MAHINDRA & MAHINDRA LTD, MUMBAI V. DCIT CIR 2(2), MUMBAI

ITA 3659/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0865 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-06-2015
• Assessment Year: 1996-1997
• Appeal Filed On: 23-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S J SINGH
• Assessee Lawyers: H P MAHAJANI
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI G.S. PANNU , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 3659, 3660 & 3661/ MUM./ 2012 ( ASSESSMENT YEAR : 1996 97, 1997 98 & 1998 99 ) MAHINDRA & MAHINDRA LTD. GATEWAY BUI LDING, APOLLO BUNDER MUMBAI 400 001 PAN AAACM0325E .. APPELLANT V/S DY . COMMISSIONER OF INCOM E TAX CIRCLE 2(2) , AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO.3577, 3578 & 3579/MUM./2012 ( ASSESSMENT YEAR : 1996 97, 1997 98 & 1998 99 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 2(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S MAHINDRA & MAHINDRA LTD. GATEWAY BUILDING, APOLLO BUNDER MUMBAI 400 001 PAN AAACM0325E .... RESPONDENT ASSESSEE BY : SHRI H.P. MAHAJANI REVENUE BY : SHRI S.J. SINGH DATE OF HEARING 04 .0 6 .2015 DATE OF ORDER 31.07.2015 AMRUTLAL HASTIMAL JAIN 2 O R D E R PER G.S. PANNU , ACCOUNTANT MEMBER THE CAPTIONED ARE SIX APPEALS, THREE EACH BY THE ASSESSEE AND THE REVENUE PERTAIN TO THE A.Y. 1996 - 97 TO 1998 - 99. SOME OF THE ISSUES INVOLVED ARE COMMON, THEREFORE, THE CAPTIONED APPEALS HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. ASSESSMENT YEAR 1996 - 97 THE CROSS APPEALS FOR THE A.Y. 1996 - 97 ARE TAKEN AS THE LEAD CASE . THE CROSS APPEALS FOR THE A.Y. 1996 - 97 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 15 - 02 - 2012, WHICH IN TURN HA S ARISEN FROM THE ORDER OF THE A.O. PASSED U / S 143(3) R / W SE CTION 254 OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT' ) DATED 28 - 12 - 2010. 2. THE MAIN GROUNDS PERTAINING TO THE AFORESAID ASSESSMENT YEAR BY THE ASSESSEE AND REVENUE ARE REPRODUCED AS UNDER: - 1. DISALLOWANCE U/S. 40A(9) OF RS. 9,20,955/ - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX (D.C .I T.) IN DISALLOWING A SUM OF RS. 9,20, 955 REPRESENTING EXPENDITURE INCURRED OUT OF EMPLOYEES WEL FARE FUND ACCOUNT. THE APPELLANT SUBMITS THAT THE SAID AMOUNT WAS SPECIFIC EARMARKED SUM TO A SEPARATE ACCOUNT (CALLED AS FUND) AMRUTLAL HASTIMAL JAIN 3 MEANT FOR THE EMPLOYEES WELFARE OF TRACTOR DIVISION (AT KANDIVLI) OF THE APPELLANT. THE EXPENDITURE OF RS. 9,20,955 REPRESENTS EXPENDITURE MADE BY THE C OMPANY DURING THE ASSESSMENT YEAR 1996 - 97 OUT OF THE SUM TRANSFERRED TO SUCH ACCOUNT/ FUND. THUS INSTEAD OF SPENDING DIRECTLY ON THE EMPLOYEES, THE AMOUNT IS ROUTED THROUGH A SEPARATE ACCOUNT/FUND MAINTAINED BY THE COMPANY IN ITS B OOKS OF ACCOUNT. THE LEARNED CIT OUT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT THE EXPENSES WHICH WERE OTHERWISE ALLOWABLE UNDER THE INCOME TAX ACT, BEING ON EMPLOYEE WELFARE COULD NOT BE DISALLOWED MERELY DUE TO THE FACT THAT THOSE WERE ROUTE D TO A SEPARATE LEDGER IN THE BOOKS OF ACCOUNT . THE LEARNED CIT(A) ERRED IN NOT CORRECTLY APPRECIATING THE FACTS OF THE CASE AND THE POSITION IN LAW WHILE CONFIRMING DISALLOWANCE U/ S 40A(9). 2. DISALLOWANCE OF ENTERTAINMENT EXPENSES UL S. 37(2) - RS. 2 1,18,106 - BEING 75% OF RS. 28,24,141 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN RESTRICTING THE ALLOWANCE TO THE EXTENT OF RS.7,06,035 BEING 25% OF RS. 28,24,141 OF ENTERTAINMENT EXPENDITURE U/ S . 37(2). THE L EARNED CIT (A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF INDIAN PLASTICS LIMITED HAD NO RELEVANCE TO THE ISSUE AT HAND AND ACCORDINGLY OUGHT TO HAVE ALLOWED RELIEF IN CONFORMITY WITH TH E ORDER OF THE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR EARLIER YEARS . REVENUE APPEAL ITA NO.3577/MUM/2012 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ARBITRARILY ALLOWING 25% OF THE EXPENDITURE INCURRE D ON EMPLOYEES AS ENTERTAINMENT EXPENDITURE WITHOUT GIVING ANY COGENT REASON. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AMRUTLAL HASTIMAL JAIN 4 IN LAW, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE OF DEVELOPMENT EXPENSES AND SETTING ASIDE TH E SAME TO THE FILE OF THE AO UNDERMINING THE FINANCE ACT, 2001 EFFECTED FROM 01.06.2001 WITHDRAWING THE POWER OF CIT(A) TO DO SO. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF DISAL LOWANCE OF PROVISION FOR DIMINUTION IN VALUE OF LAND RIG AND SETTING ASIDE THE SAME TO THE FILE OF THE AO UNDERMINING THE FINANCE ACT, 2001 EFFECTED FROM 01.06.2001 WITHDRAWING THE POWER OF CIT(A) TO DO SO.' 3. THE FIRST ISSUE INVOLVED IN THE ASSESSEE S APPEAL IS DISALLOWANCE OF RS.9,20,955 / U/S 40A(9) OF THE ACT RELEVANT TO A.Y. 1996 - 97. 3.1. THE FACTS IN BRIEF ARE THAT IN THE RETURN OF INCOME FOR A.Y. 1996 - 97, THE ASSESSEE COMPANY HAS CLAIMED RS.9,20,955 / AS DEDUCTIBLE EXPENDITURE IN RESPECT OF CO NTRIBUTION TO EMPLOYEES WELFARE FUND. THE ISSUE WAS EARLIER SET ASIDE FOR DE NOVO CONSIDERATION BY THE TRIBUNAL IN ITA NO.3173/MUM/2001 VIDE ORDER DATED 30.06.2009. IN THE IMPUGNED SECOND ROUND OF PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE M ADE SECTION 40A(9) APPLIES TO ANY SUM PAY TOWARDS SETTING UP OR FORMATION OR AS CONTRIBUTION TO ANY FUND ETC. FOR ANY PURPOSE EXCEPT WHERE SUCH SUM IN SO PAID TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER FUND CREATED UNDER ST ATUTE. IN THE PRESENT CASE, THERE IS NO EXTERNAL FUND CREATED TO WHICH COMPANY HAS PAID OR CONTRIBUTED THE IMPUGNED SUM. THE COMPANY HAS AN ARRANGEMENT WITH THE EMPLOYEES OF ITS TRACTOR DIVISION IN TERMS OF WHICH EACH EMPLOYEE CONTRIBUTES/DEPOSITS A CERTAI N AMRUTLAL HASTIMAL JAIN 5 SUM OF MONEY EVERY YEAR WITH THE COMPANY FOR THE PURPOSE OF IT BEING USED FOR MEETING EMPLOYEES WELFARE OBJECTIVES SUCH AS GRANTING FINANCIAL AID IN THE EVENT OF DEATH OF EMPLOYEE, SCHOLARSHIP TO SOME OUTPERFORMING CHILDREN OF EMPLOYEES, ETC. SIMULTANEOU SLY, THE ASSESSEE COMPANY E A RMARKS AN EQUAL AMOUNT FOR THESE ACTIVITIES. BOTH THESE SUMS REMAIN WITH THE ASSESSEE ONLY. THERE IS NO EXTERNAL FUND TO WHICH EITHER OF THESE MONEYS IS TRANSFERRED. IN THE COMPUTATION OF INCOME, AS AND WHEN MONEY IS EXPENDED OU T OF SUMS SO COLLECTED, THE COMPANY CLAIMS DEDUCTION SINCE THE EXPENDITURE IS BASICALLY TOWARDS STAFF WELFARE. AT THE SAME TIME, IT OFFERS FOR DISALLOWANCE THE AMOUNT NOTIONALLY E ARMARKED FOR THESE ACTIVITIES BY THE ASSESSEE COMPANY. PROVISIONS OF SECTION 40A(9) ARE THUS WHOLLY INAPPLICABLE IN THE FACTS NARRATED. THE COMPANY IS MERELY SETTING ASIDE THE MONEY TO THE SEPARATE ACCOUNT WITHIN ITS DOMAIN AND NOT TO ANY SEPARATE EXTERNAL FUND. THE CLAIM FOR DEDUCTION IS FOR BONA FIDE EXPENDITURE INCURRED ON EMPLO YEE WELFARE WITHOUT THERE BEING ANY SEPARATE FUND, STATUTORY OR OTHERWISE. IT IS THE CASE OF THE ASSESSEE, THE EXPENSES ARE ALLOWABLE U/S 37(1) OF THE ACT IN THE ORDINARY COURSE. 3.2. THE LD. CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND TH AT SUB SECTION (9) PROHIBITS ALLOWING OF ANY EDUC A TION IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER EXCEPT UNDER CERTAIN CONDITIONS SPECIFIED UNDER THE CLAUSES (IV) & (V) OF SECTION 36(1) OF THE ACT. 3.3. BEFORE THE TRIBUNAL, THE LD. A.R. R EITERATED THAT THE CLAIM AMRUTLAL HASTIMAL JAIN 6 IS FOR DEDUCTION OF ACTUAL EXPENSES INCURRED ON STAFF WELFARE. THERE IS NO CONTRIBUTION TO ANY EXTERNAL FUND AND THEREFORE SECTION 40A(9) HAS NO APPLICATION. THE LD. D.R. ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIE S BELOW. 3.4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL PLACED ON RECORD. WE FIND THAT THE CLAIM OF THE ASSESSEE DESERVES TO BE ACCEPTED. IT IS BORNE OUT FROM THE FACTS SUBMITTED THAT THE A SSESSEE HAS NOT CLAIMED DEDUCTION FOR ANY C ONTRIBUTION TO THE COMMON POOL TOWARDS EMPLOYEE WELFARE. THE CONTRIBUTION MADE HAS BEEN OFFERED FOR DISALLOWANCE. ON THE OTHER HAND, ACTUAL EXPENDITURE CLAIMED ON STAFF WELFARE H AS BEEN CLAIMED DURING THE RELEVANT YEAR. THUS, NO DEDUCTION HAS BEEN CLAIMED IN RESPECT OF AMOUNT SET ASIDE BY EMPLOYER ASSESSEE FOR STAFF WELFARE. NO OUTSIDE FUND HAS BEEN SETUP. IT HA S BEEN EXPLAINED BY THE LEARNED REPRESENTATIVE THAT ONLY SEPARATE ACCOUNT IS MAINTAINED FOR CONVENIENCE OF THE ARRANGEMENT. THE BONA FIDES OF THE E XPENDITURE INCURRED HAS NOT BEEN DISPUTED BY THE REVENUE EXCEPT THE APPLICABILITY OF SECTION 40A(9) OF THE ACT. THE PLAIN PROVISION OF SECTION 40A(9) CLEARLY INDICATES THAT IT WOULD COME INTO PLAY ONLY WHEN THE MONEYS OR SUMS ARE EARMARKED TO ANY FUND OR BODY SETUP OUTSIDE THE CONTROL AND DOMAIN OF THE ASSESSEE. IN THE INSTANT CASE, THE FUNDS HAVE BEEN TRANSFERRED FROM ONE BANK ACCOUNT TO ANOTHER BANK AND EARMARKED FOR EXPENDITURE FOR EMPLOYEE WELFARE. THE EXPENDITURE HAS BEEN CLAIMED ON ACTUAL BASIS. THE CONTRIBUTION OF THE A SSESSEE TO SUCH EARMARKING HAS BEEN DISALLOWED BY THE ASSESSEE SUO MOTU. THEREFORE, IN OUR AMRUTLAL HASTIMAL JAIN 7 CONSIDERED OPINION, THE CASE OF THE A SSESSEE IS SQUARELY COVERED UNDER NORMAL PROVISIONS OF SECTION 37(1) OF THE ACT AND SECTION 40A(9) HAS NO A PPLICATION TO THE FACTS OF THE CASE. THE DISALLOWANCE OF RS.9,20,955 / - U / S 40A(9) RELEVANT TO A.Y. 1996 - 97 IS THEREFORE DELETED. 4. THE SECOND ISSUE RELATES TO EXCLUSION FOR EMPLOYEES' PARTICIPATION WHILE COMPUTING DISALLOWANCE OUT OF ENTERTAIN MENT EXP ENSES U / S 37(2) OF THE ACT. 4.1 IT IS THE CASE OF THE ASSESSEE THAT IT HAS TO INCUR EXPENDITURE FOR EXTENSION OF HOSPITALITY TO CUSTOMERS AND GUESTS IN THE ORDINARY COURSE OF BUSINESS. THE ASSESSEE HAS DISALLOWED 50% OF THE TOTAL EXPENSES ON ESTIMATE BA SIS BEING SPENT ON CUSTOMER U/S 37(2A) OF THE ACT AND BALANCE 50% SPENT ON EMPLOYEES WHO ACCOMPANIED THE CUSTOMERS/ GUESTS ARE CLAIMED AS EXPENDITURE U/S 37(1) OF THE ACT. THIS POSITION HAS BEEN ACCEPTED IN THE PAST BY THE REVENUE AS WELL AS ITAT IN ITS OW N CASE. THE CONTROVERSY WAS SET ASIDE BY THE ITAT FOR DE NOVO CONSIDERATION IN THIS YEAR IN THE LIGHT OF DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. INDIAN PLASTICS LTD. 240 ITR 528 WHEREIN THE BOMBAY HIGH COURT HAS HELD THAT ENTERTAIN MENT EXPENDITURE ON CUSTOMERS IS NOT ALLOWABLE U/S 37(1) OF THE ACT AS SUCH CLAIM IS COVERED BY EXPLANATION 2 TO SECTION 37(2A) OF THE ACT. BEFORE THE CIT(A), IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAS ALREADY DISALLOWED 50% OF THE TOTAL EXPENSES' ESTIMA TED TO HAVE BEEN SPENT ON CUSTOMERS. THE RATIO OF BOMBAY HIGH COURT DECISION IN INDIA PLASTICS LTD. (SUPRA) CASE IS NOT APPLICABLE TO THE FACTS AMRUTLAL HASTIMAL JAIN 8 AS IN THE SAID JUDGMENT, THE COURT WAS CONCERNED ONLY WITH EXPENSES RELATABLE TO CUSTOMERS AND THERE IS NO MENTI ON OF EXPENSES ON EMPLOYEES OF THE COMPANY. TO THE PROPOSITION THAT EXPENSES RELATABLE TO EMPLOYEES SHOULD NOT BE CONSIDERED AS A PART OF DISALLOWANCE U/S 37(2), IT RELIED UPON THE DECISIONS IN THE CASE OF CIT VS. EXPO MACHINERY LTD. (1991) 190 ITR 576 (D EL) AND IN THE CASE OF CIT VS. ANDHRA SUGARS LTD. (1997) 225 ITR 118 (AP). 4.2 THE LD. CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN PRINCIPLE. HOWEVER, HE ESTIMATED THE ALLOWANCE AT 25% OF SUCH EXPENSES AS AGAINST 50% CLAIMED BY THE ASSESSEE AND H ENCE THIS APPEAL. 4.3 THE REVENUE ON THE OTHER HAND, HAS ALSO FILED CROSS APPEAL ON THE ISSUE CHALLENGING THE ACTION OF THE CIT(A) IN GIVING ESTIMATED RELIEF OF 25% OF THE ENTERTAINMENT EXPENSES ARBITRARILY BY WAY OF GROUND OF APPEAL NO.2. 4.4 WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IT IS OBSERVED THAT THE CIT(A) HAS NOT SPELT ANY SPECIFIC REASON FOR REDUCING THE ESTIMATED ALLOWANCE FROM 50% TO 25% BEING ATTRIBUTABLE TO EMPLOYEES. WE HAVE TO BEAR IN MIND THAT THE A SSESSEE HAS CLAIMED SIMILAR ESTIMAT ED RELIEFS IN THE PAST WHICH HAS BEEN ACCEPTED BY THE TRIBUNAL. THERE IS NO PERCEPTIBLE REASON TO DEPART FROM THE EARLIER STAND ON THE ISSUE. THE LD. CIT(A) HAS NOT SPECIFIED ANY REASON TO RESTRICT THE RELIEF TO 25% OF THE IMPUGNED EXPENSES AS AGAINST A SS ESSEE S CLAIM OF 50% THEREFORE, IN OUR CONSIDERED VIEW, THE ESTIMATION OF ALLOWABLE EXPENSES AT 50% OF THE SALES PROMOTION/ENTERTAINMENT AMRUTLAL HASTIMAL JAIN 9 EXPENSES BEING ATTRIBUTABLE TO EMPLOYEES IS JUST AND REASONABLE. THEREFORE, THE GROUND OF THE ASSESSEE ON THIS ISSUE IS ALLOWED AND AS A COROLLARY, THE GROUND OF APPEAL NO.2 OF THE REVENUE ON THIS SCORE IS DISMISSED. INSOFAR AS THE APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2006 07 IS CONCERNED, THERE IS NO OTHER ISSUE AND IS ACCORDINGLY ALLOWED. 5. NEXT ISSUE IN THE APPE AL OF THE REVENUE RELATES TO DISALLOWANCE OF A SUM OF RS.50 LAKHS BEING THE P ROVISIONS MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT FOR DIMINUTION IN THE VALUE OF LAND RIG , WHICH FORMED PART OF ITS STOCK IN TRADE . THE DISALLOWANCE WAS CONTESTED BY THE ASSE SSEE IN THE FIRST ROUND OF LITIGATION BEFORE THE TRIBUNAL , WHEREIN T HE ISSUE WAS SET ASIDE TO THE FILE OF THE A.O. FOR FRESH EXAMINATION. THE A.O. TOOK THE VIEW THAT THE CLAIM WAS A MERE P ROVISION FOR LOSSES A ND NOT AN ACTUAL LOSS INCURRED, AND THEREFORE, DISALLOWED THE SAME. 5.1 BRIEFLY PUT, THE RELEVANT FACTS ARE THAT IN THE ASSESSMENT YEAR 1994 - 95, THE ASSESSEE COMPANY CONVERTED CAPITAL ASSET BEING LAND RIG INTO STOCK IN TRADE VALUED AT RS.9 CRORES. DURING THE PREVIOUS YEAR 1995 - 96 RELEVANT TO ASSESSMEN T YEAR 1996 - 97, THE ASSESSEE COMPANY IN LINE WITH THE ACCOUNTING POLICY FOR VALUATION OF INVENTORIES OF STOCK IN TRADE, ASCERTAINED THE REALIZABLE VALUE OF THE SAID RIG AS AT 31.3.1996 AT RS.8.50 CRORES. ACCORDINGLY A PROVISION FOR RS.50 LAKHS REPRESENTING DIMINUTION IN VALUE OF THE LAND RIG WAS MADE IN THE ACCOUNT BOOKS AND CLAIMED AS DEDUCTIBLE AMRUTLAL HASTIMAL JAIN 10 EXPENDITURE IN THE COMPUTATION OF INCOME. BEFORE THE CIT(A), THE A SSESSEE COMPANY JUSTIFIED THE DIMINUTION IN THE VALUE OF THE LAND RIG BY REFERRING TO A SALE AGRE EMENT DATED 4.6.1996, WHEREBY THE LAND RIG WAS SOLD AT AN AGREED CONSIDERATION OF RS.8.50 CRORES. IT WAS FURTHER SUBMITTED THAT IN THE LIGHT OF SUPREME COURT JUDGMENT IN THE CASE OF CHAINRUP SAMPATRAM, 24 ITR 481 READ WITH ACCOUNTING STANDARDS NOTIFIED BY CBDT U/S 145, IT IS A TRITE LAW THAT CLOSING STOCK IS REQUIRED TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER AND PROVISION SHOULD BE MADE FOR ALL KNOWN LOSSES EVEN IF THE AMOUNT OF LOSS CANNOT BE DETERMINED WITH SUBSTANTIAL ACCURACY. IN THE PRESE NT CASE, NO ESTIMATION IS ACTUALLY INVOLVED SINCE THE AMOUNT OF CONSIDERATION AND AMOUNT OF LOSS IS KNOWN CORRECTLY. THEREFORE, THERE IS NO JUSTIFICATION FOR THE DISALLOWANCE SUSTAINED BY THE A.O. ON THESE FACTS, THE CIT(A) RESTORED THE MATTER TO THE FILE OF THE A.O. WITH THE OBSERVATION THAT A.O. HAS NOT BROUGHT ANY SPECIFIC DOCUMENT AND RELEVANT MATERIAL ON RECORD AS DIRECTED BY THE ITAT TO DECIDE THE ISSUE IN HAND. ACCORDING TO HIM, T HE SALE AGREEMENT IN THE SUBSEQUENT YEAR OUGHT TO HAVE BEEN EXAMINED TO DECIDE THE ISSUE. AS PER THE CIT(A), THE A.O. HAS NOT CARRIED OUT THE DIRECTIONS GIVEN BY THE ITAT AND, THEREFORE, HE SET ASIDE THE MATTER TO THE ASSESSING OFFICER FOR DECIDING AFRESH AS PER THE DIRECTION GIVEN BY THE ITAT. 5.2 THE LEARNED D.R. FOR THE REVENUE STATED THAT THE CIT(A) OUGHT TO HAVE EXAMINED THE ISSUE HIMSELF AND HE COULD NOT HAVE SET ASIDE THE MATTER TO THE FILE OF THE AO. AMRUTLAL HASTIMAL JAIN 11 5.3 WE HAVE CAREFULLY CONSIDERED THE OBJECTION TAKEN BY THE REVENUE. THIS IS A PECULIAR CASE WHERE THE AO HAS NOT AP PARENTLY FOLLOWED THE DIRECTIONS OF THE EARLIER ITAT ORDER AND REPEATED THE DISALLOWANCE WITHOUT GIVING SPECIFIC FINDINGS ON THE DIRECTIONS GIVEN. IN THE CIRCUMSTANCES, THE CIT(A) COULD HAVE CALLED FOR THE INFORMATION FROM THE AO BY WAY OF A REMAND REPORT BUT, IN ANY CASE, IT IS THE SACROSANCT DUTY OF THE AO TO FOLLOW THE BINDING DIRECTIONS OF THE ITAT. HAVING REGARD TO THE ANALYSIS MADE BY THE CIT(A), WE FIND NO ERROR ON HIS PART TO CONCLUDE THAT THE A.O. DID NOT EXAMINE THE MATTER IN THE LIGHT OF THE DIRE CTIONS OF THE ITAT IN ITS EARLIER ORDER VIDE ITA NO.3173/MUM./2001 AND ITA NO.3829/MUM./ 2001, DATED 30.6.2009 . IN OUR VIEW, T HE TECHNICAL OBJECTION RAISED BY THE REVENUE THAT THE CIT(A) DOES NOT ENJOY POWER TO SET ASIDE THE MATTER, IS IRRELEVANT AND EXT RA NEOUS IN THE PRESENT CONTEXT WHEREIN THE REVENUE DOES NOT AGITATE THAT THE DIRECTIONS OF THE TRIBUNAL WERE NOT COMPLIED WITH THE ASSESSING OFFICER WHILE DECIDING THE SAME. NEVERTHELESS, W E FIND IT FIT TO AFFIRM THE DIRECTION OF THE CIT(A) AND ACCORDINGLY T HE AO IS REQUIRED TO EXAMINE THE ISSUE AFRESH IN LINE WITH THE DISCUSSION MADE BY THE CIT(A). AS A CONSEQUENCE, THE OBJECTION OF THE REVENUE IS HEREBY DISMISSED ON MERITS. 6. IN ALL OTHER GROUNDS RAISED BY THE REVENUE , THE GRIEVANCE IS AGAINST THE DECIS ION OF THE CIT(A) IN SETTING ASIDE THE MATTER TO THE AO FOR A DECISION AFRESH. THE CIT(A) SET ASIDE THE ISSUES TO THE AO ON THE GROUND THAT THE AO DID NOT FOLLOW THE DIRECTIONS OF THE TRIBUNAL WHILE PASSING THE IMPUGNED ORDER. THE CLAIM OF THE REVENUE BEFO RE US IS THAT THE CIT(A) AMRUTLAL HASTIMAL JAIN 12 DID NOT ENJOY THE POWER OF SETTING ASIDE THE MATTER TO THE AO AND THEREFORE, THE IMPUGNED DECISION OF THE CIT(A) WAS INCORRECT. 6.1 IN OUR CONSIDERED OPINION, THE AFORESAID OBJECTION OF THE REVENUE IS NOT MERITED BECAUSE THE CIT (A) HAS NOT MADE A CARTEBLANCHE SET ASIDE BUT HAS RETURNED THE MATTER ONLY AFTER NOTICING THAT THE AO WHILE PASSING THE IMPUGNED ORDER GIVING EFFECT TO THE DIRECTIONS OF THE TRIBUNAL DATED 30.6.2009 (SUPRA) HAS NOT APPROPRIATELY DEALT WITH THE MATTER. THE CIT(A) WAS CONSIDERING THE ORDER OF THE AO WHEREBY APPEAL EFFECT WAS GIVEN TO THE ORDER OF THE TRIBUNAL DATED 30.6.2009 (SUPRA). THE CIT(A) FOUND THAT THE EFFECT WAS NOT A PPROPRIATELY GIVEN BY THE AO AND, THEREFORE, HE HAS SET ASIDE THE SAME. IN ANY CASE , THE REVENUE HAS NOT CONTESTED THE FINDING OF THE CIT(A) THAT THE AO INAPPROPRIATELY IMPLEMENTED THE ORDER OF THE TRIBUNAL DATED 30.6.2009 (SUPRA). TO CORRECT THIS ANOMALY THE ONLY WAY BEFORE THE CIT(A) WAS TO REQUIRE THE AO TO DO IT APPROPRIATELY IN ACCO RDANCE WITH LAW WITH WHICH WE FIND NO ERROR. THE SAID DECISION OF THE CIT(A) IS HEREBY AFFIRMED. 6.2 THUS, ON THIS ASPECT THE REVENUE FAILS. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE RELEVANT TO A.Y. 1996 - 97 IS ALLOWED AND THE APPEAL OF THE REV ENUE IS DISMISSED. AMRUTLAL HASTIMAL JAIN 13 8. NOW, WE TAKE UP THE APPEALS FOR THE A.Y. 97 - 98, WHICH ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 16.02.2012, WHICH IN TURN HA S ARISEN FROM THE ORDER OF THE AO PASSED U/S 143(3) R.W.S 254 OF THE ACT DATED 28.12.2010. 9. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE AND THE REVENUE AS UNDER: - ASSESSEE APPEAL ITA NO.3660/MUM/2012 1. DISALLOWANCE U/S. 40A(9) OFRS. 10,64,258/ - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRM ING THE ACTION OF THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX (D. C. I.T .) IN DISALLOWING A SUM OF RS. 10,64,258 R EPRESENTING EXPENDITURE INCURRED OUT OF EMPLOYEES WELFARE FUND ACCOUNT. THE APPELLANT SUBMITS THAT THE SAID AMOUNT WAS SPECIFIC EARMARKED S UM TO A SEPARATE ACCOUNT (CALLED AS FUND) MEANT FOR THE EMPLOYEES WELFARE OF TRACTOR DIVISION ( AT KANDIVLI) OF THE APPELLANT . THE EXPENDITURE OF RS. 10,64,258 REPRESENTS EXPENDITURE MADE BY THE COMPANY DURING THE ASSESSMENT YEAR 1997 - 98 OUT OF THE SUM T RANSFERRED TO SUCH ACCOUNT! FUND. THUS INSTEAD OF SPENDING DIRECTLY ON THE EMPLOYEES, THE AMOUNT IS ROUTED THROUGH A SEPARATE ACCOUNT FUND MAINTAINED BY THE COMPANY IN ITS BOOKS OF ACCOUNT. THE LEARNED CIT OUT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLA NT THAT THE EXPENSES WHICH WERE OTHERWISE ALLOWABLE UNDER THE INCOME TAX ACT, BEING ON EMPLOYEE WELFARE COULD NOT BE DISALLOWED MERELY DUE TO THE FACT THAT THOSE WERE ROUTED TO A SEPARATE LEDGER IN THE BOOKS OF ACCOUNT. THE LEARNED CIT(A) ERRED IN NOT C ORRECTLY APPRECIATING THE FACTS OF THE CASE AND THE POSITION IN LAW WHILE CONFIRMING DISALLOWANCE U/ S 40A(9) THE DISALLOWANCE BE DELETED. AMRUTLAL HASTIMAL JAIN 14 2. DISALLOWANCE OF ENTERTAINMENT EXPENSES U!S.37(2) - RS. 26,51.255 - BEING 75% OFRS. 35,35,006 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN RESTRICTING THE ALLOWANCE TO THE EXTENT OF RS. 8,83,752 BEING 25% OF RS. 35,35,006 OF ENTERTAINMENT EXPENDITURE U/ S. 37(2). THE LEA RN ED CIT (A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT THE APPELLANT HAD ALREADY OFFERED TO TAX THE EXPENSES RELATABLE TO CUSTOMERS (AS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF INDIAN PLASTICS LIMITED). THE CIT(A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT NO FURTHER DISALLOWANCE WAS REQUIRED IN THE CASE OF THE APPELLANT. 3. EXPENDITURE ON IMPLEMENTATION OF SOFTWARE SYSTEM RS. 10 , 73 , 13 , 458 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEA RN ED CIT(A) ERRED IN DISALLOWING EXPENDITURE ON IMPLEMENTAT ION OF SAP SOFTWARE SYSTEM OF RS. 10, 73,13,458/ - STATING THAT THE SAID EXPENDITURE WAS IN CAPITAL NATURE AND ONLY DEPRECIATION COULD BE ALLOWED THEREON. THE CIT (A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT RS. 2,44,24,229 PAID AS ONE TIME USER LICENSE FEES FOR SPECIFIED NUMBER OF USER TERMINAL AND RS. 8,28,89,229 TOWARDS TRAINING AND CONSULTANCY IN CONNECTION WITH THE USE OF SOFTWARE WERE IN THE NATURE OF REVENUE EXPENSES.' REVENUE APPEA L I TA NO.3578/MUM/2012 1. THE ORDER OF THE C IT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE OF EXPENDITURE ON MAINTENANCE OF GUEST HOUSE U1S 37(4) AND SETTING ASIDE TH E SAME TO THE FILE AMRUTLAL HASTIMAL JAIN 15 OF THE AO UNDERMINING THE FINANCE ACT, 2001 EFFECTED FROM 01.06.2001 WITHDRAWING THE POWER OF CIT(A) TO DO SO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ARBITRARILY ALLOWING 25% OF THE EXP ENDITURE INCURRED ON EMPLOYEES AS ENTERTAINMENT EXPENDITURE WITHOUT GIVING ANY COGENT REASON. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE OF DEVELOPMENT EXPENSES AND SETTING ASIDE THE SAME TO THE FILE OF THE AO UNDERMINING THE FINANCE ACT, 2001 EFFECTED FROM 01.06.2001 W ITHDRAWING THE POWER OF CIT(A) TO DO SO. 10. THE FIRST GROUND IN THE APPEAL OF THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS.10,64,258/ - WHICH HAS B EEN MADE RESORTING TO SECTION 40A(9) OF THE ACT. THE FACTS ON THIS ISSUE ARE IDENTICAL TO THOSE CONSIDERED BY US WHILE DEALING WITH SIMILAR ISSUE IN ASSESSMENT YEAR 1996 97. FOLLOWING OUR DECISION IN ASSESSMENT YEAR 1996 97, T HE GROUND OF APPEAL NO.1 OF TH E A SSESSEE IS ALLOWED . 11. SIMILARLY, THE GROUND OF APPEAL NO.2, RAISED BY ASSESSEE RELATES TO A DISALLOWANCE OF RS.35,35,006 / MADE BY THE AO TOWARDS HOSPITALITY EXPENSES EXTENDED TO CUSTOMERS BY INVOKING SECTION 37(2) OF THE ACT WHICH STANDS ON IDENTIC AL FOOTING TO THAT IN ASSESSMENT YEAR 1996 97. THE CIT(A) ESTIMATED THE DISALLOWANCE TO 75% AS AGAINST DISALLOWANCE OF 50% OF THE ENTERTAINMENT EXPENSES OFFERED BY THE ASSESSEE AND SUSTAINED DISALLOWANCE OF 25% MADE BY THE AO IN THE LIGHT OF DISCUSSIONS IN AY 1996 - 97. IN VIEW OF THE SIMILAR FACTS AS IN THE AY 1996 - 97, WE ARE OF THE CONSIDERED OPINION THAT AMRUTLAL HASTIMAL JAIN 16 ESTIMATION OF EXPENSES RELATING TO CUSTOMERS AT 50% OF THE ENTERTAINMENT EXPENSES IS JUST AND REASONABLE. THEREFORE, THE ACTION OF THE CIT(A) IN ESTIMATI NG THE DISALLOWANCE AT 75% AS AGAINST 50% OFFERED BY THE ASSESSEE CANNOT BE APPROVED. THE REVENUE HAS ALSO QUESTIONED THE ACTION OF THE CIT(A) IN GIVING RELIEF OF 25% ESTIMATED TO HAVE BEEN INCURRED TOWARDS CUSTOMERS IN THEIR APPEAL. THE GROUND OF THE ASSE SSEE ON THIS ISSUE IS ALLOWED AND THE GROUND OF THE REVENUE IS DISMISSED IN LINE WITH OUR DISCUSSION IN THE CROSS APPEALS FOR AY 96 - 97, WHICH WE HAVE DEALT WITH IN EARLIER PARAS. 12. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS DISALLOWANCE OF EXPENDIT URE OF RS.10,73,13,458 INCURRED ON IMPLEMENTATION OF SAP SOFTWARE SYSTEM. THE AO AS WELL AS THE CIT(A) HAVE TREATED IT AS A CAPITAL EXPENDITURE WHEREAS THE ASSESSEE HAD CLAIMED IT AS A REVENUE EXPENDITURE. 12.1 THE FACTS GOVERNING THE ISSUE CAN BE STATED IN BRIEF AS FOLLOWS . THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILES , TRACTORS AND THEIR ANCILLARY SPARE PARTS. THE ASSESSEE HAS INCURRED THE AFORESAID EXPENDITURE IN CONNECTION WITH OBTAINING SOFTWARE CONSULTING, TRAINING AND PROFE SSIONAL SERVICES AND ORGANIZING / INSTALLATION AND IMPLEMENTATION OF THE SOFTWARE SYSTEMS. THE EXPENSES HAVE BEEN INCURRED FOR IMPLEMENTATION OF SAP SOFTWARE AT ITS DIFFERENT LOCATIONS AND TOWARDS TRAINING OF ITS EMPLOYEES. 12.2 THE REVENUE TOOK THE VIEW T HAT THE EXPENDITURE IS CAPITAL IN NATURE. THE MATTER WAS CARRIED TO THE ITAT. THE AMRUTLAL HASTIMAL JAIN 17 TRIBUNAL SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF GUIDELINES LAID DOWN BY THE ITAT SPECIAL BENCH IN THE CASE OF AMW AY INDIA ENTERPRISES V / S DCIT, 111 ITD 476 (DEL.) (SB). 12.3 IN THE SECOND ROUND OF PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE ASSESSEE COMPANY , BEING IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILES AND TRACTORS, ETC., WAS UTILI ZING THE ERP SOFTWARE FOR FACILITATING ITS. DURING THE YEAR UNDER REVIEW, THE COMPANY DECIDED TO IMPLEMENT A NEW SOFTWARE SYSTEM AT ITS VARIOUS LOCATIONS FOR WHICH IT ENGAGED THE SERVICES OF THE SAP ASIA SYSTEMS MAINLY IN THE FIELD OF CONSULTATION AND TRAI NING TO THE COMPANY'S PERSONNEL FOR THE IMPLEMENTATION OF THE SOFTWARE SYSTEM AND CONSULTATION RELATING THERETO. AS PER THE AGREEMENT, THE SAP AGREED TO PROVIDE VARIOUS TRAINING COURSES TO THE COMPANY'S PERSONNEL INVOLVING AREAS VIZ. ENGINEERING MANUFACTUR ING SUPPLIES, FINANCE, SALES AND MARKETING AND SO ON AND SO FORTH. THE COMPANY HAS PAID RS.2,44,24,229, AS ONE TIME USER LICENCE FEES FOR SPECIFIED NUMBER OF USER TERMINAL S . THE BALANCE AMOUNT OF RS.8,28,89,229, IS PAID FOR TRAINING AND CONSULTANCY IN CON NECTION WITH THE USE OF THE SOFTWARE. THE ASSESSEE FURTHER SUBMITTED , INTER - ALIA , THAT THE SYSTEM ENABLED IT TO HAVE OPTIMUM CONTROL OVER INVENTORIES AT VARIOUS LEVELS , ELIMINATION OF DUPLICATION OF DATA BASES, REDUCTION OF HUMAN ELEMENT IN CREATION AND MA INTENANCE OF DATA BASE, AND THEREBY MINIMIZING ERRORS, REDUCTION OF PROCESS TIME, BETTER WORKING CAPITAL MANAGEMENT, PROMPT RESPONSE TO CUSTOMER AMRUTLAL HASTIMAL JAIN 18 NEEDS, ETC. THUS, THE SOFTWARE IS ONLY A FACILITATOR OF BETTER MANAGEMENT OF VARIOUS ASPECTS OF DAY TO DAY BUSI NESS OPERATIONS. THE FUNCTIONAL T E ST , WHEN APPLIED TO THE FACTS OF THE CASE , CLEARLY SUGGEST S THAT EXPENDITURE IS REVENUE IN NATURE. THE SOFTWARE MERELY ENABLES THE COMPANY TO CARRY OUT ITS OPERATION IN A MORE EFFICIENT MANNER. THE EXPENDITURE IS IN THE R EVENUE FIELD AS IT ONLY FACILITATES CARRYING ON THE EXISTING BUSINESS MORE PROFITABLY WITHOUT ALTERING THE BUSINESS STRUCTURE OF THE COMPANY. THE AMOUNT PAID IN LUMP SUM TOWARDS LICENCE FEES IS FOR USE OF SOFTWARE AND NOT FOR ACQUIRING THE OWNERSHIP THEREO F. 12.4 THE AO HOWEVER REJECTED THE CLAIM ON THE GROUND THAT IT IS A NEW SOFTWARE WHICH HAS BEEN INSTALLED AND IT PROVIDES AN ENDURING ADVANTAGE TO THE ASSESSEE. 12.5 THE CIT(A) FURTHER OBSERVED THAT EXPENSES HAVE BEEN AMORTIZED AND WRITTEN OFF OVER A P ERIOD OF THREE YEARS IN THE ACCOUNT BOOKS. HE CONFIRMED THE ACTION OF THE AO AND HELD THAT THE AO HAS CARRIED OUT THE MANDATE OF THE TRIBUNAL AND RIGHTLY APPLIED THE LEGAL PRINCIPLES. 12.6 BEFORE US, THE A.R. FOR THE ASSESSEE SUBMITTED THAT THE DECISIO N OF SPECIAL BENCH IN AMWAY INDIA ENTERPRISES IS NO LONGER A GOOD LAW AS HELD IN ASAHI INDIA SAFETY GLASS LTD., 203 TAXMAN 277 (DEL.). 12.7 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. QUITE CLEARLY, IT IS EVIDENT THAT THE EXPENDITURE OF RS.10, 73,13,458, INCURRED BY THE ASSESSEE ON IMPLEMENTATION OF AMRUTLAL HASTIMAL JAIN 19 SAP SOFTWARE SYSTEM CANNOT BE CONSTRUED AS A CAPITAL EXPENDITURE. THE FACTS WHICH EMERGED CLEARLY ESTABLISHE THAT THE EXPENDITURE IS INCURRED ON USING OF APPLICATION SOFTWARE TOWARDS BETTER MANAGEMEN T AND EFFICIENCY IN CARRYING OUT THE BUSINESS. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE HAS ALSO CLARIFIED THAT EVEN EARLIER, THE ASSESSEE WAS USING SAP SOFTWARE SYSTEM BUT THE CURRENT EXPENDITURE IS INCURRED MERELY TO UPGRADE / MODIFY THE EXISTI NG SAP SOFTWARE SYSTEM. CONSIDERING THE SUBMISSIONS PUTFORTH AS ALSO THE RELEVANT DISCUSSION COMING OUT OF THE ORDERS OF THE AUTHORITIES BELOW, IN OUR VIEW, THE IMPUGNED EXPENDITURE, THOUGH RESULTING IN A BENEFIT BEYOND THE CURRENT YEAR, IS AN EXPENDITURE IN THE REVENUE FIELD BECAUSE IT FACILITATE S CARRYING ON OF BUSINESS MORE EFFICIENTLY. THEREFORE, THE EXPENDITURE IS TO BE VIEWED AS A REVENUE EXPENDITURE, HAVING REGARD TO THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN EMPIRE JUTE CO. LTD. V/S CIT , [1980] 124 ITR 1 (SC) . AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE ALSO REFERRED TO THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RAYCHEM RPG LTD. [2012] 346 ITR 138 (BOM.) WHEREIN ALSO THE EXPENDITURE INCURRED IN CONNECTION WIT H CARRYING ON OF BUSINESS ACTIVITIES MORE EFFICIENTLY HAS BEEN HELD TO BE A REVENUE EXPENDITURE. IN VIEW OF THE AFORESAID DISCUSSION, WE, THEREFORE, ALLOW THE CLAIM OF THE ASSESSEE AND ACCORDINGLY, ASSESSEE SUCCEEDS ON THIS GROUND. 13. THE GROUND OF THE A SSESSEE ON THE ISSUE IS, THEREFORE, ALLOWED. IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 1997 98, THERE IS NO OTHER ISSUE, AND ACCORDINGLY IT IS TREATED AS ALLOWED. AMRUTLAL HASTIMAL JAIN 20 14. THE OTHER GROUNDS OF APPEAL RAISED BY THE REVENUE ARE MERE AGAINST THE DECISION OF THE CIT(A) IN SETTING ASIDE THE MATTER TO THE AO FOR A DECISION AFRESH SIMILAR TO GROUNDS RAISED FOR THE A.Y. 1996 - 97. AS NOTED FOR AY 1996 - 97, THE CIT(A) SET ASIDE THE ISSUES TO THE AO ON THE GROUND THAT THE AO DID NOT FOLLOW THE DIRECTIONS OF THE TRIBUNAL WHILE PASSING THE IMPUGNED ORDER. IN LINE WITH OUR FINDINGS FOR A Y 1996 - 97, WE HOLD THAT THE CIT(A) WAS JUSTIFIED IN GIVING DIRECTIONS TO THE AO FOR GIVING EFFECT TO THE TRIBUNAL ORDER IN ACCORDANCE WITH LAW. THE SAID DECISION OF THE CIT(A) IS HEREBY AFF IRMED. GROUND NO.2 & GROUND 4 OF THE R EVENUE APPEAL ARE THEREFORE REJECTED. A S A RESULT, THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 1997 98 IS DISMISSED. NOW, WE TAKE UP THE CROSS APPEALS OF THE ASSESSEE AND REVENUE FOR ASSESSMENT YEAR 1998 99 , WHICH ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 2.2.2012, WHICH IN TURN HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R/W SECTION 254 OF THE ACT DATED 28.12.2010. 15. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE AND THE REVENUE AS UNDER: - AMRUTLAL HASTIMAL JAIN 21 ASSESSEE APPEA L ITA NO. 3661/MUM/2012 1. DISALLOWANCE U/S. 40A(9) O F RS.12.08.973/ - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX (D.C.I. T.) IN DISALLOWING A SUM OF RS. 12,08,973 REPRESENTING EXPENDITURE INCURRED OUT OF EMPLOYEES WELFARE FUND ACCOUNT. THE APPELLANT SUBMITS THAT THE SAID AMOUNT WAS SPECIFIC EARMARKED SUM TO A SEPARATE ACCOUNT (CALLED AS F UND) MEANT FOR THE EMPLOYEES WELFARE OF TRACTOR DIVISION (AT KANDIVLI) OF THE APPELLANT. THE EXPENDITURE OF RS. 12,08,973 REPRESENTS EXPENDITURE MADE BY THE COMPANY DURING THE ASSESSMENT YEAR 1998 - 99 OUT OF THE SUM TRANSFERRED TO SUCH ACCOUNT/ FUND. THUS I NSTEAD OF SPENDING DIRECTLY ON THE EMPLOYEES, THE AMOUNT IS ROUTED THROUGH A SEPARATE ACCOUNT/FUND MAINTAINED BY THE COMPANY IN ITS BOOKS OF ACCOUNT. THE LEARNED CIT OUT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT THE EXPENSES WHICH WERE OTHERWIS E ALLOWABLE UNDER THE INCOME TAX ACT, BEING ON EMPLOYEE WELFARE GOULD NOT BE DISALLOWED MERELY DUE TO THE FACT THAT THOSE WERE ROUTED TO A SEPARATE LEDGER IN THE BOOKS OF ACCOUNT. THE LEARNED CIT(A) ERRED IN NOT CORRECTLY APPRECIATING THE FACTS OF THE CA SE AND THE POSITION IN LAW WHILE CONFIRMING DISALLOWANCE U/ S 40A(9). THE DISALLOWANCE BE DELETED. 2. EXPENDITURE ON IMPLEMENTATION OF SOFTWARE SYSTEM RS. 6.65,28,676 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRE D IN DISALLOWING EXPENDITURE ON IMPLEMENTATION OF SAP SOFTWARE SYSTEM OF RS.6,65,28,676/ - STATING THAT THE SAID EXPENDITURE WAS IN CAPITAL NATURE AND ONLY DEPRECIATION COULD BE ALLOWED THEREON. AMRUTLAL HASTIMAL JAIN 22 THE CIT W OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE APPE LLANT THAT RS. 5,35,97,394 PAID AS ONE TIME USER LICENSE FEES FOR SPECIFIED NUMBER OF USER TERMINAL AND RS. 1,29,31,281 TOWARDS TRAINING AND CONSULTANCY IN CONNECTION WITH THE USE OF SOFTWARE WERE IN THE NATURE OF REVENUE EXPENSE. 3. DEDUCTION FOR DEPRE CIATION RS. 7 , 53 , 35 ,136/ ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW AND, IN PARTICULAR, IN VIEW OF THE CLEAR MANDATE OF SECTION 32(1) READ WITH S 43(6) OF THE ACT, THE LEARNED CIT(A), ERRED IN NOT SUO MOTU DIRECTING THE LEARNED AO O RE - C OMPUTE THE WRITTEN DOWN VALUES OF FIXED ASSETS AND, BASED THEREON, THE AMOUNT OF DEPRECIATION ALLOWABLE TO THE APPELLANT FOR THE YEAR UNDER APPEAL, CONSEQUENT UPON THE ORDER PASSED BY HIM FOR AY 1997 - 98, ALLOWING THE APPELLANT'S GROUND OF APPEAL ON THIS I SSUE. REVENUE APPEAL ITA NO.3579/MUM/2012 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE OF DEVE LOPMENT EXPENDITURE AND SETTING ASIDE THE SAME TO THE FILE OF THE AO UNDERMINING THE FINANCE ACT, 2001 EFFECTED FROM 01.06.2001 W ITHDRAWING THE POWER OF CIT(A) TO DO SO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRE D IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE OF DEDUCTION ON ACCOUNT OF PRIOR PERIOD EXPENSES AND SETTING ASIDE THE SAME TO THE FILE OF THE AO UNDERMINING THE FINANCE ACT, 2001 EFFECTED FROM 01.06.2001 WITHDRAWING THE POWER OF CIT(A) TO DO SO. 4. ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE OF BAD ADVANCES WRITTEN OFF AND SETTING ASIDE THE SAME TO THE FILE OF THE AO UNDERMINING THE FINANCE ACT, 2001 EFFECTED FROM 01.06. 2001 AMRUTLAL HASTIMAL JAIN 23 W ITHDRAWING THE POWER OF CIT(A) TO DO SO. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE OF DEDUCTION FOR PAYMENTS TOWARDS TECHNICAL SERVICES AND SETTING ASIDE THE SAME TO THE FILE OF THE AO UNDERMINING THE FINANCE ACT, 2001 EFFECTED FROM 01.06.2001 WITHDRAWING THE POWER OF CIT(A) TO DO SO.' 15. THE GROUND NO.1 OF THE ASSESSEE APPEAL IN RESPECT OF DISALLOWANCE U / S 40A(9) FOR RS.12,08,973 IS IDENTICAL WITH AY 96 - 97 AND 97 - 98. THEREFORE, THE ASSESSEE GETS THE SAME RELIEF AS IN THE EARLIER YEARS. THE DISALLOWANCE OF R S.12,08,973 BY INVOKING SECTION 40A(9) OF THE ACT IS DELETED. THE GROUND OF THE ASSESSEE IS THEREFORE ALLOWED. 16. THE GROUND NO.2 OF THE ASSESSEE APPEA L RELATES TO DISALLOWANCE OF EXPENDITURE ON IMPLEMENTATION OF SOFTWARE SYSTEM RS.6,65,28,676 FOR THE AY 98 - 99. THE ISSUE IS IDENTICAL TO THE ISSUE DEALT WITH FOR THE AY 97 - 98. ACCORDINGLY, THE ASSESSEE GETS THE RELIEF IN LINE WITH THE AY 97 - 98. THE GROUND OF THE ASSESSEE ON THIS SCORE STANDS ALLOWED. 17. GROUND NO.3 OF THE ASSESSEE APPEAL RELATING TO DEDUCTION OF DEPRECIATION RS. 7,53,35,136/ - WA S NOT PRESSED AT THE TIME OF HEARING AND THEREFORE STANDS DISMISSED. THE APPEAL OF THE ASSESSEE FOR ASSESSME NT YEAR 1998 99 IS PARTLY ALLOWED. 18. IN AY 1998 - 99 ALSO, THE OBJECTION OF THE REVENUE IS ONLY TO THE EXTENT THAT THE CIT(A) OUGHT NOT TO HAVE SET ASIDE AND AMRUTLAL HASTIMAL JAIN 24 SENT THE MATTER BACK TO THE FILE OF THE AO FOR IMPLEMENTATION OF DIRECTIONS GIVEN IN EARLIER TRI BUNAL ORDER. WE HAVE ALREADY HELD FOR AY 1996 - 97 AND 1997 - 98 THAT THE LD. CIT(A) WAS JUSTIFIED IN DOING SO. NO INTERFERENCE IS THEREFORE CALLED FOR IN THE ORDER OF THE CIT(A) . THE GROUND S N O.2 TO 5 OF THE REVENUE S APPEAL ARE THEREFORE DISMISSED. 19. AS A RESULT, THE A SSESSEE S APPEAL FOR A Y 98 - 99 IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT O N 31.07.2015 SD/ - SANJAY GARG JUDICIAL MEMBER SD/ - G.S. PANNU ACCOUNTANT MEMBER MUMBAI, DATED: COPY OF THE OR DER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI