CIT(A) IN THE PRECED ING ASSESSMENT YEAR WHILE REFERRING TO A CIRCULAR NO. 281 DATED 22.9.1980 ISS UED IN THE CONTEXT OF EXTANT PROVISIONS OF CLAUSE (IIA) IN SEC. 32(1) BY THE FIN ANCE(NO.2) ACT, 1980,ALLOWED THE CLAIM OF THE ASSESSEE ,WITHOUT RECORDING ANY FINDIN GS AS TO WHETHER OR NOT THE SAID DECISION IS APPLICABLE. SINCE THE PROVISIONS OF SECTION 32(1)(IIA) INSERTED BY FINANCE(NO.2) ACT, 1980 WERE QUITE DIFFERENT FROM THE PROVISIONS APPLICABLE IN THE YEAR UNDER CONSIDERATION, WE ARE OF THE OPINION THAT THE LD. CIT(A) WITHOUT RECORDING HIS SPECIFIC FINDINGS AS TO HOW THE CONDI TIONS STIPULATED IN THE AFORESAID PROVISIONS OF SEC. 32(1)(IIA)OF THE ACT A RE FULFILLED AND WITHOUT EVEN ANALYZING THE MANUFACTURING PROCESS INVOLVED IN VAR IOUS PRODUCTS PREPARED BY THE ASSESSEE, WAS NOT JUSTIFIED IN ACCEPTING THE CL AIM OF THE ASSESSEE FOR ADDITIONAL DEPRECIATION, MERELY ON THE BASIS OF AFO RESAID CIRCULAR DATED 22.9.1980. A MERE GLANCE AT THE IMPUGNED ORDER REVE ALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VI OLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS A REASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CON CERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. THE APPLICAT ION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST IT SELF IN THE ORDER. SECTION 250(6) OF THE ACT MANDATES THAT THE ORDE R OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING A ND SHALL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REASONS FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASO NS AND COMMUNICATION THEREOF BY THE QUASI-JUDICIAL AUTHORI TIES HAS BEEN ITA N O.980 /DEL./2012 9 READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PRO CEDURE AND IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RUL E OF LAW. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTR ANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINE SS IN THE DECISION-MAKING PROCESS. HONBLE JURISDICTIONAL HIG H COURT IN THEIR DECISION IN VODAFONE ESSAR LTD. VS. DRP,196 TAXMAN423(DELHI) HELD THAT WHEN A QUASI JUDICIAL AUTHORITY DEALS WITH A LIS, IT IS OBLIGATORY ON IT S PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL O F THE MATTER AND FURTHER, THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER I S CALLED IN QUESTION BEFORE THE SUPERIOR FORUM. WE MAY POINT OUT THAT A DECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS . STATE OF PUNJAB,(1995)1SCC 760(SC)]. AS ALREADY OBSERVED, TH E IMPUGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKING ORDER ON THE ISSUE OF ADDITIONAL DEPRECIATION, DISALLOWED BY THE AO. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. CIT(A) HAVE NOT PASSED A SPEAKING ORDER ON THE ISSUE, WE CONSIDER IT FAIR A ND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HE MATTER TO HIS FILE FOR DECIDING THE AFORESAID ISSUE, AFRESH IN ACCORD ANCE WITH LAW, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE P ARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, THE LD. CIT(A ) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MA NDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY AS TO HOW THE ASSESSEE FULFILLS THE CONDITIONS STIPULATED UND ER SEC. 32(1)(IIA) OF THE ACT.. WITH THESE OBSERVATIONS, GROUND NO. 2 IN THE APPEAL IS DISPOSED OF. 10. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TER MS OF RESIDUARY GROUND NO.3 IN THE APPEAL, ACCORDINGLY, THIS GROUND IS DISMISSED. 11. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. ITA N O.980 /DEL./2012 10 12. IN RESULT, APPEAL IS PARTLY ALLOWED BUT FOR ST ATISTICAL PURPOSES. SD/- SD/- (C.M. GARG) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. A.C.I.T.,CIRCLE-12(1),NEW DELHI 3. CIT CONCERNED 4. CIT(A)-VII, NEW DELHI 5. DR, ITAT,C BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT