ACIT 4(2), MUMBAI V. FIRMENICH AROMATICS (I) P. TLD, MUMBAI

ITA 3744/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0981 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Department
• Bench Allotted: F
• Next Hearing Date: 09-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2011
• Court: TRIBUNAL
• Assessee Lawyers: MRS PUJA SWAROOP
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income; Depreciation; Opportunity of being heard; Assessment record; Revenue expenditure; Capital expenditure
• Section: 80IB; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI DT GARASIA, JM AND SHRI RAJESH KUMAR , AM ITA NOS. 2910/MUM/2011, 5360/MUM/2011 & 6531/MUM/2012 & 9198 /MUM/2010 A.YS 2005 - 06 TO 2008 - 09 M/S FIRMENICH AROMATICS (I) P. LTD. 74/II C CRO SS RD., MIDC ANDHERI (E), MUMBAI 400093 VS. THE ADDL CIT RG 4(2) R.NO. 642, AAYAKAR BHAVAN, M.K. RD, MUMBAI PAN NO. AAACF1621M (APPELLANT) : (RESPONDENT) ITA NOS. 549/MUM/2011, 3744/MUM/2011 & 7428/MUM/2012 A.YS 2006 - 07 TO 2008 - 09 THE ACIT CIRCLE 4(2), ROOM NO. 612, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S FIRMENICH AROMATICS (I) P. LTD. 74/II C CRO SS RD., MIDC ANDHERI (E), MUMBAI 400093 PAN NO. AAACF1621M (APPELLANT) : (RESPONDENT) APPELLANT BY : SHRI VIPUL JOSHI RESPONDENT BY : MRS. PUJA SWAROOP DATE OF HEARING : 13/02/2017 DATE OF PRONOUNCEMENT : 24 /04 /2017 2 M/S FIRMENICH AROMATICS O R D E R PER D. T. GARASIA, JM : THE ABOVE APPEAL S RELATE TO ASSESSMENT YEAR 2005 - 06 TO 2008 - 09 . FOUR APPEALS ARE BY THE ASSESSEE AND TWO APPEAL S ARE BY THE DEPARTMENT. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE IN HIS APPEAL AND FOLLOWING GROUNDS ARE RAISED BY THE DEPARTMENT : GROUND NO. 1 THIS GROUND IS AGAINST THE ACTION OF THE ASSESSING OFFICER ['A.O.'] IN REJECTING THE ACCOUNTS / BOOK RESULT OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 145 (3) OF THE INCOME - TAX ACT, 1961 ['THE ACT']. GROUND NO. 2 THIS GROUND IS AGAINST THE AC TION OF THE A.O. IN ESTIMATING THE GROSS PROFIT, AFTER REJECTING THE BOOK RESULT AS ABOVE, BY ADOPTING 18% TO THE TURNOVER. THE ADDITION MADE WAS RS. 1,51,58,000/ - . IN APPEAL, THE CIT (A) REDUCED THE ADDITION TO RS. 10,29,890/ - . THE ASSESSEE HAS CHALLENGED THIS CONFIRMED ADDITION. GROUND NO. 3 THIS GROUND IS AGAINST THE ACTION OF THE A.O. IN DISALLOWING THE CLAIM OF DEDUCTION OF INTEREST, PAID TO M/S. M. C. DAWAR AROMATICS P. LTD., BY INVOKING SECTION 40A (2) (B) OF THE ACT, BY HOLDING THE SAME IS EXCESSIVE AND UNREASONABLE. THE CIT (A) HAS CONFIRMED THIS DISALLOWANCE. THE AMOUNT OF DISALLOWANCE [RS. 28,75,000/ - ] GROUND NO. 4 THIS GROUND IS AGAINST THE ACTION OF THE A.O. IN DISALLOWING, A PART OF THE REPAIRS AND MAINTENANCE 3 M/S FIRMENICH AROMATICS EXPENSES CLAIMED BY THE ASSESSEE BY WAY OF DEDUCTION, BY HOLDING THE SAME AS CAPITAL EXPENDITURE IN NATURE. THE AMOUNT OF DISALLOWANCE - RS. 1,54,470/ - . THE CIT (A) HAS CONFIRMED THE DISALLOWANCE. 2. THESE ALL BUNCH OF APPEALS FILED BY THE AS SESSEE AND THE DEPARTMENT FROM A Y 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09. ALL THESE APPEALS RELATE TO THE SAME ASSESSEE THEREFORE, DISPOSED OFF THIS COMMON ORDER. 3. THESE ALL APPEALS ARE ARISING OUT OF ORDER OF CIT (A) - 10, MUMBAI DATED 23 - 02 - 20 11 FOR ASSESSMENT YEAR 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09 RESPECTIVELY. ITA NO. 2910/M/2011 & ITA NO. 744/M/2011 4. NOW, WE WILL DEAL WITH THE ASSESSEES APPEAL FOR AY 2005 - 06. THE F OLLOWING GROUNDS ARE RAISED IN A Y 2005 - 06 WHICH ARE AS UNDER: 5 . THE S HORT FACTS OF THE CASE WHICH READS AS UNDER: 6. THE ASSESSEE HAS OPENING WORTH OF RS. 35 , 72 , 24 , 00 0 / - AND CLOSING STOCK OF RS. 37 , 32 , 35 , 00 0 / - THE PURCHASES W ERE SHOWN AT RS. 132 , 64 , 67 , 00 0 / - AND SALE OF RS. 157 , 85 , 09 , 00 0 / - . THE ASSESSEE WAS ASKED TO PRODUCE THE STOCK REGISTER FOR RELEVANT FINANCIAL YEAR , A TECHNICAL NOTE OF PRODUCTION PROCESS GIVING THE DETAIL S OF PROPORTION OF RAW MATERIAL MIXED, FINISHED PRODUCT PRODUCED WASTAGE GENERATED, YIELD % ACHIEVED AND GROSS PROFIT RATE FOR THE LAST THREE YE ARS. THE ASSESSEE HAD IN REPLY TO SHOW CAUSE NOTICE HAS SUBMITTED THE GENERAL DETAIL OF PRODUCTION PROCESS BUT NOT PRODUCE THE CORRECT FIGURES OF RAW MATERIAL WHICH WERE USED FOR MANUFACTURE IF PARTICULAR PRODUCT. MOREOVER, THE ASSESSEE DID NOT PROD UCE STOCK REGI STER CONTAIN ING DAY TO DAY RECORDING OF CONSUMPTION OR PRODUCTION BUT ONLY PRODUCE MONTHLY DETAIL OF 4 M/S FIRMENICH AROMATICS STOCK RAW MATERIAL AND FINISH PRODUCT. THE ASSESSEE HAS GIVEN THE CHART OF FINISH ED PRODUCT HOWEVER NO DELIVER Y CHALLAN WERE PRODUCED. THEREFORE, THE AO, W HO WAS NOT ABLE TO VERIFY THE REQUIREMENT OF PARTICULAR ORANGE FLAVOUR BY PRODUCTION UNIT, T HE ASSESSEE FINISH ED DETAIL OF SALE BUT STOCK REGISTER WAS NOT COMPLETE AND DAY TO DAY PRODUCTION RECORDS HAVE NOT BEEN AVAILABLE. THEREFORE, THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE AND THE ASSESSEE REPLIED THAT THE REQUIRED DETAIL CANNOT BE PRODUCED TO AO ON T HE GROUND THAT IT IS A SECRETE INTELLECTUAL PROPERTY R IGHT S . THEREFORE, AFTER CONSIDERING THE REPLY AS NO BILLS VOUCHERS WERE PRODUCE D , THEREFORE, CORRECTNESS O F THE INCOME OF THE ASSESSEE COULD NOT BE ASCERTAIN ED . THEREFORE, RELYING UPON THE VARIOUS JUDGEMENTS THE AO HAS REJECTED THE BOOK RESULT BY INVOKING SECTION 145(3) OF THE IT ACT. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS DISMISSED THE APPEAL OF THE AS SESSEE. 7 . LD. AR SUBMITTED THAT THE ASSESSEE HAS SUBMITTED THE DETAIL OF RAW MATERIAL USED FOR PRODUCTION PROCESS THAT THE ASSESSEE HAS MAINTAINED STOCK REGISTER ON PRODUCTION - WISE. THE ASSESSEES PRODUCTION PROCESS IS BASED ON THE FORMULATION WHICH IS A CLOSELY GUARDED SECRET AS IT IS A PROPRIETARY PRODUCT AND ALSO HAS INTELLECTUAL PROPERTY RIGHTS. THE ASSESSEE HAS SUBMITTED STOCK REGISTER THE ASSESSEES BOOKS OF ACCO UNTS ARE AUDITED BY INDEPENDENT STATUTORY AUDITORS, INTERNAL AUDITORS AND TAX AUDITORS FR OM TIME TO TIME. THE ASSESSEES BOOKS OF ACCOUNT INCLUDING STOCK REGISTER HAVE BEEN APPROVED BY GOVERNMENT AUTHORITIES SUCH AS EXCISE DEPARTMENT, SALES TAX ETC. THEREFORE, THERE IS NO REASON FOR REJECTION OF BOOKS OF ACCOUNTS. THE LD . AR SUBMITTED THAT THE PRODUCTION PROCESS IS BASED ON FORMULATION WHICH IS CLOSELY GUARDED SECRET AS IT IS A PROPRIETARY PRODUCT AND IT HAS INTELLECTUAL PROPERTY RIGHTS WHICH IS DEVELOPED BY HUGE INVESTMENT AND RESEARCH AND DEVELOPMENT AND ALSO BY INVESTMENT IN THE EFFORTS OF P ERFUMERS, FOR A FEW MORE APPLICATION LABORATORIES, 5 M/S FIRMENICH AROMATICS FRAGRANCE DEVELOPMENTS MANAGERS, MARKET RESEARCH ETC. THEREFORE IT IS MOST VALUABLE ASSET OF THE COMPANY. THEREFORE, FORMULATION IS COMPLETELY GUARDED AND KEPT SECRET. THEREFORE, THE A SSESSEE HAS NOT ABLE TO PROVIDE THE DETAIL OF DIFFERENT RAW MATERIAL USED A MANUFACTURING PRODUCT. THEREFORE, THE LD. AR SUBMITTED THAT THE ASSESSEE IS IN BUSINESS SINCE SO MANY YEARS BUT ASSESSEES BOOKS OF ACCOUNT WHERE NEVER REJECTED BY THE DEPARTMENT ONLY IN THIS ORDER THE DEPARTMENT HAS REJECTED THE BOOKS OF ACCOUNT AND THAT TWO FLIMSY GROUNDS. ON THE OTHER HAND LD. DR RELIED UPON THE AO ORDER OF REVENUE AUTHORITY. 8 . WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CA SE WE FIND THAT THE STOCK RECORD OF RAW MATERIALS AND FINISH GOODS WERE PREPARED ON DAY TO DAY BASIS. APART FROM THAT AS PER THE EXCISE R ULES THE ASSESSEE MADE H AS MAINTAIN ED R G - I FOR FINISHED GOODS, RG - 23A PART ONE FOR RAW MATERIAL AND THE SAME WERE PROVIDED TO THE LD. AO ON MONTHLY BASIS AND PRODUCT WISE PREPARED FROM DAY TO DAY REGISTER. THE ASSESSEE HAS NOT GIVEN THE T ECHNICAL DETAIL AS THE ASSESSEE S PRODUCTION PROCESS IS BASED ON FORMULATION WHICH IS CLOSELY GUARDED SECRET AND AS IT IS PROPRIETAR Y PRODUCT AND ALSO INTELLECTUAL PROPERTY RIGHTS. WE FIND THAT IN FAVOUR AND FLAVOUR FRAGRANCE INDUSTRY, FORMULATION IS A INTELLECTUAL PROPERTY OF THE ORGANIZATION, WHICH IS DEVELOPED BY HUGE INVESTMENTS FOR RESEARCH AND DEVELOPMENT AND ALSO BY INVESTMENT I N THE EFFORTS OF PERFUMERS, APPLICATION LABORATORIES, FRAGRANCE DEVELOPMENT MANAGERS, MARKET RESEARCH ETC. THUS IT IS A MOST VALUABLE ASSET OF THE COMPANY. WE FIND THAT THE ASSESSEE MAKES A PRODUCT WHICH IS UNIQUE IN THE EYES OF OUR CUSTOMERS. THEREFORE, T HIS FORMULATION WAS COMPLETELY GUARDED AND KEPT SECRET. THIS FORMULAE KNOWN TO 6 M/S FIRMENICH AROMATICS VERY FEW AND SELECT GROUP OF PEOPLE WHO ARE BOUND BY CONFIDENTIALITY AGREEMENT. THEREFORE, USE IN MANUFACTURING PRODUCT. THE ASSESSEE HAS SUBMITTED ALL THE BILLS AND ENTIRE INCO ME WERE SUBMITTED TO AO. THEREFORE, IN OUR OPINION THE AO AND CIT(A) IS NOT JUSTIFIED IN REJECTING THE BOOK RESULT OF THE ASSESSEE. THE ASSESSING OFFICER HAS RELIED UPON THE DECISION OF PUN JAB TRADING COMPANY VS. CIT (1964) 53 ITR 335 (PUNJ) IN THAT CASE S TOCK WAS NOT MAINTAINED HENCE THE BOOKS RESULT WAS REJECTED WHEREAS IN THE CASE OF THE ASSESSEE STOCK REGISTER IS MAINTAIN BUT ALSO SUBMITTED TO AO FOR VERIFICATION. IN THE CASE OF KISHAN CHAND CHELLARAM VS. CIT (1978 ) 114 ITR 671 (BOM) IN ABSENCE OF STOC K TALLIES AND SALES WERE NOT RECORDED WITH IDENTIFIABLE DETAILS. THEREFORE, BOOKS WERE REJECTED IN THE CASE OF THE ASSESSEE NO DEFECT WAS FOUND BY THE AO STOCK REGISTER. SIMILARLY IN THE CASE OF RATANLAL OMPRAKASH V/S CIT(1981) 132 ITR 640 (ORI). THE STOCK REGISTER WAS NOT MAINTAINED WHEREAS IN THE CASE OF THE ASSESSEE THE STOCK REGISTER MAINTAIN. SIMILARLY IN CASE OF NARBADA STEEL LTD V/S ACIT (2007) 108 TTJ 741 (ASR). WHEREIN, IN THAT CASE THE TAX AUDITORS HAD NOT GIVEN THE DETAIL OF ABOUT YIELD FINISHED PRODUCTS, PERCENTAGE OF YIELD. THEREFORE, THE BOOKS WERE REJECTED IN THE ASSESSEES CASE TAX AUDITOR HAS SPECIFICALLY NOTE THAT IN VIEW OF VARIOUS RAW MATERIAL USED IT AT DIFFERENT STAGES AND IN DIFFERENT MIX IT IS IMPRACTICABLE TO WORK OUT YIELD FINISHED GOODS. IN CASE OF JAGAN NATH GURBACHAN SINGH V/S ITO (2001) 73 TTJ 878 (ASR). THE AO HAS RELIED UPON THE DATA OF COTTON CORPORATION OF INDIA WHILE IN ASSESSEES CASE NO S UCH DATA HAS BEEN CONSIDERED. OUR VIEW IS SUPPORTED BY THE DECISION OF DELHI HIGH COUR T IN CASE OF CIT VS. GASJAK ELEGANCE EXPORT 324 ITR 95 DELHI WHEREIN IT IS HELD THAT NO PROVISION EITHER IN THE ACT IN THE RULES REGARDING ASSESSEE CARRYING BUSINESS OF THIS NATURE TO MAINTAIN STOCK REGISTER, AS PART OF ITS ACCOUNTS HAS BEEN BROUGHT TO OUR NOTICE. AS REGARDS NON - PRODUCTION OF STOCK REGISTER, THE ASSESSEE HAS GIVEN AN EXPLANATION WHICH HAS BEEN ACCEPTED NOT 7 M/S FIRMENICH AROMATICS ONLY BY THE COMMISSIONER OF INCOME TAX (APPEALS) BUT ALSO BY THE TRIBUNAL AND BOTH OF THEM HAVE GIVEN A CONCURRENT FINDING OF FACT THAT MAINTAIN STOCK REGISTER WAS NOT FEASIBLE CONSIDERING THE NATURE OF THE BUSINESS BEING RUN BY THE ASSESSEE WHICH WAS ENGAGED IN THE BUSINESS OF MANUFACTURING READYMADE GARMENTS BY PURCHASING FABRIC WHICH WAS THEN SUBJECTED TO EMBROIDERY, DYING AND FINISHING AND THEN CONVERTED INTO READYMADE GARMENTS BY STITCHING. SECTION 145(3) OF THE ACT THEREFORE, COULD NOT HAVE BEEN APPLIED BY THE ASSESSING OFFICER TO THE PRESENT CASE. WE RESPECTFULLY FOLLOWING THE DECISION WE FOUND THAT IN THE ASSESSEES CASE ASSESSEE HA S MAINTAIN ALL THE BOOKS OF ACCOUNT BUT ASSESSEE HAS NOT PRODUCE THE STOCK REGISTER CONTAINING DAY TO DAY RECORDING OF CONSUMPTION AND PRODUCTION BUT ONLY PRODUCE THE MONTHLY DETAIL OF RAW MATE RI A L AND FINISHED GOODS THE REASON FOR NOT GIVING THE DETAIL TH AT ASSESSEE PRODUCTION BASED ON FORMULA WHICH IS CLOSELY GUARDED SECRET AS IT PROPRIETARY PRODUCT AND ALSO INTELLECTUAL PROPERTY RIGHTS. THEREFORE, WE ARE OF THE VIEW THAT ASSESSEE HAS GIVEN THE REASON FOR NOT GIVING THE STOCK REGISTER FOR DAY TO DAY CONSU MPTION. THEREFORE, WE ARE OF THE VIEW THAT REVENUE AUTHORITIES ARE NOT JUSTIFIED IN REJECTING THE BOOK RESULT. WE ALSO GET THE SUPPORTS FROM DECISION OF CIT VS. POONAM RANI 326 ITR 223 DELHI, ASHOKA REFRACTORIES VS. CIT 279 ITR 547, CIT VS. BHAVANI INDUSTR IES 65 TAXMANN RAJASTHAN AND ACIT VS. CEMENTATION OF INDIA 146 ITD 59 MUMBAI. THEREFORE, CONSIDERING THE FACTS OF THIS CASE WE ARE OF THE VIEW THAT THE AO AND THE CIT(A) IS NOT JUSTIFIED IN REJECTING THE SAME AND WE REVERSE THE FINDING OF THE CIT(A) AND WE ALLOW THE APPEAL OF THE ASSESSEE ON THIS GROUND. IN THE RESULT APPEAL IS ALLOWED. 9 . SECOND GROUNDS RELATES TO CONFIRMING THE DISALLOWANCE OF EXCISE INTERES T OF RS. 28 ,75,000 / - U/S 40A(2)(B) OF THE ACT. THE AO NOTED THAT THE ASSESSEE HAS TAKEN LOAN OF RS. 11,50,00,000/ - FROM ITS SISTER CONCERN VIZ M/S M C DAWAR 8 M/S FIRMENICH AROMATICS AROMATICS PVT. LTD. WHICH ARE COVERED U/S 40A(2)(B) ON WHICH INTEREST @ 14.5% HAS BEEN PAID WHICH FAR EXCEEDS THE PREVAILING MARKET RATE OF 12%. THE ASSESSEES EXPLANATION THAT LOAN IS LONG TERM LOAN AND RATE WAS FIXED ON THE DAY OF ACCEPTANCE OF LOAN AND SAME WAS BASED ON CITI BANK S PLR RATE AT THE TIME OF ACCEPTANCE. THE AO AFTER CONSIDERING THE REPLY HAS DISALLOW THE INTEREST IN EXCESS OF 12% AS UNREASONABLE U/S 40A (2) (B) OF THE IT ACT. THE CIT(A) HAS CONFIRMED. 10. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE ASSESSEE HAS PAID INTEREST OF LONG TERM UNSECURED LOAN FROM PARTIES COVERED U/S 40 A(2)(B). NAMELY, FIRMENICH AROMATICS P. LTD. @ 14.5% FROM THE DATE OF ACCEPTANCE. THE ASSESSEE HAS TAKEN THE LOAN FROM THIS PARTY ON THE GROUND THAT IF THE ASSESSEE TAKE UNSECURED LOAN FROM BANK THAT TO AGAINST PROVIDE SECURITIES , HYPOTHECATION SOME OF STOCK AND DEBTORS WHO WERE ETC. WHO WERE ABOVE MENTAL PRESSURE OF STRINGENT BANK NORMS AN D REGULATIONS APART FROM HIDDEN COST INVOLVED BY THE BANK FINANCE. THE ASSESSEE HAS TAKEN THE NOMINAL @ 14.5%. WE FIND THAT THE ASSESSEE HAS TAKEN THE LOAN HAVE PAID THE INTEREST @ 14.5% WHICH IS AS PER CITI BANK PLR RATE AT THE TIME OF ACCEPTANCE THEREFOR E, IN OUR OPINION THE AO AND CIT(A) IS NOT JUSTIFIED DISALLOWING THE SAME OUR VIEW IS SUPPORTED BY THE DECISION OF CHANDIGARH BENCH IN CASE OF GOPAL KISHAN V/S ITO (111 TAXMAN 42). OUR VIEW IS SUPPORTED BY THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH C OURT . IN CASE OF SHRI YASH PAL GUPTA VS. COMMISSIONER OF INCOME TAX PUNJAB AND HARYANA HIGH COURT. SIMILARLY WE ALSO GET THE SUPPORT FROM DECISION OF MANISHA DYING AND PRINTING WORK VS. CIT IN ITA NO. 3600/AHMADABAD/2007 WHEREIN 18% @ HELD TO BE REASONABLE . IN THE RESUL T THE APPEAL OF THE ASSESSEE IS ALLOWED. 9 M/S FIRMENICH AROMATICS 11. THE GROUND IS RELATING TO CONFIRMING THE CAPITALIZATION OF REPAIRS AND MAINTAIN OF RS. 1,54,417/ - BEING A RENOVATION LIST HOLD PREMISES AT MUMBAI. THE SHORT FACTS OF THE CASE THAT THE AO NOTED THAT THE ASSESSEE HAS DEBATED SUM OF RS. 3,61,200/ - IN SUPPORT OF VARIOUS REPAIRS AND MAINTENANCE EXPENSES UNDER THE HEAD WHICH ARE CAPITAL IN NATURE. THE AO FOUND THAT 1,54,470/ - WAS CAPITAL IN NATURE AND SAME WAS DISALLOWED AND ON WHICH DEPRECIATION WAS ALLOWED AS PER APPLICABLE RATES. 12. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES THE ASSESSEES CONTENTION THAT THE ASSESS EE HAS CARRIED OUT VARIOUS WORK DONE AT MUM BAI OFFICE LIKE DEMOLITION O F EXISTING PLASTER REPAIRING OF STROME WATER DRAIN, REPAIRING OF EXITING COMPOUND WALL, WHICH ARE REVENUE IN NATURE BUT WE DO NOT AGREE ON THE GROUND THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE WHICH ARE CAPITAL IN NATURE PERTAINING TO MANAGER REPAIRING WORK. THE EXPENDITURE INCURRED WAS ENDURING NATURE HENCE IT WAS CAPITAL NATURE. IT WAS HELD THAT REPLACEMENT OF OLD MACHINE WITH A NEW ON E AMOUNTS TO BRINING IN TO A NEW ASSET AND IT ALSO GIVES ENDURING BENEFIT TO THE ASSESSEE, HENCE SUCH EXPENDITURE CANNOT BE CONSIDERED AS REVENUE EXPENDITURE. SO THE EXP ENDITURE IS INCURRED FOR PRESERVING AND COST OF REPLACEMENT OF PART THEREFORE, IT IS A CAPITAL EXPENDITURE. THEREFORE, WE CONFIRMED THE SAME IN THE RESULT THE ASSESSEES APPEAL IS DISMISSED ON THIS GROUND. 13 . IN DEPARTMENT S APPEAL IS FIRST GROUND IS DELE TING THE DISALLOWANCE OF RS. 1,51,58,000/ - ON ACCOUNT OF LOW GROSS PROFIT. 14. THE AO FOUND THAT THE ASSESSEE FOR AY 2005 - 06 THE GP WAS 17.04% WHEREAS IN AY 2003 - 04 IT WAS 19.3%. THEREFORE, THE ASSESSEE WAS ASKED TO GIVE THE REASON FOR DECLARING GP THE AS SESSEE CONTENDED THAT THE RATE OF MARGIN RATE FOR FLAVOURS WAS 58.31% WHEREAS IN THE SAME FOR FRAGRANCE WAS 13.49% 10 M/S FIRMENICH AROMATICS BUT HOWEVER OF THE VIEW THAT WHEN THE ASSESSEE HAS NOT FINISHED THE DETAIL OF RAW MATERIAL USED IN FLAVOURS AND FRAGRANCE THIS CANNOT TREATED AS REASONABLE. THEREFORE, HE APPLIED THE GP @ 18% AND MADE THE ADDITION OF RS. 1,51,58,000/ - MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE APPEAL BY OBSERVING AS UNDER: 15. I HAVE CONSIDERED THE FACTS. IT IS AN ADMITTED FACT THAT G.P. FOR THE YEAR U NDER CONSIDERATION AT 17.04% WHEREAS IT WAS 14.99% IN THE IMMEDIATELY PRECEDING YEAR I.E. AY 2004 - 05 AND 19.30% FOR AY 2003 - 04. THUS, THE G.P. RATE IS HIGHER THAN THE IMMEDIATELY PRECEDING YEAR BUT IT IS LOWER AS COMPARED TO AY 2003 - 04. THE AR HAS CONTENDE D THAT T HERE HAS BEEN DRASTIC FALL IN VO LUME OF FLAVOUR SALES FROM 26% TO 6% DUE TO DISCONTINUATION OF THE ORDER OF SOME OF THEIR PRODUCTS. IT IS ALSO ESTABLISHED THAT FLAVOUR PRODUCTS ARE MORE PROFITABLE AS COMPARED TO FRAGRANCE PRODUCTS AS CAN BE OBSERVE D FROM THE WORKING GIVEN BY THE APPELLANT IN ITS WRITTEN SUBMISSION FROM WHICH IT IS ASCERTAINABLE THAT GROSS MARGIN IN FLAVOUR IS 58.31% WHEREAS GROSS MARGIN IN FRAGRANCE IS 13.49%. THEREFORE, THIS CONTENTION OF THE AR HAS SOME FORE IN HIS SUBMISSION THAT THE G.P. RATE IS LOW ON ACCOUNT OF CHANGE IN THE COMPOSITION OF SALES IN TERMS OF FLAVOURS/FRAGRANCES SALES TO TOTAL SALES AS COMPARES TO AY 2003 - 04. HOWEVER, AT THE SAME TIME AS DISCUSSED IN THE GROUND NO. 1 ABOVE, THE BOOKS OF ACCOUNTS PRODUCED BEFORE T HE AO CANNOT BE TREATED AS FULLY AUTHENTIC AND RELIABLE FOR THE REASONS DISCUSSED IN THE ABOVE GROUND. THEREFORE, THE G.P. RATE SHOWN AT 17.04% IN THE ASSESSMENT YEAR UNDER CONSIDERATION CANNOT BE ACCEPTED AS FULLY REFLECTED THE PROFITABILITY OF THE APPELL ANT. HOWEVER, ON THE OTHER HAND THE COMPARISON OF G.P. RATE WITH AY 2003 - 04 AS DONE BY THE AO CANNOT BE FULLY CONSIDERED AS CORRECT AND REASONABLE. IN THE CASE OF G.P. ADDITION ONE HAS TO COMPARE THE G.P. RATE FOR THE LAST YEARS OR THE AVERAGE G.P. RATE FO R THE PERIOD OF LAST THREE YEARS I.E. AY 2003 - 04 TO 2005 - 06 WHICH COMES TO 17.11% AS 11 M/S FIRMENICH AROMATICS AGAINST THE G.P. RATE OF 17.04% DISCLOSED BY THE APPELLANT. IN VIEW OF THESE FACTS AND CONSIDERING THE FACT THAT THERE IS CHANGE IN RATION OF PRODUCTION OF THE PROFIT MARG IN IN FLAVOUR IS 58.31 % AS COMPARED TO 13.49% WHICH LED TO REDUCTION IN G.P. RATE, IT WOULD THEREFORE BE REASONABLE AND APPROPRIATE TO APPLY THE AVERAGE G.P. RATE FOR THE LAST THREE YEARS WHICH COMES TO 17.11%. THE TOTAL SALES OF THE APPELLANT DURING THE YEAR ARE RS. 157,85,09,000/ - ON WHICH APPLYING G.P. RATE OF 17.11% ESTIMATED G.P. COMES RS. 27,00,82,889/ - AS AGAINST THE DECLARED G.P. OF RS. 26,90,53,000/ - . ACCORDIN GLY, THE TOTAL G.P. ADDITION IS WORKED OUT TO RS. 10,29,890/ - AS AGAINST THE G.P. ADDITION OF RS. 1,51,58,000/ - MADE BY THE AO. THEREFORE, THE ADDITION OF RS. 1,41,28,110/ - I.E. (1,51,58,000 10,29,890) IS DELETED AND ADDITION OF RS. 10,29,890/ - IS CONFIR MED. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 16. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES DURING THE COURSE OF HEARING LD. DR SUBMITTED THAT THE CIT(A) HAS GRANTED THE RELIEF ON THE GROUND THAT HE HAS APPLIED THE AVERAGE GP RATE FO R THREE YEARS BUT THE GP FOR THREE YEARS CANNOT BE BASED BECAUSE IN AY 2004 - 05 THE GP WAS 19.30% . THE LD. AR SUPPORTS THE VIEW OF COMMISSIONER ON THE GROUND THAT HE WAS FAIR AND REASONABLE TO APPLIED THE GP @ 17.11% THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) IS JUSTIFIED. FOR THE SAKE OF GRAVITY WE REPRODUCE THE GP RATE FOR THREE YEARS : PARTICULARS AY 05 - 06 AY 04 - 05 AY 03 - 04 WORKING OF GROSS PROFIT SALES 15,78,509/ - 15,00,549/ - 12,08,699/ - LESS : COST OF MATERIALS 13,09,456/ - 12,75,585/ - 9,75,422/ - GROSS PROFIT 2,69,053/ - 2,24,964/ - 2,33,277/ - GROSS PROFIT(%) 17.04% 14.99% 19.30% 17. IN THE RESULT DEPARTMENT APPEAL IS DISMISSED ON THIS GROUND. 12 M/S FIRMENICH AROMATICS 18. THE SECOND GROUND IN THE DEPARTMENT APPEAL IS DIS ALLOWING OF FOREIGN EXCHANGE LOSS OF RS. 3,87,110/ - . 19. THE AO HAS FOUND THAT THE ASSESSEE HAS DEBITED NET EXCHANGE LOSS OF RS. 45,37,000/ - . THE AO OBSERVED THAT FOREIGN FLUCTUATION ON THE LAST DATE OF ACCOUNTING YEAR IS ONLY CONTINGENT AND NOTIONAL LIABILITY, HENCE NOT ALLOWABLE AS DEDUCTIO N. THE MATTER CARRIED TO CIT(A) AND CIT(A) IS ALLOWED THE CLAIM BY OBSERVING AS UNDER : I HAVE CONSIDERED THE FACTS. I FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. (294 ITR 451) WHEREIN IT WAS HELD THAT THE LIABILITY ARISING OUT OF CONTRACTS HAD ALREADY STOOD ACCRUED THE MINUTE THE CONTRACT WAS ENTERED INTO AND THE MERE POSTPONEMENT OF THE PAYMENT OF SUCH LIABILITY TO A FUTURE DATE W OULD NOT EXTINGUISH THE SAME SO AS TO RENDER IT NOTIONAL OR CONTINGENT. IT WAS ALSO HELD THAT ANY INCREASE IN SUCH LIABILITY AS A RESULT OF FLUCTUATION IN THE VALUE OF FOREIGN CURRENCY IN RELATION TO INDIAN CURRENCY THUS WAS & FATE - ACCOMPLI AND SUCH INCREASE IN LIABILITY AS PER THE EXCHANGE RATE PREVAILING ON THE LAST DATE OF THE FINANCIAL YEAR WAS ALLOWABLE AS DEDUCTION BEING NOT NOTIONAL OR CONTINGENT. THIS DECISI ON IS ALSO APPROVED BY THE HON' BLE SUPREME COURT IN WOODWA RD GOVERNOR INDIA PVT . LT D. (2009)21 DTR 106 (SC). RESPECTFULLY FOLLOWING THE JUDGMENT OF HON BLE APEX COURT, THE DISALLOWANCE OF NOTIONAL LOSS ON ACCOUNT OF FOREIGN FLUCTUATION IS DELETED. APPELLANT'S APPEAL ON THIS GROUND IS ALLOWED. 20. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES WE ARE OF THE VIEW THAT ISSUE IS CONTROVERSY IS COVERED BY THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT(A) V/S WOODWARD GOVERNOR INDIA PVT. LTD. (294 ITR 451). WE RESPECTFULLY FOLLOWING THE SAME WE DISMISS THE DEPARTMENT APPEAL. 13 M/S FIRMENICH AROMATICS GROUND NO. 3 21. THE GROUND RELATES TO DELETING THE ADDITION MADE U/S 80IB OF THE ACT RS. 32,31,533/ - . THIS DEDUCTION WAS ALLOWED BY CIT (A) IN ITA NO. 3744/M/2011, AY 2005 - 06, ITA NO. 549/M/2011, AY 2006 - 07 AND ITA NO. 6531/M/2012, AY 2008 - 09. THEREFORE, WE DISPOSE OF THIS GROUNDS BY COMMON ORDER. 22. THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS. 3,23,15,333/ - U/S 80IB. HOWEVER, IT WAS SEEN FROM ASSESSMENT ORDER OR A.Y. 2000 - 2001 THAT ASSESSING OFFICER HELD THAT AY 00 - 01 WAS THE SIXTH YEAR FOR THE PURPOSE OF 80IB AND NOT THE FIFTH YEAR AS CLAIMED BY THE ASSESSEE . THE ISSUE IS UNDER LITIGATION. IN VIEW OF ASSESSMENT YEAR 00/01 10 YEAR WAS COMPLETED IN AY 2004 - 05 AND NO DEDUCTION U/S 80IB IS ALLOWABLE TO THE ASSESSEE IN THE AY 05 - 06. THEREFORE, THE CLAIM DEDUCTION OF RS. 3,23,15,33 3 U/S 80IB WAS DISALLOWED. 23. MATTER CARRIED TO CIT (A) AND CIT (A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECORD. I HAVE GONE TH OUGH THE ORDER OF CIT(A) WHEREIN IN PARA 3.2 THE CIT(A) HAS OBSERVED THAT THE APPELLANT HAS MADE CLAIM FOR DEDUCTION U/S 80IB IN AY 98 - 99 WHICH WAS REJECTED ON ACCOUNT, THAT UNIT IN QUESTION HAS NOT COMMENCED ITS BUSINESS . WHEN THE BUSINESS COMMENCED AND THE CLAIM WAS MADE IN AY 2003 - 04 @ 100% TREATING CLAIM AS FIFTH YEAR, THE AO CLAIM FOR 100% IS ONLY FOR 5 YEAR AND ONLY 5 YEARS WERE COMPLETED. THIS WAS TOTA LLY CONTRAVENTION OF THE SCHEME. IN THE LIGHT OF THESE FACT, THE CIT (A) HAS HELD THAT AY 03 - 04 IS THE FIFTH YEAR OF CLAIM AND THE APPELLANT IS ENTITLED TO DEDUCTION @ L00% AND NOT 30% ALLOWED BY THE ASSESSING OFFICER. THUS IT IS SEEN THAT THE APPELLANT HA S NOT COMPLETED 10 YEAR OF CLAIM FOR THE YEAR UNDER CONSIDERATION, THEREFORE, IT IS ENTITLED TO DEDUCTION @ 30% U/S.80IB OF THE ACT. THE AO, IS THEREFORE DIRECTED TO ALLOW DEDUCTION U/S.80IB ACCORDINGLY. THIS GROUND OF APPEAL IS THEREFORE ALLOWED IN FAVOUR OF THE APPELLANT. 1 4 M/S FIRMENICH AROMATICS 24. THE DEPARTMENT IS IN APPEAL AGAINST THE DEDUCTION ALLOWED IN AY 2005 - 06, 2006 - 07 AND AY 2008 - 09. THE DEPARTMENT IS IN APPEAL FOR ALL THIS YEAR. THE LD. DR HAS GIVEN WRITTEN SUBMISSION BEFORE US IN RESPECT OF ITA NO. 3744/M/2011, AY 2005 - 06, ITA NO. 549/M/2 011, AY 2006 - 07 AND ITA NO. 6531/M/2012, AY 2008 - 09. 25. THE LD. DR HAS GIVEN WRITTEN SUBMISSION BEFORE US AND IN THE WRITTEN SUBMISSION THE LD. DR HAS SUBMITTED THE WRITTEN SUBMISSION READS AS UNDER: IN THIS CONTEXT IT IS SUBMITTED THAT DURING THE C OURSE OF HEARING ON 13/02/2017, THE UNDERSIGNED, BEING SR. AR FOR THIS CASE, HAD SUBMITTED A WORKING OF DEDUCTION U/S 80IB OF THE ACT CLAIMABLE BY THE ASSESSEE, BEFORE THE HON'BLE BENCH. THE SAME IS REPRODUCED HEREUNDER FOR YOUR KIND REFERENCE. IT WAS BROU GHT TO THE KNOWLEDGE OF THE HON'BLE BENCH THAT DURING FY 1997 - 98 (AY 1998 - 99), THE ASSESSEE HAD ACQUIRED AN EXISTING UNIT, REFERRED TO AS UNIT - I, FROM ITS SISTER CONCERN M/S MC DAVAR AROMATICS LTD. ON 24/04/1997 AND HAD SET UP A NEW UNIT, REFERRED TO AS UNIT - II, ON 27/03/1998, AS PER THE CERTIFICATES OF CHIEF OF INSPECTOR OF FACTORIES, FOR THE RESPECTIVE UNITS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 1998 - 99, IT WAS ESTABLISHED BY THE ASSESSING OFFICER AND ADMITTED BY THE ASSESSEE THAT UNIT - II DID NOT COMMENCE ITS BUSINESS DURING THE YEAR AY 1998 - 99 BUT IN THE SUBSEQUENT YEAR, AY 1999 - 00. HENCE, UNIT - II WAS ELIGIBLE FOR DEDUCTION U/S 801A OF THE ACT FROM AY 19 99 - 00 ONWARDS. REFERENCE IS INVITED TO PARA 15, 16 OF ASSESSMENT ORDER FOR AY 1998 - 99, PARA 10 OF AY 1999 - 00 AND PARA 7 OF AY 2000 - 01. COPIES OF ASSESSMENT ORDERS FOR AY 1998 - 99, 1999 - 00 AND 2000 - 01 WERE ALSO SUBMITTED BEFORE THE HON'BLE BENCH DURING THE 15 M/S FIRMENICH AROMATICS C OURSE OF HEARING TODAY, ON 13/02/2017: AY UNIT - I DEDUCTION AVAILABLE U/S 80IB UNIT - II DEDUCTION AVAILABLE U/S 80IB REMARKS 1998 - 99 4TH YEAR 100% REFER PARA 15, 16 OF ASMT ORDER SUBMITTED 1999 - 00 5TH YEAR 100% REFER PARA 10 OF ASMT ORDER SUBMITTED 2000 - 01 6TH 30% 2ND YEAR REFER PARA 7 OF ASMT ORDER SUBMITTED 2001 - 02 7TH YEAR 3RD 2002 - 03 8TH YEAR 4TH 2003 - 04 9TH YEAR 5TH 2004 - 05 10TH YEAR 6TH 30% 2005 - 06 11TH YEAR NIL 7TH CURRENT APPEAL 2006 - 07 12TH YEAR 8TH CURRENT APPEAL 2007 - 08 13TH YEAR 9TH CURRENT APPEAL 2008 - 09 14TH YEAR 10TH CURRENT APPEAL 3. THE ASSESSING OFFICER IN AY 2005 - 06 HAD HELD THAT SINCE 10 TH, YEAR WAS COMPLETED IN AY 2004 - 05, THEREFORE, IT WAS 11 TH, YEAR IN AY 2005 - 06 AND HENCE DEDUCTION U/S 80IB OF THE ACT WAS DENIED TO THE ASSESSEE. THE CIT(A) HELD THAT IT WAS 5TH YEAR IN AY 2003 - 04 THEREFORE, IT WAS 7 TH, YEAR IN AY 2005 - 06 AND HENCE, THE ASSESSEE WAS ELIGIBLE FOR 30% DEDUCTION U/S 80IB OF THE ACT. THE CIT(A) MAINTAINED THAT THE ASSESSEE WAS ELIGIBLE FOR 30% DEDUCTION U/S 80IB OF THE ACT FOR ALL AYS FROM 2005 - 06 TO 2008 - 09 WHILE THE AO HAD DENIED SUCH DEDUCTION FOR THE SAID AYS. 16 M/S FIRMENICH AROMATICS 4. IT IS APPARENT FROM THE ABOVE CHART THAT BOTH THE AO AND THE CIT(A) WERE PARTLY CORRECT IN THEIR RESPECTIVE WAYS. IT WAS 11 TH, YEAR FOR UNIT - I WHILE IT WAS 7 TH, YEAR FOR UNIT - II IN AY 2005 - 06. THIS MEANS THAT ASSESSEE WAS ELIGIBLE FOR DEDUCTION FOR UNIT - I AND FOR 30% DEDUCTION FOR UNIT - II IN AY 2005 - 06. 5 . THIS ALSO MEANS THAT THE ASSESSEE WAS ELIGIBLE FOR NO DEDUCTION FOR UNIT - I AND FOR 30% DEDUCTION FOR UNIT - II FOR AYS 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09, WHICH WAS THE 10 T H YEAR FOR UNIT - II, 6. THUS, IT IS APPARENT THAT BOTH THE AO AND THE CIT(A) DID NOT DISTINGUISH THE CLAIM OF SECTION 80IB OF THE ACT BETWEEN THE TWO UNITS, UNIT - I AND UNIT - II, FOR AY 2005 - 06 TO AY 2008 - 09. 7. IT IS PERTINENT TO NOTE THAT THOUGH THE ASSESSEE IS ELIGIBLE FOR CLAIM OF 30% DEDUCTION U/S 80IB OF THE ACT, AS HELD BY THE CIT(A), THERE IS A NEED TO VERIFY THAT THIS CLAIM DID NOT INCLUDE THE PROFITS FROM UNIT - I. THE CLAIM OF DEDUCTION OF 30% U/S 80IB OF THE ACT FOR AYS 2005 - 06 TO 2008 - 09 WAS ALLOWABLE ONLY ON PROFITS FROM UNIT - II BECAUSE 10 TH, YEAR FOR UNIT - I WAS COMPLETED IN AY 2004 - 05 ITSELF. 8. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HUMBLY PRAYED THAT THE ISSUE OF CLAIM U/S 80IB OF THE ACT MAY BE SET ASIDE TO THE FILE OF THE AO IN ORDER TO VERIFY THAT THE PROFITS CLAIMED FOR DEDUCTION @30% U/S 80IB OF THE ACT SHOULD INCLUDE PROFITS ONLY FROM UNIT - II AND NOT FROM UNIT - I. 9. SUBMITTED FOR KIND C ONSIDERATION. IT IS HUMBLY PRAYED THAT AN OPPORTUNITY OF BEING HEARD MAY KINDLY BE ACCORDED TO THE DEPARTMENT, IN CASE OF ANY DISPARITY WITH RESPECT TO THE AFOREMENTIONED FACTS AND CIRCUMSTANCES OF THE CASE. 26. THE LD. AR SUBMITTED THAT IN AY 2000 - 01 AND 2003 - 04 PRESUME THAT THE AY 2000 - 01 WAS THE SIX YEAR CLAIM OF THE DEDUCTION. IN AY 2003 - 04 IT WAS DISPUTED THAT AY 2003 - 04 IS THE SIX YEAR CLAIM OF DEDUCTION UNDER 80IB AND NOT 17 M/S FIRMENICH AROMATICS THE FIFTH YEAR AND THIS ISSUED IS SETTLED BY COMMISSIONER IN HIS ORDER AND IN THE AY 200 5 - 06 ASSESSEE IS ELIGIBLE FOR 30 % DEDUCTION U/S 80IB AND HE RELIED UPON THE FOLLOWING CHART: - ASSESSMENT YEAR YEAR OF CLAIM AS PER ASSESSEE YEAR OF CLAIM AS PER ASSESSMENT ORDER 1998 - 1999 N.A. AS PER ASSESSMENT ORDER FOR A.Y. 1998 - 1999 1999 - 2000 FIRST AS PER ASSESSMENT ORDER FOR A.Y. 1999 - 2000,IT IS FIRST YERA AND 100% DEDUCTION ALLOWED. 2000 - 2001 SECOND AS PER ASSESSMENT ORDER FOR A.Y. 2000 - 2001, IT IS SECOND YEAR AND 100% DEDUCTIONS ALLOWED. 2001 - 2002 THIRD AS PER ASSESSMENT ORDER FOR A.Y. 2001 - 2002, IT IS THIRD YEAR AND 100% DEDUCTIONS ALLOWED. 2002 - 2003 FOURTH AS PER ASSESSMENT ORDER FOR A.Y. 2002 - 2003, IT IS FOURTH YEAR AND 100% DEDUCTIONS ALLOWED. 2003 - 2004 FIFTH AS PER ASSESSMENT ORDER FOR A.Y. 2003 - 2004, IT IS SIXTH YEAR AND THEREFORE, 30% DEDUCTIONS ALLOWED IN ASSESSMENT ORDER. 2004 - 2005 SIXTH AS PER ASSESSMENT ORDER FOR A.Y. 2003 - 2004, IT IS SIXTH YEAR IN THAT CASE A.Y. 2004 - 2005 WOULD BE SEVENTH YEAR AND THEREFORE, 30% DEDUCTIONS SHOULD BE ALLOWED IN ASSE SSMENT YEAR. 2005 - 2006 SEVENTH AS PER ASSESSMENT ORDER FOR A.Y. 2003 - 2004, IT IS SIXTH YEAR IN THAT CASE A.Y. 2005 - 2006 WOULD BE EIGHT YEAR AND THEREFORE 30% DEDUCTIONS SHOULD BE ALLOWED IN ASSESSMENT YEAR. 27. WE HAVE GONE THROUGH THE CHART SUBMITTED BY THE DR AND THE CHART SUBMITTED BY THE AR. IT IS ADMITTED FACT ON RECORD THAT ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80IB FOR ASSESSMENT YEAR FROM 2005 - 06 TO 2008 - 09. AS REGARDING UNIT NO. 1 THE ASSESSEE WAS ENTITLED FOR DEDUCTION @ 30% AND AS PER 18 M/S FIRMENICH AROMATICS THE A O IT WAS 11 TH YEAR BUT CIT(A) HAS CORRECTED THAT 11 TH YEAR WAS FOR UNIT NO. I WHILE IT WAS 7 TH YEAR FOR UNIT NO. 2 IN AY 2005 - 06. THEREFORE, THIS ALL REQUIRES VERIFICATION AT THE END OF AO LEVEL. THE ASSESSEE HAS ALSO SUBMITTED THE CHART. THEREFORE, WE RESTORE THIS ISSUE BACK TO THE FILE OF AO ONLY FOR LIMITED PURPOSE THAT IS ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IB @ 30% IN THE AY 2005 - 06 FOR UNIT NO. 1 OR 2 . THE ASSESS ING OFFICER IS DIRECTED TO VERIFY THE RECORD AND DECIDE THE YEAR OF THE CLAIMS OF ALL THE YEAR. 28. IN THE RESULT THE ALL THE DEPARTMENTAL APPEAL IS PARTLY ALLOWED AS INDICATED ABOVE. ITA NO. 9198/M/2010 FOR AY 2006 - 07. 29. GROUND NO. 1 RELATES TO DISALLOW ANCE OF EXCESS INTEREST OF RS. 21,76,555/ - U/S 40A (2) (B) OF THE ACT. 30. THIS ISSUE HAS BEEN ALREADY ALLOWED BY US IN ITA NO. 2910/M/2011. THEREFORE, RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE APPEAL ON THIS GROUND. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. 31. GROUND NO. 2 RELATES TO CAPITALIZATION OF REPAIRS AND MAINTENANCE EXPENSES OF RS. 25,47,746/ - . 32. THIS ISSUE HAS BEEN ALREADY ALLOWED BY US IN ITA NO. 2910/M/2011. THEREFORE, RESPECTFULLY FOLLOWING TH E SAME WE DISMISS THE APPEAL ON THIS GROUND. 33. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. 34 . GROUND NO . 3 REGARDING DISALLOWANCE OF BAD DEBT . 19 M/S FIRMENICH AROMATICS 35 . THE ASSESSING OFFICER HAS VERIFIED THE DETAIL OF RECORDS AND IT WAS FOUND THAT ASSESSEE HAS CLAIME D BAD DEBT OF RS. 24 , 54 , 942/ - IN RESPECT OF FIRMEN ICH AND CIA. THE ASSESSEE WAS ASKED TO PROVE THE IDENTITY OF THE PARTY AND GENUINENESS OF THE TRANSACTION AND THE REASON FOR CLAIM OF BED DEPTH. ASSESSEE SU BMITTED THAT THIS BAD DEBT IS IN RESPECT OF AMOUNT NOT RECOVERABLE SINCE CENTRAL BANK OF USA HAS DENIED PERMISSION TO FIRME N ICH TO REMIT THIS AMOUNT TO INDIA DUE TO THE ASSESSEE. IN VIEW OF THE FACTS THE AMOUNT IS NOT RECOVERABLE, HOWEVER, THE ASSESSING OFFICER DENIED TO TREAT AT DEBT AS BA D . THE COMMISSIONER HAS DISMISSED THE APPEAL OF THE ASSESSEE. 36 . THE LD. AR SUBMITTED THAT THE ISSUE AND CONTROVERSY IS COVERED BY THE DECISION OF SUPREME COURT IN CASE OF TRF LTD. VS. CIT AND THE DECISION OF SPECIAL BENCH IN CASE OF DY. COMMIS SIONER OF INCOME TAX VS. OMAN INTERNATIONAL BANK 100 ITD 285. 37 . WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PA RTIES LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE ISSUE AND CONTROVERSY IS COVERED BY THE DECISION OF HONBLE SUPREM E COURT IN CASE OF TRF LTD. VS. CIT . THE SUPREME COURT HAS HELD THAT IT IS NOT NECESSARY FOR THE ASSE SSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRREVOCABLE. IT IS ENOUGH IF THE BAD DEATH IS A WRITTEN OFF AS IRREVOCABLE AS THE ACCOUNT OF THE ASSESS EE. WE FIND THAT AS PER THE AMENDED PROVISIONS OF SECTION 36 (1) (VII) PROVIDES THAT A CLAIM OF BED DEPTH IS TO BE ALLO WED IN THE YEAR IN WHICH SUCH BAD DEBT HAS BEEN WRITTEN OFF AS IRREVOCABLE AS THE ACCOUNT OF THE ASSESSEE. THEREFORE, WE RESTORE THIS IS SUE BACK TO THE FILE OF AO TO DECIDE THE ISSUE AS PER THE DECISION OF TRF LTD. VS. CIT 323 ITR 397 SUPREME COURT . 38. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 20 M/S FIRMENICH AROMATICS ITA NO. 6531/M/2012 39 . GROUND NO. 1 RELATES TO DISALLOWANCE OF EXCESS INTEREST OF RS. 4,36,490/ - U/S 40A (2) (B) OF THE ACT. 40 . THIS ISSUE HAS BEEN ALREADY ALLOWED BY US IN ITA NO. 2910/M/2011. THEREFORE, RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE APPEAL ON THIS GROUND. 41. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 5630/M/2011 42 . GROUND NO. 1 RELATES TO DISALLOWANCE OF EXCESS INTEREST OF RS. 19,72,445/ - U/S 40A (2) (B) OF THE ACT. 43 . THIS ISSUE HAS BEEN ALREADY ALLOWED BY US IN ITA NO. 2910/M/2011. THEREFO RE, RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE APPEAL ON THIS GROUND. 44. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO . 748/M/2012 45. THE FIRST ISSUE RELATING TO ALLOWING EXPENSES ALLOWANCES OF CAPITAL NATURE AS REVENUE EXPENDITURE. THE SHORT FACTS OF TH E CASE ARE AS UNDER: 46. THE ASSESSING OFFICER HAS VERIFIED THE P&L ACCOUNT AND FOUND THAT ASSESSEE HAS DEBITED A SUM OF RS. 1 , 70 , 53 , 000/ - IN RESPECT OF REPAIRS AND MAINTENANCE UNDER THE VARIOUS HEADS OF ACCOUNTS. THE SCRUTINY OF THE DETAILS FROM THE BOOKS OF ACCOUNTS REVEAL THAT CERTAIN EXPENSES WHICH ARE OF CAPITAL NATURE HAS BEEN DEBITED UNDER THIS HEAD. THE ASSESSEE HAS TAKEN THE CONTENTION THAT ALL THESE EXPENSES FOR REPAIRS THEREFORE THEY ARE REVENUE IN NATURE BUT ASSESSING OFFI CER WAS OF A VIEW THAT 10% OF SUCH EXPENDITURE IS 21 M/S FIRMENICH AROMATICS CAPITAL IN NATURE . HE HAS MADE THE ADDITION AND ALLOWED THE DEPRECIATION. MATTER CARRIED TO CIT (A) AND CIT (A) HAS ALLOWED THE APPEAL. 47. WE HAVE HEARD THE RIVAL CONTENTION BOTH THE PARTIES WE FIND THAT T HE SIMILAR ISSUE HAD COME UP IN AY 2005 - 06, WHEREIN WE HAVE DEALT THIS ISSUE IN DETAIL AND WE HAVE CONFIRMED THE REVENUE AUTHORITIES THEREFORE RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE APPEAL OF THE DEPARTMENT IN AY 2008 - 09. 48. IN THE RESULT, DEPARTME NTAL GROUND NO. 1 IS ALLOWED. GROUND NO. 2 49. THIS GROUND RELATES TO WITHDRAWAL OF DEDUCTION OF 80IB OF RS. 44485345/ - OF THE INCOME TAX ACT. 50. THE ASSESSING OFFICER HAS DISALLOWED THE DEDUCTION UNDER 80IB ON THE GROUND THAT AY 1998 - 99 WAS THE FIRST YEAR FOR THE PURPOSE OF 80IB THEREFORE 10 TH YEAR WAS COMPLETED IN AY 2007 - 08 AND NOT IN AY 2008 - 09 THEREFORE WITHDREW THE CLAIM OF 80IB . 51. MATTER CARRIED TO CIT (A) HAS ALLOWED THE CLAIM. 52. WE HAVE GONE THROUGH THE CHART SUBMITTED BY THE DR AND TH E CHART SUBMITTED BY THE AR. IT IS ADMITTED FACT ON RECORD THAT ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80IB FOR ASSESSMENT YEAR FROM 2005 - 06 TO 2008 - 09. AS REGARDING UNIT NO. 1 THE ASSESSEE WAS ENTITLED FOR DEDUCTION @ 30% AND AS PER THE AO IT WAS 11 TH YE AR BUT CIT(A) HAS CORRECTED THAT 11 TH YEAR WAS FOR UNIT NO. I WHILE IT WAS 7 TH YEAR FOR UNIT NO. 2 IN AY 2005 - 06. THEREFORE, THIS ALL REQUIRES CLARIFICATION AT THE END OF AO LEVEL. THE ASSESSEE HAS ALSO SUBMITTED THE CHART. THEREFORE, WE RESTORE THIS ISSUE BACK TO THE FILE OF AO ONLY FOR LIMITED PURPOSE THAT IS ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IB WAS 10 TH YEAR OR 11 TH YEAR . 22 M/S FIRMENICH AROMATICS THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE RECORD AND DECIDE THE YEAR OF THE CLAIMS OF ALL THE YEAR. 53. IN THE RESULT THE ALL THE DEPARTMENTAL APPEAL IS PARTLY ALLOWED TO VERIFY THE YEAR OF LIABILITY FROM THE ASSESSMENT RECORD AND DECIDE THE MATTER ACCORDINGLY. 54. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. JUDGME NT PRONOUNCED IN OPEN COURT ON 24 TH APRIL 2017. SD/ - SD/ - (RAJESH KUMAR) ACCOUNTANT MEMBER (D.T. GARASIA) JUDICIAL MEMBER MUMBAI, DATED: 24 TH APRIL , 2017 *RAHUL SHARMA* COPY TO: 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, F BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI