M/s. Bayer Vapi Private Ltd. (Formerly known as Bilag Industries P. Ltd.), Vapi V. The Asstt. Commissioner of Income Tax, Vapi Circle, Vapi

ITA 1769/AHD/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7687 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 01-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Maximum Marginal Rate; International transaction; Retrospective amendment; Question of law; Cost of acquisition; Valuation report; Reassessment proceedings; Set aside
• Section: 92C; 143(3); 80HHC; 40(a)(ia); 194C; 10B; 144C; 208; 32; 92

Judgement Text

1 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 , , IN THE INCOME TAX APPELLATE TRIBUNAL-SURAT-BENCH-SURAT BEFORE SHRI AMARJIT SINGH, JUDICIAL MEMBER & SHRI O.P. MEENA, ACCOUTANT MEMBER . . /. I.T.A NOS.2886/AHD/2010, 794/AHD/2014 AND 1769/AHD/2016 / ASSESSMENT YEARS:2006-07, 2009-10 AND 2011-12 M/S. BILAG INDUSTRIES PVT. LTD. , ( NOW KNOWN AS M/S. BAYER VAPI PRIVATE LIMITED) 306/3,PHASE-II GIDC-1, VAPI GUJARAT PAN: AABCB 2100 L VS. ADDL. CIT RANGE - VAPI, RANGE VAPI SHIVAM COMMERCIAL COMPLEX NATIONAL HIGHWAY NO 8 VAPI APPELLANT / RESPONDENT /ASSESSEE BY SHRI A. GOPALAKRISHNAN AIYER - CA /REVENUE BY SHRI O. P. SINGH CIT (D.R.) / DATE OF HEARING: 26.09.2019 /PRONOUNCEMENT ON 24 .10.2019 /O R D E R PER O. P. MEENA, AM: 1. THE ABOVE CAPTIONED THREE APPEALS FOR THE ASSESSMENT YEAR 2006-07, 2009-10 AND 2011-12 BY THE ASSESSEE ARE DIRECTED AGAINST THE ASSESSMENT ORDER PASSED U/S. 143(3) R.W.S. 144C DATED 28.07.2010 AND DATED 15.01.2014 RESPECTIVELY UNDER THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] ON THE DIRECTION OF DRP BY THE ADDL. CIT RANGE-VAPI RANGE VAPI (HEREIN AFTER REFERRED AS THE AO) AND THE APPEAL FOR THE ASSESSMENT YEAR 2011-12 BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT (A) DATED 29.04.2016. SINCE THE COMMON ISSUES ARE INVOLVED IN THESE APPEALS THEREFORE, THESE WERE HEARD TOGETHER AND CONSOLIDATED ORDER IS BEING PASSED AS UNDER: IT(TP)A NO.2886/AHD/2010/A.Y. 2006-07/ BY THE ASSESSEE: 2. GROUND NOS.1 IS GENERAL IN NATURE AND DO NOT REQUIRE ADJUDICATION. 2 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 3. GROUND NO.2 STATES THAT ON APPRECIATION OF FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX ERRED IN MAKING UPWARD ADJUSTMENT OF RS.15,57,354/- TO THE INCOME OF THE APPELLANT COMPANY ON ACCOUNT OF DETERMINING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE ACTION OF THE LEARNED ADDITIONAL COMMISSIONER OF INCOME- TAX IS CONTRARY TO THE FACTS AND LAW AND DESERVE TO BE DELETED. 4. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY HAS ADOPTED TNMM METHOD AS MOT APPROPRIATE METHOD FOR ARRIVING AT ARMS LENGTH PRICE (ALP) OF THE PRODUCTS SOLD TO ITS AES. DURING THE YEAR UNDER CONSIDERATION, THE OPERATING PROFIT MARGIN (OPM) FOR EXPORTS SALES MADE TO UNRELATED THIRD PARTIES WAS 33.81% AND 43.23% ON EXPORT SALES TO THE AES. NET OPERATING MARGIN OF OTHER COMPARABLE ENTITIES IN THE COUNTRY WAS IN THE RANGE OF 2.3% TO 23.43%. THE ASSESSEE COMPANY HAS THE HIGHEST OPERATING PROFIT IN THE COUNTRY AT 43.23%. THE ASSESSEE FILED MARGIN ANALYSIS AS COMPARABLE TRANSFER PRICING STUDY REPORT PLACED AT PB-140 TO 141. HOWEVER, THE TPO HAD PICKED UP A PRODUCT VIZ. CYPERMETHRIN WHICH HAS BEEN SOLD TO THE AES EXPORTED TO THE NON-AES AND ALSO SOLD IN THE DOMESTIC MARKET TO UNRELATED PARTIES. THESE ARE IDENTICAL TRANSACTIONS OF THE PRODUCT BETWEEN THE RELATED PARTIES AND THE ARMS LENGTH PRICE PARTIES, AS THE MANUFACTURER IS SELLING THESE IDENTICAL PRODUCTS RELATED PARTY/DISTRIBUTOR AS AN ARMS LENGTH DISTRIBUTOR IN THE EXPORT MARKET AND THE DOMESTIC MARKET. IT IS NOT THE CONTENTION OF THE ASSESSEE THAT THE TERMS AND CONDITIONS OF THE SALES MADE WERE DIFFERENT WITH REGARD TO THE RELATED AND UNRELATED PARTIES. HOWEVER, THE ASSESSEE OBJECTED TO THE COMPARISON OF RELATED PARTY SALES OUTSIDE INDIA WITH DOMESTIC SALES. THE DRP HAD AGREED WITH THIS CONTENTION OF THE ASSESSEE THAT INTERNAL CUP IS AVAILABLE, SO FAR AS THE ASSESSEE HAS MADE SALES TO THE AE, AND TO 3 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 THE NON AES IN ALMOST SIMILAR MARKETS BEING EUROPE AND USA. THE DRP OBSERVED THAT AN IDENTICAL PRODUCT IS BEING SOLD TO THE AE AND NON-AE SITUATED IN THE SIMILAR MARKETS, THE TERMS AND CONDITIONS OF THE SALE ARE THE SAME, FUNCTIONS PERFORMED ARE ALSO SIMILAR, CUP OF UNRELATED EXPORT SALE IS THE MOST APPROPRIATE METHOD WHICH REQUIRED TO BE APPLIED BY THE TPO. THE ASSESSEE HAS REQUESTED FOR REDUCTION OF 5% FROM THE PRICE CHARGED TO UNRELATED PARTIES FOR FACTORING IN CREDIT RISKS AND BENEFIT OF PRODUCT PLANNING. IT WAS STATED THAT IN THE CASE, IF 5% IS REDUCED FROM THE PRICE CHARGED TO UNRELATED PARTIES IN THE DOMESTIC SALES, EVEN IN THE ALP OF THE DOMESTIC SALE WOULD COME WITHIN THE RANGE OF + 5% AS PER THE CBDT CIRCULAR NO.12/2001. HOWEVER, THE ASSESSEE HAS NOT DEMONSTRATED AS TO HOW IT HAD FACTORED IN CREDIT RISK AND BENEFIT OF PRODUCTS AND PLANNING AT 5% AS CLAIMED. THE TPO HAS ALREADY NOTED FROM THE FINANCIAL STATEMENT OF THE ASSESSEE, THAT OVERALL BAD DEBT ON LOWER THAN 1% OF THE SALES. THE CREDIT RISK ADJUSTMENT WAS NOT ALLOWED, AS THE PREMIUM AVAILABLE IN THE DEVELOPED MARKET BEING EUROPE AND USA WOULD BE HIGHER AND SUBSTANTIAL UPWARD ADJUSTMENT WOULD ALSO BE REQUIRED. IN ANY CASE, THE CONTENTION OF THE ASSESSEE THAT IN THE CASE OF AE, CREDIT RISK WOULD ALWAYS BE MINIMAL IS NOT CORRECT. THE RISK WOULD BE EXTREMELY HIGH IN THE CASE OF THE AE AS IN THE CASE OF FAILURE OF THE AE, THE ENTIRE AMOUNT WOULD BECOME BAD. IN THE TRANSFER PRICING, IT IS NOT THE RISK WHICH IS ACTUALLY INCURRED, BUT THE RISK ASSUMED WOULD ALSO BE TAKEN INTO CONSIDERATION. THE TPO TAKEN THE AVERAGE PRICE OF SALES MADE TO THE AES AND COMPARED THEM WITH AVERAGE PRICE OF SALE TO UNRELATED PARTIES IN INDIA TO MAKE THE ADJUSTMENT. THE THIRD PARTY SALES HAVE ALREADY BEEN HELD TO BE NOT VALID CUP. THE DRP NOTICED THAT SALES HAVE BEEN MADE OVER A PERIOD OF TIME TO BAYER CROP. SCIENCE AG AND BAYER CROP SCIENCE SA. THE 3 RD PARTY AT AVERAGE PRICE OF RS. 444.31/KG 4 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 HAS BEEN TAKEN CORRECTLY. THE SALE PRICE OF CYPERMETHRIN VARIED FROM RS. 407.42/KG TO 438.96/KG TO THE AE. SOME TRANSACTION DO FALL WITHIN (-) 5% OF THE ALP TAKEN 444.31/KG. HOWEVER, WHERE THE SALE PRICE TO AES IS BEYOND (-) 5% OF THE ALP TAKEN AT RS. 444.31/KG, AN ADJUSTMENT IS REQUIRED TO BE MADE AFTER AMENDMENT IN PROVISO TO SECTION 92C OF THE ACT WITH EFFECT FROM 1/10/2009. THE AMENDMENT PREFACED WITH A COMMENT THAT THIS PROVISION HAS BEEN A SUBJECT OF CONFLICTING INTERPRETATIONS AND THE AMENDMENTS WERE BEING PROPOSED WITH A VIEW TO RESOLVING THIS CONTROVERSY. THE 2009 AMENDED LEGISLATION BRINGS 3 CHANGES. FIRST, IT PROVIDES THAT THE BENEFIT OF 5% VARIATION SHALL NOT BE AVAILABLE IF THE ACTUAL TRANSFER PRICE VARIES BY MORE THAN 5 %. SECOND, THE VARIATION OF 5% WILL BE AVAILABLE EVEN IN CASE OF A SINGLE COMPARABLE. THIRD, THE 5% VARIATION IS TO BE COMPUTED WITH REFERENCE TO ACTUAL TRANSFER PRICE AS A BASE AND NOT THE COMPARABLE PRICE OR ARITHMETICAL MEAN AS A BASE AS WAS THE CASE EARLIER. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, ON THE BASIS OF ABOVE CHART GIVEN, AT PAGE NO. 16-17 OF DRP ORDER MADE TP ADJUSTMENT OF RS.15,57,357/-. 5. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE DRP HAS NOT GRANTED +/- 5% VARIATION ON THE GROUND THAT THE RELEVANT CBDT CIRCULAR NO. 5 OF 2010 EXPLAINED THE AMENDMENT 2009, PROVIDES FOR VARIATION ONLY IF THE ACTUAL TRANSFER VARIES BY LESS THAN 5%. HOWEVER, THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED PARA 37.5 OF THE AMENDMENT OF FINANCE ACT, ACCORDING TO WHICH THE SAID CIRCULAR WOULD APPLY IN RELATION TO CASES IN WHICH PROCEEDINGS ARE PENDING AS ON 1ST OCTOBER 2009. SINCE, IN THE CASE OF THE ASSESSEE COMPANY, THE TPO HAD PASSED ORDER ON 29.09.2009 HENCE, NO PROCEEDINGS WERE PENDING AS ON 01.10.2009. THEREFORE, SAID AMENDMENT IS NOT APPLICABLE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER 5 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 SUBMITTED THAT THERE WAS CORRIGENDUM ISSUED BY WHICH, IT WAS EXPLAINED THAT THE ABOVE AMENDMENT IS MADE APPLICABLE FROM ASSESSMENT YEAR 2009-10. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR 5% TOLERANCE LIMIT. HENCE, THE DRP HAS ERRED IN NOT CONSIDERED THE FACTS THAT THE ASSESSEE IS ELIGIBLE FOR STANDARD DEDUCTION OF 5% FROM ALP UNDER SECTION 92C(2) OF THE ACT. 6. THE LEARNED COUNSEL RELIED IN THE CASE OF J.P. MORGAN INDIA (P.) LTD. V. DCIT 4(3)(1)[2019] 108 TAXMANN.COM 122 (MUMBAI-TRIB.) HELD AFTER HAVING GONE THROUGH THE ORDERS PASSED BY THE REVENUE AUTHORITIES AND HEARING THE PARTIES AT LENGTH, WE FIND THAT AS PER THE FACTS OF THE PRESENT CASE, THE AO COMPUTED THE ALP BY NOT CONSIDERING THE PLUS/MINUS 5% VARIATION FROM THE ALP PERMITTED TO THE ASSESSEE`S IN TERMS OF THE PROVISIONS OF SECTION 92C(2) OF THE ACT. HOWEVER, AS PER THE PROVISO TO SECTION 92 C(2) OF THE ACT, THE SAME WAS AMENDED SUBSEQUENTLY AND AS PER THE CIRCULAR OF CBDT NO.5/2010 DATED 03.06.2010, THE AMENDED PROVISIONS WERE APPLICABLE WITH EFFECT FROM 01 .04.2009 I.E. FOR THE ASSESSMENT YEAR 2009-10 AND SUBSEQUENT YEARS. THUS IN THIS WAY, THE BENEFIT OF PLUS/MINUS 5% AS SOUGHT BY THE ASSESSEE WAS FOUND TO BE ACCEPTABLE FOR THE PERIOD PRESENTLY UNDER CONSIDERATION AND AS SUCH LD. CIT(A) RIGHTLY DIRECTED THE AO/TPO TO REDUCED THE TP ADJUSTMENT RECOMMENDED BY THE TPO FROM RS.80,65,086 TO RS.70,41,832. 