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Income Tax Appellate Tribunal - Kolkata

M/S. Bata India Ltd., Kolkata vs Dcit, Circle-2(1), Kolkata, Kolkata on 6 September, 2019

IN THE INCOME TAX APPELLATE TRIBUNAL "C", BENCH KOLKATA BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.2255/Kol/2014 ( नधारणवष / Assessment Year:2008-09) M/s. Bata India Ltd. Vs. DCIT, Circle - 2(1) 6A, S.N. Banerjee Road, P-7, Chowringhee Square, Kolkata - 700 013. Kolkata - 700 069.

थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AABCB 1043 Q (Assessee) .. (Revenue) आयकरअपीलसं./ITA No.77/Kol/2015 ( नधारणवष / Assessment Year:2008-09) DCIT, Circle - 2(1) Vs. M/s. Bata India Ltd.

P-7, Chowringhee Square, 6A, S.N. Banerjee Road, Kolkata - 700 069. Kolkata - 700 013.

थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AABCB 1043 Q (Assessee) .. (Revenue) Assessee by : Shri Ajoy Vora, Sr. Adv., Shri Niraj Jain, Adv. & Shri S. Jhajharia, FCA Revenue by :Dr. P.K. Srihari, CIT (DR) सुनवाईक तार ख/ Date of Hearing : 27/06/2019 घोषणाक तार ख/Date of Pronouncement : 06/09/2019 आदे श / O R DE R Per Dr. A. L. Saini:

The captioned cross appeals filed by the Assessee and Revenue, pertaining to Assessment Year 2008-09, are directed against the order passed by the ld. Commissioner of Income Tax (Appeals)-VI, Kolkata, which in turn arise out of an assessment order passed by the Assessing Officer u/s 143(3)/144C(3) of the Income Tax, Act,1961 (hereinafter referred to as the 'Act'), dated 03.02.2012.

2.Since these cross appeals filed by the Assessee and Revenue for A.Y. 2008-09 pertain to the same assessee, identical issues are involved, therefore, these have M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.

3.The appeal filed by Revenue in ITA 77/Kol/2015, for Assessment Year 2008-09, is barred by limitation by 1day. The Revenue has moved a petition requesting the Bench to condone the delay.We heard the party on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal of Revenue for hearing.

4. First we take assessee`s appeal in ITA No. 2255/Kol/2014, for AY 2008-09, the grievances raised by the assesseeare as follows:

1.The learned Commissioner of Income-tax(Appeals)Vl, Kolkata [hereinafter referred to as the "CIT-(Appeals)"] erred in confirming the decision of learned Assessing Officer in not allowing a deduction of Rs. 82,71,000/- in respect of provision made in book of accounts and debited to Profit & Loss Account towards ascertained leave liability for the AY 2008-09 on the basis of actuarial valuation report following mandatory AS-15 ( Revised 2005 ) prescribed by ICAI, on the ground that such expenditure come within ambit of the provisions of Section 43B(f) of the Income-tax Act,1961(hereinafter referred to as 'the Act"), having failed to appreciate that provision made in book of accounts towards leave liability is in the nature of general trade liability and therefore, the same was allowable u/s 37 having regard to the ratio of the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. Vs. CIT reported in 245 ITR 428 (SC) and decision of the Hon'ble Calcutta High in the case of Excide Industries Ltd. Vs. Union of India reported in292 ITR 470 (Cal. HC).

2. The learned CIT (Appeals) erred in confirming the decision of learned Assessing Officer in not allowing 'Transitional Liability' of Rs. 85,34,740/-

provided in book of accounts and adjusted against Opening General Reserve as per Para 143 to 145 of AS 15 (Revised 2005), towards ascertained leave liability done by an outside actuary under mandatory AS 15 (Revised 2005) on employee benefits issued by ICAI, on the ground that such expenditure come within ambit of Sec 43B(f) of the Act.

3. For that in view of the facts and circumstances, the learned CIT (Appeals) erred in not holding that provision for leave encashment is neither a statutory nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s 43B(f) of the Act having regard to the ratio of the decision of Hon'ble Kolkata Tribunal in the case of Universal Cables Ltd. Vs. DCIT, ITA No. 954/Kol/2010, Order dated 29th April 2011 in the same issue which decision was binding upon him.

4 .The learned CIT (Appeals) erred in confirming that total provision towards leave encashment of Rs. 16,805,740/- is covered u/s 43B(f) in view of stay Page | 2 M/s. Bata India Ltd.

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Assessment Year:2008-09 granted /SLP accepted by Hon'ble Supreme Court against Calcutta High Court Order in the case of Excide Industries Ltd (supra) without appreciating the fact that interim order passed in the course of SLP hearing is not law and cannot supersede law pronounced by High Courts having regard to the ratio of the decision of the Hon'ble Supreme Court in the case of Kunhaymmed Vs. State of Kerala reported in 245 ITR 360 (SC) and Jurisdictional Calcutta High Court Order in the case of PijushKanti Chowdhury Vs. State of West Bengal (2007) 2 CaI LT 577, dated 14.05.2007.

5. The learned CIT (Appeals) erred in confirming the decision of learned Assessing Officer in not allowing 'Transitional Liability' provided in book of accounts and adjusted against Opening General Reserve as per Para 143 to 145 of AS-15 (Revised 2005), towards ascertained leave liability Rs. 85,34,000/- and towards ascertained gratuity liability Rs.3,32,38,000/- done by an outside actuary under mandatory AS-15 (Revised 2005) on employee benefits issued by ICAI, on the ground that such expenditures had not been debited in Profit and Loss Account for the financial year and cannot be reduced from current year`s profit for computation of Book Profit u/s 115JB.

6. The learned CIT (Appeals) erred in confirming the decision of learned Assessing Officer in assessing Rs.37,682,692/- (Consideration Rs.39,190,000 Minus 15,07,308/- VAT deposited) as income chargeable under the head long term capital gains accruing on transfer of 'Trade Marks' without appreciating that "Trade Mark" being a self generated asset and cost of improvement was not determinable and hence it could not be brought to tax under the head "Capital Gains" having regard to the decision of the Hon'ble Pune Tribunal in the case of "lnstitute For Micronutrient Technology Vs. Dy. ClT reported in 43 taxmann.com 426 (Pune. Trib).

7. The learned CIT (Appeals) erred in confirming the decision of learned Assessing Officer relying upon the CBDT Circular No. 338 , dated 18.02.1998 issued for inserting intangible asset i.e"a right to manufacture, produce, or process any article or thing "under Sec 55 (2)(a) and under Sec 55(1)(b) by Finance Act, 1997.

8. The learned CIT (Appeals) erred in not appreciating that in the assessee's case there was transfer of "Trade Mark", CBDT Circular No.14/2001, dated 09.11.2001 was applicable issued for changes made by Finance Act, 2001 in Sec 55(2)(a) in the "Cost of Acquisition" only and not u/s 55(1)b) relating to "Cost of Improvement", hence cost of improvement was not determinable and thus computation provision under head capital gains failed.

9. The learned CIT (Appeals) erred in disallowing 10% of Dividend Income of Rs.66,464/- on adhoc basis as expenditure incurred for earning dividend income of Rs. 6,64,638/- without appreciating the fact that in the assessee's case dividend income had been earned out of investments made in Mutual Fund and had been received through ECS with same Banker where the assessee is maintaining Current Accounts, therefor no disallowance u/s 14A.

10. The learned CIT (Appeals) erred in not allowing expenditure disallowed u/s 14A Rs. 66,464/- for computation of Book Profit u/s 115JB for Minimum Page | 3 M/s. Bata India Ltd.

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Assessment Year:2008-09 Alternate Tax and in view of the facts and in the circumstances it may kindly be held accordingly."

11.The appellant dines it self liable to be charged to interest u/s 234B of the Act, which under the facts and in the circumstances of the appellant`s case deserves to be cancelled.

Additional Grounds of Appeal:

"The Assessee prays for admitting an additional ground for allowing " Lease Rent Equalization, Rs. 39,718,000/-" disclosed under the head "Prior Period Items" in audited financials being impact on recognition of rent increases over the lease term on a straight line basis for business operating lease agreements entered on or after April, I 2001 and still in force, quantified pursuant to clarification issued by Expert Advisory Committee of ICAI on mandatory AS-19 (Leases -2001), which was neither claimed in Income Tax Return due to misconception/ not properly instructed nor issue of allow ability under the normal provisions of the Act was raised before lower authorities, however issue towards deduction of said amount for computation of book profit u/s 115JB was raised before AO, not allowed and subsequently decided in favour of assessee by CIT (Appeals)".

We note that Revenue is in appeal before us on the same identical issue, vide ground No. 5 raised by Revenue in ITA No. 77/Kol/2014 for A.Y. 2008-09. Therefore, we also adjudicate ground No.5 raised by the Revenue along with assessee`s additional ground under consideration.

Now we shall take these grounds one by one:

5. Ground Nos. 1 to 4 raised by the assessee relate to disallowance of provision for leave liability of Rs.82,71,000/- and disallowance of 'Transitional Liability' for leave provided, in the books of accounts at Rs. 85,34,740/-,and the said leave liability adjusted in the opening general reserve as per para 143 to 145 of AS-15 (Revised 2005). Thus, not allowing total leave encashment provision to the assessee at Rs. 1,68,05,740/- (Rs.82,71,000 +Rs. 85,34,740).

6. Brief facts qua the issue are that the assessee in the revised computation filed with the revised return of income has claimed deduction of Leave encashment at Rs. 85,34,740/-. The amount has been claimed as deduction, although the same have not been debited in the Profit & Loss account and the same have been adjusted against reserve & surplus as per the transitional provisions of Accounting Page | 4 M/s. Bata India Ltd.

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Assessment Year:2008-09 Standard-15 issued by the Institute of Chartered Accountants of India. The assessee has further submitted that such sum should be allowed by invoking the provisions of section 43B of the Act. Besides, a sum of Rs. 82,71,000/-, being a current year leave liability, has been debited in the Profit & Loss account. Although both the aforesaid sum has not been paid therefore the assessing officer was of the view that these leave liabilities cannot be allowed u/s 43B(f) of the Act and therefore, he disallowed the total leave liability of Rs. 1,68,05,740/- (Rs. 82,71,000+ Rs. 85,34,740).

7. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the addition made by the Assessing Officer. Aggrieved the assessee is in appeal before us.

8. Shri Ajoy Vora, Senior Advocate, begins by pointing out that during the relevant previous year, the assessee debited to the profit & loss account provision for leave encashment of Rs.82,71,000/- as per the consistent method of accounting followed therefor. In terms of Accounting Standard AS-15 (revised) on employees benefit which was made mandatory from accounting period commencing on or after 7.12.2006, the assessee recognized additional liability of Rs.85,34,740 ( vide clause-(d) of accounting policy forming part of Notes to financial statement (pg 130 of the paper book). The said additional liability was adjusted against the general reserve in the Schedule of Reserve & Surplus (pg 121 of the paper book) and not debited to profit and loss account. The said additional liability was claimed in the computation of income as deductible expenditure (pg. 62 of the paper book).

The assessing officer/CIT (A) disallowed deduction for provision for leave salary as also transitional liability on the ground that since the amount was not paid by the due date of filing of return of income, the same was hit by section 43B(f) of the Act.

Ld Counsel pointed out that provision for leave salary is ascertained liability as held by the Supreme Court in Bharat Earth Movers v. CIT: 245 ITR 248 (SC). The additional liability provided for during the relevant previous year pursuant to AS-

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Assessment Year:2008-09 15 (Revised) is, on the same parity of reasoning also in the nature of ascertained liability. Provision for leave salary as also the additional liability is not hit by section 43B(f) of the Act. Thereafter, ld Counsel took us to the provisions of section 43B of the Act, which reads as follows:

"Certain deductions to be only on actual payment.

43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-

..................................

(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.

Provided that nothing contained in this section shall apply in relation to any sum referred to in clause ( a) or clause (c) of clause (d) or clause (e) or clause (f) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. .................................................

Explanation 3B.-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (f) of this section is allowed in computing the income, referred to in section 28, of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 2001, or any earlier assessment year) in which the liability to pay such sum was incurred by assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of the previous year in which the sum is actually paid by him."

The ld Counsel pointed out that in the case of the assessee, the said accrued liability is not payable during the year since the leave policy of the assessee company does not provide for encashment of leave during service; the same can be availed only upon separation, such as, resignation of the employee. The 'provision of leave of encashment', represents the amount accrued and standing to the credit of the employees on account of outstanding leaves, which can be encashed by the latter only upon separation. Since the provision of leave encashment is in respect of employees who continue to be in service and have not resigned during the year, the amount in question, was "not payable" during the year. Accordingly, provision for leave encashment "not payable" by the assessee to its employees during the relevant year, does not fall within the ambit of section 43B(f) of the Act. It is reiterated as a matter of abundant precaution that no part of the provision made Page | 6 M/s. Bata India Ltd.

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Assessment Year:2008-09 during the year represents any amount payable to employees as on 31.03.2008. In other words, allowability of such provision, being in the nature of an accrued liability was not contingent upon actual payment during the relevant year. Accordingly, disallowance thereof is not warranted in terms of section 43B(f) of the Act and for that ld Counsel relied on the judgment of Hon`ble Andhra Pradesh High Court in the case of S.Subba Rao & Co. vs Union of India: [1988] 173 ITR 708 (Andhra Pradesh ).

However, ld Counsel, without prejudice to the aforesaid, submitted before the Bench that the Hon 'ble Calcutta High Court in the case of Exide Industries Ltd. vs. Union of India 292 ITR 470 (Cal), struck down the provision of clause (f) of section 43B of the Act, on the ground that the same was 'arbitrary, unconscionable and de hors the Hon'ble Apex Court ruling in case of Bharat Earth Movers. Although the Hon'ble apex Court vide order dated 08.09.2008 in SLP(C) CC No.12060/2008 "stayed" the judgment of the Hon'ble Calcutta High Court. Counsel further submitted that the Kolkata Benches of the Tribunal have in the following cases remanded the matter back to the file of the assessing officer to decide the issue afresh:

(i)Universal Cables Ltd. vs. DCIT: 68 SOT 307 (Kol-Trib)

(ii) CESC vs. DCIT (ITA 1304 & 1187/Ko1l2014.

9. On the other hand, ld DR for the Revenue submitted before the Bench that issue under consideration in the case of Exide Industries Ltd. vs. Union of India 292 ITR 470 (Cal) (supra), was the very legality of section 43B(f) of the Act. Therefore, the stay of Hon`ble High Court order in case of Exide Industries Ltd (supra) has wider ramification and its scope is not limited only to the parties to the suit. Therefore, the order of the High Court in case of Exide Industries Ltd (supra) is at present not operational. Rather, the provision of section 43B(f) of the Act is to be considered to be in force in view of interim order of Hon'ble Supreme Court. Considering this legal position, the interim order of Hon'ble Supreme Court should be followed and thus the addition made by the ld AO should be confirmed.

Page | 7 M/s. Bata India Ltd.

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Assessment Year:2008-09

10.We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that AO made the disallowance of Rs. 82,71,000/- towards leave liability. We note that a sum of Rs.82,71,000/- had been claimed towards leave liability, which had not been paid. Besides, the assessee had also claimed an additional leave liability of Rs.85,34,740/-, on account of adoption of AS-15 prescribed by ICAI regarding recognition of liability. We note that the Hon`ble Calcutta High Court has struck down provision of section 43B(f) of the Act, while deciding the case of Exide Industries vs. Union of India 292 ITR 470 (Cal).However, Revenue filed SLP against this order before Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of CIT vs. M/s Exide Industries Ltd. in SLP(Civil). CC 12060/2008 during hearing on 8.9.2008 gave the following order:-

"Upon hearing counsel the Court made the following order, issue notice, in the meantime. there shall be stay of the impugned judgment, until further orders."

The Hon'ble Supreme Court during the hearing in the same case further on 8.5.2009 held as under:-

"Upon hearing counsel the court made the following order:

Delay condoned, Leave granted, 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 of date is concerned, it would be open to the Department to recover that amount in case 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 would be entitled to make a claim in its return."

Therefore, it could be inferred that the Hon'ble Supreme Court had not stayed the judgment of the Calcutta High Court during Leave proceedings. But the Hon'ble Supreme Court had only passed an interim order on the impugned issue. We note that based on the identical facts, the Coordinate Bench of ITAT Kolkata in the case of SICPA Vs. DCIT 186 TTJ 289 (Kol-trib), has remitted the matter back to Page | 8 M/s. Bata India Ltd.

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Assessment Year:2008-09 the file of the assessing officer. Therefore, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the ld AO. Therefore, we set aside the order of ld CIT(A) and remit this issue back to the file of the assessing officer to pass order based on the outcome of the main appeal on merits by the Hon'ble Supreme Court as stated (supra).

11. Ground No. 5 raised by the assessee is as follows:

"5. The learned CIT (Appeals) erred in confirming the decision of learned Assessing Officer in not allowing 'Transitional Liability' provided in book of accounts and adjusted against Opening General Reserve as per Para 143 to 145 of AS-15 (Revised 2005), towards ascertained leave liability Rs. 85,34,000/- and towards ascertained gratuity liability Rs.3,32,38,000/- done by an outside actuary under mandatory AS-15 (Revised 2005) on employee benefits issued by ICAI, on the ground that such expenditures had not been debited in Profit and Loss Account for the financial year and cannot be reduced from current year`s profit for computation of Book Profit u/s 115JB."

12. The facts of the case which can be stated quite shortly are as follows: The assessee during the relevant previous year, changed its method of providing for liability in respect of gratuity payable to employees, based on actuarial valuation done as per Projected Unit Care Method. Accordingly, the assessee provided for transitional liability of Rs. 3,32,28,000/- on account of gratuity as per transitional provisions of Accounting Standard-15, which has been charged to general reserve forming part of reserve and surplus. The said amount of Rs. 3,32,28,000/- was claimed deduction in the revised computation of income (page 62-63 of the paper book) and the same has been allowed by the assessing officer while computing income under the' normal provisions of the Income Tax Act.The said amount of Rs. 3,32,28,000/- was also reduced from net profit as per the profit and loss account, in terms of section 115JB of the Income-tax Act, 1961, as supported by the Chartered Accountant certificate in Form No. 29B. Further, the assessee had also reduced the net profit as profit and loss account by the transitional / additional liability in respect of leave encashment provided to pursuant to change in the accounting method basis AS-I5 (Revised) of Rs.85,34,000/-. However, the assessing officer while computing book profit under section I15JB of the Act, had rejected the claim for reduction of profit as per the profit and loss Page | 9 M/s. Bata India Ltd.

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Assessment Year:2008-09 account in respect of transitional liability in respect of both, (a) gratuity of Rs. 3,32,28,000/- and (b) leave encashment of Rs.85,34,000/-

13. Aggrieved by the stand so taken by the assessing officer, the assessee carried the matter in appeal before the ld CIT(A), who has confirmed the action of the assessing officer. Aggrieved, the assessee is in appeal before us.

14.The ld Counsel submitted before us that the additional/ transitional liability of gratuity of Rs. 3,32,28,000/- and leave encashment of Rs.85,34,000/-, which were provided by the assessee in the books of accounts pursuant to change in the method of accounting basis AS-I5 (Revised), which became mandatory from 07.12.2006, therefore, it was a necessary charge on the profits in the year in which changed method of accounting was adopted. The ld Counsel further submitted that notwithstanding that the aforesaid amounts were adjusted against general reserve in the schedule of reserves and surplus appearing in the balance sheet and not debited to the profit and loss account, the same had necessarily to be reduced from the net profit shown in the profit and loss account for arriving at the book profit in terms of section 115JB of the Act.

15. Per contra, ld DR for the Revenue submitted before us that an item of expense which has not pass through the profit and loss account should not be used for computation of book profit under section 115JB of the Act. That is, it is mandatory condition that an item of expense should be debited in the profit and loss account to be qualified for adjustment to compute the book profit as per the scheme of section 115JB of the Act. In the assessee`s case under consideration, the assessee has not debited liability of gratuity of Rs. 3,32,28,000/- and leave encashment of Rs.85,34,000/- in the profit and loss account. The assessee has adjusted these liabilities in the general reserve, which is accumulated profit of the assessee in previous years, therefore, the assessee is not entitled to reduce the book profit under section 115JB of the Act. The Ld DR also submitted before us that section 115JB of the Act is itself a code therefore, the book profit under section 115JB must be computed by applying the provisions of section 115JB of the Act. The Page | 10 M/s. Bata India Ltd.

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Assessment Year:2008-09 provisions of section 115JB of the Act, nowhere states that transitional liabilities of gratuity of Rs. 3,32,28,000/- and leave encashment of Rs.85,34,000/-, as per provisions of AS-15 can be adjusted. The Book profit should be computed as per the scheme of section 115JB of the Act and not as per the provisions of AS-15. This way, ld DR prayed the Bench that action of the assessing officer should be upheld.

16. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. The solitary question before us is that whether transitional liabilities of gratuity of Rs. 3,32,28,000/- and leave encashment of Rs.85,34,000/-, as per provisions of AS-15, which is debited to General Reserve in the Balance Sheet, can be adjusted while computing book profit under section 115JB of the Act?

We note that as per the requirement of AS-15, the assessee is required to ascertain the liability towards employees' benefits which should have been recognized till date and the liability which has already been recognized in the books of accounts. If the difference i.e. the transitional liability is more than the liability that has been recognized as per the pre-revised AS-15, the enterprise is mandatorily required to immediately increase its defined benefit liability on the date on which the revised AS-15 has been adopted. In terms of revised AS-15, the transitional provision so provided can be accounted for under any of the following two alternative approaches:

(a) as an immediate adjustment against the opening balance of revenue reserves and surplus, or

(b) as an expense on a straight-line basis over / upto five years from the date of adoption of the Accounting Standard.

The change in the method of accounting pursuant to AS-15 (Revised) was duly highlighted in the Significant Accounting Policies forming part of the Notes to the Financial Statement of the assessee company (vide page 130 of the paper book).

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Assessment Year:2008-09 We note that Hon`ble Calcutta High Court in the case of Kanoi Paper Industries Ltd. vs. CIT: ITA No. 298 of 2004.(Cal) held that Notes to the Financial Statement are an integral part of the accounts and have to be read as part thereof and the AO can compute the book profit under section 115JA of the Act, taking into account the amount mentioned in the notes to accounts of these financial statements. The same view has been upheld by the Hon`ble Delhi High Court in the case of CIT vs. Sain Processing & Weaving Mills (P) Ltd. : 325 ITR 565 (Del). The Hon`ble Delhi High Court in the case of CIT vs. Khaitan Chemicals & Fertilizers Ltd: 307 ITR 150 (Del.), allowed adjustment for prior period and extra ordinary expenses shown separately in the profit and loss account while computing book profit under section 115JA of the Act. The Court noted that although the Accounting Standard (AS-5) indicated two approaches for accounting for prior period expenses, i.e., (i) the normal approach is to include prior period items in the determination of net profit or loss for the current period,

(ii) the alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. The Hon`ble Court held as follows:

"11. Paragraph 15 of AS-5, which has been extracted earlier, makes it clear that the nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the "current" profit or loss can be perceived. Two approaches have been indicated in paragraph 19 of the said accounting standard (AS-5). The normal approach is to include prior period items in the determination of net profit or loss for the current period. The alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. As indicated in the accounting standard, in either case, the objective is to indicate the effect of such items on the current profit or loss. It is obvious that because of the prescribed accounting standard which has to be followed by the assessee in view of the provisions of section 115JA(2) read with section 211 of the Companies Act, 1956, the assessee was required to show the prior period items/extraordinary items separately so that their impact on the current profit or loss could be perceived. The fact that the assessee adopted the alternative approach of showing such items in the statement of profit and loss after determination of current net profit or loss, does not mean that these items are not to be taken into account in computing net profit as envisaged in section 115JA of the said Act. Thus what the assessee had done was only to indicate prior period items/extraordinary items separately. This did not mean that the figure of net profit was to be arrived at dehors these items.

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Assessment Year:2008-09

17. Our view is fortified by the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Karnataka Soaps & Detergents Ltd, 59 taxmann.com 43, who allowed reduction of deferred revenue expenditure which was not debited to profit and loss account for purpose of computing book profit under section 115JA of the Act. The Hon'ble High Court observed as follows:

"16. ... ... .... When the assessee has actually incurred expenditure and the tax liability is less when compared with the net profit arrived at after giving deduction to the actual expenditure, the tax payable is on that net profit and not on the fancy figure shown in the Profit and loss account for the purpose of showing profit to the shareholders. In other words, to find out what is net profit one has to look into the books of accounts maintained by the company and the profit and loss account prepared on the basis of such books of account. What is shown in the printed balance sheet is for the benefit of the shareholders as it will not reflect the true state of affairs and that cannot be made the basis for levying tax under the Act. This is precisely what the Tribunal has held. Neither under the Companies Act nor under the Income-tax Act, this concept of deferred expenditure is recognized. That is a pathology used by the chartered accountants to show to the shareholders that the company has made profit though it has not earned profits. In other words, it is nothing but a window dressing and the authority should not be misled or guided by this balance sheet which is prepared to satisfy the shareholders. It is the profit and loss account prepared on the basis of the books of accounts as contemplated in Part 11 of Schedule VI which should form and assist to find out what is the profit earned and on that profit, tax is levied. "

On the identical facts, the Coordinate Bench of Kolkata in the case of J.K. Lakshmi Cement Ltd. vs. ACIT: ITA No. 1275/Kol/2010, held that brought forward losses/ unabsorbed depreciation adjusted against share premium amount pursuant to order passed by the High Court sanctioning the scheme of restructuring were not obliterated and that the assessee was entitled to deduction in terms of clause (iii) of Explanation to section 115JB(2) of the Act for lower of brought forward losses/ unabsorbed depreciation. It was observed by the Tribunal that the adjustment made for setting of brought forward losses / unabsorbed depreciation was merely a notional entry made in pursuance of the order of the High Court and the same, therefore, needed to be ignored for computing book profit under the said section.

Page | 13 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09

18. We note that section 115JB is a code itself to compute the book profit to determine and levy the correct income tax thereon therefore the Profit and loss account and Balance Sheet should be read together with notes to accounts. Notes to account contain off Balance Sheet items and off profit and loss items. Notes to accounts explain the figures of Profit and loss account and Balance Sheet therefore these are part of Profit and loss account and Balance Sheet. We note that in the following cases, it has been held that where an item of capital receipt not liable to tax was credited to the profit and loss account, the same needed to be reduced for purposes of computing book profit under section 115JB of the Act:

-J.C.T. Ltd. vs. DCIT: 253 ITR 61 (AT) (Cal)

-Kinetic Motor Co. Ltd. vs. DCIT: 262 ITR 330 (Born) [(SLP dismissed by SC) in 270 ITR (St.) 3]

-CIT v. Rubmain P. Ltd.: 312 ITR 18 (Guj.)

- Hindustan Pipe Udyog Ltd. vs. DCIT: 112 Taxman 66(Mag.) (Del) - affirmed in CIT vs. Hindustan Pipe Udyog Ltd: 360 ITR 437 (All.)

-Bombay Tyres International Ltd. vs. DCIT: 51 ITD 339 (Mum) Following the aforesaid principles, arrears of depreciation charged to the profit and loss account pursuant to change in the method of providing depreciation was held to be allowable deduction for computing book profit under sections 115J/JA/JB of the Act by the Hon`ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT : 255 ITR 273 (SC) and Malayala Manorama Co. Ltd vs. CIT : 300 ITR 251 (SC).The same identical facts were also discussed in the decision of the Coordinate Bench of ITAT Pune in the case of K..K. Nag Ltd vs. ACIT: 52 SOT 381, wherein the assessee had disclosed in the notes forming integral part of the audited financials, liability on account of leave encashment which was not debited to the profit & loss account. The said liability was, however, claimed as deduction for the purpose of computation of book profit under section 115JB of the Act. The Assessing Officer denied the claim of such reduction on the ground that the same was never debited to the profit & loss account. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.

Page | 14 M/s. Bata India Ltd.

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Assessment Year:2008-09 The Pune Bench of the Tribunal following the law laid down by the Hon'ble Delhi High Court in the case of CIT vs. Sain Processing & Weaving Mills (P) Ltd. : 325 ITR 565 (Del), reversing the order of the lower authorities held as under:

"12. In view of decision of Delhi High Court in the case of CIT vs. Sain Processing & Weaving Mills (P.) Ltd. [2009) 176 Taxman 448 once it is clear that the information towards incremental liability of leave encashment, which has not been provided in the Profit & Loss account, is otherwise disclosed in the Notes to the accounts, it would clearly fall within the ambit of Explanation 1 of the second proviso to section 115JB which defines 'book profits' to mean 'net profit' as 'shown' in the Profit & Loss account for the relevant previous year prepared under sub-section (2) of section 115JB. Notably, sub- section (2) of section 115JB imposes an obligation on every assessee to prepare a Profit & Loss account in the relevant previous year in accordance with the provisions of Parts II & III to Schedule VI of Companies Act, 1956. At this stage, it would also be pertinent to emphasize the provisions of sub-section (6) of section 211 of the Companies Act, which were referred to by the Delhi High Court in the aforesaid judgment. Sub-section (6) of section 211 provides that any reference to a balance sheet or Profit & Loss account shall include any Notes thereon giving information required by this Act or is allowed by this Act to be so given. Therefore, in view of the aforesaid statutory provision contained in Companies Act 1956, the impact is that the net profit as shown in the Profit & Loss account for the purposes of Explanation 1 to the second Proviso to section 115JB is to be understood with reference to the Notes to accounts accompanying the annual accounts also. In this view of the matter, the use of the expression 'net profit' in Explanation 1 to the second Proviso to section 115JB makes it clear that the impugned incremental liability towards leave encashment not debited to the Profit & Loss account but otherwise disclosed in the Notes to accounts will have to be taken into account while determining the 'book profits' under section 115JB. In other words, the liability towards leave encashment has to be considered to determine net profit as the information was disclosed in the Notes appended to accounts, which have been held to be part or the accounts or the assessee-company. Therefore, there is ample force in the plea of the assessee which is allowable having regard to the parity or reasoning laid down by the Delhi High Court in the case or Sain Processing & Weaving Mills (P.) Ltd. (supra)."

19. We note that AS-15 is mandatory for the assessee company to make the compliance with effect from 07.12.2006 therefore, the assessee company has to make provision in the books of accounts by following the AS-15 for transitional liability towards gratuity and leave salary. We note that from the aforesaid decisions referred to herein above, it follows that the net profit as per the profit Page | 15 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 and loss account prepared in accordance with Part II of Schedule VI to the Companies Act, 1956 is the starting point for computation of book profit under section 115JB of the Act. Where the profit and loss account is not strictly drawn up in accordance with Part II of Schedule VI to the Companies Act, 1956, the same is first to be adjusted to bring the same in line with the relevant provisions of the Companies Act; thereafter the adjustments enumerated in various clause of Explanation 1 to section 115JB of the Act are to be carried out. In that view of the matter, where the adjustment is of the kind to align the net profit as per the profit and loss account in accordance with Part II of Schedule VI to the Companies Act, 1956, the same has to be carried out, notwithstanding that such adjustment may not be within the scope of various clauses of Explanation 1 to the said section. As indicated in the accounting standard, in either case, the objective is to indicate the effect of such items on the current profit or loss. The fact that the assessee adopted the alternative approach of showing such items in the statement of profit and loss after determination of current net profit or loss, does not mean that these items are not to be taken into account in computing net profit as envisaged in section 115JB of the said Act. Profit and loss account and Balance Sheet should be read together with notes to accounts to compute the book profit under section 115JB of the Act. Notes to accounts are part of Profit and loss account and Balance Sheet. The liability towards leave encashment and gratuity has to be considered to determine net profit as the information was disclosed in the Notes appended to accounts, which have been held to be part of the accounts of the assessee-company. Notes to accounts explain the figures of Profit and loss account and Balance Sheet and off balance sheet items, therefore these are part of Profit and loss account and Balance Sheet. Therefore, the 'Transitional Liability' provided in book of accounts and adjusted against Opening General Reserve as per Para 143 to 145 of AS-15 (Revised 2005), towards leave liability Rs. 85,34,000/- and towards gratuity liability Rs.3,32,38,000/- done by an outside actuary under mandatory AS-15 (Revised 2005) on employee benefits issued by ICAI, should be reduced from current year`s profit for computation of Book Profit u/s 115JB of the Act. Therefore, considering the facts and circumstances narrated above and the case laws and judicial citations relied upon by the assessee, we note that notes to Page | 16 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 accounts are part of financial statements (Profit & Loss account and Balance Sheet, cash flow statement etc,) therefore the computation of book profit under section 115JB of the Act should be done taking into account the figures mentioned in the notes to accounts. Hence, we direct the assessing officer to allow deduction in respect of transitional provisions of leave liability of Rs. 85,34,000/- and gratuity liability of Rs. 3,32,38,000/- while assessing book profit u/s 115JB of the Income Tax Act.

20. The learned counsel informs the Bench that assessee does not want to press ground Nos. 6, 7 and 8 therefore, we dismiss ground Nos. 6, 7 and 8, as not pressed.

21. The learned counsel informs the Bench that assessee does not want to press ground No.9 due to smallness of amount therefore, we dismiss ground No. 9, as not pressed.

22. Ground No. 10 raised by the assessee relates to expenditure disallowed u/s 14A of Rs.66,464/-for computation of book profit u/s 115JB of the Act for minimum alternate tax.

The learned counsel submitted before us that this issue is squarely covered by the judgment of the Special Bench of the ITAT in the case of ACIT vs Vireet Investments (P) Ltd. 165 ITD 27 (Del Trib) (SB). Therefore, section 14A disallowance is not considered while computing book profit under section 115JB of the Act. However, ld DR for the Revenue nevertheless relied on the stand taken by the assessing officer.

23. We have given a careful consideration to the rival submissions and perused the material available on record, we note that the provisions relating to adjustments by way of increase and decrease to the net profit shown by the assessee in Profit & Loss Account, are very explicit in section 115JB of the Act. The items which are to be added to the net profit have been listed out in Explanation 1 to that section. The learned AO should adhere to that list and cannot travel beyond these items. Since there is no mention Page | 17 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 of Section 14A in the said Explanation 1 to Section 115JB, the same cannot be added to re-determine the quantum of "Book Profit". The provisions of section 115JB relating to computation of book profit are amply clear and unambiguous. These provisions do not leave any room for adjustment by the assessing officer other than those mentioned in Explanation 1 to section 115JB to the net profit reflected in the accounts of any assessee and adjustment by way of disallowance u/s 14A is not included in the said explanation. Therefore, such upward revision in the sum of Rs.66,464/- to the book-profit by making disallowance section 14A read with rule 8D is not permitted.

We note that same view have been taken by the jurisdictional High Court of Calcutta in the case of CIT vs. Jayshree Tea & Industries Ltd. vide GA No. 1501 of 2014, ITAT 47 of dated 19.11.2014, holding as under:

"We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 U/s. 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal."

We note that Coordinate Bench of ITAT Kolkata, in the case of DCIT vs. CBSC Ltd. ( I.T.A No. 1304 [ 2014] held as under:

"Respectfully following the orders of Hon'ble High Court and Special bench, (supra), We restore the matter to AO to Calculate the book profit u/s. 115JB of the Act as per the dictum of Hon 'b1e High Court. It is reiterated that the disal1wances made under the Provisions of Sec. 14A r.w.s 8D of the TT Rules, cannot be applied to the Provision of Sec. 115JB of the Act. Therefore, the AO shall work out disallowances in terms of the clause (f) to Explanation-1 of Sec. 115JB of the Act independently after considering the expenses debited in the profit & loss account as mandated under the provisions of law. Accordingly, this issue of assessee's appeal is allowed for statistical purpose."

Therefore, we direct the assessing officer to exclude the expenditure of Rs. 66,464/- while computing book profit under section 115JB of the Act.

24. Ground No. 11 raised by the assessee relates to interest u/s 234B of the Act. We note that this ground is premature and consequential in nature, therefore, does not require adjudication.

25. Additional Ground raised by the assessee is as follows:

"The Assessee prays for admitting an additional ground for allowing " Lease Rent Equalization, Rs. 39,718,000/-" disclosed under the head "Prior Period Items" in audited financials being impact on recognition of rent increases over Page | 18 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 the lease term on a straight line basis for business operating lease agreements entered on or after April, I 2001 and still in force, quantified pursuant to clarification issued by Expert Advisory Committee of ICAI on mandatory AS-19 (Leases -2001), which was neither claimed in Income Tax Return due to misconception/ not properly instructed nor issue of allow ability under the normal provisions of the Act was raised before lower authorities, however issue towards deduction of said amount for computation of book profit u/s 115JB was raised before AO, not allowed and subsequently decided in favour of assessee by CIT (Appeals)".

We note that Revenue is in appeal before us on the same identical issue, vide ground No. 5 raised by Revenue in ITA No. 77/Kol/2014 for A.Y. 2008-09. Therefore, we also adjudicate ground No.5 raised by the Revenue along with assessee`s additional ground under consideration.

26.The facts of the case which can be stated quite shortly are as follows: This issue relates to non- allowance of deduction on account of operating tease rent equalization of Rs.4,06,47,000/-. The issue is not discussed in the assessment order. As per facts narrated by the assessee, it had, in its computation of income, inadvertently added sum of Rs. 4,06,47,000/- relating to operating lease rent equalization included in rent. The said sum was charged in Profit& Loss account as per requirement of AS-19 (2001) issued by ICAI for accounting of operating lease in the books of lessee. The assessee company had, in view of theAS-19, decided to recognize the scheduled rent increase over the lease term on a straight- lining basis. The total impact of the same for the period up to 31.03.2007came to Rs.3,97,18,000/- which was disclosed as prior period item and the current year`s charge for the F.Y. 2007-08 at Rs.4,06,47,000/-. In the return of income filed for the AY 2008-09 the assessee inadvertently added back both prior period expense of Rs.39,718,000/- and the current year's expense of Rs.4,06,47,000/- while computing income under normal provisions of the Income-tax Act, 1961. In the course of assessment however the assessee claimed the deduction for the current year's expense of Rs.4,06,47,000/- before the Assessing Officer while assessing profits from the business. The AO however in his impugned order did not take any cognizance of the assessee's submissions and ignored the claim made by the assessee.

Page | 19 M/s. Bata India Ltd.

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Assessment Year:2008-09

27. Aggrieved by the stand so taken by the assessing officer, the assessee carried the matter in appeal before the ld CIT(A) who has admitted the claim of the assessee and allowed the claim of the assessee.

28. Ld Counsel for the assessee reiterated the submissions made before the ld CIT(A) and defended the order passed by the ld CIT(A).

29. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

30. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. The Ld Counsel submitted before us that during the financial year 2007-08 the Expert Advisory Committee of the Institute of Chartered Accountants of India had issued a clarification in respect of mandatory Accounting Standard-19 on accounting of operating lease rent expense. Pursuant to the said clarification the assessee was required to recognize in its annual audited accounts the scheduled rent increments over the lease term on a straight line basis in respect of all existing operating lease agreements remained in force on or after 2001. The assessee adopted the method prescribed in the Accounting Standard-19 for accounting of operating leases in the relevant year under consideration since the relevant clarification to AS-19 was issued by ICAI only in the relevant year. The assessee therefore had to compute the impact of such straight-lining of lease rent from 01.04.2001 up to 31.03.2007 which was determined at Rs.39,718,000/- and the same was accounted under the head 'Prior Period Expenses' in the Profit &Loss account. A further sum ofRs.40,647,000/- was determined as the current year's expense on account of straight-lining of lease rent which was debited to the Profit &Loss account. In the return of income filed for the A.Y. 2008-09, the assessee inadvertently added back both prior period expense of Rs.39,718,000/- and the current year's expense of Rs.40,647,000/-

Page | 20 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 while computing income under normal provisions of the Income-tax Act, 1961. In the course of assessment however the assessee claimed the deduction for the current year's expense of Rs.40,647,000/- before the Assessing Officer while assessing profits from the business. The AO however in his impugned order did not even take cognizance of the assessee's submissions and ignored the claim made by the assessee.

The ld Counsel further submits before us that assessee made a detailed submissions during the appellate proceedings about the mandatory Accounting Standard-19, issued by the Institute of Chartered Accountants of India. AS-19 requires that the operating lease expenses be recognized on a straight-line basis unless another systematic and rational basis is more representative of the time pattern in which use benefit is derived from the leased property, in which case that basis shall be used. Paragraphs 23 and 24 relate to payments of lease rental and view the matter from the lessee's perspective. The relevant extracts of Paragraph 23of AS-19 which lays down the accounting guideline for operating lease expenses from the standpoint of the 'lessee' is as follows:

"Lease payments under an operating lease should be recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the user's benefit."

Paragraph 24 of AS-19 explains the previous paragraph 23 and states that lease rental will be accounted on a "straight-line basis", unless another systematic basis is more representative of the time pattern of the user, even if the payments are not on that basis.

31. We note that Hon'ble Supreme Court explained the importance of mandatory accounting standards in the case of J. K. Industries Ltd. Vs UOI (297 ITR 776) wherein the Court held that the main object sought to be achieved by Accounting Standards which are now made mandatory is to see that accounting income is adopted as taxable income and not merely as the basis from which taxable income is to be computed. The Supreme Court explained its position by citing examples. In case of inventories, the valuation rules are laid down in the Accounting Standards which are followed in the determination of accounting income. Since Page | 21 M/s. Bata India Ltd.

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Assessment Year:2008-09 the income-tax law does not lay down any such rules, the tax authorities are not required to examine the computation of the valuation of inventories and its effect on computation of income. However, in case of depreciation on assets, different rules& accounting guidelines are laid down in the Accounting standards vis-a-vis Income-tax Act, 1961. Accordingly, in such cases the provisions & rules laid down in I.T Act, 1961 & I.T. Rules, 1962 are to be followed. The Apex Court observed that under Section 211 of the Companies Act, 1956 every company is mandatorily required to prepare its accounts in accordance with the Accounting Standard, presented by the Central Government in consultation with National Advisory Committee on Accounting Standards and at present the Accounting Standards prescribed by the Institute is deemed to be the Accounting Standards which are to be complied by all the companies. The Supreme Court therefore accorded judicial recognition to the accounting standards issued by ICAI and the profits determined in accordance with the accounting guidelines laid down by the prescribed accounting standards was held to be depicting true & fair state of affairs of a company for tax purposes. Accordingly, the Assessing Officer has to adopt the profit determined by the assessee company in consonance with the accounting standards while assessing taxable income if there is no explicit & contrary provision in the income-tax laws.

We note that this principle was reiterated by the Supreme Court in the case of CIT Vs Woodward Governor India (P) Limited (312 ITR 254) wherein it was held that the profits for income-tax purpose are to be computed in accordance with ordinary principles of commercial accounting unless such principles stand superseded or modified by legislative enactments concerning assessment of total income. Applying the ratio laid down by the Supreme Court in the above cited judgments, we note that the method of accounting followed by the assessee cannot be doubted unless it is contrary to the generally accepted accounting practices or if the same has been superseded or modified by a specific legislation brought about in the Income-tax Act, 1961. In the facts of the present case the assessee being a company followed mercantile basis of accounting and prepared its accounts in accordance with Section 211 of the Companies Act, 1956 and the notified accounting standards. It is by now well settled that matching principle of Page | 22 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 accounting ensures purity of Profit & loss Account and ensures true & fair ascertainment of income. Accordingly, in light of Guidance Note issued by EAC of ICAI and the accounting guidelines laid down in Paras 23 & 24 of AS-19, the assessee had changed its accounting treatment of operating leases expenses. In consonance with AS-19 the lease rent expenditure was recognized on a straight- line basis which was considered to be a more systematic and rational basis by accounting experts. On accounting of escalating rentals in the operating lease agreements, it led to creation of additional lease rental liability in the relevant year under consideration which was debited to the P&L A/ c under the head "Rent Straight-Lining". This accounting treatment was in sync accounting guidelines laid down by ICAI which the assessee was required to mandatorily follow. The profits so determined after accounting for the expense towards straight-lining of lease rentals reflected a better & accurate picture of the true commercial profits of the assessee company. In light of the law down by the Apex Court since there are no contrary or specific provisions in the Income-tax Act, 1961 in respect of accounting of lease rentals, the expenditure of Rs.40,647,000/- so recognized in the Profit &Loss account is deductible while computing profits of the business. We note that ld CIT(A) has rightly held that assessee is entitled to claim deduction of Rs.40,647,000/- on account of lease rent, observing the following:

"13.4. I have considered the facts of the case. The assessee had taken several assets on operating lease basis. In certain agreements, there was clause for scheduled increase in lease rent. Earlier, the assessee was not taking into account such scheduled increase while debiting the least rent. However, ICAI issued AS-19 for accounting of operating lease and a clarification relevant to the issue was issued in the year under consideration. As a consequence, the assessee had to compute impact of straight-lining of lease rent from 01.04.2001 to 31.03.2007 which was determined at Rs.3,97,18,000/- and the same was accounted under the head ' prior period expenses'. For the current year, a further sum of Rs.4,06,47,000/- was determined on such straight-lining. In his computation of return income the assessee added back prior period expenses at Rs. 3,97,18,000/- as well as current year's expense of Rs.4,06,47,000/-. Since the latter expense pertained to the year under consideration, the assessee was entitled to claim the sum in computation of taxable income. The assessee has claimed to have made such claim before the assessing officer. But the assessing officer has not discussed the same in the assessment order. As explained by the assessee, the clarification regarding AS-19 was issued by ICAI in July, 2007. Thus, the requirement of straight-lining the lease rent arose in the year under Page | 23 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 consideration. The assessee was thus justified to adopt straight-lining of lease rent during the year. The Karnataka High Court in the case of Prakash Leasing Limited vs. Dy. CIT (208 Taxman 464) held that as long as Central Government has not notified anything to the contrary, an assessee was well within its right to follow AS and to claim lease equalisation charges in accordance with the same. Similar view was expressed by the Hon'ble Delhi High Court in the case of CIT vs. Virtual Soft Systems Ltd 341 ITR 593. In the assessee's case, it has followed accounting standard issued by ICAI relating to operating lease. As a result of straight-lining recommended by the accounting standard, there was a requirement to make provisions for scheduled rent increase. Such provision relating to the year under consideration was of Rs. 4,06,47,000/-. The accounting standard was not in conflict with any provision of the Act or notification made by the Central Government u/s 145(2) of the Act. It is also not the case of the assessing officer that the system of accounting followed by the assessee was such that the correctness and completeness of accounts was to be doubted. Rather, the assessee has followed accounting standard issued by ICAI. The assessee had made the claim in the assessment proceedings and the assessing officer has neither allowed nor given reason for its rejection. In the remand report dated 03.01.2014, the assessing officer has objected to the assessee's claim on the ground that such claim was not made by way of filing revised return. Apparently, he intends to draw strength from the decision of the Hon'ble Supreme in the case ofGoetze India Ltd. 284 ITR 323, though he has not specifically mentioned the same. However, in the said decision itself, Hon`ble Supreme Court has clarified that the bar on claiming a deduction not claimed in the return does not apply on the appellate authority. In the decisions in the case of National Thermal Power Co Ltd. (supra) and Jute Corporation India Ltd. (supra) Hon'ble Supreme Court has held that appellate authority has power even to admit a claim not made in the proceedings before the lower authority. Power of CIT(A) to consider claim not made in the return has also been upheld in the decision of Delhi High Court in the case of CIT vs Jindal Saw Pipes Ltd. 328 ITR 338 and by Bombay High Court in the case of CIT vs Pruthvi Brokers and Shareholders P. Ltd. 349 ITR 336. It is also noted, that jurisdictional bench of tribunal, in the case of DCIT, Circle-50, Kolkata vs Ramesh Chandra Kedia ITA No. 2072/Kol/2007, has held after considering various decisions, including in the case of Goetze India Ltd. (supra) that CIT(A) has power to admit additional ground claiming relief not claimed in the return and without filing revised return, even if the same results in assessed income going below the returned income. In his report dated 3.1.2014, the assessing officer has not given any comment or adverse remark on merit of the claim and not pointed out any defect or shortcoming in the same. In the light of the facts discussed earlier, the assessee is entitled for deduction of Rs. 4,06,47,000/-. The assessing officer is directed to allow the same."

Page | 24 M/s. Bata India Ltd.

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Assessment Year:2008-09 We do not find any infirmity in the order of ld CIT(A) in allowing the claim of the assessee in respect of lease rent of Rs.4,06,47,000/-, therefore, we decline to interfere in the order of ld CIT(A), his order on this issue is hereby accepted and the ground No. 5 raised by the Revenue in ITA No.77/kol/2014, is dismissed.

32. Now coming to the additional ground raised by the assessee about "Lease Rent Equalization, Rs. 39,718,000/-" disclosed under the head "Prior Period Items" in audited financials being impact on recognition of rent increases over the lease term on a straight line basis.

33.We note that the assessee had taken certain assets for operating lease basis. In lease agreement there were clauses for scheduled increase in lease rentals, which was not taken into account by the assessee while declaring lease rent. Pursuant to clarification issued by the Institute of Chartered Accountants of India ("ICAI") in the context of Accounting Standard AS-19 for accounting for leases, the assessee had to compute the impact of straight lining of lease rent from 01.04.2001 to 31.03.2007 which was determined at Rs.3,97,18,000/-. The same was shown as 'prior period expenses' in the profit and loss account. Additionally, liability for the current year was debited to the profit and loss account in an amount of Rs. 4,06,47,000/-. The assessee had inadvertently added back the amount of Rs. 4,06,47,000 in the return of income but the same was subsequently claimed before the assessing officer during the course of assessment. The assessing officer omitted to deal with the said claim. The same was, however, allowed on appeal by the CIT(A) against which the Revenue has come up in appeal (S. No. 5 of Grounds of Appeal), which we have already adjudicated in para 31 of this order. In so far as the amount of Rs.39,718,000/- is concerned, assessing officer added back the same while computing book profit under section 115JB of the Act. The adjustment made by the assessing officer was deleted by the CIT(A) for which the Revenue is in appeal before us, vide S. No. 4 of Grounds of Appeal. The amount of Rs. 39,718,000/- was not claimed deduction while computing income under the normal provisions of the Act. The same is being raised by way of additional ground for the first time before this Tribunal.

Page | 25 M/s. Bata India Ltd.

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Assessment Year:2008-09 We note that the amount of Rs.39,718,000/- represents liability accrued during the year on account of change in the method of accounting for lease rentals pursuant to adoption of AS-19 issued by the Institute of Chartered Accountant of India. Although, the said amount represents the incremental liability of lease rent payable for the period 1.04.2001 to 31.03.2007, the same having accrued during the relevant previous year is allowable deduction notwithstanding that the liability may relate to earlier years. For this, we rely on the Judgment of Hon`ble Delhi High Court in the case of CIT vs. Whirlpool of India Ltd.: 242 CTR 245, allowed deduction for incremental liability for warranty on the basis of actuarial valuation relating to sales made in the earlier years, holding as under:

"20. The legal principle delineated in the aforesaid judgment would clearly demonstrate that whenever there is a warranty clause in the bulk product sold by the company/assessee to its customers, warranty provision can be made and it would not be treated as contingent liability. There is no quarrel to this proposition and in fact in this very case the assessee has been making the provisions for warranty every year which was accepted by the AO. The question that really calls for an answer is as to whether such a provision which has already been made in the previous years can be revised later on in a particular year as sought to be done by the assessee in the present case. Going by the reasons which justify making of such a provision and treating them as expenditure under s.37 of the Act, more particularly when it fulfils the accrual concept as well the matching concept, we see no reason as to why the assessee could be precluded from revising this provision after taking into consideration that warranty period of the goods sold under warranty was existing provision already provided in a particular year is falling short of the expected claims that may be received. It is, however, to be kept in mind that such a provision is based on scientific study and actuarial basis that is precisely done by the assessee in the instant case and, therefore, we see no reason to differ with the view taken by the Tribunal in the impugned order. "

34. We note that in the context of change in method of valuation of closing stock, the Courts have in the undernoted judgements held that the impact of the change had to be allowed deduction in the year in which the changed method was adopted for the first time:

- CIT v. Carborandum Universal Ltd. : [1984] 149 ITR 759 (Mad.) - SLP dismissed vide 187 ITR (St) 38;

- Melmould Corporation vs. CIT: [1993] 202 ITR 789 (Bombay) Page | 26 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 We note that Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd. vs. CIT: 213 ITR 523 held that:

"Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis."

In view of the aforesaid decision in law, the incremental liability on account of lease rental equalization provided for pursuant to the clarification issued by the Expert Advisor Committee of the ICAl, accrued during the relevant previous year and is allowable deduction in computing income for the said year, notwithstanding that such liability may relate to the earlier years. Therefore, we direct the assessing officer to allow the claim of the assessee in respect of lease rent of Rs.3,97,18,000/-.

35. In the result, the additional ground raised by the assessee is allowed.

36. Now we take Revenue's appeal in ITA No. 77/Kol/2015, for AY 2008-09.

37. Ground No.1 raised by the Revenue is as follows:

"That on facts and circumstances of the case Ld. CIT(A)-VI, Kolkata is not justified deleting the disallowance of Rs.2,38,21,194/- for delayed contribution to PF with considering the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Gujarat Road Development Corporation Ltd., Appeal No. 637 of 2013, which is favorable to the Department."

38. We note that issue raised by the Revenue in ground No. 1 above, is no longer res integra. Regarding disallowance of sum of Rs.2,38,21,194/- being the employees contribution towards PF which was deposited by the employer after their respective due dates. The Assessing Officer rejected the assessee's claim that the same had been paid beyond due date as envisioned in Section 43B of the Act. However, the assessee paid the PF and ESI before the due date of filing of return of income. The Ld. DR for the Revenue has submitted before us that the Assessing Officer has rightly rejected the assessee's claim that the sums had been paid before the due date of filing of return of income but in violation of Section 43B of the Page | 27 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 Act. The Ld. DR for the Revenue has stated that Section 43B does not apply in respect of employees' contribution towards ESI and PF. On the other hand, the Ld. Counsel for the assessee has stated that this issue had already been covered in assessee's favour by the judgment of Hon'ble Calcutta High Court in the case of CIT vs. M/s Vijay Shree Ltd. in I.T.A. No. 245 of 2011 dated 06.09.2011 reported as 224 Taxman 12(Cal)(Mag) wherein it has been held that there can be no disallowance of even the employees' share of contribution towards PF and ESI, if the same is paid before the due date of filing of return income. Similar view has been taken by the Uttarakhand High Court in the case of CIT vs. Kichha Sugar company Ltd. (2013). Though the Gujrat High Court in the case of CIT vs. Gujrat State Road Transport Corporation (2014) has held that the employees' share of contribution towards PF and ESI is not governed by Section 43B but it is governed by Section 36(1)(va) of the Act, but this is not the jurisdictional High Court of the assessee and therefore cannot be followed. Other High Courts which have held that the employees' contribution is also covered by Section 43B of the Act are as follows:

i) CIT vs. Aimil Ltd. (2010) 32 ITR 508 (Del)

ii) CIT vs. Nipso Polyfabriks Ltd. (2013) 350 ITR 326 (HP)

iii) CIT Vs. Sabari Enterprises (2008) 298 ITR 141 (Kar)

iv)EssacTeraoka (P) Ltd. Vs. DCIT (2014) 222 Taxman 170 (Kar)

39. Having heard the rival submissions, perused the material available on record, we note that the above issue is squarely covered by the Jurisdictional High Court, Calcutta (supra). Therefore, we are of the view that employees' share of contribution towards PF and ESI, if it is paid before filing of return of income then it would be a sufficient compliance of the Act. Accordingly, we dismiss the ground No.1 raised by the Revenue.

40.Ground No. 2 raised by the Revenue relates to disallowance of depreciation of Rs. 78,002/- on account of River Embankment under the block of assets building.

Page | 28 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09

41. The brief facts qua the issue are that the assessee has claimed depreciation on a river bank embankment and renovation thereof. The AO was of the view that a river bank embankment is neither building nor road, bridge, culvert etc. The business requirement of such embankment was also not clarified. Consequently, depreciation of Rs. 78,002/- was disallowed by AO.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the CIT(A) who has deleted the addition made by the AO. Aggrieved, the Revenue is in appeal before us.

We have heard both the parties and perused the material available on record, we note that the assessee is engaged in the business of manufacture of footwear. The factory of the assessee is located on the banks of river Ganges. In order to protect its factory building from floods, damp, erosion and/or any other forms of water damages, the assessee incurred expenses for river embankment and its renovation. Such costs were incurred wholly and exclusively for the business purposes of the assessee Since the costs incurred on river embankment yielded benefit of enduing nature, the entire expenditure was capitalized under the block 'Factory Building' and depreciation was claimed thereon under Section 32 of the Income-tax Act 1961. The ld Counsel submits that the expenditure on river embankment was incurred in AY 1997-98 and since then the depreciation has been claimed u/s 32 on the capitalized costs. In none of the earlier Years did the Department dispute the depreciation claimed by the assessee on the cost of river embankment. For the first time in AY 2005-06 the Department disputed the claim of depreciation on river embankment holding that it was neither a 'road', 'culvert' or 'bridge' so as to fall within the block of 'Factory Building' and accordingly disallowed the depreciation u/s 32 claimed thereon. Following the assessment order passed u/s 143(3) for AY 2005-06, similar disallowance was made by the AOs in AYs 2006- 07, 2007-08 and also the relevant year under consideration AY 2008-09. We note that this is a recurring issue in the assessee's case. Similar addition was deleted by the CIT(A)-, Kolkata in the appellate orders for the assessment years 2005-06 to 2007-08. Orders for the assessment years 2005-06 and 2006-07 have been upheld by this Tribunal vide order dated 23.05.2013 in ITA Nos. 1826, 1827 & 1828/Kol/2012. Respectfully following the decision of the Coordinate Bench in Page | 29 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 the assessee's own case, the ld CIT(A) deleted the disallowance of depreciation of Rs.78,002/-. That being so we decline to interfere on the order passed by the ld CIT(A), his order on this issue is hereby accepted and grounds of appeals raised by the Revenue is dismissed.

42. Ground No. 3 raised by the Revenue relates to payment of lumpsum royalty of Rs. 3,87,80,185/- as 'Capital Expenditure.

43.The brief facts qua the issue are that the assessee has claimed Rs. 3,87,80,185/- towards payment of royalty. The said sum was paid to following concerns:

     i.Wolverine Worldwise INC -                    Rs.    82,19,725/-
     ii. Wolverine INC -                            Rs. 1,02,14,190/-
     iii. School Ltd. -                             Rs.    42,97,852/-
     iv. SSL TTK Ltd. -                              Rs. 1,57,97,737/-
     v. Exchange Fluctuation Loss -                  Rs.     2,50,681/-
                                                     Rs. 3,87,80,185/-

The assessee claimed that the payment made to above concerns is on monthly and quarterly basis and hence it is a revenue expenditure only. However, the assessing officer was of the view that mode of payment for the period does not determine the nature of particular transaction and the relevant transaction can be considered as capital or revenue from a perusal of the relevant document, in connection thereof. On a perusal of the agreement with Wolverine Worldwide INC it was observed that the facility obtained by the assessee from the technical agreement was to help the assessee to run the business in a more competent manner. The payment has been made for availing the technical know-how and technical expertise and the use of the brand so owned by the provider which is mentioned in detail in sections II, III & IV of the agreement with such assessee. The AO further noted that since the pronouncement of technical know-how and technical expertise bestowed upon the assessee an enduring benefit, hence these expenses of Rs. 3,87,80,185/-should be treated as capital expenditure.

Page | 30 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09

44. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who is deleted the addition. Aggrieved, the Revenue is in appeal before this Tribunal.

45. At the outset, the ld Counsel submits that similar disallowance on the identical grounds and reasoning was made in AYs 2005-06 & 2006-07. In the orders of both these years royalty payments were disallowed by the AO treating it to be capital in nature. In appeal before the Tribunal, the assessee filed copies of the relevant licensing agreements and explained the manner in which royalty was calculated and paid. Taking into account the relevant clauses of the agreements and the facts involved in the assessee's case, the Tribunal held that the royalty paid was not in the capital nature but it was revenue in nature and thereby deleted the disallowances made in both the years. Copies of the relevant orders of the Tribunal are enclosed page 223 to 231 of paper book. It is also material to note that in the immediate preceding year i.e. AY 2007-08 the assessee had made similar royalty payments. The assessment for AY 2007-08 was framed u/s 143(3). In that year the Assessing Officer himself did not dispute that the expenditure on royalty payments was revenue in nature and no disallowance was made. Accordingly, even the AO, in the immediate preceding year, accepted that the royalty payments were not capital in nature and allowable as deduction from the profits of the business. The ld Counsel submits that during the relevant year it made royalty payments to the very same parties pursuant to same agreements or arrangements prevailing earlier. In this factual background, following the orders of the ITAT in assessee's own case for AY 2005-06 & 2006-07 and the Department's own stand in AY 2007-08, we note that the disallowance of royalty of Rs. 3,87,80,185/- made by the Assessing Officer in AY 2008-09 deserves to be deleted. Now, we deal with submissions of ld Counsel based on the consistency principle. It is a well settled legal position that factual matters which permeate through more than one assessment year, if the Revenue has accepted a particular's view or proposition in the past, it is not open for the Revenue to take a entirely contrary or different stand in a later year on the same issue, involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change Page | 31 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 in facts. For that we rely on the order of the Hon'ble Supreme Court in Radhasoami Satsang vs. CIT 193 ITR 321 (SC), wherein it was held as follows:

"We are aware of the fact that, strictly speaking, res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of lncome-tax in the earlier proceedings, a different and contradictory stand should have been taken."

We are of the view that the above cited precedents on principle of consistency are squarely applicable to the assessee under consideration. We note that in the immediate preceding year i.e. AY 2007-08 the assessee had made similar royalty payments. The assessment for AY 2007-08 was framed u/s 143(3),in that year the Assessing Officer himself did not dispute that the expenditure on royalty payments was revenue in nature and no disallowance was made. That being so we decline to interfere on the order passed by the ld CIT(A), his order on this issue is hereby accepted and grounds of appeals raised by the Revenue is dismissed.

46. Ground No. 4 raised by the Revenue relates to AO`s stand of not reducing the amount of Rs.5,02,54,168/- on account of 'prior period items' on computation of book profit u/s 115JB of the Act.

47. The brief facts qua the issue are that the assessee has claimed deduction of 'prior period item' of Rs. 5,02,54,168/-,in the computation u/s 115JB of the Act and have also claimed deduction on account of adjustment of leave and gratuity of Rs. 85,34,000/- and Rs. 3,32,38,000/- respectively. AO noticed that in the computation of 115JB, the adjustment allowed are only as per Explanation to Section 115JB and no other adjustments whatsoever in nature is allowed. Further, such adjustment is only be made to the P&L A/c as prepared as per part II & III of Schedule VI of the Companies Act, 1956, therefore, Rs. 5,02,54,168/- relating to prior period item does Page | 32 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 not fall under any of the items in the Explanation of Section 115JB and hence such amount cannot be reduced as claimed by the assessee. As regards the expenses adjusted through reserve & surplus being leave and gratuity since such items have not been passed through P&L A/c, there does not arise any question of reducing such sums as these also do not fall within the deduction items as provided in Section 115JB. Even otherwise, the claim has not been made in revised computation. Hence, these sums were not being allowed in computation of book profit u/s 115JB of the Act.

48. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has deleted the addition made by the AO. Aggrieved, the Revenue is in appeal before us.

49. We have heard both the parties and perused the material available on record, we note that this issue relates to the action of the assessing officer not reducing the amount of Rs. 5,02,54,168/- on account of prior period item from book profit u/s 115JB of the Act. The assessee had, in its return, claimed adjustment of Rs. 5,02,54,168/- in respect of prior period items. The assessing officer did not allow the same on the ground that the same was not permissible as per explanation to section 115JB of the Act. We note that assessee claimed adjustment of Rs. 5,02,54,168/- in respect of prior period items comprising of impact of lease rent equalization of Rs. 3,97,18,000/- and gratuity expenses of earlier years of Rs.1,05,36,000/- ,while computing book profit u/s 115JB of the Act. We note that assessing officer did not allow adjustment of the said sum of Rs. 5,02,54,168/- while computing book profit under section 115JB of the Act on the ground that the said amount was not debited to the profit and loss account. We note that ld CIT(A) held that the net profit was worked out after debit on account of prior period items and no adjustment to the profit as per the profit and loss account could be made unless specifically provided under any of the clauses of Explanation to section 115JB of the Act as held by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT: 225 ITR 273 .

Page | 33 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 We note that this issue is covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in the case of CIT vs. Khaitan Chemicals & Fertilizers Ltd: 307 ITR 150 (Del.) and it is also covered by the judgment of Hon`ble jurisdictional Calcutta High Court in the case of Kanoi Paper Industries Ltd. Vs. CIT: ITA No. 298 of 2004 (Cal), wherein the Court reversed the decision of the Tribunal with regard to deduction of prior period expenses charged to profit and loss account while computing book profit under section 115JA of the Act, holding as under:

"The second question which has been raised by the assessee, is with regard to the following findings of the learned Tribunal.

"16. The next grievance of the assessee related to not allowing deduction of prior period expenses of Rs. 1,28,986/-charged to the profit and loss account, while arriving at book profit Section 115JA.

17. We have heard the rival contentions. There is no adjustment as provided in Explanation to Section 1154JA which empowered either the A. O. or the assessee to tinker the profit with regard to the prior period of expenses charged to the profit and loss account. "

Mr. Khaitan submitted that this point is equally covered by a judgment of the Delhi High Court in the case of CIT vs. Khaitan Chemicals and fertilizers Ltd. reported in 307 ITR

150.... ..... ....

The prior period expenditure amounting to a sum of Rs.1,28, 986/- was already shown in the profit and loss account as per accounting standards. The learned Tribunal purported to disallow the aforesaid expenditure on the basis of a mistaken belief that the assessee was seeking adjustment of the aforesaid sum in computing the book profit but missed the fact that the expenditure had already been taken into account in computing the net profit....."

50. We further note that ld CIT(A) deleted the addition on account of adjustment made by the Assessing Officer on the 'prior period items' observing the following:

"16.2. It is seen, that in the P & L A/c prepared by the assessee, there is a debit on account of prior period items and net profit has been worked out thereafter. Thus, the net profit in the P & L a/c prepared by the assessee is after prior period items. In the light of the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra), no adjustment to the profit as per P & L A/c can be made unless specifically provided under any of the clauses of the explanation to section 115JB. Therefore, it is held that the Assessing Officer was not correct in disallowing such debit. The adjustment made by the Assessing Officer on the prior period items is accordingly deleted."

We do not find any infirmity in the order of ld CIT(A), his order on this issue is hereby upheld and grounds of appeals raised by the Revenue is dismissed.

Page | 34 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09

51. Ground No. 5 relates to deduction of Rs. 4,06,47,000/- on account of operating rent equalization amount. The additional ground raised by the assessee in his appeal in ITA No. 2255/Kol/2014 is identical to the ground No. 5 raised by the Revenue in its appeal, ITA No. 77/Kol/2015, therefore we have already adjudicated this ground along with additional ground of assessee`s appeal, vide para No. 30 and 31 of this order.

52. Ground No. 6 raised by the Revenue relates to exemption of Rs. 6,64,638/- on account of dividend income ignoring the fact that the assessee has never claimed such amount in its return of income.

We heard both the parties and perused the material available on record we note that the assessee had credited dividend income Rs. 6,64,638/- on which exemption u/s 10(34) of the Act had not been claimed. However, the said income was exempt from tax in view of section 10(34) of the Act. As per explanation 1 to section 115JB of the Act, profit shown in P&L A/c is to be reduced by the amount of income for which any of the provisions of section 10 (other than the provisions contained in clause (38 thereof) of section 11 or section 12 apply, if any such amount is credited to the P&L A/c. Therefore, the assessee is correct in claiming reduction in respect of dividend income. However, it may be mentioned, that as a logical consequence, expenditure relating to such exempt income is also to be added in view of clause (f) of explanation 1 to section 115JB. The expenditure pertaining to dividend income was taken by CIT(A) at 10% of dividend. Considering this, the Ld CIT(A) directed the assessing officer to reduce profit shown in the P&L account by 90% of dividend income, i.e. Rs. 5,98,174/-. We note that dividend income exempts in terms of section 10(34) of the Act therefore it should be excluded under normal computation provisions. It should also be excluded in computing book profit in terms of clause (ii) of Explanation 1 to section 115JB of the Act. Therefore, we direct the AO to exclude dividend income from normal computation as well as computation of book profit under section 115JB of the Act.

Page | 35 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09

53. Ground No. 7 raised by the Revenue relates to exemption/deduction on dividend/operating rent equalization without appreciating the fact that and settled legal position that the deduction/exemption are to be allowed by the respective assessee's and cannot be granted automatically.

We have already adjudicated this issue in ground No. 5 and 6 raised by the Revenue, therefore it does not require separate adjudication.

54. Ground No. 8 relates to contribution to Bata Workers Sickness Benefit Society of Rs. 59,54,147/-

55.We heard both the parties and perused the material available on record we note that this issue relates to disallowance of Rs.59,54,147/- on account of contributions to Bata Workers' Sickness Benefit Society. The assessing officer observed that Bata Workers' Sickness Benefit Society was not a body referred to section 36(1)(iv) or (v) of the Act and hence the expenditure was not allowable u/s 40A(9) of the Act. He therefore, disallowed the said contribution. On appeal, ld CIT(A) deleted the addition made by AO. Aggrieved, the Revenue is in appeal before us.

At the outset the ld Counsel submits that this issue stands squarely covered in favour of assessee by the decision of the jurisdictional Kolkata Bench of ITAT in assessee's own case in various earlier assessment years. One of the orders of the Kolkata Bench in assessee's case on the issue of allowability of contribution to BWSBS is reported in 85 ITD 257. Copy of which is also placed before the bench. It is further material to mention that the Department's appeal against the order of the Kolkata Tribunal has been dismissed by the Calcutta High Court which is reported in 167 CTR 14. In the circumstances and following the orders of the jurisdictional High Court and ITAT, Kolkata in assessee's own case, we note that the disallowance of Rs.59,54,147/- deserves to be deleted. Therefore, we do not find any infirmity in the order of ld CIT(A) in deleting the aforesaid addition, hence we confirm the order passed by the ld CIT(A) and dismiss the ground raised by Revenue.

Page | 36 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09

56. Ground No. 9 raised by the Revenue relates to transfer pricing adjustment of Rs. 4,50,658/-

57. We heard both the parties and perused the material available on record, we note that ground No.9 raised by the Revenue is related to addition of Rs.4,50,658/- on account of downward adjustment made by the TPO. The assessee had entered into a number of international transactions within the meaning of section 92B of l. T. Act, 1961. Reference was made by the assessing officer to the TPO. In her order, the TPO analysed the international transaction in the segment for export spare parts, import of chemicals and TSA fee. The average of comparable PLI cited by her was 7.4% (percentage of sales), whereas the PLI for the assessee company was 6.55%. According to the working made by the TPO, the ALP cost of goods and services came to Rs.2,44,31,005/- as against the transaction amount of Rs.2,48,81,663/-. Hence, vide her order dated 31.10.2011, the TPO recommended downward adjustment of Rs.4,50,658/-(Rs.2,48,81,663- Rs.2,44,31,005). On appeal, ld CIT(A) deleted addition. Aggrieved, the Revenue is in appeal before us.

58. We note that in the course of transfer pricing assessment, details/explanations in respect of international transactions were furnished by assessee. In the segment of export of spare parts, import of chemicals & ISA fees the assessee had benchmarked the value of the transactions with reference to Transactional Net Margin Method which is one of the prescribed method in I.T. Rules. The details of the transactions are as follows:

          Description                                         Amount (in Rs.)
          Import of Chemicals                                 23,65,657

          Fees for Technical Support Services paid            2,25,00,000

          Export of Spare Parts                               16,006

          TOTAL                                               2,48,81,663




                                                                                    Page | 37
                                                                       M/s. Bata India Ltd.
                                                 ITA Nos.2255/Kol/2014 & 77/Kol/2015
                                                             Assessment Year:2008-09

The assessee had used Operating Profit/Operating Cost ('OP/OC') as the Profit Level Indicator (PLI'). The OP/OC for the relevant year under consideration was determined at 7.02% and the PLI of the comparables was calculated at 6.40% using multiple year data. The TPO however rejected the use of multiple year data for determining the PLI of the comparables and required that single year data should be used. As required by the TPO, the assessee filed the computation of PLI of the comparables based on single year data which was computed at 8.22%. It was the assessee's contention that the PLI of the comparables was within the permitted range of +/ - 5% of the PLI of the assessee and therefore no adjustment was warranted. The assessee further submitted that the PLI of the comparables were subject to various adjustments on account of working capital, risk etc and once these factors are applied there shall be no difference in the PLI of the assessee vis-a-vis the comparables.

59. We note that the TPO however rejected both the contention and working of PLI, as made by the assessee. The TPO proceeded to make independent computation of the PLI of the comparables and also that of the assessee. On perusal of the Transfer Pricing Order dated 31.10.2011, it will be noted that the TPO determined the PLI of the comparables at 7.47% and that of the assessee at 6.55%. Based on the PLI of the comparables, the arm's length value of the transactions was determined at Rs.2,44,31,005/-. In the TPO's view the arm's length value of payments made to AEs on account of import of chemicals, TSA fees and spare parts is at Rs.2,44,31,005/- and not the actual transaction amount of Rs.2,48,81,663/-. Accordingly, the difference of Rs.4,50,658/ - was the downward adjustment proposed by the Transfer Pricing Officer.

We note that the downward adjustment of Rs.4,50,658/ - proposed by the TPO was in gross violation of the provisions of second proviso to Section 92CA of the Income-tax Act, 1961. Without prejudice to the assessee's claim for use of multiple year data for determining PLI of the comparables, making functional & working capital adjustments to the PLI and the manner in which PLI was worked out by the Transfer Pricing Officer, at the very onset it is submitted that going by Page | 38 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 TPO's own computation of the arm's length value of the transactions, the arm's length price was within the prescribed range of +/- 5% of the actual transaction amount. Attention in this regard is invited to the second proviso of Section 92CA of the Income-tax Act, 1961 which reads as follows:

"Provided further that if the variation between the arm's length price so determined and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's length price."

60. Applying the above provisions to the facts involved in the present case, the arm's length price of the transaction and the permitted range is as follows:

        Description                                                        Amount(in INR)
        Actual Value of the international transactions with AEs            2,48,81,663
        Arm's Length Value as determined by the TPO                        2,44,31,005
        +5% of the Actual Value of Transaction                             2,61,25,746
        -5% of the Actual Value of Transaction                             2,36,37,579
        Whether the arm's length price is within the range                 Yes, within range

On perusal of the above table it is evidently clear that the arm's length value the transactions as computed by the TPO at Rs.2,44,31,005/- is within the permitted range for variation of +/ -5% of the actual value of the transaction. However in the order passed u/s 92CA(2) and the impugned order u/ s 143(3) neither the TPO nor the AO took into consideration the provisions of Section 92C of the Income-tax Act, 1961 and failed to appreciate that since the actual value of the transactions was within the permitted variation from the arm's length price so determined, the downward adjustment of Rs.4,50,658/- was totally unwarranted. It is important to note that the benefit of variation of +/ -5% of the price at which transaction was actually conducted is available to each and every tax payer, for that we rely on the judgment of the Coordinate Bench of Mumbai in the case of Tecnimont ICB (P) Limited Vs Dy. CIT (37 taxmann.com 475). In view of the above we that the PLI i.e. OP/OC of the assessee was determined by the TPO at 6.55% whereas the PLI of the comparable was 7.47%. Out of the total Page | 39 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 operating cost, the value of the transactions with the AEs was Rs.2,48,81,663/-. The arm's length value as determined by the TPO was Rs.2,44,31,005/-. Applying the benefit accorded to the assessees in the second proviso to Section 92CA, it is clearly evident that the arm's length price is within the permitted variation of + (-) 5% from the actual value of transactions and therefore the impugned addition of Rs.4.50,658/- has rightly been deleted by the ld CIT(A) observing the following:

"7.2. I have considered the facts of the case. The ALP for cost of goods and services computed by the TPO was of Rs. 2,44,31,005/- on the basis of arithmetical mean of PLI of eight comparables, whereas the transaction amount was of Rs.2,48,81,663/-. The computation of ALP is to be made in accordance with the provision of section 92C of the Income Tax Act, 1961. The provision, as it stood in the year under consideration, stipulates that:-

"where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean."

Consequently, if the variation between the arithmetical mean and the transaction value was less than 5%, no adjustment was required to be made to the transaction value. It can be seen that the variation between arithmetical mean determined by the TPO and the transaction value is less than 5%. Considering this, no adjustment was to be made in the assessee's case. Considering this, the addition of Rs.4,50,658/- is deleted."

We do not find any infirmity in the order of ld CIT(A). That being so we decline to interfere in the order passed by ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue is dismissed.

61. Ground No. 10 relates to allowance value added tax from sales consideration while computing capital gain.

62. The facts of this issue may be stated quite shortly as follows: The assessee had sold its trade-mark known as 'Hawaii' during the year. In computation of capital gain arising from the same, the assessee had reduced VAT charged on the same. The assessing officer was of the view that since the cost of the asset sold was nil and the expenditure on VAT was not connected with transfer of assets per se, the Page | 40 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 same was not a deductible expenditure. He accordingly disallowed the same. On appeal ld CIT(A) deleted the addition. Aggrieved, the Revenue is in appeal before us.

63. Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

64. On the other hand, ld Counsel for the Assessee submitted that during the year under consideration, the assessee sold one of its registered trademark 'Hawaii' for a consideration of Rs. 3,91,90,000/- and paid VAT of Rs.15,07,308/- to the State Government on sales consideration. Since, VAT was paid wholly and exclusively in connection with the transfer of the trademark, the said amount was claimed as deduction under section 48 of the Act from the full value of consideration while calculating taxable capital gains. In terms of the provisions of section 48(i) of the Act, expenditure incurred wholly and exclusively in connection with the transfer of the capital asset is required to be reduced from the sales consideration for the purpose of computing capital gains. The payment of VAT was imperative in the transaction for sale of the trademark; without payment of VAT, the transfer of trademark could not be effected. In that view of the matter, such payment being expenditure incurred wholly and exclusively in connection with the transfer of trademark was required to be deducted from the sale consideration. In view of the aforesaid, it is submitted that the CIT(A) was right in allowing deduction of V AT paid in connection with transfer of a capital asset. In view of the aforesaid, the order passed by the CIT(A) deleting the aforesaid disallowance deserves to be upheld.

65. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that in the year under consideration the assessee had sold one of its registered trademark' Hawaii' for a Page | 41 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 consideration of Rs. 3,91,90,000/- and paid VAT of Rs.15,07,308/- to the State Government on the sale consideration. Since the VAT was paid wholly and exclusively in connection with the 'transfer' of the trademark 'Hawaii', the said amount ofRs.15,07,308/- was claimed as deduction u/s 48 of the Act from the full value of consideration of the brand sold. The Assessing Officer however failed to correctly appreciate the nature of claim of the assessee and disallowed the same while assessing the capital gains on sale of brand/trademark. The AO observed that the brand which was sold had been developed in-house by the assessee and therefore did not have any 'cost of acquisition'. The AO held that cost of such capital asset was to be deemed as 'NIL' and therefore expenditure on VAT could not be allowed as deduction while computing capital gains. The AO alleged that the VAT payment was neither an expenditure to improve the title of the asset nor expenditure was incurred in connection with transfer of capital asset.

We note that the AO had rightly observed that the 'cost of acquisition' of the in- house built brand was NIL. The AO however erroneously concluded that since the cost of acquisition is NIL, the VAT payment was not permissible as deduction from the full value of consideration. The assessee submits that the deeming fiction created by Section 55(2)(a) was applicable only to the 'cost of acquisition' of the capital asset and the same could not be extended to the 'expenditure wholly incurred in connection with transfer of the capital asset '. Section 48 of the Income-tax Act, 1961 clearly states that the 'full value of consideration' received or accrued in respect of a capital asset shall stand reduced by the expenditure incurred wholly and exclusively in connection with such transfer'. Section 55 defines only the manner in which 'cost of improvement' & 'cost of acquisition' has to be computed in relation to certain capital assets but not 'expenditure incurred wholly and exclusively in connection with the transfer' of any capital asset. Even in the provisions of Section 55, only clause (2) provides that the 'cost of acquisition' in respect of trademark/ brand name which has been developed in- house shall be taken at 'NIL'. However, no such provisions are contained in clause(1) of Section 55 which deals with 'cost of improvement'. Meaning thereby an assessee is entitled to claim deduction in respect of both 'cost of improvement' Page | 42 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 and 'expenditure incurred wholly and exclusively in connection with transfer' of brand name whose 'cost of acquisition' is taken at NIL under the provisions of Section 55(2)(a) of the Income-tax Act, 1961.There is no provision in the Chapter

- IV 'Computation of Capital Gains' which prohibits the assessee to claim deduction in respect of 'cost of improvement' and 'expenditure incurred wholly and exclusively in connection with transfer' whose cost of acquisition is deemed to be NIL. It is therefore submitted that the basic premise of the Assessing Officer based on which he alleged that the assessee was not entitled to claim deduction in respect of VAT paid as 'cost of improvement' and/ or 'expenditure incurred wholly and exclusively in connection with transfer' is found to be false.

We note that in terms of the statutory provisions of State Value Added Tax Act, assessee was legally obliged to pay VAT Rs.15,07,308/- which it had paid. Levy of VAT was a direct incidence against the vendor of the trademark. Since in the present case, assessee was the transferor/seller of the said trademark, the assessee alone had legal obligation to pay the VAT and which the assessee discharged. The assessee submits that it was a statutory & compulsory charge imposed by the State Government which was required to be discharged in order to ensure proper transfer of title in the trademark sold to the transferee. It is submitted that sale of intangible assets are also subjected to State VAT laws wherein Valued Added Tax is levied on the gross sale value of the intangible. The assessee did not have an option to pay or not to pay the VAT on sale of intangible. The VAT payment has to be compulsorily made by each person who sells or transfers any "goods" including corporal rights and the duty of making compliance with the taxing statute under the VAT is on the seller/ vendor or the transferor. As stated in the foregoing, the VAT is levied at the time of sale. Meaning thereby the assessee has to pay the statutory levy at the time of "transfer" of intangible to the transferee. Therefore, the said expenditure was incurred wholly and exclusively in connection with the transfer of capital asset and was hence allowable as deduction under Section 48 of the Income-tax Act 1961. For that we rely on the Judgment of the Hon'ble Bombay High Court in the case CIT Vs Smt. Shakuntala Kantilal (190 ITR 56) which explained the scope of the phrase 'expenditure incurred wholly and Page | 43 M/s. Bata India Ltd.

ITA Nos.2255/Kol/2014 & 77/Kol/2015

Assessment Year:2008-09 exclusively in connection with transfer' used in Section 48 of the Income-tax Act, 1961. The Court held that so far as clause (i) of section 48 is concerned, the expression used by the Legislature in its wisdom is wider than the expression 'for the transfer'. The expression used in the section is 'expenditure incurred wholly and exclusively in connection with such transfer'. The expression 'in connection with such transfer' is certainly wider than the expression 'for the transfer'. We note that ld CIT(A) has passed the order, observing the following:

"11.2. I have considered the facts of the case. The assessee had, during the year, transferred its registered brand / trade-mark 'Hawaii' for a consideration of Rs.3,91,90,000/- on which VAT of Rs.15,07,308/- had been paid to the state government. Since the said brand has been developed by the assessee itself, its cost of acquisition was nil. However, in its computation of capital gain the assessee had, from the consideration received, reduced the amount of VAT. It is clear that VAT have been paid in respect of sale of the assessee's trade-mark. The assessee was statutorily required to pay VAT on the sale consideration received. Therefore, the expenditure was directly related with transfer of the asset namely trade-mark. I do not agree with the assessing officer's view that the expenditure on VAT was not related to transfer of trade-mark. Rather, the VAT was directly related to sale of trade-mark and was to be necessarily paid. Thus, this is an expenditure directly related to transfer of asset and hence deductible from sale of consideration in view of clause (i) of section 48. The disallowance of Rs.15,07,308/- is accordingly deleted."

That being so, we decline to interfere in the order passed by ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue is dismissed.

66. In the result the appeal filed by the Assessee is allowed and the appeal filed by the Revenue is dismissed.

                           Order pronounced in the Court on 06.09.2019



        Sd/-                                    Sd/-
 (A. T. VARKEY)                             (A.L.SAINI)
  या यकसद य / JUDICIAL MEMBER               लेखासद य / ACCOUNTANT MEMBER
 दनांक/ Date: 06/09/2019
(Biswajit, Sr.PS)
                                                                                      Page | 44
                                                                  M/s. Bata India Ltd.
                                            ITA Nos.2255/Kol/2014 & 77/Kol/2015
                                                        Assessment Year:2008-09

Copy of the order forwarded to:
1. M/s. Bata India Ltd.
2. DCIT, Circle - 2(1), Kolkata.
3. C.I.T(A)-                           4. C.I.T.- Kolkata.
5. CIT(DR), KolkataBenches, Kolkata.
6. Guard File.


       True copy
                                                                 By Order


                                                      Assistant Registrar
                                                    ITAT, Kolkata Benches




                                                                            Page | 45