FIRMENICH AROMATICS (INDIA) P.LTD,MUMBAI vs. ACIT CIR 4(2), MUMBAI

2. The assessing officer erred on facts and in law in making disallowance of Rs. 14,36,000/- being bad debt written off, allegedly holding that (i) the appellant failed to establish that the debtors have become bad and irrecoverable and (ii) did not prove that debtors written off were offered as revenue income in any of the previous year. 2.1 The assessing officer erred on facts and in law in not appreciating that under the law, there was no requirement to establish that the debts have become bad and irrecoverable and that the requirement for claim of deduction under section 36(1)(vii) of the Act was complied in the appellant’s case.

1. “On the facts and circumstances of the case and in law, the Ld. DRP erred in directing TPO to exclude M/s. International Flavors & Fragrances (I) Pvt. Ltd. On the basis of varying accounting period whereas the comparables are includable on the basis of corresponding accounting period of comparables and that of assessee” 2. “On the facts and circumstances of the case and in law, the Ld. DRP erred in directing TPO to include M/s Ultra International Co. Ltd. whereas the assessee itself contradicted the basis of inclusion i.e. high import component of the comparable and the assessee in the case of M/s Synthite Industries Ltd.”. 3. Brief facts of the case are that the assessee-company is a corporate entity engaged in the business of manufacturing and marketing of industrial

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 flavors, fragrances, and chemical specialties, filed its return of income for AY 2009-10 on 30.09.2009. The assessee while filing return of income reported international transaction with its associated enterprises (AE) and furnished report under Form 3CED. Consequent upon reporting of international transaction, the assessing officer (AO) made reference to the transfer pricing officer (TPO) for computation of arms length price (ALP) with regard the international transaction reported in Form-3CED. During the transfer pricing adjustment proceedings, the TPO identified international transactions of import of raw material of Rs. 83,32,29,182/- for its APL. The assessee benchmarked the said transaction by adopting Transaction Net Margin Method (TNMM). The assessee has shown its profit margin @ 4.29%. The assessee treated itself as a tested party.

Operating profit / income was considered for profit level indicator (PLI).

The assessee selected following four comparable company for comparison of its benchmarking;

Sr. No Comparables company Margin % Year 1 Bhagat Aromatic Ltd 4.54 Multiple year data 2 Everest Flavours Ltd 0.70 March 2006 3 Privi Organis Ltd 8.30 March 2006 4 Sharp Menthod India Ltd 6.08 Multiple year data Average 4.51 Assessee’s average 4.29 4. On the basis of the aforesaid figures the assessee claimed its transaction at arm’s length. The TPO carried out its own search and after giving

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 show notice and considering the reply of the assessee included five more comparable. The assessee during the TP adjustment proceedings submitted two more comparable namely; (i) Allied Perfumers Ltd and (ii)

Ultra international Ltd. for considering as additional comparables, however, the TPO rejected both the comparable. On the basis of following final set of nine (9) comparables the TPO worked out the mean margin of 9.14% ;

Sr. No Comparables company OP/Sales % 1 Bhagat Aromatic Ltd 4.54 2 Everest Flavours Ltd 0.70 3 Privi Organis Ltd 8.30 4 Sharp Menthod India Ltd 6.08 5 AVT Naturals Ltd 16.47 6 Synthite Industrial Ltd 16.67 7 International Flavours & Fragranance 19.61 8 Goldfields Fragranance Pvt Ltd 5.15 9 S.H. Kelkar Co Pvt Ltd 13.76 (Sr No. 5 to 9 included by TPO) Assessee’s average 9.14% Average 4.51 5. The TPO also noted that the assessee made working adjustment at entity level and overall margin was used to justify its control transaction. The TPO made adjustment at pro-rata basis. The TPO worked out the adjustment of Rs. 10,11,43,000/- in the following manner;

Particulars Amounts (Rs. 000/-) Total operating income A 1973498 Total operating expenses -B 1894264

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 Operating profit C (A-B) 79234 NPM C/A as per books 4.01% International transaction of import of goods at book 833229 value International transaction of import of goods at ALP 732085 Adjustment under section 92 CA 101143 6. On receipt of order of TPO under section 92CA(3), the assessing officer added the adjustments suggested by TPO while passing draft assessment order under section 143(3)/144C(1). The assessing officer also disallowed claim of bad debts of ₹ 14,36,000/-, by taking view that the assessee despite issuing show cause notice failed to justified the claim of bad debts. The copy of draft assessment was served upon the assessee. The assessee exercised its option for filing objections before dispute resolution penal (DRP). The DRP after hearing the objections of the assessee directed the TPO/AO to exclude one comparable namely International Flavours and Fragrances (I) Ltd and to include Ultra International Co Ltd, thus granted partial relief to the assessee on TP issues. However, the disallowance of bad debts was affirmed by ld. DRP in its direction dated 21st October 2013. On receipt of directions of the DRP, the AO passed the final assessment order dated 29th November 2

13. Aggrieved by the directions of DRP both the parties have filed their respective appeal before this Tribunal.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 day of delay must be explained by the revenue. The approach in filing application for condonation of delay is causal. The application is deserve to be dismissed. In support of his submissions the ld AR for the assessee relied on the copy of Rule -10 of Income tax (Appellate Tribunal) Rules, 1963, Income Tax Appellate Tribunal Guidelines dated 13.04.1970 and para 174 of Income Tax Appellate Tribunal Manual.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 11. The ld. AR for the assessee while objecting the application of condonation of delay raised another objection that the appeal of revenue is not maintainable and submitted that sub-section (2A) of section 253 was inserted by Finance Act 2014 with retrospective effect from 01.06.2013, however, the same was omitted by Finance Act 2016 from 01.06.2016. It was argued that, the sub-section (2A) was omitted from the statue by way of omission, hence, this sub-section shall be deemed as it was not on the statue book right from the beginning. The ld. AR for the assessee further submits that ‘omission’ and ‘repeal’ of provision in the statue carries different meanings and effect. Therefore, as per section 6 of General Clauses Act, the proceedings initiated under the omitted provisions cannot be continued unless there is saving clause to that effect while omitting such provisions. To buttress his submissions the ld AR for the assessee relied on the decision of Bangalore Tribunal in Textport Overseas Private Limited Vs DCIT (IT (TP) A. 1772/Bang/2017, which has been affirmed by High Court of Karnataka vide order dated 12.12.2019 reported vide [2020] 114 taxmann.com 568 (Karnataka High Court), Mumbai Tribunal in Add.CIT Vs WNS Global (ITA No. 4520/Mum/2013 dated 19.02.2019, reported vide [2020] 116 taxmann.com 20 (Mumbai - Trib.) and the decision of Hon’ble Supreme Court in General Finance Company Vs ACIT [2002] 257 ITR 338(SC)/ [2002] 124 Taxman 432(SC). Accordingly, the ld. AR for the assessee 9

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 prayed for outright dismissal of the appeal filed by the revenue/ assessing officer.

If the submissions of the AR for the assessee is taken for consideration that there is no saving clause to that effect while omitting such provisions, similarly there is no proviso or clause for abating the proceedings, which were initiated during the currency of the sub-section (2A) of section 253 of the Act. The ld. DR for the revenue submits that the case laws relied on behalf of assessee is not applicable on the facts of the present case.

DR) for the revenue and deliberated on the case laws relied on behalf of the assessee. It is an admitted position that the assessee has neither filed Cross Objection for objecting the maintainability of the appeal filed by the revenue. However, the ld. AR for the assessee has raised legal 10

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 objection, which goes to the root of amenability of the appeal filed by the revenue. Therefore, we admit the objection of the assessee on the maintainability of revenue’s appeal. For appreciation of various legal aspects and effect of ‘repeal’ or ‘omission’, we have gone through the various sections 6, 6A and 24 of General Clauses Act. The section(s) 6, 6A and 24 of General Clauses Act are read as under;

makes it clear that made after the commencement of General Clauses Act, any Central Act or Regulation repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not effect affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 16. The Hon’ble Supreme Court in Bhagat Ram Sharma Vs Union of India (AIR 1988 SC 740) held that it is a matter of legislative practice to provide while enacting an amending law that an existing provision shall be deleted and a new provision substituted. Such deletion has the effect of repeal of the existing provision. Such a law may also provide for the introduction of a new provision. There is no real distinction between 'repeal' and an 'amendment'. As per the commentary on Principles of Statutory interpretation by Justice G.P. Singh, “the legislative practice in India shows that ‘omission’ of a provision is treated as ‘amendment’.

(page 675, Chapter; “Express Repeal”). Further Hon’ble Supreme Court in Ekambrarappa Vs EPTO (AIR 1967 1541), held that amending Act which limits the area of operation of existing Act by modifying the extent clause, result in partial repeal of the Act in respect of the area which its operation is excluded ( emphasis and under lines are added by us).

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 distinction between an amendment and that “amendment” is in fact a wider term which includes deletion of the provision in an existing statue.

18. The Hon’ble Court in M/s. Shree Bhagwati Steel Rolling Mills (supra) in a later decision, while referring its order in Fibre Board Private Ltd (supra) held that omission would amount to repeal. “On the argument of the contesting parties that the omitted provision being treated as it never existed as per section 6 of General clauses Act would not apply to allow the previous operation of the provisions is omitted or anything done or suffered thereunder. Nor may a legal proceeding in respect of any rights and liability acquired or incurred under the enactment so omitted.” The Hon’ble Apex Court took a view that in majority of the cases, this would cause great public mischief, and that the decision in Fibre Board case was therefore clearly delivered by their lordship for the public good, being, at the least reasonably possible view and that no aspect of the question at their hand was remained unnoticed in Fibre Board Case.(emphasis added by us) 19. With the aforesaid legal back ground and with utmost regard to the decision of coordinate bench the coordinate bench relied by ld AR for the assessee in Texport Overseas (supra), we have noted that the bench was not having the benefit of the latest judgment of the Hon’ble Supreme Court in the matter of Fibre Boards P. Ltd [(2015) 52 taxmann.com 135] as well as in the matter of M/s. Shree Bhagwati Steel Rolling Mills [CA

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 No.4280 of 2007, dt.24.11.2015] which were not brought to the notice of the bench by either of the parties.

20. The Hon’ble Supreme Court in these two matters had elaborately discussed the issue of repeal /omission and after relying upon the decision of the coordinate bench had decided the issue that omission will also be repealed and therefore by virtue of section 6 and 6A the action taken pursuant to the valid legislation during its life time before omission will be saved and will not come to end. The decision in the case of Texport Overseas Private Ltd (supra) was rendered without considering the decisions of the Hon’ble Apex Court in the cases of (i) M/s. Fibre Boards Pvt. Ltd and (ii) M/s Shree Bhagwati Steel Rolling vs. Commissioner of Central excise & another and also the statutory provision contained in section 6A of General clauses Act and hence, lacks any binding or persuasive value.

Shree Bhagwati Steel Rolling has doubted and disapproved its earlier decisions rendered in the case of Rayala Corporation (P) Ltd Vs Enforcement (1969) 2 SCR 412 and Kolhapur Cane Sugar Works Ltd Vs Union of India (2000) 2SCC536 and in the case of General Finance Company Vs CIT (2002) 7 SCC 1. Further, the Hon'ble Supreme Court in the case of Fibre Boards (I) Ltd, after referring to the provisions of Section 6A of the General Clauses Act held that "a repeal can be by way 15

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 of an express “omission" and that even an implied repeal of a statute would fall within the expression "repeal" in section 6 of the General clauses Act. Repeals may take any form and so long as a statute or part of it is obliterated, such obliteration would be covered by the expression "repeal" in section 6 of General clauses Act. Considering the latest decision of Hon’ble Supreme Court in Fibre Board and Bhagwati Steel, the earlier decisions rendered by the Constitution Bench in Rayala Corporation (P) Ltd and Kolhapur Cansugar Works cannot be said to have laid down any ratio decidendi on an interpretation of the word "repeal" an "omission" would not be included. Their observations are in the nature of obiter dicta as held by the Supreme Court in Fibre Boards. It is also held that the earlier decisions have not referred to Section 6A of the General clauses Act and they lose their binding effect on an application of the "per incuriam” principle, as held by the Supreme Court in the case of Fibre Boards Private Limited. Thus, in our view the decision rendered in Royala Corporation Pvt. Ltd lacks binding value for the reasons discussed by the Apex Court in Fibre Boards Pvt. Ltd, the decision rendered in the case of Kolhapur Cane Sugar Works Ltd as also in the case of General Finance Company following the decision in Royala Corporation Ltd, loses its binding value.

17. As we have already noted that the Hon'ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills again reiterated that repeal would 16

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 include repeal by way of an express omission. The Supreme Court further held that the decision in Fibre Boards Private Limited clarifies the law in holding than an omission would amount to repeal. As a result, the provisions of Sec. 6 of the General Clauses Act would apply to allow the previous operation of the provision so omitted or anything duly done or suffered thereunder, and such a view is reasonable and for the public good.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 Section 6A of the General Clauses Act and thereafter the Court had held that the decision, in the matter of Rayala Corporation (supra) was per incurium. 19. In our humble view the Hon’ble Supreme Court in Fibre Board (supra) and Bhagwati Steel Rolling (supra) have declared that the law in Rayala Corporation is per in curium, on the basis of which General Finance Co., (supra) was passed. Thus, the later judgments in Fibre Board (supra) and Bhagwati Steel Rolling (supra) shall have a binding precedent on all Courts in India including this Tribunal.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 ld. AR for the assessee has referred and relied on the decisions of General Finance Company Vs ACIT (supra) which have been declared as per-in curium by Hon’ble Apex Court.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 comparable IFF and inclusion of UIL, if the direction is followed the margin of final set of comparable would be within tolerance range and the adjustment suggested by TPO is liable to be deleted. To support the exclusion of IFF the ld. AR for the assessee submits that this comparable company is also engaged in trading of goods. This company traded the goods of Rs. 242.72 Crore which is more than 16%. However, the assessee is only engaged in manufacturing and sale of industrial flavors and during the previous year not engaged in trading. The financial data of this comparable is not available in public domain. The accounts of this company are available for the period from December 2007 to January 2009. Thus, it would be not proper to compare and benchmark the transaction on the basis of financial for different financial period. Thirdly, this comparable is also engaged in research and development (R&D) activity due to which earning higher profit. The company engaged in R&D activity may assume high risk and lead to generation of Intellectual Property Right (IPR). In support of his submissions the ld. AR for the assessee relied on the decision of Pune Tribunal in Honeywell Automation India Ltd India Ltd Vs DCIT (ITA NO. 4/Pune/08) and Bombay High Court in CIT Vs PTC Software (I) (P) Ltd 395 ITR 176.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 financial / annual report of IFF. The ld. DR further submits that there are decisions of Tribunal holding that if contemporaneous data is available and financials are available and data can be extrapolated for the financial year, the comparable should not be excluded. The ld. DR submits that the comparability of this company may be restored to the file of TPO for extrapolating and to examine the comparability. In support of his submissions the ld DR relied on the decision of Mumbai Tribunal Pangea3 Legal Database System (P) Ltd Vs ITO [2017] 79 taxmann.com (Mum- Trib). On the ratio that if the financial data is available for all quarters and it is otherwise possible to determine the transaction as well as profitability during the corresponding period, then it would be suffice comparability criteria and relied on the decision of Pune Tribunal in Schlumberger India Technology Center (P) Ltd Vs DCIT [2018] taxmann.com 19 (Pune- Trib).

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 order of ld. DRP for exclusion of IFF. In the result the ground No. 1 of revenue’s appeal is dismissed. 26. Now turning to the comparability of UIL. The ld.AR for the assessee supported order of DRP on inclusion of UIL and also submits that the activities of this comparable are similar to the assessee. 27. On the other hand the ld. DR for the revenue supported the order of TPO.

The ld. DR further submits that the if the assessee claims that Synthite Industries should excluded on the basis of high import turnover component, then UIL should also be excluded. Thus, this comparable should not be accepted for inclusion in the final set of comparables.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 revenue have not brought any fact to our notice to differentiate the similarities in function, thus, we upheld the inclusion of this comparable by ld DRP. In the result the ground No. 3 of the appeal by revenue is rejected. 29. In the result the appeal of the revenue is dismissed. 30. Further considering the details furnished by the assessee in support f Ground No. 1.2 to 1.4 that in case the exclusion of IFF and inclusion of UIL is affirmed the average mean margins of final set of comparable as

per the direction of DRP would be within the tolerance range of +/- 5%, with the margin of assessee. Therefore, the discussions of the exclusion or inclusion of other comparable or other grounds of appeal

raised by assessee have become academic.

31. Ground No. 2 relates to disallowance of bad debts. The ld. AR for the assessee submits that during the relevant financial year the assessee written off bed debts of Rs. 14.36 lakhs in the profit and loss accounts.

Such bad debts were shown in the invoices raised on customers in the previous year and was credited to the accounts. The assessee during the year considering the facts that the amounts are not recoverable has written off during the year. The ld. AR for the assessee submits that the details of the bad debts are filed on record and the same were filed before the lower authorities. In support of his submissions the ld AR for the assessee relied on the decision of Hon’ble Supreme Court in TRF Vs CIT (323 ITR 397 24

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 SC), CIT Vs Essar Technology Ltd [2015] 228 Taxman 309 (Bombay) and CBDT Circular dated 30.05.2016.

Firemenich Aromatics (India) Pvt Ltd, (AY 2009-10) 1732/Mum/2014 of T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 (SC). In the result this ground of appeal is allowed. 35. In the result the appeal of the assessee is allowed and the appeal of the revenue is dismissed.

Order pronounced in the open court on 15/07/2020.