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2013 (1) TMI 109 - AT - Income TaxProvision for CISF security expenses - liability is in the nature of a contingent liability and cannot be allowed as a deduction for the AY 2007-08 - Held that - Perusal of records depicts that the liability to share the expenses for the security provided by NFC is an accrued liability. In fact NFC had raised bills and assessee paid for the same for the first two quarters for the relevant previous year but for the last two quarters for whatever reason the NFC has not raised bills and assessee therefore had to make a provision for the said expenditure. Similar expenditure has been claimed and allowed by the ITAT in assessee s own case for the AY 2003-04 following the decision of the Apex Court in case of Bharat Earth Movers v. CIT 2000 (8) TMI 4 - SUPREME COURT wherein held that once a liability has accrued then even if such liability can be quantified and settled only at future point of time is allowable deduction in the year in which the liability has accrued. Similarly Supreme Court in the case of Rotork Controls India (P.) Ltd. v. CIT 2009 (5) TMI 16 - SUPREME COURT OF INDIA had held that a provision made for warranty expenses even though will be actually expended at a later point of time is an allowable expenditure in the year of sale of product for which such warranty has been given The liability to pay security expenses to NFC accrued during the financial year and it was not contingent upon any other happening. The mere fact that it was not quantified during the year by way of raising of bills by NFC could not alter the fact that such liability even though on an estimated basis is an accrued and allowable liability. In the present case there is no dispute that the liability to share the expenses for security provided by NFC has accrued and pertains to the year under appeal. Therefore the estimated liability for such expenses provided for in the books of account by the assessee is an allowable expenditure - appeal of the Assessee regarding disallowance of 69 lakhs out of the provision made for their share of security expenses is allowed. Weighted deduction u/s.35(2AB) - Held that - As per the provisions of sec 35(2AB) as applicable to the relevant AY the expenditure incurred by the assessee in any approved in-house research facility to the extent of approved by the prescribed authority is entitled to weighted deduction of 150% of such approved expenditure. Therefore the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction. The DSIR in their certificate has certified expenditure eligible for weighted deduction as 3, 126.02 lakhs. Therefore it is not for either the assessing authority or the appellate authority to decide on the expenditure which will be entitled to weighted deduction u/s.35(2AB) - Uphold the decision of lower authorities in restricting the weighted deduction u/s.35(2AB) to 46, 89, 03 lakhs and disallowing sum of 1, 69, 73, 987 out of the claim made by the assessee. Disallowance of provision for wage revision arrears - Held that - As held in the assessee s appeal (supra) the liability to share the expenses for the security provided by NFC is an accrued liability. Hence the entire amount of 2, 62, 42, 012 claimed by the Assessee is an allowable expenditure.
Issues Involved:
1. Disallowance of security expenses. 2. Disallowance of weighted deduction under Section 35(2AB) of the Income Tax Act. 3. Disallowance of provision for wage revision arrears. Issue-wise Detailed Analysis: 1. Disallowance of Security Expenses: The assessee, a Central Public Sector Undertaking engaged in the manufacture and sale of electronic goods and components, claimed a deduction of Rs. 2,62,42,012 towards 'Provision for CISF security expenses.' The assessing officer disallowed this claim, considering it a contingent liability. The CIT(A) partially upheld this disallowance, restricting it to Rs. 69,00,000. The assessee argued that the liability was accrued and not contingent, referencing a similar claim allowed in the previous assessment year by the Tribunal. The Tribunal agreed with the assessee, citing precedents from the Supreme Court and previous Tribunal decisions, and allowed the entire claim of Rs. 2,62,42,012 as an accrued liability. 2. Disallowance of Weighted Deduction under Section 35(2AB): The assessee claimed a weighted deduction of Rs. 48,58,76,987 under Section 35(2AB) for R&D expenditure. The Department of Scientific and Industrial Research (DSIR) approved only Rs. 3,126.02 lakhs, leading to a deduction of Rs. 4,689.03 lakhs by the assessing officer. The assessee contended that DSIR had made an error by excluding certain capital expenditures and reducing the total expenditure by government grants. The Tribunal held that the quantum of eligible R&D expenditure certified by DSIR is final and cannot be altered by the ITAT. However, if DSIR corrects the amount, the corresponding weighted deduction should be granted. The Tribunal upheld the lower authorities' decision but allowed for future rectification by DSIR. 3. Disallowance of Provision for Wage Revision Arrears: The assessee made a provision of Rs. 10.64 crores for wage revision arrears, effective from 1.1.2007. The assessing officer and CIT(A) disallowed this provision, considering it contingent. The Tribunal, referencing Supreme Court decisions and accounting standards, held that the provision for wage revision arrears is an accrued and crystallized liability, even if quantified later. The Tribunal allowed the provision as an allowable deduction for the year under appeal. Separate Judgments: Assessee's Appeal (ITA NO. 1106/Hyd/2011): The Tribunal allowed the assessee's appeal regarding the disallowance of Rs. 69 lakhs out of the provision for security expenses and the provision for wage revision arrears. The appeal concerning the weighted deduction under Section 35(2AB) was dismissed but left open for rectification by DSIR. Revenue's Appeal (ITA 895/H/11): The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s partial relief to the assessee regarding security expenses. Conclusion: The Tribunal's judgment comprehensively addressed each issue, allowing the assessee's claims for security expenses and wage revision arrears while upholding the disallowance of the weighted deduction under Section 35(2AB) pending rectification by DSIR. The revenue's appeal was dismissed, affirming the CIT(A)'s decision.
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