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2016 (10) TMI 926 - ITAT KOLKATA

2016 (10) TMI 926 - ITAT KOLKATA - TMI - Allowability of expenditure for routine maintenance and for procuring license for SAP and M.S. Office - revenue v/s capital expenditure - Held that:- The expenditure incurred towards for routine maintenance and for procuring license of software cannot be treated as capital in nature as it would not create a new asset and accordingly, we hold the assessee is entitled to claim such expenditure as revenue in nature. - I.T.A. No. 712/KOL/ 2013 - Dated:- 19-10 .....

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ssee for leave encashment made by the Assessing Officer by invoking the provision under section 43B(f) of the Act and confirmed by the CIT-(Appeals). 3. During the course of hearing before us, the Ld.AR submits that the issue squarely covered by the consolidated order of Coordinate Bench in Assessee s own case for A.Y 2003-04 & 2004-05 in ITA 189/Kol/2007 and ITA 1414/Kol/2007 respectively. The Ld. DR relied on the orders of CIT-A and AO. 4. Heard rival submissions and perused the material o .....

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ssee-Company during the year under consideration had made a provision of ₹ 1.51 crores for leave encashment on the basis of an acturial valuation and the same was claimed as deduction by relying on the decision of the Hon ble Calcutta High Court in assesese s own case reported in 292 ITR 470 and the decision of the Hon ble Supreme Court in the case of Bharat Earth Movers reported in 245 ITR 428. The Assessing Officer, however, disallowed the claim of the assessee for provision of leave enc .....

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ing that the introduction of Clause (f) to Section 43B is ultra virus of the Act in the absence of disclosure of the objects and being inconsistent with the basic intent of Section 43B. Thereafter the Department filed the SLP against the decision of the Hon ble Calcutta High Court and while admitting the same, the Hon ble Supreme Court vide its judgment dated 08.09.2008 stayed the judgment of the Hon ble Calcutta High Court until further orders. 27. At the time of hearing before us, the ld. Coun .....

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il further orders and there being another Interim Order passed by the Hon ble Supreme Court on 08.05.2009, the stay granted earlier stands automatically vacated. A copy of the said interim order dated 08.05.2009 is placed on record before us, the contents of which are extracted below:- Pending hearing and final disposal of the Civil Appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as .....

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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 view all these developments, the Coordinate Bench of this Tribunal in 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 file of the Assessing Officer with a direction to .....

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be passed in Civil Appeal filed by the Revenue. Ground no s 1(a) & (b) are allowed for statistical purposes. 6. Regarding ground no s-2(a), (b) & (c) are similar questioning the disallowance of ₹ 9,97,00,000/- made by the Assessing Officer and confirmed by the CIT-Appeals on account of provision made by the assessee for warranty. 7. 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 .....

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ue raised in Ground No. 2 relates to the disallowance of ₹ 17.65 crores made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of provision made by the assessee for warranty. 8. The Batteries manufactured and sold by the assessee 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 past experience, a provis .....

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. On appeal, the ld. CIT(Appeals) upheld the order of the Assessing Officer on this issue by observing that the provision for warranty being in the nature of an uncertain liability was rightly disallowed by the Assessing Officer. 9. We have heard the arguments of both the sides and also perused the relevant material available on record. As rightly submitted by the ld. Counsel for the assessee, this issue is covered in principle in favour of the assessee by the decision of the Hon ble Supreme Cou .....

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istorical trend. 10. The ld. D.R. has not raised any contention to dispute the proposition propounded by the Hon ble Supreme Court in the case of Rotork Controls India (Pvt.) Limited (supra) on this issue. He, however, has contended that the issue as to whether the assessee in the present case has satisfied the conditions laid down by the Hon ble Supreme Court for allowing deduction on account of provision for warranty requires verification and since the same has not been done either by the Asse .....

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Ground No 2 is accordingly treated as allowed for statistical purposes. 9. In view of the observations and conditions laid down therein by the Hon ble Supreme Court in the case of Rotork Controls India (Pvt.) Limited, we restore the issue to the file AO for verification of provision of warranty,thus, ground no s 2(a) (b) & (c) are allowed for statistical purposes. 10. Ground no s-3(a), (b),(c) & (d) raised questioning the disallowance of ₹ 12,18,60,300/- made by the AO towards the .....

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was of the opinion why interest and finance costs as found by him debited at ₹ 38,17,24,153/- to P&L account should not be disallowed. The assessee explained that all the investments made from interest-free own funds and further submitted that it has net cash inflow from operations at ₹ 180.45 crores, net proceeds from rights issue at ₹ 114.45 crores, besides free reserves generated in the previous years are sufficient to make investments on its own. The assessee also furni .....

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one to one nexus in showing that the borrowed fund not been diverted to investments and by providing cumulative figures of balance sheet or the gross earnings of the year does not establish that borrowed fund has not been used for making investment. The AO further found that the assessee did not allocate that the administrative and miscellaneous charges and direct and indirect expenses properly and proceeded to apply Rule 8D(2)(ii) and (iii). Accordingly, the AO computed the expenditure of S .....

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hat such sum utilized for business purpose out of ₹ 38,17,24,153/- and in view of the order of Kolkata Tribunal urged to restrict the disallowance to ₹ 6,16,37,232/-. The relevant portion of which is reproduced herein below:- 6.2 During the course of appeal, the appellant has made the following submissions:- …..In light of the above the assessee humbly submits the following:- The details of Interest shown in the Annual Report and considered by the AO is ₹ 38,17,24,153/- .....

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hases. 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 accounts of the interest your kindself would observe that ₹ 16.05 crores are the only amounts which cannot be specifically stated to be used for business purpose. The rest interest clearly shows that the amo .....

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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 ₹ 38.17 crores. Of which ₹ 22.04 crores and ₹ 0.07 crores can be identified to be directly linked with regular business needs and generating taxable income. Hence, Interest can be appor .....

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ry Mfg (Ceylon) 7.30 7.30 CELL Motive Power Pty - 1.02 Investments which would yield Tax free income 359.58 498.83 Exide Industries Limited Average ==={359.58 + 498.83}/2=429.21 Our humble request your kindself would be to approve above in principle and restrict the disallowance to ₹ 6.16 crores. 14. The CIT-A did not agree with the submissions of the Assessee, but however, taking into consideration of foreign investments to an extent of ₹ 19.44 crores and ₹ 18.44 crores as sta .....

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3.98 crores as on 1.4.2007 as compared to investment at ₹ 140.26 crores during the year. The Ld. DR relied on the order of the AO. 16. Heard rival submissions and perused the material on record.During the course of assessment proceedings, the AO found the loans availed by the assessee of ₹ 324.70 crores as on 31-03-2007 and ₹ 349.81 crores as on 31-03-2008 from the balance sheet, according to him that there is a increase to an extent of ₹ 25.11 crores. The AO further foun .....

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und not been diverted to investments. 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 admitted that it could not able to show an amount of ₹ 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 ₹ 6,16,37,232/- and urged therein to restrict the same to that extent.The case of the AO th .....

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nd to pass order by taking into consideration of the same. Accordingly, grounds and additional grounds raised therewith are allowed for statistical purposes. 17. Ground no-4 is about questioning the disallowance of ₹ 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 .....

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rtion of which is reproduced herein below: 21. Grounds Nos. 5(c) & 6 involve the issue relating to the disallowance of ₹ 69.21 lakhs and ₹ 2.05 crores made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of payment made by the assessee to Sonata Information Technology and on account of ERP expenses respectively. 22. During the year under consideration, the assessee had incurred expenditure of ₹ 2.05 crores for upgradation of ERP. A sum of ₹ 6 .....

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n the enduring benefit to the assessee and accordingly allowed only depreciation thereon. 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 the assessee in the earlier years and the expenditure incurred thereon in the earlier years was finally treated as capital in nature. During the year under consideration, the said ERP package was upgraded by the asse .....

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ssue 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 ERP module would be allowable as deduction being revenue in nature. At the time of hearing before us, the ld. D.R. has contended that the upgradation of ERP is nothing but replacement of ERP package as the earlier version of ERP becomes completely useless after upgradation. We are unable to agree with the contention of th .....

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e in the new version while it is full in case of acquisition of new ERP package. The upgradation of ERP, in our opinion, therefore, cannot be equated with replacement as contended by the ld. D.R. and the advantage being only incremental to the extent of the additional features in the new version, the same cannot be treated as the replacement 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 .....

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