Exide Industries Ltd., Kolkata V. D.C.I.T Cir - 1,kolkata., Kolkata

ITA 712/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4335 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 22-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2013
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: ANUP SINHA ACA
• Keywords: Depreciation; Earning of tax free income; Source of fund; Revenue expenditure; Capital expenditure
• Section: 43B; 14A

Judgement Text

1 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C B ENCH, KOLKATA BEFORE SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 712/KOL/ 2013 ASSESSMENT YEAR: 2008-09 EXIDE INDUSTRIES LIMITED ,.................................................A PPELLANT 59E, CHOWRINGHEE ROAD, KOLKATA-700 020 [PAN : AAACE 6641 E] -VS- DEPUTY COMMISSIONER OF INCOME TAX ,............................. RESPONDENT CIRCLE-I, KOLKATA, AAYAKARBHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI ANUP SINHA, ACA, FOR THE AS SESSEE SHRI G. MALLIKARJUNA, CIT, DR, FOR THE DEPARTMENT DATE OF HEARING: 23-08-2016 DATE OF PRONOUNCEMENT: 1 9-10-2016 SHRI. S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE ASSESSEE AGAINST ORDER DT:28-02- 2013 PASSED BY THE COMMISSIONER OF INCOME TAX-(APPEALS) FOR THE ASSESS MENT YEAR 2008-2009 2. GROUND NOS 1(A) & (B) ARE SIMILAR TO EACH OTHER , INVOLVING DISALLOWANCE OF 1,51,03,956/- ON ACCOUNT OF PROVISION MADE BY TH E ASSESSEE FOR LEAVE ENCASHMENT MADE BY THE ASSESSING OFFICER BY INVOKIN G THE PROVISION UNDER SECTION 43B(F) OF THE ACT AND CONFIRMED BY THE CIT- (APPEALS). 2 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED 3. DURING THE COURSE OF HEARING BEFORE US, THE LD.A R SUBMITS THAT THE ISSUE SQUARELY COVERED BY THE CONSOLIDATED ORDER OF COORD INATE BENCH IN ASSESSEES OWN CASE FOR A.Y 2003-04 & 2004-05 IN ITA 189/KOL/2 007 AND ITA 1414/KOL/2007 RESPECTIVELY. THE LD. DR RELIED ON TH E ORDERS OF CIT-A AND AO. 4. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CONSOLIDATED ORDER SUPRA AS PLACED ON RECORD BY THE LD.AR, THE TRIBUNAL DECIDED THE ISSUE THEREIN IS SIMILAR TO THE ISSUE O N HAND COVERING THE GROUNDS AS RAISED IN NOS 1(A) & (B) AND THE RELEVANT PORT ION OF WHICH IS REPRODUCED HEREIN BELOW: 25. THE ISSUE RAISED IN GROUND NO. 8 RELATES TO THE D ISALLOWANCE OF 1.51 CRORES MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF PROVISION MADE BY THE AS SESSEE FOR LEAVE ENCASHMENT. 26. THE ASSESSEE-COMPANY DURING THE YEAR UNDER CONSID ERATION HAD MADE A PROVISION OF RS.1.51 CRORES FOR LEAVE ENCASHMENT ON T HE BASIS OF AN ACTURIAL VALUATION AND THE SAME WAS CLAIMED AS DEDU CTION BY RELYING ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN ASS ESESES OWN CASE REPORTED IN 292 ITR 470 AND THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS REPORTED IN 245 ITR 42 8. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE CLAIM OF THE ASSESSE E FOR PROVISION OF LEAVE ENCASHMENT RELYING ON THE CLAUSE (F) INSERTED IN SECTION 43B BY THE FINANCE ACT, 2001 W.E.F. 1S T APRIL, 2002. THE LD. CIT(APPEALS) CONFIRMED THE SAID DISALLOWANCE. THE ASSESESE CHALLENGED THE CONSTITUTIONAL VALIDITY OF CLAUSE (F) INSERTED IN SECTION 43B BEFORE THE HONB LE CALCUTTA HIGH COURT BY WAY OF A WRIT PETITION AND ALTHOUGH THE SAME WAS INITIALLY DISMISSED BY THE SINGLE BENCH, IT WAS ADMITTED AND RULED IN FAVOUR OF THE ASSESSEE BY THE DIVISION BENCH OF THE HONBLE CALCU TTA HIGH COURT BY HOLDING THAT THE INTRODUCTION OF CLAUSE (F) TO SECTION 43B IS ULTRA VIRUS OF THE ACT IN THE ABSENCE OF DISCLOSURE OF THE OBJECTS A ND BEING INCONSISTENT WITH THE BASIC INTENT OF SECTION 43B. THEREAFTER THE DEPARTMENT FILED THE SLP AGAINST THE DECISION OF THE HONBLE CALCUTTA HIGH COURT AND WHILE ADMITTING THE SAME, THE HONBLE SUPREME COURT VIDE IT S JUDGMENT DATED 08.09.2008 STAYED THE JUDGMENT OF THE HONBLE CALCUT TA HIGH COURT UNTIL FURTHER ORDERS. 27. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE HAS CONTENDED THAT EVEN THOUGH THE DECISION OF THE HONB LE CALCUTTA HIGH 3 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED COURT HOLDING CLAUSE (F) OF SECTION 43D AS ULTRA VIRUS IS STAYED BY THE HONBLE SUPREME COURT WHILE ADMITTING THE SLP FILED BY THE REVENUE, THE SAME HAS NOT BEEN REVERSED AND THIS TRIBUNAL, THEREF ORE, IS BOUND TO FOLLOW THE SAME BEING A BINDING PRECEDENT. HE HAS AL SO CONTENDED THAT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT WAS STAYED BY THE HONBLE APEX COURT VIDE ITS JUDGMENT DATED 08.09.2008 UNTIL FURTHER ORDERS AND THERE BEING ANOTHER INTERIM ORDER PASSED BY THE HONB LE SUPREME COURT ON 08.05.2009, THE STAY GRANTED EARLIER STANDS AUTOM ATICALLY VACATED. A COPY OF THE SAID INTERIM ORDER DATED 08.05.2009 IS P LACED ON RECORD BEFORE US, THE CONTENTS OF WHICH ARE EXTRACTED BELOW:- PEN DING HEARING AND FINAL DISPOSAL OF THE CIVIL APPEAL, DEPARTMENT IS RESTRAIN ED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCRUED TILL DATE. I T IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CONCERNED, IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THE AMOUNT IN CA SE CIVIL APPEAL OF THE DEPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD DURING THE PENDENCY OF THIS CIVIL APPEAL, PAY TAX AS IF SECTION 43B(F) IS ON THE STATUTE BOOK BUT AT THE SAME TIME IT WOUL D BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. 28. WE HAVE CAREFULLY PERUSED THE INTERIM ORDER DAT ED 8T H MAY, 2009 PASSED BY THE HONBLE SUPREME COURT IN THE MATTER. IT IS OBSERVED THAT THE HONBLE APEX COURT IN THE SAID ORDER HAS MADE IT CLEAR THAT THE ASSESSEE, DURING THE PENDENCY OF THE CIVIL APPEAL, WOULD PAY TAX AS IF SECTION 43B(F) IS ON THE STATUTE BOOK, BUT AT THE SAME TIME, IT WOULD BE ENTITLED TO MAKE CLAIM IN ITS RETURN. KEEPING IN VI EW ALL THESE DEVELOPMENTS, THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF DY. CIT VS.- BLA INDUSTRIES PVT. LTD. (ITA NO. 1434/KOL /2012 DATED 16.01.2015) HAS RESTORED THE SIMILAR ISSUE TO THE FI LE OF THE ASSESSING OFFICER WITH A DIRECTION TO AWAIT TILL THE FINAL DE CISION OF THE HONBLE SUPREME COURT ON THE ISSUE AND THEN TO DECIDE THE IS SUE ACCORDINGLY. FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH, W E RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE SIMILAR DIRECTION. GROUND NO. 8 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PUR POSES. 5. TAKING INTO CONSIDERATION THE ORDER SUPRA , WE REMAND THE ISSUE TO THE FILE OF AO TO DECIDE THE SAME IN ACCORDANCE WITH TH E JUDGMENT OF THE HONBLE SUPREME COURT THAT MAY BE PASSED IN CIVIL APPEAL FI LED BY THE REVENUE. GROUND NOS 1(A) & (B) ARE ALLOWED FOR STATISTICAL PURPOSES. 6. REGARDING GROUND NOS-2(A), (B) & (C) ARE SIMILA R QUESTIONING THE DISALLOWANCE OF RS.9,97,00,000/- MADE BY THE ASSESS ING OFFICER AND CONFIRMED 4 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED BY THE CIT-APPEALS ON ACCOUNT OF PROVISION MADE BY THE ASSESSEE FOR WARRANTY. 7. DURING THE COURSE OF HEARING BEFORE US, THE LD.A R SUBMITS THAT THE ISSUE SQUARELY COVERED BY THE CONSOLIDATED ORDER DT:20-01 -16 OF COORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y 2003-04 & 2004-05 IN IT A 189/KOL/2007 AND ITA 1414/KOL/2007 RESPECTIVELY. THE LD. DR RELIED ON TH E ORDERS OF CIT-A AND AO. 8. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CONSOLIDATED ORDER SUPRA AS PLACED ON RECORD BY THE LD.AR, THE TRIBUNAL DECIDED THE ISSUE THEREIN IS SIMILAR TO THE ISSUE O N HAND COVERING THE GROUNDS AS RAISED IN GROUND NOS. 2(A) (B)&(C) AND THE RELE VANT PORTION OF WHICH IS REPRODUCED HEREIN BELOW: 7.THE ISSUE RAISED IN GROUND NO. 2 RELATES TO THE DIS ALLOWANCE OF RS.17.65 CRORES MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF PROVISION MADE BY THE ASS ESSEE FOR WARRANTY. 8. THE BATTERIES MANUFACTURED AND SOLD BY THE ASSE SSEE THROUGH ITS DEALERS CARRY CERTAIN GUARANTEED LIFE AND IN CASE OF ANY FAILURE DURING SUCH GUARANTEED PERIOD, THE BATTERIES ARE REPLACED FREE OF COST. KEEPING IN VIEW THE PERIOD OF GUARANTEE/WARRANTY AND BASED ON THE PA ST EXPERIENCE, A PROVISION FOR WARRANTY OF RS.17.65 CRORES WAS MADE BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. IT WAS CLAIMED THAT T HE SAID PROVISION WAS MADE AS PER THE ACCOUNTING STANDARD AS-29 PRESCRIBE D BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE ASSESSING OFFICER , HOWEVER, REJECTED THIS CLAIM OF THE ASSESSEE-COMPANY ON THE GROUND THAT A PROVISION MADE FOR WARRANTY BEING A NOTIONAL AND CONTINGENT LIABILIT Y WAS NOT ALLOWABLE AS PER THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY TH E ASSESSEE. ON APPEAL, THE LD. CIT(APPEALS) UPHELD THE ORDER OF TH E ASSESSING OFFICER ON THIS ISSUE BY OBSERVING THAT THE PROVISION FOR WARRA NTY BEING IN THE NATURE OF AN UNCERTAIN LIABILITY WAS RIGHTLY DISALLOWED BY T HE ASSESSING OFFICER. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY S UBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THIS ISSUE IS COVERED IN PR INCIPLE IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (PVT.) LIMITED VS.- CIT REPORTE D IN 314 ITR 62, 5 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED WHEREIN THE HONBLE APEX COURT HAS HELD THAT THE PR OVISION OF WARRANTY IS ALLOWABLE AS DEDUCTION IF THE FOLLOWING CONDITIONS ARE SATISFIED:- (I) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF PA ST EVENTS; (II) IT IS PROBABLE THAT AN OUT-FLOW OF RESOURCES WILL BE REQUIR ED TO SETTLE THE OBLIGATION; (III) A RELIABLE ESTIMATE BASED ON HISTO RICAL TREND CAN BE MADE ON ACCOUNT OF OBLIGATION ON THE BASIS OF HISTORICAL TRE ND. 10. THE LD. D.R. HAS NOT RAISED ANY CONTENTION TO D ISPUTE THE PROPOSITION PROPOUNDED BY THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (PVT.) LIMITED (SUPRA) ON THIS ISSUE. HE, HOWEV ER, HAS CONTENDED THAT THE ISSUE AS TO WHETHER THE ASSESSEE IN THE PR ESENT CASE HAS SATISFIED THE CONDITIONS LAID DOWN BY THE HONBLE SUPREME COURT F OR ALLOWING DEDUCTION ON ACCOUNT OF PROVISION FOR WARRANTY REQU IRES VERIFICATION AND SINCE THE SAME HAS NOT BEEN DONE EITHER BY THE ASSESS ING OFFICER OR BY THE LD. CIT(APPEALS), THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF SUCH VERI FICATION. WE FIND MERIT IN THIS CONTENTION OF THE LD. D.R. AND SINCE TH E LD. COUNSEL FOR THE ASSESSEE HAS ALSO NOT RAISED ANY OBJECTION IN THIS RE GARD, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIR ECTION TO DECIDE THE SAME IN THE LIGHT OF THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF ROTORK CONTROLS INDIA (PVT.) LIMITED. GROUND NO 2 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. IN VIEW OF THE OBSERVATIONS AND CONDITIONS LAID DOWN THEREIN BY THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROL S INDIA (PVT.) LIMITED, WE RESTORE THE ISSUE TO THE FILE AO FOR VERIFICATION O F PROVISION OF WARRANTY,THUS, GROUND NOS 2(A) (B) & (C) ARE ALLOWED FOR STATISTI CAL PURPOSES. 10. GROUND NOS-3(A), (B),(C) & (D) RAISED QUESTION ING THE DISALLOWANCE OF RS.12,18,60,300/- MADE BY THE AO TOWARDS THE EXPEND ITURE INCURRED IN EARNING THE DIVIDEND INCOME OF RS.63,18,822/-AND AP PLICABILITY OF RULE 8D. 11. BRIEF FACTS RELATING TO THE ISSUE ARE THAT, THE ASSESSEE EARNED DIVIDEND TO AN EXTENT OF RS.63,18,822/- FROM MUTUAL FUNDS AND S HARES AND CLAIMED AS AN EXEMPT INCOME AND OFFERED RS.1,86,487/-AS DISALLOWA NCE ON ITS OWN BEING A PROPORTIONATE EXPENSES FOR EARNING SAID EXEMPT INCO ME AND THE ASSESSEE ATTRIBUTED SUCH DISALLOWANCE TO 20% OF TOTAL MAN HO URS OF TREASURY 6 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED DEPARTMENT. THE AO WAS OF THE OPINION WHY INTEREST AND FINANCE COSTS AS FOUND BY HIM DEBITED AT RS.38,17,24,153/- TO P&L AC COUNT SHOULD NOT BE DISALLOWED. THE ASSESSEE EXPLAINED THAT ALL THE INV ESTMENTS MADE FROM INTEREST-FREE OWN FUNDS AND FURTHER SUBMITTED THAT IT HAS NET CASH INFLOW FROM OPERATIONS AT RS.180.45 CRORES, NET PROCEEDS FROM R IGHTS ISSUE AT RS.114.45 CRORES, BESIDES FREE RESERVES GENERATED IN THE PREV IOUS YEARS ARE SUFFICIENT TO MAKE INVESTMENTS ON ITS OWN. THE ASSESSEE ALSO FURN ISHED STATEMENT SHOWING FREE RESERVE OF RS.253.98 CRORES AS ON 01-04-2007 W ERE AVAILABLE FOR MAKING INVESTMENTS. THE ASSESSEE ALSO FILED ESTIMATED WORK ING OF DISALLOWANCE UNDER SECTION 14A FOR RS.7,99,610/- THROUGH ITS LETTER DA TED 08-12-2011 AND CLAIMED THAT IT HAD EARNED DIVIDEND OF RS.70.52 LAKS AND RS .45.11 LAKS FROM TRADE INVESTMENTS AND NON-TRADE INVESTMENTS RESPECTIVELY. 12. CONSIDERING THE SUBMISSIONS ABOVE, THE AO WAS O F THE OPINION THAT THE ASSESSEE COULD NOT PROVIDE ONE TO ONE NEXUS IN SHOW ING THAT THE BORROWED FUND NOT BEEN DIVERTED TO INVESTMENTS AND BY PROVID ING CUMULATIVE FIGURES OF BALANCE SHEET OR THE GROSS EARNINGS OF THE YEAR DOE S NOT ESTABLISH THAT BORROWED FUND HAS NOT BEEN USED FOR MAKING INVESTME NT. THE AO FURTHER FOUND THAT THE ASSESSEE DID NOT ALLOCATE THAT THE ADMINIS TRATIVE AND MISCELLANEOUS CHARGES AND DIRECT AND INDIRECT EXPENSES PROPERLY A ND PROCEEDED TO APPLY RULE 8D(2)(II) AND (III). ACCORDINGLY, THE AO COMPUTED T HE EXPENDITURE OF RS.1,86,487/-, RS.9,92,67,063/- AND RS. 2,24,06,750 /- U/R 8D(2)(I),(II) AND (III) RESPECTIVELY AND DISALLOWED AN AMOUNT OF RS.1 2,18,60,300/-FOR THE PURPOSE OF SECTION 14A OF THE ACT AND ADDED SAME T O THE TOTAL INCOME OF THE ASSESSEE. 13. IN FIRST APPEAL, THE ASSESSE SUBMITTED DETAILS OF INTEREST PAID ON TERM LOANS, WORKING CAPITAL AND FUND MOBILIZATION EXPENS ES IN A TABULAR FORM, WHEREIN THE ASSESSE ADMITS THAT RS.16.05 CRORES WHE RE IT COULD NOT BE ABLE TO 7 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED SPECIFICALLY SHOW THAT SUCH SUM UTILIZED FOR BUSINE SS PURPOSE OUT OF RS.38,17,24,153/- AND IN VIEW OF THE ORDER OF KOLK ATA TRIBUNAL URGED TO RESTRICT THE DISALLOWANCE TO RS.6,16,37,232/-. THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELOW:- 6.2 DURING THE COURSE OF APPEAL, THE APPELLANT HAS M ADE THE FOLLOWING SUBMISSIONS:- ..IN LIGHT OF THE ABOVE THE ASSESSEE HUMBLY SUBMI TS THE FOLLOWING:- THE DETAILS OF INTEREST SHOWN IN THE ANNUAL REPORT AND CONSIDERED BY THE AO IS RS.38,17,24,153/- FOR THE PURPOSE OF COMPUTING RULE 8D(II). DETAILS AMOUNT (RS.) NATURE OF INTEREST PAGE REFER E XTRACT OF LEDGER INTEREST ON TERM LOANS 16,05,61,945 AGAINST LONG TERM LOAN FROM CITIBANK HSBC- UTILIZATION IN EARLIER YEARS AND CANNOT BE EASILY SPECIFIED LEDGER PAGES 1 - 2 INTEREST ON OTHERS (WORKING CAPITAL BORROWINGS) 22,03,66,763 INTEREST ON THE FOLLOWING: 1. BUYERS CREDIT 2. PACKING CREDIT AND PRESHIPMENT CREDIT 3. BILL DISCOUNTING 4. CHANNEL FINANCING (MATERIALS) 5.INTEREST ON LC & MATERIAL PURCHASES. 6.GAIN/LOSS ON INTEREST/LOAN 7.FOREIGN CURRENCY AND WORKING CAPITAL DEMAND LOAN-SHORT TERM FINANCING OF EXPENSES OR SHORTAGE OF RECOVERY FUND MOBILISATION EXPENSE 7,95,405 BANK CHARGES FOR ARRANGING SHORT TERM FINANCING 38,17,24,153 ON A PERUSAL OF THE ABOVE TABLE AND THE LEDGER ACCOU NTS OF THE INTEREST YOUR KINDSELF WOULD OBSERVE THAT RS.16.05 CRORES ARE THE ONLY AMOUNTS WHICH CANNOT BE 8 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED SPECIFICALLY STATED TO BE USED FOR BUSINESS PURPOSE. THE REST INTEREST CLEARLY SHOWS THAT THE AMOUNT OF INTEREST IS ARISING FROM VARIOUS BORROWINGS WHICH ARE LINKED TO NORMAL PURCHASE AND SALE OF GOODS AND OTHER ROUTINE SE RVICES AND EXPENSES LIKE SALARY, WAGES AND OTHER EXPENSES, THE REVENUE PROCE EDS OF WHICH ARE DIRECTLY LINKED TO TAXABLE INCOME NAMELY SALES. THEREFORE IN VIEW OF THE ABOVE AND IN LIGHT OF THE DEC ISION OF THE HONBLE KOLKATA TRIBUNAL, WE HAVE COMPUTED THE DISALLOWANCE UNDER RUL E 8D TO THE FOLLOWING EXTENT:- EXPENDITURE DURING RELATING TO INCOME WHICH DOES NOT FORM A PART OF THE TOTAL INCOME IDENTIFIED BY ASSESSEE IN TAX AUDIT REPORT AND DULY APPROVED BY AO UNDER RULE 8D(I) 1,86,487 IN CASE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME UNDER RULE 8D(II) THE AO CONSIDERED RS.38.17 CRORES. OF WHICH RS.22.04 CRORES AND RS.0.07 CRORES CAN BE IDENTIFIED TO BE DIRECTLY LINKED WITH REGULAR BUSINESS NEEDS AND GENERATING TAXABLE INCOME. HENCE, INTEREST CAN BE APPORTIONED TO: 16,05,61,945 X 429.21/ 1723.27 3,99,90,245 AMOUNT EQUAL TO % OF AVG. INVESTMENT % X 429.21 UNDER RULE 8D(III) 2,1 4,60,500 TOTAL 6,16,37,232 AVERAGE OF TOTAL VALUE OF INVESTMENTS, INCOME FROM W HICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME:- RS. IN CRORES 31.3.2007 31.3.2008 TOTAL INVESTMENTS 378.00 518.27 LESS: INVESTMENT IN FOREIGN COMPANIES WHOSE DIVIDENDS ARE TAXABLE CHLORIDE BATTERIES SE ASIA PTE LTD 10.35 10.35 EXPEX BATTERIES LTD 0.77 0. 77 ASSOCIATED BATTERY MFG (CEYLON) 7.30 7.30 CELL MOTIVE POWER PTY - 1.02 INVESTMENTS WHICH WOULD YIELD TAX FREE INCOME 359.58 498.83 9 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED AVERAGE ==={359.58 + 498.83}/2=429.21 OUR HUMBLE REQUEST YOUR KINDSELF WOULD BE TO APPROVE A BOVE IN PRINCIPLE AND RESTRICT THE DISALLOWANCE TO RS.6.16 CRORES. 14. THE CIT-A DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE, BUT HOWEVER, TAKING INTO CONSIDERATION OF FOREIGN INVES TMENTS TO AN EXTENT OF RS.19.44 CRORES AND RS.18.44 CRORES AS STANDING ON 31-03-2008 AND 31-03- 2007 RESPECTIVELY AND DIRECTED THE AO TO RESTRICT T HE AVERAGE VALUE OF INVESTMENTS TO RS.429.21 CRORES INSTEAD OF RS.448.1 35 CRORES AS COMPUTED BY THE AO. 15. THE ASSESSEE BEFORE THIS TRIBUNAL QUESTIONED TH E ORDER OF CIT-A. THE LD.AR SUBMITS THAT THE DISALLOWANCE MAY BE RESTRICT ED TO DISALLOWANCE AS MADE BY THE ASSESSEE BEFORE THE CIT-A AND REFERRED PARA 4.4.1 AT PAGE 27 OF WRITTEN SUBMISSION AND ARGUED THAT THE ASSESSEE HAS SURPLUS RESERVES AT RS.253.98 CRORES AS ON 1.4.2007 AS COMPARED TO INVESTMENT AT RS.140.26 CRORES DURING THE YEAR. THE LD. DR RELIED ON THE ORDER OF THE AO. 16. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THE LOANS AVAILED BY THE ASSESSEE OF RS.324.70 CRORES AS ON 31-03-2007 AND R S.349.81 CRORES AS ON 31-03-2008 FROM THE BALANCE SHEET, ACCORDING TO HIM THAT THERE IS A INCREASE TO AN EXTENT OF RS.25.11 CRORES. THE AO FURTHER FOU ND THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.38,17,24,153/- FROM THE PRO FIT AND LOSS ACCOUNT TOWARDS PAYMENT OF INTEREST. IT WAS ALSO OBSERVED B Y THE AO THE INVESTMENTS MADE BY THE ASSESSEE IN VARIOUS COMPANIES INCREASED TO AN EXTENT OF RS.140.27 CRORES AS COMPARED TO 31-03-2007. THE AO DISALLOWED THE AMOUNT AS COMPUTED BY APPLYING RULE 8D(2)(I),(II) AND (III ) OF RS.12,18,60,300/- ONLY ON THE GROUND THAT THE ASSESSEE COULD NOT PROVIDE O NE TO ONE NEXUS IN SHOWING 10 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED THAT THE BORROWED FUND NOT BEEN DIVERTED TO INVESTM ENTS. WE FIND FROM THE ORDER OF CIT-A, THAT THE ASSESSEE SUBMITTED DETAILS OF INTEREST SHOWN IN ANNUAL REPORT BY WAY OF TABULAR FORM WHEREIN THE ASSESSE A DMITTED THAT IT COULD NOT ABLE TO SHOW AN AMOUNT OF RS.16,05,61,945/- HAS ONE TO ONE NEXUS WITH THE BUSINESS PURPOSE AND ASSESSEE ITSELF RECOMPUTED THE DISALLOWANCE U/RULE 8D(2)(I),(II) AND (III) TO AN EXTENT OF RS.6,16,37, 232/- AND URGED THEREIN TO RESTRICT THE SAME TO THAT EXTENT.THE CASE OF THE AO THAT THE ASSESSEE COULD NOT EXPLAIN AND PRODUCE ANYTHING DURING THE COURSE OF A SSESSMENT PROCEEDINGS SHOWING ONE TO ONE NEXUS DATE WISE INVESTMENTS AND SOURCE OF FUND THEREON AND IN VIEW OF THE TABULAR FORMS AS SUBMITTED BY TH E ASSESSEE AND DISCUSSED BY THE CIT-A AS THE SAME WERE NOT IN THE FILE OF AO AND IT IS APPROPRIATE, IN OUR VIEW, TO REMAND THE ISSUE TO THE FILE OF AO FOR VER IFICATION OF DETAILS OF PAYMENT OF INTEREST AS SHOWN IN THE ANNUAL REPORT AS DISCUS SED IN PARA-6.2 OF IMPUGNED ORDER AND TO PASS ORDER BY TAKING INTO CONSIDERATIO N OF THE SAME. ACCORDINGLY, GROUNDS AND ADDITIONAL GROUNDS RAISED THEREWITH ARE ALLOWED FOR STATISTICAL PURPOSES. 17. GROUND NO-4 IS ABOUT QUESTIONING THE DISALLOWAN CE OF RS.1,36,32,019/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT -A ON ACCOUNT OF PAYMENTS MADE BY THE ASSESSEE TO VARIOUS VENDORS ON ACCOUNT OF SOFTWARE REPAIRS AND MAINTENANCE EXPENSES. 18. DURING THE COURSE OF HEARING BEFORE US, THE LD. AR SUBMITS THAT THE ISSUE SQUARELY COVERED BY THE CONSOLIDATED ORDER DT:20-01 -16 OF COORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y 2003-04 & 2004-05 IN IT A 189/KOL/2007 AND ITA 1414/KOL/2007 RESPECTIVELY. THE LD. DR RELIED ON TH E ORDERS OF CIT-A AND AO. 11 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED 19. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD. WE FIND THAT THE CONSOLIDATED ORDER SUPRA AS PLACED ON RECORD BY THE LD.AR, THE TRIBUNAL DECIDED THE ISSUE THEREIN IS SIMILAR TO THE ISSUE O N HAND COVERING THE GROUND AS RAISED IN GROUND NO-4 AND THE RELEVANT PORTION OF W HICH IS REPRODUCED HEREIN BELOW: 21. GROUNDS NOS. 5(C) & 6 INVOLVE THE ISSUE RELATING TO THE DISALLOWANCE OF RS.69.21 LAKHS AND RS.2.05 CRORES MADE BY THE ASSESS ING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF PAYME NT MADE BY THE ASSESSEE TO SONATA INFORMATION TECHNOLOGY AND ON ACCOU NT OF ERP EXPENSES RESPECTIVELY. 22. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD INCURRED EXPENDITURE OF RS.2.05 CRORES FOR UPGRADATION OF ERP . A SUM OF RS.69.21 LAKHS WAS ALSO PAID BY THE ASSESSEE TO M/S. SONATA INFORMATION TECHNOLOGY FOR SOFTWARE AND HARDWARE SUPPORT AS WELL AS CONSULTANCY SERVICES IN CONNECTION WITH THE IMPLEMENTATION OF T HE UPGRADED ERP. THIS ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE FOR UPGR ADATION OF ERP AS WELL AS IMPLEMENTATION THEREOF WAS CLAIMED AS DEDUCTION BEING REVENUE IN NATURE. THE ASSESSING OFFICER AS WELL AS THE LD. CI T(APPEALS), HOWEVER, TREATED THE SAME AS CAPITAL IN NATURE ON THE GROUND THAT THE SAME RESULTED IN THE ENDURING BENEFIT TO THE ASSESSEE AN D ACCORDINGLY ALLOWED ONLY DEPRECIATION THEREON. 23. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D 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 UPGR ADATION OF ERP AS WELL AS IMPLEMENTATION THEREON. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THE EXPENSES INCURRED ON UPGRADATION OF ERP HAS ALREADY BEEN HELD AS REVENUE EXPENDITURE ALLOWABLE AS DEDUCT ION IN THE VARIOUS DECISIONS RENDERED BY THE HONBLE HIGH COURTS AS WEL L AS THE DIFFERENT BENCHES OF THIS TRIBUNAL. IN ONE OF SUCH DECISIONS RE NDERED IN THE CASE OF CIT VS.- AMWAY INDIA ENTERPRISES, THIS ISSUE HAS B EEN ELABORATELY DEALT WITH BY THE SPECIAL BENCH OF THIS TRIBUNAL AND AFTER DISCUSSING ALL THE RELEVANT ASPECTS, IT IS HELD THAT EXPENDITURE INCUR RED ON UPGRADATION OF ERP MODULE WOULD BE ALLOWABLE AS DEDUCTION BEING REVE NUE IN NATURE. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. HAS CONTE NDED THAT THE UPGRADATION OF ERP IS NOTHING BUT REPLACEMENT OF ERP PACKAGE AS THE EARLIER VERSION OF ERP BECOMES COMPLETELY USELESS AFTE R UPGRADATION. WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE LD. D.R . IN OUR OPINION, THERE IS A DIFFERENCE BETWEEN UPGRADATION OF ERP SOFT WARE AND PURCHASE OF ERP SOFTWARE, INASMUCH AS THE BENEFIT OF UPGRADATI ON IS ONLY INCREMENTAL, WHICH IS TO THE EXTENT OF ADDITIONAL FE ATURES PROVIDED IN THE NEW VERSION, WHILE THE SAME IN THE CASE OF ACQUISIT ION OF NEW ERP PACKAGE 12 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED IS FULL AND COMPLETELY NEW. EVEN THIS BENEFIT IS REF LECTED IN THE PRICE CHARGE, INASMUCH AS THE PRICE CHARGED FOR UPGRADATI ON IS ONLY MARGINAL EQUIVALENT TO THE INCREMENTAL BENEFIT AVAILABLE IN THE NEW VERSION WHILE IT IS FULL IN CASE OF ACQUISITION OF NEW ERP PACKAGE. TH E UPGRADATION OF ERP, IN OUR OPINION, THEREFORE, CANNOT BE EQUATED WITH REP LACEMENT AS CONTENDED BY THE LD. D.R. AND THE ADVANTAGE BEING O NLY INCREMENTAL TO THE EXTENT OF THE ADDITIONAL FEATURES IN THE NEW VE RSION, THE SAME CANNOT BE TREATED AS THE REPLACEMENT OF THE ENTIRE ERP PACK AGE SO AS TO TREAT THE EXPENDITURE INCURRED ON UPGRADATION AS CAPITAL EXPEND ITURE. MOREOVER, THE USE OF ANY ERP PACKAGE IN THE CASE OF MANUFACTURER LI KE THE ASSESESE- COMPANY IS GENERALLY FOR COORDINATING AND RATIONALIZIN G ITS FUNCTIONS AND BUSINESS PROCESS IN ORDER TO ENSURE THAT THE BUSINES S IS CARRIED ON MORE EFFICIENTLY AND EFFECTIVELY AND BY APPLYING THE FUN CTIONAL TEST, THE EXPENDITURE INCURRED ON ERP PACKAGE, 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 THE CAPITAL FIELD. W E, THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXPENDITURE INCURRED ON UPGRADATION OF ERP A ND IMPLEMENTATION THEREOF TREATING THE SAME AS REVENUE IN NATURE. 20. IN THE PRESENT ISSUE, THE ASSESSEE INCURRED EXP ENDITURE OF RS.3,40,80,049/- FOR ROUTINE MAINTENANCE AND FOR PR OCURING LICENSE FOR SAP AND M.S. OFFICE. ACCORDINGLY THE ASSESSEE PAID TO M ANY VENDORS I.E SAP INDIA, ERP, TATA TECHNOLOGIES, ONE APPS, ORACLE, WIPRO,ETV L AND M/S. SONATA INFORMATION TECHNOLOGY FOR SOFTWARE AND CONSULTANCY SERVICES. THE ASSESSEE CLAIMED SAID EXPENDITURE AS DEDUCTION BY TREATING T HE SAME AS REVENUE IN NATURE. ACCORDING TO AO, AS THE NEW SOFTWARE INSTAL LED IMPROVES THE EFFICIENCY OF THE COMPUTERS AND IT IS A CAPITAL EXPENDITURE. T HE CIT-A CONFIRMED THE SAID FINDING. TAKING INTO CONSIDERATION, THE FINDING OF THE COORDINATE BENCH SUPRA, WE ARE OF THE VIEW, THE EXPENDITURE INCURRED TOWARD S FOR ROUTINE MAINTENANCE AND FOR PROCURING LICENSE OF SOFTWARE CANNOT BE TRE ATED AS CAPITAL IN NATURE AS IT WOULD NOT CREATE A NEW ASSET AND ACCORDINGLY, WE HOLD THE ASSESSE IS ENTITLED TO CLAIM SUCH EXPENDITURE AS REVENUE IN NATURE. THU S, GROUND NO-4 IS ALLOWED. 13 ITA NO. 712/KOL/2013 EXIDE INDUSTRIES LIMITED 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCTOBER, 2016. SD/- SD/- M.BALAGANESH S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DT: 19 -10-2016 COPIES OF THE ORDER FORWARDED TO : (1) EXIDE INDUSTRIES LIMITED, 59E, CHOWRINGHEE ROAD , KOLKATA-700 020 (2) ADDITIONAL /DEPUTY COMMISSIONER OF INCOME TAX, RANGE-I, KOLKATA, AAYAKARBHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOLKATA (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE **PP/SPS BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL KOLKATA