D.C.I.T CIR - 1,KOLKATA, KOLKATA vs. M/S M/S EXIDE INDUSTRIES LIMITED, KOLKATA

SHRI M.BALAGANESH, AM

This appeal of the revenue arises out of the order 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 2008-09 framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

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3.1 The facts of the case as observed by the Assessing Officer are that on examination of valuation of inventory as on 31/03/2008, it was found that Excise duty of Rs.22,89,25,889/ - and Rs. 7,81,57, 748/ - respectively have been included on Branch Stock and Factory Stock. In respect of factory 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 have 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 has also been discussed that addition was made on this issue in A. Y. 2004-05 which was deleted by the CIT(A) and Tribunal. ·But the department has filed an appeal before the Hon'ble High Court of Calcutta which is pending: It has also been mentioned 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 105/ CIT(A)- XIII/ Circle-I/ 08-09 respectively. 3.3 As discussed in the aforesaid paragraphs, the issue has not reached finality so far and the Appeal for A. Y. 2004-05 filed by the Department is still pending before Hon'ble Calcutta High Court. On independent examination 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 valuation of inventory has to be adjusted to include the amount of any tax, duty, actually paid or incurred by the assessee to bring the goods' to the place of its locations 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 at the year-end in the valuation of Factory Stock. The provisions of S.43B which provides 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 due 'date of filing-return .

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3.4 The assessee in its computation- has. suo-motto added Excise Duty of Rs.27, 76,30,829/ - which represents Excise Duty liability on Closing Stock as on 31.03.2007. The assessee has added back the aforesaid sum since it was claimed by the assessee in Assessment Year 2007-08. However, the department 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 not accepted, In other words, the Excise Duty on Opening Stock of finished goods for A. Y. 2008-09 amounting to Rs.27, 76,30,829/ - which has been suo-motto offered by the assessee company in the return, filed for the A. Y. 2008-09 is being allowed as deduction while computing the total income of the assessee company for A. Y. 2008-09 for 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 amount to double addition and hence the net disallowance comes to Rs.30,70,83,637/- minus Rs.27,76,30,829/- = Rs.2,94,52,808/-.

(a) goods which are dispatched to branches/godoums/warehouses [referred to as DEPOT STOCK] and

(b) lying in factory. premises not dispatched [referred to as FACTORY STOCK]. ) However, it may be noted that since the excise duty 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 same to tax, the Assessing Officer has

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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 assessee submitted that the issue in hand, being a settled principle of law, the Assessing Officer may be directed to allow the deduction on closing stock of finished goods for the 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 assessee by the orders of this tribunal for Asst Years 2002-03 , 2003-04 and 2004-05. Aggrieved, 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 amounting to Rs. 2,94,52,808/-

3.2. The Learned AR stated that against the tribunal order passed for Asst Year 2006- 07 in ITA No. 1640/Kol/2012 dated 19.4.2013 in favour of the assessee, the revenue preferred further appeal before the Hon’ble Calcutta High Court. He stated that this appeal has been dismissed by the High Court in GA 3187 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 covered by the decision of Hon’ble Calcutta High Court in assessee’s 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 fairly 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 itself. In that view of the matter, there is nothing for us to examine.

The appeal is thus dismissed.

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Respectfully following the aforesaid judicial precedent, we dismiss ground no.1 raised by the revenue.

4.1. The brief facts of this issue is that the assessee had submarine battery manufacturing facility in 2 plants namely Taloja and Kanjurmarg. The assessee company decided to close down the Submarine manufacturing facility at Kanjurmarg and reinstall some of the equipments used in this facility to the existing Submarine manufacturing facility at Taloja so that these machines can be used effectively and efficiently. The shifting expenses , comprising of 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 enhance 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 appeal 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 been decided in favour of the assessee by the Special Bench of Kolkata Tribunal in the case of JCIT 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:-

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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 set up any new factory in replacement of an existing one. It is a case where certain machineries have been shifted from an existing factory to another existing factory when the former had been closed down. In order to achieve a synergy of production line, certain assets were dismantled and transferred to an existing plant. Therefore the shifting had not been done to increase the profit earning capacity of the assessee or an enduring benefit of the asset as such. We find that this aspect is considered by the Hon’ble Apex Court in the case of Empire Jute Company Ltd vs CIT reported in 124 ITR 1 (SC) , where the Hon’ble 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. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle of the said test. If the advantage obtained by the assessee consists merely in facilitating its trading operations or enabling the management and conduct of its business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though 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 :-

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“44. Coming to the disallowance of expenditure of Rs.55,00,000 for re- installation of a loga machine, we find that such re-installation expenditures were incurred in connection with shifting of machinery from Saharanpur and installing the same at Bangalore unit of the assessee. The Assessing officer has disallowed such shifting and re-installation expenses of such machinery treating the same as capital expenditure and by relying on the decision of the Hon’ble Supreme Court in the case of Sitalpur Sugar Works Ltd (supra). However, the ratio of decision of the Hon’ble Supreme Court in the case of Sitalpur Sugar Works Ltd (supra) are not applicable to the facts of the present case as in the case of Sitalpur Sugar Works Ltd, the expenditures were incurred for shifting of entire factory. Whereas in the present case, the machinery from Saharanpur have been shifted to Bangalore unit and substituting is made for efficient 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 into any addition in the assets of the assessee-company and, therefore, in our considered opinion, such expenditure cannot be treated as capital expenditure and in these circumstances, the ld.CIT(A) has rightly deleted the 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 precedent, we dismiss ground no.2 raised by the revenue.

5.1. The brief facts of this issue is that the assessee 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 licence ; (b) to obtain routine maintenance and support services ; (c ) AMC which are outsourced to the software consultancy firms ; (d) routine upgradation expenses and (e) leaseline charges. The Learned AO treated these expenditure as capital in nature and allowed depreciation @

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60% of the cost which was deleted by the Learned CIT(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 been decided in favour of the assessee in assessee’s 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 respectively 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 decision 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 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 assessee and the expenditure in question thus was incurred by the assessee on upgradation of ER.P as well as implementation thereon. As rightly submitted by the Id. Counsel for the assessee, the expenses incurred on upgradation of ERP 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 ERP 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 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 the ld. D.R. In our opinion, there is a difference between upgradation of ERP Software and purchase of ERP Software, inasmuch as

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the benefit of upgradation is only incremental, which is to the extent of additional features provided in the new version, while the same in the case of acquisition of new ERP package is full and completely new. Even this benefit is reflected in the price charge, inasmuch as the price charged for upgradation 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. 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 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 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 effectively and by applying the functional 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. We, therefore, direct the Assessing Officer to allow the deduction claimed by the assessee on account of expenditure incurred on upgradation of ERP and implementation thereof treating the same as revenue in nature.”

Respectfully following the aforesaid judicial precedent, we dismiss ground no.3 raised by the revenue.

6.1. The brief facts of this issue is that the Learned AO had allocated proportionate interest expenditure towards capital work in progress by holding that the assessee copany has taken borrowed capital for the purpose of capital work in progress. The assessee pleaded that the borrowings were specifically meant only for working capital requirements of the assessee company and not for capital expenditure. It was also argued that the assessee company has a clear laid down policy of allocating all expenses, direct and indirect including interest expenditure to capital work in progress

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/ fixed assets which is consistently followed and is thoroughly scrutinized by the auditors. In the current year, the Learned AO himself had noted that the assessee has allocated all direct and indirect cost, but not interest. 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 accept the contention of the assessee and disallowed part of the interest cost to the extent of Rs. 89,20,627/- on adhoc basis. This action of the Learned AO was deleted by the Learned CIT(A). Aggrieved, the revenue is in appeal before us on the following ground:- 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 further 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 purpose 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 record any specific borrowing which is utiised for capital work in progress. We also find lot of force in the arguments of the Learned AR that the assessee company had adequate 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 interest expenditure was incurred specifically for capital work in progress / fixed assets. It is cardinal principle of taxation law that the ordinary presumption of law is 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 following decisions :- • CIT vs Daulat Ram Rawatmull reported in (1973) 87 ITR 349 (SC) • Sukhdayal Rambilas vs CIT reported in (1982) 135 ITR 414 (Bom)

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We hold that the disallowance of interest has been made by the Learned AO merely based on surmise and conjecture. In view of the aforesaid facts and circumstances, we find no infirmity in the order of the Learned CITA in this regard. Accordingly, the ground no. 4 raised by the revenue is dismissed.

Sd/- Sd/- ( Mahavir Singh, Judicial Member ) (M. Balaganesh, Accountant Member) Date:

Date 13-4 -2016

Copy of the order forwarded to:-

1.. The Appellant/department: The DCIT, Cir-1,P-7 Chowringhee Square, Kol-69. 2 The Respondent/assessee: M/s. Exide Industries Ltd 59E Chowringhee Road, Kol-20. 3 /The CIT, 4.The CIT(A)

**PRADIP SPS

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