M/s. Exide Industries Ltd., , Kolkata V. DCIT, Circle - 1, Kolkata , Kolkata

ITA 1393/KOL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6031 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 09-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

1 ITA NO. 1379 & 1393/KOL/2017 EXIDE INDUSTRIES LTD., AY 2009-10 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( ) BEFORE . , /AND . . , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VA RKEY, JM] I.T.A. NO. 1379/KOL/2017 ASSESSMENT YEAR: 2009-10 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), KOLKATA. VS. M/S. EXIDE INDUSTRIES LTD. (PAN: AAACE6641E) APPELLANT RESPONDENT & I.T.A. NO. 1393/KOL/2017 ASSESSMENT YEAR: 2009-10 M/S. EXIDE INDUSTRIES LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 12.04.2018 DATE OF PRONOUNCEMENT 10.07.2018 FOR THE REVENUE SHRI SAURABH KUMAR, ADDL. CIT, SR. DR FOR THE ASSESSEE SHRI ANUP SINHA. AR ORDER PER SHRI A.T.VARKEY, JM BOTH THESE APPEALS PREFERRED BY THE REVENUE AND ASS ESSEE ARE AGAINST THE ORDER OF THE LD. CIT(A)-22, KOLKATA DATED 27.03.2017 FOR AY 2009 -10. 2. GROUND NO. 1 OF REVENUES APPEAL AND GROUND NO. 1 AND ADDITIONAL GROUNDS OF ASSESSEE ARE AGAINST THE ACTION OF LD. CIT(A) IN RE STRICTING THE DISALLOWANCE U/S. 14A READ WITH RULE 8D TO RS.39,57,250/-. 3. BRIEFLY STATED FACTS ARE THAT DURING THE YEAR TH E ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME OF RS.92,73,195/-. AGAINST THE SAID INCOME T HE ASSESSEE HAD OFFERED RS.2,25,735/- AS EXPENSES ATTRIBUTABLE IN ORDER TO EARN SUCH EXEMPT INCOME U/S. 14A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). ACCOR DING TO LD. AR THE BASIS OF QUANTIFYING 2 ITA NO. 1379 & 1393/KOL/2017 EXIDE INDUSTRIES LTD., AY 2009-10 SUCH EXPENSES WAS BASED ON THE FACT THAT ABOUT 20% OF THE TIME COST OF THE TREASURY DEPARTMENT OF THE ASSESSEE WAS INVOLVED IN THE INVE STMENT IN MUTUAL FUNDS AND SOME OTHER INVESTMENTS DIVIDEND FROM WHICH ARE EXEMPTED AND, T HEREFORE, 20% OF THE SALARY COST OF THE TREASURY DEPARTMENT WAS OFFERED FOR TAXATION U/S. 1 4A OF THE ACT. THE AO DID NOT ACCEPT THIS CONTENTION OF ASSESSEE AS THE DISALLOWANCE OFF ERED BY THE ASSESSEE U/S. 14A OF THE ACT WAS INADEQUATE. HE, THEREFORE, APPLIED RULE 8D OF THE I. T. RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) AND COMPUTED THE DISALLOWANCE U/ S. 14A OF THE ACT AT RS.7,06,48,036/- IN THE ASSESSMENT ORDER U/S. 143(3) OF THE ACT, WHICH IS AS UNDER: PARTICULARS AMOUNT (RS.) EXPENSES DIRECTLY RELATED TO INCOME WHICH DOES NOT FORM A PART OF TOTAL INCOME (RULE 8D(2)(I) 2,25,735/- INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME (RULE 8D(2)(II) OUT OF INTEREST OF RS.48.19 CRORES, RS.33.22 CRORES AND RS.0.11 CRORES CAN BE IDENTIFIED TO BE DIRECTLY LINKED WITH REGULAR BUSINESS AND GENERATING TAXABLE INCOME. HENCE, INTEREST TO BE PROPORTIONED TO 14,85,75,011 X 574.285/2045.795 4,17,08,051/- AMOUNT EQUAL TO 0.5% OF AVERAGE INVESTMENT (RULE 8D(2)(III) 0.5% X 574.285 2,87,14,250/- TOTA L : 7,06,48,036/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. AR OF THE ASSESSEE HAS FILED A DETAILED WRITTEN SUBMISSION AND EXPLAINED THE DETAILS OF THE WORKINGS OF THE ABOVE DISALLOWANCE. HE ALSO SUBMITTED THAT THE ASSESSEE HAD NOT UTILIZED B ORROWED FUNDS FOR INVESTMENT. HENCE, NO DISALLOWANCE SHOULD BE MADE UNDER RULE 8D(II) AND 8 D(2)(III) OF THE RULES. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE HAS RAISED ADDITIONAL GROUND TO THE EFFECT THAT THE AO HAS ERRED IN TAKING TOTAL INVESTMENTS LYING IN THE BALANCE SHEET AS ON 31.03.2008 AND 31. 03.2009 (EXCLUDING FOREIGN INVESTMENTS) INSTEAD OF THOSE INVESTMENTS WHICH HAVE YIELDED EXE MPTED INCOME DURING THE RELEVANT YEAR. AFTER CONSIDERING THE DETAILED SUBMISSION OF THE LD . AR, THE LD. CIT(A) DIRECTED TO COMPUTE THE DISALLOWANCE UNDER RULE 8D(II) AND 8D(2 )(III) BY ADOPTING THOSE INVESTMENTS WHICH HAVE YIELDED EXEMPTED DIVIDEND DURING THE REL EVANT YEAR AND NOT ALL THE INVESTMENTS BY RELYING ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. REI AGRO LTD., ITAT 161 OF 2013 DATED 23.12.2013 AND THE DEC ISION OF ITAT, KOLKATA IN THE CASE OF GVN FUELS LTD. VS. DCIT IN ITA NO. 2278/KOL/2013 DA TED 25.05.2016 AND MADE THE TOTAL 3 ITA NO. 1379 & 1393/KOL/2017 EXIDE INDUSTRIES LTD., AY 2009-10 DISALLOWANCE U/S. 14A READ WITH RULE 8D OF THE RULE S TO RS.39,57,250/-. AGGRIEVED, REVENUE AS WELL AS ASSESSEE IS NOW IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. COMING TO THE ASSESSEES GROUND OF APPEAL ON THIS ISSUE, THE LD. AR DREW OUR ATTENTION TO PAGE 90 OF THE PAPER BOOK TO SHOW THAT ASSESSEE HAD TOTAL RESERVES OF RS.6281.59 CR. AND TOTAL OWN FUNDS IS RS.9094.521 CR. AND IN THIS YEAR THE TOTAL INVESTMENT MADE WAS ONLY TO THE TUNE OF RS.1499 CR. SO, THE W ORKING MADE UNDER RULE 8D(II) I.E INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY INCOME, SHOULD NOT BE ALLOCATED, SINCE ASSESSEE HAS OWN FUNDS AS DEMONSTRATED ABOVE. WE N OTE THAT WHEN ASSESSEE IS POSSESSED OF MIXED FUNDS WHICH INCLUDES ITS OWN FUNDS IN SUFFIC IENT QUANTITY, A PRESUMPTION THAT ITS OWN FUNDS WERE UTILIZED FOR THE ADVANCES IS TO BE DRAWN AS HELD BY THE HONBLE BOMBAY HIGH COURT IN RELIANCE UTILITY & POWER LTD. VS. CIT 313 ITR 340. RELYING ON THE AFORESAID DECISION OF THE HONBLE BOMBAY HIGH COURT, WE FIND FORCE IN THIS GROUND RAISED BY THE ASSESSEE. THEREFORE, WE DIRECT THE AO TO VERIFY TH E FACTS STATED ABOVE AND IF IT IS FOUND THAT ASSESSEE HAD OWN FUNDS TO MAKE INVESTMENT IN TAX FR EE SECURITIES, THEN NO DISALLOWANCE U/S. 14A OF THE ACT IS WARRANTED. SO THIS GROUND OF ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSE. COMING TO THE ADDITIONAL GROUND OF ASSESSEE, WE DO NOT FIND ANY MERIT IN THE SAME BECAUSE AO HAS EXPRESSED HIS DISSATISFACTION IN THE DISALLO WANCE SUO-MOTTO MADE BY THE ASSESSEE, SO IT IS DISMISSED 5. COMING NEXT TO THE ISSUE IN QUESTION IS AS T O WHETHER THE LD. CIT(A) IS JUSTIFIED IN DIRECTING THE AO COMPUTE THE DISALLOWANCE UNDER RUL E 8D(II) AND 8D(2)(III) BY ADOPTING THOSE INVESTMENTS WHICH HAVE YIELDED EXEMPTED DIVID END DURING THE RELEVANT YEAR. THE DIRECTION TO THE AO TO COMPUTE THE DISALLOWANCE UND ER RULE 8D(II) HAVE BEEN ALREADY DISPOSED OF BY US, SO WHAT IS LEFT IS HIS DIRECTION IN RESPECT OF RULE 8D (III) AND FOR THAT WE NOTE THAT THIS TRIBUNAL HAS CONSISTENTLY FOLLOWED T HE DICTUM OF LAW LAID DOWN IN REI AGRO LTD. VS. DCIT 144 ITD 141 IN WHICH THE TRIBUNAL HEL D THAT ONLY INVESTMENT WHICH HAS GIVEN RISE TO THE EXEMPTED INCOME SHOULD BE TAKEN I NTO CONSIDERATION WHILE COMPUTING DISALLOWANCE U/S. 14A READ WITH RULE 8D (III) OF TH E RULES. THIS ORDER HAS BEEN UPHELD BY THE HONBLE CALCUTTA HIGH COURT VIDE JUDGMENT DATED 23.12.2013. THE LD. CIT(A) ORDER IS CONFIRMED ONLY IN RESPECT TO HIS DIRECTION FOR APPL ICATION OF RULE 8D (III) AND SINCE THE LD. 4 ITA NO. 1379 & 1393/KOL/2017 EXIDE INDUSTRIES LTD., AY 2009-10 DR WAS UNABLE TO BRING ON RECORD ANY CHANGE IN LAW OR FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND HENCE, THE SAME IS HEREBY UPHELD. THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. . 6. GROUND NO. 2 OF THE REVENUE IS AGAINST THE ACTI ON OF LD. CIT(A) IN TREATING THE EXPENSES OF ERP UPGRADATION IN THE NATURE OF REVENU E EXPENDITURE. BRIEF FACTS OF THE ISSUE ARE THAT THE AO HELD THAT THE EXPENSES OF RS.2,03,1 3,632/- ON ACCOUNT OF ERP UP-GRADATION WERE IN THE NATURE OF CAPITAL EXPENSES AND HENCE, H E ADDED BACK THE SAME IN THE COMPUTATION OF TOTAL INCOME BUT THE AO ALLOWED DEPRECIATION AT 60% ON THE ABOVE EXPENSES IN THE ASSESSMENT ORDER. ON APPEAL, THE LD. CIT(A) DIRECT ED THE AO TO CONSIDER THE SOFTWARE EXPENSES AS ALLOWABLE REVENUE EXPENSES BY FOLLOWING THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2003-04 IN ITA NO. 189/KOL/2007 DAT ED 20.01.2016 BY OBSERVING AS UNDER: 1. I HAVE CAREFULLY GONE THROUGH THE SUBMISSION F ILED BY THE LD. AR, THE EXPLANATION MADE BY THE LD. AR DURING THE COURSE OF HEARING ON THE ISSU E, OBSERVATION MADE BY THE AO IN THE ORDER U/S. 143(3) AND THE ORDER OF THE HONBLE KOLKATA IT AT FILED BY THE APPELLANT FOR AY 2003-04, 2004-05 AND 2008-09. I FIND THAT THE ABOVE EXPENSE S WERE ROUTINE MAINTENANCE/SUPPORT SERVICES/CONSULTANCY SERVICES ETC. IN MY VIEW THE SAID EXPENSES SHOULD BE ALLOWED AS REVENUE EXPENSES. 2. FURTHER, SIMILAR DISALLOWANCE WAS DELETED BY THE HONBLE ITAT WITH A DETAILED OBSERVATION IN THE ORDER FOR AY 2003-04. THE SAID DECISION HAS BEEN FOLLOWED BY THE HONBLE ITAT IN ITS SUBSEQUENT ORDERS. IN VIEW OF THE ABOVE, I DIRECT THE AO TO CONSIDER THE SOFTWARE EXPENSES AS ALLOWABLE REVENUE EXPENSES. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ACCORDING TO AO, THE EXPENS ES OF RS.2,03,13,632/- ON ACCOUNT OF ERP UP-GRADATION WERE IN THE NATURE OF CAPITAL EXPE NSES BUT THE LD. CIT(A) DIRECTED THE AO TO CONSIDER THE SOFTWARE EXPENSES AS ALLOWABLE REVE NUE EXPENSES BY FOLLOWING THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AYS 2003-04, 200 4-05 AND 2008-09. WE NOTE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AYS. 2003-04, 2004-05 AND 2008-09 AND THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY FOLLOWING AFORESAID DECISIONS, CITE D SUPRA. SINCE THE LD. CIT(A) HAS DIRECTED THE AO TO CONSIDER THE SOFTWARE EXPENSES AS ALLOWAB LE REVENUE EXPENSES BY FOLLOWING THE AFORESAID DECISIONS OF ITAT, SUPRA AND THE LD. DR W AS UNABLE TO BRING ON RECORD ANY 5 ITA NO. 1379 & 1393/KOL/2017 EXIDE INDUSTRIES LTD., AY 2009-10 CHANGE IN LAW OR FACTS, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LD. CIT(A) AND HENCE, THE SAME IS HEREBY UPHELD. THEREFORE, THIS G ROUND OF APPEAL OF REVENUE IS DISMISSED. 8. GROUND NO. 3 OF REVENUES APPEAL IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE PROPORTIONATE DISALLOWANCE OF INTEREST ATTRIBUTABLE TO CWIP. BRIEF FACTS ARE THAT THE AO ALLOCATED THE INTEREST EXPENSE OF RS.12,27,289/- TO CWIP ON AD HOC BASIS APPLYING PROPORTIONATE METHOD ON THE GROUND THAT THE SAME WA S INCURRED FOR CWIP. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWANCE BY HOLDING THAT THE AO ALLOCATED INTEREST EXPENSES ON AD HOC BASIS MERELY ON SURMISES AND CONJECTURES AND HENCE, THE SAME WAS NOT SUSTAINABLE. THE AO DID NOT IDENTIFY ANY BORROWED FUND WHICH WAS UTILIZED FOR CWIP. THE LD. CIT(A) WHILE DELETING THE DISALLOWANCE ALSO RELIED ON THE DECISION OF ITAT, KOLKATA BENCHES IN DEPARTMENTAL APPEAL FOR AY 2008-09. AGGRIEVED, REVE NUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE AO ALLOCATED THE INTERE ST EXPENSES OF RS.12,27,289/- TO CWIP ON AD HOC BASIS. ON APPEAL, THE LD. CIT(A) DELETED TH E DISALLOWANCE BY FOLLOWING THE DECISION OF ITAT IN DEPARTMENTAL APPEAL FOR AY 2008-09 IN IT A NO. 1347/KOL/2013 DATED 13.04.2016. WE NOTE THAT THE ISSUE IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN DEPARTMENTAL CASE FOR AY 2008-0 9, CITED SUPRA, AND THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY FOLLOWING AFORESAID DECISION, CITED SUPRA. SINCE THE LD. CIT(A) HAS DELETED THE DISALLOWANCE BY FOLLOWING TH E AFORESAID DECISION OF ITAT, SUPRA AND THE LD. DR WAS UNABLE TO BRING ON RECORD ANY CHANGE IN LAW OR FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND HENCE, THE SAME IS HEREBY UPHELD. THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 9 IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED AND ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10/07/201 8 SD/- SD/- (J. SUDHAKAR REDDY) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10TH JULY, 2018 JD.(SR.P.S.) 6 ITA NO. 1379 & 1393/KOL/2017 EXIDE INDUSTRIES LTD., AY 2009-10 COPY OF THE ORDER FORWARDED TO: 1 APPELLANT DEPUTY COMMISSIONER OF INCOME-TAX, CIRC LE-1(1), KOLKATA. 2 RESPONDENT M/S. EXIDE INDUSTRIES LTD. EXIDE HOUSE , 59E, CHOWRINGHEE ROAD, KOLKATA-700 020. 3 4 5 CIT(A)- 22, KOLKATA (SENT THROUGH E-MAIL) CIT , KOLKATA D R, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY