NATURAL HERBALS & SEEDS ,UDHAM SINGH NAGAR vs. DCIT, CIRCLE- 2, KASHIPUR

ORDER

PER SATBEER SINGH GODARA, JM

2. Cases called twice. None appears at the assessee’s behest. It also appears to have never appeared on the earlier occasions as well as evident from the “lead” appeal ITA No. 4671/Del/2017 2 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 herein. We thus proceed ex-parte against the assessee in this factual backdrop.

3. The “lead” assessment year 2012-13 herein involves the Revenue’s and assessee’s cross appeals & 4746/Del/2017 wherein the sold substantive issue canvassed is that of the latter’s entitlement to claim the impugned section 80IC deduction on the basis of CBDT’s Notification No. 177/2004. Learned CIT(DR) invites our attention to the Revenue’s appeal canvassing the following substantive grounds: (ii) Whether on the facts of the case Ld.CIT(A) is right in deciding that the activity or article or thing or operation in the case of the assessee falls within S.No. 2 and S.No. 12 of Part C of XIV Schedule of Income Tax Act. (iii) Whether on the facts and circumstances, Ld.CIT(A) is right in holding that" Menthol" production is from processing of "Mentha Herb and Aromatic Herb" when the same is actually being processed out of "Mentha Oil". (iv) Whether on the facts of the case Ld. CIT(A) is right in holding "Menthol" as a "Pharma Product". (v) Whether on the facts and circumstances of the case Ld. CIT(A) is right in deciding that Menthol which is processed by Mentha Oil is eligible for deduction under section 80IC in the light of Schedule XIV Part'C'. of the Income Tax Act, 1961. (vi) Whether Ld. CIT(A) has rightly upheld the version of the assessee regarding purchase of raw material in cash without any documentary evidences. (vii) Whether CIT (A) has rightly upheld the version of the assessee that production was initiated without installation Machine up to 11/01/2012.

3 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 (viii) Whether Ld.CIT (A) accepted the ground of the assessee firm without considering the fact that the date of production is different in the books of account and certificate given by DIC. (ix) Whether CIT(A) has rightly accepted the claim of assessee firm that the purchase of Machinery made from M/s Meenu Enterprises Sambhal which is dealing in Metha Oil and not in Machinery. (x) Whether CIT(A) has rightly accepted the version of assessee that assessee has purchased in bulk of diesel and store without any storing capacity and run the DG Sets for production.

4. It next transpires that the assessee’s cross appeal raises the following substantive grounds:  We are not agreed with the order u/s 250(6) of income Tax Act 1961  Order of Commissioner of Income tax (Appeals) is Prejudicial to us and, if ITAT appeal is not allowed to be proceeded, it amounting to against the law.  As per Assessee View :- 1. We filed an appeal before Commissioner of Income tax (Appeals) Haldwani for Our Firm Named Natural Herbals and Seeds situated at Ram Raj Road, Bazpur, District Udham Singh Nagar for Deduction under section 801C, on the basis of Section 80IC and CBDT Notification No. 177/2004 which specifies the notified industrial area As per Section 80IC If an Enterprises or undertaking manufacture or produce any article or things in:- 1. Export Processing Zone or Integrated Infrastructure Development Centre or 2. Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park 3. Industrial Area or Theme Park, 4. in the State of Sikkim 5. in the State of Himachal Pradesh 6. the State of Uttaranchal 7. North-Eastern States. 100% of such profits and gains for ten assessment years commencing with the initial assessment year; 4 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 This section applies to any undertaking or enterprises which fulfill following Conditions for deduction under section 80IC:- a) Business unit not formed by splitting up, or the reconstruction, of a business already in existence. b) Business unit not formed by the transfer to a new business of machinery or plant previously used for any purpose. All the above conditions are followed by us to claim the deduction under section 80IC. And CBDT notification no- 177/2004 dated 28- 06-2004 Department Notified the industrial area 2. Commissioner of Income Tax (Appeal) is satisfied with us on all conditions but he disallowed deduction u/s 80IC on the basis of CBDT Notification No 177/2004 dated 28.06.2004 that this notification has not notified the area "NANDPUR NARKA TOPA" .

3. We have filed the writ Petition No 1230/2015 with Hon'ble High Court Nainital for correction in CBDT Notification to rectify the notification no 177/2004 dated 28.06.2004. We state that Natural Herbals and Seeds Manufacturing unit is situated at Khasra no 3/3/3 and 3/3/1 in village NANDPUR NARKA TOPA tehsil Bazpur, Udham Singh Nagar in the leased premises owned by M/s Continental Seeds and chemical Ltd. We also shown the certificate of Incorporation of the Company along with the certificate issued by Registrar of Company and Hon'ble High court decision came in favour of us and directed to State government of Uttrakhand to forward a fresh proposal to Central Government for correcting the name of village as "Nandpur Narka Topa" instead of "Nandpur Ka Ropa" in said notification of CBDT, During the hearing State Government also acknowledged that the name of village was wrongly mentioned in proposal sent to Central Goverment as "Nandpur Narka Ropa" but the Correct name of village is "Nandpur Narka Topa".

4. We also shown the Copy of Khatoni of land in which undertaking is situated in support of fact that leased property of M/s Continental Seeds and Chemical Ltd is situated in village NANDPUR NARKA TOPA.

5. We have also shown the lease deed copy to Hon'ble High Court Between M/s Continental Seeds and chemical Ltd. and Natural Herbals & Seeds 6. We have also brought on record a true copy of villages falling under the jurisdiction of Bazpur Tehsil, a report submit by Halka 5 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 Patwari Mr. Lawkesh Kumar Sharma and counter signed by Tehsildar, Bazpur, certifying that there is no village in tehsil in the name & style of "NANDPUR KA ROPA" and due to typing mistake "NANDPUR NARKA TOPA" has erroneously has been mentioned as "Nandpur ka Ropa" On the basis of above Contention Assessee want Tax relief on tax under Section 80IC.”

5. We now advert to the basic relevant facts as per the assessment herein dated 27th March, 2015 framed u/s 153C r.w.s. 143(3) of the Act. The assessee appears to be a partnership firm comprising of its twin partners; constituted on 29.05.2012, w.e.f. 30th July, 2011. It is stated to be manufacturing of Menthol, DMO and other related products. The assessee had filed its return on 17.09.2012 declaring “nil” income after claiming section 80IC deduction on it’s entire profits of Rs.9,66,78,560/-. The assessment order herein indicates that the department had seized an amount of Rs.1 crore(s) from one Sh. Vijay Kumar, c/o- M/s. Natural Herbals & Seeds, Bazpur. Learned departmental authorities thereafter recorded section 153C satisfaction on 06.02.2015 in case of the said person that the above seized cash in fact belonged to the assessee. All this led to initiation of section 153C proceedings against the assessee vide notice dated 06.02.2015. The latter appears to have filed reply on 13th March,

6 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 2015 reiterating the earlier return filed in regular assessment proceedings.

6. Learned CIT(DR) further invites our attention to the assessment findings disallowing the assessee’s section 80IC deduction claim, inter alia, on the ground that the corresponding “undertaking or an enterprise” was not situated in the notified industrial area, and therefore, the said deduction could not be allowed. And that the Assessing Officer had further doubted the assessee’s commencement of business activity as well for the purpose of rejecting it’s section 80IC deduction. The assessee preferred its appeal wherein the CIT(A) has partly accepted it’s corresponding substantive grounds:

“5. The contention of the Appellant and Remand Report thereon and its Rejoinder have all been considered. The issue in Appeal is with regards to the claim of deduction u/s 80IC. The first basis of disallowance of this deduction by the AO, is that as per Notification No. 177/2004 (So 741) dated 28.06.2004 issued by the CBDT, the notified village and Khasra numbers to be considered as notified industrial area, at Serial no. 96 of the Distt Udham Singh Nagar, is 'Nandpur ka Ropa' and Khasra nos. 72/1, 2mi, 3mi. same village name was found mentioned in the Notification No. 50/2003 by the Central Excise Department. The AO has observed that the Appellant's plant is located in a leased premises owned by M/s Continental Seeds and Chemicals, the Ramraj (Bazpur) with Khasra no 3/3/3 and as per the document of land produced, the said land was that there was a mistake in the notification by the Government and actual name of the village is 'Nandpur Narka Topa' only since there was no village of the name of 'Nandpur Ka Ropa' in Bazpur Tehsil. But the A.O based himself on the Notification and held Appellant's unit was not eligible for deduction u/s 80IC of the Act since it was not located in the 7 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 notified Industrial Area. However apart from the above, the AO has dented the disallowance on the product i.e Mentha not being eligible for this deduction it is not established that the production had commenced before 01.04.2012 as required u/s 80IC(2)(b) of the Act. Now the Appellant moved a Writ Petition before the Hon Uttrakhand High Court, which was disposed off by the Hon Court vide its order dated 19th December, 2016 in which it has been held as under- "8. From the bare perusal, it reveals that the facts of the instant case and the facts of Writ Petition (M/B) No. 628 of 2005 are slightly different. In that case, a request was made by the State Government for addition of Khasra no. 60 and 61; but, request of State Government was not acceded to by the Central Government. In that case in hand, there is nothing on record to show that any such request was made and was rejected by the Central Government. It appears that, due to some mistake committed by someone in the district level itself at the time of sending of the proposal, the name of village, within which petitioner's Unit is situated, was not mentioned correctly and incorrect name was mentioned and, due to this reason, the petitioner's Unit could not get the benefit of that notification. The question is whether any injustice, which is caused to the party by some wrong action of the government official, should be permitted to continue on the technical ground? My answer to this query is no. The law is made to give justice to all. In my view, this Court, under Article 226 of the Constitution of India, can pass appropriate order for giving justice to the aggrieved party. The Principal Secretary Micro, Small & Medium Enterprises, Government of Uttarakhand, in her counter affidavit, has, in clear words, written that the actual name of the village is "Village Nandpur Narka Topa" and there is no village in the name of "Village Nandpur Narka Topa" in Tehsil Bazpur. The mistake was certainly committed by some official working in the revenue department of district Udham Singh Nagar. The petitioner or that mistake. Considering all cannot be held responsible for that mistake. Considering all the those facts mentioned herein above and also considering the statement given by the learned Assistant Solicitor General for Union of India on 04.06.2015 that appropriate decision correcting name of the village can be taken, the writ petition is disposed in the following manner: (1) Petitioner is directed to serve a certified copy of this judgment on the Principal Secretary, Micro, Small & Medium Enterprises, Government of Uttarakhand within a period of two weeks from today. (ii) Thereafter, the State Government will again verify the facts about the name of the village on the basis of the revenue records and, if it is found that the name has wrongly been mentioned at the time of proposal/recommendation, the State Government shall send a fresh 8 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 proposal/ correction of name in the notification. Such proposal/ recommendation shall be sent within a period of two weeks's from the date of production of a certified copy of this judgment. (iii) In case such proposal/recommendation is sent, the Central Government is requested to take decision on the same within a period of two months thereafter. (iv) After taking decision such proposal/ on recommendation, the Central Government shall inform its decision to the State Government, Income Tax Department and also to the petitioner at the address given by him in the writ petition. (v) The State Government is also directed to take action against the person, who is responsible for the mistake committed in sending wrong name of the village of the petitioner at the proposal/recommendation." time of sending of In compliance to the above order, the Uttarakhand State government has forwarded its recommendation vide letter dated 27 January, 2017, however no information has been provided till date of any CBDT Notification regarding the correction of the name of the village. Accordingly in the absence of such a notification the Appellant remains ineligible for claim of deduction u/s 80IC. 5.1 With regards to claim of the Appellant for deduction u/s 80IC on merit, the contentions and the Report of the AO have been considered. As explained in Appeal the product being made by the Appellant i.e Menthol is an organic compound made by Mentha oil. It is waxy, crystalline substance, clear or white in colour, which is solid at room temperature and melts slightly above. Menthol has wide usage in pharma industry including as local anesthetic and counterirritant qualities, and Menthol liquid essential oil is an effective treatment in aromatherapy and is used for treatment of various ailments and dental product. Therefore these items comes in Item No 2 "Medicinal Herb and Aromatic Herb etc processing" and item no 12 "Pharma Product" of part e of schedule-XIV of the Income Tax Act: Accordingly considering the above the AO's conclusion in this regard that it was not an eligible pharma product cannot be accepted. With regards to the AO's observations and contentions regarding the Appellant's manipulation of production of Menthol, purchase of Mentha it, the set up of its production unit by 17.01.2012, and the question raised by the AO in Assessment proceedings about the authenticity of purchases in cash from farmers and the DIC Certificate obtained by it etc, all these points have been considered by me with due gravity. The AO has thus raised suspicion and doubts about whether the Appellant had actually commenced production by 31.03.2012 in order to be 9 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 eligible for deduction u/s 80IC. The Appellant has however provided details regarding the supply and installation of machinery and has also provided a detailed explanation of the production process involved in producing Menthol crystals. Regarding the purchase of machinery including the Deep Freezers, the Appellant has provided not only copies of Bills but also transport challans and Form 16 in respect of machinery issued by the Uttrakhand Trade Tax department, for bringing the same to the site. Further the Appellant's claim in respect of cash purchases from farmers has also been considered, and it is seen that cash payment is not Sambhal (UP) prior to the set up of this unit, thus admittedly it had indepth knowledge of the business as well as contacts in the area. 5.1.1 The Appellant has also submitted details of its electricity connection in December 2011 and Electricity Bills of December 2011 & January 2012 (wherein 4520 Units had been consumed) which are admitted under Rule 46A. Therefore, it is incorrect to say that there was no electricity consumption by the Appellant. The AO has also raised doubts about veracity of the DIC Certificate countersigned by the General Manager DIC, Udham Singh Nagar and issued on 24.03.2012, where the commencement of production has been mentioned as 17.01.2012. However, the same is a further verification has been made at the Assessment stage by the AO independently, it is not correct on part of the AO to simply challenge the authenticity of the facts mentioned therein including the commencement of production. Thus while the questions raised by the A.O about the purchases and production disclosed by the Appellant upto 31.03.2102, may have required further investigation but this has not been done by the A.O. It is also not enough of the A.O to say that the Appellant's disclosed Sales were of another unit, when no proof of this claim has been placed on record. Therefore it cannot be held that production could not have commenced by 31.03.2102. The Appellant has thus submitted plausible explanation on all points red flagged by the A.O. Besides the above there is evidence from two government departments i.e from that production held commenced electricity connection and bills of December and January 2012, when substantial electricity consumption is there which substantiates claim of production in January, 2012. These evidences cannot be ignored. In fact for the AO to hold that the production did not happen before 31/03/2012 i.e in the Financial Year is by itself faulty unless the entire sales and books of accounts are also rejected. 5.2 Therefore with regards to the issue of commencement of production prior to 01.04.2012, the various discrepancies pointed by the AO have been considered as above, as against the detailed explanation provided by the Appellant in its submissions dated 28.03.2017 and 20.04.2017, the A.O's conclusion that the Appellant 10 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 had not commenced production before 01.04.2012 is not established therefore disallowance on this ground is not justified. However considering the fact as mentioned in para 5 above, the Appellant is otherwise ineligible for claim u/s 80IC in the absence of the correction of Notification No. 177/2004 by the CBDT post the order of the Hon. Uttarakhand High Court, accordingly the disallowance of deduction u/s 80IC is upheld on this ground. As a result, the Appeal is "Partly Allowed". This leaves both the parties aggrieved, who have filed their respective cross appeal.

7. Learned CIT(DR) vehemently submits in this factual backdrop that the assessee is not entitled for the impugned relief once it’s undertaking or enterprise, as the case may be, does not satisfy the relevant conditions in notification no. 177/2004 is not situated in the notified area.

8. We have given our thoughtful consideration to both the assessee’s and Revenue’s rival pleadings in the instant cross appeals. It emerges that there arises first and foremost issue of validity of the impugned assessment itself as we are dealing with the assessment year 2012-13, involving section 153C proceedings (supra).

9. Learned CIT(DR) submits that the impugned assessment year is AY 2012-13 and the date of search before us is 27.09.2012 (supra), and, therefore, it is an “abated” assessment only which need not result in addition based on the seized material only. 11 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017

12 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017 Abhisar Buildwell Pvt. Ltd. (2023) 454 ITR 212 (SC) to quash the impugned section 153C assessment itself. Ordered accordingly.

12. Needless to say, we further quote section 153A(2) of the Act that it shall indeed be open to the learned Assessing Officer to revive the assessee’s regular scrutiny proceedings once we have quashed the assessment herein u/s 153C of the Act, subject to all just exceptions.

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3. We have filed the writ Petition No 1230/2015 with Hon'ble High Court Nainital for correction in CBDT Notification to rectify the notification no 177/2004 dated 28.06.2004. We state that Natural Herbals and Seeds Manufacturing unit is situated at Khasra no 3/3/3 and 3/3/1 in village NANDPUR NARKA TOPA tehsil Bazpur, Udham Singh Nagar in the leased premises owned by M/s Continental Seeds and chemical Ltd. We also shown the certificate of Incorporation of the Company along with the certificate issued by Registrar of Company and Hon'ble High court decision came in favour of us and directed to State government of Uttrakhand to forward a fresh proposal to Central Government for correcting the name of village as "Nandpur Narka Topa" instead of "Nandpur Ka Ropa" in said notification of CBDT, During the hearing State Government also acknowledged that the name of village was wrongly mentioned in proposal sent to Central Goverment as "Nandpur Narka Ropa" but the Correct name of village is "Nandpur Narka Topa".

4. We also shown the Copy of Khatoni of land in which undertaking is situated in support of fact that leased property of M/s Continental Seeds and Chemical Ltd is situated in village NANDPUR NARKA TOPA.

5. We have also shown the lease deed copy to Hon'ble High Court Between M/s Continental Seeds and chemical Ltd. and Natural Herbals & Seeds 6. We have also brought on record a true copy of villages falling under the jurisdiction of Bazpur Tehsil, a report submit by Halka Patwari Mr. Lawkesh Kumar Sharma and counter signed by Tehsildar, Bazpur, certifying that there is no village in tehsil in the name & style of "NANDPUR KA ROPA" and due to typing mistake "NANDPUR NARKA TOPA" has erroneously has been mentioned as "Nandpur ka Ropa" On the basis of above Contention Assessee want Tax relief on tax under Section 80IC.” 15 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017

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Petitioner has approached this Court seeking the following relief: “(i) A writ, order or direction in the nature of mandamus directing the respondents to treat the name of Village Nandpur Ka Ropa as occurring in Notification No. 177 of 2004 dated 28th June, 2004 issued by the respondent no 4 (Annexure No. 7 to the writ petition) and or correct the aforesaid as Nandpur Narka Topa instead of Nandpur Ka Ropa and to extend the benefit of income tax exemption to the petitioner’s Unit.

8. That the contents of para 8 & 9 of the writ petition call for no comment. However, it is submitted that any Khasra no.72/1, 2 Mi, 3Mi of village Nandpur Narka Topa has been included in the notification.

5. Mr. Rakesh Thapliyal, learned Assistant Solicitor General for Union of India would submit that, in the order dated 04.06.2015, the Court has directed the State Government to file an affidavit alongwith the recommendation made by the State Government; but, in fact, no such recommendation was sent by the State Government, therefore, there is no question of amendment in the notification. He submitted that there is no averment in this regard that any proposal was sent to the Central Government. He relied on paragraph no. 4 of judgment passed by the Division Bench of this Court in Writ Petition (M/B) No.628 of 2005, wherein the Court has held that the Court cannot issue mandamus asking the Central Government to amend its notification and such direction would be doing something, which the Court is not competent to do. He submitted that, in view of the judgment of Division Bench, no order should be passed in favour of the petitioner. 19 | P a g e & 4747/Del/2017; 3557 & 5425/Del/2018; 4671 & 5399/Del/2017

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