D.C.I.T Cir - 1,kolkata, Kolkata V. M/s M/S Exide Industries Limited, Kolkata

ITA 1347/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5003 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 03-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2013
• Court: TRIBUNAL
• Assessee Lawyers: BISHA; ANUP SINHA ACA
• Keywords: Depreciation; Proportionate interest; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH, JUDICIAL MEMBER , AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 1347/KOL/2013 A.Y 2008-09 D.C.I.T CIR-1, KOLKATA VS. M/S. EXIDE INDUSTRIES LTD PAN: AAACE 6641E (DEPARTMENT) (RESPONDENT/ASSESSEE) FOR THE APPELLANT/DEPARTMENT: NONE A PPEARED FOR THE RESPONDENT/ASSESSEE: S/S HRI ANUP SINHA, ACA & BISHAN KUMAR SEAL, FCA, LD.ARS DATE OF HEARING: 03-03-2016 DATE OF PRONOUNCEMENT:13-4 -2016 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDE R OF THE LEARNED CIT(A), XXIV, KOLKATA IN APPEAL NO. 1136/CIT(A)-XXIV/C-1/12 -13 DATED 28-02-2013 AGAINST THE ORDER OF ASSESSMENT FOR THE ASST YEAR 2 008-09 FRAMED BY THE LEARNED AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT). 2. THE REVENUE HAD FILED ADJOURNMENT FOR MOST OF T HE CASES LISTED ON THE DATE OF HEARING. HENCE THE ADJOURNMENT REQUEST SOUGHT FOR BY THE REVENUE IS REJECTED AND WE PROCEED TO DISPOSE OFF THIS APPEAL BY HEARING THE L EARNED AR AND BASED ON MATERIALS AVAILABLE ON RECORD. 3. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE MADE ON A CCOUNT OF EXCISE DUTY AMOUNTING TO RS. 2,94,52,808/-. ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 2 3.1 THE FACTS OF THE CASE AS OBSERVED BY THE ASSESS ING OFFICER ARE THAT ON EXAMINATION OF VALUATION OF INVENTORY AS ON 31/03/2 008, IT WAS FOUND THAT EXCISE DUTY OF RS.22,89,25,889/ - AND RS. 7,81,57, 748/ - RESPE CTIVELY HAVE BEEN INCLUDED ON BRANCH STOCK AND FACTORY STOCK. IN RESPECT OF FACTO RY STOCK, IT WAS LIABILITY AT THE YEAR END AND IN RESPECT OF BRANCH STOCK EXCISE DUTY HAD ALREADY BEEN PAID. IN OTHER WORDS, THE TOTAL SUM OF RS.30, 70,83,637/ - WAS FOUND TO H AVE BEEN INCLUDED IN VALUATION OF YEAR END CLOSING STOCK OF FINISHED GOODS CONSISTING OF BRANCH STOCK AND FACTORY STOCK. 3.2 IN THE ASSESSMENT ORDER FOR A Y;,2006-07, IT HA S ALSO BEEN DISCUSSED THAT ADDITION WAS MADE ON THIS ISSUE IN A. Y. 2004-05 WH ICH WAS DELETED BY THE CIT(A) AND TRIBUNAL. BUT THE DEPARTMENT HAS FILED AN APPE AL BEFORE THE HON'BLE HIGH COURT OF CALCUTTA WHICH IS PENDING: IT HAS ALSO BEEN MENTION ED THAT FOR A. Y . 2001-02, 02-03, 03-04, THE ADDITION ON THE SAME ISSUE WAS CONFIRMED BY CIT(AO- XIII, KOLKATA VIDE ORDER DATED 23.11.2009 IN APPEAL NO. 103, 104 AND 1 05/ CIT(A)- XIII/ CIRCLE-I/ 08-09 RESPECTIVELY. 3.3 AS DISCUSSED IN THE AFORESAID PARAGRAPHS, THE I SSUE HAS NOT REACHED FINALITY SO FAR AND THE APPEAL FOR A. Y. 2004-05 FILED BY THE D EPARTMENT IS STILL PENDING BEFORE HON'BLE CALCUTTA HIGH COURT. ON INDEPENDENT EXAMINA TION OF FACTS AFRESH, IT IS FOUND THAT NONE OF THE DECISIONS OF THE SUPREME COURT ARE EXACTLY ON THE SAME ISSUE. AFTER INSERTION OF SECTION 145A W.E.F. 04.04.1999, THE VA LUATION OF INVENTORY HAS TO BE ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, AC TUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS' TO THE PLACE OF ITS LO CATIONS AND CONDITIONS AS ON THE DATE OF VALUATION. THEREFORE, THE ASSESSEE HAS CORRECTLY INCLUDED THE EXCISE DUTY PAID, IN VALUATION OF BRANCH STOCK AND EXCISE DUTY PAYABLE A T THE YEAR-END IN THE VALUATION OF FACTORY STOCK. THE PROVISIONS OF S.43B WHICH PROVID ES THAT ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX OR DUTY SHALL BE ALLOWED IN THAT PREVIOUS YEAR IN WHICH SUCH SUM OF ACTUALLY PAID AS PER PROVISO TO SECTION 43B. BY PROVISO TO SECTION 43B, RELAXATION FOR PAYMENT HAS BEEN ALLOWED UPIO THE DU E 'DATE OF FILING-RETURN . ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 3 3.4 THE ASSESSEE IN ITS COMPUTATION- HAS. SUO-MOTTO ADDED EXCISE DUTY OF RS.27, 76,30,829/ - WHICH REPRESENTS EXCISE DUTY LIABILIT Y ON CLOSING STOCK AS ON 31.03.2007. THE ASSESSEE HAS ADDED BACK THE AFORESA ID SUM SINCE IT WAS CLAIMED BY THE ASSESSEE IN ASSESSMENT YEAR 2007-08. HOWEVER, THE D EPARTMENT HAS NOT ALLOWED THE AFORESAID CLAIM IN ASSESSMNET YEAR 2007-08 AND THE SAME WAS DISALLOWED. THEREFORE, AS PER CONSISTENT METHODOLOGY BEING ADOPTED BY THE DEPARTMENT FOR THE LAST SEVERAL YEARS, THE AFORESAID ADD BACK OF THE ASSESSEE IS NO T ACCEPTED, IN OTHER WORDS, THE EXCISE DUTY ON OPENING STOCK OF FINISHED GOODS FOR A. Y. 2 008-09 AMOUNTING TO RS.27, 76,30,829/ - WHICH HAS BEEN SUO-MOTTO OFFERED BY TH E ASSESSEE COMPANY IN THE RETURN, FILED FOR THE A. Y. 2008-09 IS BEING ALLOWED AS DED UCTION WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE COMPANY FOR A. Y. 2008-09 FO R THE REASONS THAT THE AFORESAID AMOUNT WAS ALREADY DISALLOWED IN THE ASSESSMENT FOR THE ASSESSMENT YEAR 2007-08 AND TO TAX THE SAME AGAIN IN A.Y 2008-09 WILL AMOUN T TO DOUBLE ADDITION AND HENCE THE NET DISALLOWANCE COMES TO RS.30,70,83,637/- MIN US RS.27,76,30,829/- = RS.2,94,52,808/-. 4. ON APPEAL, BEFORE THE LD. CIT(A) THE ASSESSEE SU BMITTED THAT THE ASSESSEE COMPANY HAD SINCE THE INSERTION OF SECTION 145A IN THE INCOME TAX ACT, 1961 HAD ACCOUNTED FOR THE EXCISE DUTY ELEMENT IN VALUATION OF CLOSING STOCK OF FINISHED GOODS. THERE ARE TWO TYPES OF CLOSING STOCK OF FINISHED GO ODS: (A) GOODS WHICH ARE DISPATCHED TO BRANCHES/GODOUMS/ WAREHOUSES [REFERRED TO AS DEPOT STOCK] AND (B) LYING IN FACTORY. PREMISES NOT DISPATCHED [REFE RRED TO AS FACTORY STOCK]. ) HOWEVER, IT MAY BE NOTED THAT SINCE THE EXCISE DUT Y ON CLOSING STOCK OF FINISHED GOODS FOR THE ASSESSMENT YEAR 2007-08 HAD BEEN DISALLOWED BY THE ASSESSING OFFICER DURING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2007-08 AND THE ASSESSEE IN THE RETURN FILED FOR THE. ASSESSMENT YEAR 2008-09 HAVING OFFERED THE SAM E TO TAX, THE ASSESSING OFFICER HAS ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 4 MADE THE DISALLOWANCE ON NET BASIS I.E. EXCISE DUTY ON CLOSING STOCK OF FINISHED' GOODS LESS EXCISE DUTY ON OPENING STOCK OF FINISHED GOODS AND THE NET DISALLOWANCE STANDS AT RS.2, 94,52,808/- . IN VIEW OF THE ABOVE, THE ASSES SEE SUBMITTED THAT THE ISSUE IN HAND, BEING A SETTLED PRINCIPLE OF LAW, THE ASSESSING OFF ICER MAY BE DIRECTED TO ALLOW THE DEDUCTION ON CLOSING STOCK OF FINISHED GOODS FOR TH E ASSESSMENT YEARS 2008-09. THE LEARNED CIT(A) DELETED THE DISALLOWANCE OF RS. 2,94,52,808/- ON THE GROUND THAT THE SAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE BY THE ORDERS OF THIS TRIBUNAL FOR ASST YEARS 2002-03 , 2003-04 AND 2004-05. AGG RIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 1 THAT THE LD CIT(A) HAS ERRED AND NOT JUSTIFIED IN DELETING THE DISALLOWANCES MADE ON ACCOUNT OF EXCISE DUTY AMOUNT ING TO RS. 2,94,52,808/- 3.2. THE LEARNED AR STATED THAT AGAINST THE TRIBUN AL ORDER PASSED FOR ASST YEAR 2006- 07 IN ITA NO. 1640/KOL/2012 DATED 19.4.2013 IN FAVO UR OF THE ASSESSEE, THE REVENUE PREFERRED FURTHER APPEAL BEFORE THE HONBLE CALCUTT A HIGH COURT. HE STATED THAT THIS APPEAL HAS BEEN DISMISSED BY THE HIGH COURT IN GA 3 187 OF 2013 , ITAT NO. 158 OF 2013 DATED 20.1.2014. 3.3. WE HAVE HEARD THE LEARNED AR AND PERUSED THE ORDERS RELIED UPON BY THE LEARNED AR. WE FIND THAT THE ISSUE IS SQUARELY COV ERED BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN ASSESSEES OWN CASE FOR ASST YEAR 2006-07 IN GA 3187 OF 2013, ITAT NO. 158 OF 2013 DATED 20.1.2014, WHEREIN IT WAS HELD THAT :- THE COURT : LEARNED ADVOCATE FOR THE APPELLANT FAIR LY SUBMITTED THAT ALL THE POINTS URGED BY THE REVENUE IN THIS APPEAL ARE NOW COVERED EITHER BY THE JUDGEMENT OF THE SUPREME COURT OR OF THE TRIBUNAL I TSELF. IN THAT VIEW OF THE MATTER, THERE IS NOTHING FOR US TO EXAMINE. THE APPEAL IS THUS DISMISSED. ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 5 RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECE DENT, WE DISMISS GROUND NO.1 RAISED BY THE REVENUE. 4. THE SECOND ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE MADE ON A CCOUNT OF SHIFTING EXPENSES AMOUNTING TO RS. 62,00,000/-. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE HAD SUBMARINE BATTERY MANUFACTURING FACILITY IN 2 PLANTS NAMELY TALOJA AN D KANJURMARG. THE ASSESSEE COMPANY DECIDED TO CLOSE DOWN THE SUBMARINE MANUFAC TURING FACILITY AT KANJURMARG AND REINSTALL SOME OF THE EQUIPMENTS USED IN THIS F ACILITY TO THE EXISTING SUBMARINE MANUFACTURING FACILITY AT TALOJA SO THAT THESE MACH INES CAN BE USED EFFECTIVELY AND EFFICIENTLY. THE SHIFTING EXPENSES , COMPRISING O F DISMANTLING THESE MACHINES, FREIGHT CHARGES AND INSTALLATION AT TALOJA IS CONSIDERED AS REVENUE EXPENDITURE SINCE THERE IS NO ADDITION OF NEW ASSET OR SUCH EXPENSE DID NOT EN HANCE THE VALUE OR LIFE OF THE ASSET. HOWEVER, THE LEARNED AO TREATED THE SAME AS CAPITAL IN NATURE WHICH WAS DELETED BY THE LEARNED CITA. AGGRIEVED, THE REVENUE IS IN APP EAL BEFORE US ON THE FOLLOWING GROUND:- 2 THAT THE LD CIT(A) HAS ERRED AND NOT JUSTIFIED IN DELETING THE DISALLOWANCES MADE ON ACCOUNT OF SHIFTING EXPENSES AMOUNTING TO RS.62,00,000/- 4.2. THE LEARNED AR STATED THAT THIS ISSUE HAS BEE N DECIDED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH OF KOLKATA TRIBUNAL IN THE CASE OF JC IT VS ITC LIMITED REPORTED IN (2008) 112 ITD 57 (KOL)(SB) . 4.3. WE HAVE HEARD THE LEARNED AR AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE BREAK UP OF SHIFTING EXPENSES ARE AS BELOW:- ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 6 RS IN LACS COST OF DISMANTLING SOME SPECIFIC MACHINERIES AT KANJURMARG, LOADING AND INCIDENTAL EXPENSES AND REINSTALLING THE MACHINERIES AT TALOJA 40 TRANSPORTATION COST 5 CONSULTING CHARGES FOR DISMANTLING AND INSTALLATION 12 OTHER INSTALLING EXPENSES 5 --------------------- 62 -------------------- WE FIND THAT THE ASSESSEE HAS NOT CONSTRUCTED OR SE T UP ANY NEW FACTORY IN REPLACEMENT OF AN EXISTING ONE. IT IS A CASE WHERE CERTAIN MAC HINERIES HAVE BEEN SHIFTED FROM AN EXISTING FACTORY TO ANOTHER EXISTING FACTORY WHEN T HE FORMER HAD BEEN CLOSED DOWN. IN ORDER TO ACHIEVE A SYNERGY OF PRODUCTION LINE, CERT AIN ASSETS WERE DISMANTLED AND TRANSFERRED TO AN EXISTING PLANT. THEREFORE THE SH IFTING HAD NOT BEEN DONE TO INCREASE THE PROFIT EARNING CAPACITY OF THE ASSESSEE OR AN E NDURING BENEFIT OF THE ASSET AS SUCH. WE FIND THAT THIS ASPECT IS CONSIDERED BY THE HONBLE APEX COURT IN THE CASE OF EMPIRE JUTE COMPANY LTD VS CIT REPORTED IN 124 ITR 1 (SC) , WHERE THE HONBLE SUPREME COURT HAD HELD THAT : THERE ARE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, MAY, NONETHELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. I T IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSE E THAT BRINGS THE CASE WITHIN THE PRINCIPLE OF THE SAID TEST. IF THE ADVA NTAGE OBTAINED BY THE ASSESSEE CONSISTS MERELY IN FACILITATING ITS TRADIN G OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF ITS BUSINESS TO BE CA RRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FI XED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN T HOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. 4.3.1. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF SPECIAL BENCH OF KOLKATA TRIBUNAL (SUPRA) WHEREIN IT WAS HELD THAT : - ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 7 44. COMING TO THE DISALLOWANCE OF EXPENDITURE OF R S.55,00,000 FOR RE- INSTALLATION OF A LOGA MACHINE, WE FIND THAT SUCH R E-INSTALLATION EXPENDITURES WERE INCURRED IN CONNECTION WITH SHIFT ING OF MACHINERY FROM SAHARANPUR AND INSTALLING THE SAME AT BANGALORE UNI T OF THE ASSESSEE. THE ASSESSING OFFICER HAS DISALLOWED SUCH SHIFTING AND RE-INSTALLATION EXPENSES OF SUCH MACHINERY TREATING THE SAME AS CAPITAL EXP ENDITURE AND BY RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD (SUPRA). HOWEVER, THE RATIO OF DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD (SUPR A) ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS IN THE CASE OF SIT ALPUR SUGAR WORKS LTD, THE EXPENDITURES WERE INCURRED FOR SHIFTING OF ENTIRE F ACTORY. WHEREAS IN THE PRESENT CASE, THE MACHINERY FROM SAHARANPUR HAVE BE EN SHIFTED TO BANGALORE UNIT AND SUBSTITUTING IS MADE FOR EFFICIE NT UTILIZATION OF THE MACHINERY APART FROM THE FACT THAT SHIFTING OF SUCH MACHINERY FROM ONE UNIT TO ANOTHER FOR ITS EFFICIENT USE HAS NOT RESULTED I NTO ANY ADDITION IN THE ASSETS OF THE ASSESSEE-COMPANY AND, THEREFORE, IN O UR CONSIDERED OPINION, SUCH EXPENDITURE CANNOT BE TREATED AS CAPITAL EXPEN DITURE AND IN THESE CIRCUMSTANCES, THE LD.CIT(A) HAS RIGHTLY DELETED TH E ADDITION. ACCORDINGLY, WE UPHOLD THE ORDER OF LD.CIT(A) ON THIS GROUND AND REJECT THE GROUND NOS. 7 AND 9 RAISED BY THE REVENUE. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECE DENT, WE DISMISS GROUND NO.2 RAISED BY THE REVENUE. 5. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LEARNED CITA IS JUSTIFIED IN DELETING THE DISALLOWANCE MADE ON ACCO UNT OF SOFTWARE EXPENSES AMOUNTING TO RS. 1,36,32,019/-. 5.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE HAD INSTALLED ERP / SAP / ITS OWN WEBSITE IN ASST YEARS 2000-01 & 2001-02 WHICH WERE CAPITALIZED. THEREAFTER EXPENSES ARE INCURRED FOR (A) RENEWAL OF USER LICEN CE ; (B) TO OBTAIN ROUTINE MAINTENANCE AND SUPPORT SERVICES ; (C ) AMC WHICH A RE OUTSOURCED TO THE SOFTWARE CONSULTANCY FIRMS ; (D) ROUTINE UPGRADATION EXPENSE S AND (E) LEASELINE CHARGES. THE LEARNED AO TREATED THESE EXPENDITURE AS CAPITAL IN NATURE AND ALLOWED DEPRECIATION @ ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 8 60% OF THE COST WHICH WAS DELETED BY THE LEARNED CI T(A). AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 3 THAT THE LD CIT(A) HAS ERRED AND NOT JUSTIFIED IN DELETING THE DISALLOWANCES MADE ON ACCOUNT OF SOFTWARE EXPENSES AMOUNTING TO RS.1,36,32,019/- 5.2. THE LEARNED AR STATED THAT THIS ISSUE HAS BEE N DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE BY THE ORDER OF THIS TRIBUNAL IN ITA NO. 189 & 1414/KOL/2007 DATED 20.1.2016 FOR ASST YEARS 2003-04 & 2004-05 RE SPECTIVELY WHICH HAD RELIED ON THE PRINCIPLE LAID DOWN BY THE BY THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES LTD VS DCIT REPORTED IN 111 ITD 112 (DEL) (SB) . 5.3. WE HAVE HEARD THE LEARNED AR AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE D ECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL (SUPRA) WHEREIN IT WAS HELD THAT :- 23. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ERP PACKAGE WAS ORIGINALLY PURCHASED AND INSTALLED BY T HE ASSESSEE IN THE EARLIER YEARS AND THE EXPENDITURE INCURRED THEREON IN THE EARLIER YEARS WAS FINALLY TREATED AS CAPITAL IN NATURE. DURING THE YE AR UNDER CONSIDERATION, THE SAID ERP PACKAGE WAS UPGRADED BY THE ASSESSEE A ND THE EXPENDITURE IN QUESTION THUS WAS INCURRED BY THE ASSESSEE ON UPGRA DATION OF ER.P AS WELL AS IMPLEMENTATION THEREON. AS RIGHTLY SUBMITTED BY THE ID. COUNSEL FOR THE ASSESSEE, THE EXPENSES INCURRED ON UPGRADATION OF E RP HAS ALREADY BEEN HELD AS REVENUE EXPENDITURE ALLOWABLE AS DEDUCTION IN THE VARIOUS DECISIONS RENDERED BY THE HON'BLE HIGH COURTS AS WELL AS THE DIFFERENT BENCHES OF THIS TRIBUNAL. IN ONE OF SUCH DECISIONS RENDERED IN THE CASE OF CIT -VS.- AMWAY INDIA ENTERPRISES, THIS ISSUE HAS BEEN ELABORATELY DEALT WITH BY THE SPECIAL BENCH OF THIS TRIBUNAL AND AFTER DISCUSSING ALL THE RELEVANT ASPECTS, IT IS HELD THAT EXPENDITURE INCURRED ON UPGRADATION OF ER P MODULE WOULD BE ALLOWABLE AS DEDUCTION BEING REVENUE IN NATURE. AT THE TIME OF HEARING BEFORE US, THE ID. D.R. HAS CONTENDED THAT THE UPGR ADATION OF ERP IS NOTHING BUT REPLACEMENT OF ERP PACKAGE AS THE EARLI ER VERSION OF ERP BECOMES COMPLETELY USELESS AFTER UPGRADATION. WE AR E UNABLE TO AGREE WITH THE CONTENTION OF THE LD. D.R. IN OUR OPINION, THE RE IS A DIFFERENCE BETWEEN UPGRADATION OF ERP SOFTWARE AND PURCHASE OF ERP SOF TWARE, INASMUCH AS ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 9 THE BENEFIT OF UPGRADATION IS ONLY INCREMENTAL, WHI CH IS TO THE EXTENT OF ADDITIONAL FEATURES PROVIDED IN THE NEW VERSION, WH ILE THE SAME IN THE CASE OF ACQUISITION OF NEW ERP PACKAGE IS FULL AND COMPL ETELY NEW. EVEN THIS BENEFIT IS REFLECTED IN THE PRICE CHARGE, INASMUCH AS THE PRICE CHARGED FOR UPGRADATION IS ONLY MARGINAL EQUIVALENT TO THE INCR EMENTAL BENEFIT AVAILABLE IN THE NEW VERSION WHILE IT IS FULL IN CA SE OF ACQUISITION OF NEW ERP PACKAGE. THE UPGRADATION OF ERP, IN OUR OPINION , THEREFORE, CANNOT BE EQUATED WITH REPLACEMENT AS CONTENDED BY THE ID. D. R. AND THE ADVANTAGE BEING ONLY INCREMENTAL TO THE EXTENT OF THE ADDITIO NAL FEATURES IN THE NEW VERSION, THE SAME CANNOT BE TREATED AS THE REPLACEM ENT OF THE ENTIRE ERP PACKAGE SO AS TO TREAT THE EXPENDITURE INCURRED ON UPGRADATION AS CAPITAL EXPENDITURE. MOREOVER, THE USE OF ANY ERP PACKAGE IN THE CASE OF MANUFACTURER LIKE THE ASSESESE-COMPANY IS GENERALLY FOR COORDINATING AND RATIONALIZING ITS FUNCTIONS AND BUSINESS PROCESS IN ORDER TO ENSURE THAT THE BUSINESS IS CARRIED ON MORE EFFICIENTLY AND EFFECTI VELY AND BY APPLYING THE FUNCTIONAL TEST, THE EXPENDITURE INCURRED ON ERP PA CKAGE, IN OUR OPINION, CANNOT BE TREATED AS CAPITAL EXPENDITURE AS IT DOES NOT RESULT IN CREATION OF ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN TH E CAPITAL FIELD. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW TH E DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXPENDITURE INCURRED ON UPGR ADATION OF ERP AND IMPLEMENTATION THEREOF TREATING THE SAME AS REVENUE IN NATURE. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECE DENT, WE DISMISS GROUND NO.3 RAISED BY THE REVENUE. 6. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE MADE ON ACCO UNT OF CAPITAL WORK IN PROGRESS AMOUNTING TO RS. 89,20,627/-. 6.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LEA RNED AO HAD ALLOCATED PROPORTIONATE INTEREST EXPENDITURE TOWARDS CAPITAL WORK IN PROGRE SS BY HOLDING THAT THE ASSESSEE COPANY HAS TAKEN BORROWED CAPITAL FOR THE PURPOSE O F CAPITAL WORK IN PROGRESS. THE ASSESSEE PLEADED THAT THE BORROWINGS WERE SPECIFICA LLY MEANT ONLY FOR WORKING CAPITAL REQUIREMENTS OF THE ASSESSEE COMPANY AND NOT FOR CA PITAL EXPENDITURE. IT WAS ALSO ARGUED THAT THE ASSESSEE COMPANY HAS A CLEAR LAID D OWN POLICY OF ALLOCATING ALL EXPENSES, DIRECT AND INDIRECT INCLUDING INTEREST EX PENDITURE TO CAPITAL WORK IN PROGRESS ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 10 / FIXED ASSETS WHICH IS CONSISTENTLY FOLLOWED AND I S THOROUGHLY SCRUTINIZED BY THE AUDITORS. IN THE CURRENT YEAR, THE LEARNED AO HIMS ELF HAD NOTED THAT THE ASSESSEE HAS ALLOCATED ALL DIRECT AND INDIRECT COST, BUT NOT INT EREST. IT WAS ALSO SUBMITTED THAT IN THE CURRENT YEAR, NO SPECIFIC LOANS WERE TAKEN FOR THE PURPOSE OF ADDITION TO CAPITAL WORK IN PROGRESS / FIXED ASSETS. THE LEARNED AO DID NOT AC CEPT THE CONTENTION OF THE ASSESSEE AND DISALLOWED PART OF THE INTEREST COST TO THE EXT ENT OF RS. 89,20,627/- ON ADHOC BASIS. THIS ACTION OF THE LEARNED AO WAS DELETED BY THE LE ARNED CIT(A). AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GRO UND:- 4 THAT THE LD CIT(A) HAS ERRED AND NOT JUSTIFIED IN DELETING THE DISALLOWANCES MADE ON ACCOUNT OF CAPITAL WORK IN PROGRESS AMOUNTING TO RS. 89,20,627/- 6.2. THE LEARNED AR STATED THAT THE LEARNED AO HAD MADE THIS DISALLOWANCE ON AN ADHOC BASIS BASED ON SURMISE AND CONJECTURE. HE FUR THER PLEADED THAT THIS IS THE ONLY YEAR IN WHICH THIS TYPE OF DISALLOWANCE WAS MADE BY THE LEARNED AO. HE ARGUED THAT THERE WERE NO BORROWINGS DURING THE YEAR FOR THE PU RPOSE OF FIXED ASSETS AND HENCE ALLOCATING THE INTEREST COST TO THE CAPITAL WORK IN PROGRESS / FIXED ASSETS DOES NOT ARISE. 6.3. WE HAVE HEARD THE LEARNED AR AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LEARNED AO HAD NOT BROUGHT ON RECO RD ANY SPECIFIC BORROWING WHICH IS UTIISED FOR CAPITAL WORK IN PROGRESS. WE ALSO F IND LOT OF FORCE IN THE ARGUMENTS OF THE LEARNED AR THAT THE ASSESSEE COMPANY HAD ADEQUA TE SURPLUS FUNDS AND OWN RESERVES, WHICH DID NOT NECESSITATE ANY BORROWINGS FOR SPECIFIC ASSETS. WE FIND THAT NO EVIDENCE HAS BEEN BROUGHT ON RECORD THAT THE INTERE ST EXPENDITURE WAS INCURRED SPECIFICALLY FOR CAPITAL WORK IN PROGRESS / FIXED A SSETS. IT IS CARDINAL PRINCIPLE OF TAXATION LAW THAT THE ORDINARY PRESUMPTION OF LAW I S THAT WHAT IS APPARENT IS REAL UNLESS THE CONTRARY IS PROVED AND THE BURDEN TO PROVE THE CONTRARY IS ON THE PERSON MAKING SUCH ALLEGATION. OUR VIEW FINDS SUPPORT FROM THE F OLLOWING DECISIONS :- CIT VS DAULAT RAM RAWATMULL REPORTED IN (1973) 87 I TR 349 (SC) SUKHDAYAL RAMBILAS VS CIT REPORTED IN (1982) 135 IT R 414 (BOM) ITA NO. 1347/K/2013 -C-AM M/S. EXIDE INDUSTRIES LTD 11 WE HOLD THAT THE DISALLOWANCE OF INTEREST HAS BEEN MADE BY THE LEARNED AO MERELY BASED ON SURMISE AND CONJECTURE. IN VIEW OF THE A FORESAID FACTS AND CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CI TA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 13-4 - 2 016 1.. THE APPELLANT/DEPARTMENT: THE DCIT, CIR-1,P-7 CHOWRINGHEE SQUARE, KOL-69. 2 THE RESPONDENT/ASSESSEE: M/S. EXIDE INDUSTRIES LT D 59E CHOWRINGHEE ROAD, KOL-20. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE: DATE 13-4 -2016 COPY OF THE ORDER FORWARDED TO:-