7. THE LEARNED COUNSEL FURTHER RELIED IN THE CASE OF TE CONNECTIVITY INDIA (P.) LTD. V. ACIT CIRCLE 12(4), BENGALURU [2019] 104 TAXMANN.COM 322 (BENGALURUTRIB) WHEREIN IT WAS HELD AS CONSIDERING THE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE CIT (A) HAVING CONSIDERED THE SUBMISSIONS, JUDICIAL DECISIONS AND THE DECISIONS OF CO-ORDINATE BENCH, HAS PASSED REASONED ORDER WHICH, ACCORDING TO US, SHOULD NOT BE INTERFERED. WE DO NOTE THAT AS PER RETROSPECTIVE AMENDMENT OF SECTION 92C, BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01/10/2009, AN EXPLANATION WAS INSERTED WHICH SAYS THAT PROVISIONS OF THE SECOND PROVISO SHALL ALSO BE APPLICABLE TO ALL ASSESSMENT PENDING BEFORE THE AO AS ON 01/10/2009. IN THE PRESENT CASE, 6 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 ASSESSMENT ORDER IS DATED 28/11/2008 AND HENCE ASSESSMENT PROCEEDINGS WERE NOT PENDING ON 1/10/2009 AND AS A CONSEQUENCE, 2 ND PROVISO IS NOT APPLICABLE IN THE PRESENT CASE. IN THIS SITUATION, THERE IS NO INFIRMITY IN THE ORDER OF THE CIT (A). ACCORDINGLY, WE UPHOLD THE ACTION OF THE CIT (A) ON THIS GROUND AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED IN THE CASE OF INA BEARINGS INDIA (P.) LTD. V. DCIT CIRCLE-1(2), PUNE [2019] 107 TAXMANN.COM 208 (PUNE - TRIB.) THE REVENUE IN ITS APPEAL IS FIRSTLY AGGRIEVED BY THE GRANT OF +-5% MARGIN IN DETERMINING THE ALP. WE HAVE HEARD BOTH SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. SECOND PROVISO TO SECTION 92C(2) PROVIDES THAT IF THE VARIATION BETWEEN THE ALP AND THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED THE SPECIFIED MARGIN, WHICH AT THE MATERIAL TIME WAS 5%, THEN THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS A CTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ALP. THE EFFECT OF THIS PROVISO IS THAT SO LONG AS THE DIFFERENCE BETWEEN THE ALP AS DETERMINED BY APPLYING ONE OF THE SPECIFIED METHODS AND THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION WAS UNDERTAKEN IS WITHIN THE PRESCRIBED PERCENTAGE, NO TRANSFER PRICING ADJUSTMENT CAN BE MADE. THIS PROVISO WAS SUBSTITUTED BY THE FINANCE (NO.2) ACT, 2009 W. E. F. 01-10-2009. EXPLANATION TO SUB-SECTION (2) OF SECTION 92C HAS CLARIFIED : 'THAT THE PROVISIONS OF THE SECOND PROVISO SHALL ALSO BE APPLICABLE TO ALL ASSESSMENT OR REASSESSMENT PROCEEDINGS PENDING BEFORE THE ASSESSING OFFICER AS ON 1ST OCTOBER, 2009'. THUS, IT IS OVERT THAT EVEN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, NAMELY, 2009-10, THE BENEFIT OF THE SECOND PROVISO WOULD BE AVAILABLE BY VIRTUE OF THE EXPLANATION GIVEN AT THE END OF SUB-SECTION (2) OF 92C. WE, THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED 7 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 IN EXTENDING THE BENEFIT OF +/-5% MARGIN IN DETERMINING THE AL P OF THE INTERNATIONAL TRANSACTIONS. THIS GROUND OF THE REVENUE FAILS. 9. ON THE OTHER HAND, THE LD. CIT (DR) RELIED ON THE DETAILED ARGUMENT OF TPO AND DRP ON THE ISSUE AND SUBMITTED THAT CUP METHOD HAS BEEN HELD TO BE MOST APPROPRIATE METHOD FOR DETERMINATION OF ALP IN THE CURRENT CASE. HE HAS STATED THAT THE CASE OF THE ASSESSEE RELATES TO SALE OF PRODUCT TO AE AS WELL AS NON AES AND DATA OF INTERNAL COMPARABLE OF AE AS WELL AS THIRD PARTY IS AVAILABLE FOR DETERMINATION AFTER MAKING REQUIRED ADJUSTMENTS, IF ANY. IN THE CASE OF PRODUCT PURCHASE / SALE WITHOUT AVAILABLE INTERNAL / EXTERNAL COMPARABLES OF AES AND NON AES CUP METHOD HAS BEEN CONSIDERED AS MOST APPROPRIATE METHOD AS PER OECD GUIDELINES ALSO. THE LD. CIT (DR) CONTENDED THAT THE AMENDED PROVISO TO 292C (2) APPLICABLE FROM 01.10.2009 CLARIFIES THE METHOD OF DETERMINATION OF ALP. THIS DOES NOT IMPLY THAT PRIOR TO 01.10.2009, ASSESSEE WILL GET STANDARD DEDUCTION AS ALSO ANOTHER + 5% RANGE FROM THE OPTIONED ALP OF THE ASSESSEE. AS PER OLD PROVISIONS AS ENVISAGED UNDER RULE10B(1) READ WITH SECTION 92C(2) EMPHASIS ON INTERNATIONAL TRANSACTION AND ALP AS ARITHMETIC MEAN OF ALL ALPS TO NON AES AND ANY PRICE FALLING IN + 5% RANGE OF THIS ARITHMETIC MEAN WILL BE DEEMED AS ALP. HOWEVER, IN THE PRESENT CASE, AVERAGE PRICE TO FOR NON AES WAS WORKED OUT AT RS.444.31/KG OF WHICH 5% DOWNWARD VARIATION WILL BE 422.09. THUS, IF THE ASSESSEE OPTS FOR ALP OF 422.09/KG AND CLAIMS THAT ITS OWN AVERAGE PRICE TO AE WAS AT RS. 423, THEN THERE SHOULD NOT BE ANY TP ADJUSTMENT, HOWEVER, RULE10B DOES NOT ALLOW SUCH PROPOSITION. ARITHMETIC MEAN OF NON-AE IS REQUIRED TO BE WORKED OUT AS PER RULE10B AND SUCH ARITHMETIC MEAN WITH +/- 5% VARIATION CAN BE OPTED BY THE ASSESSEE AS ALP. THIS IMPLIES THAT ALL THE PRICES WITH + 5% RANGE FROM ARITHMETIC MEAN WILL BE CONSIDERED TO BE ALP AND ANY PRICE BEYOND 8 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 THIS 5% RANGE ARITHMETIC MEAN WILL NOT BE AT ALP AND TP ADJUSTMENT WILL BE REQUIRED TO BE MADE. THEREFORE, AS PER PROVISO TO SECTION 92C(2), THE ALP SHALL BE TAKEN AS ARITHMETIC MEAN WHICH IS 444.31 /KG AND SAME CAN BE VARY BY 5% WHICH WOULD BE 422.09/KG. THUS, ALP IN THE CASE OF THE ASSESSEE WOULD BE RANGING BEYOND 422.09 TO 444.31/KG. THEREFORE, WHERE NON-AE PRICE BELOW THE OPTION ALP OF 422.09, TP ADJUSTMENTS WOULD BE REQUIRED TO BE MADE. THEREFORE, THE LEARNED COUNSEL FOR THE ASSESSEE PROPOSITION THAT ARITHMETIC MEAN PRICE AT RS. 423 /KG BEING WITHIN RANGE OF 422.09 TO 444.31 /KG IS NOW WHERE PROPOSED IN SECTION 92C(2) OR RULE10B. THE LD. CIT (DR) FURTHER, THE LD. CIT (DR) HAS PLACED RELIANCE IN THE CASE OF IHG IT SERVICES (INDIA) (P.) LTD. V. INCOME-TAX OFFICER, WARD - 11(3), NEW DELHI [2013] 33 TAXMANN.COM 1 (DELHI-TRIB) (SB) WHEREIN IT WAS HELD THAT IN VIEW OF RETROSPECTIVE AMENDMENT MADE TO SECOND PROVISO TO SECTION 92C(2) BY FINANCE ACT, 2012, BENEFIT OF FIVE PER CENT TOLERANCE MARGIN IS AVAILABLE ONLY WHEN VARIATION BETWEEN ARM'S LENGTH PRICE AS DETERMINED UNDER SECTION 92C(1) AND PRICE AT WHICH INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED SAID TOLERANCE MARGIN. 10. IN REJOINDER TO ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT TNMM AS ADOPTED BY THE ASSESSEE COMPANY IS MOST APPROPRIATE METHOD AS AGAINST CUP METHOD ADOPTED BY THE LD. TPO/DRP. FURTHER, FOR SELECTION OF CUP AS MOST APPROPRIATE METHOD OECD GUIDELINES DOES NOT CONSTITUTE RULE OF LAW IN INDIA. IT WAS AGAIN CONTENDED THAT THE ASSESSEE COMPANY WILL GET + STANDARD DEDUCTION BY REDUCING 5% FROM AVERAGE ALP DETERMINED AT INR444.31. THEREFORE, ARITHMETIC MEAN OF ALP WOULD BE INR 422.09; HENCE, THERE SHOULD NOT BE ANY TP ADJUSTMENT AS THE AGGREGATION TRANSACTION FALL WITHIN TOLERANCE LIMIT OF + 5% BEING STANDARD DEDUCTION. THE DRP HAS COMPARED THE ALP WITH INDIVIDUAL 9 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 TRANSACTION WITH AES WHICH IS NOT IN CONSONANCE WITH RULE10B AND RULE10E. THE LD. CIT (DR) BY WAY OF EXAMPLE IN PARA (5) OF HIS WRITTEN SUBMISSIONS MENTIONED THAT IF THE ASSESSEE OPTS FOR ALP AND CLAIMS ITS OWN AVERAGE PRICE TO AES WAS INR 423.29, THERE SHOULD NOT BE ANY TP ADJUSTMENT. HOWEVER, THE RULE10B DOES NOT ALLOW SUCH PROPOSITION. HOWEVER, THE CORRECT INTERPRETATION OF OLD PROVISO TO SECTION 92C ALLOWS +5% STANDARD DEDUCTION FROM ALP WORKED OUT ON THE BASIS OF ARITHMETIC MEAN ON NON AES. IN THE CASE OF THE ASSESSEE, THE AVERAGE SALE PRICE TO AE IS MORE THAN INR 422.09, WHICH IS AS PER ALP AS PER THE OPTION AVAILABLE TO THE ASSESSEE, WHICH HAS BEEN ALSO CONFIRMED BY THE CIT(D.R.) IN PARA 5 OF HIS WRITTEN SUBMISSIONS. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED RULE 10A(D) WHICH DEFINES TRANSACTION MEANS NUMBER OF CLOSELY LINKED TRANSACTION. MEANING THEREBY THAT AGGREGATION OF CLOSELY LINKED TRANSACTION IS PERMITTED UNDER RULE10B TO RULE 10E. IN SUPPORT OF THIS PROPOSITION THE LEARNED COUNSEL FOR THE ASSESSEE HAD PLACED RELIANCE IN THE CASE OF GOLDSTAR JEWELLERY LTD. V. JCIT [2015] 53 TAXMANN.COM 353 (MUMBAI- TRIB), GODREJ SARA LEE LTD. V. ADDL. CIT RANGE 10(2) MUMBAI [2015] 58 TAXMANN.COM 109 (MUMBAI- TRIB) AND PR. CIT-2 V. AUDCO INDIA LTD. [2019] 104 TAXMANN.COM 386 (BOMBAY). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE COMPANY HAS ADOPTED TNMM METHOD AS MOST APPROPRIATE METHOD FOR ARRIVING AT ARMS LENGTH PRICE (ALP) OF THE PRODUCTS SOLD TO ITS AES. DURING THE YEAR UNDER CONSIDERATION, THE OPERATING PROFIT MARGIN (OPM) FOR EXPORTS SALES MADE TO UNRELATED THIRD PARTIES WAS 33.81% AND 43.23% ON EXPORT SALES TO THE AES. NET OPERATING MARGIN OF OTHER COMPARABLE ENTITIES IN THE COUNTRY WAS IN THE RANGE OF 2.3% TO 23.43%. THE ASSESSEE COMPANY HAS THE HIGHEST OPERATING PROFIT IN THE COUNTRY AT 43.23%. WE FIND THAT THE TPO HAD 10 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 PICKED UP A PRODUCT VIZ. CYPERMETHRIN WHICH HAS BEEN SOLD TO THE AES EXPORTED TO THE NON-AES AND ALSO SOLD IN THE DOMESTIC MARKET TO UNRELATED PARTIES. THESE ARE IDENTICAL TRANSACTIONS OF THE PRODUCT BETWEEN THE RELATED PARTIES AND THE ARMS LENGTH PRICE PARTIES, AS THE MANUFACTURER IS SELLING THESE IDENTICAL PRODUCTS RELATED PARTY/DISTRIBUTOR AS AN ARMS LENGTH DISTRIBUTOR IN THE EXPORT MARKET AND THE DOMESTIC MARKET. IT IS NOT THE CONTENTION OF THE ASSESSEE THAT THE TERMS AND CONDITIONS OF THE SALES MADE WERE DIFFERENT WITH REGARD TO THE RELATED AND UNRELATED PARTIES. HOWEVER, THE ASSESSEE OBJECTED TO THE COMPARISON OF RELATED PARTY SALES OUTSIDE INDIA WITH DOMESTIC SALES. THEREFORE, INTERNAL CUP IS AVAILABLE, AS THE ASSESSEE HAS MADE SALES TO THE AE, AND TO THE NON AES IN ALMOST SIMILAR MARKETS BEING EUROPE AND USA. THE IDENTICAL PRODUCT IS BEING SOLD TO THE AE AND NON-AE SITUATED IN THE SIMILAR MARKETS, THE TERMS AND CONDITIONS OF THE SALE ARE THE SAME, FUNCTIONS PERFORMED ARE ALSO SIMILAR, CUP OF UNRELATED EXPORT SALE IS THE MOST APPROPRIATE METHOD WHICH REQUIRED TO BE APPLIED BY THE TPO. THEREFORE, WE UPHELD THE SAME. WE FURTHER, NOTE THAT OLD PROVISIONS ENVISAGED UNDER RULE10B(1) READ WITH SECTION 92C(2) EMPHASISED ON INTERNATIONAL TRANSACTION AND ALP AS ARITHMETIC MEAN OF ALL ALPS TO NON AES AND ANY PRICE FALLING IN + 5% RANGE OF THIS ARITHMETIC MEAN WILL BE DEEMED AS ALP. HOWEVER, IN THE PRESENT CASE, AVERAGE PRICE TO FOR NON AES WAS WORKED OUT AT RS.444.31/KG OF WHICH 5% DOWNWARD VARIATION WILL BE INR 422.09. THUS, IF THE ASSESSEE OPTS FOR ALP OF 422.09/KG AND CLAIMS THAT ITS OWN AVERAGE PRICE TO AE WAS AT RS. 423, THEN THERE SHOULD NOT BE ANY TP ADJUSTMENT. THEREFORE, SUCH ARITHMETIC MEAN WITH +/- 5% VARIATION CAN BE OPTED BY THE ASSESSEE AS ALP. THIS IMPLIES THAT ALL THE PRICES WITHIN THE RANGE OF + 5% RANGE FROM ARITHMETIC MEAN WILL BE CONSIDERED TO BE ALP AND ANY PRICE BEYOND THIS 5% RANGE ARITHMETIC MEAN 11 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 WILL NOT BE AT ALP AND TP ADJUSTMENT WILL BE REQUIRED TO BE MADE. THEREFORE, AS PER PROVISO TO SECTION 92C(2), THE ALP SHALL BE TAKEN AS ARITHMETIC MEAN WHICH IS 444.31 /KG AND SAME CAN BE VARY BY 5% WHICH WOULD BE 422.09/KG. THUS, ALP IN THE CASE OF THE ASSESSEE WOULD BE RANGING BEYOND 422.09 TO 444.31/KG. THE ASSESSEE CLAIMED THAT IT WOULD APPLY TO AGGREGATION TO ALL TRANSACTION UNDERTAKEN BY NON-AES ALSO. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON`BLE BOMBAY HIGH COURT IN THE CASE OF PR. CIT -2 V. AUDCO INDIA LTD. [2019] 104 TAXMANN.COM 386 (BOMBAY) WHEREIN THE HON`BLE HIGH COURT HAS HELD AS UNDER: 4. RE-QUESTION (A) (A) DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE RESPONDENT HAD SOLD VALVES TO ITS A.E. I.E. ONE L & T LLC, U.S.A.. ON A REFERENCE THE TRANSFER PRICING OFFICER (TPO) COMPUTED THE ARMS LENGTH PRICE (ALP) OF THE SALE OF VALVES TO L & T LLC. THIS THE TPO DID AFTER RECORDING THE FACT THAT THE RESPONDENT WAS EXPORTING FINISHED VALVES NOT ONLY TO ITS A.E. ONE L & T LLC, USA FOR SALE IN THE U.S. MARKET BUT ALSO OTHER DISTRIBUTORS AND CUSTOMERS IN USA. THE TPO THEREAFTER SHORTLISTED ONLY TH OSE TRANSACTIONS WHERE THE PRICES CHARGED TO THE A.E. WAS LESS THAN THAT CHARGED TO UNRELATED PARTIES IN USA. ON THE ABOVE BASIS ALONE HE MADE AN UPWARD REVISION/ADJUSTMENT IN RESPECT OF THE PRICE CHARGED BY THE RESPONDENT TO ITS A.E. I.E. L & T LLC, USA. ON THE BASIS OF THE ABOVE ORDER OF THE TPO, THE FINAL ASSESSMENT ORDER WAS PASSED BY ASSESSING OFFICER. (B) BEING AGGRIEVED ON THE ABOVE TRANSFER PRICING ADJUSTMENT THE RESPONDENT CHALLENGED IT IN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS)( CIT (A)). IN APPEAL THE CIT (A) ALLOWED THE APPEAL OF THE RESPONDENT HOLDING THAT DURING THE YEAR VARIOUS STANDARD VALVES WERE SUPPLIED NOT ONLY TO ITS AE I.E. L & T LLC, USA BUT ALSO TO OTHERS I.E. NON AE ENTITIES IN USA. THE CIT (A) FOUND THAT IN SOME CA SES THE RESPONDENT CHARGED HIGHER RATE FROM ITS AE AND IN OTHER CASES LESSER THAN THOSE CHARGED TO NON AE'S. HOWEVER HE WAS OF THE VIEW THAT THE AE AND NON AE TRANSACTIONS ARE TO BE SEPARATELY AGGREGATED, THEN THE DIFFERENCE ON AGGREGATION OF TRANSACTIONS IS TO BE DETERMINED TO DECIDE THE ALP. THE CIT (A) FOUND THAT IF THE ABOVE EXERCISE IS DONE THEN THE DIFFERENCE BETWEEN ALP AND THE PRICE AT WHICH IT SOLD TO AE WAS LESS THAN 5% AS PROVIDED IN SECTION 92C OF THE ACT. THEREFORE, THE ADDITION ON 12 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 ACCOUNT OF S ALES OF VALVES TO L & T LLC, USA MADE BY THE ASSESSING OFFICER WAS DELETED. (C) BEING AGGRIEVED WITH THE ORDER OF THE CIT (A) THE REVENUE CARRIED THE ISSUE IN APPEAL TO THE TRIBUNAL. THE TRIBUNAL UPHELD THE ORDER OF THE CIT (APPEALS). IT FOUND THE RESPO NDENT'S CLAIM WAS BASED ON AGGREGATION OF SALES OF VALVES TO AE'S AND COMPARED IT WITH AGGREGATION OF SALES TO NON A.E.. IT FOUND THAT THE TPO WAS DOING THE COMPARISON ON SELECTIVE BASIS I.E. ONLY SELECTING THOSE TRANSACTIONS WHERE THE PRICE CHARGED TO A.E . IS LESS THAN THE PRICE CHARGED TO NON A.E. AND ENHANCING ITS ALP. THE TRIBUNAL IN THE IMPUGNED ORDER CONCLUDED THAT THE MOST LOGICAL APPROACH IS TO AGGREGATE ALL THE TRANSACTIONS MADE DURING THE YEAR WITH THE AE AND WITH NON AE SEPARATELY AND THEREAFTER DETERMINE THE ALP OF THE RESPONDENT'S TRANSACTIONS WITH THE A.E.. THE DIFFERENCE BETWEEN THE PRICES CHARGED TO A.E. AND NON A.E. BEING WITHIN THE TOLERANCE LIMIT OF 5% AS HELD IN THE ORDER OF THE CIT (A) WAS FOUND CORRECT. THUS, DISMISSED THE APPEAL OF THE REVENUE. (D) MR.SURESH KUMAR, LEARNED COUNSEL APPEARING IN RESPECT OF THE APPEAL SUBMITS THAT THE APPROACH ADOPTED BY THE TPO WAS CORRECT APPROACH. HOWEVER, HE IS NOT ABLE TO POINT ANY FLAW IN THE APPROACH OF THE CIT (A) AND THE TRIBUNAL IN ADOPTING TH E AGGREGATED APPROACH IN THE PRESENT FACTS. THUS, THE VIEW TAKEN BY THE TRIBUNAL OF DETERMINING THE ALP OF SALES TO AE ON THE COMPARISON OF THE AGGREGATION OF AE AND NON AE TRANSACTIONS (TAKING ITS ARITHMETICAL MEAN) DOES NOT CALL FOR ANY INTERFERENCE. (E) THEREFORE, QUESTION NO.1 AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. 12. IN THE LIGHT OF RATIO LAID DOWN BY THE HON`BLE HIGH COURT IN ABOVE CASE, IT WOULD BE SEEN THAT AGGREGATION OF SALES TO AE `S ALP IS INR 443.31 AND SIMILARLY AGGREGATION OF SALES TO NON-AES IS INR 423.29, IF 5% TOLERANCE MARGIN IS ADDED IT GIVES ALP AT INR 444.45, WHEREAS THE ARITHMETIC MEAN ALP OF AES IS INR 444.31. HENCE, NO ADDITION OR TP ADJUSTMENT IS REQUIRED AS THE AVERAGE PRICE 444.45 IS HIGHER THEN ALP DETERMINED AT INR 444.31 BY THE DRP. THUS, THE AVERAGE AGGREGATION SALE PRICE TO NON AES IS WITHIN THE RANGE OF + 5% . THEREFORE, TP ADJUSTMENT MADE BY THE AO IS DELETED. THE DECISION OF SPECIAL BENCH IN THE CASE OF IHG IT SERVICES (INDIA) (P.) LTD. V. INCOME-TAX OFFICER, WARD - 11(3), NEW 13 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 DELHI [2013] 33 TAXMANN.COM 1 (DELHI-TRIB) (SB) IS NOT APPLICABLE AS THE AR OF THE ASSESSEE HAS ACCEPTED THE RETROSPECTIVE EFFECT, BUT TO AGGREGATE ON ISSUE WAS NOT DISCUSSED WHEREAS WHEN THE DECISION OF HON`BLE HIGH COURT OF BOMBAY HAS CLEARLY DISCUSSED THE AGGREGATION ISSUE ON THE ISSUE WHICH DIRECTLY COVERED THE ISSUE. WE FIND THAT SECOND PROVISO TO SECTION 92C(2) PROVIDES THAT IF THE VARIATION BETWEEN THE ALP AND THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED THE SPECIFIED MARGIN, WHICH AT THE MATERIAL TIME WAS 5%, THEN THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS A CTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ALP. THE EFFECT OF THIS PROVISO IS THAT SO LONG AS THE DIFFERENCE BETWEEN THE ALP AS DETERMINED BY APPLYING ONE OF THE SPECIFIED METHODS AND THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION WAS UNDERTAKEN IS WITHIN THE PRESCRIBED PERCENTAGE, NO TRANSFER PRICING ADJUSTMENT CAN BE MADE. THIS PROVISO WAS SUBSTITUTED BY THE FINANCE (NO.2) ACT, 2009 W. E. F. 01-10-2009 . EXPLANATION TO SUB-SECTION (2) OF SECTION 92C HAS CLARIFIED : 'THAT THE PROVISIONS OF THE SECOND PROVISO SHALL ALSO BE APPLICABLE TO ALL ASSESSMENT OR REASSESSMENT PROCEEDINGS PENDING BEFORE THE ASSESSING OFFICER AS ON 1ST OCTOBER, 2009'. IN THE INSTANT CASE THE TPO HAS PASSED ORDER ON 29.09.2009 THEREFORE, SAID PROVISO WOULD NOT BE APPLICABLE. AS HELD BY THE ITAT BANGALORE IN THE CASE OF TE CONNECTIVITY INDIA (P.) LTD. V. ACIT CIRCLE 12(4), BENGALURU [2019] 104 TAXMANN.COM 322 (BENGALURUTRIB ) AND OTHERS AS QUOTED ABOVE. IN THE LIGHT OF ABOVE DISCUSSION, THIS GROUNDS OF APPEAL IS ALLOWED IN THE FAVOUR OF THE ASSESSEE. 13. GROUND NO. 3 IS AGAINST THE INCLUSION OF EXCISE DUTY, SALES TAX AND INSURANCE AND FREIGHT WHILE CALCULATING THE AMOUNT OF TURNOVER FOR THE PURPOSE OF WORKING OF DEDUCTION UNDER SECTION 10B OF THE ACT AMOUNTING TO RS.25,10,100/- AND RS.6,85,348/-. 14 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 14. IN THE DRAFT ASSESSMENT ORDER, THE AO PROPOSED TO INCLUDE THE EXCISE DUTY, SALES TAX, INSURANCE AND FREIGHT IN THE TOTAL TURNOVER FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SECTION 10 B BY RELYING ON THE DECISION OF MC DOWEL CO. LTD. 154 ITR 148 (SC) WHEREIN IT WAS HELD THAT SALES TAX AND EXCISE DUTY ARE PART OF TRADING RECEIPTS. THE AO FURTHER OBSERVED THAT THE RATIO IN THE CASE OF CIT V. SUDARSHAN CHEMICALS [2002] 245 ITR 769 (SC) RELIED BY THE ASSESSEE WILL BE APPLICABLE IN THE CASE OF ASSESSEE PERTAINING TO ASSESSMENT YEAR PRIOR TO ASSESSMENT YEAR 1999-2000. AS PER THE PROVISIONS OF SECTION 145A OF THE ACT THE VALUATION OF PURCHASE AND SALES HAS TO BE MADE AFTER AIDING TAX, DUTY, CESS OR FEE ETC. THE ASSESSEE HAS SUBMITTED THAT SECTION 10 B IS PARI-MATERIA TO SECTION 80HHC, WHEREIN THE DEDUCTION HAS TO BE WORKED OUT ON THE BASIS OF SAME FORMULA AND PRINCIPLE AS LAID DOWN IN SECTION 80 HHC. IF AN ITEM IS NOT INCLUDED IN EXPORT TURNOVER, IT SHOULD NOT BE INCLUDED IN TOTAL TURNOVER, OTHERWISE, IT WILL GIVE WRONG DEDUCTION AND MATCHING CONCEPT WILL BE WRONG. THE ASSESSEE RELIED IN THE CASE OF CIT VS. LAXMI MACHINE WORKS [2007] 290 ITR 667 (SC), CIT V. SUDARSHAN CHEMICALS [2007] 290 ITR 667 (SC) IN HIS SUPPORT. HOWEVER, THE DRP HAS CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT THE PROVISIONS OF THIS SECTION 145A HAVE BEEN INSERTED WITH EFFECT FROM 01. 04. 2009. ACCORDING TO WHICH THE VALUATION OF INVENTORY IS TO BE MADE BY ADDING THE AMOUNT OF TAX, DUTY, CESS OR FEES. THEREFORE, THE EFFECT OF INSERTION OF THE PROVISIONS IN THAT SECTION WAS NOT CONSIDERED IN THE AFORESAID DECISIONS RELIED BY THE ASSESSEE. THE DRP FURTHER OBSERVED THAT THE AO HAS INCLUDED INSURANCE AND FREIGHT IN THE TURNOVER FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SECTION 10B OF THE ACT. THE AO HAS REJECTED THE CLAIM OF THE ASSESSEE THAT THE PROVISION OF SECTION 10B ARE ON SIMILAR LINES AS THE PROVISION OF SECTION 80HHC OF THE ACT AND THEREFORE, THE TOTAL 15 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 TURNOVER SHOULD BE EXCLUSIVE OF INSURANCE AND FREIGHT AS LAID DOWN IN THE PROVISIONS OF SECTION 80 HHC OF THE ACT. HOWEVER, ACCORDING TO THE AO, THAT NO DEFINITION OF TOTAL TURNOVER HAS BEEN PROVIDED UNDER SECTION 10B OF THE ACT, WHICH PROVIDED FOR EXCLUSION OF FREIGHT AND INSURANCE FOR THE PURPOSE OF WORKING OUT THE TOTAL TURNOVER. THE EXPLANATION 2 TO SECTION 10B DEFINES THE EXPORT TURNOVER AS A CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS, COMPUTER SOFTWARE RECEIVED IN OR BROUGHT TO IN INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SECTION (3) , BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION OR INSURANCE CHARGES ATTRIBUTABLE TO DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY , INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE ASSESSEE HAS ALSO RELIED IN THE CASE OF CIT VS. LAXMI MACHINE WORKS [2007] 290 ITR 667 (SC). HOWEVER, THE DRP OBSERVED THAT THE AMENDED OF CLAUSE (III) OF EXPLANATION 2 BELOW SECTION 10B IS TO EXCLUDE CERTAIN ITEMS FROM THE EXPORTER TURNOVER, BUT THERE IS NO SUCH MANDATE GIVEN IN THE SECTION TO EXCLUDE ANY THING FROM THE TOTAL TURNOVER. IN FACT, THERE IS NO DEFINITION OF TOTAL TURNOVER UNDER SECTION. THE PARITY THEORY RELIED UPON BY THE ASSESSEE IN ITS SUBMISSION HAS BEEN REJECTED BY THE HONOURABLE SUPREME COURT IN THE DECISION IN THE CASE OF CIT V. K. RAVINDRANATHAN NAIR [2007] 295 ITR 229 (SC). THEREFORE, THE ACTION OF THE AO WAS CONFIRMED. 15. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HONOURABLE KARNATAKA HIGH COURT IN THE CASE OF INTEL TECHNOLOGY (INDIA) PVT. LTD. 107 TAXMANN.COM 461 (KAR.) OF WHICH SLP WAS DISMISSED BY THE HON`BLE SUPREME COURT REPORTED IN [2019] 107 TAXMANN.COM 462 (SC) WHEREIN IT WAS HELD THAT EXPENSES EXCLUDED 16 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 FROM EXPORT TURNOVER WERE ALSO TO BE EXCLUDED FROM TOTAL TURNOVER FOR THE PURPOSE OF SECTION 10A. SECTION 10B IS PARI-MATERIA TO SECTION 10A. SIMILARLY EXCLUSION OF EXCISE DUTY AND SALES TAX WHILE CALCULATING DEDUCTION UNDER SECTION 80 HHC HAS BEEN ALLOWED BY THIS HONOURABLE TRIBUNAL IN THE CASE OF THE COMPANY FOR ASSESSMENT YEAR 2004-2005 IN ITA NO.2446/AHD/2007. FURTHER, DEPARTMENTAL APPEAL IN THIS REGARD HAS BEEN DISMISSED BY THE HONOURABLE GUJARAT HIGH COURT IN TAX APPEAL NO. 1386 OF 2018. SECTION 10B IS PARI MATERIA TO SECTION 80HHC. THE DECISION IN THE CASE OF CIT VS. LAXMI MACHINE WORKS[2007] 290 ITR 667 (SC) HELD THAT SALE PRICE AND EXCISE DUTY WILL NOT FORM PART OF TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 HHC. THE DECISION OF HONOURABLE SUPREME COURT IN THE CASE OF SHIVA TEX YARN LIMITED 25 TAXMANN.COM 302 (SC) HELD THAT SALES TAX AND EXCISE DUTY WILL NOT FORM PART OF TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE CHENNAI SPECIAL BENCH IN THE CASE OF ITO V. SAK SOFT LIMITED [2009] 30 SOT 55 ( CHENNAI) (SB) HELD THAT FREIGHT TELECOM CHARGES OR INSURANCE ARE TO BE EXCLUDED, BOTH FROM EXPORT TURNOVER AND FROM TOTAL TURNOVER, FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10B (4) OF THE ACT. 16. PER CONTRA, LD. D.R. RELIED ON ORDER OF THE LD. DRP. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE OF EXCLUSION OF EXCISE DUTY AND SALES TAX ARE NO LONGER RES INTEGRA AS HELD BY HONOURABLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. INTEL TECHNOLOGY INDIA (P) LTD [2019] 107 TAXMANN.COM 461 (KAR.) WHEREIN IT WAS HELD AS UNDER: 7. THE METHOD OF COMPUTING THE EXEMPTION UNDER SECTION 10-A OF THE ACT AND PRECISELY, THE QUESTION AS TO WHETHER THE EXPENSES 17 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 EXCLUDED FROM THE EXPORT TURNOVER ARE ALSO TO BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF SECTION 10-A OF THE ACT, HAS BEEN DEALT WITH BY THIS COURT IN THE CASE OF TATA ELXSI LTD. (SUPRA); AND THIS COURT HAS ANSWERED THE QUESTION AGAINST THE REVENUE, WHILE HOLDING, INTER ALIA, AS UNDER: ' IN OTHER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM 'TOTAL TURNOVER' IN SECTION 10-A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE AND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO THE SAME, THE SAID ORDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESCRIBES A FORMULA AND IN THE SAID FORMULA, 'EXPORT TURNOVER' IS DEFINED, AND WHEN THE 'TOTAL TURNOVER' INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE EXPRESSLY STATED SO. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT THE TOTAL TURNOVER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE MEANING ASSIGNED BY THE LEGISLATURE TO THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WHILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER . . .' (UNDERLINING SUPPLIED) 8. THE PRINCIPLES AFORESAID DIRECTLY APPLY TO THE PRESENT CASE TOO, AND THEREFORE, WE ARE UNABLE TO FIND ANY INFIRMITY IN THE ORDER IMPUGNED. 18. THE ABOVE DECISION WAS AFFIRMED BY THE HON`BLE SUPREME COURT IN THE CASE OF CIT V. INTEL TECHNOLOGY INDIA (P) LTD [2019] 107 TAXMANN.COM 462 (SC) - WHERE HIGH COURT UPHELD TRIBUNAL'S ORDER HOLDING THAT EXPENSES EXCLUDED FROM EXPORT TURNOVER WERE ALSO TO BE EXCLUDED FROM TOTAL TURNOVER FOR PURPOSE OF SECTION 10-A, SLP FILED AGAINST ORDER OF HIGH COURT WAS TO BE DISMISSED. WE FIND 18 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 THAT THE PROVISION OF SECTION 10B ARE PARI MATERIA WITH SECTION 10A HENCE, THIS DECISION WOULD APPLY TO SAME. FURTHER, SECTION 10B IS ALSO PARI MATERIA WITH SECTION 80HHC. THEREFORE, THE ISSUE IS ALSO COVERED BY DECISION OF HON`BLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS [2007] 290 ITR 667 (SC). SO FAR INCLUSION OF INSURANCE AND FREIGHT IS CONCERNED, WE FIND THAT AS PER EXPLANATION 2 TO SECTION 10B DEFINES EXPORT TURNOVER CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS, COMPUTER SOFTWARE RECEIVED IN OR BROUGHT TO IN INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION OR INSURANCE CHARGES ATTRIBUTABLE TO DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY , INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF SPECIAL BENCH IN THE CASE OF ITO V. SAK SOFT LIMITED [2009] 30 SOT 55 ( CHENNAI) (SB) HELD THAT FREIGHT TELECOM CHARGES OR INSURANCE ARE TO BE EXCLUDED, BOTH FROM EXPORT TURNOVER AND FROM TOTAL TURNOVER, FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10B (4) OF THE ACT. WE FURTHER, NOTE THAT SPECIAL BENCH FOLLOWED THE RATIO OF DECISION OF CIT VS. LAXMI MACHINE WORKS[2007] 290 ITR 667 (SC). IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE ALLOW THE APPEAL OF THE ASSESSEE. THIS IS THEREFORE, ALLOWED. 19. GROUND NO. 4: IS AGAINST THE CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.5,89,277/- OUT OF TRADING LOSS INCURRED BY THE ASSESSEE. 20. FACTS APROPOS OF THIS GROUND ARE THAT THE ASSESSEE HAS INCURRED A LOSS OF RS.5,89,279/- FROM THE SALES MADE TO RELATED PARTIES. THE AO OBSERVED THAT IT IS HARD TO IMAGINE THAT A COMPANY WHICH IS HAVING HUGE TURNOVER AND HANDSOME 19 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 PROFITS ON ITS MANUFACTURING ACTIVITIES, WILL SELL ITS MATERIALS AT LOSS? THEREFORE, THE AO OBSERVED THAT THE REPLY SUBMITTED BY THE ASSESSEE IS VAGUE AND NOT CONVINCING , HENCE, THE AO PROPOSED THE ADDITION IN DRAFT ASSESSMENT ORDER BY OBSERVING THAT THAT IT IS DIFFICULT TO BELIEVE THAT A COMPANY WHICH INCUR LOSS BY SELLING RAW MATERIAL AT LOWER PRICE. THE DRP OBSERVED THAT THE ASSESSEE COMPANY HAS DISPOSED-OFF RAW MATERIAL NOT REQUIRED BY IT TO RELATED PARTIES. DRP OBSERVED SIMILAR DISALLOWANCE MADE IN A.Y. 2002-03 TO 2005-06, HAVE BEEN CONFIRMED BY CIT (A). HENCE, THE DRP HAS AGREED WITH THE FINDINGS OF THE AO. THE TRANSACTION IS NOT IN THE ORDINARY COURSE OF BUSINESS AND HAS ALSO RESULTED IN LOSS. THE ASSESSEE HAS NOT BROUGHT ON RECORD THE CIRCUMSTANCES LEADING TO THE DISPOSAL OF THE GOODS AT A PRICE BELOW ITS PURCHASE COST. ACCORDINGLY, THE DRP HAS CONFIRMED THE ACTION OF THE AO. 21. BEING DISSATISFIED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT PURCHASE AND SALE ARE MADE IN THE ORDINARY COURSE OF BUSINESS AND FULLY SUPPORTED BY THE BILLS. THE PURCHASER COMPANIES HAVE BEEN ASSESSED AT MAXIMUM MARGINAL RATE. SUCH GROUND WAS ALLOWED IN A.Y. 03-04 BY THE TRIBUNAL, BUT TRIBUNAL HAS DISMISSED THIS GROUNDS OF APPEAL IN A.Y. 04-05 AND A.Y. 05-06 AGAINST WHICH MISCELLANEOUS APPLICATION IS FILED. 22. THE LD. CIT (DR) SUBMITTED THAT IT IS DIFFICULT TO BELIEVE THAT THE ASSESSEE COMPANY WILL INCUR LOSS ON ACCOUNT OF SALES OF RAW MATERIAL AND THAT TOO ITS ASSOCIATES CONCERNS. THIS FURTHER, GET STRENGTHENED BY THE FACT THAT ALL THE SALES ARE MADE TO RELATED PARTIES. THEREFORE, LOSS INCURRED IS NOT GENUINE, HENCE, SAME WAS DISALLOWED. 20 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS INCURRED A LOSS OF RS.5,89,279 FROM THE SALES OF RAW MATERIAL MADE TO RELATED PARTIES. WE FURTHER, OBSERVED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN A.Y. 04-05 AND 05-06 . THE TRIBUNAL OBSERVED AS UNDER: WE FIND THAT THE ASSESSEE HAS INCURRED A LOSS OF RS.17,41,116 IN THE TRADING TURNOVER OF RS. 1,28,09,044 FROM THE SALES OF RAW MATERIAL MADE TO RELATED PARTIES. THE AO OBSERVED THAT IT IS HARD TO IMAGINE THAT A COMPANY WHICH IS HAVING A HUGE TURNOVER AND HANDSOME PROFITS ON ITS MANUFACTURING ACTIVITIES. WILL SELL ITS MATERIALS AT LOSS. WHEN THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM, IT WAS SUBMITTED THAT BOOKS OF ACCOUNTS ARE AUDITED AND COST PURCHASES ARE DETERMINED ON MOVING AVERAGE PRICE METHOD BY THE SYSTEM. THEREFORE, THE AO CONCLUDED THAT IT IS DIFFICULT TO BELIEVE THAT A COMPANY WILL INCUR LOSS BY SELLING RAW MATERIAL AT LOWER PRICE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE SALES OF RAW MATERIAL MADE TO RELATED PARTIES ON LOWER THAN MARKET PRICE IS NOT JUSTIFIED. THE TRANSACTION IS ALSO COVERED BY THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT FOR WHICH NO EXPLANATION HAS BEEN FILED. THE ASSESSEE HAS ALSO FAILED TO SUBSTANTIATE AS TO HOW THE SALES OF RAW MATERIAL WAS MADE AT LOWER RATE. THEREFORE, WE ARE OF THE VIEW THE LD. CIT (A) WAS JUSTIFIED IN REJECTING THIS GROUNDS OF APPEAL. ACCORDINGLY, THIS GROUNDS OF APPEAL OF THE ASSESSEE IS THEREFORE, DISMISSED. 24. SINCE THE FACTS AND CIRCUMSTANCES ARE SAME FOR THIS ASSESSMENT YEAR ALSO. THEREFORE, RESPECTIVELY FOLLOWING THE SAME, THE DISALLOWANCE MADE BY THE AO ARE CONFIRMED. THIS GROUNDS OF APPEAL OF THE ASSESSEE IS THEREFORE, DISMISSED. 25. GROUND NO. 5: IS AGAINST THE DISALLOWANCE MADE ON ACCOUNT OF QBAL LICENSE WRITTEN OFF OF RS.54,70,214/-. 26. BRIEFLY, STATED THE FACTS OF THE CASE ARE THAT THE AO PROPOSED THAT QBAL LICENSE DISALLOWANCE OF RS.4,16,37,969. DURING THE COURSE OF DRP HEARING ONE MORE OPPORTUNITY PROVIDED TO THE AO TO BIFURCATE. THE ASSESSEE HAS SPLIT OFF THESE IN THREE PARTS. AN AMOUNT OF RS.3,14,91,053/- WAS QBAL ON ACCOUNT OF EXPIRY OF ITEMS OF 36 MONTHLY. THE DRP STATED SATISFIED WITH EXPLANATION AND ALLOWED THIS AMOUNT TO BE WRITTEN OFF. THE SECOND PART OF AMOUNT OF 21 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 RS.46,67,663/- ON ACCOUNT OF COMPUTATION OF EXCISE DUTY FOR F.Y. 05-06 WAS ALSO ALLOWED AS DEDUCTION. HOWEVER, AN AMOUNT OF RS.54,79,214/- ON ACCOUNT OF MANAGEMENT DECISION WAS NOT ALLOWED TO BE WRITTEN OFF AND HENCE, DISALLOWANCE PROPOSED ON THIS ACCOUNT WERE CONFIRMED. 27. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LICENSE IS ONLY AN OPTION TO IMPORT RAW MATERIAL WITHOUT PAYMENT OF CUSTOM DUTY AT ANY POINT OF TIME WITHIN THE VALIDITY OF PERIOD OF SUCH LICENSE. THE VALUE OF SUCH LICENSE HAS BEEN ALREADY OFFERED AS TAXABLE INCOME BY WAY OF CREDIT TO THE PROFIT & LOSS ACCOUNT DURING F.Y. 2002-03. THE QBAL LICENSE HAS BEEN RECOGNIZED AS INCOME IN THE YEAR OF RECEIPT AND WRITTEN OFF IN THE YEAR IN WHICH THE LICENSE IS NO MORE USEFUL FOR THE ASSESSEE COMPANY. IT WAS FURTHER, SUBMITTED THAT FACTS OF THE CASE ARE SIMILAR TO A.Y. 2005-06 AND DULY COVERED BY DECISION OF TRIBUNAL IN I.T.A.NO. 2584/AHD/2007. 28. PER CONTRA, LEARNED CIT(D.R.) RELIED ON THE DRP. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE IS DULY COVERED BY DECISION OF TRIBUNAL IN THE CASE OF FOR ASSESSMENT YEAR 2005-06 WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER: 61.BRIEFLY, STATED THE FACTS OF THE CASE ARE THAT TO ACQUIRE QABL LICENSE THE ASSESSEE IS 1 ST IS REQUIRED TO GIVE UNDERTAKING TO THE GOVERNMENT THAT IT WILL PRODUCE AND EXPORT CERTAIN QUANTITY OF GOODS AND IN EXCHANGE OF SUCH UNDERTAKING THE GOVERNMENT ISSUE THE LICENSE FOR WHICH THE ASSESSEE CAN IMPORT A SPECIFIC QUANTITY OF RAW MATERIAL REQUIRED FOR THE PRODUCTION OF THE ITEMS FOR THE EXPORT OF WHICH THE ASSESSEE HAS GIVEN UNDERTAKING. ON RECEIPT OF SUCH LICENCES, THE ASSESSEE IS TO CREDIT THE PLA ACCOUNT AS INCOME AND LATER ON IT IS UTILISED THE SAME ARE DEBITED TO THE PLA ACCOUNT AS EXPENSES. THE ASSESSEE HAS WRITTEN OFF THE QBAL LICENSES OF 22 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 RS.8,37,360,015/- DURING THE YEAR UNDER CONSIDERATION. IN THE PRESENT INSTANCE, THE ASSESSEE DID NOT UTILISE THEM THE ASSESSEE HAS WRITTEN OFF THE LICENSES AND HAS CLAIMED THE AS EXPENSES. ON FURTHER VERIFICATION OF THE ITEMS INVOLVED IN THE LICENSES WRITTEN OFF, IT WAS SEEN THAT THE ASSESSEE HAS CARRIED FORWARD OTHER LICENSES FOR THE IMPORT OF THE SAME ITEMS FOR THE NEXT YEAR AND AN ONLY CERTAIN PORTION OF THE ENTITLEMENT WERE WRITTEN OFF DURING THE YEAR. THE ASSESSEE HAS EXPLAINED THAT THAT BY APPLICATION OF THE QBAL LICENSES DEPENDS UPON THE NEED FOR ANY PARTICULAR RAW MATERIAL TO BE PROCURED UNDER ADVANCE LICENSES SCHEME. SIMULTANEOUSLY, THE COMPANY ALWAYS LOOKS FOR THE ALTERNATIVE PROCUREMENT STRATEGY OF SOURCING ITS RAW MATERIAL TO MAXIMIZING BENEFITS BASED ON THE PREVAILING PRICE OF THE DOMESTIC AND INTERNATIONAL SUPPLIERS AT THE TIME OF MAKING PURCHASES. TO REITERATE, IF THE RAW MATERIAL ARE AVAILABLE IN DOMESTIC MARKET AT A CHEAPER RATE, THE COMPANY MAY NOT UTILISE THE QBAL LICENSE TO PROCURE THE MATERIAL FROM THE INTERNATIONAL MARKET. HENCE, THE QBAL LICENSE HAS TO BE APPLIED, TO CATCH THE OPPORTUNITY IN THE MOVEMENT OF PRICES OF RAW MATERIAL IN THE INTERNATIONAL MARKET. IF THE LOCAL PRICES BECOME ATTRACTIVE, THEN THE SAME WAS PROCURE LOCALLY. IF SUCH LICENCES ARE NOT OBTAINED, THEN IT WILL NOT BE ABLE TO ENCASH THE OPPORTUNITY OF LOWER PRICES IN THE INTERNATIONAL MARKET BECAUSE THE LICENSES CANNOT BE OBTAINED ON INSTANT BASIS FROM THE CONCERNED AUTHORITIES. THE WRITING OFF ANY PARTICULAR LICENSES IS BASICALLY A MANAGEMENT DECISION, WHERE THE BENEFITS ARE MORE IN TERMS OF LOCAL PROCUREMENT, THEN THE IMPORTS. HOWEVER, THE AO OBSERVED THAT THE ASSESSEE HAS FAILED TO JUSTIFY THAT WHEN THE LOCALLY AVAILABLE INPUTS WERE CHEAPER THEN WHY IT HAS NOT WRITTEN OFF THE WHOLE OF THE ENTITLEMENT OF THAT PARTICULARS INPUT AND ONLY PART OF THE IN INPUTS ARE WRITTEN OFF. FURTHER, THE ASSESSEE IS REQUIRED TO PROVE IS THAT WHETHER THE QBAL LICENSES THAT ARE WRITTEN OFF WERE EVER OFFERED AS INCOME IN THE PLA ACCOUNT? IN RESPONSE TO WHICH, THE ASSESSEE HAS SUBMITTED AN OVERALL SUMMARY OF QBAL LICENSES FOR FINANCIAL YEAR 2001-02 TO 2005-06 SHOWING OPENING BALANCE, ADDITION, UTILIZATION, WRITTEN OFF DURING THE YEAR AND CLOSING BALANCE. AFTER GOING THROUGH THE SAME, THE AO OBSERVED THAT PRIME REQUIREMENT FOR ALLOWING THE ASSESSEE TO WRITE OFF THE PARTICULAR LICENSE IS THAT THE ASSESSEE MUST HAVE OFFERED THAT PARTICULAR LICENSES AS ITS INCOME IN PRECEDING YEARS. IT CAN BE SEEN THAT THE ASSESSEE IS NOT POSITION TO SHOW THAT THE LICENSES, WHICH IT HAS WRITTEN OFF DURING THE YEAR, WERE EVER OFFERED BY ITS INCOME IN ANY OF THE PRECEDING YEARS. THE FAILURE OF THE ASSESSEE SHOWS THAT THE LICENSES IN QUESTION WERE NEVER OFFERED BY IT AS INCOME, OTHERWISE, THERE IS NO REASON FOR THE ASSESSEE NOT TO PRODUCE THE EVIDENCE SHOWING THAT THE LICENSES IN QUESTION WERE OFFERED AS INCOME IN PARTICULAR YEAR. IT IS POSSIBLE THAT THE ASSESSEE IS OBTAINING A NUMBER OF LICENSES EVERY YEAR. OUT OF THE LICENSES, PART OF THE LICENSES ARE NOT OFFERED AS INCOME AND AFTER A COUPLE OF YEARS, THE LICENSES WHICH ARE NOT SHOWN IN THE BOOKS ARE WRITTEN OFF AND 23 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 CLAIMED AS EXPENDITURE IN ANTICIPATION THAT LOOKING TO THE VOLUMINOUS TURNOVER OF THE LICENSES, DEPARTMENT WILL NOT BE ABLE TO DIG OUT THE MODUS OPERANDI FOLLOWED BY THE ASSESSEE. SINCE THE ASSESSEE HAS FAILED TO PROVE THAT THE LICENSES WHICH IT HAS WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION WERE EVER OFFERED AS INCOME, THERE IS NO REASON TO ALLOW THE ASSESSEE TO WRITE OFF THE SAME AND CLAIM IT AS AN EXPENDITURE. ACCORDINGLY, THE WRITTEN OFF THE VALUE OF THE LICENSES OF RS.8,37,36,015/- WERE DISALLOWED AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 62. BEING, AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A). THE CIT(A) OBSERVED THAT THE DETAILED ANALYSIS OF YEAR WISE, LICENSE WISE, PRODUCT WISE AS PER DETAILS FURNISHED BY THE APPELLANT COMPANY SHOWS THAT THE VALUE OF THE LICENCES WHICH HAS BEEN ACCOUNTED AS INCOME AND NOT UTILISED BY THE COMPANY HAS BEEN WRITTEN OFF ON ACCOUNT OF THE PERCEPTION OF THE APPELLANT THAT IT CANNOT BE UTILISED AT ANY POINT OF TIME IN FUTURE. THE APPELLANT HAS CONSISTENTLY ADOPTED THE ACCOUNTING POLICY BASED ON THE ACCOUNTING STANDARD AS-9, REVENUE RECOGNITION ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND THE STATUTORY AUDITORS OF THE COMPANY HAVE NOT GIVEN ANY OBSERVATIONS OR ADVERSE REMARKS IN RESPECT OF THE SAID ACCOUNTING PRACTICE. IT IS OBSERVED THAT THE APPELLANT HAS ONLY WRITTEN OFF THE LOSS OF BENEFITS, WHICH WAS EARLIER ACCOUNTED AS INCOME FOR WHICH FULL TAX HAS BEEN PAID TO THE GOVERNMENT ACCOUNT. KEEPING IN VIEW OF THE FACTUAL MATRIX OF THE CASE, THE CIT (A) DIRECTED THE AO TO DELETE THE DISALLOWANCE MADE ON ACCOUNT OF QBAL LICENSES WRITTEN OFF. 63.BEING AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. PER CONTRA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT DETAILS OF SUCH LICENSE FILED ARE PLACED AT PAPER BOOK PAGE NO. 31 TO 34. DETAILS OF LICENSE QBAL MOVEMENT STATEMENT ALONG WITH SOME COPIES OF LICENSES ON A RANDOM BASIS ARE PLACED AT PAPER BOOK PAGE NO. 11 TO 148. SUCH TYPE OF WRITTEN OFF IS ALLOWED IN ALL EARLIER YEARS IN SCRUTINY ASSESSMENT 64.THE LEARNED D.R. SUBMITTED THE ASSESSEE DID NOT SUBMIT ANY DETAILS IN RESPECT OF INPUT OUTPUT OF RATIO OF MATERIALS IMPORTED OR REQUESTED BEFORE THE DG FT FOR ANY OF THE FINANCIAL YEARS. THE CIT (A) HAS FAILED TO APPRECIATE THE FOLLOWING FACTS: -DETAIL OF ADVANCE LICENSE WHICH WAS PROCURED, A PORTION OF THE ADVANCE LICENSE WHICH HAS BEEN CARRYING FORWARD OR IN WHICH DATE HAS BEEN EXTENDED BY THE DGFT. WHETHER TOTAL LICENSE HAS BEEN WRITTEN OFF OR PARTIAL LICENSES HAVE BEEN WRITTEN OFF? IN CASE OF LICENSE WRITTEN OFF, WHETHER PARTIALLY OR FULLY, HOW THE IMPORT OBLIGATION HAS BEEN MET? WHERE THE LICENCE HAS BEEN WRITTEN OFF COMPLETELY OR PARTIALLY, THEN WHO ARE THE VENDORS FROM WHOM COMMODITIES HAVE BEEN PROCURED AND USED FOR 24 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 THE MANUFACTURING PURPOSE AND FINALLY EXPORTED? THEREFORE, IT WAS ARGUED THAT THE AO HAS RIGHTLY HELD THAT THE AMOUNT WRITTEN OFF AND CLAIMED AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT CANNOT BE ALLOWED AND HENCE THE SAME WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 65.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS SUBMITTED AN OVERALL SUMMARY OF QBAL LICENSES FOR FINANCIAL YEAR 2001-02 TO 2005- 06 SHOWING OPENING BALANCE, ADDITION, UTILIZATION, WRITTEN OFF DURING THE YEAR AND CLOSING BALANCE. THIS CHART IN TABULAR FORM IS APPEARING AT PAGE NO. 13 PARA 5.10 OF THE APPELLATE ORDER. THIS SHOWS THE BREAKUP OF GROUPING WHERE THE SAME HAS BEEN INCLUDED AS INCOME IN THE EARLIER YEAR`S WHEN THEY ACCRUED / ARISED. THE LD. CIT (A) HAS ANALYZED THE SAME AND FOUND THE SAME AS CORRECT. WE FURTHER NOTE THAT THE ASSESSEE HAS ACCOUNTED THE SAME AS PER ACCOUNTING POLICY BASED ON REVENUE RECOGNITION AS PER AS-9 ISSUED BY ICAI. FURTHER, THE AUDITORS HAVE NOT MADE ANY ADVERSE COMMENT ON THIS. MOREOVER, THE AO HAS ALLOWED THIS DEDUCTION IN EARLIER YEAR ASSESSMENT, WHICH WERE MADE UNDER SCRUTINY. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE SAID ADDITION MADE BY THE AO. THEREFORE, WE ARE NOT INCLINED TO DISTURB THE FINDINGS RECORDED BY THE CIT (A). THIS GROUND OF APPEAL IS THEREFORE, DISMISSED. 66.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS SUBMITTED AN OVERALL SUMMARY OF QBAL LICENSES FOR FINANCIAL YEAR 2001-02 TO 2005- 06 SHOWING OPENING BALANCE, ADDITION, UTILIZATION, WRITTEN OFF DURING THE YEAR AND CLOSING BALANCE. THIS CHART IN TABULAR FORM IS APPEARING AT PAGE NO. 13 PARA 5.10 OF THE APPELLATE ORDER. THIS SHOWS THE BREAKUP OF GROUPING WHERE THE SAME HAS BEEN INCLUDED AS INCOME IN THE EARLIER YEAR`S WHEN THEY ACCRUED / ARISED. THE LD. CIT (A) HAS ANALYZED THE SAME AND FOUND THE SAME AS CORRECT. WE FURTHER NOTE THAT THE ASSESSEE HAS ACCOUNTED THE SAME AS PER ACCOUNTING POLICY BASED ON REVENUE RECOGNITION AS PER AS-9 ISSUED BY ICAI. FURTHER, THE AUDITORS HAVE NOT MADE ANY ADVERSE COMMENT ON THIS. MOREOVER, THE AO HAS ALLOWED THIS DEDUCTION IN EARLIER YEAR ASSESSMENT, WHICH WERE MADE UNDER SCRUTINY. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE SAID ADDITION MADE BY THE AO. THEREFORE, WE ARE NOT INCLINED TO DISTURB THE FINDINGS RECORDED BY THE CIT (A). THIS GROUND OF APPEAL IS THEREFORE, DISMISSED. 30. WE FIND THAT THE ISSUE IS DULY COVERED BY ABOVE DECISION. WE FURTHER, NOTE THAT THE ASSESSEE HAS SUBMITTED AN OVERALL SUMMARY OF QBAL LICENSES FOR 25 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 FINANCIAL YEAR 2001-02 TO 2005-06 SHOWING OPENING BALANCE, ADDITION, UTILIZATION, WRITTEN OFF DURING THE YEAR AND CLOSING BALANCE. THIS SHOWS THE BREAKUP OF GROUPING WHERE THE SAME HAS BEEN INCLUDED AS INCOME IN THE EARLIER YEAR`S WHEN THEY ACCRUED / ARISED. WE FURTHER NOTE THAT THE ASSESSEE HAS ACCOUNTED THE SAME AS PER ACCOUNTING POLICY BASED ON REVENUE RECOGNITION AS PER AS-9 ISSUED BY ICAI. FURTHER, THE AUDITORS HAVE NOT MADE ANY ADVERSE COMMENT ON THIS. MOREOVER, THE AO HAS ALLOWED THIS DEDUCTION IN EARLIER YEAR ASSESSMENT, WHICH WERE MADE UNDER SCRUTINY. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE DRP WAS JUSTIFIED CONFIRMING THE ADDITION MADE BY THE AO. THEREFORE, WE DELETE THE SOME. THIS GROUND OF APPEAL IS THEREFORE, ALLOWED. 31. GROUND NO. 6 IS AGAINST CONFIRMING THE ACTION OF THE A.O. IN REALLOCATING THE PERSONAL EXPENSES OF RS.1,56,86,984/- FOREIGN TRAVELLING EXPENSES OF RS.22,00,847/-, STAFF WELFARE EXPENSES OF RS.5,91,853/-, OIL AND PETROL EXPENSES OF RS.2,02,232/- AND OTHER EXPENSES OF RS.66,84,303/- BETWEEN BILAG UNIT AND BEOU. 32. SHORT FACTS OF ABOVE ISSUES ARE THAT THE ASSESSEE COMPANY WAS HAVING TWO UNITS VIZ. BILAG AND BEOU. BEOU UNIT IS 100% EXPORT ORIENTED UNIT WHEREAS, BILAG HAS NORMAL UNDERTAKING WHICH ALSO UNDERTAKEN EXPORT. THE ASSESSEE COMPANY HAS ALLOCATED LESS EXPENSES IN BEOU BEING 100% EXPORT ORIENTED UNIT AS THE WHOLE PROFIT BEING EARNED FROM THIS UNIT IS EXEMPTED FROM TAX. THE ASSESSEE COMPANY HAS FILED UNIT WISE PROFIT AND LOSS ACCOUNT FOR THE YEAR FROM WHICH IT IS NOTICED THAT THE COMMISSION EXPENSES WHICH COULD NOT BE DIRECTLY IDENTIFY WITH ANY OF THE UNIT FOR THE ASSESSEE COMPANY WAS ALLOCATED ON THE BASIS OF CERTAIN NUMBERS 26 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 DETERMINED. THE ASSESSEE HAS DEBITED PERSONAL EXPENSES OF RS.8,89,52,484/- OUT OF WHICH RS.1,50,84,353/- WERE ALLOCATED TO BEOU UNIT WHICH COMES TO ABOUT 17%. HOWEVER, THE AO WAS OF THE VIEW THAT THE ALLOCATION OF PERSONAL EXPENSES ON THE ABOVE RATIO IS NOT JUSTIFIED AND SUFFICIENT. PROPORTION OF SALES OF BILAG AND BEOU OF THE TOTAL SALES OF THE COMPANY IS 62% AND 38% RESPECTIVELY . THE AO THEREFORE, ALLOCATED THE PERSONAL EXPENSES IN THE RATIO OF TURNOVER AT 38% WHICH RESULTED IN DISALLOWANCE OF EXPENSES OF RS.1,56,86,984/-. SIMILARLY THE ASSESSEE HAS ALLOCATED NIL FOREIGN TRAVELLING EXPENSES AS AGAINST FOREIGN TRAVELLING EXPENSES OF RS.57,91,702/-. HOWEVER, THE AO HAS ALLOCATED FOREIGN TRAVELLING EXPENSES IN THE TURNOVER RATIO OF 38%, WHICH RESULTED IN THE ADDITION OF RS.22,00,847/-. SIMILARLY STAFF WELFARE EXPENSES OF RS.19,26,384/- WERE CLAIMED OUT OF WHICH THE ASSESSEE HAS ALLOCATED RS.1,40,173/-, WHEREAS THE AO ADOPTED FIGURE AT RS.7,32,026/- IN THE TURNOVER RATIO OF 38% , ACCORDINGLY, DIFFERENTIAL AMOUNTS OF RS.5,91,853/- WAS ADDED TO TOTAL INCOME. WITH REGARD TO OIL AND PETROL EXPENSES OF RS.5,32,191/- AS AGAINST WHICH THE ASSESSEE HAS ALLOCATED NIL WHEREAS THE AO HAS ALLOCATED THE SAME AT THE RATIO OF TURNOVER AND MADE ADDITION OF RS.2,02,232/-. WITH REGARD TO OTHER COMMON EXPENSES OF RS.6,21,54,149/-, THE ASSESSEE HAS ALLOCATED AT RS.8,45,303/- WHEREAS THE AO HAS ALLOCATED 15% AT RS.75,29,606/- AND ACCORDINGLY, MADE ADDITION OF DIFFERENTIAL AMOUNT OF RS.66,84,303/-. THE DRP HAS CONFIRMED THE ALLOCATION IN RESPECT OF PERSONAL EXPENSES, FOREIGN TRAVELLING EXPENSES, STAFF WELFARE EXPENSES, OIL AND PETROL EXPENSES, AND OTHER COMMON EXPENSES. 33. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN RESPECT OF PERSONAL EXPENSES 27 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 AND OTHER COMMON EXPENSES THE TRIBUNAL HAS RESTRICTED THE ALLOCATION TO 10% AND CONSIDERED AS FAIR IN I.T.A.NO. 2446 & 2584/AHD/2007 FOR THE ASSESSMENT YEAR 2004-05 DATED 28.06.2018. AS REGARDS FOREIGN TRAVELLING EXPENSES, THE TRIBUNAL HAS RESTRICTED THE SAME TO 10% IN A.Y. 2004-05. WITH REGARD TO STAFF WELFARE EXPENSES, AND OIL AND PETROL EXPENSES, IT WAS SUBMITTED THAT LD. CIT (A) HAS ALLOWED THE DISALLOWANCE MADE IN THESE ITEMS IN A.Y. 2005-06 AGAINST WHICH THE DEPARTMENT HAS NOT FILED ANY APPEAL. HENCE, SAME MAY PLEASE BE DELETED. 34. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT TURNOVER RATIO OF BEOU IS 38 % AS COMPARED TO BILAG UNIT AT 62%. HOWEVER, THE TRIBUNAL IN THE CASE OF THE ASSESSEE HAS RESTRICTED THE ALLOCATION TO 10% IN ASSESSMENT YEAR 2004-05. THEREFORE, FOLLOWING THE CONSISTENCY IN APPROACH THE RATIO OF ALLOCATION APPLIED BY THE TRIBUNAL IS FOUND TO BE CORRECT. HOWEVER, THE ASSESSEE HAS ITSELF ALLOCATED 17% IN PERSONAL EXPENSES. THEREFORE, ADDITION MADE ON ACCOUNT OF PERSONAL EXPENSES IS THEREFORE, DELETED. WITH REGARD TO OTHER COMMON EXPENSES AND FOREIGN TRAVELLING EXPENSES, STAFF WELFARE EXPENSES AND OIL AND PETROL EXPENSES, AND OTHER COMMON EXPENSES WE DIRECT THE AO TO ALLOCATE RESTRICT TO 10% TO BEOU UNIT. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THIS GROUNDS OF APPEAL IS PARTLY ALLOWED. 35. GROUND NO. 7 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF DEPRECIATION CLAIM OF RS.5,90,65,389/- ON INTANGIBLE ASSETS. 28 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 36. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAD PURCHASED IMIDACHLORPID BUSINESS ON SLUMP SALE BASIS FROM MITSU INDUSTRIES FOR RS.27,50,38,000/- DURING THE YEAR UNDER CONSIDERATION WHICH INTER-ALIA INCLUDED LAND COST AT RS.1,82,05,643/-, BUILDING VALUE AT RS.7,50,36,771/-, MANUFACTURING AND PROCESS KNOW HOW RS.16,18,00,600/-, REGISTRATION AND COMMERCIAL RIGHTS OF RS.1,83,14,986/- AND OTHERS OF RS.16,80,000/-. AS AGAINST THIS THE VALUE IN BOOKS WAS AT RS.7,19,85,974/-. THEREFORE, THE ASSESSEE COMPANY WAS ASKED TO EXPLAIN THE BASIS FOR ASCRIBING TO EACH OF THE ASSETS ACQUIRED BY IT SINCE THE VALUE OF ASSETS IN THE BOOKS OF MITSU INDUSTRIES WAS ONLY RS.7,19,85,974/-. IT WAS EXPLAINED THAT THE MITSU INDUSTRIES IS NOT RELATED PARTY UNDER SECTION 40A(2)(B) OF THE ACT AND THE ASSESSEE HAS ACQUIRED PROFIT EARNING APPARATUS FROM MITSU INDUSTRIES LTD. WHICH CANNOT BE BASED ON BOOK VALUE OF TANGIBLE ASSETS DEBITED IN THE BOOKS OF SELLER. THE ASSESSEE COMPANY HAS ACQUIRED INTERNATIONAL PRODUCT REGISTRATION AS WELL AS DOMESTIC REGISTRATION APPROVAL AND LICENSE AND MANUFACTURING AND PROCESS OF KNOW-HOW, INTELLECTUAL PROPERTIES AND OTHER INTANGIBLE ASSETS SUCH AS COMMERCIAL RIGHTS, REGISTRATION AND LICENSE FOR WHICH COMPOSITE CONSIDERATION HAS BEEN PAID ON MUTUAL DISCUSSION AND CONSENT FROM BOTH PARTIES WHICH IN TURN BASED ON SO MANY FACTORS SUCH AS MARKET VALUE AND TANGIBLE AND INTANGIBLE ASSETS ACQUIRED FROM MITSU INDUSTRIES LTD. FROM THE ABOVE EXPLANATION, THE AO OBSERVED THAT THE ASSESSEE IS JUST RHETORIC WITHOUT GIVING ANY COGENT REASON OR EXPLANATION AS TO WHY BUSINESS WORTH RS.7.19 CRORES WERE PURCHASED FOR RS. 27.50 CRORES. THE ASSESSEE COMPANY HAS REPEATED REPEATEDLY THAT MOST OF THE PAYMENTS ARE FOR INTANGIBLE ASSETS OF THE MANUFACTURING PROCESS OF EXPERTISE AND REGISTRATION AND COMMERCIAL RIGHTS. A QUESTION THEN ARISES IF THE BUSINESS SOLD BY MITSU LTD. HAS SUCH A GOOD PROSPECT, 29 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 THEN WHY IT DID SELL THE BUSINESS IN THE FIRST PLACE. FURTHER, THE CONTENTION OF THE ASSESSEE THAT MITSU LTD. IS NOT A RELATED COMPANY UNDER SECTION 40A (2) (B) IS ALSO NOT CONVINCING BECAUSE UNTIL THE RECENT PAST, BOTH COMPANIES HAD COMMON PROMOTERS. EVEN IN THE YEAR UNDER ASSESSMENT, FEW OF THE SHAREHOLDERS ARE COMMON. NEITHER COULD THE ASSESSEE COMPANY JUSTIFIED WHY IT PAID RS.27.50 CRORES FOR WHAT WAS ESSENTIALLY JUST LAND & BUILDING AS PER THE BOOKS OF MITSU LTD. THEREFORE, DEPRECIATION CLAIMED OF RS.5,90,65,839/- ON ABOVE INTANGIBLE ASSETS WAS DISALLOWED AND ADDED BACK TO TOTAL INCOME WHICH WAS ALSO CONFIRMED BY THE DRP. 37. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR GROUND WAS ALLOWED IN FAVOUR OF THE ASSESSEE THE BY THIS TRIBUNAL FOR A.Y. 2004-05 [ITA NO.2446 & 2584/AHD/2007 DATED 28.06.2018 PARA 46 TO 52 ] AND IN A.Y. 2005-06 [I.T.A.NO. 1486 & 1366/AHD/2010DTD 27.08.2019] (PB-98), FURTHER THE DEPARTMENTAL APPEAL IN THIS REGARD FOR A.Y. 2004-05 HAS BEEN DISMISSED BY THE HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO.166 OF 2019 DATED 22.04.2019[PB 60 TO 66]. 38. PER CONTRA, LD. D.R. RELIED ON DRP. 39. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE SAME ISSUE ARISEN IN A.Y. 2004-05 WHEREIN THIS TRIBUNAL IN ITA NO.2446 & 2584/AHD/2007 HAS ALLOWED THE APPEAL OF THE ASSESSEE OF WHICH RELEVANT PARA 115 TO 118 ARE REPRODUCED AS UNDER : 115. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE COMPANY HAD PURCHASED IMIDACHLORPID BUSINESS ON SLUMP SALE BASIS FROM MITSU INDUSTRIES FOR RS.27,50,38,000/- DURING THE YEAR UNDER CONSIDERATION. 30 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 AS PER THE BUSINESS TRANSFER AGREEMENT, THE ASSETS FOLLOWING PART INCLUDED: PARTICULARS BOOK VALUE IN MITSU LTD. IMIDACLOPRID BUSINESS VALUE 1. LAND 56,78,283 1,82,05,643 2. BUILDING 6,38,80,263 7,50,36,771 3. ARCHITECTS FEES 22,69,000 4. MANUFACTURING AND PROCESS KNOW HOW 16,18,00,600 5. REGISTRATION AND COMMERCIAL RIGHTS. 1,83,14,986 6. OTHERS 1,58,428 16,80,000 TOTAL 7,19,85,974 27,50,38,000 116. THE ASSESSEE COMPANY WAS ASKED TO EXPLAIN THE BASIS FOR ASCRIBING TO EACH OF THE ASSETS ACQUIRED BY IT SINCE THE VALUE OF ASSETS IN THE BOOKS OF MITSU INDUSTRIES WAS ONLY RS. 7,19,85,974. IT WAS EXPLAINED THAT THE MITSU INDUSTRIES ARE NOT A RELATED PARTY UNDER SECTION 40A(2)(B) OF THE ACT AND THE ASSESSEE HAS ACQUIRED PROFIT EARNING APPARATUS FROM MITSU INDUSTRIES LTD. WHICH CANNOT BE BASED ON BOOK VALUE OF TANGIBLE ASSETS DEBITED IN THE BOOKS OF SELLER. THE ASSESSEE COMPANY HAS ACQUIRED INTERNATIONAL PRODUCT REGISTRATION AS WELL AS DOMESTIC REGISTRATION APPROVAL AND LICENSE AND MANUFACTURING AND PROCESS OF KNOW-HOW, INTELLECTUAL PROPERTIES AND OTHER INTANGIBLE ASSETS SUCH AS COMMERCIAL RIGHTS, REGISTRATION AND LICENSE FOR WHICH COMPOSITE CONSIDERATION HAS BEEN PAID ON MUTUAL DISCUSSION AND CONSENT FROM BOTH PARTIES WHICH IN TURN BASED ON SO MANY FACTORS SUCH AS MARKET VALUE AND TANGIBLE AND INTANGIBLE ASSETS ACQUIRED FROM MITSU INDUSTRIES LTD. THE ASSESSEE COMPANY HAS REPEATED AGAIN AND AGAIN THAT MOST OF THE PAYMENTS ARE FOR INTANGIBLE ASSETS OF MANUFACTURING PROCESS OF KNOW-HOW AND REGISTRATION AND COMMERCIAL RIGHTS. WE FURTHER FIND THAT MITSU LTD. IS NOT RELATED COMPANY UNDER SECTION 40A(2)(B). THE ASSESSEE HAS ACQUIRED THE LMIDACHLOROPID BUSINESS OF MITSU LIMITED AS SLUMP SALE BASIS FOR A TOTAL CONSIDERATION OF RS.27.50 CRORES AS A GOING CONCERN BASIS. M/S. MITSU INDUSTRIES LTD. HAS BEEN CARRYING ON ITS BUSINESS FROM LAST 15 YEARS AND LMIDACHLOROPID WAS ONE OF THE PESTICIDES FOR WHICH NECESSARY PROCESS, TECHNICAL KNOWHOW, KNOWLEDGE AND IDEA OF BUSINESS, COMMERCIAL RIGHTS, MARKETING RIGHTS ETC. APART FROM ABOVE, THE ASSESSEE COMPANY ALSO PURCHASED MARKETING RIGHTS OF AFORESAID PRODUCTS FROM MITSU LTD. AT A COST OF RS. 18.34 CRORES WHICH WAS CAPITALIZED AS CAPITAL ASSET IN THE BOOKS OF ACCOUNTS. THE SELLER COMPANY M/S. MITSU LTD. HAS ALSO OBTAINED REGISTRATION, PERMISSION FOR GOVERNMENT AND CONCERNED AUTHORITIES AND SAME WAS TRANSFERRED TO BILAG INDUSTRIES PVT. LTD. PURSUANT TO BUSINESS TRANSFER AGREEMENT (PB- 75 TO 89). THE ASSESSEE HAS ACQUIRED THE LICENSE LIKE CIB REGISTRATION DTD. 13.08.1999 FROM CENTRAL INSECTICIDES BOARD, PERMISSION RECEIVED 31 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 FROM GUJARAT POLLUTION BOARD ON 05.01.2004 ALONG WITH PERMISSION FROM MINISTRY OF ENVIRONMENT AND FOREST AND THAT MITSU LTD. HAS CAPACITY TO MANUFACTURE LMIDACHLOROPID. THE CERTIFICATE FROM REGISTRATION OF INSECTICIDES DTD. 31.08.1999 U/S. 9(3) OF INSECTICIDES ACT 1968, WHICH STIPULATES RECIPE BEING CHEMICAL COMPOSITION IN RESPECT OF LMIDACHLOROPID AND APPROVAL FROM DIRECTOR PLANT PROTECTION QUARANTINE AND STORAGE. IT IS PERTINENT TO NOTE THAT THE ASSESSEE COMPANY CANNOT MANUFACTURE THE LMIDACHLOROPID WITHOUT USING TECHNICAL KNOWLEDGE AND KNOW-HOW/ LICENSE / REGISTRATION IN RESPECT OF LMIDCHLOPRID PRODUCTS. THESE PRODUCTS ARE HAVING ASSOCIATED WITH THEIR OWN GOODWILL. WE HAVE PERUSED THE RELEVANT CLAUSE OF AGREEMENT OF BUSINESS TRANSFER AGREEMENT ENTERED INTO BETWEEN THE PARTIES. M/S. MITSU LIMITED AND THE ASSESSEE COMPANY, WHICH IS REPRODUCED HEREUNDER: IMIDACLOPRID BUSINESS MEANS THE MANUFACTURING RIGHTS, MARKETING RIGHTS, OTHER COMMERCIAL RIGHTS, INTELLECTUAL PROPERTIES AND ASSETS OF THE SELLERS RELATING TO DEVELOPMENT, MANUFACTURE, REGISTRATION, USE, SALE MARKETING AND DISTRIBUTION OF THE PRODUCT. 117. THUS, WE ARE OF THE VIEW THAT THE LUMP-SUM CONSIDERATION WAS FOR ALL RIGHTS SUCH AS MANUFACTURING RIGHTS, MARKETING RIGHTS, OTHER COMMERCIAL RIGHTS, INTELLECTUAL PROPERTIES AND OTHER ASSETS OF THE SELLER RELATING TO DEVELOPMENT, MANUFACTURING PROCESS, REGISTRATION, USE, SALE MARKETING AND DISTRIBUTION OF PRODUCTS APART FROM TANGIBLE ASSETS SUCH AS LAND, BUILDING AND OTHER ASSETS. WE FURTHER NOTE THAT M/S. MITSU LIMITED WAS NOT A RELATED CONCERNS AS PER THE PROVISION OF SECTION 40(A)(2)(B) OF THE INCOME-TAX ACT, 1961 AS THE POINT OF SALES. THE LEARNED COUNSEL SUBMITTED THAT ASSETS ACQUIRED UNDER SLUMP SALE WERE CAPITALIZED IN BOOKS OF ACCOUNT AS PER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN A SLUMP SALE SEVERAL ASSETS ARE PURCHASED FOR A CONSOLIDATED PRICE AND PRICE IS PAID FOR THE ENTIRE BUSINESS AS A WHOLE. HENCE, VALUE TO INDIVIDUAL ASSETS CANNOT BE ASSIGNED DIRECTLY. THE VALUATION OF INTANGIBLE ASSETS AND MARKETING RIGHTS HAVE BEEN DONE IN ACCORDANCE WITH THE ACCOUNTING STANDARD-10 (AS-10) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) THE COMPANY HAS ASSIGNED THE VALUES TO THE VARIOUS ASSETS ON A FAIR BASIS. THE PAYMENTS MADE FOR ACQUISITION OF LMIDACHLOROPID PRODUCTS BUSINESS PURSUANT TO TRANSFER OF BUSINESS TRANSFER AGREEMENT AND INTANGIBLE ASSETS WAS ALLOCATED ON THE BASIS OF VALUATION REPORT FROM INDEPENDENT VALUER M/S. BANSI S. MEHTA & CO. WHO HAD ASSIGNED THE VALUE OF INDIVIDUAL ASSETS IN ACCORDANCE WITH AS-10. THIS VALUATION OF ITEMS ARE PLACED AT PAPER BOOK PAGE NO. 105 TO 111. WE ARE OF THE VIEW THAT DEPRECIATION ON INTANGIBLE ASSETS IS ALLOWABLE AS PER SECTION 32 OF THE ACT. WE ALSO NOTE THAT THAT AHMEDABAD TRIBUNAL IN THE CASE OF M/S. MITSU LTD. , THE SELLER COMPANY, IN I.T.A. NO. 32 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 1672/AHD/2007 A.Y. 2004-05(PB-31-70) VIDE ORDER DATED 01.08.2008 HAS CONSIDERED THE SALE OF BUSINESS TO THE ASSESSEE AS SLUMP SALES AND OBSERVED THAT THE ASSESSEE HAS TRANSFERRED MACHINERY AND INFRASTRUCTURE INCLUDING LICENSES AND RIGHT TO MANUFACTURE PRODUCTS FOR THE YEAR 1999 ONWARDS AND EVEN ON DATE OF SALE. THIS FACT IS NOT DISPUTED BY THE REVENUE AUTHORITIES. THE ASSESSEE HAS SOLD A BUSINESS WHICH INCLUDES THE NECESSARY RIGHTS AND TECHNOLOGY. THE VALUE OF TECHNOLOGY AND RIGHTS ARE DETERMINED THE PARTIES TO THE TRANSACTION ON COMMERCIAL CONSIDERATION AND AFTER MUTUAL NEGOTIATIONS. ACCORDINGLY, WE FEEL THAT THIS TRANSACTION IS NOTHING BUT SLUMP SALES EXIGIBLE TO LONG-TERM CAPITAL GAIN. ACCORDINGLY, THIS ISSUE OF APPEAL OF THE ASSESSEE IS ALLOWED. THUS, IT IS CLEAR THAT WHEN THE SLUMP SALE WITH CONSIDERATION OF RS. 27.50 CRORES AS LONG-TERM CAPITAL GAIN HAS BEEN ACCEPTED IN THE CASE OF SELLER COMPANY, THEN IT CANNOT BE SAID THAT THE ASSESSEE COMPANY HAS NOT PAID THE CONSIDERATION AS MENTIONED IN BUSINESS TRANSFER AGREEMENT. ONCE THE SALE IS RECOGNIZED AND TRANSACTION HAS BEEN UPHELD BY THE ITAT ALSO THEN PURCHASES HAVE TO BE RECOGNIZED AS TRUE. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE IN THE CASE OF CIT V. SMIFS SECURITIES LTD. [2012] 24 TAXMANN.COM 222 (SC) HELD THAT GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) AND, THUS, IT IS ELIGIBLE FOR DEPRECIATION. IN THE CASE OF CIT V. TECHNO SHARES &V. STOK LTD. [2010] 193 TAXMAN 248(SC)THE HON`BLE SUPREME COURT HELD THAT RIGHT OF MEMBERSHIP TO BSE WAS A BUSINESS OR COMMERCIAL RIGHT WHICH GAVE A NON DEFAULTING CONTAINING AND CONTINUING MEMBER A RIGHT TO ACCESS THE EXCHANGE AND TO PARTICIPATE THEREIN NS IN THAT SENSE IT WAS A LICENSE OR AKIN TO A LICENSE IN TERMS OF SECTION 32(1)(II). SUCH RIGHT VESTED IN THE EXCHANGE ONLY ON DEFAULT /DEMISE IN TERMS OF RULES AND BYE LAWS OF THE BSE, AS THEY STOOD AT THE RELEVANT TIME. HOWEVER, IT SHOULD NOT BE UNDERSTOOD TO MEAN THAT EVERY BUSINESS OR COMMERCIAL RIGHT WOULD CONSTITUTE A LICENSE OR A FRANCHISE IN TERMS OF SECTION 32(1)(II)OF THE ACT. FURTHER RELIANCE IS PLACED IN THE CASE OF M/S. TRIO ELEVATORS COMPANY (INDIA ) LTD. V. ACIT CIRCLE 8 AHMEDABAD [2016] 67 TAXMANN.COM 348 (AHMEDABAD TRIB) WHEREIN IT WAS HELD THAT ADMISSIBILITY OF DEPRECIATION OF TRADEMARK IS NOT CONTINGENT UPON ITS REGISTRATION IN THE NAME OF THE ASSESSEE INASMUCH AS DESCRIPTION OF INTANGIBLE ASSETS IS PART B OF DEPRECIATION SCHEDULE DESCRIBE THE SAME MERELY OF KNOW-HOW PATENTS COPYRIGHT , TRADEMARK LICENSES FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. FURTHER THE HON`BLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF PR. CIT V. SWASTIK INDUSTRIES [2016] 68 TAXMANN.COM 329 (GUJARAT) HELD THAT PAYMENT OF COMPENSATION MADE BY THE ASSESSEE-FIRM TO RETIRING PARTNER WAS TO BE TREATED AS GOODWILL AND , SINCE , GOODWILL IS AN ASSET UNDER EXPLANATION 3 (B) TO SECTION 32 (1), ASSESSEE`S CLAIM FOR DEPRECIATION ON SAID PAYMENT WAS TO BE ALLOWED. 33 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 118. WE FURTHER OBSERVED THAT THE SELLER COMPANY HAS SOLD AND TRANSFERRED VARIOUS ASSETS UNDER A BUSINESS TRANSFER AGREEMENT FOR WHICH VALUABLE CONSIDERATION HAS BEEN PAID BY THE APPELLANT COMPANY. THE AO HAS NOT GIVEN ANY FACTUAL FINDING AS REGARDS HER OBSERVATION THAT THE ASSESSEE COMPANY COULD NOT JUSTIFY IN ANY LOGICAL AND CONVINCING WAY THE BASIS ON WHICH SUCH HUGE PAYMENT WAS MADE TO ACQUIRE WHAT THE APPELLANT COMPANY TERMS INTANGIBLE ASSETS BASED ON WHICH INFERENCE THE ASSESSMENT ORDER HAS BEEN FRAMED. THE ASSESSEE COMPANY HAS PURCHASED INTANGIBLE ASSETS IN THE FORM OF MARKETING RIGHTS, RIGHT TO CARRY ON BUSINESS, RIGHT TO MANUFACTURE AND TECHNICAL OF KNOW-HOW FOR CARRYING ON IMIDACLOPRID BUSINESS. THE SELLER COMPANY IS ALSO ENGAGED IN MANUFACTURING PESTICIDES FOR THE LAST 15 YEARS AND THE ASSESSEE COMPANY IS ALSO MANUFACTURING PESTICIDES FOR THE LAST 3 YEARS. THIS VERY FACTS MEANS THAT THE SELLER COMPANY WAS HAVING BETTER EXPERIENCE IN TERMS OF MARKETING OF KNOW-HOW AS IT WAS MORE EXPERIENCED AS COMPARE TO ASSESSEE WHO WAS IN THE MARKET OF PESTICIDES FOR LAST 3 YEARS ONLY. FURTHER RELIANCE IS PLACED ON THE JUDGEMENT OF HON`BLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LTD. V. DCIT [2012] 20 TAXMANN.COM 29 (DELHI) HELD THAT SPECIFIED INTANGIBLE ASSETS , VIZ BUSINESS CLAIMS, BUSINESS INFORMATION , BUSINESS RECORDS , CONTRACTS , EMPLOYEES AND OF KNOW-HOW ACQUIRED BY ASSESSEE UNDER SLUMP SALE AGREEMENT ARE IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE SPECIFIED IN SECTION 32(1)(II) AND ARE ACCORDINGLY ELIGIBLE FOR DEPRECIATION. CONSIDERING THE ABOVE FACTS WE ARE OF THE VIEW THAT THE ASSESSEE COMPANY HAS ACQUIRED LMIDICAHOLOPID BUSINESS FOR TOTAL CONSIDERATION OF RS. 27.50 CRORES WHICH INTER-ALIA INCLUDED INTANGIBLE ASSETS OF WORTH RS. 18.34 CRORES ON WHICH DEPRECIATION HAS BEEN CLAIMED AT RS. 2,25,14,448 BESIDES MARKETING RIGHTS ON WHICH DEPRECIATION HAS BEEN CLAIMED AT RS. OF RS. 2,29,30,000 ON WHICH DEPRECIATION IS VERY MUCH ALLOWABLE UNDER SECTION 32(1)(II) OF THE ACT. IN THE LIGHT OF ABOVE BACKDROP, AND FACTS OF THE CASE AND CONSIDERING THE SAME IN TOTALITY, WE ARE INCLINED TO AGREE WITH THE ASSESSEE THAT THE AO AND LD. CIT (A) WERE NOT JUSTIFIED IS DISALLOWING DEPRECIATION CLAIMED BY THE APPELLANT COMPANY TO THE TUNE OF RS.2,25,14,448 ON INTANGIBLE ASSETS AND RS. 2,29,30,000 ON MARKETING RIGHTS PURCHASED BY THE ASSESSEE COMPANY. THE AO IS, THEREFORE, DIRECTED TO ALLOW DEPRECIATION ON INTANGIBLE ASSETS NS MARKETING RIGHTS AS CLAIMED BY THE ASSESSEE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE GROUNDS OF APPEAL NO. 16 TO 19 OF THE APPEAL ARE, THEREFORE, ALLOWED. 40. IN VIEW OF THE ABOVE, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF THIS BENCH AS MENTIONED ABOVE, WHICH HAS ALSO BEEN UPHELD BY THE HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO.166 OF 2019 DATED 34 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 22.04.2019, THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURT THE ABOVE GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE. 41. GROUND 8 IS AGAINST THE EXCLUSION OF INTEREST ON OTHERS OF RS.3,792/- AND SCRAP SALES OF RS.1,20,819/- WHILE GRANTING DEDUCTION UNDER SECTION 10B OF THE ACT. 42. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AHMEDABAD TRIBUNAL IN THE CASE OF LUBRIZOL ADVANCED MATERIALS (INDIA) PVT. LTD. 42 TAXMANN.COM 263 (AHMEDABAD-TRIB) WHEREIN IT WAS HELD THAT ONCE AN INCOME FORM PART OF BUSINESS OF UNDERTAKING, SAME WOULD BE INCLUDED IN PROFITS OF BUSINESS OF UNDERTAKING AND WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. WITH REGARD TO EXCLUSION OF SCRAP SALES , THE LEARNED COUNSEL FOR THE ASSESSEE RELIED IN THE CASE OF GE BE (P) LTD. 371 ITR 32 (KAR.) WHEREIN INCOME ARISING FROM SALE OF SCRAP IS HELD ELIGIBLE FOR BENEFIT OF SECTION 10B OF THE ACT. IT WAS FURTHER SUBMITTED THAT SECTION 10B IS PARI MATERIA TO SECTION 80HHC OF THE ACT. SIMILAR GROUND OF REVENUE AS REGARDS EXCLUSION OF INCOME FROM SALE OF SCRAP WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC WAS DISMISSED BY THE ITAT IN ASSESSEE`S CASE FOR A.Y. 2000-01 (PAGE 9 PARA 10). FURTHER, HONBLE GUJARAT HIGH COURT HAS DISMISSED THE DEPARTMENTAL APPEAL IN TAX APPEAL NO. 1373 OF 2009. 43. PER CONTRA, LD. D.R. RELIED ON DRP /AO. 44. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE ON EXCLUSION OF INTEREST INCOME AND SALE OF SCRAP INCOME STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN THE CASE OF LUBRIZOL ADVANCED MATERIALS (INDIA) PVT. LTD. 42 TAXMANN.COM 263 35 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 (AHMEDABAD-TRIB) WHEREIN IT WAS HELD THAT ONCE AN INCOME FORM PART OF BUSINESS OF UNDERTAKING, SAME WOULD BE INCLUDED IN PROFITS OF BUSINESS OF UNDERTAKING AND WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. WITH REGARD TO EXCLUSION OF SCRAP SALES , THE LEARNED COUNSEL FOR THE ASSESSEE RELIED IN THE CASE OF GE BE (P) LTD. 371 ITR 32 (KAR.) AND ALSO FROM HONBLE GUJARAT HIGH COURT IN THE CASE OF THE ASSESSEE ITSELF. IN VIEW OF THESE FACTS, WE ALLOW THIS GROUNDS OF APPEAL IN FAVOUR OF THE ASSESSEE. 45. GROUND NO. 9 IS AGAINST THE CONFIRMATION OF DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT AMOUNTING TO RS.1,28,93,417/-. 46. BRIEFLY, STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS PAID A SUM OF RS.1,28,93,417/- TOWARDS EFFLUENT TREATMENT PLANT EXPENSES TO M/S. VAPI WASTE AND EFFLUENT MANAGEMENT COMPANY LIMITED AS THE ASSESSEE IS ONE OF THE MEMBER OF M/S. VAPI WASTE AND EFFLUENT MANAGEMENT COMPANY LIMITED AND CONSIDERING THE DOCTRINE OF MUTUALITY THE SAID AMOUNT WAS NOT COVERED BY CONTRACT. HOWEVER, THE AO PROPOSED THAT PAYMENT FALLS UNDER CONTRACT AS PER PROVISION OF SECTION 194C HENCE, SAME IS DISALLOWABLE UNDER SECTION 40(A)(IA) OF THE ACT. THE DRP HAS ALSO HELD THAT THE ASSESSEE IS A COMPANY HAVING DISTINCT IDENTITY AND IT WAS REQUIRED TO DEDUCT TAX AT SOURCE. HENCE, CONFIRMED THE ACTION OF THE AO. 47. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ITAT IN THE CASE OF MICAS ORGANICS LIMITED [I.T.A.NO. 2736/AHD/2014 CLEARLY HELD THAT CONTRIBUTION MADE BY THE SAID MEMBER COMPANY TO M/S. VAPI WASTE AND EFFLUENT MANAGEMENT 36 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 COMPANY LIMITED IS NOT SUBJECT TO DEDUCTION TAX AT SOURCE. THEREFORE, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. 48. PER CONTRA, LD. D.R. RELIED ON DRP/AO. 49. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ITAT IN THE CASE OF MICAS ORGANICS LIMITED V/S ASSISTANT COMMISSIONER OF TAX [I.T.A.NO. 1582/AHD/2013 A.Y. 2009-10 DATED 20.10.2016] HELD AS UNDER: 6. AFTER CONSIDERING THE FACTS AND IN THE LIGHT OF THE DECISION OF THE CO- ORDINATE BENCH (SUPRA). WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. WE FIND THAT BY THE ORDER OF THE HON'BLE GUJARAT HIGH COURT, VAPI INDUSTRIES ASSOCIATION SHOWED COMMITMENT TO TAKE EFFECTIVE STEPS FOR CONTAINING POLLUTION. FOR THIS PURPOSE, M/S. VAPI WASTE AND EFFLUENT MANAGEMENT COMPANY LTD. WAS INCORPORATED AND VARIOUS MEMBERS OF THIS COMPANY TOOK OVER COMMON EFFLUENT TREATMENT PLANT (CETP) FROM GIDC. ASSESSEE BEING A FOUNDER MEMBER OF THIS COMPANY MADE ITS CONTRIBUTION TOWARDS THE COMMON CAUSE. WE ALSO FIND THAT THE CO-ORDINATE BENCH IN THE CASE OF VWEMCL HAS TREATED SUCH CONTRIBUTION OF MEMBERS AS EXEMPT FROM TAX ON THE PRINCIPLE OF MUTUALITY. SINCE THE INCOME OF THE PAYEE IS EXEMPT FROM TAX AS PER THE DECISION OF THE CO-ORDINATE BENCH, IN OUR CONSIDERED OPINION, THE CONTRIBUTION MADE BY THE PAYER COMPANY 'ASSESSEE' IS NOT SUBJECTED TO DEDUCTION OF TAX AT SOURCE. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 8,56,470/-. GROUND NO. 1 IS ALLOWED. 50. THEREFORE, RESPECTFULLY FOLLOWING THE SAME THIS GROUNDS OF APPEAL IS ALLOWED IN THE FAVOUR OF THE ASSESSEE. 51. GROUND NO. 10 & 11 ARE GENERAL IN NATURE; HENCE, DOES NOT REQUIRE OUR SEPARATE ADJUDICATION. 52. IN THE RESULT, THE APPEAL OF THE ASSESSEE I.T.A.NO. 2886/AHD/2010 FOR A.Y. 2006-07 IS PARTLY ALLOWED. 37 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 I.T.A.NO. 794/AHD/2014/A.Y. 2009-10/BY THE ASSESSEE: 53. GROUND NO. 1 IS GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 54. GROUND NO. 2 IS AGAINST THE INCLUSION OF EXCISE DUTY AMOUNTING TO RS.3,18,68,392/- AND SALES TAX AMOUNTING TO RS.29,67,494/- WHILE CALCULATING TOTAL TURNOVER FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SECTION 10B OF THE ACT. 55. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE AND LD. D.R. HAVE AGREED THAT FACTS ARE IDENTICAL AS IN ASSESSMENT YEAR 2006-07 IN THE CASE OF THE ASSESSEE COMPANY THEREFORE, THE FINDINGS GIVEN THEREIN WOULD MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. WE FIND THAT THIS GROUND OF APPEAL HAS BEEN DISCUSSED IN ASSESSMENT YEAR 2006-07 OF EARLIER PART OF THIS ORDER, WHEREIN WE HAVE ALLOWED THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. THEREFORE, FOLLOWING SAME, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. 56. GROUND NO. 3 IS AGAINST THE CONFIRMATION OF EXCLUSION OF INTEREST ON OTHERS AND SCRAP SALES AMOUNTING TO RS.26,094/ AND RS.2,93,109/- RESPECTIVELY WHILE GRANTING DEDUCTION UNDER SECTION 10B OF THE ACT. 57. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE AND LD. D.R. HAVE AGREED THAT FACTS ARE IDENTICAL AS IN ASSESSMENT YEAR 2006-07 IN THE CASE OF THE ASSESSEE COMPANY THEREFORE, THE FINDINGS GIVEN THEREIN WOULD MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. WE FIND THAT THIS GROUND OF APPEAL HAS BEEN DISCUSSED IN ASSESSMENT YEAR 38 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 2006-07 OF EARLIER PART OF THIS ORDER, WHEREIN WE HAVE ALLOWED THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. THEREFORE, FOLLOWING SAME, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. 58. GROUND NO. 4 IS AGAINST THE CONFIRMATION OF ALLOCATION OF DISALLOWANCE TO THE TUNE OF RS.2,40,27,512/- BY WAY OF REALLOCATING EXPENSES BEING PERSONAL EXPENSES RS.1,82,03,774/, FOREIGN TRAVELLING EXPENSES OF RS.16,23,734/-, STAFF WELFARE EXPENSES OF RS.2,16,240/-, OIL AND PETROL EXPENSES OF RS.2,62,802/- AND OTHER EXPENSES OF RS.37,20,963/- AGGREGATING TO RS.2,40,27,512/- BETWEEN BILAG UNIT AND BILAG EXPORT ORIENTED UNIT (BEOU) THEREBY REDUCING THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B TO THAT EXTENT AND DESERVE TO BE DELETED. 59. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE AND LD. D.R. HAVE AGREED THAT FACTS ARE IDENTICAL AS IN ASSESSMENT YEAR 2006-07 IN THE CASE OF THE ASSESSEE COMPANY THEREFORE, THE FINDINGS GIVEN THEREIN WOULD MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. WE FIND THAT TURNOVER RATIO OF BEOU IS 48% AS COMPARED TO BILAG UNIT AT 52%. HOWEVER, THE TRIBUNAL IN THE CASE OF THE ASSESSEE HAS RESTRICTED THE ALLOCATION TO 10% IN ASSESSMENT YEAR 2004-05 IN ITA NO.2446 & 2584/AHD/2007 AND IN A.Y.2005-06. THEREFORE, FOLLOWING THE CONSISTENCY IN APPROACH, THE RATIO OF ALLOCATION APPLIED BY THE TRIBUNAL IS FOUND TO BE CORRECT. HOWEVER, THE ASSESSEE HAS ITSELF ALLOCATED 23.17% IN PERSONAL EXPENSES, FOREIGN TRAVELLING EXPENSES, STAFF WELFARE, AND OIL & PETROL EXPENSES, HENCE, THE DISALLOWANCE MADE ON THIS ACCOUNT IS DELETED. WITH 39 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 REGARD TO OTHER COMMON EXPENSES ALLOCATED @15%, THE AO IS DIRECTED TO ALLOCATE @10% TO BEOU, THEREFORE, THIS ISSUE IS PARTLY ALLOWED. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THIS GROUNDS OF APPEAL IS PARTLY ALLOWED. 60. GROUND NO. 5 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF DEPRECIATION OF RS.2,51,27,932/- ON INTANGIBLE ASSETS PURCHASED BY THE APPELLANT COMPANY. 61. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE AND LD. D.R. HAVE AGREED THAT FACTS ARE IDENTICAL AS IN ASSESSMENT YEAR 2006-07 IN THE CASE OF THE ASSESSEE COMPANY THEREFORE, THE FINDINGS GIVEN THEREIN WOULD MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. WE FIND THAT THIS GROUND OF APPEAL HAS BEEN DISCUSSED IN ASSESSMENT YEAR 2006-07 OF EARLIER PART OF THIS ORDER, WHEREIN WE HAVE ALLOWED THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. THEREFORE, FOLLOWING SAME, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. 62. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR A.Y. 2009-1 I.T.A.NO. 1769/AHD/2016/A.Y. 2011-12/ BY THE ASSESSEE: 63. GROUND NO. 1 & 2 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 64. GROUND NO. 3 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF DEPRECIATION OF RS.1,41,34,462/- ON INTANGIBLE ASSETS PURCHASED BY THE APPELLANT COMPANY. 40 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 65. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE AND LD. D.R. HAVE AGREED THAT FACTS ARE IDENTICAL AS IN ASSESSMENT YEAR 2006-07 IN THE CASE OF THE ASSESSEE COMPANY THEREFORE, THE FINDINGS GIVEN THEREIN WOULD MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. WE FIND THAT THIS GROUND OF APPEAL HAS BEEN DISCUSSED IN ASSESSMENT YEAR 2006-07 OF EARLIER PART OF THIS ORDER, WHEREIN WE HAVE ALLOWED THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. THEREFORE, FOLLOWING SAME, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. 66. GROUND NO. 4 IS AGAINST THE CONFIRMATION OF ALLOCATION OF DISALLOWANCE TO THE TUNE OF RS.2,57,40,616/- BY WAY OF REALLOCATING EXPENSES BEING PERSONAL EXPENSES RS.1,47,78,737/-, FOREIGN TRAVELLING EXPENSES OF RS.10,35,044/-, STAFF WELFARE EXPENSES OF RS.81,14,319/, OIL AND PETROL EXPENSES OF RS.3,40,058/ AND OTHER COMMON EXPENSES OF RS.14,72,458/- AGGREGATING TO RS.2,57,40,616/- BETWEEN BILAG UNIT AND BILAG EXPORT ORIENTED UNIT (BEOU) THEREBY REDUCING THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B TO THAT EXTENT AND DESERVE TO BE DELETED. 67. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE AND LD. D.R. HAVE AGREED THAT FACTS ARE IDENTICAL AS IN ASSESSMENT YEAR 2006-07 IN THE CASE OF THE ASSESSEE COMPANY THEREFORE, THE FINDINGS GIVEN THEREIN WOULD MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. WE FIND THAT TURNOVER RATIO OF BEOU IS 33% AS COMPARED TO BILAG UNIT AT 67%. HOWEVER, THE TRIBUNAL IN THE CASE OF THE ASSESSEE HAS RESTRICTED THE ALLOCATION TO 10% IN ASSESSMENT YEAR 2004-05 IN ITA NO.2446 & 2584/AHD/2007 AND IN A.Y.2005-06. THEREFORE, FOLLOWING THE CONSISTENCY 41 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 IN APPROACH, THE RATIO OF ALLOCATION APPLIED BY THE TRIBUNAL IS FOUND TO BE CORRECT. HOWEVER, THE ASSESSEE HAS ITSELF ALLOCATED 17.16% IN PERSONAL EXPENSES, FOREIGN TRAVELLING EXPENSES, STAFF WELFARE, AND OIL & PETROL EXPENSES, HENCE, THE DISALLOWANCE MADE ON THIS ACCOUNT IS DELETED. WITH REGARD TO OTHER COMMON EXPENSES ALLOCATED @15%, THE AO IS DIRECTED TO ALLOCATE @10% TO BEOU, THEREFORE, THIS ISSUE IS PARTLY ALLOWED. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THIS GROUNDS OF APPEAL IS PARTLY ALLOWED. 68. GROUND NO. 5 IS AGAINST THE CONFIRMATION IN INCLUDING INTEREST ON OTHERS (EMPLOYEES LOANS) AND INTEREST ON NATIONAL SAVING SCHEME AMOUNTING TO RS.26,784/- AND RS.38,750/- RESPECTIVELY WHILE GRANTING DEDUCTION UNDER SECTION 10B OF THE ACT. 69. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE AND LD. D.R. HAVE AGREED THAT FACTS ARE IDENTICAL AS IN ASSESSMENT YEAR 2006-07 IN THE CASE OF THE ASSESSEE COMPANY THEREFORE, THE FINDINGS GIVEN THEREIN WOULD MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. WE FIND THAT THIS GROUND OF APPEAL HAS BEEN DISCUSSED IN ASSESSMENT YEAR 2006-07 OF EARLIER PART OF THIS ORDER, WHEREIN WE HAVE ALLOWED THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. THEREFORE, FOLLOWING SAME, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. 70. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR A.Y. 2011- 12. ITR APPEAL FOR A.Y. 2006-07, 2009-10 AND 2011-12 ARE PARTLY ALLOWED. 71. THE ORDER PRONOUNCED IN THE OPEN COURT ON 24.10.2019 SD/- SD/- (AMARJIT SINGH) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER SURAT: DATED: 24 TH OCTOBER, 2019/OPM COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. 42 BILAG INDUSTRIES PVT. LTD. NOW BAYER VAPI PVT. LTD. V. ADDL. CIT R- VAPI I.T.A.NO.2886/AHD/2010 & 794/AHD/2014 & 1769/AHD/2016/A.Y. 2006-07 , 2009-10 & 2011-2 BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT